Foreign investment update - Investment Canada Act filings in the second quarter of 2010

Mon, 30 Aug 2010 18:49:54 GMT

In the second quarter of 2010, the Investment Review Division of Industry Canada (IRD) received approximately 142 notifications in respect of the acquisition or establishment of Canadian businesses pursuant to the Investment Canada Act (ICA). In addition, three Ministerial decisions based on applications for review were made in the second quarter of 2010. By way of contrast, in the full 2007 year, likely a high water mark for foreign investment in Canada, approximately 676 notifications and 62 Ministerial decisions based on applications for review were made. Meanwhile, only seven Ministerial decisions based on applications for review have been made in the first half of 2010.

The key distinction between an application for review and a notification is that an application for review requires that a foreign investor establish for the Minister of Industry (or the Minister of Heritage in the case of cultural businesses) that a proposed investment is of "net benefit to Canada". This is usually achieved by providing binding undertakings to the Minister in respect of the future conduct and management of the Canadian business. A notification does not trigger any approval requirements and is largely an administrative formality. Applications for review are usually triggered by large, direct acquisitions of Canadian businesses.

Meanwhile, amendments to the Investment Canada Act, not yet implemented, will alter the thresholds at which an application for review is triggered. It is not yet known what specific impact the change in thresholds will have on the number of applications for review filed. It is anticipated, however, the amendments will decrease the number of such applications, leaving only the largest investments in Canadian businesses as subject to approval under the economic review provisions of the Investment Canada Act.

In terms of acquisitions of Canadian cultural businesses, a significantly restricted area for foreign investment, the website of the Department of Canadian Heritage - Cultural Sector Investment Review (CSIR) suggests that two Ministerial decisions (in relation to the establishment of a Canadian order fulfillment centre by Amazon.com, Inc. and the Icahn Group’s proposed acquisition of Lions Gate Entertainment Corp.) and only three notifications were made in respect of the acquisition or establishment of cultural businesses in the second quarter of 2010.

California Supreme Court Limits Pass-on Defense

Fri, 27 Aug 2010 22:55:36 GMT

On July 12, 2010, the California Supreme Court addressed the issue of “whether under the Cartwright Act an antitrust defendant can defeat liability by asserting a pass-on defense.” Clayworth v. Pfizer, Inc., No. S166435, 2010 WL 2721021 (Cal. July 12, 2010). The Cartwright Act is California’s state antitrust law. Unlike federal law, which limits antitrust damage claims to “direct purchasers,” the Cartwright Act allows indirect purchasers as well to sue on antitrust claims. In a unanimous decision, the California Supreme Court held consistent with federal law that California law bars a pass-on defense in most circumstances, even though both direct and indirect purchasers may sue for treble damages.

Defendants in antitrust lawsuits are typically accused of illegally conspiring to fix prices and overcharging for their products. Direct purchasers of the defendants’ products, such as dealers or distributors, may pass on such overcharges to indirect purchasers, such as consumers. The defendants usually argue that as the result of passing on the overcharges, the claimant has not suffered any injury, hence, not sustained any damages. This defense seeks to prevent duplicative recoveries, against claimants who have passed on the alleged overcharges.

Under the federal antitrust enforcement scheme, pass-on defense is barred and only direct purchaser plaintiffs are permitted to seek damages. In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), the United States Supreme Court held that federal antitrust defendants generally may not assert a pass-on defense, because even a direct purchaser who passes on an overcharge, will likely be damaged in other ways by defendants’ violation of antitrust law. The Court stated that permitting a pass-on defense would potentially bar the direct purchasers from recovery and would consequently affect their decision to bring suits. Such a dynamic may compromise enforcement of the antitrust laws. The Supreme Court has also held that indirect purchasers could not bring private treble damages actions under the federal antitrust laws. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

Since 1907, California has had its own antitrust law, the Cartwright Act (Bus. & Prof. Code § 16700). After Illinois Brick, California amended the Cartwright Act, specifically permitting indirect purchasers to sue for damages. Therefore, unlike federal law, California law allows both direct and indirect purchasers to sue for damages.

In Clayworth, plaintiffs, retail pharmacies, bought prescription drugs from pharmaceutical manufacturer defendants. Plaintiffs alleged that defendants violated the Cartwright Act by conspiring to keep the prices of brand-name drugs artificially high. Additionally, the plaintiffs sued for injunctive relief and restitution under the Unfair Competition Law (“UCL”). Under Proposition 64, the voters’ 2004 initiative, a UCL plaintiff lacks standing unless he can show that he “suffered injury in fact and has lost money or property” as a result of unfair competition. (Bus. & Prof. Code § 17204.)

Defendants asserted the pass-on defense on the basis that the plaintiffs had sustained no damages by passing on the alleged increased costs to their own customers. The trial court granted summary judgment for the defendants because the pharmacies had sustained no apparent damages. The California Court of Appeal affirmed. But, the California Supreme Court reversed.

The Court held that the fact that plaintiffs mitigated the damages by passing them on to their customers does not prevent them from having standing in this case and does not defeat their UCL claim:

"While Manufacturers argue that ultimately Pharmacies suffered no compensable loss because they were able to mitigate fully any injury by passing on the overcharges, this argument conflates the issue of standing with the issue of the remedies to which a party may be entitled. That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them . . . The doctrine of mitigation, where it applies, is a limitation on liability for damages, not a basis for extinguishing standing."

Furthermore, the Court held that in most instances, there is no pass-on defense. Also, it allowed the indirect purchasers to sue for damages. The ruling somehow allows duplicative recovery: first by allowing direct purchasers to sue, with no pass-on defense; and then by allowing indirect purchasers to sue. The Court acknowledged existence of this risk, but stated that barring the pass-on defense would provide “maximum deterrence” from future antitrust violations; and this objective is in harmony with the legislature’s intention.

However, the Court identified potential exceptions where the pass-on defense might be allowed: (1) “cost-plus” contracts, an exception recognized in Hanover Shoe; and (2) situations raising the prospect of duplicative recovery. With respect to the “duplicative recovery” exception, the Court stated:

"[I]n light of the Illinois Brick repealer statute …, cases may arise where application of the Hanover Shoe rule raises the prospect of duplicative recovery. In instances where multiple levels of purchasers have sued, or where a risk remains they may sue, trial courts and parties have at their disposal and may employ joinder, interpleader, consolidation, and like procedural devices to bring all claimants before the court. In such cases, if damages must be allocated among the various levels of injured purchasers, the bar on consideration of pass-on evidence must necessarily be lifted; defendants may assert a pass-on defense as needed to avoid duplication in the recovery of damages."

The Court commented, however, that it “need not address in detail the scope of these two exceptions, for neither applies here.”

It remains to be seen whether the California Supreme Court’s decision will reduce the use of the pass-on defense. The decision does not bar the defense rather it identifies exceptions that are likely to be raised by defendants in the future. In particular, the second exception recognized by the Court – for cases involving even the “risk” of “duplicative recovery” will be present in a wide variety of cases, and courts will have to resolve numerous questions about its application, including: (1) what circumstances create a sufficient “risk” to trigger the exception; (2) can the defense result in the dismissal of a plaintiff’s claim, or (3) would the defense only diminish the potential recovery. Accordingly, the California Supreme Court's decision does not necessarily signal an end to the pass-on defense but rather it raises more questions on how and when it will actually apply.

Parva Fattahi
(202) 589-1834
pfatahi@dbmlawgroup.com

Competition Bureau requires divestiture in Novartis / Alcon Transaction

Fri, 27 Aug 2010 13:01:30 GMT

On August 9, 2010, the Competition Bureau announced that it had entered into a consent agreement with Novartis AG to resolve competition concerns stemming from Novartis’ proposed acquisition of control of Alcon, Inc.

The Bureau had concluded that, in the absence of a remedy, the acquisition would likely result in a substantial lessening of competition in Canada in the supply of certain ophthalmic products, more particularly: injectable miotics (which are used to contract the pupil in order to perform surgery); ocular conjunctivitis drugs (which are used to treat seasonal allergies); and multi-purpose contact lens cleaners/disinfectants solutions. The consent agreement requires the divestiture of assets and associated licenses relating to the sale in Canada of the following Novartis products: Miochol-E (an injectable miotic); Zaditor (an anti-allergy agent); and Solucare Aqua (a multi-purpose contact lens cleaner and disinfecting solution, including the MicroBlock anti-bacterial lens case).

The registered consent agreement contemplates that Novartis will have an initial sale period within which to complete the divestiture of the products in question, failing which a divestiture trustee will be empowered to complete the divestiture. It also contemplates that the relevant Miochol-E assets and associated licenses will be divested to Bausch & Lomb Incorporated, pursuant to an asset purchase agreement signed in July 2010. The consent agreement does not contain an explicit “hold separate” obligation but does contain detailed asset preservation obligations, together with the appointment of a monitor.
The transaction had been announced on January 4, 2010, suggesting a relatively long review period by the Bureau. The remedy is somewhat notable in that Novartis already owned an approximate 25% interest in Alcon, which it acquired in 2008. It is not publicly known whether the Bureau reviewed the initial 2008 acquisition of the 25% interest, or how its analysis differed in respect of the 2010 transaction.
This transaction represents the fifth occasion to date in 2010 for which the Bureau has required a merger remedy (along with Ticketmaster/Live Nation, BFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).

Court upholds certification of class action in price-fixing case

Wed, 25 Aug 2010 15:28:52 GMT

Shawn Neylan and Sharon Seung

In a judgment rendered June 8, 2010, the Ontario Superior Court dismissed a motion by FMC Corporation and FMC of Canada, Ltd. (collectively, FMC) for leave to appeal a September 28, 2009 decision certifying a class action. The motion was supported by Arkema Inc., Arkema Canada Inc. and Arkema S.A. (collectively, Arkema). Both FMC and Arkema were among the defendants in the class action proceeding.

The class action was brought on behalf of all persons in Canada who purchased hydrogen peroxide products between 1994 and 2005. The plaintiffs alleged that the defendants, manufacturers and sellers of hydrogen peroxide, conspired to and did fix the prices for hydrogen peroxide. According to the Ontario Superior Court, the main issue on the certification motion was the extent to which the causes of action required proof of individual loss or damage.

In the class action proceeding, the plaintiffs and the defendants had presented expert evidence to address the question of whether damages could be estimated on a class-wide basis. The methodology proposed by the plaintiffs’ expert was heavily criticized by the defendants. In considering the motion for leave to appeal, the Superior Court stated that it was not the certification judge’s obligation to determine the merits of these opinions, but rather to decide whether the evidence demonstrated the existence of a viable methodology for proving loss on a class-wide basis. The Court reiterated that the purpose of the certification stage of a class action was to determine whether the requirements under section 5(1) of the Class Proceedings Act, 1992 were met and if so, to define the issues to be tried.

The Court concluded that the certification judge had properly considered all of the evidence in order to find some basis in fact for each of the class action certification requirements, despite the fact that she had interpreted key case law in a different way, and that there was no reason to doubt the correctness of the certification order. Although the Court accepted that the requirement of public importance was met on the leave motion, it dismissed the motion for leave to appeal.

Competition Bureau reaches agreement in Teva/ratiopharm merger

Wed, 25 Aug 2010 15:05:23 GMT

On July 30, 2010, the Competition Bureau (Bureau) announced that it had reached a consent agreement with Teva Pharmaceuticals Industries Ltd. (Teva) and the Merckle Group, carrying on business as ratiopharm, requiring the divestiture of assets and associated licenses in relation to certain forms of acetaminophen oxycodone tablets and morphine sulfate sustained release tablets. The agreement follows the Bureau’s determination that Teva's acquisition of ratiopharm would result in a substantial lessening of competition in Canada with respect to such products. The consent agreement provides that Teva must divest either Teva or ratiopharm's versions of these products in Canada within an initial sale period, failing which the products are to be divested pursuant to a trustee sale process. Teva and ratiopharm are both active within the Canadian generic drug manufacturing industry. The parties had entered into an acquisition agreement on March 18, 2010, valuing the global ratiopharm business at €3.625 billion.

This transaction represents the fourth occasion to date in 2010 for which the Bureau has required a merger remedy (Ticketmaster/Live Nation, BFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).

Jeffrey Brown and Michael Kilby of Stikeman Elliott LLP were Canadian competition counsel to ratiopharm.

Supreme Court Rejects Single Entity Treatment for the National Football League's Licensing Activities

Wed, 04 Aug 2010 00:41:00 GMT

On May 24, 2010, in a unanimous decision authored by Justice Stevens, the Supreme Court of the United States reversed the Seventh Circuit and held that because the 32 teams of the NFL are independent centers of decision-making and could potentially compete with each other for the licensing of their separate intellectual property, “the NFL’s licensing activities constitute concerted action that is not categorically beyond the coverage of [Section 1 of the Sherman Act, 15 U.S.C. 1].” See American Needle, Inc. v. N.F.L., No. 08-661, slip. op. at 1, 12, 560 U. S. ____ (2010). Thus, the Court remanded the case for further proceedings to determine whether the alleged concerted action is an “unreasonable restraint of trade” under the Rule of Reason. Id. at 1, 20.

Many commentators believe that the NFL has a solid argument to prevail under the Rule of Reason, such as requiring consistent quality of NFL merchandise to protect the value of the NFL brand and thereby promote NFL football to compete with other forms of entertainment, but the Supreme Court’s decision denying the NFL immunity from antitrust scrutiny will cause it short term pain in potentially years of protracted discovery battles and trial, as well as long term antitrust challenges involving other collective business decisions. The Supreme Court concluded, however, with dicta that narrowed the impact of its ruling. The Court stated that, at a minimum, other types of necessary cooperation by the NFL like “the production and scheduled of games … is likely to survive the Rule of Reason.” Id. at 18-19.

Background

As previously reported in this blog, the case arose in 2001 when NFL Properties (“NFLP”), a joint venture created in 1963 to develop, license, and market the intellectual property owned by the NFL’s member teams, granted one of American Needle’s competitors (Reebok International Ltd.) an exclusive license to manufacture headwear bearing all the teams’ logos and trademarks. This decision resulted in American Needle losing its contract to manufacture headwear for one NFL team. American Needle then challenged this arrangement, inter alia, as a conspiracy among the teams to restrain trade in violation of Section 1.

The District Court for the Northern District of Illinois granted summary judgment for the NFL, concluding that “with regard to the facet of their operations respecting exploitation of intellectual property rights, the NFL and its 32 teams … have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose” and are thus immune from Section 1 challenges. See American Needle, Inc. v. New Orleans La. Saints, 496 F. Supp. 2d 941, 943 (2007). The Seventh Circuit affirmed reasoning that “only one source of economic power controls the promotion of NFL football, [and] it makes little sense to assert that each individual team has the authority, if not the responsibility, to promote the jointly produced NFL football.” American Needle, Inc. v. N.F.L., 538 F.3d 736, 743 (7th Cir. 2008). But, the Seventh Circuit sought to limit the precedential impact of its holding, noting that “the question of whether a professional sports league is a single entity should be addressed not only one league at a time, but also one facet of a league at a time.” Id. at 742.

In a somewhat rare move, the NFL (along with support from the NBA and NHL) joined American Needle in urging the Supreme Court to grant certiorari and hear the case.

Courts Must Engage in a Functional, Not Formal, Analysis to Determine whether there is Concerted Activity Subject to Section 1 Scrutiny.

The Supreme Court repeatedly cited precedent to answer the narrow question of whether the licensing activities of the 32 teams in the NFL and the NFLP actually operate in a manner constituting concerted action subject to scrutiny under Section 1. The Court did not reach the question of whether the conduct unreasonably restrains trade, but rather held that the licensing conduct at issue would be analyzed under the “flexible Rule of Reason” standard. American Needle, slip. op. at 1, 18.

In determining whether there is concerted action under Section 1, the Court stated that is has “long held” that it has “eschewed [] formalistic distinctions in favor of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.” Id. at 6. For instance, the Court explained that it has “repeatedly found instances in which members of a legally single entity violated §1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity” and “[c]onversely, there is not necessarily concerted action simply because more than one legally distinct entity is involved.” Id. at 6-7. The relevant inquiry is whether the alleged concerted activity joins together separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decision-making, and therefore of diversity of entrepreneurial interests, and thus of actual or potential competition. Id. at 10 (citations and internal quotations omitted). In fact, even in this unanimous and somewhat short opinion, the Court repeats the phrase of whether the activity “deprives the marketplace of independent centers of decision-making” no less than five times. See id. at 5, 9, 10, 12, 14.

The NFL’s 32 Teams Are Functionally Separate regarding the Licensing of their Intellectual Property and thus subject to Section 1 Scrutiny.

Without much trouble, the Supreme Court found that the NFL’s licensing activities constitute concerted action. The Supreme Court reasoned that the NFL’s 32 teams are functionally separate because:

Each of the teams is a substantial, independently owned, and independently managed business. . . . Directly relevant to this case, the teams compete in the market for intellectual property. To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. When each NFL team licenses its intellectual property, it is not pursuing the “common interests of the whole” league but is instead pursuing interests of each “corporation itself”. . . and each team therefore is a potential “independent cente[r] of decision-making.” … Although NFL teams have common interests such as promoting the NFL brand, they are still separate, profit-maximizing entities, and their interests in licensing team trademarks are not necessarily aligned.

Id. at 12-13 (citations omitted). The Supreme Court then rejected the reasoning of the Seventh Circuit that the 32 NFL teams “constitute a single entity because without their cooperation, there would be no NFL football.” Id. at 14. The Supreme Court responded with a pithy example: in “many [joint] ventures, the participation of others is necessary[;] … a nut and a bolt can only operate together, but an agreement between nut and bolt manufacturers is still subject to §1 analysis.” Id. at 14-15. However, the “necessity of cooperation is a factor relevant to whether the agreement is subject to the Rule of Reason.” Id. at 14 n.6.

The NFLP, a Joint Venture, is also subject to Section 1 Scrutiny.

Although it is a “closer” question, the Supreme Court also held that “for the same reasons” the NFLP’s licensing decisions are subject to scrutiny under Section 1. Id. at 15. The Supreme Court cautioned that while “agreements within a single firm” are typically treated as independent, not concerted, action, “in rare cases” like here where the “teams remain separately controlled, potential competitors with economic interests that are distinct from NFLP’s financial well-being,” “the intrafirm agreements may simply be a formalistic shell for ongoing concerted action.” Id. at 16.

The Supreme Court also Stated that Necessary Cooperation by the NFL Teams Is Likely to Survive the Rule of Reason.

While many of the other sports leagues and their respective players’ associations filed competing amicus curia briefs in the belief that the case could have major implications, the Court made a concerted effort to show that its holding was simply in line with the Court’s 1984 decision in Copperweld Corp. v. Independence Tube Corp., 467 U. S. 752 (1984).

The Court also concluded its opinion by explaining that the necessary cooperation to produce NFL football would not be hamstrung by antitrust law. For example, the fact that NFL teams “must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions … . [and such] agreement is likely to survive the Rule of Reason” and “may not [even] require a detailed analysis.” American Needle, slip. op. at 18-19.

Authored by:

Eric S. O'Connor
(212) 634-3077
EOConnor@sheppardmullin.com

China Releases New Draft Monopoly Rules

Wed, 04 Aug 2010 00:35:20 GMT

On May 25, 2010, the Chinese State Administration of Industry and Commerce (“SAIC”) released new draft Rules On Monopoly Agreements (the “Rules”) for public comment. SAIC also released draft Rules Prohibiting Abuse Of Dominant Market Position and draft Rules On Administrative Monopoly for public comment on the same day.

Concerted Monopoly

The Rules define “monopoly agreements” as written or oral agreements between undertakings, or arranged for undertakings by industry associations, that impair or restrict competition and are in violation of Article 13, Article 14 and Article 15 of Antimonopoly Law. According to the Rules, even if a written or oral monopoly agreement does not exist, concerted action by undertakings may still be regarded as a de facto “monopoly agreement”.

The following are the proposed tests under the Rules for SAIC to determine whether a de facto monopoly agreement exists:

(1) Whether the action is concerted, and
(2) Whether there is connection or communication among the undertakings, and
(3) Whether the undertakings can provide reasonable explanation for the concerted action.

The Rules also emphasize the necessity to consider the structure, competition status and possible changes to the market in finding a de facto monopoly agreement.

Technology Related Monopoly

Echoing the trend of tightening the restrictions on abusing intellectual property rights, SAIC further defines details on prohibiting competitive undertakings from restricting new technology in the Rules, including by: (1) restricting purchase and use of new technology and new process; (2) restricting purchase, lease and use of new equipment; (3) restricting investment and research on new technology, new process and new products; (4) refusing to use new technology, new process and new products; and (3) refusing to adopt new standards.

Vertical Agreement

The Rules also discuss enforcement against vertical monopoly agreements in Article 14 of the Antimonopoly Law. According to the Rules, vertical agreements between undertakings and their counterparts are prohibited only if they negatively impact competition and harm consumers. This standard is consistent with the current international standard regarding vertical agreements.

Leniency

It is worth noting that the Rules provide detailed provisions on China's antitrust leniency program. Since discovery of cartels has been difficult for most antitrust authorities, leniency programs have been an important tool to help authorities efficiently investigate cartels. According to the Rules, except for the core-organizer of any monopoly agreement, the participant to a monopoly agreement who first turns in any evidence helping the authority to find infringement and helps the authority in its investigation should receive “immunity” and all penalties should be waived. Except for the core-organizer of such monopoly agreement, participants to a monopoly agreement who turn in important evidence after the first participant is awarded leniency should receive deductions of the penalties based on the time they provide evidence and the value of such evidence. The Rules allow the antitrust authority to award leniency to companies who provide evidence before and in the process of an investigation.

Conclusion

Together with the Rules Prohibiting Abuse Of Dominant Market Position and the Rules On Administrative Monopoly, the Rules, after being adopted, will provide guidance to SAIC in its enforcement of the Antimonopoly Law and to the undertakings in their market behavior.

The Rules are guidelines only for SAIC. Therefore, the other antitrust authorities – Ministry of Commerce and the State Development and Reform Commission – may have their own Antimonopoly Law enforcement guidelines in the future.

Authored by:

Christine Sun
86.21.2321.6036
CSun@sheppardmullin.com

No Single Entity Here: California Federal District Court Holds Hospital and Independent Physician Practice Association Can Conspire For Antitrust Purposes

Wed, 04 Aug 2010 00:25:07 GMT

The U.S. District Court for the Eastern District of California recently held that a hospital and a physicians practice association, and a hospital and the physicians that provide services to it under contract, may be sufficiently distinct separate economic actors capable of conspiring with each other under Section 1 of the Sherman Act. Perinatal Medical Group, Inc. et al. v. Children’s Hospital Central California et al, Case No. CV F 09-1273 LIO GSA (April 15, 2010). There are few Ninth Circuit cases addressing these issues and other circuits have come to different conclusions. More particularly, the Eastern District of California denied a motion to dismiss a complaint that alleged that a hospital and two independent physician practice associations conspired to restrain trade in violation of Section 1 of the Sherman Act by prohibiting neonatologists who did not agree to practice exclusively at the hospital or refer cases to doctors practicing exclusively neonatology at the hospital, from using the hospital's neonatal intensive care unit.

Background

The plaintiffs are neonatologists who practice together in a medical corporation named Perinatal Medical Group, Inc. ("PMG"). PMG's physicians have provided services in and for various Fresno and Madera county hospitals since 1980. Defendant Children's Hospital Central California ("Children's") owns and operates a NICU that has a "regional" designation. Under California law, certain critically ill infants must be treated at a "regional" facility. Through February 2009, PMG had a contract with Children's to provide coverage at and administrative services for Children's NICU. The contract provided plaintiffs with staff privileges at Children's NICU as well.

In December 2008, members of PMG helped another hospital, Community Medical Center ("Community") open its own NICU. Community's NICU does not have a "regional" designation. Thus, certain critically ill infants must be transferred from Community's NICU to Children's NICU for treatment. When this was happening, according to the complaint, Children's, and an independent physicians practice association, co-defendant Specialty Medical Group Central California, Inc. ("SMG"), complained to PMG about two PMG doctors who were referring cases to a doctor who had left SMG. SMG lost business when referrals were made to this former member. Children's asked one of the PMG doctors to restrict referrals to doctors affiliated with it. In addition, the complaint alleges that Children's was concerned that Community's NICU would compete with its NICU and for this reason, conspired to foreclose neonatologists not affiliated with either SMG or co-defendant, Central California Neonatology Group ("CCNG"), from admitting or treating their patients at Children's NICU.

Soon after, Children's approached one of the members of PMG and told him that if he did not agree to practice exclusively at Children's, and in particular, not at Community, then Children's would not renew PMG's contract. Children's also demanded that PMG sign an amendment to their contract to prohibit PMG physicians from admitting or treating patients at competing hospitals and from referring patients to any specialist who is not a member of SMG. PMG refused to sign the amendment and Children's terminated the contract. However, several of PMG's members agreed to the amendment and left PMG to form CCNG. PMG's remaining members were unable to admit and care for patients at Children's NICU. When they attempted to, they were told they could not admit patients unless they or another physician was present in Children's NICU 24 hours a day, 7 days a week, during a patient's stay. This 24/7 rule was adopted in a regulation of Children's. PMG filed suit and in its amended complaint, asserted violations of Sections 1 and 2 of the Sherman Act, violation of the Cartwright Act, unfair competition and other business torts.

Arguments and Holdings

In its motion to dismiss, CCNG argued that PMG's Section 1 claim fails because defendants are not "separate entities pursuing different economic goals capable of conspiring for Sherman Act purposes." CCNG also argued that Children's has no duty under antitrust law to make its facilities available to PMG and antitrust law "is not concerned with the kind of injury that plaintiff PMG is claiming." The court began its consideration of the issue with the principle that that it takes two separate economic entities to conspire under Section 1 of the Sherman Act. Copperweld Co v. Independence Tube Co., 467 U.S. 752 (1984). In Copperweld, the United States Supreme Court held that a parent corporation and its wholly-owned subsidiary are incapable of conspiring for antitrust purposes because the two entities "are not separate economic actors pursuing separate economic interests." Next, applying a Ninth Circuit decision that interprets Copperweld, the court observed that in considering whether defendants are a "single entity" or capable of conspiring for Section 1 purposes, the "crucial question" is "whether the entities alleged to have conspired to maintain an 'economic unity,' and whether the entities were either actual or potential competitors. See Jack Russell Terrier Network v. Am. Kennel Club, Inc., 407 F.3d 1027, 1035 (9th Cir. 2005).

Applying other circuit decisions, the court found that physicians, including members of an independent practice association, are independent entities that can conspire with each other and others for antitrust purposes. Citing a Third Circuit decision, the court noted that each member practices medicine in his individual capacity and each is a separate economic unit potentially in competition with other physicians. The court thus found that CCNG can conspire within the group and with co-defendant SMG.

As to whether physicians can conspire with a hospital for antitrust purposes, the court observed this question is unresolved among circuit courts. With one Ninth Circuit precedent determining that this is a question of fact and with other circuits differing on the question, the court rejected CCNG's argument that CCNG is unable to conspire with Children's as a matter of law. The court determined this is a question of fact. In this instance, plaintiffs alleged that Children's and CCNG have different economic interests. Children's interest, plaintiffs alleged, is to protect the market share of its NICU, whereas CCNG's interest is to benefit from exclusive and restrictive neonatology referrals to its members. As well, the court observed, as an organization independent of Children's, CCNG contracts its services to Children's and its members are thus independent contractors to Children's, not employees or officers of the hospital. Without actually determining whether a hospital and physicians can conspire as a matter of law, the court held that it could not decide, as a matter of law, that a hospital and physicians are incapable for conspiring for Section 1 purposes. The court thus denied CCNG's motion to dismiss on these grounds.

The court's analysis appears consistent the Supreme Court's more recent decision in American Needle, Inc. v. National Football League, et al., 500 U.S. ___ (2010). In American Needle, the Court applied Copperweld and held that the relevant inquiry in determining whether entities are sufficiently separate to be capable of conspiring for antitrust purposes is whether the alleged combination is among "separate economic actors pursing separate economic interests such that the agreement deprives the marketplace of independent centers of decision-making and therefore of diversity of entrepreneurial interests." 500 U.S. ____, at *10

The court also denied CCNG's motion to dismiss on the ground that plaintiffs failed to allege antitrust injury. CCNG argued that Children's has no duty to share its facilities with PMG or its members. PMG argued that Children's was subject to such a duty under state law. The court rejected this, observing that a duty to deal arising from state law does not establish a duty to deal for antitrust purposes. However, the court also found that a key authority on which CCNG relied, Four Corners Nephrology Assocs. v. Mercy Medican Center of Durango, 582 F.3d 1216 (10th Cir. 2009) was distinguishable because in that instance, the parties were direct competitors and in this instance, Children's and PMG are not direct competitors. Exclusive agreements between a hospital and specialty groups of physicians may violate the Sherman Act, just as group boycotts of individual physicians. PMG's complaint sufficiently and plausibly alleged both.

Authored by:

Heather M. Cooper
(213) 617-5457
HCooper@sheppardmullin.com

U.K.'s Sweeping Anti-Corruption Legislation Increases Risk for Businesses

Wed, 04 Aug 2010 00:19:51 GMT

The United Kingdom's answer to the Foreign Corrupt Practices Act (FCPA) has arrived. The UK Bribery Act 2010, which received Royal Assent on April 8, 2010, is both stricter and broader than the FCPA. The U.K. Ministry of Justice announced on July 23, 2010, that the implementation of the Act will be delayed until April 2011, which gives companies much-needed time to prepare for the changes it will bring.

The following article by Bethany Hengsbach was originally published in the Financial Executive. To read the article please click here, or visit the Financial Executive website.

Post-Closing herbicide merger remedy

Fri, 30 Jul 2010 17:26:31 GMT

Shawn Neylan and Michael Kilby

On July 28, 2010, the Competition Bureau (Bureau) announced that it had reached an agreement with Nufarm Limited (Nufarm) in relation to its earlier acquisition of AH Marks Holding Limited (AH Marks) in March 2008, stating that commitments made to the Bureau by Nufarm and the entering into of a consent decree in the United States between Nufarm and the Federal Trade Commission (FTC) were adequate to resolve Canadian competition concerns.

The US consent decree pertains to three herbicides used on farms and lawns. Nufarm is required to sell AH Marks’ rights and assets associated with the “MCPA” herbicide to a new competitor, Albaugh Inc., and to sell AH Marks’ rights and assets associated with “MCPP-P” herbicide to a new competitor, PBI Gordon Co. Further, Nufarm is required to modify current agreements with two other companies (Dow Chemical Company and Aceto Corporation) to allow them to fully compete in respect of the MCPA herbicide, and a third herbicide, “2,4-DB.” In the United States, the FTC concluded that Nufarm’s acquisition of AH Marks resulted in Nufarm having a monopoly in the US markets for the MCPA and MCPP-P herbicides, and left only two competitors in the market for the third herbicide, 2,4-DB. In Canada, Nufarm will divest its MCPA Task Force seat and certain Canadian MCPA Technical Registrations and Canadian Formulated Product Registrations to Albaugh.

Both the Bureau and the FTC press releases refer to extensive international cooperation between the Bureau, the FTC, UK and Australian competition authorities, including specific reference to close cooperation between the Bureau and FTC that resulted in a coordinated remedy addressing the Canadian and US markets.

The remedy is notable in that it was obtained in respect of a merger that had been consummated over two years ago. The size of the AH Marks business at the time of the acquisition (a reported purchase price of approximately £75 million, and reported global annual revenues of approximately £62 million) was such that the transaction may not have triggered pre-merger notification requirements. It is always important to assess the substantive competition issues raised by a transaction, even where the transaction does not trigger mandatory filings.

Court denies stay to US Steel

Wed, 28 Jul 2010 13:01:42 GMT

On July 23, 2010, the Federal Court of Appeal dismissed US Steel’s application for a stay of the Attorney General of Canada’s proceeding against it to enforce Investment Canada Act (ICA) undertakings with respect to Ontario steel mills it acquired in 2007. The Minister is seeking enforcement of undertakings regarding employment and production levels, and a fine for non-compliance.

The court decided that while US Steel could show that its appeal from a trial level dismissal of its constitutional challenge of the enforcement provision in the Investment Canada Act was not frivolous or vexatious, it had not shown irreparable harm or that the balance of convenience favoured a stay of the enforcement proceeding.

With respect to the issue of irreparable harm, the court stated that if US Steel was ultimately successful in its appeal and was granted a declaration of invalidity, it could use that declaration in an application to set aside any order that was made against it in the ICA enforcement proceeding.

When discussing the issue of the balance of convenience, the court said that the ICA has a public interest dimension because it is aimed at encouraging investment, economic growth and employment opportunities for Canadians. The court therefore found that it must proceed on the basis that the ICA is directed to the public good and serves a valid public purpose. Delaying the commencement of the enforcement proceeding would, the court said, effectively suspend the application of the legislation.

Absolute discharge for price-fixing upheld

Wed, 21 Jul 2010 16:05:09 GMT

Shawn Neylan and Sharon Seung

On March 19, 2010, the Quebec Court of Appeal upheld a decision rendered by the Quebec Superior Court, unconditionally absolving Mr. Daniel Drouin, the accused, of a price-fixing charge. The Court of Appeal dismissed the Crown’s application for leave to appeal on the basis that the lower court judge had not made a reviewable error which would merit judicial review.

In the original Superior Court decision, the court had ordered an absolute discharge. The accused had pleaded guilty to a charge brought against him for fixing the price of gas in the city of Victoriaville in 2005, when he was the supervisor of Les Pétroles Cadrin Inc. In his capacity as supervisor, the accused was responsible for setting the price of gas sold by the service station. The price-fixing charge was brought against the accused following an investigation by the Competition Bureau.

The Superior Court considered several factors: the accused had not benefitted from the crime, he was not the instigator, his involvement was over a short period of time compared to his co-accused, he regretted his actions, and a criminal charge would have a negative impact on his career. Furthermore, he had made a $10,000 donation to a non-profit organization in the hope of obtaining an absolute discharge. According to the Court, it would be superfluous and inappropriate to impose a fine since his donation had achieved the objective of deterrence. The Court concluded that an absolute discharge would not be contrary to the public interest.

The Crown’s appeal was based on the intervention of counsel for the accused during the lower court judge's deliberation. The intervention consisted of a letter from counsel for the accused advising the Court of the $10,000 donation. The Court determined that although the method followed by counsel of the accused did not conform to rules of procedure (as he should have asked for a reopening of the hearing), the integrity of the hearing was not compromised.

With respect to the sentence, the Court of Appeal stated that its power of intervention was limited. The Crown argued that the absolute discharge was not available in the circumstances because it did not take into account the principle of parity and the objectives of denunciation and deterrence. The Court of Appeal cited earlier authority to the effect that the principle of parity does not preclude disparity where warranted by the circumstances.

The Court of Appeal therefore dismissed the Crown’s application for leave to appeal.

Foreign investment update - Investment Canada Act filings in the first quarter of 2010

Fri, 16 Jul 2010 19:36:53 GMT

Shawn Neylan and Michael Kilby

In the first quarter of 2010, the Investment Review Division of Industry Canada (IRD) received approximately 115 notifications in respect of the acquisition or establishment of Canadian businesses pursuant to the Investment Canada Act (ICA). In addition, 4 Ministerial decisions based on applications for review were made. By way of contrast, in the full 2007 year, likely a high water mark for foreign investment in Canada, approximately 676 notifications and 62 Ministerial decisions based on applications for review were made.

The key distinction between an application for review and a notification is that an application for review requires that a foreign investor establish for the Minister of Industry (or the Minister of Heritage in the case of cultural businesses) that a proposed investment is of "net benefit to Canada". This is usually achieved by providing binding undertakings to the Minister in respect of the future conduct and management of the Canadian business. A notification does not trigger any approval requirement but is largely an administrative formality. Applications for review are usually triggered by large, direct acquisitions of Canadian businesses.

Amendments to the Investment Canada Act, not yet implemented, will alter the thresholds at which an application for review is triggered. It is not yet known what specific impact the change in thresholds will have on the number of applications for review filed, but it is anticipated that they will decrease the number of such applications, leaving only the largest investments in Canadian businesses as subject to approval under the economic review provisions of the Investment Canada Act.

In terms of acquisitions of Canadian cultural businesses, a significantly restricted area for foreign investment, the website of the Department of Canadian Heritage - Cultural Sector Investment Review (CSIR) suggests that no Ministerial decisions and only 5 notifications were made in respect of the acquisition or establishment of cultural businesses in the first quarter of 2010.

Higher Investment Canada Act threshold still not in force

Fri, 16 Jul 2010 12:53:06 GMT

Shawn Neylan and Michael Kilby

On March 12, 2009, the Government of Canada enacted extensive changes to the Investment Canada Act as part of Bill C-10, the budget implementation bill passed in response to the global economic crisis. The bill was introduced in Parliament on February 6, 2009 and received royal assent only five weeks later.

In light of the speed with which the amendments were passed, it was expected that it would take some time to prepare implementing regulations that would allow the new law to come into force. Draft regulations were published one year ago, on July 11, 2009. Extensive comments were made on the draft regulations. However, final regulations have not come into force.

The amendments in question, once implemented by regulations, will change the Investment Canada Act review threshold for direct acquisitions by WTO investors from $299 million in gross assets, measured on the basis of current book value (2010 threshold), to $600 million in “enterprise value”, rising progressively to $1 billion in enterprise value over a four-year period. The clear intent of Parliament was to lessen the number of foreign investments in Canada that would be subject to review and Ministerial approval (usually granted on the basis of binding undertakings).

While it is clear that the calculation of enterprise value raises some difficult technical questions that must be addressed in the final regulations, the amount of time this is taking is delaying the implementation of Parliament’s intent to liberalize Canada’s foreign investment regime and, to the extent this was the case, Parliament’s intent that Bill C-10 be a key part of Canada’s response to the global economic crisis.

More retail gasoline price fixing charges

Thu, 15 Jul 2010 19:09:50 GMT

The Competition Bureau today announced new criminal charges against 25 individuals and three companies with respect to alleged price fixing in Québec and stated that other investigations with respect to alleged price fixing in retail gasoline outside of Québec were ongoing. Among other things, the bureau used wiretaps in its investigation.

The bureau stated in a backgrounder that: “[w]hile some of the accused operated under the name or "banner" of a major oil company, it was the local operators of the gas stations who were responsible for setting the final price at the pump. There is no evidence that the three major national oil companies' corporate offices were involved in these offences.”

The bureau acknowledged that: “[s]imilar gasoline prices, or similar changes in the price of gasoline, do not necessarily indicate price-fixing. High prices are a concern under the Competition Act only when they are the result of anti-competitive conduct, such as price-fixing.”

The accused are presumed to be innocent and are entitled to all of the rights and defences provided by law including a fair and public hearing before an independent and impartial tribunal.

US Steel applies for a stay of ICA enforcement proceeding

Wed, 07 Jul 2010 20:01:04 GMT

On July 6, 2010, United States Steel Corporation (USS) filed a notice of motion with the Federal Court of Appeal seeking a stay of the Attorney General of Canada’s (AGC) enforcement proceeding under s. 40 of the Investment Canada Act (ICA), pending determination of the appeal brought to the court by USS in respect of a decision upholding the constitutional validity of s. 40. The Federal Court issued its decision upholding the constitutionality of section 40 of the ICA on June 14, 2010, and USS filed its notice of appeal on June 24, 2010.

The AGC’s enforcement proceeding seeks the enforcement of undertakings given in 2007 by USS under the ICA in relation to its acquisition of Stelco as well as the imposition of a fine of $10,000 for each day of alleged non-compliance. The undertakings in question relate to Canadian employment and production levels. The United Steelworkers and Lakeside Steel have intervened in the AGC’s proceeding to seek damages for lost wages and the divestiture of the former Stelco operations.

USS argues that the possibility of a forced divestiture puts in jeopardy USS’s entire investment in Canada (despite the fact that the Minister has not sought this remedy). It also argues that if a stay is not granted the hearing of the AGC’s enforcement proceeding will be nearly or fully completed such that USS will be deprived of its right to appeal the order upholding the constitutionality of s. 40. USS argues that the AGC’s proceeding is fundamentally a retrospective effort in light of the fact that the undertakings are due to expire in October, 2010 and that there would therefore be no prejudice to the AGC if a stay is granted.

Marsh & McLennan Executives’ Convictions Overturned

Wed, 07 Jul 2010 18:16:33 GMT

On July 3, 2010, the Justice Yates (the trial judge) overturned his decision after a bench trial convicting William Gilman and Edward McNenny of violating the Donnolly Act (New York’s antitrust statute) for rigging bids on insurance contracts. According to the New York Times, he did so based on “newly discovered contradictory statements made by witnesses who cooperated with prosecutors, and the suppression of documents that would have been ‘invaluable’ to the defense.” Gilman and McNenny are the only Marsh executives that were convicted after a trial. As reported in earlier posts, Marsh paid an $850 million civil penalty and was not prosecuted. One former Marsh executive pleaded guilty and others had their cases voluntarily dismissed by the government or were acquitted after a bench trial.

FTC Chairman Offers Olive Branch, Options to AMA

Fri, 02 Jul 2010 19:30:45 GMT

On June 14, 2010, Federal Trade Commission Chairman, Jon Leibowitz, gave a speech to the American Medical Association in Chicago amid ongoing tension between the two groups with respect to antitrust regulation in the medical industry. In an effort to address the AMA’s concerns, and to bolster a more productive relationship between the organizations, Leibowitz offered an explanation of the FTC’s position on antitrust in the medical arena as well as some promising options for the future of healthcare regulation.

The Chairman began by acknowledging certain concerns vetted by doctors as a result of the FTC’s practices in recent investigations. One accused the FTC of causing a shortage of physicians, another said the agency’s actions “defy logic,” and yet another accused the FTC of promoting “a return to serfdom.” Leibowitz respectfully defended the Commission by pointing to FTC investigations of considerable import to the AMA and the public at large, such as the targeted enforcement of “bogus cancer cures” and the enactment of the national “Do Not Call” registry.

The Chairman went on to explain that the FTC and the AMA have a mutual interest in eliminating anticompetitive behavior in the healthcare industry. For example, both organizations share a vested interest in the elimination of antitrust exemptions for insurers, the reformation of Medicare reimbursement, and the removal of “pay-for-delay” practices. Leibowitz applauded the AMA’s dedication to speaking out against these “unsavory sweetheart deals” in the interest of promoting healthy competition and patients alike.

Recent passing of major healthcare legislation brings two projects to the table which, Leibowitz says, the FTC and AMA can to work together on in coming months: health information technology (HIT) and clinical integration. The Chairman acknowledged that HIT systems, which allow for the exchange of healthcare information, can be an important tool in improving healthcare and bringing down costs, but noted that they are not to be a “free pass [for providers] to fix prices.” Client privacy and data security are also significant concerns that the FTC and AMA will have to address in the design and implementation of advanced health information sharing.

Clinical integration, which Leibowitz described as “a framework for otherwise competing physicians to collaborate to reduce costs and provide improved healthcare,” comports more closely with the FTC’s traditional jurisdiction as it deals directly with organized and restricted competition in the market. However, Leibowitz noted that the FTC is not about to stand in the way of a bona fide joint venture formed with the intention and potential of improving healthcare and lowering costs to consumers. To facilitate the thought process, the Chairman outlined three guiding questions for doctors to consider when considering a merger: What are the likely benefits of the collaboration? Are the joint negotiations reasonably necessary to achieve those benefits? And will the combined group be so large that it can raise prices? Moreover, Leibowitz advocated the FTC’s proactive stance on such endeavors, plugging the availability of “advisory opinions” to clinics interested in researching their integration options.

New healthcare legislation also establishes pilot programs for Medicare, called “accountable care organizations” (ACOs), which incentivize organizations to meet HHS performance targets. While the details of the ACO program are to be announced, the FTC does not anticipate antitrust issues so long as the government purchases the services and unilaterally sets payment levels and terms. Additionally, Leibowitz announced that the FTC will hold a public workshop, which will focus on how ACOs play into competition policy, payment reform, and new models for delivering high-quality, cost-effective healthcare.

The FTC’s recognition of doctors’ concerns and its willingness to collaborate with the AMA on rising healthcare issues reflects the Obama administration’s unprecedented efforts to fix the ongoing healthcare crisis in America. Allowing federal agencies to take on a more functionalist (as opposed to formalist) mentality reduces the “man behind the curtain” effect and encourages proactively communication with business organizations rather than the traditional, reactive confrontation. Make no mistake, however; this diplomatic gesture is by no means indicative of a relaxation of the FTC’s predominant charge to defeat anticompetitive activity. Rather, the gesture signals the Commission’s efforts to mitigate future complications by making industry players aware of the resources available to them, and more importantly, to facilitate the advancement of medical technology and efficient, low-cost healthcare.

Ryan J. Maerz
(202) 589-1834
rmaerz@dbmlawgroup.com

District Denies Twombly Motion in In re Packaged Ice Antitrust Litigation

Fri, 02 Jul 2010 15:04:09 GMT

Yesterday, the United States District for the Eastern District of Michigan denied a motion to dismiss the Direct Purchasers’ Consolidated Amended Class Action Complaint in In re Packaged Ice Antitrust Litig., MDL 1952 (Opinion). It held, “Plaintiffs’ CAC contains enough factual content to plausibly suggest that these Defendants participated in a nationwide conspiracy to [...]

Yesterday, the United States District for the Eastern District of Michigan denied a motion to dismiss the Direct Purchasers’ Consolidated Amended Class Action Complaint in In re Packaged Ice Antitrust Litig., MDL 1952 (Opinion). It held, “Plaintiffs’ CAC contains enough factual content to plausibly suggest that these Defendants participated in a nationwide conspiracy to allocate customers and territories and raises a reasonable expectation that discovery will reveal evidence of illegal agreement. The CAC provides Defendants with fair notice of Plaintiffs’ claims and the grounds on which they are based, such that these Defendants will know how to respond. The present complaint succeeds where Twombly’s failed because the complaint alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the result of an agreement among the defendants.” Slip op. at 38 (citation omitted). It also held that the Complaint contains sufficient allegations of fraudulent concealment to defeat the motion to dismiss on statute of limitations grounds.
Kohn, Swift & Graf, P.C. is interim lead counsel for the direct purchaser class.
Wild Law Group PLLC is interim lead counsel for the indirect purchaser class.

FTC Seeks to Limit Trinko and Credit Suisse

Thu, 01 Jul 2010 20:14:07 GMT

On June 15, 2010, Howard Shelanski, Deputy Director for Antitrust in the Bureau of Economics at the Federal Trade Commission, appeared before the House Committee on the Judiciary’s Subcommittee on Courts and Competition Policy and delivered a prepared statement on behalf of the Commission. In his appearance, Mr. Shelanski requested legislative action in light of the Supreme Court’s decisions in Verizon v. Trinko and Credit Suisse v. Billing . Both of these recent cases have implications for bringing antitrust actions in federal court in regulated industries.

Trinko was a consumer class-action suit brought of behalf of New York City customers of AT&T against Verizon for violation of § 2 violation of the Sherman Act, which declares that a firm shall not “monopolize” or “attempt to monopolize.” Plaintiffs alleged that Verizon failed to comply with its network-sharing duties with new-entrant AT&T in violation of the Telecommunications Act of 1996 (“the Act”), and that Verizon’s actions constituted anticompetitive and exclusionary conduct under § 2.

The Supreme Court disagreed, 9-0, and reversed the Court of Appeals in favor of Verizon. The Court held that, while the antitrust-specific saving clause barred implied immunity from antitrust actions, the complaint still did not state a monopolization claim under § 2. Verizon, Scalia wrote for the Court, would not have assisted rival AT&T without the compulsion of the Act, and there was no apparent willingness to forsake short-term profits for an anticompetitive effect as in Aspen Skiing , the outer boundary of § 2 liability.

Further, there was an extensive regulatory structure in place to remedy anticompetitive behavior, and the regulatory authorities had already penalized Verizon with fines and daily reporting requirements for their actions against AT&T. The “slight benefits” of antitrust intervention, Scalia said, is far outweighed by the risks of possibly inconsistent and harmful rulings by judges who do not have the expertise the regulatory bodies have in discerning permissible dealings from impermissible dealings, nor similar enforcement abilities.

Credit Suisse was an antitrust suit brought under § 1 of the Sherman Act for collusion by underwriters of initial public offerings of securities. The defendants in the case allegedly used illegal tying, “laddering,” and excessive commission schemes in marketing IPOs. The applicable regulatory statute gave the SEC authority to review all of these activities and though there was a general savings clause, there was no antitrust-specific savings clause. The Court held, 7-1 (Thomas, J. dissenting), that the applicable securities laws implicitly precluded the application of antitrust laws in the case. The Court’s standard in cases where regulatory law and antitrust law overlap is that when there is a “clear repugnancy” between the statute and antitrust law, antitrust law is precluded.

Breyer, writing for the majority in Credit Suisse, noted that precedent finds “repugnancy” between securities and antitrust law when there is a regulatory body that has authority to supervise the activity in question and is supervising the activity, and applying securities law and antitrust law would produce conflicting standards. Since judges applying antitrust law, Breyer writes, would not be able to reliably distinguish impermissible tying, laddering, and commissions from very similar underwriting activities that are permissible under securities law, securities law and antitrust law in this situation are repugnant and antitrust law is implicitly precluded.

The decisions in Trinko and Credit Suisse, Mr. Shelanski argues, significantly reduce the situations in which industry-specific regulatory statutes and antitrust statutes can be simultaneously applied. The Court in Credit Suisse, specifically, expands the idea of “repugnancy” between regulation and antitrust law—thus, antitrust law preclusion—even where the only conflict with regulation is through possible judicial error. The Supreme Court in both cases reaffirms its fear—also noticeably present in the Brooke Group , Linkline , and Weyerhaeuser decisions—that judges applying antitrust law will not have the knowledge to distinguish anticompetitive conduct from pro-competitive conduct. According to this line of Supreme Court cases, judicial error in antitrust suits would mean costly false-positive decisions that chill enterprise, so anticompetitive suits are best brought under industry-specific regulatory law.

In his testimony, Mr. Shelanski states his fears that Trinko and Credit Suisse will lead lower courts to preclude antitrust suits when they are needed to protect consumers. Since the Court never distinguishes between private and public antitrust actions, Mr. Shelanski appeals to the Subcommittee to pass legislation that clearly exempts the agencies from the high standards of Trinko and Credit Suisse.

Public enforcement actions, Shelanski says, would not pose the same problems private suits do. First, public actions have lower costs and greater societal benefits because the agencies have the resources to examine the costs and benefits of an antitrust action, while keeping the interests of the public in mind. Second, unlike private actions, the plaintiff agencies don’t materially benefit from successful competition enforcement. Third, the agencies can better coordinate with regulatory agencies to avoid conflicts, duplication of efforts, and judicial error.

While the FTC in particular might be able to avoid the strictures of Trinko and Credit Suisse by pursuing conduct under Section 5 of the Federal Trade Commission Act rather than the Sherman Act, Shelanksi states, the FTC will probably still be unnecessarily hampered. The solution, he concludes, “is for Congress to clarify that neither Credit Suisse nor Trinko prevents public antitrust agencies from acting under any of the antitrust laws” in order to ensure that the agencies can vigorously pursue anticompetitive conduct.

Brent Skorup
(202) 589-1834
bskorup@dbmlawgroup.com

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