04.13.2016
|
Updates
The American Bar Association held its 64th annual Antitrust Law Spring Meeting April 5–8, 2016, in Washington, D.C. Over 3,000 practitioners, enforcers, economists and academics from around the world came together to discuss and share views on the hottest antitrust topics of the day. Notable takeaways from the meeting included the resurgence of the U.S. Department of Justice and Federal Trade Commission with higher numbers of attorneys and increased enforcement efforts with greater emphasis on individual culpability; steady growth in international enforcement extending to competition regimes in Africa and Asia; and the evolution in hub-and-spoke analysis and the per se rule to account for new distribution models involving innovation and technology. Below are highlights from selected conference sessions.
Agency Update with the Deputy Assistant Attorneys General
The Antitrust Division has been steadily increasing its ranks, bringing their number of attorneys up to 700, with more hires yet to come. There is currently a merger wave, and although the number of second requests is down, this does not represent a shift in the division’s analysis of mergers. The division looks at markets anew in each transaction, looking to see if and how the market has changed, what are the salient pressure points and the impacts to negotiation leverage between the proposed merged party and third parties. For example, in airline mergers, the division has historically looked at route competition. However, in Delta’s proposed sale of slots at Newark Liberty International Airport to United Airlines, the division focused on the use of slots, which can be used to serve any route, and thus is an essential input to service in and out of the Newark airport. The division will look at all levels of the market to determine if there are anti-competitive effects, including input markets, like R&D, and distribution markets, as well as the relevant product markets.
On the criminal side, the division obtained record fines for 2015 and had a number of successful trials resulting in several convictions. Current investigations include two e-commerce cases: heir location services, where companies agreed to allocate customers, and wall art, where companies agreed to fix or coordinate pricing algorithms so they did not compete on price. The division is focused on pursuing both corporate and individual wrongdoers. Since 2009, the division has prosecuted more than 400 individuals and charged an average of two or more individuals per corporation. In both criminal and civil conduct cases, the division actively continues to consider whether it is appropriate to assert matters against individuals and build cases against those individuals early.
Views From the Bench on Non-Merger Civil and Criminal Cases
U.S. District Court Judges Susan Illston, Claudia Wilken and William Young shared reflections and advice on trying antitrust cases. Judge Illston encouraged practitioners to think up front about tracking criminal and civil aspects of cases and direct and indirect purchasers’ claims; damages, including the possibility for a pass-on defense; and the Foreign Trade Antitrust Improvements Act. There was general consensus that the rule of reason is challenging to implement in practice and that additional guidance and improved model jury instructions, which the ABA Antitrust Section is working on, would be useful. The judges also discussed class cases where liability issues are certified but damages are not. Some practitioners suggest that special masters handle damages issues after the liability issues are tried, but Judge Wilken has 7th Amendment concerns with that approach.
The judges encouraged practitioners to avoid jargon; to keep the verdict slip in mind at all times; to tell a simple story and stick to it; and to use videos and graphics to grab jurors’ attention. On the subject of experts, Judge Young described his policy of allowing experts to testify only to material in their reports; Judge Illston urged restraint in filing Daubert motions; and Judge Wilken recommended sequencing both sides’ expert testimony back to back. The judges also noted the increasing prominence of MDLs, which according to Judge Young now control 39% of the civil case load of the U.S. district courts and regrettably move more slowly and are more settlement-focused than their non-MDL counterparts.
Privacy and Law Firms’ Ethical and Legal Obligations
Lawyers infrequently consider that their firms face many of the same quotidian issues as other businesses. Namely, they too could be victims of a privacy breach, so it is important to maintain policies and practices that protect information related not only to their clients, but to their employees and to their internal dealings as well. Kenneth Keller of the FBI laid out the different types of security threats facing law firms, and other businesses, including cybercrime, ransom and hacking. He observed that the schemes targeting law firms have the same motivation as most privacy attacks: the prospect of financial gain. That could be achieved by accessing material non-public information or gathering competitive intelligence that could be used to the detriment of a firm’s clients.
These observations were very timely. In the last week, significant privacy breaches involving a Panamanian law firm have reverberated around the world. Patricia Wagner, a law firm chief privacy officer, discussed contractual, court-imposed and ethical obligations concerning the management of information, as well as obligations to comply with HIPAA and other laws. As a privacy offer, she explained the utility of having a professional in that role who can help firms manage contractual obligations and the strict vendor requirements that clients often impose, especially regulated financial institutions.
Peter Swire, a law professor and senior counsel in a private law firm, stressed the importance of working effectively with the IT team to manage the flow and maintenance of information. Many firms now maintain high levels of encryption by default, which relieves lawyers of the transactional responsibility of questioning the security of routine communications.
Private practitioner Eric Wilson walked through the model ethical rules and standards for reasonableness where lawyers are expected to know and understand how to protect private information in this dynamic age.
When asked about the challenges of working with lawyers on these issues, Patricia Wagner mused about good news and bad news: while it’s good that lawyers know the law, their perceived knowledge can create blind spots that make compliance challenging. But lawyers are ahead of the game because of their acute appreciation for the need to maintain the confidentiality in information that is both shared and maintained.
Issues in Non-Reportable Transactions
A distinguished panel of private practitioners and federal enforcers discussed best practices for avoiding entanglements in non-reportable transactions. The FTC’s Michael Moiseyev noted that the Hart-Scott-Rodino Act (HSR) filing threshold is merely a technical requirement, not a substantive one, and that the agency will investigate any potential competitive harm—so the parties should similarly assess the deal to gauge antitrust risk. Dorothy Fountain of DOJ added that certain industries where the agencies have a history of enforcement, or parties to prior investigations, can be of particular interest. The enforcers noted that non-reportable deals often come to their attention through complaints from customers or competitors and even from spurned bidders. Although the agencies will not offer opinions on hypothetical deals, once there is a measure of certainty (e.g., an LOI) parties can discuss the potential transaction with the respective agency to get a preliminary read on potential issues and to test theories.
The panel’s practical advice included assessing antitrust risk early in the process so that mitigation strategies and potential remedies can be included in the final deal documents. Mitigation strategies included building in time before closing to resolve competition concerns, closing without immediate integration and negotiating terms on efforts clauses, risk allocation and extending the termination date if closing conditions are not met. The considerations in voluntarily approaching the agencies, and tactics on successfully engaging enforcers without unduly jeopardizing the deal (for timing or substance), were discussed from both perspectives. The federal officials recommended negotiating a timing agreement that would enable the agencies to efficiently complete an investigation, and Moiseyev noted that a decision to close a deal over a pending investigation is tantamount to a “declaration of war.” Both officials also discussed confidentiality for information submitted to the agencies outside of the context of HSR and suggested requesting a “friendly CID” in order to protect materials submitted pursuant to such a demand.
The panel also discussed the tactics and considerations for an investigation after a deal has closed. The agency officials commented on the investigative timeline for a consummated deal and discussed remedies including disgorgement of profits. Counsel advised quickly communicating with the client as soon as an investigation is opened into a closed transaction, immediately implementing document retention policies, understanding the status of integration and working with the agencies to identify the scope of inquiry.
Clarifying Liability in Hub-and-Spoke Conspiracies
A panel of practitioners, enforcers and experts discussed the key legal, economic and evidentiary issues affecting liability in hub-and-spoke cases. Hub-and-spoke conspiracies can take two general forms: “hub-facilitated” and “hub-centered.” In hub-facilitated conspiracies, the key question is under what circumstances the hub can be held liable for the conspiracy. If a horizontal agreement among the “spokes” is shown and is eligible for per se condemnation, then all members of the conspiracy—regardless of their orientation to the spokes—are liable. There is thus no need to ask whether the hub also entered into one or more vertical agreements that might be analyzed under the rule of reason. Unfortunately, the courts have not clearly distinguished between facilitating conduct by the hub and conduct that does not trigger hub liability, with some courts appearing to hold that mere knowledge of the conspiracy is enough. One variation on the hub-facilitated conspiracy is the “coerced-hub” conspiracy. Economic coercion is generally not a defense to conspiracy allegations, but the very circumstances that give rise to coercion also give rise to the argument that the hub was not a party to the agreement and is therefore not liable.
In hub-centered conspiracies, the key question is whether there is a horizontal agreement among the “spokes,” as opposed to mere parallel conduct. The panel agreed that there is a tension between the standards articulated in Interstate Circuit and Twombly for establishing this agreement, and whether the court starts its analysis with one case versus the other often dictates the outcome. Panel members also predicted seeing more of these cases as technology brings together groups of players at different levels of the distribution chain.
Enforcers’ Roundtable
Leading international competition authorities discussed their enforcement priorities and the transactions, investigations and cases that are making headlines. In the United States, federal merger enforcement is on the rise, with 32 mergers blocked or abandoned in the last seven years versus 10 in the preceding seven years. U.S. enforcement agencies have also been active on the civil conduct front, two recent capstones being the U.S. Supreme Court’s recent denial of certiorari in the Apple e-book case, which will result in over $400 million in credits flowing back to consumers, and the $1.2 billion settlement the FTC secured in the Cephalon case. Criminal enforcement is also up, with the average jail term doubling from one year to 24 months under President Obama. At the state level, many states have seen successful settlements, while Maryland recently passed a resale price maintenance law and has already brought an action under the statute.
Merger enforcement is also on the rise in Europe, as is the complexity of the transactions being scrutinized. European enforcement is focused on closing cases, where appropriate, to provide certainty to businesses and tax reform to even the playing field. In Canada, a recent focus has been on competition advocacy. All of the panelists emphasized how serious the international enforcement agencies are about promoting competition and innovation, rooting out anti-competitive conduct, holding individuals accountable and collaborating with their international counterparts.
© 2016 Perkins Coie LLP
