Antitrust Lawyer Blog

 Commentary on Current Developments

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On July 31, the U.S. District Court for the Northern District of Georgia barred a purported former preacher, his two sons, and his companies from selling a healthcare business opportunity promising consumers millions of dollars if they participated in an alleged network of Medicaid providers. In fact, according to the Federal Trade Commission (“FTC”) complaint, the defendants' business model required participants to break numerous state and federal laws.

Using “healthcare conferences” at hotels and convention centers across the United States, the defendants promised consumers that they would receive “guaranteed” Medicaid patients and would receive help from the lawyers, doctors, and other professionals on their staff in establishing their healthcare businesses. The FTC charged that the defendants misrepresented the assistance they would provide and that participants could legally earn money from the business, and did not provide participants with the required disclosure statement and earnings disclosures for a franchise. The U.S. District Court granted a temporary restraining order, prohibiting the defendants from continuing their deceptive business practices, freezing their assets, and appointing a receiver.

The operation targeted church-going audiences, advertising their upcoming conferences on Christian radio and television networks. Their traveling road show visited at least 18 different U.S. cities, drawing crowds of up to 1,000 attendees, with many persons paying a $65 registration fee to attend. The defendants held “conferences” in Atlanta, Baltimore, Durham, Chicago, Dallas-Ft. Worth, Memphis, Jacksonville, Nashville, Macon and Columbus, Georgia, St. Louis, Philadelphia, Jackson, Mississippi, Norfolk, Richmond, and Austin.

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On July 28, the FCC issued a public notice in which its Wireless Telecommunications Bureau (“Bureau”) identifies 168 applicants found to be qualified to bid in the upcoming auction of Advanced Wireless Services licenses in the 1710-1755 MHz and 2110-2155 MHz bands (“AWS-1”) (Auction No. 66). Bidding in Auction No. 66 is scheduled to begin on Wednesday, August 9, 2006.

In addition, the public notice contains bidding instructions and other important information regarding Auction No. 66. The auction will be conducted using the information disclosure procedures typically used during past FCC auctions.

The Commission determined in the Auction No. 66 Procedures Public Notice that it would use an estimate of the level of competition in the auction to determine the information disclosure procedures that would apply to Auction No. 66. In particular, the Commission concluded that if this measure of likely competition, or modified eligibility ratio, is equal to or greater than three, the likely level of competition should be sufficient to make anti-competitive outcomes difficult to sustain and therefore the benefits of publicly revealing information on bidder interests and bidder identities likely would outweigh the potential harms. Because the modified eligibility ratio for Auction No. 66 is equal to at least three, this auction will be conducted with the typical disclosure of information from this point forward, e.g., revealing bidder license selection before the auction, as well as all bids and bidder identities at the end of each round during the auction.

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Canadian telemarketers settled Federal Trade Commission (“FTC”) charges on July 26 that they fraudulently marketed and sold credit card loss protection and healthcare discount plans to U.S. consumers in violation of federal law. Their telemarketing boiler rooms were shut down, and they will pay $200,000 in consumer redress as part of the settlement.

According to the FTC's complaint, six Toronto-based individuals and their companies targeted U.S. consumers, telling them that their company was affiliated with credit card issuers or banks and that consumers needed to buy “credit card loss protection” in order to avoid being held fully liable for unauthorized charges on their credit cards. In reality, under federal law consumers cannot be held liable for more than $50 of unauthorized charges on their cards – consumers do not need to pay for this protection. Operating as “National Credit Card Security,” the defendants charged consumers $249, often without authorization. The only things consumers received were useless “anti-fraud” stickers to put on their credit cards, and forms they were supposed to fill out and return to the defendants, listing all of their account numbers.

The defendants' second scheme targeted elderly U.S. consumers with promises of large discounts on prescription drugs and medical services. Their telemarketers used a variety of deceptive tactics to get consumers' money. They led consumers to believe they were calling from insurance companies or government agencies and persuaded consumers to divulge their credit card or bank account numbers by stating that they already knew the numbers but needed to “verify” them. The defendants also misrepresented that consumers would receive a free trial period before being charged the $349 enrollment fee. They also charged many consumers without authorization, and ignored most requests for refunds. The Canadians operated this scheme under a series of different names, including “Med Plan,” “Global Discount Healthcare,” and “MDI.”

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On July 21, China International Marine, Inc. and Netherlands-based Burg Industries stated that their merger announced in February, which would have created one of the world's largest container makers, would be scrapped. This merger, valued at approximately $104 million, would have effectively combined the two companies under a single holding company.

China International said that the decision to terminate the deal was made after “judging the process for European Union regulators to review the transaction.” However, Burg Industries CEO Cees Van der Burg reportedly held that the EC notified China International and Burg to terminate the deal out of concerns that the proposed joint venture would become a monopoly in the market for the manufacture of tank containers for liquid cargos.

The EC investigation, launched in March, marked the first EC antitrust investigation into a Chinese company. The Chinese National Development and Reform Commission had already given its approval to the deal in April after the proposed merger was given a nod by the Chinese Ministry of Commerce.

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On July 26, Oji, Japan’s largest paper manufacturer said it would go ahead with a tender offer for sixth-ranked Hokuetsu in a deal that could exceed $1.4 billion, a rare attempt at a hostile takeover in a society where deals are generally more cautious and consensus-led. An Oji-Hokuetsu merger would create the world’s fifth-largest paper manufacturer. In a move to prevent Oji Paper Co.’s hostile takeover bid, Nippon Paper Industries Co. started purchasing large amounts of Hokuetsu Paper Mills Ltd.’s shares.

Nomura Holdings Inc., Japan’s largest securities firm, is advising Oji Paper Co in, as well as offering a loan to fund, the entire deal. Nomura, under pressure from shareholders to cut its reliance on trading revenue, is driving this takeover. Investors say this deal is exactly the kind that Nomura, which reported its lowest profit in a year, should pursue to help reverse a share-price slide that wiped $10 billion from the firm’s market value in four months.

Hokuetsu’s board rejected the Oji bid and offered shares at a lower price to Mitsubishi Corp, Japan’s largest trading company, to try and block the takeover. It also said it may issue equity warrants to all existing shareholders. If the bid was successful, it would set the tone for more hostile acquisitions.

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On July 25, the Federal Trade Commission (“FTC” or “Commission”) told the Subcommittee on Housing and Community Opportunity of the House Financial Services Committee that changes in the real estate industry, which increasingly incorporate the Internet into their business models, give consumers “the choice to save potentially thousands of dollars in commissions in exchange for taking on more work.” Maureen Ohlhausen, Director of the FTC's Office of Policy Planning told the Committee that the Commission has a long history of preventing unfair methods of competition and ensuring that real estate markets remain competitive.

On July 13, the Austin Board of Realtors settled FTC charges that their rules effectively prevented consumers using non-traditional listing agreements from gaining access to important public Web sites and made it more difficult for sellers to market their homes. The settlement bars the Board from adopting or enforcing any policy that interferes with members' ability to enter into non-traditional listing arrangements with clients.

The FTC also provides analysis of the likely competitive effects of legislative proposals. At the urging of state realtor associations, four states considered or adopted minimum-service requirements that would force consumers to purchase a “state mandated bundle of real estate brokerage services.” The FTC and DOJ advocated against them. The testimony notes that the FTC and Department of Justice co-hosted a real estate workshop in October 2005, to explore competition in the real estate industry.

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On July 18, the FTC announced that it reached a settlement that would allow Linde AG’s acquisition of the BOC Group to proceed. As is typical in merger reviews, the FTC staff focused on specific product overlaps to determine what assets needed to be divested to resolve the antitrust concerns. The Commission approved the merger so long as the companies divest two groups of assets: (1) liquid oxygen and liquid nitrogen and (2) bulk refined helium. The divestitures are required to satisfy the FTC that competition will not be harmed following the transaction. That being said, an up front buyer was required for one set of assets, while an upfront buyer was not required for the other. The consent order states that Linde will have to find FTC-approved buyer for the liquid oxygen and liquid nitrogen assets within six months, however, the FTC required Linde to divest the bulk refined helium assets to an upfront buyer, Nippon Sanso.

Up-Front Buyer

Interestingly, the FTC did not require up-front buyers for the liquid oxygen and liquid nitrogen assets, while requiring an upfront buyer for the bulk refined helium assets. In the recent past, the FTC used up-front buyers as a vital tool in assuring that a buyer will successfully enter and restore competition fully. Up-front buyers are typically required when the FTC is concerned about whether the proposed asset package is adequate to maintain or restore competition or whether the asset package is sufficient to attract an acceptable buyer or buyers. For some time, however, it seemed as though the FTC was always requiring up-front buyers even in routine cases. Undoubtedly, the FTC will continue to require up-front buyers in many situations, but this decision demonstrates the FTC’s willingness to approve mergers without requiring up-front buyers when they are not deemed necessary by the FTC. In those situations in which the FTC is concerned about the adequacy of the asset package or the possible lack of an acceptable buyer, the FTC will require an up-front buyer to minimize the risk that the divestiture remedy will be ineffective. When the merging parties can show that a good buyer will likely emerge, that the assets to be divested have been operated as a stand-alone business so that the buyer can maintain and restore competition after acquiring it, and that interim competition and the viability of the assets will be preserved pending divestiture, the FTC may not require an up-front buyer.

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On July 18, Britain's House of Lords overturned the Court of Appeal's decision in Inntrepreneur Pub Company and others v Crehan, the first case in which a UK court awarded damages for harm suffered as a result of a competition law infringement. As a result, there is now no longer any UK law precedent in which damages for loss suffered as a result of an infringement of competition law have been awarded.
The decision in the long-running dispute, Inntrepreneur Pub Company and others v Crehan, overturns the earlier decision in which the Court of Appeal awarded Crehan

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On July 18, Jacques Barrot, the European Commission's (“Commission” or “EC”) Vice-President in charge of transport, announced the Commission's intention to improve legislation in relation to the single market for aviation. While the Commission believes that the liberalization of the airline industry brought considerable benefits to consumers, such as reduced air fares, increased routes and greater access to remote regions, it notes that there is room to improve price transparency and the consistent application of legislation.

The Commission is proposing a regulation, complementing the Unfair Commercial Practices Directive, which would require that published fares include all applicable taxes, charges and fees. At present, the Commission noted that airlines, regardless of whether they are budget or national carriers, adopt an inconsistent approach to advertising prices and that consumers are being confused. Airlines would also be prevented from imposing varying prices based on the Member State where the consumer is resident.

Additionally, the Commission intends to further promote equal conditions for airlines across the Single Market by ensuring that EU legislation is interpreted and enforced consistently across all Member States. The proposal is to consolidate three existing regulations into one Single regulation on operating licenses, the rights to provide air services within the EU, and pricing in air transport – the so-called “third aviation package” adopted in 1992. Obsolete measures have been removed and the text clarified. Traffic rights between Member States' cities will be negotiated at a European level and the criteria for issuing, retaining and revoking operating licences will be monitored with the same level of severity across all Member States.

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On July 17, the Commission published its second Interim Report in relation to the retail banking part of its sectoral inquiry into the financial services sector in the Community. The first Interim Report dealt with the payment cards and the second Report covers Current Accounts and Related Services.

The purpose of the investigation was to uncover and address any anticompetitive practices and market failures within the retail banking sector. Although the Commission did not directly identify any breaches of competition law in the Interim Report, it found that there were severe barriers to competition and market failings in retail banking sector, including:

? wide fragmentation of service provision along national lines, which led to discrepancies in the cost of service delivery across the Community;

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