Antitrust Lawyer Blog

Commentary on Current Developments

On June 19, 2017, the Trump Administration’s Federal Trade Commission (“FTC”) authorized the staff to file an antitrust complaint to block the merger of DraftKings and FanDuel, the two largest daily fantasy sports (“DFS”) sites.  The state of California and the District of Columbia Attorneys General joined in the lawsuit.  The FTC’s legal challenge is a huge win for DFS customers.

Merger to Monopoly Tests Trump’s Antitrust Enforcement Policy

On November 18, 2016, shortly after President Trump won the election, the two largest DFS firms announced their plans to merge into a single company that would control more than 90% of the DFS market.  Regardless of the political backdrop, any merger that would result in a virtual monopoly was sure to be highly scrutinized.

On April 5, 2017, the EC approved China National Chemical Corporation’s (“ChemChina”) proposed acquisition of  Syngenta AG (“Syngenta).  The approval is conditional on the divestiture of significant parts of ChemChina’s European pesticide and plant growth regulator business.

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in Europe through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

The EC had concerns that the transaction as notified would have reduced competition in a number of existing markets for pesticides.  Furthermore, it had concerns that the transaction would reduce competition for plant growth regulators.  The EC’s investigation focused on competition for existing pesticides, since ChemChina does not compete with Syngenta for the development of new and innovative pesticides.

On April 4, 2017, the FTC entered into a settlement agreement with China National Chemical Corporation (“ChemChina”) and Syngenta AG whereby the parties agreed to divest three types of pesticides, in order to resolve antitrust concerns with its merger.

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in the United States through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

According to the FTC’s complaint, the merger as originally proposed would have caused competitive harm in the United States in three pesticide lines:

On April 3, 2017, the Department of Justice (“DOJ”) announced that that it forced Danone to divest its Stonyfield Farms business in order for Danone to proceed with its $12.5 billion acquisition of WhiteWave.

Prior to the merger, Danone did not produce or sell organic milk in the United States, however, it produced and sold organic yogurt through its United States subsidiary, Stonyfield Farms. WhiteWave produces and sells organic milk and yogurt in the United States.

According to the DOJ’s complaint, however, as a result of Danone’s long-term strategic partnership and supply and licensing agreements with CROPP Cooperative (“CROPP”), WhiteWave’s primary competitor, the proposed acquisition would have provided incentives and opportunities for cooperative behavior between the two leading purchasers of raw organic milk in the northeast (CROPP and WhiteWave”), which likely would have resulted in farmers receiving less favorable contract terms for the purchase of their raw organic milk.  So, the DOJ had buyer power concerns.

On March 23, 2017, the U.S. Department of Justice (“DOJ”) announced that it reached a settlement that will prohibit DIRECTV Group Holdings, LLC (“DirecTV”) and its parent corporation, AT&T Inc. (“AT&T”), from illegally sharing confidential, forward-looking information with competitors.

On November 2, 2016, the DOJ’s Antitrust Division filed suit alleging that DirecTV was the ringleader of a series of unlawful information exchanges between DirecTV and three of its competitors – namely, Cox Communications Inc. (“Cox”), Charter Communications Inc. (“Charter”) and AT&T (before it acquired DirecTV) – during the companies’ negotiations to carry the SportsNet LA “Dodgers Channel.”

SportsNet LA holds the exclusive rights to telecast almost all live Dodgers games in the Los Angeles area.  According to the complaint, DirecTV’s Chief Content Officer, Daniel York, unlawfully exchanged competitively-sensitive information with his counter-parts at Cox, Charter and AT&T while they were each negotiating with SportsNet LA for the right to telecast the Dodgers Channel.  Specifically, the complaint alleges that DirecTV and each of these competitors agreed to and exchanged non-public information about their companies’ ongoing negotiations to telecast the Dodgers Channel, as well as their companies’ future plans to carry – or not carry – the channel. The complaint also alleges that the companies engaged in this conduct in order to unlawfully obtain bargaining leverage and to reduce the risk that they would lose subscribers if they decided not to carry the channel but a competitor chose to do so. The complaint further alleges that the information learned through these unlawful agreements was a material factor in the companies’ decisions not to carry the Dodgers Channel. The Dodgers Channel is still not carried by DirecTV, Cox or AT&T. The DOJ allegations make out a buyer conspiracy case that violate Section 1 of the Sherman Act.  The DOJ further claims that the illegal information sharing corrupted the competitive bargaining process and likely contributed to the lengthy blackout.

On February 28, 2017, U.S. District Judge Emmet Sullivan ruled that Pennsylvania and the District of Columbia AGs were not entitled to $175,000 in legal fees for their efforts in the Federal Trade Commission’s (“FTC”) challenge to Staples Inc.’s proposed acquisition of Office Depot.

The FTC clearly took the lead and won a preliminary injunction under the more lenient standard under 13(b) of the FTC Act.  After winning the preliminary injunction not a permanent injunction under the Clayton Act, Staples and Office Depot abandoned their merger plans.

Pennsylvania and D.C. argued they were entitled to fees under a provision of the Clayton Act that allows for the reimbursement of legal costs when the plaintiff “substantially prevails.” Staples’ lawyers painted the AGs as mere spectators and argued that they should not be entitled to legal fees for two reasons.  First, they did not win under the Clayton Act and second, the fees were unreasonable.

Anthem Cigna Merger Blocked

February 8, 2017

On February 8, 2017, Judge Jackson blocked Anthem Inc.’s (“Anthem”) acquisition of Cigna Corp. (“Cigna”) finding that the merger would likely harm competition.  The district court wholly refuted the parties’ argument that efficiencies would be pro-consumer and a counter-weight to potential competitive problems.  U.S. District Court Judge Amy Berman Jackson also recognized the highly abnormal relationship between Anthem and Cigna, saying the Department of Justice’s Antitrust Division (“DOJ”) was not the only party in the case raising questions about the merger.

On February 16, 2017, Maureen K. Ohlhausen, Acting Chairman of FTC, announced that she appointed Abbott (Tad) Lipsky, a partner at the law firm of Latham & Watkins LLP, to be the Acting Director of the FTC’s Bureau of Competition, effective March 6, 2017.

Lipsky brings with him over 40 years of experience in antitrust law.  He started his legal career as an attorney in the Antitrust Division of the U.S. Department of Justice (“DOJ”), where he focused on deregulation and enhancing competition and antitrust enforcement in certain regulated sectors of the economy, including the aviation, transportation and energy industries.  Following a break from government service, he returned to the DOJ in 1981 upon his appointment as Deputy Assistant Attorney General to President Reagan’s first Assistant Attorney General, William F. Baxter.  At Latham & Watkins, Lipsky’s practice focused on a range of antitrust matters in many countries around the world.  He is co-chair of the Antitrust Section of the American Bar Association’s (“ABA”) International Task Force, and most recently served on the Antitrust Section’s Presidential Transition Task Force.  Lipsky previously served as the chief global antitrust counsel to the Coca-Cola Company from 1992-2002.  He holds a Bachelor’s degree in Physics cum laude from Amherst College, an M.A. in Economics from Stanford University, and a J.D. from Stanford Law School.

As part of these staff changes, Acting Chairman Ohlhausen appointed Alan Devlin as Acting Deputy Director of the Competition Bureau.  Devlin previously served as an Attorney Advisor to Acting Chairman Ohlhausen.  Devlin, who joined the FTC in 2015 from the law firm of Latham & Watkins, teaches antitrust as an Adjunct Professor at Georgetown University Law Center.  And Chairman Ohlhausen also appointed Svetlana S. Gans, a former Attorney Advisor and litigation attorney within both the Bureaus of Consumer Protection and Competition, as her Chief of Staff.  Gans joined the FTC in 2010 from private practice, where she focused on antitrust and consumer protection matters, with previous experience at the DOJ’s Antitrust Division.

On February 16, 2017, the United States Federal Trade Commission (“FTC”) announced that energy infrastructure companies Enbridge Inc. (“Enbridge”) and Spectra Energy Corp (“Spectra”) agreed to settle FTC charges that the proposed $28 billion merger of Enbridge and Spectra likely would harm competition in the market for pipeline transportation of natural gas in three production areas off the coast of Louisiana.

According to the FTC’s complaint, the merger likely would reduce natural gas pipeline competition in three offshore natural gas producing areas in the Gulf of Mexico – Green Canyon, Walker Ridge and Keathley Canyon – leading to higher prices for natural gas pipeline transportation from those areas.  In portions of the affected areas, the FTC alleged, the merging parties’ pipelines are the two pipelines located closest to certain wells and, as a result, are likely the lowest cost pipeline transportation options for those wells.

Under the settlement with the FTC, the companies have agreed to behavioral conditions that will preserve competition in those areas.  Enbridge is the sole owner and operator of the Walker Ridge Pipeline.  Through its indirect stake in DCP Midstream Partners, LP (“DCP”), Houston-based Spectra indirectly owns a 40% interest in the Discovery Pipeline.  According to the FTC, the proposed merger will give Enbridge an ownership interest in both pipelines, which will give it access to competitively sensitive information of the Discovery Pipeline, as well as significant voting rights over the Discovery Pipeline.  Access to its competitor’s competitively sensitive information and significant voting rights would provide Enbridge with the incentive and opportunity to unilaterally increase pipeline transportation costs for natural gas producers located in the affected areas.  The exchange of information also may increase the likelihood of tacit or explicit anticompetitive coordination between the Walker Ridge Pipeline and the Discovery Pipeline.

On February 3, 2017, the U.S. Federal Trade Commission (“FTC”) released a study entitled “The FTC’s Merger Remedies 2006-2012” (“Remedy Study”). The Remedy Study, a report of the FTC’s Bureaus of Competition and Economics, examines 89 merger orders affecting 400 markets, with 79 divestitures to 121 buyers, and evaluates 50 of those orders using a case study method.  To conduct the Remedy Study, the FTC interviewed nearly 200 businesses in a wide range of industries.

The Remedy Study confirms that the FTC’s practices related to designing, drafting and implementing its merger remedies are generally effective.  At the same time, the Remedy Study identifies a number of shortcomings that the FTC needs to address to improve the remedy process.

Some of the key findings and adjustments include: