Antitrust Lawyer Blog Commentary on Current Developments

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On April 27, 2015, the Department of Justice’s (“DOJ”) Antitrust Division released a statement regarding Applied Materials Inc. (“AMAT”) and Tokyo Electron’s (“TEL”) joint announcement that they abandoned their merger.  The Antitrust Division’s statement indicates that the transaction was blocked because the combination would have diminished innovation.  In other words, the Antitrust Division was concerned about the potential loss of head to head competition in the development of future cutting edge semiconductor products and made no allegation that the combined firm would have monopolized any existing or actual product market.  The Antitrust Division’s tough stance against AMAT indicates that it is willing to scrutinize and challenge deals that raise longer-term anticompetitive concerns related to future competition even if there is no past pricing evidence that may predict that the merger will result in higher prices regarding actual products.

Background

On September 24, 2013, AMAT and TEL announced a definitive agreement to merge via an all-stock combination, which valued the new combined company at approximately $29 billion.  The companies claimed that securing regulatory clearances should not be a problem because their product offerings were highly complementary with few overlaps.  Indeed, AMAT was strong in markets where Tokyo Electron was not and vice versa.  In areas, where they directly competed, the combined shares were low.  Nevertheless, the transaction would have combined AMAT, the largest semiconductor equipment supplier in the world, with TEL, the third largest equipment supplier.

On March 13, 2015, the Federal Trade Commission (“FTC”) announced revisions to its rules regarding the FTC’s process of determining whether to continue on with an administrative challenge to a merger in the situation when it loses a preliminary injunction motion in federal court.

When the FTC seeks to challenge a transaction, the FTC generally seeks a preliminary injunction in federal court to prevent consummation of the transaction pending the outcome of an internal administrative trial.  If the injunction is implemented, it prevents the parties from integrating the assets until the conclusion of the administrative proceeding.  The preliminary injunction is important as it preserves the FTC’s ability to create an effective merger remedy in the event the FTC’s Administrative Law Judge (“ALJ”) finds that the merger violates the antitrust laws.

Under new changes to Commission Rule of Practice 3.26, if the FTC loses its request for an injunction, the pending administrative proceeding will be automatically withdrawn or stayed if the parties file a motion to have the administrative case withdrawn.  If all respondents move to have the administrative case withdrawn from adjudication, it will automatically be withdrawn two days after the motion is filed.  If any motion to dismiss the administrative complaint is filed, the administrative case will automatically be stayed until seven days after the Commission rules on the motion for dismissal.  All deadlines will be tolled for the amount of time the proceeding is stayed.  While the automatic withdrawal of the complaint and stay are characterized as new changes to FTC rules, the changes to Rule 3.26 actually reinstate the long standing practice of an automatic withdrawal from, or stay of, the administrative litigation that was in place until 2009.

The key to closing transactions that raise straightforward antitrust concerns in a relatively short time frame is the antitrust counsel’s and the merging parties’ ability to effectively cooperate with the Antitrust Division staff tasked with reviewing the transaction.

A.    Martin Marietta/Texas Industries

On June 26, 2014, the Antitrust Division approved Martin Marietta Materials, Inc.’s $2.7 billion acquisition of Texas Industries on the condition that Martin Marietta divest a quarry in Oklahoma and two Texas rail yards used by it to distribute aggregate in the Dallas area.

On June 17, 2014, the Ministry of Commerce (“MOFCOM”) blocked the proposed P3 Network shipping alliance between Denmark’s AP Maller-Maersk (“Maersk”), Switzerland’s Mediterranean Shipping Company (“MSC”), and France’s CMA CGM (“CMA CGM”).

This is MOFCOM’s second block since it started conducting merger reviews approximately six years ago.  This is the first time that MOFCOM blocked a transaction between foreign firms.

Background

On November 7, 2014, the Department of Justice’s Antitrust Division announced that it obtained a $5 million settlement with Flakeboard America Limited; its parent companies, Celulosa Arauco y Constitución S.A. and Inversiones Angelini y Compañía Limitada; and SierraPine for illegal pre-merger coordination in violation of the antitrust laws and of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”).  The action underscores the Antitrust Division’s resolve to vigorously scrutinize the conduct of merging parties prior to consummation of the transaction.

Law Regarding Pre-Merger Coordination

There is a lot of excitement when companies plan a merger.  Company executives do not want to lose any time because there is pressure to integrate and achieve the synergies of combining operations as soon as possible.  Merging parties, however, must temper that enthusiasm, otherwise, they risk not only losing the transaction, but also being punished by the Antitrust Division.

On November 3, 2014, the Department of Justice’s Antitrust Division challenged National CineMedia, Inc.’s (“NCM”) proposed acquisition of Screenvision by filing a lawsuit in federal court.  The transaction would have combined the only two significant cinema advertising networks in the United States.

Background  

On May 5, 2014, NCM, Inc. entered into the Merger Agreement to acquire Screenvision for $375 million.  NCM, Inc. is the managing member and owner of 45.8% of National CineMedia, LLC (“NCM”), the operator of the largest in-theatre digital media network in North America.  Following the merger, NCM, Inc. was to evaluate whether to contribute the Screenvision assets to NCM LLC.  Technically, it is not America’s largest cinema advertiser buying the industry’s second largest, but the largest member in the largest cinema advertiser making the purchase.  It is a distinction without a difference because the bottom line is the deal would have combined the only two significant cinema advertising networks.

The Department of Justice’s Antitrust Division continues to send a strong message to individuals engaged in conspiracies to rig public real estate foreclosure auctions through criminal enforcement.  Punishing real estate investors engaged in illegal activity that harms struggling homeowners and financial institutions continues to be a priority for the Antirust Division.

Alabama Public Real Estate Auction Investigation

On October 31, 2014, the Antitrust Division announced that an Alabama real estate investor pleaded guilty for his role in a conspiracy to commit mail fraud related to public real estate foreclosure auctions held in southern Alabama.

On October 30, 2014, the Antitrust Division filed a complaint along with a proposed settlement agreement that allows Media General Inc.’s acquisition of LIN Media, LLC for $1.5 billion to be consummated, as long as the parties divest certain broadcast stations.

Background

Media General’s local broadcast stations and LIN’s stations in various designated marketing areas (“DMA”) around the country compete head-to-head in the sale of broadcast television spot advertising.  The Antitrust Division determined that Media General and LIN’s broadcast stations located in the Birmingham, Alabama, DMA; Savannah, Georgia, DMA; Mobile, Alabama/Pensacola, Florida DMA; Providence, Rhode Island/New Bedford, Massachusetts, DMA; and Green Bay/Appleton, Wisconsin, DMA competed head to head in the sale of broadcast television spot advertising to local and national advertisers.

On October 2, 2014, the Department of Justice’s Antitrust Division announced through a business review letter CyperPoint International, LLC’s cyber intelligence data-sharing platform known as TruSTAR, as proposed, does not raise antitrust concerns that would warrant a challenge.

Background

Earlier this year, the DOJ and the Federal Trade Commission issued a joint policy statement recognizing that private entities may share cyber threat information without running afoul of the antitrust laws.  In that policy statement, the agencies emphasized what competent antitrust counsel already knows — that the antitrust laws are not an impediment to legitimate private-sector initiatives to share specific information about cyber incidents and mitigation techniques to defend against cyber attacks.

On September 8, 2014, the Federal Trade Commission (“FTC”) filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania alleging that several major pharmaceutical companies with entering into an anticompetitive agreement that effectively blocks U.S. consumers’ access to lower-cost versions of the blockbuster drug AndroGel.

Background on Reverse Payment

The agreement at issue is referred to as a reverse payment patent settlement or as a “pay-for-delay” agreement.  These agreements occur after a brand-name drug manufacturer sues a generic manufacturer for patent infringement. In an effort to settling the patent infringement litigation, the companies enter a pay-for-delay agreement, whereby the generic firm controlling the generic drug that seeks to enter the market, accepts a payment to stay out of the market for a certain period of time.  Over the years, there has been a lot of debate on whether these agreements should be considered illegal per se. The FTC took the position that the agreements are illegal, while others believe the agreement could be procompetitive under certain circumstances.