Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in Civil Non-Merger Highlights

On September 17, the Senate Judiciary Committee held a hearing — “Why Net Neutrality Matters: Protecting Consumers and Competition Through Meaningful Open Internet Rules.”  The witnesses were:

·            Brad Burnham – Managing Partner, Union Square Ventures

·            Ruth Livier – Writer, Independent Producer, and Actress

On September 10, 2014, the House Judiciary Committee passed legislation to eliminate certain discrepancies between merger reviews conducted by the Federal Trade Commission and Department of Justice.

The Standard Merger and Acquisition Reviews Through Equal Rules Act (SMARTER Act), H.R. 5402, introduced by Rep. Blake Farenthold (R-TX), would codify certain recommendations included in a 2007 report by the Antitrust Modernization Commission. Under existing law, the rules for reviewing a merger or acquisition differ depending on whether the FTC or the DOJ reviews the merger. The SMARTER Act would reduce differences in the merger review process.

The proposed legislation would streamline merger reviews and various other antitrust procedures that, under current law, differ between whether the DOJ or FTC is conducting the review.  The legislation would amend the Clayton Act and the Federal Trade Commission Act to provide the antitrust agencies with consistent processes when moving to block a merger.  Officials are looking to extend the same powers held by the DOJ to the FTC.  The bill also eliminates the FTC’s power to initiate an administrative proceeding to challenge a merger; that power would be preserved in other contexts, but in regards to a merger the FTC would need to file a complaint in federal district court to block a deal, the same process currently followed by the DOJ.

In a September 4, 2014 speech, Federal Communications Commission (“FCC”) Chairman Tom Wheeler expressed concerns about the lack of broadband competition in the United States.

Chairman Wheeler explained that access to a 25 Mbps connection is becoming essential (or “table stakes”) to consumers with a majority of Americans having access to 100 Mbps or higher connections. However, “just because most Americans have access to next-generation broadband doesn’t mean they have competitive choices.”  Indeed, Chairman Wheeler believes that most Americans really have no competitive choices.  Chairman Wheeler applauded Google and AT&T’s introductions and plans to introduce gigabit broadband to markets around the country, but worried that characterizing competition in many markets as a duopoly “overstates the case” because of the lack of competitive opportunities open to consumers.

To address these concerns, Chairman Wheeler explained the FCC’s Agenda for Broadband Competition, which includes four broad principles: (i) protect existing competition; (ii) encourage greater competition where possible; (ii) create competition where it does not exist in a meaningful way; and (iv) promote broadband deployment where competition cannot be expected to exist.  Through the application of these principles, Chairman Wheeler hopes to improve broadband performance, promote competition, and encourage innovation.

On September 3, 2014, the FCC announced it reached a settlement with Verizon for $7.4 million.

The settlement ending an investigating into Verizon’s alleged misuse of customer information. The FCC’s Enforcement Bureau was investigating Verizon’s alleged failure to notify approximately two million new customers of their privacy rights.  Specifically, Verizon allegedly failed to provide to  new customers instructions for how to opt-out from alleged Verizon’s use of their personal information for marketing purposes.  As part of the settlement, Verizon must inform all new customers of their opt-out rights on every bill for three years.

The $7.4 million settlement is the largest in FCC history for a settlement of an investigation related solely to the privacy of telephone customers’ personal information.

Berkshire Hathaway Agrees to Pay $896,000 Maximum Civil Penalty for HSR Violation

On August 20, 2014, the Federal Trade Commission (“FTC”) announced that Berkshire Hathaway Inc. (“Berkshire”) agreed to pay a civil penalty of $896,000, the maximum civil penalty that could have been imposed, for its alleged violation of the premerger notification and filing requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) in connection with its 2013 acquisition of voting securities of USG Corporation, which was allegedly its second HSR violation after a promise to impose an HSR compliance program.

First HSR Mistake

On July 14, 2014, New York State Attorney Eric Schneiderman announced that Casella Wastes (“Castella”), a waste management company based in Vermont but also serving New York, agreed to change its existing contracting practices in the face of antitrust scrutiny.

Casella was found to have unlawfully restricted competition through its acquisition of smaller competitors and restriction on contract terms that ties customers to its services. These contracts involved the collection and disposal of solid waste from dumpsters.  Casella’s contracts required that it serve as the sole provider to all of a customer’s waste disposal needs for at least five years. Early termination of the contract would cost the customer the equivalent of six times the amount on their monthly bill.  In addition, Casella also reserved the right to match competing offers from rivals, effectively discouraging competitors from bidding for Casella’s business.

The terms of the settlement reduced the customer’s burden of terminating a Casella contract: the customer is now only expected to pay the equivalent of two months of service if the contract is within its first year, and the equivalent of one month of service if the contract is beyond the first year.  In addition, Casella’s contract length is also to be capped at two years.

On July 14, SignatureMD, a concierge medicine provider, sued its competitor, MDVIP, in federal court over allegations that the latter’s business practices violated the Sherman Antitrust Act, as well as California’s antitrust and unfair competition statutes in the Cartwright Act.

According to the lawsuit, MDVIP, the largest provider of concierge medicine in the United States that boasts 200,000 members and 700 physicians, tied doctors with “evergreen” contracts that cost $1 million to terminate, prevented doctors from seeing any patients who are not MDVIP members, and even stops doctors from switching allegiance to different concierge medicine providers for at least two years after their contract with MDVIP expires.

SignatureMD claims that MDVIP enjoys a 70 percent share of the concierge medicine membership program market and a 65 percent to 100 percent share in major cities and local markets across the country. Combined with MDVIP’s restrictive practices, SignatureMD argues, rival concierge medicine providers can no longer compete with it effectively. SignatureMD is seeking an injunction, damages and costs from MDVIP.

On July 11, 2014, Germany’s association of booksellers announced that European Union (“EU”) officials contacted them regarding its dispute with Amazon.com. The booksellers have already asked German antitrust authorities to investigate Amazon, alleging that the online retailer is delaying the shipment of one of its member, Bonnier AG’s books over a dispute on the price of the publisher’s e-books.

Amazon, in response, stated that Bonnier AG wanted Amazon to charge prices for its e-books that would have been higher than its hard-copy books. According to Amazon, their regular course of action is to charge lower prices for e-books compared to the hard copies. Amazon has been caught in similar disputes, including one with French publisher Hachette Book Group. Amazon is thought to be attempting to boost its margins in its e-books division by negotiating lower prices from publishers.

Similar cases may give prediction to Amazon’s course of action in the face of antitrust investigation. In 2012, Apple Inc. and four publishers changed the pricing model for e-books in Europe in the face of scrutiny from EU antitrust authorities. They were suspected to have conspired to keep Amazon from charging less for e-books.

On May 6, 2014, a gasoline price-fixing lawsuit brought by District of Columbia Attorney General Irving Nathan was thrown out of court by Judge Craig Iscoe, ruling the District of Columbia has no grounds to bring such an action.

The District of Columbia’s lawsuit challenged the exclusive dealing contracts (the so-called “jobbers”) that gas stations had with specific suppliers that are the norm in the District.  As much as 60% of the gas stations in Washington, D.C. have the same supplier.

The District of Columbia argued that these exclusive supply arrangements violated the Retail Service Station Act, D.C.  Code §§ 36-301.01 et seq. (the “RSSA”), which prohibits distributors from enforcing exclusive dealing contracts with gasoline retailers.  However, Judge Iscoe dismissed the case because he found that the Attorney General’s office did not have the power to sue on this matter. Judge Iscoe found that only those who are directly affected by the alleged cartel have the right to sue.

On May 30, 2014, the lawyers representing Donald Sterling, the controversial ex-owner of the National Basketball Association (“NBA”) franchise, the Los Angeles Clippers (“Clippers”), filed a complaint before the U.S. District Court in the Central District of California to fight an order by the NBA that would force him to divest his ownership in the Clippers, be banned for life from the NBA, as well as pay a $2.5 million fine.

The lawsuit names the NBA and its commissioner, Adam Silver, as the defendants.  The NBA and Silver slapped the punishments on Donald Sterling after a tape containing racist remarks made by the latter was made public.

The complaint alleges that the NBA violated California’s constitution, the NBA’s own constitution, and the Sherman Antitrust Act through its proscribed punishments against Mr. Sterling.  The complaint hinges on the fact that the cause of the entire controversy—and the sole reason behind the NBA’s decision to penalize Mr. Sterling—is the tape containing Mr. Sterling’s remarks, which, as the complaint pointed out, was illegally recorded without Mr. Sterling’s knowledge, is inadmissible in court, and violates Mr. Sterling’s rights under California’s Constitution. The NBA, as a result, had no legal reason to penalize Mr. Sterling.  Moreover, the complaint points out that the NBA and Commissioner Silver are not authorized to levy any of its punishments on Mr. Sterling per the NBA constitution or its by-laws, since Mr. Sterling’s comments did not violate any part of the NBA’s constitution or its by-laws. The complaint also noted that many other NBA franchise owners or players who made similar controversial comments have not been punished as severely as Mr. Sterling; some have not even been punished at all by the Association.