Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in DOJ Antitrust Highlights

On August 2, 2018, the DOJ’s Antitrust Division announced that it would begin a review of legacy consent decrees “regulat[ing] how certain movie studios distribute films to movie theatres.”  The Paramount Consent Decrees have been in place for almost 70 years.  U.S. v. Paramount, 334 U.S. 131 (1948).  The Supreme Court decision forced major studios to sell their theater chains. Since that ruling, the Paramount decrees, have governed the way that studios do business with exhibitors. The decrees have prohibited certain “motion picture distribution practices, including block booking (bundling multiple films into one theatre license), circuit dealing (entering into one license that covered all theatres in a theatre circuit), resale price maintenance (setting minimum prices on movie tickets), and granting overbroad clearances (exclusive film licenses for specific geographic areas).”

The DOJ has indicated its review will take into account the changes in the identity of movie theatre owners, the increased number of movie theaters in a geographic area, the increased number of screens in movie theaters, and increased number of viewing platforms available to consumers.  The review is part of the Antitrust Division’s initiative to terminate long-standing antitrust judgment, including many that have no termination date.

“The Paramount Decrees have been on the books with no sunset provisions since 1949. Much has changed in the motion picture industry since that time,” Makan Delrahim, the DOJ’s antitrust chief, said in a statement. “It is high time that these and other legacy judgments are examined to determine whether they still serve to protect competition.” 

On June 27, 2108, the Department of Justice’s Antitrust Division announced that The Walt Disney Company (“Disney”) agreed to divest 22 regional sports networks (“RSNs”) to resolve antitrust concerns with its approximately $71 billion acquisition of certain assets from Twenty First Century Fox (“21CF”).

Speedy Antitrust Approval

DOJ’s announcement of the settlement agreement is noteworthy because of the speed at which Disney was able to negotiate a remedy to a combination that raised a number of antitrust issues.  Though the parties received second requests on March 5, 2018, and Disney had only recently entered into a new agreement with 21CF on June 20, 2018, the DOJ and Disney were able to negotiate a divestiture worth approximately $20-23 billion within 6 months of review and 4 months after issuing information requests.  The dollar value of the Disney/21CF divestiture will likely double what the DOJ characterized as the largest divestiture in history in Bayer/Monsanto.

On March 15, 2018, the Department of Justice’s Antitrust Division filed a modified proposed final judgment (“MPFJ”) and responded to amici briefs filed in the Antitrust Procedures and Penalties Act (“Tunney Act”) proceedings regarding the DOJ’s settlement agreement that allowed Anheuser Busch InBev SA/NV’s (“ABI”) to acquire SABMiller.  In other words, the consent decree that was signed on July 20, 2016 between the Obama DOJ and the merging parties has yet to be approved by a federal court. One would think that the DOJ would move quicker on finalizing a consent decree that allowed the largest beer merger in history proceed.  But, here we are just about at the two-year mark without a finalized decree.

The DOJ permitted the merger of the two largest global brewers, which without a remedy threatened to reduce head-to-head competition between Anheuser Busch InBev SA/NV’s (“ABI”) and MillerCoors in local markets throughout the country.  The DOJ alleged that the elimination of competition between ABI and MillerCoors would increase ABI’s incentive and ability to disadvantage its remaining rivals – in particular, brewers of high-end beers that serve as an important constraint on ABI’s ability to raise its beer prices – by limiting or “impeding the distribution” of their beers, likely resulting in increased prices and fewer choices for consumers.   This allegation is significant because “effective distribution is important for a brewer to be competitive.”

To resolve these competitive concerns, the DOJ’s Proposed Final Judgment required the divestiture, which permanently cemented a duopoly where two suppliers exert control over approximately 85-90% of the distributors in the United States.  The DOJ further acknowledged in its Competitive Impact Statement (“CIS”) that ABI and Molson Coors have business arrangements and contacts throughout the world and that the divestiture may actually facilitate coordination.  Because of the increased likelihood of coordinated anticompetitive effects, the DOJ alleged that the merger “would increase ABI’s incentive and ability to disadvantage its beer rivals by impeding the distribution of its beers.”  Accordingly, the DOJ sought behavioral remedies, which are designed to keep beer distribution independent and open as well as to level the playing field for ABI’s high end rivals.

On June 18, 2018, T-Mobile and Sprint filed initial papers with the FCC.  The parties made a number of arguments on why their deal should pass regulatory muster.

First, T-Mobile and Sprint argue that they need the deal to compete with the Big Two (AT&T and Verizon) – the combined firm would be able to take advantage of efficiencies and economies of scale to bring technological innovations (5th generation (5G)) to the market faster to provide customers with better broadband services at a lower cost.  Thus, customers would benefit from the merger through lower prices and investments to their network.  The parties basically acknowledge that it is a four to three deal.

Second, the parties argue that the wireless market is no longer as concentrated because an abundance of competition exists or will exist in the near future as cable companies, Google, and others are increasingly entering this space. Even using current technologies, Comcast has rolled out low-cost wireless service to its cable customers that rides on Verizon’s network.  So the argument goes that this isn’t a case of going from 4 to 3 wireless companies – there are now at least 7 or 8 big competitors in this converging market.  There is a lot of reasons why long time staffers at the FCC and DOJ might be skeptical of this claim.

On June 7, 2018, the DOJ’s Makan Delrahim sought to reassure investors that worries that regulators would crack down on proposed vertical combinations were over-blown.  “I understand that some journalists and observers have recently expressed concern that the Antitrust Division no longer believes that vertical mergers can be efficient and beneficial to competition and consumers,” he said.  Noting that some point at the decision to sue to block AT&T from buying Time Warner “as a supposed bellwether”, Delrahim said: “rest assured these concerns are misplaced.”

So, is the Antitrust Division only concerned about vertical mergers in the media industry?

On May 29, 2018, the DOJ approved Bayer’s acquisition of Monsanto with a $9 billion asset divestiture.

Background

In September 2016, Bayer agreed to acquire Monsanto.  Bayer and Monsanto overlapped in the research, development, and marketing of seeds, crop protection chemicals, and related agricultural products.  The principal areas of competitive concern related to the seeds business.  The seeds and crop protection businesses are highly concentrated in the United States so from the get go Bayer knew that it needed to propose a comprehensive and complex remedy to resolve the antitrust concerns.

On May 21, 2018, Treasury Secretary Steven Mnuchin urged the DOJ to review the power that large technology firms such as Google have over the U.S. economy.  A “60 Minutes” segment on Sunday devoted to assertions that Alphabet Inc.’s Google wields a destructive monopoly in online search hammered home the notion of the company’s dominance during a time of heightened public concern with technology giants.  The report didn’t include new allegations about the company.  “These issues deserve to be reviewed carefully,” Mnuchin said in a CNBC interview in response to a question about the CBS News report.  “These are issues the Justice Department needs to look at seriously, not for any one company, but as these technology companies have a greater and greater impact on the economy.”

The report highlighted how critics and rivals, such as Yelp Inc., are trying to bring Europe’s antitrust approach to Google to the United States.  Margrethe Vestager, the European Union competition commissioner, told CBS that she is intent on stopping Google’s “illegal behavior” in web search, suggesting that the EC isn’t appeased by the company’s proposed solution for the hefty charges the EU filed last year.  “You have to look at the power they have and it’s something the Justice Department I hope takes a serious look at,” Mnuchin said, though he added that “issues of monopolies are out of my lane” and that it’s up to the DOJ to review antitrust violations.

CBS featured guests who argued Google abuses its dominance in search and search advertising.  It didn’t show any evidence that U.S. lawmakers or enforcement agencies will target the company or mention the potential cases Vestager is pursuing against Google for its Android mobile software and advertising business.

More Fallout From The Ill-Advised Tuna Merger

On May 16, 2018, the Department of Justice (“DOJ”) announced that a federal grand jury returned an indictment against Christopher Lischewski, the President and CEO of Bumble Bee Foods LLC (“Bumble Bee”), for participating in a conspiracy to fix prices for packaged seafood sold in the United States.

The indictment, filed in the U.S. District Court for the Northern District of California in San Francisco, charges Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.  The one-count felony indictment charges that Lischewski carried out the conspiracy by agreeing to fix the prices of packaged seafood during meetings and other communications.  The co-conspirators issued price announcements and pricing guidance in accordance with these agreements.

On April 25, 2018, the DOJ announced that it will require Martin Marietta Materials, Inc. (“Martin Marietta”) to divest quarries in Georgia and Maryland in order to proceed with its proposed $1.625 billion acquisition of Bluegrass Materials Company, LLC (“Bluegrass”) from LG Panadero, L.P. of Panadero Corp. and Panadero Aggregates Holdings, LLC.

According to the DOJ’s complaint, Martin Marietta and Bluegrass produce and sell aggregate, an essential input in asphalt and ready mix concrete that is used in road building and other types of construction.  The complaint alleges that, for a significant number of customers in and immediately around Forsyth and north Fulton County, Georgia, and in the Washington County, Maryland area, Martin Marietta and Bluegrass are two of only three competitive sources of aggregate qualified by the respective states’ Departments of Transportation.  According to the complaint, the loss of competition between Martin Marietta and Bluegrass would likely result in higher prices and poorer customer service for aggregate customers in these areas.

Under the terms of the proposed settlement, Martin Marietta must divest Bluegrass’s Beaver Creek quarry in Hagerstown, Maryland, and all of the quarry’s assets to an acquirer approved by the United States, in consultation with the State of Maryland.  Martin Marietta must also divest the lease to its Forsyth quarry in Suwanee, Georgia, and all of the quarry’s assets to Midsouth Paving, Inc., or an alternate acquirer approved by the United States.

On April 19, 2018, Makan Delrahim, Assistant Attorney General of DOJ’s Antitrust Division delivered the keynote address at the at the University of Chicago’s Antitrust and Competition Conference. The focus of his remarks was “evidence-based enforcement.” He said that “an evidence-based approach requires enforcement built on credible evidence that a practice harms competition and the American consumer, or in the case of merger enforcement, that it creates an unacceptable risk of doing so.”

Delrahim noted that outside of flat out price fixing and naked restraints of trade, which are clearly illegal, “antitrust demands evidence of harm or likely harm to competition, often weighed against efficiencies or procompetitive justifications.”  He added that “taking an evidence-based approach to antitrust law should not be mistaken for an unwillingness to bring enforcement actions.” He said that if there is clear evidence of harm, the antitrust enforcers should vigorously prosecute the antitrust laws. He noted that antitrust enforcers that failed to take action when they had credible evidence and accepted behavioral “band-aid” fixes to anticompetitive mergers should accept some blame.  Delrahim noted that “the Microsoft case proved that an evidence-based antitrust enforcement approach can be flexible in its application to new types of assets and markets—in that case, the computer code and software markets.”

His message was that the U.S. and international antitrust agencies should not simply go to war with digital platform companies rather a more effective approach would be grounded in evidence.  He added that “in certain platform markets involving network effects, there may be barriers to entry or a tendency toward a single firm emerging as the sole winner” and in those situations, “antitrust enforcers may need to take a close look to see whether competition is suffering and consumers are losing out on new innovations as a result of misdeeds by a monopoly incumbent.”