Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in FCC Antitrust Highlights

On September 22, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) announced that they will solicit public comment and hold joint public workshops to explore the possibility of updating the Horizontal Merger Guidelines that are used by both agencies to evaluate the potential competitive effects of mergers and acquisitions.

The Merger Guidelines describe the analytical framework and specific standards normally used by the agencies in analyzing mergers. The Guidelines are intended to reduce the uncertainty associated with enforcement of the antitrust laws in the merger area. The last significant revision of the Guidelines was in 1992, however, the agencies issued a detailed Commentary on the Guidelines in 2006.

The goal of the workshops will be to determine whether the Guidelines need to be updated. In other words, do the Guidelines accurately reflect the current practice of merger review? Do the Guidelines take into account legal and economic developments that have occurred since 1992? Topics to be discussed include: the overall method of analysis used by the agencies; the use of more direct forms of evidence of competitive effects; market definition; market shares and market concentration; unilateral effects, especially in markets with differentiated products; price discrimination; geographic market definition; the relevance of large buyers; the distinction between uncommitted and committed entry; the distinction between efficiencies involving fixed and marginal cost savings; the non-price effects of mergers, especially the effects of mergers on innovation; and remedies.

On September 4, the FTC filed comments in response to the Federal Communications Commission (“FCC”) Notice of Inquiry regarding development of a National Broadband Plan that will seek to ensure that every American has access to broadband capability. In its comments, the FTC states that the FCC should take into consideration the FTC’s two primary missions – promoting competition and protecting consumers in the marketplace.

The FTC comments point out that competition and consumer protection work together to benefit consumers. If competition and consumer protection are considered in developing the National Broadband Plan, the FTC believes consumers’ access to the Internet will be improved, as will their ability to enjoy specific content and applications once they have broadband capability.

The FTC’s comments question whether there is significant competition within the broadband arena. To evaluate that competition and tailor regulatory policies, the FTC suggests that the FCC use some of the analytical tools used by the FTC and DOJ in antitrust cases. Consumer protections also are essential to help foster greater adoption of broadband. They include meaningful and timely disclosures of service terms by broadband providers and strong data security policies that will safeguard consumer information and ease potential consumer concerns aboutonline privacy. Privacy protections are particularly important, given new technologies that allow broadband providers to track consumers’ online activities, to identify the source and content of much of the data they handle, and to manage that data in increasingly sophisticated ways, such as delivering targeted advertising online.

On July 6, a number of news sources reported that the DOJ has begun looking into whether large U.S. telecommunications companies such as AT&T Inc. and Verizon Communications Inc. are abusing their market power they have amassed in recent years.

The review is an indication of the Obama administration’s aggressive stance on antitrust enforcement. Christine Varney, the new antitrust chief of the Antitrust Division, clearly wants to reassert the government’s role in scrutinizing potential monopolistic and anticompetitive practices by powerful companies.

This investigation follows her speech in May where she withdrew the DOJ’s Section 2 Report. Section 2 of the Sherman Act is used in monopolization cases. The DOJ did not bring a major Section 2 case during the Bush years.

On June 23, 2009, John C. Malone, the chairman of the board of Liberty Media Corporation and the chief executive officer of Discovery Holding Co. (“Discovery”), agreed to pay a penalty of $1.4 million for violating premerger reporting and waiting requirements of the Hart-Scott-Rodino (“HSR”) Act of 1976 when acquiring Discovery.

Mr. Malone violated premerger notification requirements when he began to acquire Discovery voting securities in August 2005 and continued to do so through April 2008. On June 12, 2008, he made a corrective filing for those acquisitions, which triggered a waiting period. However, on June 14, 2008 he made additional acquisitions of Discovery voting securities, when he exercised two options using an escrow arrangement. The escrow arrangement failed to prevent ownership benefits from passing to Mr. Malone and as such Mr. Malone was in violation of the HSR Act. According to the complaint lodged by the Department of Justice’s Antitrust Division, at the request of the Federal Trade Commission, Mr. Malone was in violation of the HSR Act from August 9, 2005 to July 14, 2008.

The HSR Act is an amendment to the Clayton Act and imposes notification and waiting periods on individuals and companies of a certain size before they can complete an acquisition in holding assets over a certain value. In 2005, that amount was $53.1 million. This amount is adjusted annually to reflect changes in gross national product. The amount today is set at $65.2 million.

On June 2, Bradley J. Hansen, the former superintendent of the Montcalm Area Intermediate School District in Grand Rapids, MI, was indicted by a grand jury for conspiring to commit bribery and deprive the school district and the citizens of Michigan of his honest services in relation to the Federal Communication Commission’s (“FCC”) E-Rate Program.

He was also charged with obstruction of justice into Department of Justice’s ongoing investigation into bidding violations related FCC E-Rate program. According to the indictment, Mr. Hansen conspired with a local Internet service provider by accepting a three-year contract worth $1.6 million along with $60,000 in free goods and services.

The conspiracy took place between 2001-2004. The Telecommunication Act of 1996 authorized the FCC’s E-Rate Program to provide economically disadvantaged school districts and libraries with funds to connect to the Internet. As a result of this ongoing investigation a total of seven companies and 18 individuals have pleaded guilty, have been convicted and found guilty, or entered civil settlements, resulting in more than $40 million in criminal fines, civil settlements and restitution and jail sentences totaling nearly 29 years.

On May 27, the Federal Trade Commission filed an administrative complaint o block CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation. The administrative complaint alleges that the deal would be illegal and would substantially reduce competition in the U.S. markets for four plasma-derivative protein therapies – Immune globulin (Ig), Albumin, Rho-D, and Alpha-1. These therapies are used to treat patients suffering from illnesses such as primary immunodeficiency diseases, chronic inflammatory demyelinating polyneuropathy, alpha-1 antitrypsin disease, and hemolytic disease of the newborn.

In addition to the administrative complaint, the Commission authorized the staff to seek a preliminary injunction in federal district court in Washington, D.C. to stop the transaction pending completion of the adminstrative trial.

According to the Commission’s administrative complaint, the plasma protein markets are highly concentrated markets which are already exhibiting signs of coordinated behavior. The proposed acquisition would further consolidate the industry and increase the likelihood of collusion. CSL’s proposed acquisition of Talecris would be anticompetitive. The proposed acquisition would reduce the number of competitors in the U.S. markets for Ig and Albumin from five to four, leaving the top two remaining competitors – CSL and Baxter – accounting for more than 80 percent of each market. In addition, in the U.S. markets for Rho-D and Alpha-1, the proposed transaction would reduce the number of competitors from three to two.

On May 3,2004, the Department of Justice’s (“DOJ”) Antitrust Division, at the request of the Federal Trade Commission (“FTC”), filed two civil suits against alleged violators of pre-merger notification filing requirements under the Hart-Scott-Rodino (“HSR”) Act of 1976.

The HSR Act imposes notification and waiting period requirements on individuals and companies over a certain size before they can consummate acquisitions of stock or assets valued at more than $50 million. The purpose of the HSR Act is to provide federal antitrust enforcement agencies an opportunity to investigate proposed transactions and determine whether the transactions would violate the antitrust laws. If the reviewing agency determines that a transaction violates the antitrust laws, it may seek to block that transaction before the waiting period expires. Therefore, the antitrust agencies take HSR violations very seriously, even ones where no competition overlaps exist. Indeed, a party is subject to a maximum civil penalty of $11,000 a day for each day it is in violation of the HSR Act.

While the HSR Act requires pre-merger notifications to be filed with both the DOJ and the FTC, a number of exemptions exist. For example, the HSR Act exempts notifications of acquisitions of 10 percent or less of a company’s stock made “solely for the purpose of investment.” To qualify, the investment must constitute less than 10 percent of a company’s shares, and the investor cannot play any role in the acquired company’s decision making.

On October 30, 2008, the Department of Justice (“DOJ”) required Verizon Communications Corp. (“Verizon”) to divest assets in 100 locations in 22 States for its acquisition of Alltel Corp. (“Alltel”) to proceed. The divestitures cover the States of Alabama, Arizona, California, Colorado, Georgia, Idaho, Illinois, Iowa, Kansas, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, South Carolina, South Dakota, and Virginia.

According to the complaint, the proposed merger would have had anticompetitive effects for consumers 94 Cellular Marketing Areas (“CMAs”) as defined by the FCC, where both mobile wireless telecommunications service providers were each other’s closest competitors. Furthermore, proposed settlement also includes two modifications to existing consent decrees.

Andre Barlow

On August 28, 2008, the Department of Justice (“DOJ”) approved Raycom Media, Inc.’s (“Raycom”) acquisition of Richmond NBC affiliate, WWBT-TV from Lincoln Financial Media Company (“Lincoln”) after entering into a settlement agreement requiring Raycom to divest its Richmond CBS affiliate WTVR-TV to resolve antitrust concerns. This acquisition would have resulted in Raycom owning two of the top four local broadcast stations, in terms of advertising revenue.

According to the complaint, Raycom would have controlled over fifty percent of the broadcast television spot advertising market had the acquisition been approved without a settlement agreement. Prior to the transaction, the two broadcast stations competed head to head for buyers of spot broadcast television advertising time.

Headquartered in Montgomery, AL, Raycom owns and operates 46 television stations in 35 markets in 18 states.

On June 10, 2008 the Department of Justice (“DOJ”) along with the State of Vermont entered into a settlement agreement that would allay their concerns that Verizon Communication Corp.’s (“Verizon”) acquisition of Rural Cellular Corp. (“RCC”) for $2.7 billion as proposed is anticompetitive.

To resolve antitrust concerns, the DOJ required Verzion to divest assets in six different geographic locations in Vermont, New York and Washington. Verizon and RCC provide service to approximately 60 percent of the consumers in those areas. The Department said that the transaction as originally proposed would have substantially lessened competition to the detriment of consumers of mobile wireless telecommunications services in those areas, potentially resulting in higher prices, lower quality and reduced network investments.

Serving more than 65 million people in 49 states, Verizon is the second largest mobile wireless telecommunications services provider. RCC is the 10th largest providing its service to 790,000 consumers in15 states. Last year, Verizon made $43 billion in revenue while RCC earned $635 million. This transaction is currently under review at the Federal Communications Commission.