Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in FTC Antitrust Highlights

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.

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:

On February 3, 2017, Maureen Ohlhausen, Acting Chair of the Federal Trade Commission (“FTC”) gave a speech entitled “The FTC’s Path Ahead”. She said her antitrust philosophy is that she believes “in the power of the markets-when free of restraints and unnecessary regulations-to provide the best outcomes for consumers.” She believes in the “rigorous application of economic theory” for informing enforcement decisions.  She vows to challenge anticompetitive mergers.  She spoke about having an evidence based approach to antitrust enforcement and that the FTC should avoid against uncritically accepting a single piece of empirical work such as John Kowka’s claim that divestitures fail to protect competition.  He applauded him for his time but then criticized his work.  She said the Remedy Study demonstrates that the FTC’s remedies have worked well in most cases but acknowledged some imperfections exist.  She noted that every divestiture of an ongoing business succeeded and that 80% of all remedies succeeded.

On January 13, 2017, United States Federal Trade Commission (“FTC”) Chairwoman Edith Ramirez announced her resignation from the FTC, effective February 10, 2017.  This would leave the agency with two commissioners.  One Republican and one Democrat, Terrell McSweeny.  It is expected that the new interim FTC Commissioner will be Republican Maureen Ohlhausen.

On August 26, 2016, the Federal Trade Commission (“FTC”) approved final amendments to the Hart-Scott-Rodino Premerger Notification Rules that allow HSR filings to be submitted on DVD and streamline the instructions to the Premerger Notification Form.  These updates will make the process of submitting HSR filings easier, more efficient and less burdensome.

The HSR Act gives the federal government the opportunity to investigate and challenge mergers that are likely to harm consumers before injury occurs.  The HSR Act requires that the parties to certain proposed transactions submit HSR filings to the FTC and Department of Justice. These filings comprise of an HSR Form, which contains information about each company’s business, and relevant business documents regarding competition.

Currently, all HSR filings are submitted in paper form. By allowing HSR filings to be submitted on DVD, the amendments eliminate the expensive and time-consuming printing and duplication of electronically maintained documents that are submitted to the antitrust agencies.

On August 25, 2016, the FTC announced that ON Semiconductor Corporation (“ON”) agreed to sell its Ignition Insulated-Gate Bipolar Transistor (“IGBT”) business in order to settle FTC allegations that its proposed $2.4 billion acquisition of Fairchild Semiconductor International, Inc. (“Fairchild”) is anticompetitive.

According to the complaint, the merged company would have a combined share of over 60% in the worldwide market for IGBTs specifically designed and calibrated for automotive ignition systems, or Ignition IGBTs.  Without a divestiture, it is likely that the proposed merger would substantially lessen competition in the worldwide market for Ignition IGBTs, resulting in higher prices and reduced innovation.  Ignition IGBTs are semiconductors that function as solid-state electronic switches in the ignition systems of automotive internal combustion engines.  They have to meet the demanding performance requirements and harsh environment of an automotive ignition system.

ON and Fairchild both develop, manufacture, and market a wide range of semiconductors.  They are each other’s closest competitors for Ignition IGBTs sold to automotive suppliers, who then incorporate Ignition IGBTs into the ignition systems that they sell to automakers.  The proposed consent order preserves competition by requiring ON to divest its Ignition IGBT business to Littelfuse, Inc. (“Littelfuse”) within ten days of the close of the transaction.  Littelfuse is buying the product portfolio of transient voltage suppression diodes, switching thyristors, and insulated gate bipolar transistors for automotive ignition applications for $104 million.  The divestiture will include design files and intellectual property that Littelfuse needs to manufacture ON’s Ignition IGBTs.  ON must also facilitate the transfer of its customer relationships to Littelfuse, and supply Ignition IGBTs for Littlefuse to sell to customers while Littelfuse sets up its manufacturing operations.  Littelfuse will  spend about $30 million at its semiconductor manufacturing facilities to upgrade production capabilities and add significant capacity to its China fabrication facility as the result of the purchase and production transfer.

On July 27, 2016, the Federal Trade Commission (“FTC”) cleared to generic pharmaceutical deals.

Mylan/Meda Deal

Mylan, N.V. agreed to divest the rights and assets related to two generic products to settle allegations that its proposed $7.2 billion acquisition of Meda AB would be anticompetitive.  Under the terms of the settlement agreement, Alvogen Pharma US, Inc. will acquire the rights and assets related to 400 mg and 600 mg felbamate tablets (used to treat refractory epilepsy) from Mylan, and Mylan must also relinquish its U.S. marketing rights for 250 mg carisoprodol tablets (used to treat muscle spasms and stiffness) to allow Indicus Pharma LLC to compete in the U.S. market.  See FTC Press Release.

On May 13, 2016, the FTC approved a merger American Air Liquide Holdings, Inc. and Airgas, Inc. as long as the parties divest certain production and distribution assets to settle the FTC’s allegations that their proposed merger likely would have harmed competition and led to higher prices in several U.S. and regional markets.

Competitive Problem

According to the FTC’s complaint, the deal would eliminate direct competition between the two companies in certain markets that are already concentrated, increasing the likelihood that Air Liquide could unilaterally exercise market power.  The FTC’s complaint also alleged that the proposed acquisition would also make it more likely that remaining competitors, if any, could collude or coordinate their actions.  The FTC also alleged that entry was not likely happen quick enough to sufficiently counteract any anticompetitive price increases.  As a result, customers would likely pay higher prices for industrial gases in various regional and national markets within the United States.