Antitrust Lawyer Blog

Commentary on Current Developments

On September 21, 2017, the DOJ’s Antitrust Division issued a business letter stating that it would not challenge a proposal by The Clearing House Payments Company LLC (“TCH”), a joint venture of 24 U.S. banks, to create and operate a new payment system that will enable the real-time transfer of funds between depository institutions, at any time of the day, on any day of the week.

According to TCH, it claims that it will create and operate the Real Time Payment system (“RTP”) – a new payment rail that will provide for real-time funds transfers between depository institutions – and in turn, RTP will allow depository institutions to enable faster fund transfers for their end-user customers.

According to TCH, RTP will not interfere with the continued use and operation of existing payment rails, including automated clearing house, wire, and check clearing houses.  RTP will also incorporate additional features that existing payment rails do not offer, such as enhanced messaging capabilities.

On September 19, 2017, Valero Corporation (“Valero”) abandoned its acquisition of two northern California bulk petroleum terminals from Plains All American Pipeline (“Plains”) after the California state attorney general filed a lawsuit in the Northern District of California against Valero’s proposed acquisition.  The lawsuit was filed on July 8, 2017, a day after the FTC decided not to take any action against the transaction.

Background of Case 

Valero is a refiner and retailer of gas in California and through the acquisition, it was seeking to add Plain’s storage and distribution terminals in Richmond and Martinez, California.  California alleged that the transaction would allow Valero to control the last independently operated gathering line in the state with available capacity.  Part of the state’s argument was that the acquisition would eliminate Plains as a maverick competitor.  California alleged that Valero’s acquisition would permit the vertically integrated refiner to reduce competitor access to the distribution terminals, which would result in increased fuel prices at retail gas stations.  California alleged that Valero would be able to recoup lost terminal profits (after withholding access from competitors) through a downstream increase in gas prices.  California also alleged that once all the fuel terminals were vertically integrated, there would be a higher risk of coordination among Valero and other vertically integrated providers to similarly reduce supply into the terminal and increase prices at gas stations.

On August 30, 2017, the Federal Trade Commission (“FTC”) announced that Mars, Incorporated (“Mars”)  agreed to divest 12 specialty or off-hours emergency animal hospitals around the United States to settle FTC allegations that Mars’s $9.1 billion acquisition of pet care company VCA Inc. (“VCA”) would violate federal antitrust laws.

Competition Problem

The animal hospital industry is highly fragmented and very crowded.  For the most part, the FTC found that there were really very few antitrust concerns with the deal so there was much in terms loss of competition.  Overall, the combined entity would own roughly 6.5% of the North American market (26,000 animal hospitals) in terms of locations.  While a 6% share of the national or North American space is by no means troubling, problematic overlaps could nevertheless exist in smaller local markets.  Indeed, the primary factors influencing a customer’s selection of an animal hospital are convenient location and hours, personal recommendations, reasonable fees and quality of care.

On August 23, 2017, the Federal Trade Commission cleared Amazon.com Inc.’s acquisition of Whole Foods Market Inc. without a second request investigation. As mega mergers go, this antitrust review was fast and furious.

When the deal was announced, consumer groups and politicians questioned whether the combination was anticompetitive. Even President Trump, during the campaign, had been quoted as saying “Amazon had a huge antitrust problem”.

Many others were outspoken that the deal should at the very least undergo a thorough investigation because as they saw it, Amazon was adding groceries to its mix in an effort to cement its position as the go to platform where most online commerce takes place. The argument goes that Amazon is a monopolist in online retailing (46% of online retail sales) and it was acquiring Whole Foods, an organic and premium food grocery brick & mortar retailer providing Amazon with additional infrastructure that would allow Amazon to sell and deliver groceries in more cities. Indeed, AmazonFresh is available only in a handful of cities, and doesn’t have the same range of offerings as Whole Foods. Whole Foods delivers through Instacart, but not in a number of of cities. Amazon Prime offers free delivery and Instacart’s delivery fees can add up. Therefore, the deal raised both vertical (online platform along with brick & mortar stores) and horizontal (both firms competed in the retail distribution of food) issues, but combined the merged firm was still a very small retail grocer and the addition of Whole Foods tiny share of the grocery business was trivial.

On June 22, 2017, the Federal Trade Commission and the Attorney General of North Dakota filed a complaint to block Sanford Health’s proposed acquisition of Mid Dakota Clinic, seeking a temporary restraining order and preliminary injunction to stop the deal and to maintain the status quo pending an administrative trial on the merits of the case.

The FTC’s complaint alleges that the deal would reduce competition for adult primary care physician services, pediatric services, obstetrics and gynecology services, and general surgery physician services in the greater Bismarck and Mandan metropolitan area or four counties.

According to the complaint, Sanford and Mid Dakota are each other’s closest competitors in a four-county Bismarck-Mandan region of North Dakota, an area with a population of 125,000.  The FTC’s complaint alleges that the transaction would create a group of physicians with at least 75 to 85 percent share in the provision of adult primary care physician services (59 out of 77 physicians in the area), pediatric services (10 out of 12 physicians), and obstetrics and gynecology (15 out of 17 physicians) services.  Moreover, the complaint alleged that the merged firm would be the only physician group offering general surgery physician services in the relevant geographic market with a total of ten physicians.  In total, the two firms would combine approximately 94 physicians in the relevant geographic market.

On June 19, 2017, the Trump Administration’s Federal Trade Commission (“FTC”) authorized the staff to file an antitrust complaint to block the merger of DraftKings and FanDuel, the two largest daily fantasy sports (“DFS”) sites.  The state of California and the District of Columbia Attorneys General joined in the lawsuit.  The FTC’s legal challenge is a huge win for DFS customers.

Merger to Monopoly Tests Trump’s Antitrust Enforcement Policy

On November 18, 2016, shortly after President Trump won the election, the two largest DFS firms announced their plans to merge into a single company that would control more than 90% of the DFS market.  Regardless of the political backdrop, any merger that would result in a virtual monopoly was sure to be highly scrutinized.

On April 5, 2017, the EC approved China National Chemical Corporation’s (“ChemChina”) proposed acquisition of  Syngenta AG (“Syngenta).  The approval is conditional on the divestiture of significant parts of ChemChina’s European pesticide and plant growth regulator business.

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in Europe through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

The EC had concerns that the transaction as notified would have reduced competition in a number of existing markets for pesticides.  Furthermore, it had concerns that the transaction would reduce competition for plant growth regulators.  The EC’s investigation focused on competition for existing pesticides, since ChemChina does not compete with Syngenta for the development of new and innovative pesticides.

On April 4, 2017, the FTC entered into a settlement agreement with China National Chemical Corporation (“ChemChina”) and Syngenta AG whereby the parties agreed to divest three types of pesticides, in order to resolve antitrust concerns with its merger.

Syngenta is the leading pesticide supplier worldwide. ChemChina is currently active in pesticide markets in the United States through Adama, its wholly-owned Israel-based subsidiary.  Unlike Syngenta, which produces pesticides based on active ingredients it has developed itself, Adama only produces generic pesticides based on active ingredients developed by third parties for which the patent has expired.  Adama is the world’s largest producer of such generic pesticides.

According to the FTC’s complaint, the merger as originally proposed would have caused competitive harm in the United States in three pesticide lines:

On April 3, 2017, the Department of Justice (“DOJ”) announced that that it forced Danone to divest its Stonyfield Farms business in order for Danone to proceed with its $12.5 billion acquisition of WhiteWave.

Prior to the merger, Danone did not produce or sell organic milk in the United States, however, it produced and sold organic yogurt through its United States subsidiary, Stonyfield Farms. WhiteWave produces and sells organic milk and yogurt in the United States.

According to the DOJ’s complaint, however, as a result of Danone’s long-term strategic partnership and supply and licensing agreements with CROPP Cooperative (“CROPP”), WhiteWave’s primary competitor, the proposed acquisition would have provided incentives and opportunities for cooperative behavior between the two leading purchasers of raw organic milk in the northeast (CROPP and WhiteWave”), which likely would have resulted in farmers receiving less favorable contract terms for the purchase of their raw organic milk.  So, the DOJ had buyer power concerns.

On March 23, 2017, the U.S. Department of Justice (“DOJ”) announced that it reached a settlement that will prohibit DIRECTV Group Holdings, LLC (“DirecTV”) and its parent corporation, AT&T Inc. (“AT&T”), from illegally sharing confidential, forward-looking information with competitors.

On November 2, 2016, the DOJ’s Antitrust Division filed suit alleging that DirecTV was the ringleader of a series of unlawful information exchanges between DirecTV and three of its competitors – namely, Cox Communications Inc. (“Cox”), Charter Communications Inc. (“Charter”) and AT&T (before it acquired DirecTV) – during the companies’ negotiations to carry the SportsNet LA “Dodgers Channel.”

SportsNet LA holds the exclusive rights to telecast almost all live Dodgers games in the Los Angeles area.  According to the complaint, DirecTV’s Chief Content Officer, Daniel York, unlawfully exchanged competitively-sensitive information with his counter-parts at Cox, Charter and AT&T while they were each negotiating with SportsNet LA for the right to telecast the Dodgers Channel.  Specifically, the complaint alleges that DirecTV and each of these competitors agreed to and exchanged non-public information about their companies’ ongoing negotiations to telecast the Dodgers Channel, as well as their companies’ future plans to carry – or not carry – the channel. The complaint also alleges that the companies engaged in this conduct in order to unlawfully obtain bargaining leverage and to reduce the risk that they would lose subscribers if they decided not to carry the channel but a competitor chose to do so. The complaint further alleges that the information learned through these unlawful agreements was a material factor in the companies’ decisions not to carry the Dodgers Channel. The Dodgers Channel is still not carried by DirecTV, Cox or AT&T. The DOJ allegations make out a buyer conspiracy case that violate Section 1 of the Sherman Act.  The DOJ further claims that the illegal information sharing corrupted the competitive bargaining process and likely contributed to the lengthy blackout.