Antitrust Lawyer Blog

Commentary on Current Developments

The Federal Trade Commission staff took action earlier this week to increase compliance with the Contact Lens Rule by sellers of non-corrective, decorative/cosmetic contact lenses. In 2003, Congress enacted the Fairness to Contact Lens Consumers Act, which imposed new prescription release and verification requirements on prescribers and sellers of contact lenses. In July 2004, the Commission issued the Contact Lens Rule to implement the Act.

On November 9, 2005, Congress amended the law to state that all contact lenses, including cosmetic or colored contacts, are restricted medical devices. A prescription from a medical professional is required to purchase a restricted medical device. According to the Food and Drug Administration, “[d]ecorative contact lenses present significant risks of blindness and other eye injury if they are distributed without a prescription or without proper fitting by a qualified eye care professional.”

On June 27, 2006, the FTC staff sent 18 warning letters to online sellers of cosmetic or colored contact lens. Most of the sellers to whom staff wrote claim on their web sites that cosmetic contacts are non-prescription or that they do not require a prescription. Such advertising claims violate the Contact Lens Rule. It also appears that most of the sellers to whom the FTC staff wrote may not be verifying that those who attempt to buy cosmetic contacts from them have valid prescriptions. The sale of cosmetic contact lenses without either obtaining a copy of a valid prescription from the customer or verifying his or her prescription information with the prescriber constitutes a violation of the Rule. The letters urge the cosmetic contact lens sellers to review the Rule and revise their practices as necessary to ensure they are complying with its requirements and warn them that violations of the Rule are punishable by civil penalties of up to $11,000 per violation.

On June 28, the European Commission (“EC”) announced new guidelines that would increase fines for antitrust violations. This decision is part of an effort by the EC to more severely punish cartel leaders, repeat offenders, and companies whose large financial reserves made a mockery of the old antitrust fine scheme. The new guidelines, which will not take effect for several months, will fine companies up to 30 percent or based on a percentage of the company's sales in whatever market the regulators found was illegally manipulated. Under the current EU rules, companies that are found to have serious antitrust offences are fined at least

The Federal Trade Commission today called on social networking sites to make sure children visiting their sites can stay safe and their parents can protect them. Testifying for the FTC, Commissioner Pamela Jones Harbour told the House Committee on Energy and Commerce,Subcommittee on Oversight and Investigation that there is a “need for social networking Web sites – individually, collectively, and, most importantly, expeditiously – to develop and implement safety features to protect children who visit their sites and empower parents to protect their children when they do so.” Harbour also emphasized that, “the Federal Trade Commission is committed to helping create a safer online experience for children.”

The testimony describes FTC actions to protect children online through consumer education and law enforcement. Last month, the FTC provided advice for parents and children about safely using social networking sites such as MySpace, Facebook, and others. The tips are featured on one of the most popular sections of OnGuard Online, an online education resource covering safe and secure computing.

“At the same time that social networking Web sites offer online communication, camaraderie, and community among teens and tweens, they, like other activities on the Internet, also can pose risks,” the testimony states. “Because the information that children post on their online journals, web logs or 'blogs' can be accessed by other Internet users, social networking Web sites raise heightened privacy and security concerns. In particular, sexual predators may use the information that children provide on social networking sites to identify, contact, and exploit them, unless these sites are constructed to reduce access to this information, or users themselves take steps to limit unwanted access.”

European Commissioner for Trade Peter Mandelson has launched a review of the Commission's anti-dumping measures.

The review comes at a time when concerns have been raised that the Commission's anti-dumping measures do not always serve the interests of EU companies and consumers. Examples of this include quotas on Chinese textiles and anti-dumping tariffs imposed on Chinese-manufactured shoes. This review comes at a time when manufacturers are increasingly working to establish ventures in developing countries that are directly affected by EU-imposed trade sanctions. These manufacturers view anti-dumping and other trade defence mechanisms as a form of protectionism. However, member states remain divided on the best way to respond.

Despite a December 2005 report concluding that the EU's trade defence measures function well, one possible reform could be widening the scope of the so-called 'Community interest clause.' This clause allows the Trade Commissioner discretion not to raise tariffs even if dumping is determined, on the grounds that doing so would harm EU companies or consumers. Such a move could increase the flexibility of anti-dumping measures.

On June 27, the U.S. Supreme Court agreed to hear arguments from Verizon Communications Inc., AT&T Inc., BellSouth Corp., and Qwest Communications International, Inc. in a case that may either help companies' efforts to fight off antitrust law suits, or promote consumers challenges to what appears to be illegal coordination of activities by competing companies in concentrated markets that keep prices high.

The Supreme Court will review the Second Circuit's decision that reinstated class action plaintiff lawyers' allegations that the telecommunication providers agreed not to compete with one another for customers in the local-phone business. A federal district court judge in New York dismissed the case for failing to state a claim for which relief could be granted. The district court judge ruled the lawsuit failed to allege sufficient facts from which a conspiracy could be inferred. The Second Circuit ruled the judge had used the wrong standard in reviewing the sufficiency of the allegations and sent the case back for further proceedings. The Second Circuit's decision allowed the suit to proceed to the discovery stage, meaning the companies would have to answer questions about their business practices and provide internal company documents and emails to the plaintiffs. The Second Circuit rejected the companies' arguments that the complaint should be dismissed on grounds that it wasn't specific enough about the alleged collusion.

The consumer class action suit against the phone companies contends that the companies conspired not to compete against one another in their respective geographic markets for local telephone and high-speed Internet services and prevented competitors from entering those markets. From the plaintiffs' perspective the conduct appears to be against each company's economic interest. The Telecommunications Act of 1996 sought to encourage new competition in the local-phone business. The largest telecommunication companies, however, have for the most part been reluctant to compete significantly with each other. Nonetheless, the companies argue that while the lawsuit alleges that the companies engaged in parallel conduct and participated in a conspiracy, it failed to include any allegations that would establish the existence of a conspiracy under the applicable legal standard.

On June 27, the Commission authorized the filing of comments, prepared jointly with the U.S. Department of Justice's Antitrust Division, with the New York State Assembly Committee on the Judiciary regarding proposed legislation to expand the scope of activities constituting the unauthorized practice of law.

In the comments, the FTC and DOJ address Assembly Bill A05596, which would establish that certain services, including title abstracting and other services related to real estate transactions currently provided by non-attorneys, may be limited such that only attorneys may provide such services. The agencies believe that non-attorneys should be permitted to compete with attorneys in such matters, “except where specialized legal knowledge and training is demonstrably necessary to protect the interests of consumers.” The comments state that the Commission and Antitrust Division are concerned that the proposed legislation, which would prevent non-lawyers from competing with lawyers in situations where there is no clear evidence showing that non-attorney services have caused consumer harm, is not in the best interest of consumers. The agencies concluded their comments by stating, “The proposed legislation will unnecessarily and unreasonably reduce competition between attorneys and non-attorneys for services related to real estate transactions. We urge the Committee to reject it.”

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On June 27, the Department of Justice announced that it will require The McClatchy Company and Knight Ridder Inc. to divest the St. Paul Pioneer Press in order to proceed with their proposed multi-billion dollar newspaper merger. The DOJ said that the transaction, as originally proposed, would have eliminated head-to-head competition between McClatchy and Knight Ridder and likely would have resulted in higher prices for advertisers and readers in the Minneapolis/St. Paul metropolitan area.
Under the terms of the consent decree, Knight Ridder can merge with and into McClatchy, but McClatchy must divest the St. Paul Pioneer Press. According to the complaint, McClatchy's Star Tribune competes aggressively for advertisers and readers with Knight Ridder's St. Paul Pioneer Press. The Department said that competition between the two newspapers has resulted in lower prices and better quality news coverage for readers and lower advertising rates and better service for local advertisers. Ownership of both the Star Tribune and St. Paul Pioneer Press would have given McClatchy control of the only two daily newspapers serving the cities of Minneapolis and St. Paul in Minnesota and the surrounding area.

In 1996, Conway (then known as McLane) submitted a complaint to the Spanish Competition, the Servicio de Defencia de la Competencia (“SDC”) authorities, alleging that the former public tobacco monopoly, Tabacalera (now known as Altadis) abused its dominant position by not allowing Conway to distribute Tabacalera tobacco brands. A 2002 SDC decision found that Tabacalera had a dominant position in the tobacco manufacturing market as well as the wholesale distribution market.
In the view of the SDC, even if Tabacalera's market share was lower than other competitors (Tabacalera held a 36 percent market share), it still held a strong position since it was once a national monopoly.

The decision obliged Altadis to supply its products to Conway on a non discriminatory basis, thereby allowing Conway to distribute its tobacco brands. Altadis was also fined

On June 26, the United States Supreme Court declined to hear the Federal Trade Commission’s (“FTC”) appeal of the Eleventh Circuit’s decision that Schering-Plough Corp. (“Schering”) legally paid two generic drug competitors to stay out of the market as part of a settlement to patent litigation. In the past, the FTC has taken a consistently aggressive approach that a money payment from a branded drug company to a generic company that delays the entry of a generic version of a branded drug is illegal.

Hatch-Waxman Act

The case raises important policy issues at the intersection of patent law and antitrust law. It involves the settlement of patent litigation between the manufacturer of a patented drug and two generic competitors, in the context of the Drug Price Competition and Patent Term Restoration Act (commonly known as the “Hatch-Waxman Act”).

On June 26, orthopedic device manufacturers revealed the issuance of federal subpoenas tied to potential violation of antitrust law from the Department of Justice. Zimmer Holdings Inc., Biomet Inc., Johnson & Johnson and Stryker Corp. all said they had received subpoenas from the Antitrust Division demanding documents related to the manufacture and sale of the companies’ products, which include artificial hips and knees.
According to the companies, the subpoenas to Biomet, Stryker and Zimmer relate to possible violations of federal criminal law and seek documents dating back to 2001. Johnson & Johnson’s DePuy unit, said search warrants had been executed related to the investigation. Last year, Zimmer, Biomet, J&J and Stryker were among device makers subpoenaed by the U.S. Attorney’s office in Newark, New Jersey, related to lucrative consulting deals the companies make with surgeons. Analysts speculate that the government is looking into the industry because of steep rises in prices for the companies’ products in recent years. Smith & Nephew Plc said that the company had not received a demand for documents relating to this investigation.

Andre Barlow

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