Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with DOJ

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 March 15, Judge Richard Leon said “Fake News” to a report that the trial will start on Wednesday, the 21st.  It will start on Monday at 10:30.  The first couple of days will be devoted to evidentiary objections.  Opening arguments will be on Wednesday and the Judge thinks the trial will take 6-8 weeks.

On March 13, 2018, Judge Leon denied the DOJ’s motion to limit the defendants from presenting evidence regarding Time Warner’s irrevocable offer to distributors that it would go into “baseball-style” arbitration in any carriage disputes over Turner networks and promise not to engage in any blackout of channels during arbitration for a period of 7 years.  AT&T simply had the better of the arguments with respect to the commitment.  Of course it is relevant and the DOJ had sufficient notice – it was in the Answer – and has had the opportunity to conduct discovery related to the commitment.  The time for the DOJ to make this argument was early on before discovery started.

AT&T made a good case that Professor Shapiro’s failure to account for this commitment in his models may have been tied with the DOJ’s motion to have the Arbitration Offer removed from consideration.  Apparently, Shapiro acknowledged that the commitment would benefit distributors in negotiations and that his bargaining model does not account for this market reality in deposition testimony.  A major limitation of the DOJ’s otherwise very good pre-trial brief is that its arguments are theoretical and not based on the facts.  It is somewhat difficult to get a handle on the strength of the DOJ’s arguments in its pre-trial briefs because many passages and key quotations are redacted.  On the whole, AT&T’s pre-trial brief is stronger.  It certainly appears that AT&T is poised to punch holes in the DOJ’s experts’ theories and bargaining model.

On March 5, 2018, Sparton Corporation (“Sparton”) announced the termination by Sparton and Ultra Electronics Holdings plc (“Ultra”) of their July 7, 2017 merger agreement.

According to Sparton, during the review of the proposed merger by the United States Department of Justice (“DOJ”), the United States Navy (“Navy”) expressed the view that instead of the parties proceeding with the merger, each of Sparton and Ultra should enhance its ability to independently develop, produce and sell sonobuoys and over time work toward the elimination of their use of the companies’ ERAPSCO joint venture for such activities. DOJ staff then informed Sparton and Ultra that it intended to recommend that the DOJ block the merger. The parties expected the DOJ would follow this recommendation and seek an injunction in court to block the merger. As a result of the view of the Navy and the DOJ’s position, Ultra and Sparton determined it was in the best interests of the parties to proceed to terminate the merger agreement.

Also according to Sparton, the parties understand that the DOJ intends to open an investigation to evaluate their ERAPSCO joint venture. Sparton said that based on historical practice, the company anticipates the Navy will assist in funding Sparton’s transition to independently develop, produce and sell sonobuoys.

Historically, the FTC and DOJ have sought to unwind consummated mergers that are deemed to be anticompetitive.  During Trump’s first year in office, the FTC and DOJ have demonstrated their willingness to unwind anticompetitive mergers that somehow sneaked by the regulators.

FTC Seeks to Unwind Merger of Prosthetic Knee Manufacturers

On December 20, 2017, the FTC filed an administrative complaint to unwind the merger of Otto Bock HealthCare North America, Inc., (“Otto Bock”) and FIH Group Holdings, LLC (“Freedom”), two manufacturers of prosthetic knees equipped with microprocessors that adapt the joint to surface conditions and walking rhythm.  In September 2017, the parties simultaneously signed a merger agreement and consummated the merger without the FTC having an opportunity to review the deal.  Apparently, the merger was not HSR reportable.  According to the FTC, the merger eliminated direct and substantial competition between head to head competitors that engaged in intense price and innovation competition.  While the litigation is ongoing, the parties agreed to a Hold Separate and Asset Maintenance Agreement, which prevents them from continuing the integration of the two businesses.  The FTC did not allege any violation of the HSR ACT.

On December 6, 2017, Senator Elizabeth Warren sharply criticized the state of antitrust enforcement in a speech at the Open Markets Institute.

She said that antitrust enforcers adopted the Chicago School principles, which narrowed the scope of the antitrust laws and allowed mega-mergers to proceed resulting in many concentrated industries.  She believes that antitrust enforcers already have the tools to reduce concentrated markets and that they simply must start enforcing the law again.

Senator Warren’s recommendations included stronger merger enforcement, cracking down on anticompetitive conduct and increasing agency involvement in defending competition.

On September 27, 2017, the DOJ announced Showa Denko K.K. (“SDK”) will be required to divest SGL Carbon SE’s (“SGL”) entire U.S. graphite electrodes business in order for SDK to proceed with its proposed $264.5 million acquisition of SGL’s global graphite electrodes business.

According to the DOJ’s complaint, SDK and SGL manufacture and sell large ultra-high power (UHP) graphite electrodes that are used to generate sufficient heat to melt scrap metal in electric arc furnaces.  The complaint alleges that SDK and SGL are two of the three leading suppliers of large UHP graphite electrodes to U.S. electric arc furnace steel mills, and that the two firms together have a combined market share of about 56%.  The third domestic player has a 22% market share.  While the rest of the market share (22%) is held by a number of importers, the DOJ alleged that none of the importers could individually or collectively are in a position to constrain a unilateral exercise of market power.

In the United States, individual EAF customers solicit bids from three domestic producers of large UHP graphite electrodes, and these producers develop individualized bids based on each customer’s Request

The answer is No.  The fact that your deal avoided a second request investigation does not mean that you are in the clear if your deal substantially lessens competition in a relevant antitrust market.

The Department of Justice’s Antitrust Division (“DOJ”) and Federal Trade Commission (“FTC”) have for years emphasized that they will investigate and challenge consummated transactions that were not initially reviewed or slipped through the cracks if those transactions substantially lessen competition.  It does not matter that for one reason or another that merging parties were able to successfully avoid a long drawn out investigation.  The DOJ’s lawsuit to block Parker’Hannifin’s acquisition of CLARCOR, Inc. illustrates that the DOJ may open an investigation and challenge a transaction even after it allowed the Hart-Scott Rodino (“HSR”) waiting period to expire.  The enforcement action also serves as a reminder that if merging parties do not cooperate with a merger investigation, they risk being sued.

DOJ Sues Parker-Hannifin Seven Months After Allowing it to Close its Acquisition of CLARCOR

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.

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