On February 23, 2010, the California Attorney General entered into a consent decree with Dermaquest, Inc., which prohibits Dermaquest from engaging in resale price maintenance.  Specifically, the order enjoins Dermaquest from requiring resellers to charge a specified price or to increase their prices.  The action was brought under the Cartwright Act and the Unfair Competition Law.  California now joins Illinois, New York and Michigan (see March 31, 2008 Post) in treating resale price maintenance as a per se offense in violation of its state antitrust law even though such conduct is subject to rule of reason review under section 1 of the Sherman Act after Leegin Creative Lether Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007).  This case reinforces the dangers to a manufacture when it implements a resale price maintenance program under the belief that because such conduct might be permissible under the Sherman Act, there is no genuine exposure.  The California complaint and consent decree appear here: Dermaquest Complaint  and Dermaquest Judgment.

Today the FTC announced a settlement with Whole Foods that requires Whole Foods to divest 32 supermarkets in 17 geographic markets.  The FTC also required to Whole Foods to transfer Wild Oats’ intellectual property, including the “Wild Oats” name.  The divestiture, which will have to be an FTC approved buyer, is intended to restore competition between these stores that was adversely affected by the acquisition.  The FTC press release, agreement containing consent order and analysis to aid public comment are attached — FTC Press Release (Whole Foods), Whole Foods Consent Order, Whole Foods Analysis to Aid Public Comment.

The remedy in this case illustrates how rescission rather than divestiture is rare.  The preference is to put the assets in the hands of a firm that is eager to run the business as opposed to a firm seeking to exit.  Thus, it is in the seller’s interest to force consummation of the transaction as soon as legitimately possible.  (Note that there are certain limited circumstances that will justify rescission where although legal, the parties gamed the system, see, e.g., FTC v. Elders Grain, 868 F.2d 901 (7th Cir. 1989 (Posner, J.)).

This merger has resulted in considerable litigation.  Whole Foods defeated the FTC federal action for a preliminary injunction.   That decision was reversed (see July 29, 2008 Post).  Then on Whole Foods’ application for rehearing en banc, the original panel amended its decision to make clear that one judge did not join the opinion reversing the order below.  With one judge dissenting, there was no opinion of the Court, which would have been binding on future panels, and thus there was no need for en banc review (see December 1, 2008 Post).  The FTC had also imposed a harsh expedited schedule for its administrative proceeding and took the unusual step of appointing an FTC commissioner as the presiding judge.  Whole Foods unsuccessfully challenged this process as a denial of due process in a plenary lawsuit it brought in federal court (see December 11, 2008 Post).

AT&T settled a civil contempt claim with the DOJ in connection with its failure to comply with the divestiture requirements in a consent decree governing its acquisition of Dobson Communications Corporation.  In particular, AT&T failed to keep confidential customer information relating to the businesses that had to be divested.  The Antitrust Division’s press release appears below:

WASHINGTON — AT&T Inc. has agreed to pay more than $2 million as part of a civil settlement with the Department of Justice that resolves AT&T’s alleged violations of two court orders entered in connection with AT&T’s acquisition of Dobson Communications Corporation.

The Department today filed a petition in the U.S. District Court for the District of Columbia asking it to find AT&T in civil contempt of a 2008 consent decree and a related court order. At the same time, the Department filed a settlement agreement and order, subject to court approval, that would resolve the Department’s concerns. The payment to the United States includes reimbursement to the government for the cost of its investigation into AT&T’s alleged violations.

“It is imperative that companies fully abide by their court-ordered obligations in order for our settlements to be effective in preserving competition and protecting consumers,” said Deborah A. Garza, Acting Assistant Attorney General in charge of the Department’s Antitrust Division. “When companies fail to comply with a court order, the Antitrust Division will take swift and certain action to ensure that companies fulfill their responsibilities.”

Under the consent decree entered by the court in March 2008, AT&T was required to divest mobile wireless telecommunications businesses in three rural service areas (RSAs)  two in Kentucky and one in Oklahoma. Pending divestiture, a management trustee was appointed to oversee the businesses to be divested. Under the consent decree and a related court order, AT&T was required to take all steps necessary to ensure that the divested businesses were operated independently of AT&T and that AT&T did not influence how they were managed. AT&T was also required to take all reasonable efforts to preserve the confidentiality of information material to the operation of the divested businesses and not give unauthorized personnel access to such information.

According to the petition filed by the Department, AT&T failed to fulfill its obligations under the two court orders. The petition alleges that AT&T failed to separate confidential customer account information of the divested businesses from its own customer records and to take other actions needed to prevent unauthorized disclosure. Consequently, AT&T personnel obtained unauthorized access to the divested businesses’ competitively sensitive customer information and in some situations used it to solicit and win away the divested businesses’ customers. The petition further alleges that AT&T, without authorization by the management trustee, waived early termination fees for several customers of the divested businesses to facilitate switching their wireless service from the divested businesses to AT&T.

Antitrust Division’s press release:

“WASHINGTON — Two related investment funds will pay civil penalties totaling $800,000 to settle charges that they violated premerger reporting requirements, the Department of Justice announced today.

The Department’s Antitrust Division, at the request of the Federal Trade Commission, filed a civil lawsuit today in U.S. District Court in Washington, D.C., against ESL Partners L.P. and ZAM Holdings L.P. for violating the notification requirements of the Hart-Scott-Rodino (HSR) Act of 1976. At the same time, the Department filed a proposed settlement that, if approved by the court, will settle the charges. Under the terms of the settlement, ESL Partners has agreed to pay $525,000, and ZAM Holdings $275,000, in civil penalties.

ESL Partners, based in Greenwich, Conn., and ZAM Holdings, based in New York City, are investment funds with holdings in numerous companies. The investment decisions for both ESL Partners and ZAM Holdings were made by RBS Partners, of Greenwich.

According to the complaint, ESL Partners and ZAM Holdings failed to comply with the antitrust premerger notification requirements of the HSR Act before acquiring voting securities of AutoZone Inc., based in Memphis, Tenn., in September and October of 2004. As a result of these acquisitions, ESL Partners and ZAM Holdings each held AutoZone voting securities valued in excess of the $50 million HSR reporting threshold then in effect. The complaint alleges that ESL Partners was in violation of the HSR Act from Sept. 28, 2004, through Feb. 28, 2005, and that ZAM Holdings was in violation from Oct. 12, 2004, through March 2, 2005.

The Hart-Scott-Rodino Act of 1976, an amendment to the Clayton Act, imposes notification and waiting period requirements on individuals and companies over a certain size before they consummate acquisitions resulting in holding stock or assets above a certain value. The violations occurred when the HSR reporting threshold was $50 million. Since March 2005, the threshold has been adjusted annually to reflect changes in gross national product.

The Act permits a federal court, in a lawsuit brought by the Department, to assess a civil penalty of up to $11,000 for each day a person or company is in violation.”

This action shows the agencies’ vigilance in enforcing compliance with the HSR Act.  Unwary investment funds can violate the HSR Act when they begin to engage in sizeable transactions.  They have done so on many occassions.  Unlike the securities laws with which they are generally familar, the HSR Act requires the filing before acquiring the outstanding securities.  It is thus important for investmnet funds to obtain antitrust compliance counseling.

On August 8, 2008, the FTC approved its preliminary consent order (with minor, immaterial modifications) from April 28, 2008 against Talx Corporation that remedied Talx’ anticompetitive acquisitions of competitor.  See April 30, 2008 Post.   As explained it that Post, this FTC action was of interest to practitioners because of the nature of Talx’ conduct and the use of a conduct remedy rather than divestitures to remedy acquisitions that violated the Section 7 of the Clayton Act.

It appears that the antitrust agencies are more vigilant to protect the interests of vodka drinkers than beer drinkers. As explained in the June 6, 2008 Post, the Antitrust Division was not concerned that there would be negative effects on competition if Coors and Molson formed a joint venture. However, the FTC has taken the opposite view in a merger among spirit makers because it effectively would put Absolut and Stolichnaya under the control of one company. The buyer Pernot Ricard will gain control V&S Vin Spirit’s Absolut and has a distribution agreement that covers Stolichnaya, In analyzing the transaction, the FTC defined the market as super premium brands of vodka and claimed that consumers viewed Absolut and Stolichnaya as their top two choices. Without discussing market shares, the Analysis to Aid Public Comment asserts that post-merger the buyer will be able to increase the prices of super premium vodka. Under the consent agreement, Pernot Ricard must end its distribution agreement for Stolichnaya within 6 months. The press release and Analysis to Aid Public Comment are attached. FTC Press Release (Vodka); Analysis to Aid Public Comment (Vodka).

On July 3, 2008, the Antitrust Division conditioned its approval of Signature Flight Support’s acquisition of Hawker Beechcraft’s competing flight support business on divestitures at the Indianapolis International Airport. Signature and Hawker both provide flight support services (also called fixed base operations) to charter and corporate airplanes at 45 and 7 airports respectively across the United States. At the Indianapolis airport, Signature and Hawker are the only two providers of these services. Accordingly, the Antitrust Division required divestiture of one of the two parties’ assets at the Indianapolis airport to a buyer that it approves.

On May 28, 2008, the Antitrust Division required divestitures as a condition of its approval of Cengage Holdings’ $750 million proposed acquisition of Houghton Mifflin College Division. Both companies publish college textbooks. The Antitrust Division defined the relevant product market as textbooks in courses on particular subject matters. The Antitrust Division alleged that students had no significant alternatives to new textbooks in these courses because, for example, used textbooks are not consistently available in large numbers. The Antitrust Division limited the relevant geographic market to the United States but did not explain why foreign publishers could not compete effectively. The Antitrust Division calculated that in 14 overlapping courses, the minimum post-merger HHI would be 3,000 with a delta of 500. The Antitrust Division concluded that high barriers to entry exist because instructors infrequently switched textbooks and therefore it would be unlikely that a publisher would invest in the authors and editorial staff necessary to write a new textbook. The Antitrust Division’s Press Release and Competitive Impact Statement are attached. DOJ Press Release (Cengage/Houghton Mifflin); Competitive Impact Statement (Cengage/Houghton Mifflin).

On May 29, 2008, in Floral Accounting Systems, Inc. v. Florists Transworld Delivery, Inc., No. 06-1098, 2008 WL 2224416 (W.D. La. May 29, 2008), the district court unsealed an antitrust settlement holding that antitrust settlements were entitled to less protection than typical disputes between private parties because antitrust cases by the very nature implicate public interests. The parties had a dispute over the scope of their antitrust settlement agreement. The agreement contained a confidentiality provision which both parties sought to enforce and thus sought to have the agreement filed under seal. The district court declined the request with the exception of the amount of license fees to be paid — which it considered a trade secret. This case is consistent with the trend among federal courts to deny sealing documents filed in litigation. To increase the chance of obtaining an order sealing documents, the movant should try to show that the documents contain trade secrets.

On May 27, 2008, the Antitrust Division settled its litigation against the National Association of Realtors (“NAR”) pending in the United States District Court for the Northern District of Illinois. The Antitrust Division explained the nature of challenge as follows: “[t]he first rule challenged by the Department required MLSs to permit traditional brokers to withhold their listings from VOWs [virtual office websites] by means of an ‘opt out.’ NAR does not permit brokers to withhold their listings from traditional broker members of an MLS. Many local MLSs adopted NAR’s policy before NAR suspended its policy during the Department’s investigation. In one market in which the MLS adopted the policy, all brokers withheld their listings from the one VOW in the community, which was then forced to discontinue its popular website. The second rule prevented a broker from educating customers about homes for sale through a VOW and then referring those customers (for a referral fee) to other brokers, who would help customers view homes in person and negotiate contracts for them. Some of the VOWs that focused on referrals also passed along savings to consumers as a result of increased efficiencies.” The consent decree (if approved under the Tunney Act) will require NAR to treat internet-based brokers the same as other brokers on the MLS and rescind these rules. Notably, the Antitrust Division and FTC have been aggressive in promoting competition among real estate brokers. They have obtained a number of settlements against real estate broker associations that had limited the ability of internet brokers to compete and have urged state legislatures not enact legislation that would have the same effect. The press release and proposed consent decree are attached.  NAR (Proposed Consent Decree); NAR (DOJ Press Release)