Category: Relevant Markets - Antitrust Commentary

Mar

06

FTC Settles Challenge to Whole Foods’ Acquisition of Wild Oats

Posted by : Matthew Wild | On : March 6, 2009

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).

Feb

23

The Tenth Circuit Rejects Deer Valley Ski Rental Store’s Claims for Monopolization and Attempted Monopolization against Ski Resort

Posted by : Matthew Wild | On : February 23, 2009

Category: Antitrust, Relevant Markets, Section 2 (Sherman Act)

Tags:anticompetitive conduct, Antitrust, attemted monopolization, christy, deer valley, deer valley resort company, matthew wild, monopolization, relevant market, section 2, sherman act, ski rental, ski resort, skiing, utah

On February 18, 2009, the United States Court of Appeals for the Tenth Circuit affirmed dismissal of a complaint filed by a ski rental store against the Deer Valley, Utah ski resort operator with its own ski rental operation alleging monopolization and attempted monopolization in violation of Section 2 of the Sherman Act. Christy Sports LLC v. Deer Valley Resort Co., Ltd., No. 07-4198 (10th Cir. Feb. 18, 2009) (Christy Sports v. Deer Valley Resort Decision). Plaintiff had sought to prevent enforcement of a restrictive covenant governing its use of property sold by the ski resort operator. When the ski resort operator sold the parcel of land on which the ski rental store operates, it imposed a restrictive covenant in the deed only permitting the operation of a ski rental business with its permission. For years, the ski resort operator permitted plaintiff to operate accepting a share of the profits in return. Preferring to capture that business in the future, the ski resort operator sought to enforce the restrictive covenant and put the ski rental store out of business. The Tenth Circuit rejected plaintiff’s claims under Section 2 of the Sherman Act for two independent reasons. First, the Court rejected plaintiff’s relevant product market definition of ski rental stores. Rather the Court held that the relevant market was the skiing experience. It reasoned that skiers do not come to the area to rent skis and that ski rentals are just one component of the skiing experience that they seek. It should be of no consequence that the ski resort operator charges more for ski rentals and as a consequence, less for e.g., lift tickets. Second, the Court held that there were no allegations of anticompetitive conduct. The antitrust laws do not forbid a business from imposing a restrictive covenant on a neighboring parcel of land to avoid competition and justify its investment in entry. Accordingly, nothing precludes the enforcement of an otherwise permissible restrictive covenant.

Oct

20

Class Action Complaint States Claims for Section 2 Violations Against Apple and AT&TM Over IPhone

Posted by : Matthew Wild | On : October 20, 2008

Category: Antitrust, Relevant Markets, Section 2 (Sherman Act), Twombly

Tags:Antitrust, apple, at&t, at&t mobile, at&tm, attempted monopolization, conspiracy to monopolize, iphone, lock-in, matthew wild, monoplization, section 2, sherman act, tying

In In re Apple & AT&TM Antitrust Litigation, No. 07-CV-05152-JW (N.D. Cal. Oct. 1, 2008) (attached IPhone Decision), plaintiffs alleged that the arrangement in which the Apple IPhone worked exclusively with AT&TM not only for the initial two-year contract period but also for three additional years after their contracts expired with AT&TM violated Section 2 of the Sherman Act. Plaintiffs also alleged that Apple’s restrictions on dowloadable applications for use on IPhones violated Section 2. Plaintiffs alleged Section 2 claims of monopolization and attempted monopolization of the market for IPhone applications and monopolization, attempted monopolization and a conspiracy to monopolize the market for voice and data services to IPhone owners. The Northern District of California held that there were cognizable relevant product markets limited to Apple IPhone customers in these aftermarkets. The court distinguished cases in which customers voluntarily commit to a lock-in through a contract such as when a franchisee agrees to purchase certain products from its franchisor. In this case, the Complaint alleged that the lock-in was created through deceit or unbeknownst to the customers at the time of purchase. The Complaint alleged that the IPhone customers did not know that they could not unlock their IPhones from AT&TM service after the two-year commitment or the limitation on downloadable applications. This case is consistent with the Supreme Court’s approach in determining whether aftermarkets represent separate relevant product markets. The key inquiry is whether the consumer knows or has reason to know of limitations in purchasing products or services in the afermarket before he becomes locked-in by the initial purchase.

Oct

06

After Excluding an Economist’s Expert Report, the Second Circuit Upholds Major League Baseball’s Licensing of Team Logos

Posted by : Matthew Wild | On : October 6, 2008

The United States Court of Appeals for the Second Circuit recently held that Major League Baseball’s licensing of team logos was subject to rule of reason review under Section 1 of the Sherman Act. The court affirmed summary judgment in favor of MLB because the appellant did not challenge the licensing program under that rule. Major League Baseball Properties, Inc. v. Salvino, Inc., No. 06-1867 (2d Cir. Sept. 12, 2008) (attached MLB Properties v. Salvino). The baseball clubs give (with a few exceptions) exclusive licensing rights to a single entity. According to the MLB’s expert Frank Fisher (a world renowned economist), this system offers many efficiencies including allowing MLB licensing to compete better with other sports licensing; offering one-stop shopping to licensees; centralized management on matters such as quality control, intellectual property rights enforcement and negotiations and sales to licensees. According to Fisher, these efficiencies should result in lower licensing fees. The appellant had offered an expert report from economist Mr. Louis A. Guth, a Special Consultant for NERA, who disputed these efficiencies and asserted that the MLB licensing entity functioned as a cartel unresponsive to demand. The Second Circuit affirmed the exclusion of Guth’s report under Daubert v. Merrell Dow because (unlike Fischer’s report) it was unsupported by evidentiary citations or empirical analysis. The Second Circuit held that the rule of reason and not the per se rule or “quick look” analysis applied because the “arrangement might plausibly be thought to have a net precompetitive effect, or possibly no effect at all on competition.” Through different reasoning, the Second Circuit in this case reached the same result as the Seventh Circuit did in a challenge to a nearly identical licensing program by the NFL. See American Needle Inc. v. Nat’l Football League, No. 07-4006, 2008 WL 3822782 (7th Cir. Aug. 18, 2008) discussed in the Post of September 4, 2008. In that case, the Seventh Circuit held that the NFL teams were incapable of conspiring with themselves under the Copperweld doctrine in these particular circumstances. In this case, the Second Circuit did not address the Copperweld doctrine, but it did observe that the relevant market should include licenses for other professional sports. Therefore, it would be unlikely for the MLB’s licensing activities to have an effect on competition. This case should prove useful for practitioners for its discussion of when the per se rule, rule of reason or quick look analysis applies, the tests used under these analyses and the pitfalls of an inadequate expert report.

Jul

25

The FTC Protects Vodka Drinkers

Posted by : Matthew Wild | On : July 25, 2008

Category: Antitrust, Consent Decrees, FTC Actions, HSR Review, Mergers and Acquisitions, Relevant Markets, Section 7 (Clayton Act)

Tags:absolut, Antitrust, clayton act, ftc, hart scott rodino, HSR, matthew wild, pernot ricard, section 7, stolichnaya, v&s vin spirits, vodka

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).

Jul

18

The Tenth Circuit Rejects an Abuse of Monopsony Power Complaint Against State Farm

Posted by : Matthew Wild | On : July 18, 2008

Category: Antitrust, Per Se Analysis, Relevant Markets, Section 1 (Sherman Act), Section 2 (Sherman Act), State Antitrust and Consumer Protection Claims

Tags:Antitrust, group boycott, matthew wild, monopsony, per se, relevant market, Rule of Reason, section 1, section 2, sherman act, state farm, windshields

The Tenth Circuit affirmed summary judgment dismissing a Complaint brought by an owner of a windshield repair shop alleging State Farm’s policy that advises its insureds to replace (rather than repair) windshields with cracks longer than six inches violates Sections 1 and 2 of the Sherman Act and the Colorado Consumer Protection Act. Campfield v. State Farm Mutual Automobile Insurance Co., Nos. 06-1442, 06-1467, 06-1469, 2008 WL 2736656 (10th Cir. July 15, 2008). The Court rejected plaintiff’s Section 1 and 2 claims because he could not establish a relevant product market — a necessary element of both claims. The Court noted that plaintiff alleged State Farm’s misuse of its monopsony power over its insured and therefore the relevant market “is not the market of competing sellers but of competing buyers. This market is comprised of buyers who are seen by sellers as being reasonably good substitutes.” Id. at *4 (citation omitted). Plaintiff alleged a “State Farm insured repairable windshield market, in the geographic area of the United States of America.” Id. The Tenth Circuit rejected this market definition as underinclusive because plaintiff offered no basis why sellers would not view other buyers of repairable windshields as reasonable substitutes. The Tenth Circuit made clear that the rule of reason applied to the Section 1 claim notwithstanding plaintiff’s characterization of State Farm’s conduct as a group boycott. The restraint was vertical in nature and not the classic horizontal group boycott that triggers per se condemnation. The Tenth Circuit rejected the Consumer Protection Act claim because the recommendations to insureds to replace rather than repair windshields were not knowing and intentional concealment or misrepresentations as required under the Act. This opinion is useful for its discussion of limitations on pleading relevant markets as well as the relevant market inquiry in monopsony cases.

Jul

17

DOJ Requires Divestitures in Signature Flight Support’s Acquisition of Hawker Beechcraft’s Flight Support Services Business to Prevent a Monopoly

Posted by : Matthew Wild | On : July 17, 2008

Category: Antitrust, Consent Decrees, HSR Review, Mergers and Acquisitions, Relevant Markets, Section 7 (Clayton Act), U.S. Department of Justice (Antitrust Division)

Tags:Antitrust, clayton act, Department of Justice, DOJ, fixed base operations, hawker beechcraft, matthew wild, section 7, Signature flight support

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.

Jul

11

The Third Circuit Reverses Summary Judgment Against Franchisee on Resale Price Maintenance Claim but Affirms Dismissal of Robinson-Patman Act Claim

Posted by : Matthew Wild | On : July 11, 2008

Category: Antitrust, Relevant Markets, Resale Price Maintenance, Robinson-Patman Act, Rule of Reason, Section 1 (Sherman Act), State Attorneys General

Tags:Antitrust, dealer termination, mack truck, matthew wild, Resale Price Maintenance, robinson-patman, rpa, rpm, section 1, sherman act

Resale price maintenance liability remains alive even after Leegin Creative Leather Products v. PSKS, 127 S.Ct. 2705 (2007) (holding that rpm agreements are now subject to the rule of reason). On June 17, 2008, the Third Circuit held that a Mack truck franchisee raised a triable issue of fact under the rule of reason concerning an alleged resale price maintenance scheme. Toledo Mack Sales & Serv. v. Mack Trucks, No. 07-1811, 2008 WL 2420729 (3d Cir. June 17, 2008). In particular, the Court held that the plaintiff came forward with sufficient evidence to show that the existence of an agreement between the manufacturer and dealers to stop discounting and the agreement may have caused prices to increase violating the rule of reason. Relying on Monsanto v. Spray-Rite Serv., 465 U.S. 752 (1984), the dealers’ frequent input and complaints about discounting were sufficient to raise a triable question over the existence of an agreement. With respect to the showing under the rule of reason, the dealer established that the manufacturer had sufficient power in the engine placed in front of the cab and the low cab over engine truck markets to control prices in those markets. Accordingly, its efforts to reduce intrabrand competition could have affected interbrand competition and caused prices to increase in the relevant markets. The Third Circuit rejected the R-P- Act claim holding that the statute does not apply to custom made goods of the type that were at issue in this case. The Third Circuit also rejected the statute of limitations defense holding that the plaintiff could rely on evidence of overt acts that took place before the limitations period to prove the existence of the conspiracy during the limitations period. Counsel must be careful in advising their clients about resale price maintenance. In addition to liability that can arise as demonstrated by this decision, state attorneys general remain active in this area. See March 14 and May 23, 2008 Posts.

Jun

21

DOJ Protects College Students from Potential Anticompetitive Effects of Textbook Publishers’ Merger

Posted by : Matthew Wild | On : June 21, 2008

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).

May

12

FTC Conditions Its Approval of Retail Farm Store Merger on Divestitures in Michigan and Maryland

Posted by : Matthew Wild | On : May 12, 2008

On May 5, 2008, the FTC conditioned its approval of Agrium’s $2.65 billion proposed acquisition of UAP Holding on divestitures on divestitures. The parties provide one-shopping for farms and farmers rely on these type of local stores for bulk fertilizer. Because of its weight, it does not make economic sense to ship these products more than 30 miles. Entry is difficult because of high sunk costs and the need to train personnel. Based on these dynamics, FTC believed that the parties’ overlapping stores in Croswell, Richmond, Imlay City, Vestaburg and Standish, Michigan and Girdletree, Maryland might give the combined company the ability to raise prices in those areas. Accordingly, the FTC required divestitures of one of the parties’ stores in these areas. The press release and analysis to aid public comment are attached.Agrium (Press Release);

Agrium (Analysis to Aid Public Comment)

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