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Jul

29

D.C. Circuit Reverses Decision Denying Preliminary Injunction in Whole Foods/Wild Oats Merger

Posted by : Matthew Wild | On : July 29, 2008

Category: Antitrust, FTC Actions, Mergers and Acquisitions, Section 7 (Clayton Act)

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Today, the D.C. Circuit reversed the district court’s decision that denied a preliminary injunction in the Whole Foods/Wild Oats merger. FTC v. Whole Foods Markets, Inc., No. 07-5276 (D.C. Cir. July 29, 2008) (Whole Foods decision). Crucial to the decision was the D.C. Circuit’s holding that the FTC might have been able to establish a submarket consisting of premium natural and organic supermarkets.

The case was remanded to the district court and one of the questions was whether there was some remedy available during the pendency of the FTC administrative proceedings. The D.C. Circuit noted that the FTC complained of adverse effects on competition in only eighteen different local markets. The D.C. Circuit also noted that neither party discussed whether sufficient distribution facilities were available for Wild Oats to remain a viable competitor and if only one Wild Oats store can re-open that would be better than nothing. The D.C. Circuit suggested a hold separate order, which seems to imply that the assets would be carved out and transferred from Whole Foods to a trustee. This begs the question, however, of who would (and could) manage the store(s) independent of Whole Foods.

Ultimately, it seems like Whole Foods can expect to lose the administrative proceedings. If it does, Whole Foods may have to divest stores in these markets. The Supreme Court long ago held that divestiture is the preferred remedy. Neither the courts nor the agencies favor rescission.

Jul

29

DOJ’s Antitrust Division’s Amnesty Agreements in Jeopardy of Public Revelation

Posted by : Matthew Wild | On : July 29, 2008

Category: Antitrust, Criminal, U.S. Department of Justice (Antitrust Division)

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On July 25, 2008, the D.C. Circuit reversed summary judgment in favor of the government that denied appellant’s Freedom of Information Act request. Stolt-Nielsen Transportation Group Ltd. v. United States, Nos. 07-5191, 07-5192 2008 WL 2853214 (D.C. Cir. July 25, 2008) (attached Stolt v. U.S.). The appellant (Stolt-Nielsen) had sought the Antitrust Division’s amnesty agreements with other recipients that were based on the model that the Antitrust Division used in the early days of the program. Stolt limited its request to allow for redaction of the names of companies and individuals from the request. The amnesty program allows the first company or individual that self-reports an antitrust violation to receive immunity from prosecution except in extraordinary circumstances. Congress also has enacted legislation that reduces an amnesty recipient’s exposure from treble to single damages in private antitrust litigation. Thus, amnesty can be invaluable to a company that learns of criminal antitrust misconduct of its officers. The D.C. Circuit reversed the district court that held that the information sought by Stolt was not reasonably segregable because the district court did not make any findings to support its decision. The D.C. Circuit remanded the case for the district court to make findings consistent with its opinion. As you may recall, Stolt had been in litigation over enforcement of its amnesty agreement ultimately prevailing at trial. The Antitrust Division revoked the agreement claiming that Stolt breached it by continuing to violate the antitrust laws after entering into the agreement. The Eastern District of Pennsylvania disagreed and dismissed the indictment. (See Mach 15, 2008 Post, “DOJ’s Antitrust Division (Criminal Section) Suffers Four Major Losses Within the Last Year.”

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)

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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

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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)

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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

15

The Ninth Circuit Affirms Dismissal of Nearly Identical Franchisee Tying Claim

Posted by : Matthew Wild | On : July 15, 2008

Category: Antitrust, Section 1 (Sherman Act), Twombly

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On July 11, 2008, the Ninth Circuit affirmed dismissal of a franchisee’s tying claim regarding credit and debit card processing services that was nearly identical to a claim that Judge Posner rejected on June 23, 2008 in Sheridan v. Marathon Petroleum LLC. (See July 11, 2008 Post). In Rick-Mik Enterprises Inc. v. Equilon Enterprises, LLC, No. 06-55937, 2008 WL 2697793 (9th Cir. July 11, 2008), a franchisee claimed that the requirement that it use the franchisor’s credit and debit card processing services was tying in violation of Section 1 of the Sherman Act. The Ninth Circuit rejected this claim for the same reasons that the Seventh Circuit did in Sheridan. The Ninth Circuit affirmed dismissal because that the complaint lacked (1) allegations that Equilon had market power in the gasoline franchise market and (2) credit and debit card processing services was not a distinct product from the rest of the Equilon gasoline station franchise.

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

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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.

Jul

10

Judge Posner Affirms Dismissal of Franchisee’s Tying Claim

Posted by : Matthew Wild | On : July 10, 2008

Category: Antitrust, Section 1 (Sherman Act), Twombly

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On June 23, 2008, the Seventh Circuit affirmed dismissal of a Marathon gas station franchisee’s claim that requiring the use of Marathon transaction processing equipment for transactions with Marathon gas cards violated the Sherman Act. Sheridan v. Marathon Petroleum Co. LLC, No. 07-3543, 2008 WL 2486581 (7th Cir. June 23, 2008). To state a claim for tying in violation of Section 1 of the Sherman Act, the franchisee had to plead, among other things, that Marathon had monopoly power and that sale of one product (the tying product) is conditioned on the purchase of another product (the tied product). Judge Posner found that the complaint lacked sufficient allegations of market power because “[n]o market shares statistics for Marathon either locally or nationally are given, and there is no information in that complaint that would enable local shares to be calculated.” Id. at *4. Judge Posner also found no tying because “[a]ll that [Marathon] has done is require its franchisees to honor Marathon credit cards and to process sales with them through the system designated by Marathon so that customers who use its cards have the same purchasing experience no matter which Marathon gas station they buy from.” There is no requirement that franchisees use the Marathon processing system for other credit cards. Although the issues in this case are straightforward, Judge Posner’s opinion is very useful in explaining under what circumstances a tying arrangement might be illegal.

Jul

08

The First Circuit Holds that Illinois Brick Bars Recovery by Auto Leasing Customers

Posted by : Matthew Wild | On : July 8, 2008

Category: Antitrust, Antitrust Injury, Section 1 (Sherman Act)

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On June 30, 2008, the First Circuit held that leasees of motor vehicles could not recover under Section 4 of the Clayton Act because they were indirect purchasers of the vehicles. In re New Motor Vehicles Canadian Export Antitrust Litig., No. 07-1990, 2008 WL 2568457 (1st Cir. June 30, 2008). In Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the Supreme Court held that only plaintiffs that purchased a product directly from a co-conspirator can recover treble damages under Section 4 of the Clayton Act for a violation of the antitrust laws. In an action brought by leasees of motor vehicles who claimed that the motor vehicle manufacturers had conspired to prevent the sale of motor vehicles in Canada to U.S. consumers for export into the U.S., the First Circuit held that the dealers and not the leasing companies or leasees were the direct purchasers under Illinois Brick. The Court held that because the dealers negotiate the terms of the sale in response to rates set by the leasing companies, the dealers were the direct victims of an antitrust violation by the manufacturers. An interesting question is whether consumers in this case have remedies under state antitrust laws if their claims are based on purchases in Canada. Followers of this litigation are directed to the April 14, 2008 Post discussing the First Circuit’s treatment of class certification.

Jul

07

VISA Abandons Debit Card Rule to Avoid Investigation by DOJ and Three State Attorneys General

Posted by : Matthew Wild | On : July 7, 2008

Category: Antitrust, New York Cases, Section 1 (Sherman Act), State Attorneys General, U.S. Department of Justice (Antitrust Division)

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On July 1, 2008, the Antitrust Division announced that VISA agreed to rescind a rule that required merchants to give VISA debit cards superior treatment than non-VISA debit transactions from VISA branded cards. Under the rule, VISA allowed merchants to waive the signature and PIN requirements for transactions of less than $25 on VISA debit cards but required the entry of a PIN or a signature on a VISA branded card for a non-VISA debit transaction. With a 70% share of the debit card market, this hurdle may have given VISA an unfair competitive advantage. This practice had become the subject of investigations by the Antitrust Division and the District of Columbia, New York and Ohio attorneys general. It is not surprising that VISA is gun-shy in light of its multi-billion settlements in private antitrust litigation. The Antitrust Division’s press release is attached. DOJ Press Release (VISA)