May

08

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

On May 6, 2008, the FTC granted Nine West’s petition to modify its consent decree to allow Nine West to engage in resale price maintenance with its dealers. In 2000, Nine West — a footwear manufacturer — had entered into a consent decree with the FTC and several state attorneys general to resolve allegations that it fixed the prices at which its retailers may sell its shoes. Because of the Supreme Court’s recent decision in Leegin Creative Leather Products v. PSKS, 127 S.Ct. 2705 (2007), which allowed such agreements to be treated under the rule of reason rather than subject to per se condemnation, the FTC allowed Nine West to engage in resale price maintenance but did not rule that such conduct would be necessarily lawful. Rather, the consent decree requires to Nine West to provide periodic reports to the FTC of prices and output during periods when it has engaged in resale price maintenance. As a practical matter, modification of the consent decree may be bring little comfort as some state attorneys general have taken the position that resale price maintenance is still a per se violation of their antitrust statutes. Herman Miller (discussed in the March 31, 2008 post) is an example of such an application of the state antitrust antitrust laws.  Attached is the FTC’s order in Nine WestNine West (Order)


May

06

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

On April 30, 2008, the FTC obtained a consent decree against Talx Corporation for violating Section 7 of the Clayton Act. With $270 million in revenue last year, Talx Corporation is the leading provider of outsourced unemployment compensation management (“UCM”) and outsourced verification of income and employment services (“VOIE”). In 2002, Talx was the leader in the VOIE market and began a series of acquisitions in the VOIE and UCM markets that gave Talx market power. The Complaint alleged relevant markets of VOIE and UCM services and simply alleged that the markets were “highly concentrated and the consummated acquisitions increased concentration substantially.” The Complaint also challeged Talx’ alliance agreements in which ADP, Convergys and Ceridian outsource their VOIE and UCM to Talx. Although the preferred remedy is divestiture, the Consent Decree governed only Talx’ future conduct. Among other things, Talx must waive enforcement of certain non-compete and non-solicitation agreements, allow customers to rescind certain types of agreements, not allocate or divide markets for UCM services or discourage suppliers to refrain from doing business with competitors in the UCM market and allow ADP to outsource UCM services to competitors. It appears that Talx avoided substantial exposure for consummating transactions that ultimately prove to harm competition. As examined at length “Buyer Beware: Consummating Non-HSR Reportable Transactions May Prove Costly In the End,” Antitrust Litigator (Winter 2007) (see link to article under articles tab), Talx could have been required to divest the assets at distressed prices and possibly been faced with exposure for civil damages. The press release and analysis to aid public comment are attached. Talx (Press Release)Talx (Analysis to Aid Public Comment)


Apr

24

Posted by : Matthew Wild | On : April 24, 2008

Yesterday, the United States Court of Appeals for the D.C. Circuit granted Rambus’ petition for review. This decision was much awaited among antitrust counselors because it represented an attempt by the FTC to extend the antitrust laws to cover deceptive practices directed at standard-setting organizations. After administrative proceedings, the FTC held that Rambus violated Section 2 of the Sherman Act and Section 5 of the Federal Trade Commission Act by concealing to a standard-setting organization that it held patents in a technology which it urged the organization to adopt. Rambus then allegedly used the organization’s adoption of its technology to overcharge for licenses. In rejecting the claim under Section 2, the court explained, “if JEDEC, in the world that would have existed but for Rambus’s deception, would have standardized the very same technologies, Rambus’s alleged deception cannot be said to have had an effect on competition in violation of the antitrust laws; JEDEC’s loss of an opportunity to seek favorable licensing terms is not as such an antitrust harm. Yet the Commission did not reject this as being a possible—perhaps even the more probable—effect of Rambus’s conduct. We hold, therefore, that the Commission failed to demonstrate that Rambus’s conduct was exclusionary, and thus to establish its claim that Rambus unlawfully monopolized the relevant markets.” Rambus Inc. v. FTC, No. 07-1086 at 19 (D.C. Cir. Apr. 22, 2008). With respect to Section 5 of the FTCA, the court also expressed “serious concerns about strength of the evidence relied on to support some of the Commission’s crucial findings regarding the scope of JEDEC’s patent disclosure policies and Rambus’salleged violation of those policies.” Id. Notably, the court did not address whether such conduct would violate Section 5 even if it could not support liability under the Sherman Act. The FTC has recently taken such a position in its action against Negotiated Data in the March 10, 2008 Post. A copy of the slip opinion in Rambus is attached.

Rambus v. FTC

Mar

24

Posted by : Matthew Wild | On : March 24, 2008

Three recent developments serve as cautionary tales to parties to prospective transactions. These actions serve to remind practitioners that there is a genuine possibility of agency action even in cases where the buyer has only a minority ownership interest in a company that competes with the target; the value of the overlapping assets represent less than one percent of the transaction’s value; and the transaction has closed without any HSR review. In Bain’s and THL Partner’s (“THL”) bid to acquire acquire Clear Channel, the Antitrust Division required, among other things, divestiture by THL Partners of its passive 14% equity interest in a company that competes with Clear Channel because it was concerned that THL would seek to reduce competition between the two parties post-merger. (See Post of February 28, 2008 and attached description). In the Cookson/Foseco transaction, the Antitrust Division required divestitures worth about $4 million out of a $1 billion transaction. Although the monetary value of the divestitures was relatively minimal, the Antitrust Division’s HSR review appears to have delayed the closing by nearly five months. (See Post of March 5, 2008). Parties should therefore understand that even smallest competitive overlap can trigger serious agency scrutiny and appreciate the attendant cost and delay resulting from a Second Request under the HSR Act. On January 25, 2008, the U.S. Court of Appeals for the Fifth Circuit denied Chicago Bridge’s Petition for Review of the FTC’s order requiring divestitures after Chicago Bridge acquired Pitts-Des Moines’ (“PDM”). See Chicago Bridge & Iron Co, N.V. v. FTC, No. 05-60192, 2008 WL 203802 (5th Cir., Jan. 25, 2008). Merging parties should be particularly concerned that the FTC initiated its investigation of the transaction after the HSR mandatory waiting period had expired. On September 12, 2000, Chicago Bridge and PDM made their HSR filings and the mandatory waiting expired without any HSR review by the antitrust agencies. More than 30 days after the filings (and thus after the HSR waiting period expired) but before closing, the FTC informed the parties that it had begun to investigate the potential competitive effects of the transaction. Nevertheless, in February, 2001, the parties closed the transaction, and in October 2001, the FTC issued its administrative complaint. Ultimately, Chicago Bridge was required to divest all of PDM’s assets. Notably, because the transaction closed, the Buyer — Chicago Bridge — assumed all of the antitrust risk in the transaction. Chicago Bridge paid $84 million for PDM’s assets and will have to sell them at fire sale prices. Thus, Buyers should be cautious in consummating transactions that may prove anticompetitive particularly during the pendency of an agency investigation. If the purchase agreement allows them to delay closing, they ought to consider doing so. “Buyer Beware: Consummating Non-HSR Reportable Transaction May Prove Costly In the End” (appearing in the Antitrust Litigator; attached) examines the risks that can arise from consummating a merger that turns out to be anticompetitive. Discussion(Bain&THL/Clear Channel); Buyer Beware: Consummating Non-HSR Reportable Transactions May Prove Costly in the End”

Mar

10

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

January 23, 2008. The FTC challenged anticompetitive behavior under Section 5 of the FTC Act that was not a violation of Section 1 or 2 of the Sherman Act. The FTC alleged that Negotiated Data (“N-Data”) reneged on its commitment to license its Ethernet technology to a standard-setting body on specificed terms. That commitment had induced that body to adopt N-Data’s technology as the standard. The FTC alleged that such conduct was both an “unfair method of competition” and an “unfair practice” in violation of Section 5. N-Data entered into a consent decree agreeing to abide by the licensing terms that it had originally offered. FTC Chair Majoras and Commissioner Kovacik dissented believing that Section 5 of the FTC Act does not reach such conduct. The FTC and Dissenting Statements and Analysis to Aid Public Comment are attached.FTC Statement (NData); ; Majoras Dissent (NData); Analysis to Aid Public Comment (NData)

Mar

03

Posted by : Matthew Wild | On : March 3, 2008

February 13, 2008. The FTC sued Cephalon for exclusionary conduct that is preventing generic competition with its branded drug Provigil. The FTC alleged that Cephalon settled with four different generic manufacturers. These generic manufacturers dropped their patent challenges to Provigil in exchange for cash payments. Under the vagaries of the Hatch-Waxman Act, generic entry is not possible until 180 days after one of these generic manufacturers enters the Provigil — which because their patent challenges have settled, will not be until after Provigil’s patent expires in 2012. The FTC adopted a new litigation strategy in this case. In the past, the FTC challenged these types of settlements in administrative proceedings and claimed that the basis for the “unfair method of competition” was a contract in restraint of trade — a violation of Section 1 of the Sherman Act. However, in FTC v. Schering-Plough, 402 F.3d 1056 (11th Cir. 2005), the FTC’s administrative decision was reversed by the Eleventh Circuit on petition for review. The Eleventh Circuit held that a reverse patent settlement is not by itself a Section 1 violation.The FTC’s current litigation strategy avoids the implication of Schering-Plough in two respects. First, by avoiding administrative proceedings altogether and commencing the action in the United States District Court for the District of Columbia, the FTC avoids review by the 11th Circuit. Second, the FTC is proceeding under a different theory of liability. The alleges that Cephalon willfully maintained its monopoly over Provigil through the patent settlements in violation of Section 2 of the Sherman Act. Accordingly, Schering-Plough — a Section 1 case — is inapposite. The FTC Press Release and Complaint are attached. FTC Press Release (Cephalon), FTC Complaint (Cephalon)