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Likely antitrust enforcement during President Obama’s second term

Janet L. McDavid, Logan M. Breed and William H. Rawson, Hogan Lovells, Antitrust, Competition and Economic Regulation Alert, 09 November 2012.

See Janet L. McDavid's resume See Logan M. Breed's resume See William H. Rawson's resume

During the 2008 presidential campaign, Barack Obama pledged to “reinvigorate antitrust enforcement” and “step up review of merger activity” because the federal antitrust agencies – the Antitrust Division of the Department of Justice (Antitrust Division) and the Federal Trade Commission (FTC) – had not been aggressive during President George W. Bush’s two terms, particularly regarding merger enforcement and single-firm conduct. In addition, there had been relatively little litigation by the Antitrust Division. That changed following President Obama’s election in 2008. The agencies were more active on both mergers and monopolization, the Antitrust Division litigated several cases and continued the Bush administration’s strong enforcement against cartels, and there also was extensive cooperation between the U.S. agencies and their international counterparts and international organizations such as the ICN and OECD. These trends are likely to continue during President Obama’s second term.

Increased enforcement during President Obama’s first term

The U.S. antitrust agencies delivered on President Obama’s promise of vigorous antitrust enforcement during his first term. The Antitrust Division demonstrated a renewed willingness to challenge mergers and litigate cases. The Division dedicated significant resources to developing its litigation capabilities, reorganizing its case management structure, and hiring more attorneys with litigation experience. These efforts paid dividends in several cases. Most prominently, the Antitrust Division sued to block AT&T’s proposed acquisition of T-Mobile, ultimately leading the companies to abandon the deal. The Antitrust Division won its first litigated merger challenge since 2003 when it secured an injunction prohibiting H&R Block’s proposed acquisition of TaxACT. The Antitrust Division also initiated high-profile litigation in non-merger cases, most notably against Apple and several publishers regarding an alleged conspiracy to raise prices on e-books – some of whom settled, but several defendants are still in litigation against the Division.

Under the leadership of Chairman Jonathan Leibowitz, the FTC also successfully challenged several high-profile mergers during President Obama’s first term. The FTC was particularly active in the health care area, challenging proposed mergers between Rockford Memorial Hospital/St. Anthony Medical Center, Phoebe Putney/Palmyra, ProMedica/St. Luke’s Hospital, and LabCorp/Westcliff Medical Laboratories.

In addition to merger enforcement, the agencies increased their focus on non-merger conduct. During the Bush administration, the Antitrust Division had released a report describing the very limited circumstances in which it would enforce Sherman Act Section 2, which prohibits anticompetitive conduct that creates or maintains a monopoly. The report was criticized by many commentators for setting too high a bar for antitrust scrutiny of single-firm conduct. The FTC participated in workshops leading up to the report, but refused to adopt the report. One of the first acts by President Obama’s first chief antitrust enforcer, Christine Varney, was to withdraw the report. Then on 25 February 2011, the Division filed a lawsuit and reached a settlement with United Regional Health Care System in Texas that prohibited it from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors. The action challenged United Regional’s use of these contracts to maintain its monopoly for hospital services in violation of Section 2, causing consumers to pay higher prices for healthcare services. It was the first case brought by the Division since 1999 that challenged a monopolist with engaging in traditional anticompetitive unilateral conduct.

The FTC was also active in non-merger litigation. The FTC continued its aggressive efforts to prevent so-called “pay-for-delay” or “reverse payment” settlements between brand-name drug companies and generic competitors. The FTC had long been unsuccessful in these cases, but, in July 2012, the U.S. Court of Appeals for the Third Circuit ruled in In re K-Dur Antitrust Litigation that reverse payment settlements are presumptively anticompetitive. The Supreme Court has been asked to resolve a split between the circuit courts.

Finally, the Antitrust Division continued and enhanced its enforcement against cartels activity during Obama’s first term. Since 2009, the Division has obtained more than US$2 billion in criminal fines and more than 88,000 days of jail time for criminal defendants. The Antitrust Division also recently secured guilty jury verdicts in two municipal bond cases in New York and a hospital bid rigging scheme in New York. Most importantly, the Antitrust Division recently won a US$500 million fine following a criminal verdict in a jury trial against AU Optronics Corp. (AUO) for its role in an LCD panel price fixing conspiracy. The Division sought a record US$1 billion penalty in the case, and it has filed a notice of appeal to pursue a higher fine from the Ninth Circuit.

Continued aggressive enforcement during President Obama’s second term

Although President Obama did not discuss antitrust issues during his second presidential campaign, the agencies likely will remain aggressive during President Obama’s second term. Bill Baer, who is highly regarded within the antitrust bar, has been nominated to be the next head of the Antitrust Division and awaits confirmation. He will likely continue the Division’s recent strong enforcement efforts. Baer’s extensive experience in the public and private sectors includes a stint as the Director of the FTC’s Bureau of Competition in the 1990s. His tenure at the FTC was marked by aggressive challenges to mergers and non-merger conduct, including successful challenges of the proposed Staples/Office Depot transaction and exclusionary conduct by Toys R Us.

New leadership at the FTC will also likely continue the agency’s recent enforcement efforts. Current Chairman Leibowitz has announced that he plans to leave the FTC, which will create a Democratic vacancy. One of the two other Democratic Commissioners, Edith Ramirez or Julie Brill, who have demonstrated that they are aggressive but sensible enforcers, could be named Chairman upon his departure, or Leibowitz’s replacement on the Commission could be designated as Chairman.

Key developments to watch for at both agencies include the following:

  • The FTC’s continued investigations of Google. FTC Staff has reportedly recommended a suit against Google for blocking competitors’ access to smartphone-technology patents, and a decision by the Commissioners is expected in the near future. FTC Staff is also reportedly expected to recommend that the FTC sue Google for various search-related practices. Chairman Leibowitz has said that a final decision is expected before the end of the year; the FTC is coordinating its investigation with the European Commission, which has been conducting a similar investigation for over a year. The FTC’s pursuit of Google is the most far-reaching antitrust investigation of a corporation since the DOJ’s litigation against Microsoft in the 1990s.
  • The FTC’s continued interest in “reverse payment” settlements. The issue has been of particular interest to Chairman Leibowitz. Yet even after Leibowitz resigns, the FTC will likely continue to vigorously oppose “reverse payment” settlements if the issue reaches the Supreme Court.
  • The Antitrust Division’s continued pursuit of cartels. In particular, the Division will continue its wide-ranging investigation into cartels, including in the automobile parts industry, which is the largest cartel investigation of price fixing and bid rigging the Antitrust Division has ever pursued. The investigation has already led to hundreds of millions in criminal fines involving dozens of different companies that produce automobile parts.
  • The FTC’s continued interest in healthcare. As the Patient Protection and Affordable Care Act continues to take effect, the FTC will likely remain active in the health care area, particularly regarding mergers involving hospitals, healthcare providers, and insurers.
  • Investigations regarding the use of standard-essential patents. Both the FTC and the Antitrust Division have indicated that they are evaluating whether to bring antitrust cases against companies that misuse patents that have been declared essential to industry-wide standards (e.g., mobile communication standards). The agencies may allege that the standards confer market power on the patent holder, who may seek to take advantage of that market power by engaging in patent hold-up, excluding competitors or obtaining an unjustifiably higher price for its invention than would have been possible before the standard was set.

Conclusion

The Obama administration delivered on its promise to reinvigorate antitrust enforcement during its first term. The Antitrust Division and the FTC both raised the bar on merger and single-firm conduct enforcement, and the Division continued the previous administration’s strong enforcement against cartels. The Obama administration also placed an even greater emphasis on cooperation between the federal agencies and their international counterparts. We expect that these trends are likely to continue during President Obama’s second term, even as both agencies transition to new leadership in the near future.

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