Proskauer: Antitrust Update for In-House Counsel

Presenters:

Christopher E. Ondeck | Alicia J. Batts | John R. Ingrassia | Alyse F. Stach

May 5, 2015

ABA Section of Antitrust LawCorporate Counseling Committee ‒

May Antitrust Update for In-House Counsel

ABA Section of Antitrust Law 2

Proskauer Antitrust Team

Christopher E. Ondeck | t: 1.202.416.5865 [email protected] Ondeck is a partner in the Litigation Department and vice-chair of the Antitrust Group. He focuses his practice on representing clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Alyse F. Stach | t: +1.212.969.3634 [email protected] Fiori Stach is an associate in the Litigation Department. Alyse is a commercial litigator with a particular focus on antitrust, business torts and intellectual property litigation. She appears in both federal and state courts, as well as before antitrust regulatory agencies, representing clients from a wide variety of industries, including financial services, technology, entertainment, sports, health care and telecommunications.

John R. Ingrassia| t: [email protected] Ingrassia is a special counsel and advises clients on a wide range of antitrust matters in various industries. His practice includes a significant focus on the analysis of Hart-Scott-Rodino pre-merger notification requirements, the coordination and submission of Hart-Scott-Rodino filings, and the analysis and resolution of antitrust issues related to mergers, acquisitions, and joint ventures.

Alicia J. Batts | t: [email protected] Batts is a partner in the Antitrust Group and the firm’s Litigation Department. An experienced antitrust lawyer, she litigates cases before federal courts throughout the United States and represents clients before federal and state agencies. Prior to joining the firm, Alicia worked as an Attorney Advisor to Federal Trade Commissioner Mozelle Thompson.

Class Action Updatesand Predictions

Christopher E. OndeckPartner

May 5, 2015


Class Certification After Comcast



Unresolved Post-Comcast Questions

• What kinds of analysis are required for a “rigorous analysis” of damages at class certification?

• Are individualized damages issues relevant to predominance at class certification?

• Must all class-members have Article III standing?

• Can statistical models that calculate only aggregate damages and rely on an “average” overcharge satisfy the Rule 23 predominance requirement?


Recent Post-Comcast Decisions Deepen the Circuit Split

• In re Blood Reagents Antitrust Litig., No. 12-4067 (3d Cir. Apr. 8, 2015)– Vacated class certification for direct purchaser class of blood reagents

in price fixing suit against Ortho-Clinical Diagnostics– District Court had determined, prior to Comcast, that challenge to the

merits of expert’s opinion was premature as damages model “could evolve” over time

– 3d Circuit determined that the “‘could evolve’ formulation for the Rule 23 standard did not survive Comcast ” because putative class must prove all of the Rule 23 elements are met before a class is certified

– 3d Circuit held that Comcast’s “rigorous analysis” at class certification mandates that the district court conduct a Daubert inquiry before determining if Rule 23 requirements have been met


Recent Post-Comcast Decisions Deepen the Circuit Split (cont’d)

• Roach v. T.L. Cannon Corp., 778 F.3d 401, 402 (2d Cir. Feb. 10, 2015)– Vacated ruling that denied class certification for group of

Applebee’s restaurant employees– District court held that Comcast permitted class certification under

Rule 23(b)(3) only when damages are measurable on a classwide basis. Because the damages in putative class were “highly individualized” and because plaintiffs did not “offer a ‘model of damages susceptible to measurement across the class,’” Plaintiffs could not satisfy Rule 23(b)(3) and thus class certification was denied


Recent Post-Comcast Decisions Deepen the Circuit Split (cont’d)

• Roach v. T.L. Cannon Corp., 778 F.3d 401, 402 (2d Cir. Feb. 10, 2015) (cont’d)

– Second Circuit granted interlocutory appeal (more on this later)– In examining Rule 23(b)(3)’s predominance factor, the Second

Circuit concluded that prior to Comcast, ascertainability of individual damages would not defeat class certification, and Comcast did not overturn that rule. The court thus held that: “Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), does not require that damages be measureable on a classwide basis for certification under Rule 23(b)(3).”


Individualized Damages Determinations and 23(b)(3)

Individualized damages not relevant to predominance under 23(b)(3)

2d, 5th, 6th 7th, 9th Circuits

• Roach v. T.L. Cannon Corp., 778 F.3d 401, 402 (2d Cir. 2015);

• In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014), cert. denied No. 14-123 (Dec. 10, 2014)

• In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838 (6th Cir. 2013), cert. denied, 134 S. Ct. 1277 (2014)

• Butler v. Sears, Roebuck & Co., 727 F.3d 796 (7th Cir. 2013), cert. denied, 134 S. Ct. 1277 (2014)

• Jimenez v. Allstate Ins. Co., 765 F.3d 1161, 1167-68 (9th Cir. 2014)

Damages issues are relevant to predominance at class certification stage

D.C. and 10th Circuits.

• In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244, 253 (D.C. Cir. 2013)

• Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213 (10th Cir. 2013)

See Pet. For a Writ of Cert., Carpenter Co. v. Ace Foam, Inc., No. 14-577 (U.S. filed Dec. 19, 2014) (describing circuit split)

Does a “Rigorous Analysis” Include a full Daubert Analysis?

Full Daubert Analysis Required

3d, 7th and 11th Circuits

• In re Blood Reagents Antitrust Litig., No. 12-4067 (3d Cir. Apr. 8, 2015)

• Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815-16 (7th Cir. 2010) (per curiam)

• Sher v. Raytheon Co., 419 F. App’x 887, 890 (11th Cir. 2011)

“Tailored” or “Lesser” Daubert Analysis Sufficient

8th and 9th Circuits

• In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 613 (8th Cir. 2011) (requiring only a “tailored” Daubert analysis)

• Tait v. BSH Home Appliances Corp., 289 F.R.D. 466, 495 (C.D. Cal. 2012) (“district courts [in the Ninth Circuit] are not required to conduct a full Daubert analysis”)

See Pet. For a Writ of Cert., National Milk Producers, et al. v. Edwards, Matthew, et al., No. 14-1078 (U.S. Filed March 3, 2015 (describing circuit split)


Can Statistical Models that Aggregate Damages for an Entire Class Satisfy Rule 23(b)(3?)

Models that calculate only aggregate damages and rely on an “average” overcharge can satisfythe predominance requirement

6th and 10th Circuits

• In re Scrap Metal Antitrust Litigation, 527 F.3d 517 (6th Cir. 2008)

• In re Urethane Antitrust Litigation, 768 F.3d 1245 (10th Cir. 2014)

Aggregate damages models that rely on averaging cannot satisfy predominance

2d, 4th, 7th and 9th Circuits

• McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008)

• Broussard v. Meineke Discount• Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998)• Espenscheid v. DirectSat USA, LLC, 705 F.3d

770, 773 (7th Cir. 2013).• In re Hotel Telephone Charges, 500 F.2d 86 (9th

Cir. 1974)

See Pet. For a Writ of Cert., Dow Chemical Co. v. Industrial Polymers Inc. et al. No. 14-665 (U.S. filed Mar. 9, 2015) (describing circuit split)


Can a Class Containing Non-Injured Individuals Be Certified Under Rule 23?

Yes 3d, 7th, 10th Circuits

• Krell v. Prudential Insurance Co. of America, 148 F.3d 283 (3d Cir. 1998)

• Kohen v. Pacific Inv. Mgmt. Co., 571 F.3d 672, 677 (7th Cir. 2009);

• DG ex rel. Stricklin v. Devaughn, 594 F.3d 1188, 1198 (10th Cir. 2010).

No - All class-members must have Article III standing

2d, 8th, 9th, D.C. Circuits

• Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006)

• Halvorson v. Auto-Owners Ins. Co., 718 F.3d 773, 778 (8th Cir. 2013)

• Mazza v. Am. Honda Motor Co., 666 F.3d 581, 594 (9th Cir. 2012)

• In re Rail Freight Fuel Surcharge Antitrust Litigation, 725 F.3d 244, 252 (D.C. Cir. 2013)

See Pet. For a Writ of Cert., Carpenter Co. v. Ace Foam, Inc., No. 14-577 (U.S. filed Dec. 19, 2014) (describing circuit split)



Why This Matters

• Interlocutory review of class certification decisions under Rule 23(f) is exceedingly rare, and thus defendants in class actions are forced to live with the consequences of the district court’s decision. In most cases, this means settlement.

• Because those decisions ultimately do not reach appeal, decisions that may not undertake the analysis required by Comcast and Rule 23 eventually become the law in those jurisdictions, leaving defendants to deal with a mélange of conflicting rulings.


Why This Matters (cont’d)

• Defendants and amici in Edwards v. National Milk Producers Federation, a case in the Ninth Circuit, petitioned the Supreme Court for a writ of certiorari on this very issue. The Supreme Court denied the petition in April 2015, leaving this issue unsettled for the time being. The Supreme Court also denied a similar petition brought by Carpenter Company in In re Polyurethane.

Cases To Watch & Predictions

• In re Processed Egg Products, No. 08-md-2002 (E.D. Pa.) – class certification decision pending for direct and indirect purchasers of shell eggs and egg products

• In re Urethane Antitrust Litigation, 768 F.3d 1245 (10th Cir. 2014)– Dow ordered to pay $1.6B (post trebling). Petition to Supreme Court pending– Argue court of appeals upheld two “shortcuts” by the district court that enabled

class certification,• allowed inference of class-wide impact where prices were individually negotiated• relied on damages model that calculated damages based on estimated averages

– Court has passed on the last few cert. petitions on this issue. Currently the best chance for court to clarify Comcast

• Predictions – Courts moving closer to a consensus on Daubert at the class certification stage. Deepening divide on other issues unlikely to be resolved unless SCOTUS speaks.



Case Filings Post-Comcast• Filings are up in the 6th Circuit

where plaintiffs have received favorable rulings in Whirlpool and In re Polyurethane Foam

• Expect an uptick in the 10th Circuit following the Urethane decision

• The 9th circuit will continue to be a favored district for the plaintiffs’ bar

• Expect filings to remain low in the D.C. Circuit, in light of the In re Rail Freight decision.

• Third Circuit remains a hotbed, particularly in light of plaintiff-friendly rulings in pay-for-delay cases.

Source: Global Competition Review, The Antitrust Review of Americas 2015

Agency Review ‒ Health Care

Alicia J. BattsPartner

May 5, 2015


Impax Laboratories/CorePharma

Background:

• In October 2014, Impax entered into a $700M agreementto acquire Tower and Lineage (includes CorePharma)

• FTC was concerned about two pipeline products:

1. Generic pilocarpine ‒ used to treat dry mouth• Two current suppliers ‒ Lannett Company, Inc. and Actavis plc• Though not currently in market, Impax and CorePharma each held

an approved Abbreviated New Drug Application (“ANDA”) • No other suppliers are expected to enter


Impax Laboratories/CorePharma (cont’d)

Background: (cont’d)

2. Generic ursodiol tablets ‒ used to treat primary biliary cirrhosis of the liver• Four current suppliers ‒ Impax, Actavis, Par Pharmaceutical

Companies, and Glenmark• Market has experienced supply shortages• CorePharma is developing generic ursodiol and expected to be

next entrant• No other suppliers are expected to enter market in the near future


Impax Laboratories/CorePharma (cont’d)

What’s New:• April 2015 ‒ FTC approves Final Order

– Divest all of CorePharma’s rights and assets to generic pilocarpine and generic ursodiol tablets

– Approved buyer ‒ Perrigo Company

Takeaways:• FTC continues to be very aggressive in

pharmaceutical merger reviews

• Indication-specific analysis

• Pipeline products as important as marketed products

• Teva/Mylan will be generic pharma deal to watch for in 2015


Phoebe Putney

Background:

• In 2011, FTC challenged Phoebe Putney’s acquisition of rival Palmyra Park Hospital in Albany, GA

• Four-year fight litigated all the way to Supreme Court

• Decision clarifies clear articulation prong of the State Action antitrust exemption


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.wfxl.com/news/story.aspx?id=557610&ei=BDlCVcf0Ha7msASckoCQCg&bvm=bv.92189499,d.cWc&psig=AFQjCNHhuVZT6X0ZGiuJ8uqVJPAnWroOgg&ust=1430489708540238

Phoebe Putney (cont’d)

What’s New:

• March 2015 settlement and 10-year consent order with FTC permits the system to stay intact

• Due to the unavailability of structural relief, the consent does not require a divestiture– Precluded by Georgia’s strict

Certificate of Need (CON) requirements


Phoebe Putney (cont’d)

Settlement and Consent Agreement:

• Phoebe must give FTC notice before acquiring hospital or health care providers in the Albany, GA area

• Phoebe is prohibited from opposing a CON application in the Albany, GA area

• Stipulates that the effect of the transaction may be substantially to lessen competition within the relevant service and geographic markets alleged in the complaint

Takeaway:• Local and state laws can significantly impact result


St. Luke’s/Saltzer

Background:

• In 2012 St. Luke’s Health Systems acquired theSaltzer Medical Group – both Nampa, ID health careproviders

• Private hospitals filed suit seeking to enjoin the merger – PI denied

• Post-closing, FTC and Idaho Attorney General fileda complaint

– Alleged the combination would have market power todemand higher rates for health care services provided by primary care physicians in the Nampa, ID area

• Divestiture ordered February 2014ABA Section of Antitrust Law 24

St. Luke’s/Saltzer (cont’d)

What’s New:

• 9th Circuit affirms holding that the acquisition violated Section 7 ofthe Clayton Act and the Idaho Competition Act

• En banc and panel rehearing requests denied

• Potential next major antitrust matter before Supreme Court


St. Luke’s/Saltzer (cont’d)

Takeaways:

• The 9th Circuit decision took efficiency analysis a step backward

• Agencies are skeptical about efficiency claims

• Places a heavy burden on parties– must be verifiable, quantifiable,

documented, and merger specific(not otherwise achievable)


Advocate/NorthShore

Background:

• 2014, Advocate Health Care and NorthShore University HealthSystem announced intent to combine to create the largest integrated health care delivery system in Illinois


Advocate/NorthShore (cont’d)

• Few overlapping service areas– despite large footprints in Chicago area– located about 10 miles apart

• Illinois Health Facilities and Review Board also will have a say

• Recall 2000 NorthShore/Highland Park Hospital merger– 2007 ruling required Highland Park’s contracts

with insurers be negotiated separately from those of NorthShore’s other hospitals

– class action ongoing



What’s New:

• Second Request issued ‒ March 2015

• Transaction delayed ‒ FTC needs more time to review the proposed merger

FTC Chairwoman

Edith Ramirez

“We now also hear growing concern that provider consolidation in non-overlapping product or geographic markets may also lead to higher prices . . . city hospital acquiring smaller hospitals in outlying areas” Examining

Health Care Competition (February 2015)



Takeaways:

• Combination of health care providers in adjacent markets and cross-market mergers can potentially be problematic

• Health care front and center, butmost deals still solvable, unless– very high post-merger market shares– factual evidence of likely future

rate increases– absence of payor support


FTC v. North Carolina Boardof Dentistry

Background:• The NC Dental Board, comprised of practicing dentists, oversees the

practice of dentistry in NC

• The Board sent cease-and-desist letters to nondentists, who offered teeth whitening services at substantially reduced rates

• FTC sued, alleging that the Board’s actions to exclude nondentists from the teeth-whitening market violated the FTC Act

• 4th Circuit affirmed ALJ ruling against the Board, holding that “the Board can invoke state-action antitrustimmunity only if it was subject to activesupervision by the State. . .”


FTC v. North Carolina Boardof Dentistry (cont’d)

What’s New:

• Supreme Court found that the Board violated antitrust laws by preventing lower-cost, nonmember providers from offering discounted teeth-whitening services

“[a] state law or regulatory scheme cannot be the basis for antitrust immunity unless, first, the State has articulated a clear policy to allow the anticompetitive conduct, and second, the State provides active supervision of [the] anticompetitive conduct.”


FTC v. North Carolina Boardof Dentistry (cont’d)

Takeaways:

• State Boards that are not actively supervised by the State are subject to Agency oversight

• Potential areas for antitrust challenge– Certificate of Need laws– Professional licensure/requirements

• Risky nonsovereign regulation– Excludes a competitor, or– Increases health care costs/prices, or– Stymies health care innovation


FTC Chairwoman Ramirez onRecent Victories


Health Care Agency Review

• FTC continues to be very aggressive in health care industry

• Indication-specific analysis

• Pipeline products as important as marketed products

• Local and state laws can significantly impact result

• Agencies’ skepticism about efficiency claims bolstered by9th Circuit decision

• Combination of health care providers in adjacent markets and cross-market mergers can potentially be problematic

• Health care front and center, but most deals still solvable


Merger Review Updates – U.S. and Abroad

John R. IngrassiaSpecial Counsel

May 5, 2015



Merger Review ‒ Introduction

• DOJ FY 2014 summary released

• HSR Act filings up– rose sharply– 1,326 in FY 2013– 1,663 in FY 2014

• 25% spike

• Antitrust Division challenged, restructured, or saw the abandonment of 20 proposed transactions in FY 2014


Merger Review UpdatesUnited States

National Cinemedia/Screenvision

Background:

• Announced May 2014 – $375 million• National CineMedia

– $426 million annual revenue– integrated media company

• movie theaters advertising network• online• mobile

– 183 Designated Market Areas (88%)– over 19,000 movie screens



– majority owned by three largest movie theater chains• Regal Entertainment Group• AMC Entertainment Inc.• Cinemark Holdings Inc.• “Founding Members”

– exercise “significant control and influence” over NCM’s actions



• Screenvision– $160 million annual revenue– movie theaters advertising network

• on-screen advertising• in-lobby promotions• integrated marketing programs

– national– regional– local

– over 14,000 screens/2,200 + theaters nationwide– 190 + Designated Market Areas (94%)



• Combination– 210 DMA’s– 50 states– 34,000 screens– serving 1.1 billion patrons/year

• DOJ sued to block transaction– only two significant cinema advertising networks in the

U.S.– only “two national players in the preshow space.”– combined 88 percent of movie screens in U.S.– “merger-to-monopoly”



– Long-term, exclusive contracts• Each keeps close tabs on the expiration dates of the other’s

exhibitor contracts– Spotlight Cinema Networks

• only other national cinema advertising network• niche player• 700 screens in art-house and luxury theaters• different target demographic

– Parties claimed to compete with other advertisers• TV broadcasters

– Efficiency claims dismissed• “bald assertion that bigger is somehow better”



• Relevant markets– preshow services– cinema advertising

• Competed aggressively– lowered prices to advertisers– Screenvision undercut NCM pricing by 50 percent or more– other financial incentives to movie theaters– non-price competition

• better products and services• “it’s not just about price, [Screenvision] caves on every point

and gives clients/agencies everything they ask for and more.”



– Head-to-head competitors• “we need to buy [Screenvision] before either us or

[Screenvision] does a stupid deal.”• “control selling tactics,” including “pricing”• “We woke the beast. In spite of fundamental differences in

strategy, NCM is quick to drop price.”– Déjà vu all over again

• Bazaarvoice



What’s New:

• Parties abandoned transaction March 2015 as trial date approached– “victory for advertisers, movie theaters and consumers”– “should never have been considered, much less publicly

proposed”– “patently problematic”– AAG Baer has said publicly, including at enforcers

roundtable at Antitrust Section spring meeting, that transaction should never have seen light of day



Takeaways:

• It’s not all about market definition and efficiencies• Bad documents kill deals (i.e., Bazaarvoice)• Knowing when best advice is “no”


Waste Management/Deffenbaugh

Background:

• $400 million transaction announced October 2014• Waste Management

– based in Houston– $14 billion annual revenue– residential, commercial, industrial and municipal disposal

services• collection• transfer• recycling• resource recovery



• Deffenbaugh– based in Kansas City– $180 million annual revenue– disposal services

• Arkansas• Iowa• Kansas• Missouri• Nebraska

– municipal solid waste landfill– construction and demolition landfill– material recovery facilities– transfer stations



What’s New:

• Department of Justice – March 2015– parties to divest small container commercial waste service

routes (collecting solid waste from offices and apartment buildings)• Topeka, Kansas• Northwestern Arkansas

– transaction would have likely resulted in higher rates for customers in those areas

Takeaway:

• Transactions with local markets can present easier solutions if the parties are willing to divestABA Section of Antitrust Law 50

Par Petroleum/Mid Pac Petroleum

Background:

• Announced June 2014 – $107 million

• Par Petroleum– Houston-based– retail gas stations in Hawaii– Hawaii’s largest oil refinery

• only one other is owned by Chevron– bulk supplier of Hawaii-grade gasoline blendstock

(“HIBOB”)• only gasoline meeting specifications of Hawaii law• no substitute for vehicles that must use Hawaii-grade

gasoline



• Acquired Hawaii based Mid-Pac Petroleum– exclusive licensee of the “76” brand in the state of Hawaii

at 80 retail sites– four terminals in Hawaii– importer of bulk supply of HIBOB

• Barbers Point Terminal– only terminal in Hawaii not owned by Par or Chevron

• long-term agreement




• Four competitors supplying HIBOB– Par and Chevron

• operate refineries producing HIBOB on the Hawaiian Islands– Mid Pac Petroleum and Aloha Petroleum

• share access to only terminal not owned by a refinery and capable of receiving waterborne shipments of HIBOB ‒ Barbers Point Terminal

– owned by Aloha– Mid Pac shared access through a long-term storage and

throughput agreement• Post transaction

– 116 combined gas stations combined• Tesoro, 76, 7-Eleven brands


What’s New:

• Consent Decree ‒ March 2015• No horizontal issues identified in complaint• Vertical foreclosure and coordinated effects issues

– Par, Mid Pac, Chevron Corp. and Aloha provide Hawaii’s bulk HIBOB supply• Par and Chevron have refineries in Hawaii that produce

HIBOB• Mid Pac and Aloha buy bulk supply from Par and Chevron

– and rely on imports



– Combined Par/Mid Pac would have incentive and the ability to “park” petroleum products at Barbers Point Terminal• effectively reducing its throughput/capacity

– Effect would be to reduce or eliminate Aloha’s ability to discipline bulk supply prices by increasing imports• resulting in higher HIBOB prices• ultimately passed on to Hawaii consumers at the pump

– FTC says Chevron, only other Hawaiian refiner, would follow Par’s exclusionary strategy• coordinated effects

• Parties agreed to terminate Barbers Point Terminal Agreement to proceed with the transactionABA Section of Antitrust Law 55


• Commissioner Joshua D. Wright issued dissenting statement– “[V]ertical transactions are generally, but not always,

procompetitive or competitively benign”– Neither economic analysis nor record evidence gives

reason to believe it would be profitable for Par exclude Aloha to the detriment of consumers

Takeaway:

• Transactions with vertical components require thorough antitrust analysis



Reynolds American/Lorillard

Background:

• Announced July 2014 – $27 billion

• Reynolds

• second largest tobacco company in the U.S.

• Camel• Pall Mall• Natural American Spirit• Grizzly• VUSE

• Lorillard

– third largest tobacco company in the U.S.• maker of Newport cigarettes



• Combination– British American Tobacco to maintain 42% ownership of

Reynolds• Lorillard Shareholders to Hold 15% of combined company

– Over $11 billion in revenues– 33% market share

• behind Altria – market leader– 49% Market share– Marlboro

– Transaction would leave two competitors with 90% market share


– offered to divest Salem, Winston, Maverick, Kool and Blu for $7.1 billion to Imperial Tobacco Group

– Includes manufacturing and R&D facilities in Greensboro, N.C.• approximately 2,900 employees• increases Imperial’s market share in the U.S. to 10 percent

– from 2.5 percent• issue for agency

– viable competitor? – recall Hertz/Dollar Thrifty – Advantage

» 2012 divestiture unsuccessful

• Second Request issued August 2014



What’s New:

• April 2015– Staff has recommended blocking deal, but– Bureau of Economics decided against recommending lawsuit– Bureau of Competition director D. Feinstein reported to agree– Consent Decree would likely contemplate divestitures very close

to original package with Imperial Tobacco as buyer

Takeaway:

– must demonstrate divestiture buyer will be viable competitor– stay tuned


Tokyo Electron/Applied Materials

Background:

• First announced September 2013 ‒ $29 billion

• Applied Materials– largest provider of non-lithography semiconductor manufacturing equipment– $9 billion revenue in 2014

• Tokyo Electron– second-largest provider of non-lithography semiconductor manufacturing

equipment – $6 billion revenue in 2014

• Affected markets– semiconductor manufacturing equipment– development of equipment for next-generation semiconductors




• Antitrust division cooperated with– Korean Fair Trade Commission– China’s Ministry of Commerce– Germany’s Federal Cartel Office– competition agencies from several other jurisdictions

• Merger agreement– parties would divest up to $600 million of assets to secure antitrust

regulatory approval

• Japan Fair Trade Commission initiated secondary review April 2014



What’s New:

• DOJ rejected companies’ proposed divestiture remedy

• Transaction abandoned in April 2015

• Over 18 months after it was first announced

Takeaways:

• Divestiture commitments need to preserve existing level of competition

• Multi-jurisdictional reviews can mean longer timeframes

ABA Section of Antitrust Law

Sysco-U.S. Foods

Background:

• Announced December 2013– $8.2 billion

• FTC filed administrative complaint February 2015• 3-2 split amongst commissioners• Alleged the transaction will lead to higher prices and

reduced services– national and local customers– Broadline foodservice distributors ‒ “broadliners”

64

Sysco-U.S. Foods

– sell and deliver food and related products to variety of foodservice operators• restaurants• hospitals• hotels• school cafeterias• other places where people eat “food away from home.”

– Distinguished from other types of foodservice channels:• systems foodservice distribution• specialty foodservice distribution• cash-and-carry stores

– lack critical attributes that customers of broadline distribution require and that broadline distributors offer



Sysco-U.S. Foods

• Post-Merger– 133 distribution centers– 75% share of broadline foodservice distribution services to

National Customers• next-largest distributor has 11% share

– market share would be 50% or higher in 32 local markets• significant increases in concentration in already concentrated

markets• parties proposed divestitures in 8 of the 32 local markets

– Performance Food Group

Sysco-U.S. Foods

– PI hearing before U.S. District for the District of Columbia Judge Amit Mehta May 5 (today)

– FTC Administrative hearing scheduled to begin in July– parties looking at impact regional distributors have on

competitiveness of market• no national market• competition from cash-and-carry stores (i.e., Restaurant

Depot)• efficiencies/cost savings to be passed on to consumers


Sysco-U.S. Foods

What’s New:

• Parties also battling with agency over access to information

• Identity of declarants

• March 31 – Court ruled FTC must reveal identities

Takeaways:

• Industries with local and national markets can present remedy challenges (i.e. ATT/T-Mobile 2011)

• Active state enforcement can supplement fed efforts "boots on the ground"


European Union



Siemens/Dresser-Rand

• Europe’s largest engineering group Siemens to acquire U.S. oilfield equipment maker Dresser-Rand Group Inc.– $7.6-billion

• EU ‒ Phase II investigation • Deadline for clearance decision extended to July 14• Concern that deal would reduce competition with respect to turbo

compressors and drivers for trains – merged company would only compete with General Electric

• HSR early termination December 2014

Takeaway:• Can be difficult to align multi-jurisdictional clearance timelines


Biomet-Zimmer

• Announced April 2014• Orthopedic-device maker Zimmer Holdings Inc.’s

acquisition of Biomet Inc. ‒ $13.4 billion• Both companies based in U.S.• Combined company

– leader in products to repair muscles and bones• Concerns that the deal could have led to higher prices

for orthopedic implants in some European countries

Biomet-Zimmer

• Approved by EC March 2015 – divestitures of three knee and elbow implant businesses– Zimmer to divest knee-implant business in European

Economic Area– Biomet to divest elbow-implant unit in European Economic

Area• and knee-implant business in Denmark and Sweden

• Suitable purchasers must be approved by the commission

• FTC investigation pending

Takeaway:• U.S. deals can have impacts worldwideABA Section of Antitrust Law 72

GE/Alstrom

• General Electric Co.’s acquisition of Alstom SA ’s energy businesses

• $17 billion• EC Phase II investigation• Off the table

– power-generation equipment for nuclear, coal-fired, wind and hydro power plants

– electricity transmission equipment


GE/Alstrom

• Issue: geographic scope of the large-gas-turbine market– transaction could limit competition in market for

heavy-duty gas turbines used in gas-fired power plants• Four companies compete globally to produce heavy-duty

gas turbines– GE– Alstom– Siemens– Mitsubishi Hitachi Power Systems – less active in Europe


GE/Alstrom

• If market is European rather than global, merger leaves only two strong competitors

• Would eliminate “one of the three main global competitors to GE” in the market

• EU antitrust chief Margrethe Vestager– “We are concerned that the proposed acquisition might not only lead to

higher prices but also result in less choice for customers and less innovation in the sector”

• Final decision due August 6

Takeaway:• Geographic market definition can significantly impact analysis and

result


Altice SA/PT Portugal

• Altice SA/PT Portugal transaction – $7.9 billion• Acquisition of Portuguese telecommunication assets of

PT Portugal• Concern merger would result in less competition and

higher prices for consumers in Portugal• EC denied request to refer the case to the Portuguese

Competition Authority• Cleared by EC with concessions – April 2015


Altice SA/PT Portugal

• Altice agreed to sell its existing assets in Portugal– Portuguese businesses ONI and Cabovisao

• Cabovisao– pay-TV, Internet and fixed-telephone service provider

• ONI– serves business customers with telephone and Internet service

Takeaway:• EC concerned about local European markets

– not just community-wide impacts



Rest of World


China ‒ CNR Corp./CSR Corp

• China’s two largest rolling stock producers• combined company – $31 billion in revenue• creation of the world’s largest train maker• cleared by multiple antitrust regulators

– China (MofComm)– Australia– Germany– Pakistan– Singapore

Takeaway:• Notification requirements and active merger control

regimes worldwide


On the Horizon/Deals to Watch

• Dollar Tree/Family Dollar– approximately 340 stores likely to be divested (mostly Family

Dollar locations)• Staples/Office Depot

– second request issued March 2015• Expedia/Orbitz

– second request issued in March 2015• Nokia/Alcatel

– announced April 2015• Teva/Mylan

– announced April 2015

Network Neutrality:FCC Authority & Antitrust Law

Alyse Fiori StachAssociate

May 5, 2015



Open Internet OrderGeneral Overview

• Published in Federal Register on April 13, 2015• New Rules cover both wired and wireless broadband• Broadband reclassified under Title II of the Communications

Act (“light touch”)

The Rules:• Bright Line Rules:

– No Blocking lawful content– No Throttling lawful content– No Paid Prioritization

• No Unreasonable Interference (case-by-case)• Transparency Requirements• Authority to examine interconnection agreements

Open Internet Order –Reasonable Network Management Exception

Reasonable network management permitted to manage the technical and engineering aspects of a provider’s broadband networks.

• The no-blocking rule, the no-throttling rule, and the no-unreasonable interference/disadvantage standard will be subject to reasonable network management for both fixed and mobile broadband providers.

• No allowance for reasonable network management with respect to the paid prioritization rule (which the agency views as having no technical network management purpose). A network management practice is a practice that has a primarily technical network management justification, but does not include other business practices. A network

management practice is reasonable if it is primarily used for and tailored to achieving a legitimate network management purpose, taking into account the particular network

architecture and technology of the broadband Internet access service.



Current Challenges

• Challenges to date: – ISPs:

1. AT&T

2. CenturyLink

3. Alamo Broadband

4. Full Service Network, TruConnect Mobile, Sage Telecommunications LLC and Telescope Communications Inc.

– Trade Groups:1. CTIA (wireless operators)

2. NCTA (major cable companies)

3. American Cable Association (smaller cable operators)

4. U.S. Telecom Association

5. Wireless Internet Service Providers Association

• Considerations: Jurisdiction, Timing


Bases for Challenges

• FCC lacks statutory authority to issue the rules• FCC lacks statutory authority to reclassify broadband services

under Title II• Procedural challenges

– The rules are not the product of reasoned decision making– FCC failed to give notice of the changes

• The rules are arbitrary, capricious and an abuse of discretion

• Challenges specific to mobile broadband providers• Constitutional challenges

FCC Jurisdiction . . .

• Categorization or Broadband under the Communications Act– Title I – Information Services– Title II – Telecommunication Services (common carrier)

• National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005) (broadband regulated as “Information Services” under Title I of the Communications Act

• Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010) (FCC does not have ancillary jurisdiction to stop Comcast from interfering in its users’ peer-to-peer traffic)

• Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014) (FCC does not have authority to impose the 2010 Open Internet Order in its entirety)

• 2015: Reclassification under Title II


. . . at the Expense of Antitrust?

• Antitrust enforcement of Net Neutrality Principals• Section 5 of the FTC Act• Clayton Act Merger Review• Commitment Letters• Consent Orders

• Overlapping authority?• No Unreasonable Interference• “Just and reasonable” Interconnection Agreements• Sponsored Data and Usage Allowances

• FTC v. AT&T Mobility LLC, No. 14-0785 (N.D. Cal. Filed Oct. 28, 2014)• Common carrier designation would exempt FTC from enforcement authority over

broadband providers



Network Neutrality and Merger Review

• The Network Neutrality “Bargaining Chip”

– Comcast/NBCU

– Comcast/Time Warner

– AT&T/DirecTV

– Future?

Presenters:

Christopher E. Ondeck | Alicia J. Batts | John R. Ingrassia | Alyse F. Stach

May 5, 2015

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ABA Section of Antitrust LawCorporate Counseling Committee ‒

May Antitrust Update for In-House Counsel