Bundled Discounts Subject to Section 1/Clayton 3 Scrutiny In the Absence of Market Power and Substantial Foreclosure?

Bundled discount programs have received significant antitrust scrutiny over the past decade, even though these marketing programs may benefit both consumers and competition. Typically, bundled discounts have been evaluated as either exclusive dealing or tying arrangements under Section 1 of the Sherman Act (and Section 3 of the Clayton Act in the case of a tying claim), or under Section 2 of the Sherman Act questioning whether such marketing plans result in unlawful monopolization.  While the appropriate legal analysis under these doctrines has continued to confound the courts, one consistent prerequisite to a finding of liability has been the existence of market or monopoly power, or in the case of an exclusive dealing arrangement, that the arrangement caused substantial foreclosure from the market.  A recent decision by a Pennsylvania district court, Schuylkill Health Systems v. Cardinal Health, Inc., et al.[1], has further confused the analysis of the lawfulness of bundled discounts by allowing a bundling claim to proceed under Section 1 of the Sherman Act (challenged as an exclusive dealing claim) and Section 3 of the Clayton Act (as a tying claim), even though it found that the defendants lacked market power and the discount programs failed to foreclose a sufficient portion of the relevant market.

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Second Circuit Clarifies the Use of Legal Presumptions of Consumer Confusion and Injury in Certain Lanham Act Cases

On Tuesday, July 29, the United States Court of Appeals for the Second Circuit “clarified certain aspects of [its] false advertising jurisprudence” and held that, where literal falsity and deliberate deception have been proved in a market with only two players, it is appropriate to use legal presumptions of consumer confusion and injury for the purposes of finding liability in a false advertising case brought under the Lanham Act.[1]

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False Advertising and Antitrust Law: Sometimes the Twain Should Meet

Imagine that a drug manufacturer figured out how to compete with a blockbuster drug by making a cheaper and more effective alternative. The pharmaceutical company that makes the blockbuster drug starts flooding the market with false advertisements about the safety of the alternative drug before it is even available to consumers, effectively taking away the new drug’s ability to compete. In this hypothetical, there are two potential victims: the new manufacturer that could have competed on the merits and the consumers (and possibly third-party payors) that lost the ability to choose a potentially better product or benefit from the price decrease of the blockbuster drug. Should antitrust law remedy this situation?

This article was originally published by CPI Antitrust Chronicle. To read the entire article, please click here.

SD3 v. Black & Decker (U.S.), Inc. – District Judge Axes Complaint Alleging Table Saw Safety Standards Conspiracy

The pen may be mightier than the sword, but not necessarily mightier than the table saw.  On July 15, 2014, in SD3 v. Black & Decker (U.S.), Inc., Case No. 1:14-cv-191 (E.D. Va.), District Judge Claude M. Hilton dismissed antitrust claims by SD3 and Sawstop against several manufacturers of table saws, a trade association, and a standards setting body.  Plaintiffs alleged that defendants conspired to boycott plaintiffs and conspired to exclude their technology from table saw safety standards, in violation of Section 1 of the Sherman Act and Ohio and Illinois law.  Judge Hilton rejected plaintiffs’ allegations, holding that the complaint did not plausibly allege anything more than unilateral conduct by each defendant and normal standards-setting conduct, which was insufficient to state an antitrust claim.

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Two UPC Resellers Settle FTC Invitation to Collude Investigation

On July 28, 2014, the Federal Trade Commission accepted, subject to final approval, settlements with InstantUPCCodes.com (“Instant”) and Nationwide Barcode (“Nationwide”), two of the leading barcode resellers, and their principals, Jacob Alifraghis and Philip Peretz, who operate Instant and Nationwide, respectively.  In its complaints, the FTC alleged that the settling respondents violated Section 5 of the FTC Act by inviting certain competitors in the sale of barcodes to join together in a collusive scheme to raise prices.

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Of Characterization and Common Sense: Court Holds That Erroneous Interpretation of Allegations of Complaint Doom Counterclaim to Bottom of Chicken Coop

In In Re Processed Egg Products Antitrust Litigation, No. 2:08-Md.-02002-GP (E.D. Pa., June 10, 2014), the plaintiffs alleged that they purchased eggs from the defendant egg producing cooperatives, and that the plaintiffs had required that defendants provide only eggs that complied with a “certification program.”  The defendants were required by the program to certify, for “animal welfare purposes,” that they had expanded the size of the cages for chickens, which was accomplished  by reducing the number of chickens in each cage.  The complaint alleged that defendant egg producers had conspired to utilize the program as a pretext to reduce the output of eggs by reducing the number of chickens overall.  Defendants counterclaimed that the certification program itself was an agreement to restrict output in violation of the antitrust laws.

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Supreme Court Rules Compliance with FDA Labeling Guidelines Does Not Bar Lanham Act False Advertising Suits – POM Wonderful v. Coca-Cola Co.

In a highly anticipated decision, the Supreme Court on June 12 announced that compliance with food labeling guidelines promulgated by the Food and Drug Administration will not operate as a bar against false advertising claims brought under the Lanham Act.  In its decision, the Court made clear that food and beverage labeling may mislead consumers even though the labeling complies with the Federal Food, Drug and Cosmetics Act (“FDCA”), and may be actionable under the Lanham Act.  The decision will have significant ramifications for all advertisers operating in regulated industries because compliance with particular labeling or disclosure requirements does not constitute a “free pass” against the Lanham Act’s prohibition against false advertising.

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Beyond Truth, and Toward Repose: Price Increases Following “Merger to Monopoly” Do Not Rekindle Statute of Limitations

Z Technologies Corp. v. Lubrizol Corp., No. 2:12-cv-12206 (6th Cir., May 23, 2014).

In February, 2007, Lubrizol Corporation made a “merger to monopoly” acquisition of the assets of a competitor.  The acquisition established a monopoly in the market for petroleum wax-based oxidates.  After the acquisition, Lubrizol increased prices for oxidates in March, July and November, 2007, and again in May, July and September of 2008.  In the aggregate, Lubrizol increased its oxidate prices approximately 70% following the acquisition.

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Department of Justice Opens Review of ASCAP and BMI Consent Decrees

The Antitrust Division of the Department of Justice this month announced that it has opened a review of the 73-year-old ASCAP and BMI Consent Decrees. In its press release, the DOJ noted that it is most interested in comments “on competitive concerns that arise from the joint licensing of music by performance rights organizations and the remediation of those concerns.”

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