• On January 17, the American Antitrust Institute ("AAI") submitted a White Paper to the Department of Justice discussing the alleged anticompetitive effects of Whirlpool's acquisition of Maytag. The AAI is an independent Washington, D.C. based non-profit education, research, and advocacy group. Its mission is to preserve the role of competition in the United States and the world. It is strongly pro-enforcement oriented and encourages aggressive prosecution of the antitrust laws. The AAI concludes that the deal raises significant issues in the United States for the manufacture and sales of laundry appliances, generally and of dryers, front loading, top-loading washers, specifically. The AAI claims that the relevant market(s) are concentrated and asks the DOJ to either block the merger or to require Whirlpool to divest a suitable number of laundry assets to a viable buyer to maintain competition. The AAI also claims that the deal could enhance Whirlpool's ability to foreclose small competitors and recent entrants from prime retail outlets by controlling floor space. The AAI also concluded that it is unlikely that any claimed efficiencies would be large enough to offset the anticompetitive effects resulting from this transaction. The Antitrust Division is still reviewing the transaction.

• On January 17, Alaska Brokerage International Inc., a U.S. based brokerage firm dealing in the purchase and sale of unprocessed fur pelts, and one of its auction representatives, David Karsch, were indicted for allegedly participating in a bid-rigging conspiracy involving the sale of otter pelts. In the indictment, the grand jury charged Alaska Brokerage and Mr. Karsch, with conspiring with other corporations and individuals beginning sometime in mid-2003, and continuing until at least February 14, 2004, to rig the bids of otter pelts auctioned in the United States in February 2004. The defendants allegedly carried out the conspiracy by: engaging in communications and discussions with co-conspirators regarding not competing with one another in the bidding for otter pelts to be auctioned; agreeing with their co-conspirators to a collusive bidding strategy, involving not bidding against one another, bidding at certain prices or price ranges, and subsequently transferring otter pelts acquired at the auction among themselves; and executing the agreed-upon collusive bidding strategy.

• On January 11, a federal grand jury in Puerto Rico indicted Eugenio A. Guardiola Ramierez, a San Juan attorney, for interfering with federal investigations into kickback schemes used to defraud Tricon Restaurants International, a Puerto Rico fast food restaurant company. A three-count indictment, charges Mr. Ramirez with conspiracy to obstruct justice and obstruction of justice in connection with federal investigations by the General Services Administration, Office of Inspector General and a federal grand jury involving a kickback scheme to defraud Tricon. According to the charges, between March and May 2004, Mr. Ramirez interfered with and obstructed the investigations into illegal kickback payments made by his clients, Gate Engineering Corporation-- an electrical contractor-- and its president, Albith Colón, to Jorge Luis Matos Burgos, then a Tricon employee. Allegedly, Mr. Ramirez attempted to conceal the true nature of these kickback payments from the federal grand jury and the General Services Administration, Office of Inspector General investigations by attempting to persuade witnesses to provide false information about the kickback payments and by asking witnesses to explain that the kickbacks were personal gifts. The indictment also charges that Mr. Ramirez drafted a phony services contract to conceal the true nature of the kickback payments.

• On January 5, a federal grand jury returned an indictment against four individuals for participating in self-dealing schemes that netted them more than $2 million while acting as executives and purchasing representatives of the Archdiocese of New York. According to a nine-count indictment, Vincent J. Heintz and Nanette B. Melera, both of Briarcliff Manor, New York; Joseph J. DeRusso, of Florham Park, New Jersey; and Michael J. O'Shaughnessy, of Queens, New York, used their positions as employees and consultants at Institutional Commodity Services Inc. ("ICS"), the purchasing arm of the archdiocese, to receive more than $1.2 million from vendors supplying goods to the archdiocese. At least $250,000 of this money was paid in cash. Those charged also allegedly diverted at least $1 million to shell companies they controlled. The indictment charges Mr. Heintz, Ms. Melera, Mr. DeRusso and Mr. O'Shaughnessy with mail fraud and conspiracy to commit mail fraud. Mr. DeRusso and Mr. Heintz are charged with one count of conspiracy to defraud the Internal Revenue Service, with Mr. DeRusso also being charged with four counts of tax evasion. The grand jury also charged Mr. Heintz with one count of making false statements, and charged Mr. DeRusso with one count of obstruction of justice. According to the charges, all four allegedly conspired to defraud the archdiocese of more than $2 million from 1996 until 2004. Vendors paid more than $1.2 million, which was then allegedly shared amongst the four conspirators. The amount of the commissions paid was included in the prices charged to ICS, which resulted in the archdiocese paying artificially inflated prices for the goods and services procured by the four conspirators. In addition, the indictment charges that the four conspirators embezzled more than $1 million dollars from the archdiocese through a self-dealing scheme in which they diverted funds earmarked to buy food for the children enrolled in the archdiocese's schools to companies they owned and controlled. The investigation was conducted by the Antitrust Division's New York Field Office, with the assistance of the Federal Bureau of Investigation and the Internal Revenue Service. The Archdiocese of New York cooperated with the Division's investigation.

Authored by:
Andre P. Barlow
202-218-0026
abarlow@sheppardmullin.com

• On January 31, the Commission's Bureau of Competition announced the closing of its investigation into the acquisition by Comcast Corporation ("Comcast") and Time Warner Cable Inc. ("TWC") of the cable assets of Adelphia Communications Corporation ("Adelphia"), and into related transactions in which Comcast and TWC will swap various cable systems of Adelphia. The Bureau has sent closing letters to the parties. The FTC's Commissioners also have issued statements on the closing of the investigations, the first by Chairman Deborah Platt Majoras and Commissioners William E. Kovacic and J. Thomas Rosch, and the second by Commissioners Pamela Jones Harbour and Jon Leibowitz. Although Commissioners Harbour and Leibowitz agreed generally with the closing of the investigation, both would have sought and obtained additional behavioral relief in Chicago and Sacramento to insure sports programming was provided to regional sports networks and non-discriminatory terms and conditions.

• On January 24, the Commission approved a comment to the Federal Energy Regulatory Commission ("FERC") about economically sound ways to assess generation of market power in wholesale electricity markets. The comment responds to a proposed new methodology by the Edison Electric Institute ("EEI") - the trade association for electric utilities - called the "historical contestable load" analysis to analyze market power. The FTC's comment, identifies five significant problems with the EEI's proposal, based on the analysis of market power in the joint FTC/U.S. Department of Justice Horizontal Merger Guidelines. Specifically, the comment states that in each of the five areas, the proposal does not represent an analytical advance over FERC's existing techniques to assess horizontal market power and falls far short of the economically sound framework for market power analysis presented in the Guidelines. The comment concludes by stating that "[t]he historical contestable load proposal suffers from a number of substantial defects . . . Accordingly, the FTC recommends that FERC reject use of a contestable load in assessing generation of market power." The Commission vote approving the comment and authorizing its transmission to FERC was 5-0.

• Under a consent agreement announced on January 23, the Federal Trade Commission will allow Teva Pharmaceutical Industries Ltd.'s ("Teva") proposed acquisition of IVAX Corporation ("IVAX"), provided the companies sell the rights and assets needed to manufacture and/or market 15 generic pharmaceutical products. The divestiture of these products will ensure the replacement of the competition that would be lost in these markets after the transaction is completed, with two firms, Par Pharmaceutical Companies, Inc. ("Par") and Barr Pharmaceuticals, Inc. ("Barr"), set to acquire the divested generic drugs and market them in the future. Among the drugs to be sold are several forms of generic amoxicillin and amoxicillin clavulanate potassium that are widely used in the United States.

  
  On July 25, 2005, Teva proposed buying all of the issued and outstanding shares of IVAX for approximately $7.4 billion. IVAX, the fifth-largest supplier of generic drugs in the United States and the eleventh-largest drug company based on prescriptions filled, is based in Miami, Florida. The proposed acquisition of IVAX would make Teva, which is based in Israel, the world's largest generic pharmaceutical supplier.

  The consent order remedies the allegedly anticompetitive impacts of Teva's proposed acquisition of IVAX by requiring the divestiture or assignment of the rights and assets needed to develop and market the following generic drugs: 1) amoxicillin clavulanate potassium from IVAX, to be divested to Par; 2) long-acting cefaclor (cefaclor LA) tablets from IVAX, to be divested to Par; 3) pergolide mesylate tablets from Teva, to be divested to Par; 4) estazolam tablets from IVAX, to be divested to Par; 5) leuprolide acetate injection kits from IVAX, to be divested to Par; 6) nabumetone tablets from IVAX, to be divested to Par; 7) amoxicillin from IVAX, to be divested to Par; 8) propoxyphene hydrochloride capsules from IVAX, to be divested to Par; 9) nicardipine hydrochloride capsules from IVAX, to be divested to Barr; 10) flutamide capsules from Teva, to be divested to Par; 11) clozapine tablets from Teva, to be divested to Par; 12) tramadol/acetaminophen tablets from Teva, to be divested to Barr; 13) glipizide and metformin hydrochloride tablets from IVAX, to be divested to Barr; 14) calcitriol injectables from IVAX, to be divested to Par; and 15) cabergoline tablets from Teva, to be divested to Barr. In addition, the consent order contains other provisions to ensure the divestitures are successful. First, it requires Teva and IVAX to provide transitional services to ensure the acquiring companies can get FDA approval to manufacture the divested drugs independently. Next, Teva and IVAX must supply the acquiring companies with the relevant drugs until the acquiring companies gain approval to manufacture them on their own. Finally, the FTC has appointed R. Owen Richards of Quantic Regulatory Services, LLC to oversee the asset transfers and to ensure Teva and IVAX's compliance with the terms of the consent order. The order also contains routine reporting requirements. The Commission vote to approve the consent order and place a copy on the public record was 5-0.

• On January 13, the Commission, by a vote of 5-0, authorized publication of a Federal Register notice announcing the revised thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 required by the 2000 amendments to Section 7A of the Clayton Act. Section 7A(a)(2) requires the Federal Trade Commission to revise the jurisdictional thresholds annually, based on the change in gross national product, in accordance with Section 8(a)(5). The revised thresholds will apply to all transactions that will close on or after the effective date of this notice.
  
  

  SUBSECTION OF 7A	ORIGINAL THRESHOLD	ADJUSTED THRESHOLD
  7A(a)(2)(A)	$200 million	$226.8 million
  7A(a)(2)(B)(i)	$50 million	$56.7 million
  7A(a)(2)(B)(i)	$200 million	$226.8 million
  7A(a)(2)(B)(ii)(i)	$10 million	$11.3 million
  7A(a)(2)(B)(ii)(i)	$100 million	$113.4 million
  7A(a)(2)(B)(ii)(II)	$10 million	$11.3 million
  7A(a)(2)(B)(ii)(II)	$100 million	$113.4 million
  7A(a)(2)(B)(ii)(III)	$100 million	$113.4 million
  7A(a)(2)(B)(ii)(III)	$10 million	$11.3 million
  Section 7A note: Assessment and Collection of Filing Fees (3)(b)(1)	$100 million	$113.4 million
  Section 7A note: Assessment and Collection of Filing Fees (3)(b)(2)	$100 million	$113.4 million
  Section 7A note: Assessment and Collection of Filing Fees (3)(b)(2)	$500 million	$567.0 million
  Section 7A note: Assessment and Collection of Filing Fees (3)(b)(3)	$500 million	$567.0 million

  
  Any reference to these thresholds and related thresholds and limitation values in the HSR rules (16 C.F.R. Parts 801-803) and the Antitrust Improvements Act Notification and Report Form and its Instructions will also be adjusted, where indicated by the term "(as adjusted)", as follows:

  ORIGINAL THRESHOLD	ADJUSTED THRESHOLD
  $10 million	$11.3 million
  $50 million	$56.7 million
  $100 million	$113.4 million
  $110 million	$124.7 million
  $200 million	$226.8 million
  $500 million	$567.0 million
  $1 billion	$1,134.0 million

• On January 13, the Commission, by a vote of 5-0, authorized publication of a Federal Register notice announcing the revised thresholds for Section 8 interlocking directorates. Section 8 of the Clayton Act was amended on November 16, 1990. The amendment establishes jurisdictional thresholds that trigger the Act's prohibition on interlocking directorates. The Act also requires that the Commission revise those thresholds annually based on the change in the level of gross national product. The notice will be published in the Federal Register and will be effective upon publication.

  
  Section 8 of the Clayton Act prohibits, with certain exceptions, one person from serving as a director or officer of two competing corporations if two thresholds are met. Competitor corporations are covered by Section 8 if each one has capital, surplus, and undivided profits aggregating more than $10,000,000, with the exception that no corporation is covered if the competitive sales of either corporation are less than $1,000,000. Section 8(a)(5) requires the Federal Trade Commission to revise those thresholds annually, based on the change in gross national product. The new thresholds, which take effect immediately, are $22,761,000 for Section 8(a)(1), and $2,276,100 for Section 8(a)(2)(A).

• On January 5, Federal Trade Commission Chairman Deborah Platt Majoras swore in J. Thomas Rosch as an FTC Commissioner. Rosch, whose term runs through September 25, 2012, was nominated by President George W. Bush on September 29, 2005, and confirmed by the U.S. Senate on December 17, 2005.

• On January 4, 2006, Federal Trade Commission Chairman Deborah Platt Majoras swore in William E. Kovacic as the FTC's newest commissioner. Kovacic, whose term runs through September 25, 2011, was nominated by President George W. Bush on July 28, 2005, and confirmed by the U.S. Senate on December 17, 2005.

Authored by:
Robert W. Doyle, Jr.
202-218-0030
rdoyle@sheppardmullin.com

• Every year, National Consumer Protection Week ("NCPW") highlights consumer protection and education efforts around the country. The eighth annual NCPW, which takes place February 5-11, 2006, proclaims "Consumer Protection: It's the Name of the Game." The NCPW website features a series of interactive tests and quizzes, The Grand Scam Challenge, to test your own consumer IQ. The site has information from federal, state, and local government agencies, and national consumer advocacy organizations. The Grand Scam Challenge and an Outreach Toolkit, which has promotional materials, can be downloaded at: www.consumer.gov/ncpw.

• On January 31, the Federal Trade Commission ("FTC") issued its annual report to the Federal Reserve Board on FTC enforcement actions in 2005 related to the Truth in Lending Act, Consumer Leasing Act, Equal Credit Opportunity Act, and Electronic Fund Transfer Act. The report is available on the FTC's Web site. The Commission vote approving issuance of the report was 5-0. The staff contact is Carole L. Reynolds, who can be reached at the Bureau of Consumer Protection ("BCP") at 202-326-3230. Copies of the documents are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

• On January 27, the FTC authorized the staffs of the Office of Policy Planning, the BCP, and the Bureau of Economics to file a comment with Assembly Member Barbara S. Matthews of the California Legislature's Seventeenth District concerning California State Bill (SB) 401, a bill that proposed to amend the California Confidentiality of Medical Information Act ("CMIA"). Assembly Member Matthews asked staff to address whether the proposed amendment would detrimentally restrain the flow of health information to California consumers. SB 401 would have modified the CMIA to require a pharmacy, subject to certain exceptions, to get a patient's "opt-in" consent before providing the patient with "a written communication" in conjunction with a prescription if it "includes the trade name or commercial slogan for any prescription drug, prescribed treatment therapy, or over-the-counter medication other than the [drug or therapy] being dispensed, if the communication is paid for or sponsored . . . by a manufacturer, labeler, or distributor of prescription drugs." According to the staffs' comment, in contrast to SB 401, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") privacy rule does not define a health care provider message as a marketing communication simply because it is sponsored. SB 401, therefore, would be more restrictive than HIPAA's privacy rule. In addition, the staffs commented that SB 401's prophylactic restraint on a type of commercial speech that is not inherently unlawful or misleading may have raised questions under the First Amendment to the U.S. Constitution and ultimately may not have benefited consumers.

• On January 26, the FTC released its annual report detailing consumer complaints about fraud and identity theft in 2005. Complaints about identity theft topped the list, accounting for 255,000 of more than 686,000 complaints filed with the agency in 2005. The complaints, filed online or at a toll-free number, are shared via a secure database with more than 1,400 federal, state, and local law enforcement agencies, and law enforcement and consumer protection agencies in Canada and Australia. Identity theft complaints represented 37 percent of the 686,683 complaints filed. Other top categories of fraud complaints for 2005 included:

  
  *Internet Auctions - 12 percent
  *Foreign Money Offers - 8 percent
  *Shop-at-Home/Catalog Sales - 8 percent
  *Prizes/Sweepstakes and Lotteries - 7 percent
  *Internet Services and Computer Complaints - 5 percent
  *Business Opportunities and Work-at-Home plans - 2 percent
  *Advance-Fee Loans and Credit Protection - 2 percent
  *Telephone Services - 2 percent
  *Other - 17 percent

• On January 24, the FTC, the U.S. Postal Inspection Service ("USPIS"), and the Hispanic Chamber of Commerce for Ohio hosted a workshop in Cleveland to continue a nationwide campaign to find more ways to fight fraud aimed at Spanish-speakers. The Hispanic Law Enforcement and Outreach Forum brought law enforcement, government, and community groups together to promote education and awareness of scams and to develop effective law enforcement responses. The FTC also announced a new quiz about spam for the Alerta en Línea Web site, which teaches consumers (in Spanish) about online safety, as well as a new partnership with Cuyahoga Community College. The workshop is one in a series being held across the country by the FTC and the USPIS. The workshops aim to identify local problems and discuss ways to address them; facilitate open dialogue with local government, consumer groups, and members of the Hispanic community on issues affecting Hispanic consumers; and share consumer education resources to help local communities conduct outreach about fraud and how to report it. Previous workshops were held in Dallas, Chicago, Miami, Phoenix, and Los Angeles. Workshops are planned for later this year in San Diego, Las Vegas, and New York City.

Authored by:
Camelia Mazard
202-218-0028
cmazard@sheppardmullin.com

• On February 7, the UK's Office of Fair Trading decided not to refer the anticipated acquisition by Boots plc of Alliance UniChem plc to the UK's Competition Commission provided that satisfactory undertakings to address the competition concerns arising from the supply of retail pharmacy services in certain localities in the UK are given. If the parties do not give such undertakings, then the transaction will be referred. Vincent Smith, OFT Competition Enforcement Director stated: "This merger raises the realistic prospect of a substantial lessening of competition in around 100 local areas where competition would either be eliminated altogether or reduced….However, Boots has offered divestment undertakings for all of these areas and the OFT is satisfied that these will address its concerns."

• On February 7, the European Commission announced that it had opened formal proceedings against the International Confederation of Societies of Authors and Composers ("CISAC"), and its individual national collecting society members, and had sent them Statements of Objections alleging that certain parts of the CISC model contract and its implementation in the European Economic Area infringe Article 81(1) of the EC Treaty. The model contract and its duplicates at bilateral level concern the collective management of copyright for every category of exploitation, for example, the broadcasting of music in a bar, a night club or via internet. The Statement of Objections concern only certain relatively new forms of copyright exploitation: internet, satellite transmission and cable retransmission of music. The Commission considers that certain aspects of the agreements with respect to these new forms of copyright exploitation might infringe the EC Treaty's prohibition of restrictive business practices (Article 81).

• On February 2, the UK's The Times newspaper reported that a ruling in a case before the European Court of Justice will make it easier for consumers to sue companies allegedly of price-fixing. The preliminary opinion of Advocate General Leendert Geelhoed in a case involving Italian insurers and policy holders who paid up to 20% more as a result of alleged price fixing by the companies, has suggested that those who paid the higher premiums have a legal right to sue for damages. Although the Advocate General's opinion is not binding on the Court, judgments often follow his opinion. The European Courts have previously upheld the legal right of consumers to sue for losses resulting from anti-competitive behavior. However, there has not to date been a successful precedent, and claimants are often deterred by the large litigation costs involved in launching an action. However, the European Commission is currently considering how to facilitate actions for damages caused by violations of EC Treaty competition rules, and published a Green Paper for public consultation last December.

• On February 1, the European Commission announced that Competition Commissioner, Neelie Kroes, met with Lakshmi N. Mittal, Chairman of the Board of Directors and Chief Executive Officer of Mittal Steel, in Brussels. Mr. Mittal explained his plans to launch a takeover bid for Luxembourg steel company, Arcelor. This proposed hostile takeover is generating certain political opposition, in particular in France, and the meeting, therefore, attracted massive media interest. A Commission statement noted that Mrs. Kroes had explained that the planned concentration would "probably" have to be notified to the Commission under the EC Merger Regulation. Following such a notification, the Commission would then assess whether there is likely to be any adverse impact on effective competition within the EU.

• On February 1, the President of the Court of First Instance ("CFI") dismissed the application for interim measures brought by Spanish energy company, Endesa, in its appeal against a decision of the European Commission finding that the public bid by its rival, Gas Natural SDG, to acquire Endesa, did not give rise to a concentration with a European Community dimension for the purposes of the EC Merger Regulation. Endesa had sought a temporary injunction from the CFI in an attempt to delay its takeover by Gas Natural, and argued that the Commission did not accurately calculate the combined parties' turnovers in the EU. Interim measures are only granted under EU law in urgent cases where it is necessary to avoid serious and irreparable harm to the applicant's interests. The President of the CFI held that any harm to Endesa remained hypothetical because it is still dependent on the making, and success of, Gas Nutural's public bid which has not yet been successfully completed.

• On January 31, EU Competition Commissioner, Neelie Kroes, reportedly sent a warning letter to Poland with respect to the country's attempt to block a merger between two Polish banks - UniCredit and HVB to form the largest bank by assets, and second largest by number of current accounts in Poland. The deal was notified to, and approved by, the Commission. The Polish Government is seeking to block deal based on UniCredit's breach of a prior privatization commitment. It responded by filing an appeal against the Commission's decision with the European Court of First Instance. Poland maintains that the European Commission, in assessing the impact of the merger on the Polish market, incorrectly defined certain product segments, and the impact of the merger on competitive conditions in Poland. It is only the second time a Member State has challenged a Commission merger ruling. A spokesman for the Commission said: "The Polish government had every chance to intervene at the time, but it didn't. Moreover, the Polish competition authority had the right to request the partial referral of the case to Warsaw - but it didn't."

• On January 26, various business newspapers reported that the latest draft of an antitrust law for China had prompted concern amongst business leaders and antitrust experts at the annual meeting of the World Economic Forum in Davis. The Wall Street Journal reported that western companies were most concerned that the law would allow for "trumped-up antitrust charges to chip away at their profitable patents." The draft contains regulations to ban intellectual property abuses, but does not include any interpretive guidelines. Also, paragraphs restricting governmental powers to impede competition have been eliminated from the draft law prompting fears that the new law might invite antitrust policies which protect state monopolies.

• On January 25, Microsoft issued a press statement announcing that it has decided to license all the Windows Server source code for the technologies covered by the European Commission's landmark antitrust decision in March 2004 decision. Microsoft considers that this "voluntary move" goes "far beyond" the terms of the European Commission's decision, and the legal obligations on it to provide technical specifications of its protocols. It stated that the proposed licenses will give software developers the ability to view the Windows source code in order to understand how to develop interoperable products. However, licensees will not be able to copy Microsoft's source code. In response, the European Commission stated that it will study Microsoft's announcement carefully once it has received full details. In December 2005, the Commission announced that it had sent Microsoft a statement of objections alleging non-compliance with the interoperability remedy and threatening to impose daily penalty payments. The decision as to whether Microsoft has fully and accurately complied with the 2004 decision rests with the Commission.

• On January 24, the European Commission cleared the proposed €3.1 billion acquisition of Reebok International Ltd ("Reebok") by adidas-Salomon AG ("adidas") of Germany. The Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area or any substantial part of it. The Commission's market investigation revealed that adidas and Reebok have slightly different brand and pricing positions. adidas is perceived as a professional, technically oriented brand with strong European roots. Reebok predominantly targets young people and women, is more a "leisure" brand, and has a stronger presence in American sports that are not excessively popular in Europe. Partly due to its different heritage, Reebok's image on the European markets is weaker than those of adidas or the worldwide leader Nike. Also, in terms of pricing, adidas is positioned in the medium to high price points, while Reebok is stronger in the low to medium price points.

• On January 20, Belgium telecom operator, Belgacom, confirmed that the offices of its mobile subsidiary, Proximus, had been raided by Belgium's antitrust authority following a complaint from rival mobile operators, BASE and Mobistar. It was reported that allegations concern Proximus's pricing policy towards its business customers. Proximus is alleged to have engaged in predatory pricing by selling to these customers at "unreasonably low prices", thus allegedly "falsifying competition."

• On January 18, the UK's Office of Fair Trading was heavily criticized by the House of Common's Public Accounts Committee as a "meek organization" that is too slow, too cautious, and fails to use its powers effectively. The Committee summoned the heads of the competition and consumer enforcement divisions following a report by the National Audit Office which criticized the OFT's investigations as too lengthy, too secretive with respect to the companies that it was investigating, and served by few well-qualified staff. John Fingleton, OFT Chief Executive, said that many cases took a long time to investigate because of the "litigation mentality" among businesses making them reluctant to provide information.

• On January 14, it was reported that the French antitrust authority, the Conseil de la Concurrence, issued a record amount of fines during 2005. In total, fines adding up to €754m (approx. $900m) were imposed on companies, representing a substantial increase over 2004's total of €45.9 ($55m). The fines imposed on three French mobile phone operators who were found guilty of allegedly price-fixing last November which totaled €534 ($638m), accounted for the largest share of last year's fines.

• On January 9, the Canadian Competition Bureau announced that Cascades Fine Papers Group Inc., Domtar Inc. and Unisource Canada, Inc., had each pleaded guilty in the Superior Court of Justice in Toronto to two counts of conspiring to lessen competition contrary to Section 45 of the Canadian Competition Act. Each company was sentenced to record fines of $12.5 million for their alleged part in the domestic conspiracy of carbonless sheets. A prohibition order was issued against the companies, and key personnel involved in the conspiracy will be removed from their positions in the paper merchant business. Sheridan Scott, Commissioner of Competition, said "Conspiracies of this nature destroy competition by interfering with private markets and hurt both business and consumers…These record fines reflect the serious nature of this criminal behavior and put corporate executives and employees on notice that they are accountable for their actions."

Authored by:
Neil Ray
415-774-3269
nray@sheppardmullin.com

Now that Judge Alito is Justice Alito, many have asked what impact, if any, may be prophesized for the resolution of antitrust and other competition based matters before the United States Supreme Court. While Judge Alito served on the United States Court of Appeals for the Third Circuit from 1990 to January 31, 2006, he has been involved in but a sparse number of antitrust and competition related matters.

Nevertheless, a review of the reported decisions in which he has taken part reveals an impressive fluency with modern antitrust economic thought. A review of his antitrust and antitrust related matters demonstrates a close allegiance to the principles of antitrust standing, and the "prudential standing" factors of Associated Gen. Contractors of Cal, Inc. v. California State Council of Carpenters.¹ In particular, several of his opinions disclose a high regard for the standing factors as driving the outcome of a given case. These factors include whether there is a causal connection between the antitrust violation and the injury to the plaintiff, whether the injury was intended, or was consequential, whether the plaintiff is a consumer or a competitor in a properly defined relevant market, the relative directness of the injury, whether the claimed damages would be speculative, whether there is a potential for duplicative recovery, and whether apportioning damages would render the matter overly complex. Finally, "prudential standing", according to Judge Alito, tests whether there are more direct victims of the claimed antitrust conduct, that would be able to vindicate the public policy favoring the deterrence of future antitrust violations.

A quick review of the matters in which Judge Alito has participated follows:

1.Ralph J. Miller, M.D. v. Indiana Hospital, et al., 930 F.2d 344 (3d Cir. 1991). Here, a surgeon brought an action against a hospital and its medical and administrative staff, after the hospital revoked his staff privileges. The action is brought pursuant to Section 1 of the Sherman Act. The District Court had granted summary judgment in favor of defendants based upon the antitrust immunity doctrine of Parker v. Brown.² The Court of Appeal reversed and remanded. Upon remand, however, the District Court again granted summary judgment, and upon the same ground. On appeal, the Third Circuit, in an opinion written by Judge Alito, reversed. After a lengthy discussion of the elements of antitrust immunity pursuant to Parker, the court held that while the record satisfied the "clear articulation" prong of Parker, there was no showing that there had been "active supervision" by the State of Pennsylvania. Accordingly, the Pennsylvania peer review procedure at issue in the case was not immune from antitrust challenge.

Judge Alito further held that whether conduct qualifies as "state action" for purposes of antitrust immunity is a question of law, and that the Court's review is plenary.

2.TICOR Title Insurance Company v. Federal Trade Commission, 998 F.2d 1129 (3d Cir. 1991). The Federal Trade Commission determined that an agreement among title insurers to collectively establish rates was a violation of Section 5 of the Federal Trade Commission Act. The Court of Appeals for the Third Circuit denied enforcement of the FTC order, and reversed. The Supreme Court, upon a grant of a petition for certiorari, reversed and remanded. On remand, the Court of Appeal held that the collective establishment of rates among competing title insurance companies was not immune from the McCarran-Ferguson Act, as the "business of insurance". Nor, was the Noerr-Pennington doctrine applicable, as the collective agreements were not entered into for the purpose of influencing legislative, judicial or administrative action. In addition, the Court of Appeal held that the antitrust immunity doctrine of Parker v. Brown was inapplicable, as neither the states of Arizona or Connecticut "actively supervised" rate setting schemes.

Judge Alito filed a dissenting opinion stating that "the setting of uniform rates for title search and examination services is part of the "business of insurance" within the meaning of … (the) McCarran-Ferguson Act."³ He reasoned that the search and examination of title records was an integral part of the issuance of insurance policies, which has the effect of transferring and spreading a policyholder's risk. This, he held, was "an integral part of the policy relationship between the insurer and the insured," and thus within the doctrine of the "business of insurance".

3.In Re Lower Lake Erie Iron Ore Antitrust Litigation, 998 F.2d 1144 (3d Cir. 1993). In this action, the Court of Appeals for the Third Circuit affirmed in part, reversed in part, and remanded, a jury verdict finding that the defendant railroads, who were serving the lower Lake Erie industrial region, conspired to exclude potential competitors from entering the market for lake transport, dock handling, and storage and land transport for iron ore. On appeal, the railroads argued that the conduct complained of as violative of the antitrust laws was exempt from liability pursuant to the "filed rate" doctrine of Keogh v. Chicago & Northwestern Railway.⁴ They also argued that certain of the plaintiffs lacked standing under Illinois Brick ⁵, and pursuant to Associated Gen. Contractors.⁶

The Court of Appeals affirmed as to the application of the Keogh doctrine. It concluded that the district court was correct in characterizing the anticompetitive activity as market preclusion, and that therefore, Keogh's protective rule was inapplicable. The preclusion of entry by potential competitors was not within the antitrust immunity doctrine relating to the immunity of ICC-approved rates, as the conduct in issue was non-rate anticompetitive activity. As to the Illinois Brick claim, the Court of Appeals held that the ownership of the loading vessels by the railroads invoke to the "direct cost" exception of Illinois Brick for cost related pass-through activities.

As to the claim under Associated Gen. Contractors, the Court of Appeals held that on balance, the factors supported standing, as the claims were sufficiently direct, and did not represent simply "umbrella" pricing pursuant to the doctrine of Mid-West Paper.⁷

Several defendants petitioned for rehearing and rehearing en banc. The petition was denied. Judges Alito, Becker and Stapleton would have granted rehearing.

4.Lerman v. Joyce International, Inc., 10 F.3d 106 (3d Cir. 1993). Here, a former employee brought an action for breach of contract against the buyer of a business. The buyer counterclaimed for alleged violations of federal and state RICO statutes, and the breach of a severance agreement. The District Court for the District of New Jersey entered a consolidated judgment finding the buyer liable for breach of the severance agreement, and against the employee on the RICO counterclaims. Both appealed. Writing for a three judge panel, Judge Alito affirmed. The Court held that the buyer was not barred from recovering on the RICO claims, as he was the express assignee of the claims from the seller of the business.

Judge Alito analogized the factual scenario to the "direct purchaser" rule of Illinois Brick.⁸ Citing Goldstream III Associates, Inc. v. Goldstream Aerospace Corp.,⁹ he held that an assignment of a claim under Section 4 of the Clayton Act served as a model for a determination whether a RICO claim had been expressly assigned. Absent a valid assignment, the "direct purchaser" rule of Illinois Brick would preclude standing. Here, all claims were assigned, and the assignment was sufficiently "express" to confer RICO standing.

5.Barton & Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d 178 (3d Cir. 1997). Plaintiff, a pharmaceutical marketing company, entered into a contract with SmithKline Beecham Corp. ("SKB") to market a hepatitis-B vaccine to nursing homes. Plaintiff would provide the nursing homes with information about the vaccine and would then solicit orders. B&P would then pass the orders on to General Injectables and Vaccines, Inc. ("GIV") who in turn, would buy the vaccine from SKB and then resell it to the nursing homes. Plaintiff would then receive a commission on the sale. Plaintiff, however, at no time actually purchased vaccine or sold the vaccine to nursing homes. Allegedly, a group of pharmacists put pressure on SKB to terminate the program, thus, allegedly injuring plaintiff by engaging in a concerted refusal to deal, thus restraining competition in the market for the sale of hepatitis-B vaccines to nursing homes.

The District Court granted summary judgment on the Section 1 claim on the ground that plaintiff lacked standing to sue. The Court of Appeals for the Third Circuit, with Judge Alito writing the opinion of the court, affirmed. In a detailed analysis of Associated Gen. Contractors,¹⁰ the Court held that the plaintiff was "neither a consumer nor a competitor in the market in which trade was restrained", and thus the restraint was not an injury of the type that the antitrust laws were designed to prevent. In addition, Judge Alito wrote that while a different plaintiff might be able to sue under the antitrust laws, this particular plaintiff had no standing, pursuant to Brunswick.¹¹ The fact that the pharmacists considered the plaintiff to be a direct competitor was not sufficient to obviate lack of standing. Quoting Brown Shoe¹² Judge Alito wrote:

"The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it."

Here, there was no cross-elasticity of demand between any offerings made by the pharmacists and the plaintiff. No matter how much the pharmacists might raise the price of the package of good and services, the nursing homes could not have switched to the plaintiff for the purchase of cheaper hepatitis-B vaccine.

Judge Alito thereby concluded, on behalf of the panel, that the plaintiff did not compete with the pharmacists in the market for the packaging and distribution of hepatitis-B vaccine to nursing homes. As it was not a competitor or a consumer in the market in which trade was allegedly restrained by the antitrust violation alleged in the complaint, the plaintiff had not suffered "antitrust injury".

Because the plaintiff failed the "antitrust injury" requirement, the court held that it was unnecessary to make a more detailed analysis of the other Associated Gen. Contractors factors.¹³

6.Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221 (3d Cir. 1998). Here, a retailer of engine additives sued the manufacturers of competing products for false advertising, pursuant to Section 43(a) the Lanham Act. The United States District Court for the District of New Jersey dismissed the complaint for lack of standing under the Lanham Act.

On appeal, Judge Alito wrote for the court and affirmed. In an exhaustive examination of the relationship between Lanham Act and antitrust standing, the court held that the plaintiff lacked "prudential standing", and had thus failed to satisfactorily allege "competitive injury."

The Court held that while it was not possible to fashion an across the board standing rule, considerations falling within the "general rubric of prudential standing", demonstrated that here, standing was lacking. Again, he cited to Associated Gen. Contractors,¹⁵ and focused his analysis on the factors discussed therein by the Supreme Court. He held that in Associated Gen. Contractors, the Supreme Court had held that Congress had specifically incorporated "prudential standing" principles to determine whether a person had been injured in his "business or property", in order to invoke standing to sue under Section 4 for the Clayton Act. While harm to a given antitrust plaintiff may be sufficient to satisfy "constitutional standing" requirements of injury in fact, Associated Gen. Contractors requires that the court make a further determination whether the plaintiff is a "proper party" to bring a private antitrust action, and thus incentivise enforcement of the antitrust laws by "so called private attorneys general". Judge Alito identified and discussed in detail the other standing factors under Associated Gen. Contractors, including whether the plaintiff's alleged injury was of a type that Congress sought to redress in providing a private remedy for violations of the antitrust laws, whether the injury was sufficiently direct, whether the party asserting standing was proximate or remote, whether the damages claims would be speculative, and finally, whether the risk of duplicative damages or complexity in apportioning damages would warrant a conclusion that the plaintiff was not a "proper party."

7.Joint Stock Society v. UDV North America, Inc., 266 F.3d 164 (3d Cir. 2001). Here, a Russian vodka producer sued an American vodka distiller for false designation of origin, false advertising, and for trademark cancellation under Lanham Act. The District Court for the District of Delaware dismissed the action for lack of subject matter jurisdiction. On appeal, Judge Alito, writing for the Court held that plaintiff lacked "constitutional standing" to sue under the Lanham Act, and that further the plaintiff lacked "prudential standing" as well, based upon an analogue to Associated Gen. Contractors. The Associated Gen. Contractors analysis is substantially the same as that set forth in Conte Brothers Automotive, discussed above.

While the defendants may have indeed engaged in false advertising and a false designation of origin, plaintiff could not have suffered injury, as at no time, did it sell or intend to sell vodka within the United States.

8.LePage's, Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).¹⁶ This was an action by LePage's against 3M for monopoly power maintenance, under Section 2 of the Sherman Act. 3M manufactures "Scotch" brand transparent tape, as well as an extensive line of other products for home and office use. Until the early 1990's, it had maintained a market share of over 90% of the domestic transparent tape market, which the parties agreed was the appropriate relevant market. Thus, it was undisputed that 3M was a monopolist in a properly defined market.¹⁷

LePage's entered the transparent tape market in the early 1980's. Its business strategy was to sell a "second brand" of transparent tape as well as a private label line. By the early 1990's, LePage's had accounted for almost 90% of the sale of private label tape. At the same time, however, the demand for private label tape had substantially increased with the growth of office superstores and large retailers, including Office Depot, Staples, K-Mart and Wal-Mart.

3M devised a business strategy of offering a series of interrelated "bundled rebates", conditioned upon customers purchasing across the entire line. Customers were given targeted growth rates for each product line within the group of bundled products. The more targets the customer met, the larger the aggregate rebates. After a lengthy jury trial, the jury found for LePage's on the Section 2 monopolization and attempted monopolization claim, and damages were trebled to in excess to $68 million.

A panel of the Third Circuit, in which Judge Alito voted with the majority, reversed, and remanded. As each of the discounts within the package of discounts was above an appropriate measure of cost, 3M could not be found to have engaged in "predatory pricing" within the meaning of Brooke.¹⁸

An en banc Court, however, reversed, and held 7-3 that 3M had "used its market power over transparent tape, backed by a considerable catalogue of products to entrench its monopoly to the detriment of LePage's, its only serious competitor, in violation of Section 2 of the Sherman Act".¹⁹

The en banc Third Circuit panel began its analysis by reviewing the general principles of Section 2 monopolization cases, from Alcoa,²⁰ American Tobacco²¹ and continuing through Grinnell²² and Aspen Skiing Co.²³

The Third Circuit framed the issue as whether 3-M had "willfully … maintained its monopoly power . . . by competing on some basis other than the merits."²⁴ To 3-M, and to the dissenting judges, of which Judge Alito was a member, the issue was whether Brooke was controlling, and whether there could ever be a scenario whereby above cost selling by an admitted monopolist could violate Section 2, no matter how exclusionary the conduct might be. The majority found that 3-M had engaged in a "panoply" of exclusionary conduct all related to its pricing strategy. The court held that the case was not so much a case of "predatory pricing," so much as a case relating to anticompetitive effects similar to a tie.

In a dissent authored by Judge Greenberg, and joined by Judge Alito, the Court reasoned that Brooke was controlling, and that there should be a strong presumption in favor of pricing conduct that transferred producer rents to consumers, in the form of lower, but above cost prices.

The majority's analysis, namely that this is the case of a "panoply" of exclusionary acts, is substantially similar to the Third Circuit's decision in United States v. Dentsply International, Inc., decided in February 2005.²⁵ In Dentsply, the Court held that defendant had violated Section 2 of the Sherman Act by unlawfully maintaining its market position by the use of exclusive dealing contracts, that denied efficient scale economies to incumbents at the margins, and to new entrants. The Court held that through the use of exclusive dealing arrangements, Dentsply was able to maintain a monopoly position for an extended period of time, and was able to prevent entry into "gateway" dealers by precluding Dentsply dealers from adding new competitive toothlines that could constrain Dentsply's pricing abilities. This was so notwithstanding the fact that Dentsply was a price leader in the industry, and produced umbrella effects generally, stabilizing or raising prices throughout the relevant market.

Dentsply, as does LePage's, demonstrates that it may be a workable strategy for a monopolist to maintain the status quo without eliminating all competition from rivals, and that it may engage in supracompetitive, although nonprofit maximizing pricing, by keeping smaller competitors in their "place" through market discipline exercised through a series of exotic business strategies, including exclusive dealing contracts in Dentsply, and in LePage's, "bundled", "loyally", "marketshare", and "growth" incentive rebate plans.

As certiorari was denied in both Dentsply and LePaige's, as well as Conwood only time will tell whether Alcoa will trump Brooke.

1. 459 U.S. 519 (1983).


2. 317 U.S. 341 (1943).


3. 15 U.S.C. § 1012(b).


4. 260 U.S. 156 (1922).


5. Illinois Brick v. Illinois, 431 U.S. 720 (1977).


6. Associated Gen. Contractors of Cal. v. California State Council of Carpenters, 459 U.S. 519 (1983).


7. Mid-West Paper Prods. Co. v. Continental Group, 596 F.2d 573 (3d Cir. 1979).


8. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).


9. 995 F.2d 425 (3d Cir. 1993).


10. Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983).


11. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).


12. Brown Shoe Co. v. United States, 370 U.S. 294 (1962).


13. Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983).


14. 15 U.S.C. §1125(a) (1994).


15. Supra, fn. 12.


16. A petition for certiorari was denied, 124 S. Ct. 2932 (2004) for entry of an order of dismissal.


17. See, 324 F.3d at 144.


18. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).


19. Id. At 169


20. United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945).


21. American Tobacco Co. v. United States, 328 U.S. 781 (1946).
    
22. United States v. Grinnell Corp., 384 U.S. 563 (1966).


23. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).


24. Id. at 146-47.


25. See, United States v. Dentsply International, Inc., No. 03-4097 (3d Cir.), cert. denied, ______ U.S. ______ (2005).


26. Conwood Company, LP v. United States Tobacco Company, 290 F.3d 768 (6th Cir. (200__), cert. denied, 537 U.S. 1148 (2003).

Authored by:
Don T. Hibner, Jr.
213-617-4115
dhibner@sheppardmullin.com

Beginning in February 2003, several independent class action suits were filed in California state court against various car manufacturers, dealers, and trade associations on behalf of consumers who purchased new vehicles in California that were manufactured or distributed by one of the defendants. These suits alleged that the defendants violated California's antitrust and unfair business practices laws by conspiring to prevent Canadian distributors from exporting cars to California in order to maintain a higher price for those cars in California. In July 2003, California's Judicial Case Coordination Panel consolidated these suits. Honda Motors Co., Ltd. of Japan ("Honda"), Volkswagen AG of Germany ("Volkswagen"), Nissan Motor Ltd. of Japan ("Nissan"), and the Canadian Automobile Dealers' Association ("CADA"), all non-U.S. entities, were among the defendants in this action. Each of these parties, all of whom were served in their respective home countries, made a special appearance in California court in order to move to quash service of summons for lack of personal jurisdiction. In December 2004, the trial court concluded that it did indeed lack personal jurisdiction over these foreign defendants. In In re Automobile Antitrust Cases I and II, 135 Cal. App. 4th (2005), handed down on December 22nd, California's First Appellate District upheld this ruling on appeal.

Beginning in February 2003, several independent class action suits were filed in California state court against various car manufacturers, dealers, and trade associations on behalf of consumers who purchased new vehicles in California that were manufactured or distributed by one of the defendants. These suits alleged that the defendants violated California's antitrust and unfair business practices laws by conspiring to prevent Canadian distributors from exporting cars to California in order to maintain a higher price for those cars in California. In July 2003, California's Judicial Case Coordination Panel consolidated these suits. Honda Motors Co., Ltd. of Japan ("Honda"), Volkswagen AG of Germany ("Volkswagen"), Nissan Motor Ltd. of Japan ("Nissan"), and the Canadian Automobile Dealers' Association ("CADA"), all non-U.S. entities, were among the defendants in this action. Each of these parties, all of whom were served in their respective home countries, made a special appearance in California court in order to move to quash service of summons for lack of personal jurisdiction. In December 2004, the trial court concluded that it did indeed lack personal jurisdiction over these foreign defendants. In In re Automobile Antitrust Cases I and II, 135 Cal. App. 4th (2005), handed down on December 22nd, California's First Appellate District upheld this ruling on appeal.

California's long-arm statute permits California courts to exercise jurisdiction to the fullest extent allowed by the state and federal Constitutions. As explained in Internat. Shoe Co. v. Washington, 326 U.S. 310 (1945), and its progeny, an exercise of jurisdiction by a state court complies with the due process standard of the federal Constitution if the defendant had such minimum contacts with the state that the assertion of jurisdiction does not violate traditional notions of fair play and substantial justice. More specifically, a court may exercise general jurisdiction over a defendant if its contacts in the state are substantial, continuous, and systematic. Alternatively, a defendant is subject to specific jurisdiction if there is a sufficient nexus among the defendant, the state, and the litigation. The First Appellate District noted that courts must be especially cautious in exercising personal jurisdiction over defendants from foreign nations due to the interests of other nations, the U.S. interest in foreign relations, and the serious burdens on alien defendants of international litigation.

The plaintiffs proffered two theories of personal jurisdiction with respect to Honda, Volkswagen, and Nissan, all of whom are foreign car manufacturers. First, the plaintiffs argued that these defendants were subject to jurisdiction in California under the stream of commerce test. A defendant is subject to specific jurisdiction under this test if (1) it purposefully availed itself of the privilege of conducting activities in the state, (2) the underlying dispute is substantially connected to or arises out of the defendant's contacts with the state, and (3) exercise of jurisdiction would be reasonable and fair and consistent with notions of fair play and substantial justice. The auto manufacturers asserted that there was no purposeful availment because they did not sell cars in California, only their American subsidiaries did. The court, however, concluded that the purposeful availment prong was satisfied because a nonresident's indirect sales through its California distributors constitutes economic activity in California when the defendant earns substantial gross income from that activity and the manufacturers' clearly earned such income from sales of their vehicles in California.

In addition to purposeful availment, plaintiffs must also show a substantial connection between the defendant's contacts with the state and the litigation. The manufacturers argued there was no such connection between the litigation and the defendants' California contacts because the plaintiffs' allegations had to do with products that the defendants allegedly withheld from California rather than the products the defendants actually placed in California. The First Appellate District reasoned, however, that if a defendant's contacts to a state are based on products sold in that state and the defendant is alleged to have joined in a conspiracy to prevent more of the same products from entering the state, there is a substantial connection between the alleged conspiracy and the defendant's contacts because the result of the conspiracy is the illegally maintained price of defendant's products in the state.

Nevertheless, the First Appellate District upheld the trial court's ruling on this jurisdictional theory. Despite the court's acknowledgment of the connection between the manufacturers' California contacts and the lawsuit, the court stated, "In a case such as the one before us, we find it appropriate to require the plaintiffs to demonstrate some evidence tending to connect each parent manufacturer to the alleged conspiracy." That is, the court imposed a requirement that the plaintiffs must show a connection between the defendants themselves and the acts alleged in the lawsuit in addition to a connection between the defendant's contacts and the allegations in the lawsuit. The court recognized that the plaintiffs need not prove the merits of their case in order to show jurisdiction, but held that they must at least "offer some evidence that persuades the trial court that there is reason to believe that each of the named nonresident defendants might be linked to the alleged conspiracy, sufficient to allow us to fairly call Honda, Volkswagen and Nissan before California courts." The plaintiffs had adduced some evidence tending to implicate other car manufacturers in a conspiracy and urged the court to infer that Honda, Volkswagen and Nissan were involved. However, the court cited the principle that facts supporting jurisdiction must be shown for each defendant individually, even in conspiracy cases. Since the plaintiffs presented no evidence tending to show that Honda, Volkswagen or Nissan in particular committed any acts in furtherance of a conspiracy, the court concluded that the plaintiffs had not demonstrated a sufficient connection between the manufacturers and the acts alleged in the lawsuit. As such, California courts did not have jurisdiction over the manufacturers on a stream of commerce theory.

The plaintiffs' second theory of personal jurisdiction over Honda, Volkswagen, and Nissan was that California courts had general jurisdiction over these defendants under the representative services doctrine. Under this doctrine, the contacts of a local agent through which a foreign principal acts may be imputed to the foreign principal. According to California case law, mere ownership or control of an in-state subsidiary by a foreign defendant will not suffice to show a principal-agent relationship for purposes of this doctrine. Rather, the foreign defendant must exercise a "highly pervasive degree of control" that includes day-to-day management. The plaintiffs pointed out that Honda, Volkswagen, and Nissan all own American subsidiaries that sell and distribute their cars in California. However, representatives from all three parent manufacturers signed declarations stating that the parent manufacturers did not exercise any day-to-day control over the American subsidiaries. Since the plaintiffs did not refute this evidence or produce any evidence that the foreign manufacturers exercised a high degree of control over their American subsidiaries, the First Appellate District concluded that the representative services doctrine did not apply to this case.

The plaintiffs also asserted two theories of jurisdiction over CADA, a trade organization for franchised Canadian auto dealers. The plaintiffs' first theory was that California courts had specific jurisdiction over CADA under the effects test. Under the effects test, a plaintiff may establish purposeful availment of the privilege of conducting business in the state based on the in-state effects of the defendant's out-of-state conduct. Foreseeability of the effects in the forum state is not sufficient to establish jurisdiction under the effects test; the plaintiff must also show that the defendant "expressly aimed or targeted its tortious conduct" toward the state and that the brunt of the harm stemming from the wrongful conduct was felt in the state. Since the plaintiffs were only able to show that CADA was aware than an export ban would have effects in California, not that CADA purposely targeted the state, the court found that there was no jurisdiction under the effects test.

The plaintiffs also argued that California had specific jurisdiction over CADA because it committed acts in furtherance of the alleged conspiracy while in the state. The plaintiffs produced evidence that CADA representatives attended a meeting of the American auto dealer trade association in California at which CADA's president raised the issue of Canadian car exports to the U.S. as an issue of concern to both Canadians and Americans. CADA's president testified at his deposition that his discussion of this topic and others at the meeting took no more than five minutes. There did not appear to be an established agenda prior to the meeting. The trial court found that this evidence was insufficient to show an agreement or any other element of a conspiracy. The First Appellate District agreed that this evidence did not show conspiratorial acts in California. Thus, CADA's attendance at the meeting in California could not be the basis for specific jurisdiction.

In sum, then, the court rejected all of the plaintiffs' various theories of jurisdiction. The opinion in this case clearly demonstrates the hesitancy of California courts to exercise jurisdiction over non-U.S. defendants. Perhaps most significantly, by acknowledging the connection between the manufacturers' California contacts and the allegations of the complaint but nevertheless imposing the additional requirement that the plaintiffs produce some evidence of the defendants' participation in the alleged conspiracy, the First Appelate District appears to have added a new burden on plaintiffs seeking jurisdiction over nonresident defendants, at least in some circumstances. In any case, the jurisdictional issues raised by suits against foreign defendants in California state courts are clearly complex. A careful, nuanced analysis of the evidence and jurisdictional facts pertaining to each particular non-U.S. defendant is necessary to determine whether that defendant is subject to jurisdiction in California courts.

Anik Banerjee
213-617-4124
abanerjee@sheppardmullin.com

On December 19, the European Commission ("Commission") published a Staff Discussion Paper on the application of Article 82 of EC Treaty. Article 82 of the EC Treaty prohibits the abuse of a dominant position, and is the EU's equivalent of Section 2 of the Sherman Act. The Paper is designed to promote a debate as to how European consumers are best protected from dominant companies' exclusionary conduct which risks weakening competition on the EU markets. The proposals are not meant to represent a potential radical change in policy. The Commission "simply wants to develop, and explain its theories of competitive harm on the basis of sound economic assessment for the most frequent types of abusive behavior to make it easier to understand its policy."

The Paper provides a framework for the rigorous enforcement of Article 82, building on the economic analysis carried out in recent Commission cases, and sets out a possible methodology for the assessment of some of the most common anticompetitive practices, such as tying, rebates, and discounts. The Commission had drawn a line between exclusionary abuses which exclude competitors from the market, and exploitative abuses, where the dominant company exploits its market power by, for example, excessive prices. It has stated that exploitative anticompetitive behavior such as discriminatory and exploitative conduct will be separately reviewed later this year.

European Competition Commissioner, Ms. Neelie Kroes, said, "I will rigorously enforce the Treaty's prohibition on abusive conduct. Dominant companies should be allowed to compete effectively. Putting this policy objective into a consistent legal and economic framework is an ambitious project, but it is worthwhile for the clarity it will give to companies and their advisers. Our fundamental aim is to ensure that the EU's powers to intervene against monopoly abuses are applied consistently and effectively, not only by the Commission but also by national competition agencies and courts throughout the EU which also now apply EU competition law. This discussion paper is the first step, and I want a wide discussion before taking a firm view on the proposals in the paper and before deciding how best to apply the results of these discussions."

The Paper sets out a general framework for analyzing abusive exclusionary conduct by a dominant company. The Discussion Paper proposes an approach focusing on "economic effects" which aims to distinguish "those kinds of behavior that are likely to harm competition, and thereby consumers, and the circumstances in which such harm is likely to occur." It assumes that where a dominant company is present on a market, competition on that market is already weak. The Commission believes that the competition rules should be used to prevent conduct by that dominant company which risks weakening competition still further, and harming consumers, whether that harm is likely to occur in the short, medium or long term.

For price based conduct, such as rebates, the Paper sets out arguments as to whether only that conduct which would risk the exclusion of equally efficient competitors should be considered as abusive. The Paper also considers whether efficiencies should be taken into account under Article 82, and, if so, how. If efficiencies are taken into account, they must outweigh the restrictive effect of the conduct in question.

Over the past year or so, the Commission has concentrated its resources on investigating only the most serious antitrust abuses in the European Union. As a result it has recently increased its enforcement activities against cartels. In a similar way, the proposals made in the Discussion Paper on Article 82 imply that the Commission will strongly crack down on those abuses of dominant positions which are most likely to harm European consumers.

The Commission is consulting widely on the discussion paper. It has already discussed the Paper with representatives of the EU Member States, and is now opening the consultation to the public. As part of this consultation process, the Commission is expected to hold a public hearing in Spring 2006 on abuse of dominance, and, in particular, the suggested framework set out in the Discussion Paper. Interested parties have been invited to submit their comments on the Discussion Paper before March 31.

Authored by:
Neil Ray
415-774-3269
nray@sheppardmullin.com

In American Bar Association v. Federal Trade Commission, No. 04-5257 (D.C Cir. 2005), the Court of Appeals for the District of Columbia federal Circuit refused to allow the Federal Trade Commission ("Commission") to regulate the handling of client confidential information by attorneys engaged in certain legal practices. Although certain regulations included in the statute by reference had listed "real estate settlement services" and "tax planning and tax preparation services" as activities in which a financial institution may engage, the court held that the statute itself had no provision that could.

In 1999, Congress passed the Gramm Leach Bliley Act ("the Act"), which allowed the FTC to "prescribe . . . such regulations as may be necessary to carry out the purposes of this subchapter with respect to the financial institutions subject to their jurisdiction under section 6805 of this title." Section 6805 institutions are institutions and persons governed by "federal functional regulators." The Act defined "financial institution" as 'any institution the business of which is engaging in financial activities as described in section 1843(k) of Title 12." Pursuant to 1843(k), the Federal Reserve Board had issued Regulation Y, which had listed nonbanking activities in which banks could engage, including real estate settlement servicing and providing tax-planning and tax preparation services.

After the passage of the Act, the FTC commenced a rulemaking, which, in 2000, defined financial institution as "an institution the business of which is engaging in financial activities." Although the neither the regulation nor the act mentioned the words "practice of law" and only mentioned the word "attorney" in other contexts, the American Bar Association ("ABA") wrote to the Commission, asking whether 1) the regulations covered attorneys and 2), if so, whether attorneys could obtain an exemption from the provisions of the Act.

The Director of the Bureau of Consumer Protection responded to the ABA's letter in April 2002, and stated that the statute did not authorize an exemption for lawyers and, implicitly, the Act authorized the FTC to regulate lawyers providing those specified services. Displeased with this answer, the ABA and the New York Bar Association sued, challenging the validity of the FTC regulation.

The district court denied the Commission's motion to dismiss, and granted summary judgment to the bar associations. The district court held that Congress did not intend the Act's provisions to apply to attorneys and that, even if the Act were ambiguous on that point, the court owed the commission's decision no deference, because it had not established the rule during the formal rulemaking, but rather only after the rulemaking was done. The FTC appealed.

A panel of the Court of Appeals, consisting of Chief Judge Ginsburg, and Judges Sentelle and Roberts (now Chief Justice of the U.S. Supreme Court), affirmed the district court's decision. The decision began by listing all of the activities regulated by 12 C.F.R. 225.28(a) "to demonstrate the depths plumbed by the Commission in order to find authority to undertake the regulation of the practice of law." Listing the activities alone took 13 full pages. The Court immediately indicated that it felt the FTC's use of the Act to regulate lawyers was outside its bounds, noting that "As we analyze the FTC's arguments . . . we are reminded repeatedly of a recent admonition from the Supreme Court: 'Congress does not . . . hide elephants in mouseholes.'"

The Court first looked at whether the Act was ambiguous as to whether Congress intended to apply it to lawyers. "Deference to the agency's interpretation under Chevron is warranted only where 'Congress has left a gap for the agency to fill pursuant to an express or implied 'delegation of authority to the agency.'" The Court then determined that the Act was not ambiguous, as it did not mention "the practice of law" anywhere. Although the Act had not exempted the practice of law, "if we were 'to presume a delegation of power' from the absence of 'an express withholding of such power, agencies would enjoy virtually limitless hegemony.'"

The Court also noted that the tortured means by which the Commission had come to its conclusion, traveling through the Act from one statute to another statute to a regulation that covered permissible activities in which banks could engage, indicated that Congress had not intended the Act to allow the Commission to regulate lawyers. "To find this interpretation deference-worthy, we would have to conclude that Congress had not only hidden a rather large elephant in a rather obscure mousehole, but had buried the ambiguity in which the pachyderm lurks beneath an incredibly deep mound of specificity, none of which bears the footprints of the beast or any indication that Congress even suspected its presence." Finally, the court noted that law firms did not fit within the definition of "business of which is engaging in financial activities" as "the 'business' of a law firm (if the practice of a profession is properly viewed as business) is the practice of the profession of law."

The Court also upheld the dismissal of the Commission's interpretation by noting that it violated the "plain meaning rule." "'[I]f Congress intends to alter the usual constitutional balance between the states and the Federal Government,' it must make its intention to do so 'unmistakably clear in the language of the statute. . . . By now it should be abundantly plain that Congress has not made an intention to regulate the practice of law 'unmistakably clear.'" The Court held that because the states had always regulated the practice of law, if Congress intended to take regulate it as well, it would need to express this desire clearly. "This is not to conclude that the federal government could not do so. We simply conclude that it is not reasonable for an agency to decide that Congress has chosen such a course of action in language that is, even charitably viewed, at most ambiguous."

The Commission may not, therefore, regulate lawyers' use of clients' confidential information through the Gramm-Leach-Bliley Act.

Authored by:
Christopher Bowen
202-772-5384
cbowen@sheppardmullin.com

The federal price discrimination law, the Robinson-Patman Act, is often criticized as being antithetical to the antitrust laws in that it sometimes promotes price uniformity rather than price competition. In Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., ____ U.S. ____ (2006), the Supreme Court took a major step towards harmonizing Robinson-Patman with other antitrust laws. Not only did the court raise the bar on the competitive injury requirements in secondary line cases, but it stated that the Robinson-Patman Act should not be construed to discourage price reductions that are the hallmark of interbrand competition and should be limited to cases where the favored purchaser has market power.

Volvo involved the application of the price discrimination laws to the resale of trucks subject to a competitive bidding process based on end user customer specifications. The plaintiff was a Volvo truck dealer, and end user customers would contact it and other truck dealers to bid on special order trucks they wished to purchase. Such dealers would then seek concessions or discounts from Volvo to use in the competitive bidding process, both against other Volvo dealers and dealers who sold other brands of trucks. A dealer would get the concessions only if it won the bid. While plaintiff identified two instances where it competed with other Volvo dealers for the same customer, the balance of plaintiff's evidence related to transactions in which it did not participate at all but other Volvo dealers got bigger concessions than plaintiff did on those in which it did participate. As a result, plaintiff alleged its sales and profits declined and that Volvo was likely to eliminate it as a dealer entirely under its announced program to reduce the number of dealers while enlarging the territory of the remaining dealers. The jury found in favor of plaintiffs and awarded $1.3 million.

Justice Ginsberg, writing for the Court in a 7-2 decision, began by noting that Robinson-Patman was a depression-era statute passed to stop large chain stores from obtaining lower prices from suppliers than smaller stores. Justice Ginsberg then emphasized, however, that the Act does not ban all price differences but only those that threaten to injure competition. In a secondary line case - where the discrimination arises between dealers purchasing from the same seller - the requisite competitive injury is generally shown by a diversion of sales or profits from the disfavored dealer to the favored one. Under the Morton Salt inference, competitive injury is inferred from a significant price differential over a substantial period of time.

The Eighth Circuit found competitive injury under Morton Salt based on the fact that plaintiff and the favored Volvo dealers competed at the same functional level. The Supreme Court held this was insufficient unless they competed for the same customer as only then could the requisite diversion of sales from a disfavored to a favored dealer occur. In the two instances plaintiff identified where it competed with other Volvo dealers, in neither could it be said that a sale was diverted from plaintiff to the favored dealer. In the first, while Volvo initially gave the other dealer higher concessions than plaintiff, it later offered plaintiff the same concessions and neither got the sale anyway. In the second instance, Volvo initially gave plaintiff and the other Volvo dealer the same concessions, and only increased those to the other dealer after it had won the sale. The rest of plaintiff's diversion evidence related to concessions Volvo offered dealers on sales where plaintiff did not bid at all, which plaintiff then compared to those Volvo offered it on sales where plaintiff competed with non-Volvo dealers. Plaintiff won some, lost others, but the common thread was that Volvo gave plaintiff smaller concessions on these transactions than it gave other Volvo dealers on other transactions.

Justice Ginsberg stated that such "mix-and-match, manipulable" evidence was insufficient for competitive injury, and bears no relation to the type of pricing conduct the Act was designed to prohibit. There is no discrete favored purchaser akin to a chain store or large independent department store. While plaintiff may compete with other Volvo dealers in a broad geographic area, the price competition at issue here does not arise until after a retail customer has selected the dealers to submit a bid. The relevant market is limited to those dealers selected to compete for the sale to a particular customer. If plaintiff was not one of the dealers selected to bid for a particular customer, then it could not suffer competitive injury since no sale was diverted from plaintiff to a favored purchaser. Merely bidding for sales in the same geographic area is not sufficient to meet the competitive injury requirement.

Both Volvo and the government's amicus brief urged the Court to hold that Robinson-Patman does not reach competitive bidding markets involving special order sales but rather is limited to sales from inventory. Given its competitive injury analysis, the Court stated "We need not decide that question today." Justice Ginsberg did, however, conclude her opinion by stating that the Robinson-Patman Act should be construed, like other antitrust laws, to promote interbrand competition and "[i]n the case before us, there is no evidence that any favored purchaser possesses market power, the allegedly favored purchasers are dealers with little resemblance to large department stores or chain operations, and the supplier's selective discounting fosters competition among suppliers of different brands." The opinion closes by cautioning against constructions of Robinson Patman which extend beyond the prohibitions of the Act and thus give rise to price uniformity in conflict with other antitrust legislation.

Justices Stevens and Thomas dissented with the former authoring the dissenting opinion. Justice Stevens noted that Volvo did not challenge the jury's finding of price discrimination and plaintiff's theory of the case was that Volvo was attempting to squeeze it out by limiting the concessions offered it vis-a-vis other dealers. The major thrust of the dissent, however, was simply that the court had historically defined competitors as those who sell "in a single, interstate retail market" and competition should not be evaluated by the transaction specific inquiry adopted by the majority. Justice Stevens states it is unclear whether the majority holding is limited to franchised dealers who do not maintain inventories, or excludes virtually all franchisees from the effective protection of the Act. In either event, he concluded, "it is not faithful to the statutory text."

Volvo is quite significant in two respects. First, its holding raises the competitive injury bar. The requirement that the discrimination diverts sales from the same customer to the favored dealer, rather than just occur in the market generally, goes beyond that thought necessary under Morton Salt. Second, the Court's suggestion that Robinson-Patman be limited to power buyers is a rather direct signal to the lower courts to construe the Act narrowly. Robinson Patman is often criticized, with some justification, as a statute that promotes price uniformity and diminishes true price competition. See, e.g., Antitrust Modernization Commission Hearings, July 28, 2005, Statement of Professor Herbert Hovenkamp (www.amc.gov). The Supreme Court has sent a strong message in Volvo that Robinson-Patman should not be construed in a manner that places it in conflict with the Sherman Act or other antitrust legislation.

Carlton A. Varner
213-617-4146
cvarner@sheppardmullin.com