Hart Scott Rodino Filings May Now be Done Electronically, if not Easily

·        On June 20, 2006, the Antitrust Division and the Federal Trade Commission ("FTC") issued press releases announcing that parties could now file the Notification and Report Form for Certain Mergers and Acquisitions along with the supporting documentation electronically.  This leaves parties with three options when filing their Hart Scott Rodino notifications:   1) the traditional hard copies, 2) an electronic form and electronic documents or 3) electronic form but paper documents.  Due to the security requirements, however, filing electronically may not significantly decrease the amount of time needed for an HSR filing.

Under the prior filing rules, parties in a transaction had to make 5 copies of the filing and the supporting documentation:  an original copy, one copy for the FTC, and 3 copies for the Department of Justice.  In addition, these files had to be delivered to the FTC and the Antitrust Division in Washington, D.C., further increasing the costs of filing.  Under the new regulations, however, parties may submit the forms through the website, https://www.hsr.gov, after downloading the appropriate programs.  In addition, the affidavits required for the filing may be submitted electronically as well.

A major impediment to filing the forms electronically had been the privacy concerns of the parties.  As the regulation and press releases noted, most of the documents contained in a filing are highly confidential.  To ensure the privacy of the forms submitted, parties must download a certificate from the External Certification Authority ("ECA").  Obtaining an ECA certificate can take a while, though, as the ECA certificate request must be signed, notarized, and mailed to VeriSign, Inc., along with a copy of the two forms of identification used to obtain notarization.  Once the ECA certificate is approved, it may be downloaded to the computer that will be used to submit the forms.  Although the person submitting the notification form will receive an email acknowledging receipt of the form, the beginning of the waiting period is still the date on the notification letter from the reviewing agency.

These changes, although allowing for electronic filing, still require parties to plan the filing ahead of time, due to the delay in obtaining an ECA certificate.  Because the certificate must match the name on the affidavits, each client in a transaction will have to obtain a certificate.  The  FTC did note that it would be easier just to issue certificates to the lawyer, so a lawyer could use a single certificate to do filings for multiple clients, but said that this had not been worked out, due to security requirements.

Authored by:

Christopher Bowen
202-772-5384
cbowen@sheppardmullin.com

Antitrust Division Requires Electricity Divestiture

• On June 22, the UK's Office of Fair Trading ("OFT") confirmed that it is conducting both a criminal and civil investigation into alleged price coordination by airlines in relation to fuel surcharges for long haul passenger flights to and from the UK.  The OFT's civil investigation is being conducted under the Competition Act 1998, and Article 81 of the EC Treaty, and the criminal investigation under the Enterprise Act 2002.  The OFT' emphasized that its investigation is at an early stage, and no assumption should be made that there has been an infringement of competition law.
   
• On May 31, the European Commission held that Arkema (formerly Atofina), Degussa, ICI, Lucite and Quinn Barlo (formerly Barlo) violated the EC Treaty rules’ ban on restrictive business practices (Article 81) by allegedly participating in a cartel on the market for acrylic glass.  Four of these companies (Total/Elf Aquitaine/Arkema, Lucite, ICI and Quinn Barlo) were fined a total of €344,562,500 (approx. US$433 million).  Arkema and ICI had their fines increased by 50% as they were repeat cartel offenders.  Degussa, also a repeat offender, would have received an increased fine but received full immunity from fines under the Commission’s leniency regime for being first to provide information about the cartel.  The Commission alleged that the five companies agreed, fixed, and monitored (target) prices for acrylic glass, and exchanged commercially important and confidential information in the European Economic Area between 1997 and 2002.  Acrylic glass is widely used, inter alia, in cars, DVDs, lenses, household appliances, electronics, baths and showers.
   
• On May 29, the Italian antitrust authority imposed fines totaling €3.7 million (approx. US$4.7 million) on nine suppliers of antiseptics and disinfectants to the public health system for alleged price-fixing conduct.  The Italian antitrust authority alleged that it had obtained copies of  printouts that were produced and discussed in meetings among the nine companies "with the aim of market sharing based on generally maintaining the clientele served in the past, as well as dividing up new customers in proportion to market presence."  It also alleged that: "[t]he companies' market monitoring activities included preparing charts of target prices for use in tendering."  And since, "this was an across-the-board market-sharing and price-fixing arrangement, the Authority judged it a very serious violation."
   
• On May 30, the Australian Competition and Consumer Commission ("ACCC") accepted court-enforceable undertakings from the Northern Rivers Gestalt Institute Incorporated over an alleged attempt to increase the prices charged by Gestalt institutes across Australia for counseling training services.  The ACCC alleged that in December 2005 a director of the Northern Rivers Gestalt Institute sent an email to the directors of eight other Gestalt institutes seeking their agreement to collectively raise fees in contravention of section 45 of the Trade Practices Act 1974, which prohibits price fixing.  The Northern Rivers Gestalt Institute co-operated with the ACCC's investigation, admitted the alleged conduct, and offered court-enforceable undertakings to address the ACCC's concerns.  ACCC Chairman, Mr. Graeme Samuel, said, "These undertakings demonstrate that all businesses, whether big or small, need to be aware of their obligations under the Act.  Businesses need to be aware that, if they seek to fix prices with their competitors, the ACCC will take appropriate action." 
   
• On May 31, South Africa's Competition Commission confirmed that German airline, Lufthansa, agreed to pay an administrative penalty of R8.5 million (US$ 1.2 million), and to ensure that its business complies with South Africa's Competition Act.  The Commission alleged that Lufthansa and South African Airlines had allegedly fixed the selling price of air tickets on their flights between Cape Town/Johannesburg and Frankfurt between 1999 and 2002, "through meetings and communications where price changes and the harmonization of fares were discussed."  
   
• On June 20, the European Commissioner for Competition, Neelie Kroes, met Ma Xiuhong, the Chinese Vice-Minister of Commerce in charge of competition, in Brussels, to discuss the draft Anti-Monopoly Law which was recently endorsed by the Chinese State Council.  After several years of work, the Chinese State Council approved a draft Anti Monopoly Law on June 7, 2006. The draft law will be submitted to the National People's Congress for discussion, and possible adoption, by the end of 2006 or early 2007.  The European Commission has met with representatives of China on several occasions in recent years to discuss how competition policy could be implemented in China, and has closely followed and encouraged the drafting of this law.  Ms. Kroes said:  “I congratulate the Chinese Government on the recent endorsement of the draft Anti-Monopoly Law.  This is an important step towards an effective competition regime, and the work of the Chinese Government is impressive.  The Chinese economy will benefit from the implementation of a sound competition policy, as will any company seeking to do business in China.”
   
• On June 19, an New Zealand-based parallel importer was fined $3,000 in the Auckland District Court for advertising digital cameras at cheaper prices than they were available in store.  Etop Limited, and its director Chen Hao Tu (also known as Tony Tu), were found guilty and fined for breaching New Zealand's Fair Trading Act by advertising certain products at one price but selling them for anything up to NZ$60, or 9%, more in-store.  The products were advertised in the New Zealand Herald – Weekend Edition, Trade & Exchange, and on Etop’s own website. Customers would only have found out the true cost of the cameras when they came to pay for them.  Deborah Battell, Director Fair Trading, said, "The Commission considers Etop’s conduct to be a serious breach of the Fair Trading Act because parallel importers compete purely on the basis of price.  Advertising goods at even lower prices and then charging higher prices in-store is misleading and anti-competitive, removing the potential for other businesses to properly compete on price."
   
• On June 19, the European Commission decided to open a detailed investigation under the EU Merger Regulation into the planned merger between Gaz de France and the Suez group of France.  The Commission’s initial market investigation has found that the proposed transaction would raise significant competition concerns at all levels of the gas and electricity supply chain in Belgium, and at all levels of the gas chain in France, given the horizontal overlaps and the vertical relationships between the two companies’ activities.  Neelie Kroes stated:  "The energy sector is essential for European competitiveness.  It is, therefore, crucial that the Commission carefully analyses the competitive impact of this merger, to ensure that it does not crate more barriers to a fully functioning Single Market for energy.”
   
• On June 14, Coca Cola HBC was fined € 8.6 million (US$11 million) by the Greek Competition Commission for allegedly not rectifying breaches of local competition law.  The Commission alleged that the bottler did not change its commercial practices as it had been previously ordered to do by the Commission.  Specifically, the Commission stated that Coca Cola HBC had allegedly failed to end exclusivity arrangements for the use of its refrigeration units at final points of sale, thereby allowing retailers to install rival companies' refrigeration units.  HBC had also allegedly failed to stop discrimination against wholesalers and retailers that did not deal exclusively with the bottler.
   
• On June 14, the Australian Competition and Consumer Commission ("ACCC") issued the Merger Review Process Guidelines 2006 which refine and expand upon the processes followed by the ACCC when considering mergers and acquisitions.  The key changes include expansion of the types of mergers (including confidential proposals) for which processes are detailed in the guideline, clarification of the processes applied to different types of mergers that the ACCC will review, and clearer indicative timelines for informal reviews.  ACCC Chairman, Mr. Graeme Samuel, said:  "The key to an effective merger review regime in Australia is the establishment of processes that recognize both the importance of speedy and efficient clearances of the many mergers that do not breach the statutory prohibition on anti-competitive mergers, and the timely and effective resolution or challenge of those that do."
  
• On June 2, the European Commission cleared the proposed acquisition of the company Arcelor S.A. (Luxembourg) by the Mittal Steel Company N.V. (The Netherlands) under the EU Merger Regulation, subject to certain conditions.  The Commission's investigation revealed that the two companies’ activities are largely complementary, both geographically, and from the product range viewpoint.  Competition Commissioner Kroes commented, "My job in all mergers notified to the Commission is to make sure that they would not harm competition in the industry, lead to price increases or result in less choice for business customers and final consumers.  I am completely satisfied that, through the substantial remedies offered by Mittal, these requirements would be met."

Authored by:

Neil Ray
415-774-3269
nray@sheppardmullin.com

Some of the most complex and contentious aspects of contemporary antitrust litigation involve threshold determinations about what kind of market participants are entitled to bring antitrust cases.  These controversies are typically played out in the context of two related, but distinct concepts.  The first is standing to sue, and the second is whether the type of injury allegedly suffered by the plaintiff is of the sort which the antitrust laws were intended to remedy, typically referred to as "antitrust injury."  In a recent unreported decision the Northern District of California wrote at length about both of these topics in the complex context of a challenge to basic aspects of the VISA interbank credit card system brought by First Data Incorporated, a small processor of credit card transactions seeking to both process VISA credit card transactions and offer credit card interchange services.  VISA USA v. First Data Corporation, et al., No. C02-01786 (May 12, 2006, N.D.Cal.).  Readers should note that the decision discussed below is only one of the latest in a series of private and government cases reflecting a variety of different challenges under state and federal antitrust law to the VISA bank credit card network.

The First Data decision in the Northern District of California arose out of VISA's attempts to extinguish First Data's Section 2 claims of monopolization and attempted monopolization.  VISA asserted in a summary judgment motion that First Data lacked standing, had not suffered cognizable antitrust injury, and had not suffered economic injury in the same relevant product market which was the subject of the attempted monopolization claim.  The Court denied both motions, scheduling the matter for trial, and in so doing, provided an interesting discussion reflecting a relatively expansive view of both antitrust standing and the permissible scope of antitrust injury.

First Data claimed that VISA had monopolized the market for the VISA credit card network processing services, and attempted to monopolize the general purpose credit card network processing services market by willfully maintaining monopoly power through: (1) demanding compliance by First Data with unreasonable conditions before approving First Data's proprietary software for processing VISA transactions; (2) subsequently banning implementation of First Data's proprietary software for processing VISA transactions directly between member banks by prohibiting all such "private arrangements;" and (3) blocking competition on interchange fees and merchant discounts through an "Honor All Cards" rule, and associated rules against discounts and so-called "intra-processing" directly between competing banks which bypassed the VISA transactions processing network.

Essentially, the gravamen of First Data's alleged economic injury was that VISA's ban on discounts and promotions, coupled with the requirement for honoring all credit cards and prohibiting intra-processing of transactions, stifled price competition both by horizontal competitors to VISA providing processing services, like First Data, and by member banks and merchants in the VISA network which would permit discounts on interchange fees to "acquirers" of transactions for processing, like First Data, which would ultimately lead to lower retail prices.  VISA's "Honor All Cards" rule requires any merchant which accepts any VISA branded payment card to accept all VISA branded payment cards.  The Honor All Cards rule also allegedly precluded merchants from offering point of sale discounts or preferences to some VISA issuers' cards over other VISA issuers' cards, required banks participating in the VISA network to charge uniform interchange fees for all VISA transactions, and prohibited participating banks from offering any discounts on VISA transactions.

First Data's theory of injury was that this combination of rules essentially maintained a supra competitive interchange structure by preventing issuing banks from competing for merchant business.  The absence of such competition results in supra competitive interchange fees that First Data is required to pay in its attempt to offer competing VISA credit card processing services.  First Data also contended that VISA's rules effectively restrained all VISA banks from entering into bilateral agreements which might otherwise undercut the default interchange rate set by VISA's governing board.

VISA moved for summary judgment and sought to establish as a matter of law that First Data lacked antitrust standing.  The District Court began by noting that the Supreme Court, in Associated General Contractors of California v. California State Counsel of Carpenters, 459 US 519, 529 (1983) ("AGC") assumed that there had to be some appropriate limits on the scope of private damage actions under Section 4 of the Clayton Act because a literal reading of the statute would have been broad enough to encompass every harm that can be attributed directly or indirectly to the consequences of an antitrust violation, no matter how broad.  The District Court then noted that the prevailing standard for determining antitrust standing in the Ninth Circuit after AGC requires examining "(1) the nature of the plaintiff's alleged injury; that is whether it was of the type the antitrust laws were intended to forestall; (2) the directness of the injury; (3) the speculative measure of the harm; (4) the risk of duplicative recovery; and (5) the complexity of apportioning damages," citing KnevelBaard Dairies v. Kraft Foods, 232 F.3d 979, 987 (9th Cir. 2000).

In fact, the District Court noted that the Ninth Circuit's formulation explicitly combines the concept of standing with the notion of "antitrust injury," by making the presence of "antitrust injury" the first factor in determining whether antitrust standing exists.  The first factor in the Ninth Circuit's analysis, the requirement that the injury complained of be of "the type the antitrust laws were intended to forestall" then in turn required reference to the Supreme Court's seminal decision on antitrust injury, Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 US 477, 489 (1977) which requires "unlawful conduct, causing injury to the plaintiff, that flows from the aspect of the conduct which makes the conduct unlawful, and is of the type the antitrust laws were intended to prevent."

First Data's attempt to meet this requirement, which turned out to be successful, is a good example of how plaintiff's attempt to recast potentially novel economic circumstances, like the operation of the VISA credit card system, into claims of well recognized types of economic injury flowing from allegedly anticompetitive conduct.  First Data first pointed to the VISA rules described above, and asserted that they had the practical effect of eliminating incentives for VISA's member banks to negotiate direct interchange agreements with specific merchants.  This in turn had the effect of eliminating the possibility of competing for the ability to process VISA transactions, and also in effect forced First Data to pay higher interchange rates than it would have been charged if it had been able to negotiate its own rates with specific merchants.  This then enabled First Data to cast itself both as an excluded direct competitor attempting to offer a competitive processing service, and also as a harmed "purchaser" or "acquirer" of credit card transactions, because it allegedly had to acquire the transactions it was able to obtain at rates higher than it would have obtained those transactions if it had been free to make its own deals with merchants accepting VISA credit cards.  So configured, the District Court had little problem determining that, at least theoretically, First Data had suffered exactly the type of injury the antitrust laws are meant to prevent because, assuming a violation was found at trial, it had been precluded from competing in a properly defined relevant market, and had overpaid for a commodity – credit card transactions – in an adjacent product market.

Having gotten past the potentially complex conceptual inquiry relating to antitrust injury, the District Court dealt with the rest of the Associated General Contractor factors relatively quickly.  It ruled that the injuries as claimed, assuming wrongdoing were found to have occurred, were neither speculative nor indirect.  The Court noted that the only way to demonstrate such indirectness is typically for the defendant to proffer an intervening or independent cause of injury, and VISA had failed to do so.

The risk of duplicative recovery and complexity in apportioning damages gave the District Court more trouble.  In particular, the Court noted that VISA was also currently facing multiple actions in New York federal court brought by both individual merchants and merchants seeking to represent classes of merchants accepting VISA cards for payment, challenging the setting of interchange fees directly, as well as other aspects of VISA's "Honor All Cards" regulations.  However, the Court also noted that from what it had been told by the parties about the New York litigation, it did not appear that merchants in that case were seeking to challenge either VISA's ban on intra-processing, or the limitations on point of sale discounts for VISA transactions.  As a result, First Data appears to potentially have suffered distinct injury from the merchant claimants in the New York cases, because it is First Data that pays the interchange fees and is not a VISA member.  First Data is trying to acquire VISA transactions from merchants and is therefore, in the Northern District of California's view, the most appropriate party to challenge the interchange fees set by VISA.  Having dispensed of the conceptual issue concerning potential duplicative recovery, the Court dismissed the notion of problems in apportionment.  In its view, since First Data's alleged injury constituted the alleged payment of super-competitive fees, its damage determination would reflect a straightforward calculation of such fees, albeit in a hypothetical damage model presented by experts.

Perhaps the most intriguing aspect of the decision involves VISA's efforts to curtail the scope of First Data's potential recovery by arguing that First Data sought damages in a product market different from the one in which it pressed its monopolization claim.  First Data claimed monopolization of the market for VISA credit processing and attempted monopolization of the credit card processing market.  However, it is also seeking damages allegedly suffered during its acquisition of VISA credit card transactions at allegedly supra competitive interchange fee levels.  VISA attempted, relying on certain Ninth Circuit cases, to argue that damages could not be recovered in a separate market for VISA transactions if First Data's monopolization claims were based on a market to provide credit card processing services.

The argument troubled the District Court, but was ultimately rejected.  The Court noted that a so-called "systems market" for credit card transactions was clearly a related and adjacent market to the market for credit card processing services.  It credited First Data's response that competitive dislocations in both markets resulted from anticompetitive behavior in the market for processing services.  Given that competition had been distorted in that market, the distortions, according to First Data, had collateral effects in an adjacent market for VISA transactions which in fact injured First Data in the adjacent market as well.  The Court accepted the argument for purposes of denying summary judgment, but explicitly held that First Data would have to demonstrate at trial that its harm in its role as an acquirer of VISA credit card transactions was directly precipitated by some unlawful conduct in the network processing market.  The ruling is a useful reminder that in situations where complicated economic activities, typically involving the provision of services, impact related but distinct types of economic activity in upstream or downstream markets, care must be taken by both plaintiffs and defendants to relate the harms allegedly suffered to the same markets being used establish market power to support claims of underlying antitrust violation.

Authored by:

David R. Garcia
310-228-3747
drgarcia@sheppardmullin.com

As summarized in the April, 2005 edition of the Antitrust Law Blog, in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11^th Cir. 2005), the Eleventh Circuit held that a reverse payment settlement of patent infringement suit was lawful under the antitrust laws.  Reverse payment settlements are those in which the plaintiff patentee pays the alleged infringer to stay off the market for some period of time and commonly occur in the context of the Hatch-Waxman Act.  In so ruling, the Eleventh Circuit reversed a unanimous decision by the FTC.  The basic rationale of the Eleventh Circuit decision was that Schering’s payments were bona fide consideration for drug licenses, not just payments to keep generics off the market.  Moreover, since the entry date was still prior to the expiration of the patent and otherwise within the scope of the patent, the court also held that the settlements were within the patent’s lawful exclusionary power and therefore not anticompetitive. 

Not surprisingly, in August 2005, the FTC filed a petition for a writ of certiorari asking the Supreme Court to review the Eleventh Circuit’s ruling.  The Supreme Court requested the views of the Solicitor General.  This led to an unusual and remarkable development. The SG filed a brief joined by the DOJ Antitrust Division ("DOJ") in May 2006 in which it opposed the FTC's cert petition and revealed significant differences between the enforcement agencies’ views on how reverse payment patent settlements should be treated under the antitrust laws.  This in turn led to a reply brief from the FTC.  Although the court denied cert on June 26, 2006, the two briefs shed light on how these agencies will approach enforcement actions in the future with respect to these reverse payment agreements.  

To be sure, the FTC and DOJ both agree that reverse payment patent settlements may constitute unlawful collusive restrictions on competition that harm consumers.  The agencies also agree that reverse payment settlements in the Hatch-Waxman context are particularly worrisome because of the provision in that law that grants the first generic ANDA-filer a 180-day exclusive marketing period that does not commence until the generic enters the market or the relevant patent is held invalid or not infringed.  This provision creates a strong incentive for the pioneer to pay the first generic ANDA-filer to stay off the market, thereby postponing the commencement of the 180-day exclusivity period and keeping other generics out of the market indefinitely.   

The DOJ, however, argued in its brief that the FTC is unduly suspect of all reverse payment settlements.  According to the DOJ, the public policy favoring settlement of litigation, the statutory right of patentees to exclude competition with in the scope of their patents, the fact that the Hatch-Waxman regime enables prospective generic manufacturers to in effect force patent holders to initiate infringement litigation before any infringement has occurred, and the consequent increase in the risks of litigation for the patent holder, indicate that some reverse payment settlements are reasonable.  Thus, the DOJ argued, the proper standard for evaluating such settlements should include an objective assessment of the merits of the patent claims, viewed ex ante, and other relevant factors surrounding the parties' negotiations. 

By contrast, in the words of the DOJ, the FTC approach "apparently rejects any direct effort to evaluate the likelihood that the patent holder would prevail on its claim" and instead assesses the "expected value" of the patent holder's lawsuit against the generic in evaluating the settlement and appears to hold that a reverse payment, in the absence of a specific alternative explanation, necessarily renders the settlement anticompetitive because the generic may have entered earlier in the absence of the payment.  The DOJ criticized this approach for placing undue weight on the settling parties' subjective views of the strength of the claims as reflected in the settlement and evincing too high a degree of suspicion of reverse payments. 

In any event, the DOJ counseled the Supreme Court to deny cert because this particular case was not the appropriate vehicle for determining the proper antitrust treatment of reverse payment patent settlements.  The DOJ noted that the Eleventh Circuit's finding that the reverse payments to Upsher were bona fide consideration for drug licenses foreclosed antitrust challenge to this settlement even under the FTC's theory.  As such, the DOJ argued, the Supreme Court would not even reach the antitrust issues in this case unless it departed from its normal practice of allowing the courts of appeal to assess whether substantial evidence supported agency findings and itself reviewed a voluminous and complex record to determine whether substantial evidence supported the Commission's factual findings.  Further, the evidence concerning the parties' settlement was limited and poorly developed.  The circumstances surrounding the Schering-ESI settlement were also unusual in that it was negotiated under the active supervision of a magistrate who exerted "unseemly" pressure on Schering and ESI to settle.  These unique circumstances make the Schering-ESI settlement an inappropriate case on which to base the general law of reverse payment settlements. 

The DOJ also argued that cert should be denied because the Eleventh Circuit did not actually address the FTC's proposed antitrust theory.  Instead of addressing the FTC's theory that a patent holder may lawfully exclude infringing products only to the extent of the "expected value" of the patent holder's lawsuit, the Eleventh Circuit understood the FTC's position to be that but for the reverse payments, the parties would have settled on earlier entry dates and found no evidence to support that contention.  Noting that the Second Circuit may address the "expected value" theory in an upcoming case, In re Ciprofloxacin Hydrochloride Antitrust Litigation, the DOJ contended that this weighed against review in this case. 

Finally, the DOJ argued that there was no circuit split justifying review in this case.  The Sixth Circuit's opinion in In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6^th Cir. 2003) ("Cardizem"), addressed reverse payments to exclude drugs that were not within the scope of the patent alleged to be infringed.  Thus, the per se condemnation of the settlement in that case is not inconsistent with the Eleventh Circuit's approval of Schering's settlements involving both drugs and entry dates within the scope of Schering's patent.  The DOJ also characterized the Second Circuit's decision in In re Tamoxifen Citrate Antitrust Litigation, 429 F.3d 370 (2^nd Cir. 2005), issued after the FTC filed its cert petition, as consistent with the Eleventh Circuit's decision.  In that case, the Second Circuit held that reverse payment patent settlements did not constitute a per se antitrust violation and also explicitly approved of the Eleventh Circuit's focus on whether the exclusionary effects of the agreement exceeded the exclusionary scope of the patent.

The FTC's Reply Brief both critiqued the DOJ's proposed approach and responded to the DOJ's arguments against cert.  Regarding the DOJ's contention that the antitrust evaluation of a reverse payment settlement should include an evaluation of the patent merits, the FTC argued that a significant drawback of that position is that "parties contemplating settlement will not know, at the time of settlement, whether particular settlement terms will appear unreasonable to a future antitrust tribunal."  Further, and more fundamentally in the view of the FTC, "such an after-the-fact assessment is simply unnecessary where, as here, the contemporaneous actions of knowledgeable economic actors – particularly the generic firms' refusal to defer entry absent substantial payments by the patent-holder – provide a more reliable indication of the strength of the patent, and of [the agreement's] exclusionary nature."       

Regarding cert, the FTC maintained that the DOJ's proffered reasons for denying review were unpersuasive.  According to the FTC, reviewing the Commission's factual findings would not be an overly onerous task because they were well grounded in the record.  Further, the allegedly unique circumstances of the ESI settlement do not weigh against cert because the Eleventh Circuit's broad ruling applies to all reverse payment settlements.  Moreover, according the FTC, the Sixth Circuit opinion in Cardizem does indeed conflict with the ruling in Schering-Plough.  As the FTC put it, the Eleventh Circuit condoned reverse payment settlements as long as the exclusion is within the nominal scope of a non-sham patent claim whereas the Sixth Circuit recognized "the potential of such agreements 'to bolster the patent's effectiveness' by 'paying the only potential competitor…to stay out of the market.'"  Finally, the FTC implored the Supreme Court to grant review because, it contended, the economic impact of the Eleventh Circuit's ruling on consumers of prescription drugs is "staggering" and warned that the ruling "'opened a Pandora's box' of anticompetitive settlements between brands and generic competitors."  

On June 26^th, the Supreme Court denied cert.  Nonetheless, the case is noteworthy in that it revealed a conflict between the two agencies on a very significant and timely enforcement issue.  Such a public fissure between the agencies is exceedingly rare.  The Supreme Court, however, chose not to resolve this conflict at this time.  Although the Eleventh Circuit decision currently stands, the future of these controversial agreements is unclear.  In response to the cert denial, Senators Herb Kohl (D-WI), Patrick Leahy (D-VT), Chuck Grassley (R-IA), and Charles Schumer (D-NY) introduced legislation to explicitly prohibit branded drug manufacturers from paying generics to stay off the market.

Authored by:

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

Antitrust litigation in Canada differs significantly from that in the United States.  Whereas private antitrust litigation has been widespread and robust for many years in the U.S., private antitrust litigation in Canada has been slow to grow.  However, increasing calls for expanding private parties' access to antitrust lawsuits in Canada signal that Canada may be in store for a growth spurt.  Companies doing business in Canada should thus take note that private enforcement of Canada's antitrust law is likely to escalate.

For many years, private parties had no right of access to bring antitrust lawsuits.  In 1976, they gained a right to bring lawsuits for injury suffered as a result of another party's alleged violation of certain criminal antitrust offences.  In 2002, Canadian antitrust law expanded the availability of private antirust lawsuits to include claims based on breaches of certain practices that have civil, not criminal, penalties.  Once more, there are signs that Canada may again expand access to private parties to litigate antitrust disputes.  Canada may thus be in store for a conspicuous growth spurt in antitrust litigation.

Prior to 1976, the Competition Act, which comprises most of the law regulating antitrust matters in Canada, vested all authority to administer and enforce the Competition Act with the Commissioner of Competition.  In 1976, however, Section 36 of the Act was introduced.  It provided, for the first time, a right of private enforcement of the Act, for loss or damage that results from an alleged breach of any of the criminal offences set out in Part VI of the Act, and for failure to comply with a court or Tribunal order.  Part VI of the Act sets out the offences of conspiracy, bid-rigging, predatory pricing and price discrimination, misleading advertising, price maintenance and resale price maintenance.  Under Section 36 of the Act, a private party may initiate an action whether or not the defendant has been convicted of the underlying criminal offence.  Ordinary courts and the Federal Court of Canada have jurisdiction for Section 36 actions.

Unlike in the United States, where successful litigants can recover treble damages, private parties bringing claims under Section 36 of the Competition Act can only recover actual damages.  Punitive damages are not available.  On the other hand, a plaintiff can recover the costs of the proceedings and its discovery, including the costs of its investigation undertaken in connection with the matter.  If the plaintiff's action does not follow an investigation by the Commissioner of Competition, a criminal conviction or proven non-compliance with the Act, then the plaintiff will likely incur significant costs in order to meet its evidentiary burden.  The burden of proof for a Section 36 action is lower than the criminal standard of beyond a reasonable doubt but higher than the civil standard of balance of probabilities. 

Very few actions have been brought under Section 36 and the standard of proof is high.  Not only must the plaintiff establish that they suffered injury as a result of the alleged criminal conduct, but if there has not been a criminal conviction, the plaintiff must also prove that the underlying criminal offence has occurred.  While class action proceedings are available in several provinces including Quebec, Ontario and British Columbia, and in the Federal Court of Canada, few class actions have proceeded past the certification stage with several courts finding that each class member's individual loss would have to be shown and that liability could not be a common issue based on the facts.  These precedents make it unclear whether indirect purchasers (often consumers) will get past the certification stage in seeking to recover for price-fixing and other conduct that violates the Act.  Those advocating expanded access to private parties are also calling for an amendment permitting the Tribunal to certify class actions in antitrust cases. 

In 2002, the Act was amended to create Section 103.1.  Section 103.1 allows limited access to the Competition Tribunal, an adjudicatory body consisting of both judicial and lay persons that decides civil antitrust cases.  A party may not recover damages in an action brought under Section 103.1; only behavioral orders, for example, an order requiring a manufacturer to supply product to a distributor, may be obtained.  The government has proposed, however, allowing private parties to recover damages where the Tribunal has issued an order concerning civil antitrust conduct.  Private access to the Tribunal is permitted only for alleged breaches of certain civil antitrust conduct, namely, refusal to deal (Section 75 of the Act) and exclusive dealing, tied selling and territorial restrictions (Section 77 of the Act).  A private party must obtain leave from the Tribunal to proceed with its case.  To date, only eleven private actions have been brought to the Tribunal, with the Tribunal granting leave in only five cases, all of which were brought under the refusal to deal provision of the Act. 

The 2002 amendments were relatively conservative in that they only expanded private access with respect to the few civil matters noted above, and left many others out.  If a private party has been injured by a monopolist's anticompetitive conduct, for instance, it has no ability under the Act to bring an action to recover damages or obtain injunctive relief.  This could change, however, if proponents of new amendments expanding private parties' right of access have their way.  The expansion could mean that private parties could bring lawsuits based on any of the civil reviewable matters found in Part VII of the Act, including monopolization, abuse of dominance, and mergers.  Furthermore, if the government's proposal to allow private parties to recover damages for such civil conduct, private enforcement of Canada's antitrust law could increase significantly.

Proponents of the new amendments argue that greater access to private parties will ensure that justice is served and will improve the accountability of the government's antitrust regulator, the Competition Bureau.  The Bureau, like nearly all government agencies, faces limited resources and must be selective in choosing what cases to pursue.  Proponents also contend  that like the 2002 amendments, further expansion of a private right of access will not result in a flood of antitrust litigation.  Detractors, on the other hand, allege that the Act is a public policy instrument and was not intended to resolve private sector disputes.  For its part, the Tribunal appears to be preparing itself for the extended application of the Act.  The Tribunal's chair, Justice Sandra Simpson, stated on May 26, 2006 that private access to the Tribunal will generate more cases and that it may need to relax its expectation that a case be supported by sophisticated economic or competition law theory.

Demand for increased private parties' access to antitrust claims, and broader remedies for their claims, in particular, monetary damages, is likely to increase and further amendments may indeed be on the horizon.  If the amendments are adopted, private enforcement of the antitrust law is likely to increase markedly.  Even now, the number of antitrust class actions brought in Canada is rising.  Companies doing business in Canada should therefore be aware of the risks associated with private actions and consult qualified counsel to help calculate those risks. 

Authored by:
Heather M. Cooper
213-617-5457
hcooper@sheppardmullin.com

In an unpublished opinion, designated as "not precedential," the Third Circuit recently affirmed the District Court's dismissal pursuant to the Federal Rule of Civil Procedure 12(b)(6) of antitrust claims that were predicated on a doctor's asserted economic retaliation against a nurse after she rebuffed his sexual advances.  Stark v. Ear Nose & Throat Specialists of Northwestern Penn., No. 05-2345, 2006 WL 1371571 (3rd Cir. May 19, 2006).  The plaintiffs were Beata and Norman Stark ("Stark"), and Beata Clinical Research Services ("BCRS"), who provided administrative and contractual support services to drug manufacturers and drug research firms.  Id. at *1, *4.  Defendants, Dr. Anon, his company, Ear Nose & Throat Specialists of Northwestern Penn. ("ENT"), and Robert Budacki, who was one of ENT's employees, engaged in drug and medical research in the field of ear, nose and throat.  Id.  The relationship between the defendants and Plaintiffs was essentially one of contractor and subcontractor.  Id. at *2. 

Plaintiffs alleged that, "[i]n retaliation for [Beata] Stark rebuffing Anon,] 'Plaintiff [was told she] would no longer have access to the ENT facilities without a monitor,' and one of Anon's colleagues said 'he was changing the locks at ENT.'"  Id. at *1.  The complaint also alleged that "Anon launched at least one research study in competition with [BCRS]" and that "Beginning in March 2003, Anon and/or ENT and/or Budacki and/or others undertook to injure [Stark] by combining and/or conspiring to restrain interstate commerce in the NW Region [of Pennsylvania] and/or by combining and/or conspiring and/or attempt to monopolize the drug research market in the NW region."  Id. (emphases and modifications in original).  In addition to the antitrust claims, Plaintiffs also alleged a number of state law claims, none of which was the subject of the appeal to the Third Circuit.  Id.

On the Section 1 claim, the court affirmed the District Court because the complaint alleged only unilateral conduct, rather than the required concerted action, holding:  "unilateral activity by a defendant, no matter the motivation, cannot give rise to a Section 1 violation."  Id. at *3.  Here, the Court noted, the alleged retaliatory conduct, i.e., Anon's launching of "at least one competitive research study in competition with BCRS," was "an allegation of increased competition initiated by unilateral activity on the part of ENT, its owner, Dr. Anon, and its employee, Mr. Budacki."  Id.  (emphasis in original).  As such, it violate[d] neither the letter or [sic] policy of the antitrust laws."  Id.  The court also rejected the argument that the case came within an exception to the normal rule that "officers or employees of the same firm do not provide the plurality of actors imperative for a Section 1 conspiracy" because there was no evidence that either Dr. Anon or Mr. Budacki "was acting outside ENT's interests."  Id.  The only allegations to support Plaintiffs' argument were that Dr. Anon had "a desire to harm BCRS in particular and a desire to increase ENT's marketshare in drug research contracts," and that Budacki assisted Dr. Anon in those goals.  Id.  The court held that that these allegations were insufficient because, in a Section 1 case, "conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy."  Id. 

On the Section 2 claim, the court affirmed the dismissal on grounds that Plaintiffs failed to satisfy antitrust standing.  The court noted, "Antitrust standing is, of course, more than the 'injury in fact' and the 'case or controversy' required by Article III of the Constitution.  Rather, the doctrine reflects additional prudential concerns."  Id. at *4.  First and foremost, the court noted, Plaintiffs and Defendants operated in different markets.  Plaintiffs offered administrative and contract support services to drug and drug research companies whereas Defendants engaged in actual drug and medical research.  Id.  Indeed, Plaintiffs could not operate in the same market because they were not medical doctors, and Beata Stark was only a registered nurse.  Id.  Therefore, Plaintiffs failed to show any nexus between Anon's asserted monopolization of the market for ear, nose and throat medical research and the market for contract services, "the only market in which Stark and BCRS may participate."  Id.  Next, the court held, the crux of Starks' complaint is that Anon engaged in economic retaliation after Beata Stark rebuffed his sexual advances.  Id. at *5.  However, Plaintiffs acted as a contractor "to multiple drug firms" and contracted with "multiple physicians' offices," not just ENT.  Id. (emphasis in original).  The court noted that "[l]acking are the classic indicia of injury for which the antitrust laws were designed, such as increased prices for consumers or a reduction of consumer options."  Id. at *5.  For these reasons, the court held, the injury alleged in the complaint was also speculative.  Furthermore, if an alleged monopolization did occur, there were more direct victims, i.e., the doctors who participated in the same market as the defendants.  Id.  Finally, the Court held, there existed a potential for duplicative recovery "should Stark and BCRS recover on both their Section 2 claim and their state law claims" because the complaint "aver[ed] that all of Stark's and BCRS' causes of action arise from the same nucleus of underlying facts-Anon's retaliation after Stark discouraged his sexual advances."  Id.