Under the Hatch-Waxman Act, a drug manufacturer must file a New Drug Application ("NDA") in order to obtain FDA approval of a new drug. Along with the NDA, the drug company must inform the FDA of any patents that cover the drug so the FDA can list the patents in a publication known as the "Orange Book." If such patents are listed in the Orange Book, a generic manufacturer, must make a certification with respect to the listed patents in its Abbreviated New Drug Application ("ANDA"). One certification is that the listed patents are either unenforceable or not infringed by the generic drug ("Paragraph IV certification"). The generic must give notice of the Paragraph IV filing to the NDA company, which has 45 days to file an infringement suit. If no suit is filed, the ANDA may be approved immediately. If suit is filed, that delays approval for 30 months. Either way, any subsequent generic making a similar Paragraph IV certification may not receive approval until 180 days after the earlier of either (1) the first ANDA applicant that submitted a Paragraph IV certification begins commercial marketing, or (2) a court decision holding that the relevant patent is invalid or not infringed.

An FDA regulation prohibits delisting of a patent that is the subject of an infringement suit under 314.107(c) until the FDA determines either that no delay in effective dates of approval is required by the lawsuit, that the patent has expired, or that any such period of delay in effective dates of approval is ended. Section 314.107 (c) implements the 180 day exclusivity and initially required the first ANDA to successfully defend an infringement lawsuit. This requirement was invalidated in Mova Pharm. Corp. v. Shalala, 140 F.3d 1060 (D.C. Cir. 1998). The FDA later amended Section 314.107 (c) to drop any reference to a lawsuit, but, inadvertently or otherwise, left in the lawsuit language in the regulation prohibiting delisting. This obviously resulted in an incongruity in the FDA regulations in that a lawsuit was not required for 180 day exclusivity, but was required to prevent delisting the patent challenged by the Paragraph IV certification.

In 1991, Merck filed an NDA for a cholesterol medication popularly known as Zocor and listed several patents in the Orange Book. In 2000, IVAX, a generic drug company, filed an ANDA containing a Paragraph IV certification with respect to two of these patents. Merck did not sue IVAX, but IVAX apparently did not begin commercial marketing its generic version to trigger the start of its 180 day exclusivity. In August 2003 the FDA revised its regulations to limit the listing of patents by an NDA to those claiming the active ingredient of the drug, not a metabolite or intermediate version of the active ingredient. Thereafter, the FDA removed the two Merck patents from the Orange Book.

Since the removal of the patents meant that generic applicants could file ANDA's without Paragraph IV certifications and possibly get immediate approval, IVAX filed a citizen petition with FDA arguing that FDA could not delist the patents. To do so, said IVAX, violated the FDA's own regulation prohibiting delisting and would deprive IVAX of its statutory right to 180 days of exclusive marketing. According to IVAX, in light of the Mova decision and the later amendment eliminating the lawsuit requirement, the 180 day exclusivity vests when the first ANDA files its Paragraph IV certification regardless of whether there is a lawsuit. To correct this, IVAX requested that the FDA not approve subsequent ANDA's for 180 days from the date of IVAX's first commercial marketing and that the FDA relist the removed Merck patents in the Orange Book.

On April 5, 2005, the FTC filed a response to IVAX's citizen petition with the FDA opposing IVAX's contention that the FDA could not delist the patents. It first argued that, since no lawsuit was filed, the delisting ban in the regulations didn't apply. The FTC also argued that the 180 day exclusivity period is merely an "incentive" to induce generic drug manufacturers to challenge weak patents or design around patents, rather than a right. The FTC stated that the applicable regulations do not guarantee that the first ANDA filer will enjoy the benefit of the 180 day exclusivity period once the FDA approves its generic product. For example, said the FTC, subsequent ANDA's need not make Paragraph IV certifications if the patent has expired. Adopting the IVAX view would, in the words of the FTC, mean that an NDA holder could no longer delist a patent due to a change, as occurred here, in the listing requirements.

The FTC has long objected to the listing of erroneous patents in the Orange Book as well as the use of 180 day exclusivity period to create a "bottleneck" blocking further generic entry. In particular, the FTC has brought several enforcement actions where patent holders allegedly listed questionable patents in the Orange Book and then reached "settlements" of litigation based on those patents with the first ANDA filer wherein the patent holder pays the first ANDA filer to stay off the market thus effectively blocking entry by subsequent ANDA indefinitely. While the 2003 amendments to Hatch-Waxman prohibiting multiple 30 month stays and requiring the filing of such agreements with the FTC alleviated some of these concerns, possible abuses of Hatch-Waxman remain at the forefront of the Commission's agenda. Hence, it is not surprising that the FTC opposes the notion that the 180 day exclusivity period is a right.

One issue not addressed by either IVAX or the Commission, however, is whether, regardless of whether it is a "right" or an "incentive," the 180 day exclusivity is a "property interest" subject to the procedural due process protections of the Fifth Amendment. It is now well established that, for purposes of the Fifth Amendment, "'property interests subject to procedural due process protections are not limited by a few rigid, technical forms. Rather, 'property' denotes a broad range of interests that are secured by 'existing rules or understandings.'" Perry v. Sinderman, 408 U.S. 593, 601 (1972). A property interest exists in a benefit made available by a particular statute if a person has a "legitimate claim of entitlement to it." Board of Regents v. Roth, 408 U.S. 564, 577 (1972). In addition to statutory sources, property interests can arise from duly promulgated regulations. Kizas v. Webster, 707 F.2d 524, 539 (D.C. Cir. 1990).

Measured by these standards, it may well be that the 180 day exclusivity is a property interest sufficient for protection under the Fifth Amendment regardless of whether it is conditioned on a lawsuit. FDA's regulation granting it to the first ANDA may be sufficient justification for it to fall within the definition of property interest under the foregoing case law. The fact that the 180 day exclusivity may be lost in certain circumstances may mean that it is not a "right", as the FTC chooses to employ that term, but it may still qualify as a property interest. If it is a property interest, then due process would presumably require a notice and hearing before it is lost by delisting the patent. This would also give the Commission the opportunity to show that the listing was erroneous, or otherwise improper.

The D.C. Circuit has recently held, in Teva Pharmaceutical Industries v. Crawford, No. 05-5004 (D.C. Cir. June 3, 2005), that a brand-name drug manufacturer may market a generic version of its own drug even during the 180 day period that the holder of an approved Paragraph IV ANDA would otherwise enjoy market exclusivity. The Circuit found that no provision of the Hatch-Waxman Act barred such action. It remains to be seen whether this ruling will be relied upon to support an argument for patent delisting. Any such argument, however, would have to address the explicit requirement in 21 U.S.C. 355(j)(6)(A) that the FDA publish a list of all drugs for which ANDA certification is possible. The relevant legislative history (H.R. Rep. No. 98-857) clearly states, "the FDA is required to publish and make available a list of drugs eligible for consideration in an ANDA." The list must include all relevant patents "as that information becomes available." Though the House Report never explicitly states that a drug manufacturer is barred from delisting their patent, such action would seem to run contrary to Congress' desire to promulgate a comprehensive list from which the generic drug manufacturers could decide what, if any, entries to challenge.

Authored by:
Mark E. Nagle
202-218-0014
mnagle@sheppardmullin.com

and

Anik Banerjee¹
213-617-4124
abanerjee@sheppardmullin.com

1. The authors wish to thank Robert Ziff, a summer associate in the Washington, D.C. office of Sheppard Mullin, for his assistance.

On May 16, 2005, the United States Supreme Court struck down state laws in Michigan and New York, barring out of state wineries from selling directly to instate consumers, while allowing such sales by instate wineries. The laws were an unconstitutional discrimination against interstate commerce, in violation of the Commerce Clause of the Constitution. Granholm v. Heald, No. 03-1116 (May 16, 2005).¹

Delivering the Court's opinion for a five-member majority,² Justice Kennedy rejected the states' contention that the laws in issue were within the states' authority under the Twenty-first Amendment,³ to regulate the sale of liquor within the states' borders.

While the Court acknowledged that states have broad power to regulate the importation and distribution of liquor, the Twenty-first Amendment, which repealed the Eighteenth Amendment,⁴ protects only non-discriminatory state regulation. State laws that are offensive to other provisions of the United States Constitution, including the Commerce Clause, are invalid, and are not saved by the Twenty-first Amendment.

In espousing a consumer welfare analysis, and in determining that the discriminatory state laws were not the least restrictive alternative to regulate interstate wine sale to minors, or to facilitate tax collection, the Court cited with approval, a Federal Trade Commission Staff Report "Possible Anticompetitive Barriers to E-Commerce: Wine" (July 2003) ("FTC Report").

The FTC Report noted that the Internet is transforming the nation's economy, with local markets becoming national and international, as consumers have greatly enhanced search opportunities for demanded goods and services. Although the Internet provides consumers with important search economies, the FTC Staff acknowledges that online commerce may raise regulatory concerns.

However, the Michigan and New York regulatory laws relating to the sale and importation of wine through a three-tier system, requiring separate licenses for producers, wholesalers and retailers, constitute a significant barrier to entry and expansion by small wineries. In many cases, the FTC Report acknowledges, direct shipment by small wineries to other states is essential to the small wineries engaging in interstate commerce at all.

State law bans on interstate direct shipping represent the single largest regulatory barrier to expanded E-Commerce in wine. (FTC Report at 3). In addition the states that permit interstate direct shipping generally report few or no problems with shipment to minors. (FTC Report at 26,38). Most states have reported few, if any, problems with tax collection. The FTC Report argues, and the Supreme Court adopts, a conclusion that the three-tier licensing system regulating wine shipment in the states of Michigan and New York constitute explicit discrimination, and a burden upon interstate commerce. Accordingly, the laws are unconstitutional. As the state law requirements are not the least restrictive alternatives to promote legitimate state concerns over the internet purchase of liquor by minors, or the avoidance of tax by direct shipping wine sellers, the discriminatory provisions are not saved.

State law regulations that discriminate against interstate commerce will be upheld only when there is concrete evidence that non-discriminatory alternatives are inadequate. In Granholm, the states failed to show that their discriminatory regulatory scheme was necessary to guard against internet sales of wine to minors, or to prevent tax avoidance. The Court relied heavily on the consumer welfare analysis of the FTC Report.

Justice Thomas wrote a dissenting opinion, joined by Chief Justice Rehnquist, and Justices Stevens and O'Connor. The dissent argues that the Webb-Kenyon Act⁵ trumps the majority opinion's analysis, as the Act gave states broad authority to "regulate all [liquor] importation, whether or not discriminatory." The dissenting opinion would have upheld the Michigan and New York direct-shipment laws, as congressionally exempt from a non-discriminatory application of the Commerce Clause. While the dissent argued that its reading of Webb-Kenyon makes it unnecessary to interpret the Twenty-first Amendment itself, it argues that the state laws in issue would nevertheless be lawful under the plain meaning of Section 2 of the Twenty-first Amendment. The dissent points to Court precedent from the period immediately following the enactment of the Twenty-first Amendment in 1933, with citations to the approval of contemporaneous discriminatory state regulation.

In a separate dissent, Justice Stevens, joined by Justice O'Connor, suggests that while the majority opinion:

"may represent sound economic policy, … and may be consistent with the policy choices of the contemporaries of Adam Smith who drafted our original Constitution, it's not, however consistent with the policy choices made by those who amended our constitution in 1919 and 1933."⁶

The majority opinion recognized that direct wine sales by small wineries constitute a significant growth industry, and that discriminatory protectionism by state legislation, including the three-tier distribution systems in place in Michigan and Texas, would make it uneconomic for small wineries to engage in direct selling at all. The effects on interstate wine sales would be not insignificant. Thus, the majority casts a strong vote in favor of consumer welfare enhancement, and unimpeded interstate commerce, where legitimate state regulatory goals are not the least alternative means to accomplish the state's legitimate regulatory goals.⁷

1. 544 U.S. _____ (2005).


2. Joining in the Court's opinion were Justices Scalia, Souter, Ginsberg, and Breyer.


3. The Twenty-First Amendment, 47 Stat. 1625, was ratified on December 5, 1933. It provides:
   
   Section 1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.
   Section 2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.
   Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.
4. The Eighteenth Amendment, 40 Stat. 1059, was ratified on January 29, 1919. It provided:
   
   Section 1. After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.
   Section 2. The Congress and the several States shall have concurrent power to enforce this article by appropriate legislation.
   Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.
5. The Webb-Kenyon Act provides:
   
   "The shipment or transportation, in any manner or by any means whatsoever, of any spiritous, vinous, malted, fermented, or other intoxicating liquor of any kind from one State, Territory, or District of the United States, or place noncontiguous to but subject to the jurisdiction thereof, into any other State, Territory, or District of the United States, or place noncontiguous to but subject to the jurisdiction thereof, or from any foreign country into any State, Territory, or District of the United States, or place noncontiguous to but subject to the jurisdiction thereof, which said spiritous, vinous, malted, fermented, or other intoxicating liquor is intended, by any person interested therein, to be received, possessed, sold, or in any manner used, either in the original package or otherwise, in violation of any law of such State, Territory, or District of the United States, or place noncontiguous to but subject to the jurisdiction thereof, is prohibited." 27 U.S.C. §122.
6. Slip Opinion, pages 4-5 (Stevens, J., dissenting.)


7. The FTC Report may be accessed at http://www.ftc.gov/os/2003/07/winereport2.pdf.





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

The DOJ has been conducting an aggressive enforcement campaign against international cartels since 1996. In the past, the DOJ could indict suspects located in the UK, but the requirement under previous extradition arrangements for the offence to be a crime in both requesting and receiving states (i.e. dual criminality) prevented their extradition since price-fixing was not a criminal offence on the UK. Most notably, in the auction house commissions scandal, the former Chairman of Christie's, Sir Anthony Tennant, could not be extradited under the dual criminality principle, and refused to go to New York to stand trial.

However, on June 20, 2003, Section 188 of the UK's Enterprise Act 2002 became effective, which makes it an offence, punishable by up to five years in prison, for an individual "dishonestly" to make, or implement, with another individual, arrangements to fix prices, or share markets, between companies operating at the same level in the supply chain. Earlier in the year, on March 31, 2003, the UK and US governments had signed a new Extradition Treaty (the "Treaty"), which became effective in the UK on January 1, 2004 (although the Treaty has not been ratified in the US).

Article 2(1) of the Treaty states that, "Any offence shall be an extraditable offence if the conduct on which the offence is based is punishable under the laws in both states by deprivation of liberty for a period of one year or more or by a more severe penalty." Although the UK cartel offence is defined differently from a Sherman Act conspiracy, Article 2(3)(a) of the Treaty states that the offences do not have to be described by the same terminology. The Treaty also applies to offences committed before or after it came into force (Article 22(1)).

However, there is some debate as to whether extradition from the UK for a Sherman Act violation is possible for offences committed before the criminal provisions of Enterprise Act 2002 came into force. Therefore, in Mr. Norris' trial, the DOJ presented seven counts of conspiracy to defraud, and two obstruction of justice charges, as offences connected with the administration of justice and serious criminal offences in both the UK and US.

The Treaty also specifically provides for issues that frequently arise in a multi-jurisdictional cartel investigation. With respect to extraterritoriality, the Treaty provides that where the offence has been committed outside the territory of the requesting state, extradition will be granted, "if the laws in the Requested State provide for the punishment of such conduct committed outside of its territory in similar circumstances". Even if the "similar circumstances" condition is not met, the Treaty allows for the executive authority of the requested state to grant extradition at its discretion (Article 2(4)). A grant of amnesty will also not be a bar to extradition. The Treaty provides that extradition is not precluded by the fact that the competent authorities of the requested state have decided not to prosecute the person who allegedly committed the acts for which extradition is sought (Article 5).

The actual mechanics of the extradition to the US are governed by the UK's Extradition Act 2003, and requires the UK's Home Secretary to have the final decision following any judicial ruling. However, the abolition in the Treaty of the prima facie evidence requirement in US requests for extradition from the UK, will likely mean a considerable speeding up of the present process, which can take a year or more.

In light of the above developments, we predict that extradition requests from the US antitrust authorities are likely to increase, and succeed, predominantly because the former prima facie evidence requirement in the countries' extradition arrangements has been abolished with respect to extradition requests from the US to the UK (although the US retains its requirement for probable cause for requests in the opposite direction). The US authorities need only provide "information" sufficient to justify a UK's judge's issuing of a warrant for the arrest of a person accused of the offence. Thus, US jail time potentially beckons for UK price fixers as the DOJ continues to actively seek the extradition of overseas executives who breach the US antitrust laws, and interfere with the administration of US justice.

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

• On May 27, Cal Dive International, Inc. ("Cal Dive") announced that it received a second request from the DOJ in connection with its pending acquisition of the Inspection, Maintenance and Repair ("IMR") and Conventional assets, that form part of the North America and Mexico ("NAMEX") business of Stolt Offshore, S.A. The parties intend to comply with the second request as soon as possible. Cal Dive, headquartered in Houston, Texas, is an energy service company which provides alternate solutions to the oil and gas industry worldwide for marginal field development, alternative development plans, field life extension and abandonment, with service lines including marine diving services, robotics, well operations, facilities ownership and oil and gas production. Stolt Offshore is a leading offshore contractor to the oil and gas industry, specializing in technologically sophisticated deepwater engineering, flow line and pipeline lay, construction, inspection and maintenance services. The Company operates in Europe, the Middle East, West Africa, Asia Pacific, and the Americas.

• On May 27, American Tower explained in a S-4 filing that its acquisition of SpectraSite for approximately $3.1 billion in an all stock deal that will create a network of 22,600 wireless and broadcast towers is not reportable under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR"), as amended, and have decided not to file. Even though the parties are not obligated to follow the normal HSR waiting periods that prevent merging parties from consummating a deal, the Antitrust Division has already contacted the parties and informed them that they will investigate the merger. American Tower and SpectraSite compete in the leasing and licensing of antenna space on multi tenant communications towers to wireless service providers and broadcasters. Both own communication towers in many of the same cities, counties, or metropolitan areas in the United States. The geographic markets, however, are very local in nature and the Antitrust Division is expected to focus on the size of each local market and will probably have to interview wireless providers as well as broadcasters to determine the answer. The parties have said that they are cooperating with the Antitrust Division to provide the staff with information and materials that have been requested to date. The Antitrust Division is expected to review the many potential overlaps that exist in many local markets throughout the United States. If the Antitrust Division finds that the parties towers in various local areas directly compete against each other, the parties might have to divest towers to resolve any antitrust concerns. The merger agreement requires American Tower and SpectraSite to satisfy any conditions or divestiture requirements imposed upon them by regulatory authorities, if any, unless the conditions or divestitures would reasonably be expected to have a material adverse effect on the combined company.

• On May 26, the DOJ filed a joint amicus brief with the FTC in Texaco, Inc. v. Dagher requesting that the Supreme Court grant a writ of certiorari. The question presented to the Supreme Court is whether an agreement between the owners of a lawful joint venture with respect to the pricing of the joint venture's products may be treated as a per se violation of Section 1 of the Sherman Act, 15 U.S.C. 1, when the joint venture's owners do not compete in the market for those products. The DOJ basically argues that the Ninth Circuit's decision mistakenly holds that an agreement between the owners of a lawful joint venture respecting the pricing of their joint venture's products may constitute a per se violation of Section 1 of the Sherman Act, 15 U.S.C. 1. The DOJ further stated that the Ninth Circuit's error is serious because it upsets the previously well settled understanding of the scope of per se liability and the lawful operation of joint ventures, and it warrants the Supreme Court's review and correction.

• On May 24, the DOJ announced that Reuters Ltd. ("Reuters") and Moneyline Telerate ("Telerate") will restructure Reuters' planned acquisition of Telerate in order to resolve the Division's antitrust concerns regarding market data distribution platforms. Under the restructuring, Telerate will license to HyperFeed Technologies Inc. ("Hyperfeed") its TRS software platform, which is used by companies to distribute and analyze a broad range of financial information, and Active8, which users need to interact with the TRS software platform. Market data distribution platforms facilitate trading and analysis of financial instruments by numerous market participants by integrating, consolidating, and normalizing market data feeds for distribution within a customer's enterprise. A customer that uses a market data platform has the flexibility to analyze, distribute, and republish market data from a variety of sources throughout its organization. Without the licensing agreement that allows Hyperfeed to compete with the merged firm, the DOJ was concerned that competition would be lessened in these software platforms.

• On May 19, the Antitrust Division presented Judge Robert H. Bork with the John Sherman Award for his lifetime contributions to the teaching and enforcement of antitrust law and the development of antitrust policy. The John Sherman Award was created in 1994 and is presented by the Department's Antitrust Division to a person or persons in recognition of their outstanding contributions to the field of antitrust law, the protection of American consumers, and the preservation of economic liberty. The award is named for the author of the Sherman Act of 1890, the nation's first and foremost antitrust law. John Sherman, a former congressman and senator, also served as Secretary of the Treasury from 1877 to 1881 and as Secretary of State from 1897 to 1898. Previous recipients have included Richard A. Posner (2003), Milton Handler (1998), Thomas Kauper and William Baxter (1996), Phillip Areeda (1995), and Senator Howard Metzenbaum (1994).

• On May 19, Gate Engineering Corporation ("Gate") and its president, Albith Colón, pleaded guilty to conspiring to commit mail fraud in connection with a kickback scheme used to defraud Tricon Restaurants International ("Tricon"), an owner of fast food restaurants in Puerto Rico. Tricon was recently purchased by Encanto Restaurants of Puerto Rico. According to the charge, from October 2000 until March 2004, Gate and Colón made kickback payments to a Tricon employee in return for receiving electrical contracts totaling more than $1 million. Allegedly, the Tricon employee, a technical services supervisor, was responsible for soliciting bids for work to be performed in connection with Tricon's construction and maintenance of its restaurants, and also was responsible for selecting the subcontractor who would be awarded the contract. The charge is the first to arise out of an ongoing investigation in Puerto Rico being conducted jointly by the Antitrust Division's Atlanta Field Office, the U.S. Attorney's Office for the District of Puerto Rico, the General Services Administration, the Office of Inspector General (New York Office), and the Small Business Administration, Office of Inspector General, in Puerto Rico.

• On May 18, a federal grand jury in Indianapolis indicted Lee's Ready Mix & Trucking, Inc. ("Lee's Ready Mix"), an Indiana producer and distributor of ready mixed concrete, for fixing the price of ready mixed concrete sold in certain counties in Indiana. According to the indictment, Lee's Ready Mix was charged with participating in a conspiracy to fix the price at which ready mixed concrete was sold in the Indiana counties of Bartholomew, Jackson, and Jennings, beginning in or about February 2003 and continuing until approximately June 2004. As stated in the indictment, Lee's Ready Mix and its co-conspirators agreed to specific price increases for ready mixed concrete as well as to the specific timing of those price increases. Allegedly, Lee's Ready Mix and its co-conspirators had discussions, issued price announcements in accordance with the agreements reached, and sold ready mixed concrete according to those agreements.

  On May 13, Larry Lee, the former president of Lee's Ready Mix, agreed to plead guilty, to serve eight months in prison, and to pay a $70,000 criminal fine for his alleged role in a conspiracy to fix the price of ready mixed concrete sold in certain counties in Indiana. The Antitrust Division's investigation of the ready mixed concrete industry is ongoing.

• On May 13, the Antitrust Division issued a statement announcing the closing of its investigation into the newspaper joint operating arrangement ("JOA") between the Seattle Times Company and Hearst Communications, Inc. under the Newspaper Preservation Act ("NPA"). According to the statement, the Antitrust Division investigation examined whether the Seattle Times Company, as manager of the JOA, engaged in conduct that made no business sense but for its tendency to reduce competition, and if so, whether such conduct was likely to lead to the monopolization of the Seattle newspaper market. Because the Antitrust Division found that the Seattle Times Company's conduct did not violate the articulated standard, the investigation was closed.

• On May 10, the DOJ announced that Assistant Attorney General R. Hewitt Pate of the Antitrust Division intends to resign effective June 30th. While Mr. Pate has been head of the Antitrust Division, the Division has emphasized criminal enforcement of the antitrust laws. Since Mr. Pate became Assistant Attorney General, the Division has collected more than $717 million in criminal fines from 31 corporations and 37 individuals. Mr. Pate was confirmed by the Senate and became Assistant Attorney General on June 16, 2003. He had served as Acting Assistant Attorney General from November 23, 2002 until his confirmation. Since June 3, 2001, until he became Acting Assistant Attorney General, he served as Deputy Assistant Attorney General overseeing matters including airline, transportation, energy, and regulatory issues.

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

• On May 31, Federal Trade Commission Chairman Deborah Platt Majoras named Maureen Ohlhausen to be Director of the agency's Office of Policy Planning. Ohlhausen, who has served as the Office's Acting Director since July 2004, will head efforts to assist the Commission to develop and implement long-range competition and consumer protection policy initiatives and will advise staff on cases raising new or complex policy and legal issues. Ohlhausen joined the FTC in September 1997, and was appointed Deputy Director of the Office of Policy Planning in 2003. She has been responsible for advocacy and policy analysis on both competition and consumer protection issues, including the regulation of the professions, restrictions on advertising, antitrust immunities, and e-commerce. She was a principal author of the FTC staff report "Possible Anticompetitive Barriers to E-Commerce: Contact Lenses." She also contributed significantly to several FTC staff comments to the U.S. Food and Drug Administration concerning food advertising and First Amendment issues.

• On May 27, the Commission authorized the filing of a joint amicus brief with the U.S. Department of Justice in the matter of Volvo Trucks North America v. Reeder-Simco GMC, Inc., No. 905 (U.S. Supreme Court). The brief concerns a case in which the Court is considering an Eighth Circuit decision holding that a manufacturer violates Section 2(a) of the Robinson-Patman Act, 15 U.S.C. Sec. 13(a), when it offers different wholesale prices to its dealers when they are not in direct competition with each other to resell the products in question to the same retail customers. The Commission vote authorizing the filing of the joint amicus brief was 5-0. The joint brief argues that the Robinson-Patman Act should not be stretched to forbid a manufacturer from achieving certain efficiencies by offering some dealers less favorable terms not in competition with the favored dealers. It urges that the judgment of the Eighth Circuit be reversed.

• On May 26, Commissioner Orson Swindle submitted his resignation as Commissioner of the Federal Trade Commission, effective June 30, 2005, or immediately upon the arrival of his replacement, if that is earlier. He indicated that:

"Working on behalf of American consumers and businesses to protect and promote a competitive and fair marketplace is a worthy cause. Through the diligent enforcement of antitrust and consumer protection laws, the FTC makes a difference in the daily lives of all Americans. Our country is fortunate to have the Commission and its energetic, intelligent, and dedicated staff, which is committed to outstanding public service. The ideals of freedom and service to our country have been the guideposts for my life. Being a part of the FTC has been a most enjoyable continuation of my quest to make a difference with my life. It has been an enormous privilege for me to work with the FTC team."

• On May 25, Federal Trade Commission announced that it closed its investigation into Shell Oil Products US's ("Shell") decision, announced in October 2004, to close its petroleum refinery in Bakersfield, California. Shell sold the refinery to Big West of California, LLC, a wholly owned subsidiary of Flying J., Inc., which intends to keep it operational. The FTC opened its investigation in March 2004, based on concerns that Shell was shutting the refinery to reduce capacity in refined petroleum products in an attempt to raise gasoline prices in California. The Commission found no evidence to substantiate this concern. In voting 5-0 to close its investigation, the Commission issued a separate statement. In the statement, it said, "After a thorough review of the evidence obtained during the investigation, the Commission has unanimously concluded that there would have been no basis under the antitrust laws for challenging the closing of the refinery even if it had not been sold. Indeed, we found that there was strong evidentiary corroboration of Shell's stated reasons for closing the refinery. There was no evidence supporting a conclusion that Shell possessed, acquired, or exercised market power in any way . . . Nor was there any evidence suggesting collusion between Shell and any other person to close the refinery."

• On May 25, Federal Trade Commission Principal Deputy General Counsel John Graubert presented the Commission's testimony on new entry into hospital competition before the U.S. Senate's Subcommittee on Financial Management, Government Information, and International Security of the Committee on Homeland Security and Governmental Affairs. The testimony focused on the effects of entry by single-specialty hospitals. Graubert prefaced his testimony by describing the Commission's experience in the area of health care competition, specifically citing the FTC's recent report, issued jointly with the U.S. Department of Justice, entitled "Improving Health Care: A Dose of Competition." The report, which was released in July 2004, examined the state of the health care marketplace in the United States and the role of competition, antitrust, and consumer protection in satisfying Americans' preference for a high-quality, cost-effective health care system.

  He defined three main points the FTC considers essential in its examination of new entry into hospital competition: 1) vigorous competition can have important benefits in the hospital arena, just as it has in the multitude of markets in the U.S. economy that rely on competition to maximize consumer welfare; 2) when new firms threaten to enter a market, incumbent firms may seek to deter or prevent that new competition. Such conduct is by no means unique to health care markets; it is a typical reaction of incumbents to possible new competitors; and 3) policymakers must consider the extent to which regulatory distortions may affect competition among hospitals and other firms. For example, although entry by single-specialty hospitals and ambulatory surgical centers has provided consumer benefits, Medicare's administered pricing system has substantially driven the emergence of such hospitals and centers. Next, Graubert presented a general overview of the new types of firms that are now entering to compete with hospitals, from single-specialty hospital (such as those focusing only on pediatrics) to ambulatory surgery centers. He then described the Certificates of Need Program, including responses by incumbent hospitals to proposed entry by single-specialty hospitals. Finally, he addressed cross-subsidization and the influence of government purchasing on the development of competition in the hospital arena, stating that Medicare's administered pricing system has encouraged the entry of single-specialty hospitals and ambulatory surgical centers. He testified that both types of entities tend to compete away the profits that general hospitals use to cross-subsidize unprofitable care. Cross-subsidization and competition are at odds, he said, and reliance on cross-subsidies (as opposed to direct subsidies) to ensure access to health care makes the availability of such care contingent on the location in which care is provided, the wealth and insurance status of those receiving care, and the uncompetitiveness of the market for hospital services.

• On May 24, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice issued a letter urging the Governor of Missouri to veto House Bill 174, because it would change current law to restrict the ability of Missouri real estate professionals to offer customized real estate services. The agencies expressed concern that the enactment of House Bill 174 would reduce consumer choice and cause Missouri consumers to pay more for real estate services.

  Currently, Missouri home sellers can choose between a traditional, full-service package of real estate brokerage services and a fee-for-service option that allows home sellers to purchase individual services from an à la carte menu. If the bill becomes law, then customers will be forced to purchase potentially unwanted additional services. For example, in Missouri, home sellers have the option to purchase the service of listing their property on the local multiple listing service separately without also having to purchase the broker's negotiation service. If House Bill 174 is enacted, however, real estate professionals entering into exclusive brokerage agreements with their clients would have to provide a state-mandated minimum service package that includes many duties associated with negotiating a property sales contract. Because most multiple listing services in Missouri require a broker to have an exclusive brokerage agreement before real estate professionals may list properties, Missouri consumers in those areas will be adversely affected by this proposed change in the law.

  The joint FTC/DOJ letter said that the bill would likely harm competition in two ways. First, consumers who live in areas where real estate professionals are required to enter into exclusive brokerage agreements before they can post listings on the MLS will have to purchase these additional services and can expect to pay more. Second, without competition from fee-for-service brokers, the prices for traditional, full-service packages will likely increase. The governor of Missouri has until July 16, 2005 to veto House Bill 174. Under Missouri law, the governor must veto the bill for it not to become law. Should the governor not veto the bill, it will become effective on August 28, 2005.

• On May 20, the Commission received a petition from the Dow Chemical Corporation ("Dow") requesting approval of certain amendments to the "Ineos Agreement," which is incorporated into the decision and order allowing the 2001 merger of Dow and Union Carbide. The final order in this matter contained terms designed to remedy the anticompetitive effects of the merger in markets that included ethanolamines and methyldiethanolamines ("MDEA"). The order required Dow to divest to its global ethanolamines business to Ineos, and Dow's business related to the sale of MDEA sold under the Gas Spec trade name. On February 12, 2001, Dow divested the Dow Global Ethanolamines Business and the Dow Gas Spec MDEA Business to Ineos, in accordance with the terms of the order's "Ineos Agreement."

  Through its petition, Dow has requested that the Commission approve an amended "GAS/SPEC Supply Agreement," under which Dow supplies Ineos with GAS/SPEC solvent, solvent additive, and solvent MDEA. Ineos has agreed to this amendment, whose purpose, according to the respondent is "to secure maximum availability of GAS/SPEC and solvent MDEA products to Ineos at fair prices and to reduce any unnecessary financial burden on Ineos." In addition, Dow has requested Commission approval of an amendment to the "EO Supply Agreement," under which Dow supplies Ineos with ethylene oxide ("EO") used to make ethanolamines at Ineos' plant in Plaquemine, Louisiana. This amendment also has been approved by Ineos, and would, according to respondent, "secure continuing maximum availability of EO to Ineos and limit the impact of future EO supply interruptions (if any) at Dow's Plaquemine EO plant."

  The Commission is accepting public comments on the petition for 30 days, until June 18, 2005, after which time it will determine whether to approve it.

• On May 19, San Juan IPA, Inc., a physicians' independent practice association operating in northwestern New Mexico, agreed to settle Federal Trade Commission charges that it orchestrated and carried out agreements among its member doctors to set the price that they would accept from health plans, to bargain collectively to obtain the group's desired price terms, and to refuse to deal with health plans except on collectively determined price terms. The effect of this conduct, the FTC states, was higher prices for medical services for the area's consumers. The consent order settling the FTC's charges would prohibit the association from collectively negotiating with health plans on behalf of its physicians and from setting their terms of dealing with such purchasers. San Juan IPA does business in the Farmington, New Mexico, area, which is in the northwestern corner of the state. San Juan IPA's 120 physician members constitute approximately 80 percent of the doctors practicing independently in and around the Farmington area.

  According to the Commission's complaint, San Juan IPA restrained competition among physicians in northwestern New Mexico by orchestrating and implementing agreements among its member physicians to fix prices and other terms on which they would deal with health plans, and to refuse to deal with such payors except on collectively determined terms, in violation of Section 5 of the FTC Act. As a result of its activities, San Juan IPA was able to force many health plans to raise the fees paid to its member physicians, thereby raising the cost of medical care in the Farmington area. The FTC complaint states that the IPA created no efficiencies that would make such conduct beneficial for Farmington consumers.

  The Commission's proposed consent order is designed to eliminate the illegal anticompetitive conduct alleged in the complaint. It would prohibit San Juan IPA from entering into or facilitating agreements between or among physicians: 1) to negotiate on behalf of any physician with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) to designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payor, including, but not limited to price terms; 4) not to deal individually with any payor, or not to deal with any payor through any arrangement other than one involving San Juan IPA. The consent order permits the IPA to undertake certain kinds of joint contracting arrangements - "qualified risk-sharing joint arrangements" and "qualified clinically integrated joint arrangements" - terms that are defined in the order. These are types of arrangements in which physician participants engage in joint activities to control costs and improve quality by managing the provision of services, and any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

• On May 12, the Federal Trade Commission and the Antitrust Division of the Department of Justice issued a joint letter urging the Alabama State Senate to reject House Bill 156, because it would change current law to restrict the ability of Alabama real estate professionals to offer customized real estate services. The agencies expressed concern that the passage of the bill would reduce consumer choice and likely cause Alabama consumers to pay more for real estate services.

  Currently, Alabama home sellers can choose between a traditional, full-service package of real estate brokerage services and a fee-for-service option that allows home sellers to purchase individual services from an à la carte menu. If House Bill 156 is enacted, however, real estate professionals who agree to list home owners' property for sale would be forced to provide a state-mandated minimum service package that includes many duties associated with negotiating a property sales contract. Alabama consumers would be adversely affected by this proposed change of law because they would be forced to purchase additional services that they may not want or need.

  The joint FTC/DOJ letter to the Alabama Senate said that the bill would likely harm competition in two ways. First, consumers who want to hire a broker to list their property on the multiple listing service will have to purchase additional services that they may not want or need, which will likely cost more. Second, without competition from fee-for-service brokers, the prices for traditional, full-service options will likely increase. The Alabama Senate is considering whether to pass House Bill 156 on May 16, 2005, or sometime shortly thereafter. If passed, the bill would become effective on the first day of the third month following its passage and approval by the Governor of Alabama.

• On May 10, Magellan Midstream Partners, L.P. ("Magellan") filed a petition requesting the Commission's approval of the proposed divestiture of certain assets recently acquired from Shell Oil Company ("Shell"). Under the terms of the FTC's consent order concerning Magellan's acquisition of certain pipeline and terminal assets from Shell, Magellan is required to divest a gasoline terminal located in Oklahoma City, Oklahoma. Through this application, Magellan is requesting Commission approval to divest the former Shell Oklahoma City Terminal, as that asset is defined in the order, to TransMontaigne, Inc. The FTC will accept public comments on the proposed divestiture for 30 days, until June 8, 2005, and thereafter will decide whether to approve it.

• On May 3, the Commission received a petition to reopen and set aside a final consent order in the matter concerning Lafarge S.A.'s ("Lafarge") 2001 merger with Blue Circle Industries P.L.C. ("Blue Circle"). Under the terms of the order, the companies were required to divest Blue Circle's cement business serving the Great Lakes Region; Blue Circle's cement business in the Syracuse, New York area; and Blue Circle's lime business in the southeast United States. In its petition, Lafarge has requested that the Commission set aside certain ongoing obligations under the order that are ancillary to the divestiture of Blue Circle's lime business, as Lafarge is no longer involved in the production or sale of lime in the United States. The Commission is accepting comments on the petition for 30 days, until May 31, 2005.

• On May 2, the Federal Trade Commission announced a consent order settling charges that an independent practice association, representing two orthopaedic groups in Cincinnati, Ohio, violated antitrust laws by jointly negotiating contracts regarding the rates its physician members would charge health plans and other payors for their services. Under the terms of the order, New Millennium Orthopaedics, LLC ("NMO") will be disbanded and its two constituent groups will be prohibited from similar collective bargaining in the future. The consent order settles the Commission's complaint against the following respondents: NMO; Orthopaedic Consultants of Cincinnati, Inc., d/b/a Wellington Orthopaedics & Sports Medicine ("Wellington"), and Beacon Orthopaedics & Sports Medicine ("Beacon"). NMO is a single-specialty independent practice association that consists of two orthopaedic physician groups - Wellington and Beacon. Both Wellington, which has 22 orthopaedic physician members, and Beacon, which has 10, provide surgical and nonsurgical orthopaedic services in and around Cincinnati.

  The FTC alleged that in 2002, Wellington and Beacon formed NMO to act as their negotiating agent with health plans. Through NMO, the two groups agreed on prices to propose to health plans for all of the services their physicians provided. In August 2002, NMO representatives sent letters to the four major health plans in Cincinnati proposing an arrangement that would implement a guaranteed base fee schedule and bonus scheme for NMO's participating physicians. The agreed-upon bonus scheme would reward all NMO physicians with higher base rates if NMO, as a whole, met established performance targets for increasing the percentage of surgical procedures performed by some NMO physicians at ambulatory surgery centers ("ASC"s). The bonus scheme targeted only one aspect of the practices of some NMO physicians - outpatient surgery. Thus, the measured change in the physicians' behavior was limited to the movement of patients to ASCs. Nevertheless, all NMO physicians, including non-surgeons, would receive higher reimbursement rates as a result of the joint negotiations. The Commission also alleges that NMO performed no role in enhancing the ability of the physicians to increase the number of procedures performed at ASCs instead of at hospitals..

  The complaint alleges that, while one of the health plans agreed to NMO's terms, three others did not. Nevertheless, NMO continued to attempt to negotiate with the other plans into 2004. NMO enforced its joint negotiation efforts with one of the three resistant health plans by refusing to deal with it except under a contract that was favorable to the group. Both Wellington and Beacon later jointly terminated their individual agreements with the health plan at the direction of NMO's board of directors to pursue contracts through NMO.

  The Commission's consent order is designed to prevent the illegal anticompetitive conduct alleged in the complaint. In addition to requiring the dissolution of NMO, it specifically prohibits the respondents from entering into or facilitating agreements between or among any health care providers: 1) to negotiate on behalf of any physician with any payor; 2) to deal, refuse to deal, or threaten to refuse to deal with any payor; 3) to designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payor, including, but not limited to price terms; 4) not to deal individually with any payor, or not to deal with any payor through any arrangement other than NMO. Certain kinds of agreements, however, are excluded from the general ban on joint negotiations, including "qualified risk-sharing joint arrangements" or "qualified clinically integrated joint arrangements." As defined in the order, a "qualified risk-sharing joint arrangement" must satisfy two conditions. First, all physician participants must share substantial financial risk through the arrangement and thereby create incentives for the physician participants jointly to control costs and improve quality by managing the provision of services. Second, any agreement concerning reimbursement or other terms or conditions of dealing must be reasonably necessary to obtain significant efficiencies through the joint arrangement.

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

• The FTC highlighted its ongoing partnership with state and local law enforcement officials in its campaign to combat fraud and stop exploitation of the Hispanic community during the Hispanic Law Enforcement and Outreach Forum in Miami, Florida. There are 55 actions in progress involving a range of products and services, including prize-promotion scams, purported weight-loss supplements, immigration fraud, bogus high school diplomas, and mortgage fraud. The FTC also unveiled a new Spanish-language consumer Web site, www.ftc.gov/espanol, and announced the publication of new Spanish-language consumer education materials on prize promotions and getting credit. Additionally, the FTC and the U.S. Postal Inspection Service are hosting a series of workshops in Hispanic communities across the country to bring local law enforcement and Hispanic community leaders together in the fight against fraud. Workshops have already been held in Chicago and Dallas and are planned for Phoenix and Los Angeles later this year. At the forum in Miami, the FTC also announced the filing of three new complaints. The FTC filed a complaint in California against Del Sol, LLC for an illegal prize scam. The FTC also filed in Texas against Direct-Prom, Inc for targeting Hispanics with deceptive advertisements for weight-loss supplements and in Nevada against Success Vending Group, Inc. for deceptive marketing of vending machine ownership opportunities. The FTC also recently created a new Web site, www.ftc.gov/ojo, for its Spanish-language consumer fraud awareness campaign, "OJO - Mantente alerta contra el fraude. Infórmate con la FTC" ("Be on the alert against fraud. Stay alert with the FTC"). In addition to the OJO Web site, the FTC has five Spanish-language "micro sites" on credit, business opportunities and work-at-home scams, identity theft, information security, and diet and fitness. The agency's objective is to let Spanish speakers know how they can identify and avoid fraudulent and deceptive practices and where they can report them.

• The FTC and the Department of Health and Human Services ("HHS") will jointly sponsor a workshop on childhood obesity on July 14 and 15, 2005 in Washington, DC. The workshop will bring together key experts for a discussion on industry self-regulation concerning the marketing of food and beverages to children, as well as initiatives to educate children and parents about nutrition. FTC Chairman Deborah Platt Majoras said, "This workshop will bring together a wide range of voices to examine ways, including self-regulation, to best promote competition among marketers of healthy foods and the dissemination of good information so that consumers can make healthy food choices." The 1999 - 2002 National Health and Nutrition Examination Survey estimated that 16 percent of children and adolescents ages six to 19 years are overweight. In planning this workshop, the FTC and HHS seek public comment on a variety of issues related to industry self-regulation and childhood obesity. Comments may be submitted at https://secure.commentworks.com/ftc-foodmarketingtokids/.

• The FTC and 35 government partners from more than 20 countries have launched a campaign to stop spam "zombies". Spammers use hidden software to hijack consumers' home computers and route spam emails through them. The hijacked, or "zombie", computers hide the true origin of the spam. "Operation Spam Zombies" will educate Internet Service Providers about "zombie" computers by sending letters to more than 3,000 ISPs around the world, urging them to employ protective measures to prevent their customers' computers from being hijacked by spammers. The measures include technological solutions and educating consumers about how to keep their home computers secure. The next phase of the operations will be to directly locate the zombies and the networks hosting them. The FTC has created a webpage www.ftc.gov/bcp/conline/ edcams/spam/zombie/index.htm, which includes a summary of the project, the letter that the FTC and its partners are sending to ISPs, and a list of participating agencies from around the world. The partners will also post translations of the ISP letter and other updates concerning this project on this Web site.

• On May 4, the FTC's Associate Director for Planning and Information, Lois C. Greisman, provided the Canadian Parliament with an overview of the FTC's Telemarketing Sales Rule and Do Not Call Registry provision. A National Do Not Call Registry was launched in the United States in June 2003 and is enforced by both the FTC and the Federal Communications Commission (FCC). The statement to the Parliament noted that the Registry provides consumers with a "meaningful choice" about what calls they receive. The Registry also improves efficiency and effectiveness of telemarketers by allowing them to scrub their call lists of consumers who do not wish to be called. Compliance with the Registry (which contains 92 million numbers) has been high, but the FTC still actively investigates and prosecutes violators. The FTC has brought eleven Do Not Call cases and the FCC has issued sixteen citations.

• The FTC, in conjunction with the Department of Justice ("DOJ") and the Department of Education ("ED"), issued its fourth annual report on scholarship fraud to Congress on May 3rd. The report outlines the agencies' continued efforts to combat scholarship and financial aid fraud and details the nature and quantity of scholarship fraud incidents of the past year. The College Scholarship Fraud Prevention Act of 2000 requires the yearly report and charged the FTC and ED with conducting outreach efforts to educate consumers about scholarship scams. The agencies have created web sites, booklets, and posters and distributed them in English and Spanish. This year's report notes a sizeable increase in inquires from 2003 but attributes the jump to improved reporting rather than an increase in scholarship fraud. To date the FTC has brought eleven cases against alleged scammers since its "Project Scholarscam" campaign was implemented in 1996.

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

Case Collard
202-218-6876
ccollard@sheppardmullin.com

• On May 31, the European Commission stated that it expects to make a decision by the end of July on whether to impose new fines on Microsoft Corp., which faces a June 1 deadline for complying with an earlier Commission decision, which requires the company to share, under certain conditions, its Windows server code with rivals to make the industry more competitive in the European marketplace. The Commission can fine Microsoft up to 5 percent of its daily global sales for each day that a decision is not applied to its satisfaction. Microsoft has said it has been working with the Commission on resolving the dispute, which is believed to center on pricing and royalties that can be charged to allow software competitors to better dovetail their products with Microsoft's Windows platform.

• On May 27, the European Commission cleared under the EU Merger Regulation, the proposed acquisition of Hexal, a German producer of generic medicines, and its US sister company, Eon Labs, by Swiss pharmaceuticals company, Novartis, in a deal which creates the largest European producer of generics. The Commission's clearance is subject to a number of conditions intended to safeguard competition in areas where the transaction raised competition concerns. To remedy these concerns, Novartis has committed to sell off specific pharmaceutical products in Poland, Germany and Denmark. European Competition Commissioner, Neelie Kroes, stated, "Effective competition through generic medicines is important for health care systems across Europe, and ensuring continued competition from generics is vital to keeping downward pressure on health care costs. The commitments given by Novartis will maintain this competition and ensure that consumers continue to benefit from a choice of suppliers and lower prices."

• On May 26, the Australian Competition and Consumer Commission ("ACCC") confirmed that it had begun legal proceedings which alleged price-fixing by two petrol retailers in a suburb of Brisbane. The ACCC has claimed in Federal Court that during periods in 2002 to 2004 the retailers made, and gave effect to, arrangements that they would agree the time within the weekly price cycle that they would each increase their prices for unleaded petrol, and the amount they would each charge. It is further alleged that the two retailers made, and gave effect to, an arrangement to increase their respective prices for liquefied petroleum gas ("LPG") in November 2002.

• On May 26, the UK's Office of Fair Trading ("OFT") referred the market for personal current account banking services in Northern Ireland to the UK's Competition Commission for further investigation. This follows the OFT's analysis of a super-complaint submitted by UK consumer group, Which?, in conjunction with the General Consumer Council for Northern Ireland about personal current accounts in Northern Ireland. Sir John Vickers, OFT Chairman, said "Our analysis of the evidence presented to date gives us reasonable grounds to suspect that there are features of this market which restrict competition. It is now for the Competition Commission to undertake a thorough investigation of the market and, if necessary, to put appropriate remedies in place."

• On May 26, South Korea's Fair Trade Commission fined KT Corp., a record 115.9 billion won (US $115 million) for price collusion in broadband Internet and land-line telephone services with two smaller rivals, Hanarotelecom and Dacom Corp. The fine represents the largest fine ever imposed in South Korea against a single company. Hanarotelecom, owned by New York-based American International Group Inc. and Newbridge Capital Ltd., was fined 2.4 billion won. Dacom Corp. received a fine of 1.48 billion won. According to the antitrust agency, KT and Hanarotelecom allegedly participated in a series of meetings between April and June 2003 to arrange the price collusion.

• On May 24, it was reported that European Competition Commissioner, Neelie Kroes, may use the Commission's legal powers to ensure that Italy's national regulators do not impose unfair conditions on foreign bids for Italian banks, Banca Nazionale del Lavoro SpA and Banca Antonveneta SpA. The European Commission has requested the Bank of Italy to explain the conditions placed on Spain's Banco Bilbao Vizcaya Argentaria SA on its $8.2 billion offer for Rome-based Lavoro. The EU has also requested information on the Italiain regulator's resistance to a $7.9 billion bid by ABN Amro Holding NV, the biggest Dutch bank, for Antonveneta. Both deals had received antitrust clearance from the Commission . Ms. Kroes and, Financial Services Commissioner, Charlie McCreevy, are on a drive to open up Europe's banking markets to cross-border mergers.

• On May 18, the New Zealand Commerce Commission reported that it had issued warnings to individual doctors who had met last year, and collectively decided to set a maximum fee level for a specific group of patients. The Commission investigation found that these doctors had met, and collectively decided on maximum patient fees charged for patients aged between 6 and 17. The New Zealand Commerce Act prohibits a range of anti-competitive conduct, including price fixing between competitors. "An agreement as to maximum fees results in a base price being created, thereby harming patients through higher average prices," said Commission General Manager Geoff Thorn. However, Mr Thorn said the Commission's investigation had found no significant detriment in this instance.

• On May 18, Germany's Bundeskartellamt, issued a general invitation to the 4th Annual Conference of the International Competition Network ("ICN") to be held in Bonn between June 6 and June 8. In its invitation, the Bundeskartellamt remarks how the ICN is proving to be a valuable forum for international antitrust agencies to increase their cooperation efforts, and discuss increased convergence between members different cartel laws, and their application. This is particularly important in view of globalization and the opportunities it has created for international cooperation between companies, and the ensuing danger of the formation of extensive cartels, or the abuse of market power. This year, the Bundeskartellamt expects around 300 participants from over 70 countries, making it the ICN's largest event to date.

• On May 18, the European Commission adopted a Communication entitled, "A stronger EU-US Partnership and a more Open Market for the 21st century." It contains a wide range of practical policy proposals for a joint EU-US strategy to boost economic integration, and to strengthen the broader framework of EU-US relations. Among other things, the document discusses ways of improving regulatory co-operation in the areas of antitrust policy, and government procurement. In particular, the Communication acknowledges that as the EU and US economies have become ever more intertwined, mergers and acquisitions on one side of the Atlantic have increasingly had antitrust consequences for the other jurisdiction. The European Commission and the US competition agencies have cooperated intensively under the 1991 and 1998 agreements, coordinating enforcement activities and exchanging non-confidential information. However, with respect to the joint investigation of international cartels, the lack of a framework permitting exchange of confidential information has hindered effective cooperation. The Communication, therefore, encourages the EU and the US to explore ways to overcome the obstacles to such information exchanges.

• On May 18, the Irish Competition Authority welcomed the publication of a Consumer Strategy Group Report, and the announcement by the Irish Minister for Enterprise, Trade & Employment of the establishment of the National Consumer Agency. John Fingleton, Chair of the Competition Authority, stated that, "The report of the Consumer Strategy Group is a landmark in Irish public policy as it is the first comprehensive report written completely from the consumer's perspective. There is a long legacy in this country of anti-consumer policy and culture. This legacy is frequently driven by public restrictions in what the OECD has termed an "underlying policy biases of producer over consumer interests". The Consumer Strategy Group Report provides a guide to building a pro-consumer environment in this country by modernizing consumer protection and by removing or modifying regulation that harms consumers."

• On May 15, following an action brought by the French Minister of the Economy, the French Competition Council fined 21 construction companies for bid rigging in relation to a government tender for the building of various civil engineering structures along a freeway in the Manche region. The French Competition Council held that the companies participated in a cartel to share the market. The companies allegedly divided up the 51 available building contracts by exchanging information on the content of their offers and agreeing to submit artificially high offers to allow one particular cartel member to win an allotted contract. Due to the seriousness of these bid-rigging practices, the total amount fined was €17.3 million, and the largest fine for an individual company was €4,300,000.

• On May 13, it was reported that the Czech competition agency, UOHS, had launched an investigation into allegations of a cartel on banking fees involving three domestic banks, Ceska sporitelna, Komercni banka and Ceskoslovenska obchodni banka. Czech banks have been criticized for high fees, which are some of the highest in Europe. Representatives of the banks have denied any cartel agreement and have highlighted how banks in other European countries can charge low, and even zero fees, because they have a high interest income. Since the Czech Republic has some of Europe's lowest interest rates, the banks arguably have to charge higher fees to ensure profitability. The Czech Retail Inspection Office, COI, is also reportedly preparing to investigate the level of the banks' fees due to an increase in the number of complaining banking customers.

• On May 12, the Canadian Competition Bureau announced that Mitsubishi Corporation ("Mitsubishi") was convicted and fined CAN $1 million by the Ontario Superior Court of Justice for aiding and abetting the implementation in Canada of a foreign-directed conspiracy to fix the price of graphite electrodes. "Cartels deny Canadians the benefit of honest marketplace competition," said Denyse MacKenzie, Senior Deputy Commissioner of Competition. "Anyone who helps to implement a price-fixing conspiracy risks heavy criminal penalties." Between 1992 and 1997, members of the cartel allegedly agreed to fix the prices of graphite electrodes sold in Canada and around the world. A former Mitsubishi manager allegedly facilitated a number of conspiracy meetings by arranging transportation and acting as a translator for the cartel's members. During the conspiracy, Canadian prices for graphite electrodes used in steel production supposedly doubled. Tokyo-based Mitsubishi is the sixth party convicted in Canada in connection to the graphite electrodes cartel.

• On May 11, the Irish Competition Authority agreed settlement terms with the Vintners Federation of Ireland following High Court action taken by the Authority. The Competition Authority had initiated legal proceedings in 1998 in relation to allegations of price fixing in the sale of alcoholic drinks. The Vintners Federation denied all the Competition Authority's allegations, but agreed to not recommend to its members any prices, margins, increases in prices and increases in margins earned on the sale to the public of alcoholic beverages on premises owned, managed or controlled by its members.

• On May 10, the Norwegian Competition Authority warned that it was considering prohibiting or imposing commitments on the merger between US companies, National Oilwell Inc., and Varco International Inc. In its preliminary review, the Authority's assessment was that the merger would restrict competition in the markets for equipment and components used in oil and gas drilling and production. Both companies have Norwegian subsidiaries that are involved in the oil and gas related industry on the Norwegian continental shelf. The merged entity will allegedly strengthen its position in several markets. In its continued review of the transaction, the Norwegian Competition Authority will consider whether any commitments by the parties to modify the merger will eliminate potential competition concerns.

• On May 4, the Canadian Competition Tribunal ordered the Commissioner of Competition to pay the costs of Canada Pipe Company Ltd. (the "Company") in an action where the Company successfully defended itself against allegations of abuse of dominant position and exclusive dealing in violation of the Canadian Competition Act. The Tribunal held that an upward adjustment of the costs was justified in light of the "novel economic issues and the amount of work involved." The Tribunal acknowledged that few abuse of dominant position cases, an "important and relatively new" area of civil liability under the Competition Act, have been decided by the Tribunal, and that the Tribunal's ruling could have far-reaching implications for its compliance. This is the first decision of its kind in Canada since legislative amendments were passed in June 2002, giving the Tribunal jurisdiction to award costs of proceedings before it in accordance with the rules applicable to the Federal Court of Canada. Whether it will chill actions to enforce the Act remains to be seen.

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

• Requiring the sale of digital-subscriber-line service on a stand-alone basis is unnecessary because "naked DSL" is generally available in its markets, Verizon Communications said in a filing defending its proposed merger with MCI Inc. Earlier this month, New York State Attorney General Eliot Spitzer urged the Federal Communications Commission ("FCC") to require naked DSL, claiming that Verizon's bundling of voice and DSL in a package was anti-competitive and deterred consumers from experimenting with voice-over-Internet-protocol providers. Cable companies complained about Verizon's bundling policies before the merger was announced, questioning the regional Bell operating company's refusal to transfer a customer's phone number until both phone and DSL service had been discontinued.

• Comcast Corp. ("Comcast") and Time Warner Inc. ("Time Warner")are asking federal regulators to approve their joint acquisition of Adelphia Communications Corp. ("Adelphia"), claiming that they are in better position than the bankrupt cable company to offer an array of advanced video and data services. The $17.6 billion merger was filed with the FCC. The deal also requires approval from the FTC, which imposed strong conditions on the merger between Time Warner and America Online Inc. in early 2001. The merger "will generate real and substantial benefits for consumers that are not achievable through other means and will do so without violating any statute or [FCC] rule or creating any anticompetitive effects or media-diversity concerns," the cable companies said in an 86-page filing.

  The FCC decided to start a rulemaking designed to place limits on cable ownership and the amount of affiliated programming a cable company can carry on its systems. The FCC adopted the order unanimously under new chairman Kevin Martin as it prepares to review the acquisition of Adelphia in a complex deal involving the two largest cable companies, Comcast and Time Warner. In March 2001, a federal court struck down FCC horizontal rules that limited one cable company to serving no more than 30% of pay TV subscribers nationally. The agency's vertical limits allowed a cable company to use no more than 40% of its first 75 channels for affiliated programming, but the court struck down those rules as well. After picking up 1.8 million subscribers in the Adelphia transaction, Comcast CEO, Brian Roberts, said the company would serve about 29% of pay subscribers, based on 23.3 million wholly owned and 3.5 million partially owned subscribers and based on a pay TV universe of 92.2 million subscribers. In a notice, the FCC said it wanted "to take a fresh look at rules that will foster competition and diversity in the video-programming market."

  The decision by the FCC to revive cable-ownership rules shouldn't delay the agency's review of the $17.6 billion joint purchase of Adelphia by Comcast and Time Warner, according to a report by Stanford Washington Research Group analyst Paul Gallant. Gallant, a former FCC official, said the Commission would take between 9-12 months to review the deal after weighing concerns about whether Comcast and Time Warner will have too much market power in various markets and whether their high-speed-data customers can roam the Internet freely.

• The head of Nextel Communications ("Nextel") in Reston, Va., says regulators seem favorably disposed to his company's merger with Sprint, based in Overland Park, Kansas. Nextel CEO, Tim Donahue, told Wall Street analysts he expects the regulators to approve the $35 billion deal by August, the Kansas City Star reported Friday. The merger, when completed, would create the nation's third largest wireless carrier with 43 million subscribers. Cingular and Verizon Wireless are the current market leaders. Donahue's comments came as Nextel reported first-quarter earnings of $595 million, or 52 cents a share, on sales of $3.6 billion. Nextel added 810,000 subscribers during the period. Donahue sought to reassure customers about the differing technologies used by his company and Sprint, the Star reported. He said no customers will be forced to migrate from one network to the other, and for now Nextel will continue to support and invest in its network.

• The Federal Communications Commission upheld and clarified its rules governing the duty of local exchange carriers to grant competing carriers access to directory assistance information. The Commission denied a petition filed by BellSouth Corp. and SBC Communications Inc. seeking reconsideration of rules that bar them from imposing restrictions on the use by competitors of directory assistance information competitors obtain from the LECs under the Communications Act. Section 251(b)(3) of the Act requires that LECs provide nondiscriminatory access to directory assistance, and the Commission has determined that this permits competitors to have the same access to directory assistance information that the LECs provide to themselves.

• FCC chairman, Kevin Martin, appointed communications lawyer Donna Gregg as chief of the Media Bureau, the division that oversees broadcasters and cable operators. "Donna brings a wealth of experience and expertise on media issues to the [FCC]. I have long been impressed by her intellect and engaging personality, and I am grateful that she has agreed to continue her commitment to public service by returning to the [FCC]," Martin said in a prepared statement. Gregg, whose start date was not announced, is vice president of legal and regulatory affairs and general counsel of the Corporation for Public Broadcasting. The CPB's acting CEO is Kenneth Ferree, who headed the Media Bureau under FCC chairman Michael Powell. Years ago, Gregg was an FCC staff attorney. Martin also announced that Roy Stewart, a 40-year FCC veteran, will serve as Gregg's senior deputy chief, and Deborah Klein will serve as deputy chief. Klein has been acting chief since Ferree's departure in March.

• The antitrust chief at the Justice Department notified his bosses of his intent to resign, The Wall Street Journal reports. The move means R. Hewitt Pate will not be involved in the decision to approve or reject two pending telecommunications mergers. The White House is now conducting interviews for a new assistant attorney general for antitrust, a position that includes merger reviews, prosecuting criminal price-fixing and promoting competition.

Authored by
Gregg Mendenhall
202-218-0025
gmendenhall@sheppardmullin.com