Enforcement

Complaints procedure for private parties

Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?

A party who wishes to lodge a complaint with the FTC may make an ‘application for complaint’. While there is no formal procedure for requesting action by the FTC, a complainant must submit to the FTC a signed statement setting forth in full the information necessary to apprise the FTC of the general nature of its grievance (see 16 CFR, section 2.2(b) (2009)). Parties wishing to register complaints with the DoJ may lodge complaints by letter, telephone, over the internet or in person. The DoJ maintains an ‘antitrust hotline’ to accept telephone complaints. Sophisticated parties frequently retain counsel to lodge complaints with either agency.

Regulatory enforcement

How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?

The FTC and DoJ file few vertical restraint cases in any given year. Recent examples include DoJ’s enforcement action against American Express pertaining to exclusive dealing arrangements (see question 42), and the DoJ’s successful case against Apple Inc and five e-book publishers (see questions 21 and 24), alleging a horizontal conspiracy among the publishers, ‘facilitated’ by Apple, a distributor of the publishers’ e-books (United States v Apple Inc, 791 F3d 290 (Second Circuit 2015)).

The DoJ’s case against American Express resulted in an injunction barring American Express from engaging in the complained-of behaviour (United States v American Express Co, 2015 WL 1966362 (EDNY 30 April 2015)), as well as an out-of-court settlement with the other two defendants, MasterCard and Visa. The Court of Appeals for the Second Circuit, however, reversed and the Supreme Court upheld and entered judgment for American Express (838 F3d 179 (Second Circuit 2016), aff’d 138 S Ct 2274 (2018)). The Supreme Court held that the DoJ did not properly define the market because it focused entirely on merchants in evaluating harm while ignoring the interests of cardholders.

There have been a number of other notable government challenges to vertical restraints. Most recently, the FTC filed a complaint against Qualcomm alleging the company unreasonably restrained trade by placing contractual conditions on its customers, smartphone manufacturers, that had the effect of excluding competitors and impeding innovation in baseband processors. Among other allegations, the FTC asserted that the company used its monopoly power in baseband processors to force smartphone manufacturers into paying elevated royalties on Qualcomm’s FRAND-encumbered patents if the customer used a competitor’s baseband processors in its devices and extracted exclusivity from Apple in exchange for reduced patent royalties (www.ftc.gov/system/files/documents/cases/170117qualcomm_redacted_complaint.pdf). Other government challenges to vertical restraints include DoJ’s case against Blue Cross Blue Shield of Michigan pertaining to MFN provisions (and the related class case, see question 24), which resulted in an out-of-court settlement that was approved by the district court in March 2015 (Shane Group Inc v Blue Cross Blue Shield of Michigan, 2015 WL 1498888 (ED Mich 31 March 2015)), the DoJ’s successful challenge to the exclusive dealing practices of a manufacturer of artificial teeth (see US v Dentsply Int’l Inc, 399 F3d 181 (Third Circuit 2005), cert denied, 546 US 1089 (2006)), and the FTC’s resolution by settlement of its enforcement action against Intel Corp, which included, among other things, the charge that Intel Corp engaged in exclusive dealing practices in an effort to thwart competition from rival computer chip makers, including by punishing its own customers for using rivals’ products (see question 1). State attorneys general and private parties have been somewhat more active in challenging vertical restraints.

What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?

An agreement found to be in restraint of trade is invalid as against public policy. However, a contract containing a prohibited vertical restraint will be held enforceable where an agreement constitutes ‘an intelligible economic transaction in itself’, apart from any collateral agreement in restraint of trade, and enforcing the defendant’s obligations would not ‘make the courts a party to the carrying out of one of the very restraints forbidden by the Sherman Act’ (see Kelly v Korsuga, 358 US 516, 518-520 (1959); see also Kaiser Steel Corp v Mullins, 455 US 72 (1982)).

May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?

The FTC can institute enforcement proceedings under any of the laws it administers, as long as such a proceeding is in the public interest (see 16 CFR, section 2.31 (2009)). If the FTC believes that a person or company has violated the law, the commission may attempt to obtain voluntary compliance by entering into a consent order. If a consent agreement cannot be reached, the FTC may issue an administrative complaint. Section 5(b) of the FTC Act empowers the FTC, after notice and hearing, to issue an order requiring a respondent found to have engaged in unfair methods of competition to ‘cease and desist’ from such conduct (15 USC, section 45(b) (2012)). Section 5(l) of the FTC Act authorises the FTC to bring actions in federal district court for civil penalties of up to US$16,000 per violation, or in the case of a continuing violation, US$16,000 per day, against a party that violates the terms of a final FTC order (15 USC, section 45(l)). Section 13 of the FTC Act authorises the FTC to seek preliminary and other injunctive relief pending adjudication of its own administrative complaint (15 USC, section 53). Additionally, section 13(b) of the FTC Act (15 USC, section 53(b)) authorises the FTC in a ‘proper case’ to seek permanent injunctive relief against entities that have violated or threaten to violate any of the laws it administers. The FTC has successfully invoked its authority to obtain monetary equitable relief for violations of section 5 in suits for permanent injunction pursuant to section 13(b) of the FTC Act.

The DoJ has exclusive federal governmental authority to enforce the Sherman Act, and shares with the FTC and other agencies the federal authority to enforce the Clayton Act. Sections 1 and 2 of the Sherman Act confer upon the DoJ the authority to proceed against violations by criminal indictment or by civil complaint, although it is unusual for the DoJ to seek criminal penalties in the vertical restraints area. Pursuant to section 4 of the Sherman Act (15 USC, section 4) and section 15 of the Clayton Act (15 USC, section 25), the DoJ may seek to obtain from the courts injunctive relief ‘to prevent and restrain violations’ of the respective acts and direct the government ‘to institute proceedings in equity to prevent and restrain such violations’. Pursuant to section 4A of the Clayton Act, the United States acting through the DoJ may also bring suit to recover treble damages suffered by the United States as a result of antitrust violations (15 USC, section 15a). Finally, a party under investigation by the DoJ may enter into a consent decree with the agency. Procedures governing approval of consent decrees are set forth in the Tunney Act (15 USC, section 16(b)-(h) (2012)).

Private parties may also enforce the federal antitrust laws (see question 54) and must bring cases in federal court.

In vertical restraints cases, federal agencies have tended to focus their efforts on cases where injunctive relief was necessary or where the law might be clarified, as opposed to pursuing cases seeking monetary remedies.

Investigative powers of the authority

What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?

The FTC may institute an investigation informally through a ‘demand letter’, which requests specific information. A party is under no legal obligation to comply with such requests. Additionally, the FTC may use a compulsory process in lieu of or in addition to voluntary means. Section 9 of the FTC Act provides that the FTC or its agents shall have access to any ‘documentary evidence’ in the possession of a party being investigated or proceeded against ‘for the purpose of examination and copying’ (15 USC, section 49; 16 CFR, section 2.11 (2009)). Section 9 of the FTC Act gives the Commission power to subpoena the attendance and testimony of witnesses and the production of documentary evidence (15 USC, section 49 (2012)).

The most common investigative power utilised by the DoJ in conducting civil antitrust investigations is the civil investigative demand (CID). The Antitrust Civil Process Act (15 USC, sections 1311-1314 (2012)), authorises the DoJ to issue CIDs in connection with actual or prospective antitrust violations. A CID is a general discovery subpoena that may be issued to any person whom the attorney general or assistant attorney general has reason to believe may be in ‘possession, custody or control’ of material relevant to a civil investigation. A CID may compel production of documents, oral testimony or written answers to interrogatories.

Neither DoJ nor FTC typically demand documents held abroad by a non-US entity. However, DoJ and FTC are likely to demand such documents from any non-US entity if the court in which an action is brought possesses subject-matter jurisdiction under US antitrust laws, as well as personal jurisdiction over the non-US entity.

Private enforcement

To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?

Section 4 of the Clayton Act (15 USC, section 15) permits the recovery of treble damages by ‘any person […] injured in his business or property by reason of anything forbidden in the antitrust laws’.

Section 16 of the Clayton Act (15 USC, section 26) similarly provides a private right of action for injunctive relief.

While sections 4 and 16 of the Clayton Act permit a private right of action for violations arising under both the Sherman and Clayton Acts, it does not permit a private right of action under section 5 of the FTC Act. Both sections 4 and 16 of the Clayton Act provide that a successful plaintiff may recover reasonable attorneys’ fees. The amount of time it takes to litigate a private enforcement action varies significantly depending upon the complexity and circumstances of the litigation.

A private plaintiff seeking antitrust damages must establish antitrust standing, which requires, among other things, that the plaintiff show that its alleged injury is of the type that the antitrust laws were designed to protect. With certain exceptions, an indirect purchaser (ie, a party that does not purchase directly from the defendant) is not deemed to have suffered antitrust injury and is therefore barred from bringing a private action for damages under section 4 of the Clayton Act (see Illinois Brick v Illinois, 431 US 720 (1971)). In November 2018, the US Supreme Court heard argument in Apple v Pepper regarding who is a direct purchaser, with some authorities advocating a change to the direct purchaser/indirect purchaser paradigm.

Both parties and non-parties to agreements containing vertical restraints can bring damage claims so long as they successfully fulfil the requirements for standing.