In her first speech as Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (DOJ), Christine Varney proclaimed that the DOJ “must change course and take a new tack” in its enforcement efforts. Although her speech, one year ago, focused on Section 2 of the Sherman Act, many members of the antitrust bar believed at the time that it heralded a new era of “vigorous enforcement” of antitrust laws generally.
On the heels of that speech, we issued an Antitrust Alert anticipating a sea change in the DOJ’s enforcement policy. In that same Alert, we pointed out that a similar policy change was not expected at the Federal Trade Commission (FTC), largely because the FTC’s enforcement policy has been more consistent over the years and less susceptible to changes in the political landscape. Now, one year after Ms. Varney’s speech, we find that only some of our earlier predictions have come true. The FTC continues to behave like a rigorous enforcement machine. By all appearances, however, the DOJ has not followed through on its promised pro-enforcement agenda – at least not yet. Is the Obama Administration’s DOJ merely a paper tiger? Or is it too soon to tell? In order to help answer those questions, we assess the enforcement activity – or lack thereof – by the DOJ and the FTC over the past year.
Since Section 2 enforcement was the primary topic of interest one year ago, it’s as good a place as any to begin our retrospective. In light of the lack of any enforcement activity on the DOJ’s part, the discussion of its Section 2 enforcement efforts will be brief: The DOJ has yet to bring a Section 2 case. Apart from investigations into Monsanto’s soybean licensing practices and IBM’s mainframe software licensing practices, there does not appear to be a significant increase in Section 2 investigative activity.
Although the FTC has not brought a Section 2 case, it did file its long-awaited FTC Act Section 5 case against Intel Corporation (Intel) in December 2009. The FTC’s administrative complaint “challenges Intel’s unfair methods of competition and unfair acts or practices beginning in 1999 and continuing through today, and seeks to restore lost competition, remedy harm to consumers, and ensure freedom of choice for consumers in this critical segment of the nation’s economy. Intel’s conduct during this period was and is designed to maintain Intel’s monopoly in the markets for Central Processing Units and to create a monopoly for Intel in the markets for graphics processing units.”
More recently, the FTC entered into a consent agreement to resolve exclusionary conduct claims against Transitions Optical, Inc. (Transitions), the leading U.S. manufacturer of photochromic treatments that allow eyeglasses to darken when exposed to sunlight. The FTC alleged that Transitions violated Section 5 of the FTC Act by engaging in exclusionary acts and practices in the photochromic lens industry and, in particular, that it entered into exclusive dealing arrangements that foreclosed its rivals from key distribution channels. Under the terms of the settlement, Transitions was prohibited from entering into agreements or enforcing policies limiting customers’ ability to buy or sell a competing photochromic treatment or requiring customers to favor its products over a competitor’s products. The settlement also (1) barred Transitions from limiting the information given to consumers about competing products; (2) prevented Transitions from imposing exclusivity on individual product brands of eyeglass lenses; (3) limited Transitions’ ability to offer market share discounts and bundling discounts; and (4) prohibited Transitions from retaliating against customers that buy or sell its lenses on a non-exclusive basis.
The DOJ has been somewhat more active in other conduct enforcement areas. Indeed, both enforcement agencies have been in on-going pursuit of one target in particular: Google. The FTC investigated whether members of the boards of directors of Apple and Google were in violation of the Clayton Act’s Section 8 prohibition of interlocking directorates. As a result, one director who served on both boards stepped down from Apple’s board and another director who served on both boards stepped down from Google’s board. Recent reports indicate that the FTC is vigorously investigating Google’s proposed acquisition of AdMob, a leading provider of mobile advertising technology, and is preparing to litigate a potential challenge to the merger.
The DOJ has weighed in a couple of times on a proposed settlement of class action litigation in The Authors Guild Inc. et al. v. Google Inc. That case involves copyright infringement claims brought against Google by the Authors Guild and several publishers arising from Google’s efforts to digitally scan books contained in several libraries and to make them searchable on the Internet. In September 2009 and February 2010, the DOJ filed statements of interest advising the trial court of the DOJ’s dissatisfaction with the proposed settlement. In its latest statement, the DOJ expressed concerns that “the amended settlement agreement still confers significant and possibly anticompetitive advantages on Google as a single entity, thereby enabling the company to be the only competitor in the digital marketplace with the rights to distribute and otherwise exploit a vast array of works in multiple formats.” The DOJ is also reportedly investigating a possible agreement among certain high tech companies – such as Google, Apple and IBM, among others – not to recruit each others’ employees. Yet, when Ms. Varney referred in her 2009 speech to heightened enforcement in high-tech markets, it is hard to believe that this was the extent of the DOJ’s anticipated activity in that area.
In the merger area, there is nothing radically different about the pace of investigations by the two enforcement agencies. What is striking, however, is the stark difference in the approaches each agency has taken in seeking remedies for mergers that raise antitrust concerns. In the resolution of such merger investigations, the remedial measures imposed by the FTC have been far more robust than those coming out of the DOJ.
The DOJ investigated the high-profile mergers of Ticketmaster and LiveNation and Cisco and Tandberg. Ticketmaster-LiveNation combined the biggest forces in live music: the dominant ticket seller in the U.S. (Ticketmaster) and the world’s leading concert promoter (LiveNation). Despite anticompetitive concerns about this vertical integration, the DOJ allowed the merger to proceed, only requiring Ticketmaster to license its ticketing software to a competitor. The DOJ also investigated Cisco-Tandberg, which involved Cisco, the leading provider of high-end telepresence videoconferencing services, acquiring Tandberg, a new and rapidly growing entrant in telepresence and strong player in traditional videoconferencing. The investigation focused on obstacles to interoperability among telepresence providers, and the DOJ decided not to challenge the merger upon Cisco’s commitment to license proprietary technology that may enable competitors to interoperate with Cisco’s and Tandberg’s telepresence systems. Whether this remedy will achieve the interoperability that the DOJ has sought for customers remains to be seen, however. Finally, the DOJ is also in the midst of challenging the consummated acquisition by Dean Foods Company of Foremost Farms USA’s Consumer Products Division, alleging that the merger harmed competition in the sale of milk to schools, grocery stores, convenience stores and other retailers in Illinois, Michigan and Wisconsin. The U.S. District Court in Milwaukee recently denied Dean Foods’ motion to dismiss.
By comparison, the FTC has made use of a variety of tools available to it, including structural consent orders, preliminary injunction actions in federal court and administrative proceedings, to gain favorable outcomes in the merger area. Early in Chairman Leibowitz’s tenure, the FTC succeeded in gaining a preliminary injunction in one merger matter. More recently, the FTC was victorious in administrative litigation challenging Polypore International Inc.’s consummated merger with Microporous Holding Corp. in which an administrative law judge ordered Polypore to divest Microporous. In another challenge to a consummated merger, the FTC obtained a consent order requiring Carilion Clinic to divest two outpatient imaging and surgical centers in Virginia after the FTC commenced administrative litigation.
The FTC’s attacks on reverse payments in pharmaceutical patent infringement settlements offer an example of its unabated fervor. The agency filed a complaint in federal district court alleging that Cephalon improperly delayed generic competition to its sleep disorder medicine, Provigil. The court recently denied Cephalon’s motion to dismiss the case. The FTC was not as successful in similar litigation against Solvay Pharmaceuticals and two generic manufacturers over patent settlements involving Solvay’s testosterone replacement product, AndroGel. The district court recently dismissed the action, determining that the settlements were not an unlawful extension of Solvay’s patents on AndroGel. The FTC has not been deterred by such losses in federal court. Instead, it has expanded its avenues of attack on reverse payments by taking its campaign to Capitol Hill, where it continues its efforts to pass a bill banning such payments.
Varney’s inaugural speech prompted great anticipation for strong antitrust enforcement, particularly against companies suspected of exercising monopoly power. At least as of the one-year anniversary of that speech, the reality of the Varney Antitrust Division simply has not lived up to the rhetoric. None of this is to suggest that companies should not take statements of enforcement policy seriously, or that they can become lax in ensuring their compliance with the antitrust laws. Even if the level of enforcement activity does not increase on the part of the DOJ, the FTC remains consistent in its rigorous enforcement efforts. In addition, private litigants and state attorneys general remain aggressive in pursuing litigation to challenge what they perceive to be anticompetitive conduct.