In what apparently was to be her final speech as Assistant U.S. Attorney General for Antitrust “AAG”), [1]Christine Varney addressed the Center for American Progress on July 12, 2011, reporting on the accomplishments of the Antitrust Division (the “Division”) during the past 2 1/2 years, as well as the Agency’s views and intentions with respect to the Supreme Court’s recent decisions in Twombly, Credit Suisse, Trinko, and linkLine, which critics claim have unduly restricted the chances to successfully bring a private antitrust suit.

Merger Enforcement

Ms. Varney first reported on significant merger cases instituted by the Division during her regime, highlighting three cases in which vertical mergers (involving parties situated above and below each other in the supply chain) were approved after the parties restructured their transactions to meet competitive concerns raised by the Division--Live Nation/Ticketmaster, NBC/Comcast, and Google/ITA.

She commented that the NBC Universal/Comcast merger had the potential of limiting competition in the event that the merged entity withheld or raised the price of content and stifled new competition in the nascent online video market. According to Varney, the consent decree resolved that concern because the transaction was restructured with conduct provisions intended to preserve existing and potential competition in the online video market. She noted that the Division had coordinating its merger review in that matter with the Federal Communications Commission, and ensured that the decree did not regulate how the market should work.

The Division also had been concerned about Google’s proposed acquisition of ITA Software, which develops and licenses search software used by the travel industry to perform flight searches and to offer airfare comparison and booking websites. According to Varney, Google had plans to develop a product that would compete with companies that rely on the ITA product. She commented that the consent decree requires Google, inter alia, to establish firewall procedures to protect against anticompetitive use of ITA’s software, and to offer mandatory arbitration for complainants.

Varney stressed that remedies such as these, and the Division’s recent updated Merger Remedies Guidelines, demonstrate that the Division has adopted a pragmatic, forward-looking approach to merger enforcement, pursuant to which it identifies remedies that work, without adopting any particular ideology.

Civil Non-Merger Enforcement

Noting that one of the first actions she took when she assumed her role as head of the Division was the withdrawal of the very conservative Section 2 Sherman Act report adopted by the Division late in the Bush Administration, Varney added that the Division thereafter instituted the first case in more than ten years challenging an alleged monopolist’s anticompetitive unilateral conduct--a dominant hospital’s exclusive dealing contracts with suppliers. While she did not mention it, during the prior Administration, the Division in fact had not instituted any civil non-merger enforcement actions of any nature.

Varney then referred to the Division’s ongoing civil suit challenging Blue Cross Blue Shield of Michigan’s use with hospitals of what she characterized as anticompetitive most-favored-nation clauses, and its lawsuit against American Express challenging alleged limitations it places on the ability of merchants to encourage consumers to use lower-cost payment methods, e.g., to pay with credit cards that cost the merchant less to accept.

Criminal Enforcement

Criminal enforcement, particularly involving price fixing and bid rigging, has always been a top Division priority. Varney reported that in Fiscal Year 2010, the Division filed 60 criminal cases and imposed more than $550 million in fines. She stressed that 29 individuals received jail sentences, more than double such sentences during the 1990s, adding that in the first nine months of Fiscal Year 2011, the Division has almost reached the total number of cases filed in the entire prior Fiscal Year.

Varney pointed out that criminal suits were brought in such industries as financial services, air transportation services, and real estate, stressing the Division’s ongoing investigation of the municipal bond industry. She reported that criminal charges have been instituted against 18 former executives of various financial services companies, and payments of more than $500 million in restitution have been made by defendants to affected agencies, as well as the disgorgement of profits and civil penalties had also been imposed on defendants in that industry. Varney also commented that the Division’s air transportation investigation has resulted in 21 airlines and 19 executives being charged and more than $1.7 billion in criminal fines imposed to date .  

Varney reported that other nations have implemented cartel enforcement programs modeled on the Division’s program. In particular, more than 50 countries have implemented leniency programs designed after the Division’s, which, according to Varney, have resulted in the detection and dismantling of the largest global cartels ever prosecuted, and have led to record-breaking fines in many countries.

Competition Advocacy

Varney commented on the deployment of Division leadership and staff to Congressional committees and federal agencies to serve needs involving competition policy, and on the Division’s continuing collaboration with the Federal Trade Commission regarding conduct that may violate Section 5 of the FTC Act. She also singled out the key role the Division played in a series of public outreach workshops on competition in the agriculture industry, and suits resulting in settlements of merger challenges in the chicken processing and dairy industries.  

Varney pointed out that the Division as filed amicus briefs before the Supreme Court and lower courts in antitrust suits, stressing that the Supreme Court’s AmericanNeedle decision was in keeping with the Division’s view that the conduct of sports leagues should be analyzed on a functional and pragmatic analysis based on the specific facts of each situation. She expressed disappointment, however, that the Second Circuit did not adopt the Division’s position in the Cipro reverse payment case. The Division’s view is that such arrangements should be considered presumptively illegal, but subject to rebuttal to the extent that a settlement preserved competition consistent with what would have been expected in an infringement suit judgment. She emphasized that the Division continues to hold this view, and has recently filed an amicus brief expressing it in the k-Dur case pending before the Third Circuit.

Finally, Varney summarized the Division’s efforts to enter into bilateral and multilateral relationships with antitrust agencies in other countries, including the recently achieved favorable result with Russia and the pending relationship with China.

Looking Forward

Varney concluded by summarizing her view that “targeted enforcement” continues to be a role for antitrust authorities in the wake of four recent Supreme Court decisions limiting private antitrust enforcement under the Sherman Act.

  1. Twombly. Varney noted her discomfort with the practical consequences of the Court’s Twombly decision requiring more factual allegations in a complaint than under the prior judicial view. . She is concerned that some courts may be requiring plaintiffs to allege facts at the complaint stage that are likely known only to defendants -- “leaving anticompetitive activity unabated.” She declared that defendants have sought to extend Twombly beyond its reach, adding that “[d]eciding cases on their merits at the pleading stage. . . goes too far.” She noted that “the Division is seeking opportunities in the courts to confine Twombly to its appropriate circumstances. . . . “
  1. Credit Suisse. Varney next addressed the Supreme Court’s Cerdit Suisse decision, which held that securities law implicitly precluded application of the antitrust laws to conduct that was the subject of private antitrust plaintiffs’ complaints. She stressed that the decision should not be read to foreclose government antitrust enforcers from a role in regulated industries. To Varney, “the opinion makes clear that the antitrust laws are suspended only where a regulatory agency can and does actively supervise the conduct in question . . . and where enforcement of the antitrust laws would clearly conflict with the regulatory scheme.”
  1. Trinko and linkLine. Varney’s strongest comments were saved for last--a discussion of the Supreme Court’s Trinko and linkLine decisions. Those cases considered the extent of freedom monopolists have in refusing to deal with their competitors or in the manner in which they do deal with them when they choose to do so. She seemed to side with the three Justices in Trinko who would have dismissed the indirect customer’s claims as too remote to form the basis of an antitrust complaint, rather than the six Justices who addressed the merits and ruled that the plaintiff had failed to state a Sherman Act claim. According to Varney, the decision was limited by the regulatory context of the case, which included “a regulatory structure designed to deter and remedy anticompetitive harm,” and the fact that the injuries to the defendant’s rival “already had been effectively addressed according to the Court, in a more understandable light.” In her view, the Court was expressing concern that treating claims such as those raised by the consumer in that case as antitrust violations would be an unnecessary addition to the “variety of litigation routes already available,” namely the regulatory proceedings that the Court indicated had already remedied any harm to competition. Varney concluded that “the mix of unusual factors in Trinko is unlikely to arise in other contexts.” Therefore, she believes the decision did not overturn the Court’s prior Section 2 decisions in Aspen Skiing, Otter Tail, Terminal Railroad, Associated Press, Eastman Kodak, Lorain Journal, or the D.C. Circuit’s Microsoft decision.

Varney opined that the Supreme Court’s linkLine decision was “necessarily limited to price squeeze claims lacking both an antitrust duty to deal and allegations sufficient to demonstrate predatory pricing. . . . The relevance of linkLine to future litigation should accordingly be insignificant.”