Competition Currents October 2021 | US & Mexico
A. Federal Trade Commission (FTC).
1. Agency fines officer for violation of HSR Act for failure to file in connection with holdings of company stock.
On Sept. 2, 2021, the FTC announced that Richard Fairbank, CEO of Capital One Financial Corp., will pay a $637,950 civil penalty to settle charges that his acquisition of Capital One Financial (COF) stock violated the Hart-Scott-Rodino (HSR) Act. The agency alleged that Fairbank’s receipt of stock as part of his compensation package was reportable prior to consummation, and that he had previously made acquisitions of COF stock without required HSR notification.
As Fairbank had previously failed to file HSR notification, the FTC staff recommended penalties for this more recent alleged violation. The maximum civil penalty for an HSR violation is currently $43,792 per day, calculated from the day on which the acquisition is consummated through the day on which the waiting period applicable to the corrective notification expires. The fine imposed as part of the announced settlement was just over 2% of the maximum penalty.
2. Privacy expert Alvaro Bedoya nominated as fifth US FTC commissioner, replacing outgoing Commissioner Chopra.
On Sept. 13, 2021, President Biden nominated Alvaro Bedoya, a Georgetown University professor and former congressional lawyer focused on privacy-related policymaking, to be the fifth commissioner of the FTC. If confirmed, Bedoya will replace Democrat Rohit Chopra, whose nomination to be director of the Consumer Financial Protection Bureau is still pending. Bedoya would maintain the 3-2 Democratic majority on the Commission, serving alongside Commissioner Rebecca Slaughter and Chair Lina Khan.
Bedoya served as chief counsel for the Senate Judiciary Subcommittee on Privacy, Technology and the Law, where his work involved oversight of mobile location privacy and biometrics. He also drafted portions of the bipartisan National Security Agency reform law, and the USA Freedom Act. Bedoya is also the founding director of Georgetown’s Center on Privacy and Technology, which he formed in August 2014.
3. FTC overhauls consumer protection and competition investigations procedure in key enforcement areas.
On Sept. 14, 2021, the FTC approved a series of resolutions that will enable agency staff to “efficiently and expeditiously” investigate conduct in core FTC priority areas. Described by the Democratic majority as “streamlining” the process, the resolutions effectively permit a single commissioner to issue compulsory process in the following areas of investigation: (1) Acts or Practices Affecting United States Armed Forces Service Members and Veterans; (2) Acts or Practices Affecting Children; (3) Bias in Algorithms and Biometrics; (4) Deceptive and Manipulative Conduct on the Internet; and (5) Repair Restrictions. (6) Abuse of Intellectual Property; (7) Common Directors and Officers and Common Ownership; and (8) Monopolization Offenses.
According to the FTC: “Streamlining and improving efficiency at the agency is vitally important given the increased volume of investigatory work created by the surge in merger filings. Having already doubled between 2010 and 2020, the number of mergers filed with the antitrust authorities this year hit a record-setting pace of 2,067 acquisitions for the first seven months alone.”
4. FTC withdraws vertical merger guidelines and commentary.
On Sept. 15, 2021, the Commission via a 3-2 vote withdrew its 2020 Vertical Merger Guidelines and Commentary, stating that the guidelines were predicated on “unsound economic theories that are unsupported by the law or market realities.” While not advocating a return to the previously published 1984 Vertical Merger Guidelines, the Commission did not release any replacement set of guidelines, but rather stated that the agency will work with Antitrust Division of the Department of Justice to update merger guidance.
The withdrawn guidelines noted several ways vertical mergers can harm competition, which the statement by the FTC majority recognizes provided valuable analysis. When Commissioner Slaughter voted against issuing the guidelines last year, she wrote that they “appear to put a thumb on the scale in favor of vertical mergers” by over-emphasizing their benefits, warning that “vertical mergers can and frequently do raise serious anticompetitive concerns.” In that way, she stated that the 2020 Guidelines were “overly optimistic” in describing efficiencies to be gained from a vertical merger, notably the elimination of double marginalization that can be achieved and actually passed onto consumers.
In updating the guidelines, the FTC will (1) “explore ways to provide clear guidance on the characteristics of transactions that are likely unlawful,” (2) “provide guidance on ineffective remedies, based on an evaluation of past remedy practices and any evidence that past remedies may not have fully restored competition,” and (3) “expand on the harms identified in the 2020 Vertical Merger Guidelines to consider various features of modern firms, including in digital markets, and impacts of mergers on labor markets.” The DOJ did not withdraw the 2020 Guidelines, instead committing to “a robust public engagement process to seek comment on ways the Vertical Merger Guidelines could be improved.”
5. Bureau of Competition director says retail fuel deal investigations need “wider lens.”
On Sept. 21, 2021, Holly Vedova, acting director of the FTC’s Bureau of Competition, gave more details via a blog post on Chair Lina Khan’s plans to identify additional legal theories to challenge deals involving the acquisition of “family-run” retail fuel businesses by “dominant players.” Vedova said the FTC will “examine potential price coordination and other collusive practices in the retail fuel industry by moving against mergers that create the opportunity for harmful pricing behavior.” Ordinarily, concerns with retail fuel mergers are solved by divestitures of stations in local overlapping markets that the merging parties serve. However, according to Vedova, the commission chair is concerned that, notwithstanding these localized remedies, consolidation has increased more broadly and created conditions for “systemic price signaling behavior” across a metropolitan area or region.
“Posted gasoline prices, especially when controlled by large national chains with multiple stations in an area, offer opportunities for price signaling,” she said, and chains may use software to set prices and monitor competitors. When profits are deemed too low, a chain “may attempt to ‘restore’ the market by raising price.” As a result, the agency vows to scrutinize transactions involving a chain for the effect on price signaling behavior wherever the buyer and seller overlap in any metro area, even if there are no concerning local retail fuel station overlaps.
B. Department of Justice (DOJ).
1. DOJ requires divestitures in BancorpSouth Bank’s merger with Cadence Bank.
On Sept. 2, 2021, the DOJ announced that BancorpSouth Bank and Cadence Bank have agreed to sell seven branches in northeastern Mississippi, with more than $446 million in deposits, to resolve antitrust concerns arising from BancorpSouth’s planned acquisition of Cadence Bank. Under the agreement, the parties will divest seven branches located in Aberdeen, West Point, and Starkville, Mississippi. The assets that must be divested include all the deposits and loans associated with the seven branches, as well as all physical assets. The companies also have agreed to suspend existing noncompete agreements with branch managers and loan officers located in those cities. Finally, the parties agreed that any branches located in any of these markets that are closed within three years of the merger’s closing will be sold or leased to an insured depository institution that offers deposit and credit services to small businesses.
2. DOJ files second civil contempt claim against CenturyLink.
On Sept. 2, 2021, the DOJ petitioned a federal judge to find CenturyLink in civil contempt after the telecommunications giant allegedly violated a settlement approving its $34 billion proposed merger with Level 3 Communication Inc. for a second time. CenturyLink, now Lumen Technologies Inc., agreed to pay $275,000 for allegedly violating the settlement reached in March 2018. In that settlement, CenturyLink agreed to divest Level 3’s assets and promised not to solicit customers who chose to contract with the divestiture buyer. However, shortly after the settlement was reached, the company’s sales associates allegedly contacted such customers in Boise, Idaho multiple times.
The DOJ also moved to amend the final judgment to include extra monitoring and extend the non-solicitation provision a further two years, with compliance monitored by an independent trustee. CenturyLink was required to pay the DOJ $250,000 to cover government costs enforcing the original settlement. In a coinciding settlement agreement submitted by the DOJ, CenturyLink would pay an additional $275,000 to reimburse the cost of the investigation.
3. DOJ charges president of flooring company in ongoing antitrust investigation.
On Sept. 8, 2021, the former president of a Chicago-based flooring company was indicted on money laundering conspiracy charges. The former president is the sixth individual to be charged in the ongoing antitrust investigation; three companies also have been charged. According to the indictment, the defendant authorized and then concealed kickbacks in exchange for lower pricing, using a shell company and other conspirators over a five-year period to effectuate the scheme.
4. DOJ files criminal complaints relating to procuring government contracts in Belgium.
On Sept. 13, 2021, DOJ filed criminal complaints in Washington, D.C. against two individual defendants, alleging their involvement in a conspiracy to allocate the market, rig bids, and fix prices for security services contracts in Belgium, including contracts with the Department of Defense and other entities funded by the U.S. government. According to the filing, the defendants and other conspirators (some of which have been charged elsewhere) entered into agreements and undertook a series of antitrust violations in order to obtain the security contracts beginning in 2019.
5. DOJ and FTC issue warning to would-be antitrust violators in communities affected by Hurricane Ida.
On Sept. 14, 2021, DOJ’s Antitrust Division and the FTC issued a joint statement to provide guidance (and a warning) to businesses rebuilding communities affected by Hurricane Ida. The guidance noted that DOJ would not tolerate antitrust violations or other fraudulent actions during the process. Acting Assistant Attorney General Richard A. Powers of the Antitrust Division stated, “In the aftermath of Hurricane Ida, the division’s Procurement Collusion Strike Force will leverage every tool in its arsenal to root out collusion, corruption and fraud targeting disaster relief.”
6. Contractor pleads guilty to bid-rigging public projects funded by the state of Minnesota.
On Sept. 28, 2021, a Minnesota concrete contractor pleaded guilty to rigging bids related to construction contracts in the state of Minnesota. According to court documents, the contractor and his co-conspirators targeted public repair and construction contracts offered for bid by the state of Minnesota that were to benefit local governments and school districts. The plea was a violation of Section 1 of the Sherman Act, which in this case authorizes a maximum of 10 years in prison and a $1 million fine (representing either twice the gain or twice the loss derived from the violation). The case was prosecuted with the assistance of the DOJ’s procurement task force.
C. U.S. Litigation.
1. Michael E. Jones, M.D., P.C. v. UnitedHealth Group Inc., et al; Case Number 1:19-cv-07972, 2021 WL 4443142 (S.D.N.Y. Sept. 28, 2021).
District Judge Valerie Caproni again dismissed claims by Plaintiff Michael Jones, MD, a plastic surgeon, against UnitedHealth Group Inc., United Healthcare Services Inc., and Optum Group LLC. Jones had filed a putative class action claiming the insurance companies made it difficult for out-of-network doctors to get paid. The court initially dismissed Jones’ claims in August 2020 but granted leave for Jones to replead.
Judge Caproni dismissed the amended complaint, noting it did not fix any of the deficiencies detailed in the court’s prior opinion. In ruling on the first motion to dismiss, the court dismissed the antitrust claims because plaintiff failed to plead that defendants possessed monopoly power, had a specific intent to monopolize, or conspired to monopolize in the health insurance market. The court granted leave to amend, despite doubts “that Plaintiff will be able to plead sufficient facts to support an antitrust injury or an inference of monopoly power, given Defendants’ less than 20% share of the alleged relevant market.” In its second opinion, the court stated that “Plaintiff opted to double down on the theory of injury previously rejected by the court”—that withholding payments was a way to force providers to join Defendants’ networks. According to the court, this theory fails to address the fact that it does not allege that competition in the insurance market has been affected. The amended complaint also did not provide any facts from which the court could infer that Defendants possessed monopoly power. Because of Plaintiff’s failure to address any of the deficiencies identified by the court in the ruling on the motion to dismiss the original claims, the court dismissed Plaintiff’s amended complaint with prejudice.
2. Stromberg, et al v. Qualcomm, Inc. No. 19-15159, 2021 U.S. App. LEXIS 29395, (9th Cir. Sept. 29, 2021).
The Ninth Circuit overturned a district court order certifying a class of 250 million people in an antitrust litigation against Qualcomm over its alleged monopoly of modern cellphone chips because the district court erred in its choice-of-law analysis. The plaintiffs complained that the company refused to license its standard essential patents (SEPs) to chip supplier competitors and “enter[ed] into exclusive dealing arrangements with The National Law Review that prevented rival chip suppliers from competing with Qualcomm to supply The National Law Review’s chip demand.” The panel determined that the district court failed to properly analyze California’s choice-of-law rules, and in turn, erroneously held that common issues of law predominate as required by the class action provision of the Federal Rules of Civil Procedure.
The class that plaintiffs sought to certify contained consumers from all 50 states. In order to certify a class, the trial court must find that class members are similarly situated and that common questions predominate their cases. The Ninth Circuit found that this was not the case in the proposed class action because the consumers were not all located in California. The opinion explained that state laws beyond California’s antitrust law—which permits indirect purchasers to sue for treble damages—apply to the nationwide suit. The Ninth Circuit determined that other states, including states that do not allow for indirect purchaser claims, “have an interest in how their markets are managed and how best to enforce antitrust violations and regulate commerce in their states.”
3. San Francisco Comprehensive Tours, LLC v. Tripadvisor, LLC, Case No. 2:20-cv-02117, 2021 WL 4394253 (D. Nev. Sept. 24, 2021).
District Judge Gloria Navarro dismissed a Sherman Act claims against Tripadvisor LLC and its wholly owned subsidiary, Viator, Inc. Plaintiff, a guided-tour company operating in San Francisco and New York, alleged that the defendants participated in a scheme to undercut plaintiff by using phony online “landing pages” to poach and divert web traffic. Judge Navarro dismissed the case, saying multiple fatal flaws each independently doomed the claims brought by plaintiff.
To begin with, the court ruled that it lacked personal jurisdiction over Tripadvisor because Section 12 of the Clayton Act does not confer personal jurisdiction over limited liability companies, stating “multiple district courts and the Third Circuit have strictly construed the statute and excluded limited liability companies from Section 12 of the Clayton Act . . . . The Court sees no reason to depart from the other courts’ plain language reading of Section 12 of the Clayton Act.” Because the Court ruled that it had jurisdiction over Viator, it went on to determine whether plaintiffs had adequately alleged their Sherman Act claims. Citing a similar case against Groupon, where almost identical antitrust claims against Groupon were dismissed, the court determined that Tripadvisor did not provide the same interchangeable services as plaintiff, who provides guided tours. Accordingly, the Court determined that plaintiff had failed to allege an adequate relevant market or that it had suffered antitrust injury. With regard to the Section 1 claim, the Court dismissed the claim because Viator is a wholly owned subsidiary of Tripadvisor, and under the Copperweld doctrine, a parent and its wholly owned subsidiary cannot conspire in violation of Section 1.
A. COFECE fines 17 clubs of the Liga MX, the Mexican Football Federation, and eight individuals for colluding in the market for drafting soccer players.
In Mexico’s first-ever case related to labor markets, the Federal Economic Competition Commission (COFECE or Commission) fined 17 soccer clubs of the Liga MX, the Mexican Football Federation (FMF or Federation) and eight individuals 177.6 million Mexican pesos (9 million U.S. dollars) for collusion.
According to COFECE, to avoid or inhibit competition in the market for the drafting of soccer players, the clubs agreed to the following two measures:
1. Price fixing in wage caps for women soccer players.
Since the creation of the Women’s Soccer league (Liga MX Femenil) in 2016, several clubs agreed to establish a wage cap for these athletes, according to three categories:
(i) those older than 23 years would earn a maximum of 2,000 Mexican pesos;
(ii) those younger than 23 years, 500 Mexican pesos plus a personal training course; and
(iii) the players of Sub17 category would have no income, but could have support for travel, education, and meals.
This agreement was replaced in the 2018-2019 season. The Liga MX informed the clubs that the maximum cap would be 15,000 Mexican pesos, and only four of its women players could earn above such amount. In addition, in-kind support could not exceed 50,000 Mexican pesos per tournament. The first cap on women soccer players’ remuneration was a part of the presentation of the Liga MX Femenil project and was approved by the Sports Development Committee of Liga MX. In addition, the Federation issued releases to persuade clubs to comply with the wage cap, in addition to conducting activities to verify compliance.
According to COFECE, the first cap, whose duration was from November 2016 to May 2019, constituted a collusive agreement between clubs that had the purpose and effect of manipulating prices – in this case, of the women players’ wages – and preventing clubs from competing through offering better wages, which not only had a negative impact on player income, but also widened the gender pay gap.
2. Agreement to segment the market for drafting male players.
COFECE reported that the 17 sanctioned clubs, with the collaboration of the FMF, agreed to apply the right of retention (better known as a “gentlemen’s agreement”), whereby each club affiliated with the Federation registered the players with whom they had a contract, but at the expiration of their contract, the club retained the right to keep them. If a different club was interested in contracting with that player, it had to obtain authorization from the first club that had the player in its “inventory” and, often, had to pay a compensation for the exchange.
COFECE found that the conduct constituted a collusive agreement that had the object and effect of segmenting the market of players in order to limit competition of clubs in the hiring of players, unduly restricting the mobility of athletes and limiting their bargaining capacity to obtain better wages. The Commission indicated that the duration of this conduct was at least 10 years, from June 2008 to December 2018, although several economic operators participated for a shorter period.
According to COFECE, the two practices generated a combined harm to the market estimated at 83, 375,000 Mexican pesos.
Pamela J. Marple, Yuji Ogiwara, Stephen M. Pepper, Gillian Sproul, Hans Urlus, Dawn (Dan) Zhang, Pietro Missanelli, Anna Rajchert, Mari Arakawa, Filip Drgas, John Gao, Marta Kownacka, Massimiliano Pizzonia, Jose Abel Rivera-Pedroza, Chazz Sutherland, Ippei Suzuki, Rebecca Tracy Rotem and Alan W. Hersh contributed to this article.