January 2022 Competition Currents: United States and Mexico
Federal Trade Commission
On Dec. 1, 2021, the FTC issued its 2021 Report on Ethanol Market Concentration. The Energy Policy Act of 2005 directs the Commission to perform an annual review of market concentration in the ethanol production industry “to determine whether there is sufficient competition among industry participants to avoid price-setting and other anticompetitive behavior.”
The FTC report concludes that “[t]he low level of concentration and large number of market participants in the U.S. ethanol production industry continue to suggest that the exercise of market power to set prices, or coordinate on price or output levels, is unlikely on a nationwide basis.” The Commission vote to approve the report was 4-0.
FTC challenges U.S. chip supplier’s $40 billion acquisition of U.K. chip design provider.
On Dec. 2, the FTC filed an administrative complaint challenging a U.S. chip supplier’s proposed acquisition of a UK chip design provider. The agency alleges that the vertical deal—a combination of one of the largest semiconductor chip suppliers and a firm that creates and licenses microprocessor designs and architectures used by rival chip suppliers—would constrain those rivals and provide the combined firm with “the means and incentive to stifle innovative next-generation technologies, including those used to run data centers and driver-assistance systems in cars.”
According to the FTC’s complaint, the acquisition will harm competition in three worldwide markets in which the U.S. company competes using the UK company’s products: High-Level Advanced Driver Assistance Systems for passenger cars; DPU SmartNICs, which are advanced networking products used to increase the security and efficiency of datacenter servers; and CPUs for Cloud Computing Service Providers. The complaint also alleges that the acquisition will harm competition by giving the U.S. company access to the competitively sensitive information of the UK company’s licensees, some of whom are the U.S. company’s rivals. The UK company licenses its processor technology using an industry-described neutral, open licensing approach and is often dubbed the “Switzerland” of the semiconductor industry, according to the complaint.
The FTC’s Commissioners voted 4-0 to challenge the deal, but did not also authorize FTC complaint counsel to seek a preliminary injunction that would temporarily block the merger while the in-house challenge proceeds. Moving forward with an administrative challenge does not preclude the FTC from seeking an injunction later.
Great Outdoors Group, LLC and Sportsman’s Warehouse Holdings, Inc. abandon transaction following FTC investigation.
On Dec. 3, the FTC issued a statement in response to Great Outdoors Group, LLC and Sportsman’s Warehouse Holdings, Inc. abandoning their proposed merger following the FTC’s nearly year-long investigation. The FTC alleged that the transaction would have combined two close retail competitors selling hunting, shooting, fishing, camping, and other outdoor gear. Competition Bureau Director Holly Vedova stated: “Under its Bass Pro Shops and Cabela’s banners, Great Outdoors competes closely with Sportsman’s Warehouse to offer customers a broad and deep in-store assortment of outdoor gear, alongside expert sales staff, creating a one-stop shopping experience for outdoor enthusiasts. This competition has benefited customers in at least two dozen local markets throughout the United States.”
FTC faces lawsuit over merger policy changes.
On Dec. 8, a nonprofit group backed by Charles Koch, the Americans for Prosperity Foundation, filed suit seeking documents tied to the FTC’s recent changes to its merger and antitrust enforcement policies. The group had filed a Freedom of Information Act (FOIA) request in October 2021 seeking “communications, memoranda or other documentation” tied to a series of decisions made under the leadership of Chair Lina Khan. The FTC is still processing the FOIA request.
“The FTC’s aggressive agenda on antitrust enforcement is out of step with mainstream legal thinking and is best regarded as anti-consumer, anti-innovation, and harmful to economic growth and prosperity,” the request reads. “The public has a compelling need to understand what the agency is doing, why it is doing it, and what the Commission has chosen as working law in the wake of discarding the consumer welfare standard.” The group alleges the FTC violated FOIA by not responding in the 20-day timeline and by not arranging an “alternative time frame” for completion of the request.
FTC fines Clarence L. Werner, founder of truckload carrier Werner Enterprises, Inc., for alleged HSR Act violation.
On Dec. 22, the FTC announced that Clarence L. Werner, founder of the truckload carrier Werner Enterprises, Inc., would pay a $486,900 civil penalty to settle charges that his acquisition of Werner stock violated the Hart-Scott-Rodino (HSR) Act. The FTC alleged that Mr. Werner made several acquisitions of Werner stock over a 12-year period, beginning in 2007, by way of option exercises, open market purchases, and vesting of restricted stock, and that his aggregate holdings crossed an HSR notification reporting threshold.
The complaint noted that counsel for Mr. Werner alerted the agency in January 2020 that Mr. Werner may have had to submit several corrective HSR filings for crossing the $100 million (as adjusted) filing threshold as a result of the above-referenced acquisitions. Thereafter, on March 4, 2020, Mr. Werner submitted corrective filings for acquisitions consummated in 2007, 2012, and 2019. Other than these corrective filings, Mr. Werner apparently had not previously submitted a corrective HSR filing. However, before submission of those corrective filings but after counsel alerted the FTC to the possible HSR violation, Mr. Werner consummated two more acquisitions of Werner stock through the vesting of restricted stock awards.
FTC fines Biglari Holdings Inc. for alleged HSR Act violation.
Also on Dec. 22, the FTC imposed its second fine to settle an alleged violation of the HSR Act’s notification and waiting period requirements. The FTC announced that restaurant chain owner and investment fund operator Biglari Holdings Inc. would pay a $1.4 million civil penalty to settle charges that two acquisitions made on March 26, 2020, of shares of restaurant operator Cracker Barrel Old Country Store, Inc. crossed a notification threshold; no exemption was available so an HSR filing was required but was not done. Biglari previously paid $850,000 for alleged HSR violations in 2011 related to earlier purchases of Cracker Barrel stock, for which Biglari improperly relied on the exemption available for acquisitions “solely for the purpose of investment.”
While the 2020 acquisitions resulted in Biglari crossing a threshold for which it already had filed an HSR notification, the 2020 acquisitions were consummated outside of the five-year period during which an exemption from filing is available. Aggravating factors leading to the amount of the fine in this action included the fact that the acquirer had previously settled alleged HSR Act violations, that Biglari admitted it had not sought advice from counsel prior to consummating the 2020 acquisitions, and that the FTC first contacted Biglari to inquire why a filing was not submitted for these 2020 acquisitions (rather than the acquirer self-reporting).
FTC judge extends deadline for ruling on Altria’s acquisition of minority stake of Juul.
On Dec. 17, the FTC’s administrative law judge ordered a 30-day extension to file a final decision over a challenge to Altria Group Inc.’s $12.8 billion purchase of a 35% stake in e-cigarette maker Juul Labs Inc. FTC Chief Administrative Law Judge D. Michael Chappell cited an “extraordinarily high” volume of material presented at trial in granting the extension, noting a record including 2,480 exhibits and 3,410 pages of trial transcript from 37 witnesses.
The FTC’s April 2020 enforcement action alleges that Altria’s acquisition of the 35% stake in Juul was part of an illegal agreement between the companies not to compete. FTC counsel argued that the acquisition agreement, executed in 2018, was contingent upon Atria eliminating its own rival e-cigarette product.
Department of Justice (DOJ)
Justice Department seeks additional public comments on bank merger competitive analysis.
On Dec. 17, the DOJ’s Antitrust Division announced that it is seeking additional public comments until Feb. 15, 2022, on whether and how the Division should revise the 1995 Bank Merger Competitive Review Guidelines. The goal is to “ensure that the Banking Guidelines reflect current economic realities and empirical learning.” The potential revisions to the Banking Guidelines are part of an ongoing effort by the federal agencies responsible for banking regulation and supervision.
“The Antitrust Division shares with its federal partners an interest in ensuring bank mergers do not harm competition and the competitive process,” Antitrust Division Assistant Attorney General Jonathan Kanter said.
In re Libor-Based Financial Instruments Antitrust Lit., Case 17-2360 (2d Cir. Dec. 30, 2021).
JPMorgan Chase & Co., UBS Group AG, and other global banks are subject to U.S. jurisdiction for allegedly manipulating the London Interbank Offered Rate, the federal appeals court in New York ruled. A three-judge panel ruled that U.S. courts can exercise “conspiracy jurisdiction” over the banks if other members of the conspiracy took steps to advance the scheme from within the United States. The appeals court reversed a 2016 ruling by U.S. District Judge Naomi Reice Buchwald, who had dismissed claims on the ground that her court lacked jurisdiction over the bank defendants. U.S. Circuit Judge Richard Sullivan stated on behalf of the three-judge Panel, “Plaintiffs have alleged overt acts taken in the United States to advance the suppression conspiracy; at this stage of the Litigation, that is enough to establish Personal Jurisdiction.”
Linet Americas, Inc. v. Hill-Rom Holdings, Inc., Civil Action No. 1:21-cv-06890 (N.D. Ill. Dec. 19, 2021).
A lawsuit filed in Illinois alleges that medical equipment provider Hill-Rom uses its alleged monopoly power to unfairly limit competition in the U.S. market for hospital beds.
Linet Americas Inc.’s complaint alleges that Hill-Rom is the main provider of hospital beds in the United States and uses “anti-competitive” practices to slow Linet’s growth in the U.S. market, including allegedly “coercing” hospital administrators into locking entire health systems into long-term agreements. Linet further alleges that the agreements were a key part of a “monopoly broth” Hill-Rom created, which Linet claims also included encouraging multiple Hill-Rom products to be purchased together and closing off enhanced features in its nurse call system to non-Hill-Rom beds. According to the complaint, Hill-Rom makes up at least 70% of standard, intensive-care, and birthing beds installed in U.S. hospitals. In the 104-page complaint, Linet alleges Hill-Rom has “extinguish(ed) any meaningful challenge to its dominance” and “the severe consequences of that market reality are now reverberating throughout our public health system.”
Casey’s Distributing Inc. v. National Football League Inc. et al., Case No. 3:21-cv- 09905, and Hastings v. National Football League Inc. et al., Case No. 3:21-cv-09908, (N.D. Cal. Dec. 22, 2021).
The National Football League, its teams, and its licensing partner Fanatics Inc. were hit with federal antitrust claims in San Francisco by a merchandise business and a consumer claiming they have conspired to monopolize NFL product sales through a third-party marketplace.
The lawsuits, filed in the U.S. District Court for the Northern District of California, accuse the league of tilting the scales in favor of Fanatics, of which the NFL is a part-owner, through new onerous restrictions on third-party marketplace sales by its competitors. The two companies are accused of stifling competition on the third-party marketplace by placing major restrictions on other merchandisers selling NFL products. According to the lawsuits, the NFL began threatening to withhold fan gear licensing from distributors who supplied the merchandise to third-party marketplace retailers other than Fanatics after investing about $95 million in Fanatics in 2017. The lawsuit reads, “Fanatics recognized the problem that robust competition on [the third-party marketplace] posed to it … Distributors were forced to abandon business relationships with smaller retailers, but Fanatics allegedly told them it would mitigate the loss by snapping up more of the distributor’s product itself.”
Mexico’s Competition Authority preliminarily finds a lack of effective competition in the distribution of gas to consumers.
On Dec. 1, 2021, the Federal Economic Competition Commission (COFECE or Commission) preliminarily found a lack of effective competition in 213 of the 220 geographic markets defined for liquefied petroleum gas (LPG) distribution to end users through plants and auto tankers.
In Mexico, LPG is the main fuel used by families and businesses to cook, heat water, and provide heating in homes. According to COFECE, the following are among the elements identified that inhibit competition:
An alleged high concentration in multiple regional markets.
The existence of alleged barriers for potential competitors to enter these markets due to high investment costs, such as those related to the establishment and operation of a distribution plant, the acquisition of vehicle fleet and portable cylinders, a long-term return (between three and 10 years), as well as high sunk costs.
Regulatory barriers, which COFECE qualifies as a “high number of standards and legal requirements,” and the need to interact with at least five authorities, both local and federal, to obtain permits.
Commission agents and clandestine groups and pseudo unions whose conduct constitutes a barrier to entry, as they inhibit the concentration of distributors in certain geographic areas, especially in Mexico City.
Economic agents interested in this proceeding may present statements and arguments they consider pertinent to COFECE for it to consider before issuing its final resolution. If the preliminary opinion is confirmed, the industry regulator will be able to regulate prices.
COFECE finds an absence of conditions for effective competition in maritime passenger transportation (ferries) in and out of Cozumel, Cancún, Playa del Carmen, and Isla Mujeres.
COFECE found a lack of effective competition conditions in the maritime passenger transportation service, in cabotage navigation, and in the modality of ferries in markets that include the routes, with origin and/or destination, Cozumel Island-Playa del Carmen; Isla Mujeres-Puerto Juárez or Gran Puerto, in Cancún; as well as Isla Mujeres with origin and/or destination to the docks El Caracol, Playa Tortugas and El Embarcadero, also in Cancún.
COFECE identified that Naviera Magna (Magna) had an unusually high market share in the routes and substantial market power in the ports of Puerto Juarez and Hotel Zone – in the latter, Magna is the only provider of the service, while in the Cozumel-Playa del Carmen route, Magna and Golfo Transportación (Winjet) have high market shares and demonstrate similar behavior in terms of tariffs and schedules.
COFECE found there to be regulatory, economic, and structural barriers that limit the entry of potential participants:
Indivisibility of the infrastructure to provide the service: the assets cannot be adapted to the seasonal demand of the service, which directly affects the investment decisions and fixed costs of the carriers.
High investment amounts required to enter the market.
Access barriers to port infrastructure. In certain cases, there are physical limitations that hinder the simultaneous operation of several service providers; in others the use of docks is for exclusive use (Magna in the Hotel Zone) and there is no additional infrastructure for docking.
High advertising costs.
Following this determination, the regulatory authority (Ministry of the Navy) can set tariff regulations for these services.