MoginRubin Antitrust Notes July 6, 2021
FTC Goes After Broadcom, DOJ Signals Broader Look at Realtors, and Other News
A quick recap of recent antitrust-related developments in semiconductors, real estate, college sports, insurance brokerage, digital advertising, agriculture, health data privacy, retail, automotive manufacturing, and defense contracting, plus a change that all but guarantees more antitrust enforcement activity from the FTC.
Broadcom’s Three-Chip Monopoly Draws FTC Charges, Consent Decree
FTC has charged leading chipmaker Broadcom with illegally monopolizing markets via exclusive dealing for semiconductor components necessary to deliver television and broadband internet services, namely set-top boxes, DSL, and fiber broadband devices. Broadcom CEO Hock Tan has signed a consent order agreeing to stop requiring its customers to source its components on an exclusive or near-exclusive basis. Broadcom’s direct customers are original equipment manufacturers, or OEMs. OEMs supply these devices to television and broadband service providers—such as AT&T, Charter, Comcast, DISH and Verizon—which in turn provide the devices to consumers. The complaint alleges that Broadcom illegally maintained its power in the three monopolized markets by entering long-term agreements with both OEMs and service providers that prevented them from purchasing chips from Broadcom’s competitors. “By entering exclusivity and loyalty agreements with key customers at two levels of the supply chain, Broadcom created insurmountable barriers for companies trying to compete with Broadcom,” the FTC charged. The consent decree has been made available for public comment. See commentary from MoginRubin’s Dan Mogin and Timothy Z. LaComb.
DOJ Makes Way for Broader Probe into Realtors’ Group
The Justice Department’s Antitrust Division on July 1 withdrew from a proposed settlement with the National Association of Realtors (NAR) and dropped its complaint against the group. The DOJ decided that the settlement may have limited its ability to investigate more broadly any of the association’s anti-competitive, anti-consumer conduct and rules. NAR’s rules affect millions of real estate brokers and agents to whom home buyers and sellers paid $85 billion in residential real estate commissions in 2020. DOJ sued NAR in November 2020 alleging it established and enforced rules and policies that illegally restrained residential real estate competition. The proposed settlement sought to remedy those practices and encourage greater competition among realtors, but it also prevented the DOJ from pursuing other antitrust claims against the organization.
College Sports Stars Are Cashing In
Exceptionally talented student-athletes will no longer have to wait until they go pro to reap the financial rewards of their skills and hard work. The National Collegiate Athletic Association Division 1 Board of Directors on July 1 approved an interim policy removing a portion of its amateurism rules. Student-athletes may now profit from their names, images and likenesses, or NILs for short. The move came after the Supreme Court’s unanimous ruling in favor of student-athletes in their antitrust dispute with the NCAA over education-related benefits. Justice Neil Gorsuch wrote the July 21 majority opinion which held that the NCAA does not get a free pass when it comes to antitrust law. He said the lower courts were correct in applying antitrust scrutiny to the NCAA’s “amateur” requirement of athletes which denies them compensation at a level they would command in a competitive market. Justice Brett Kavanaugh concurred, but wrote that the majority didn’t go far enough. He maintained that the NCAA’s remaining compensation rules – including restrictions on the sale of NILs and salaries – may also violate antitrust laws. The NCAA seems to have gotten Justice Kavanaugh’s less-than-subtle hint. College athletes have already begun announcing endorsement deals.
Justice Department Sues to Block Aon’s Acquisition of Willis Towers Watson
Saying the deal would create a “broking behemoth” and eliminate competition between two of the three biggest insurance brokers, the DOJ Antitrust Division sued to block Aon’s $30 billion acquisition of Willis Towers Watson. Filed in U.S. District Court for the District of Columbia, the DOJ said the merger threatens to eliminate competition, raise prices, and reduce innovation for U.S. businesses, employers, and unions. Aon and Willis Towers Watson have agreed to divestitures as the result of investigations by international competition agencies, but these proposed remedies are inadequate to protect U.S. consumers, the government maintains, adding that this is particularly true in the health benefits and commercial risk sectors. Both companies are incorporated in Ireland and headquartered in London. Aon is an $11 billion company with offices in 120 countries, including the U.S. where it has 100 offices. A $9 billion company, Willis Towers Watson has offices in more than 80 countries, including more than 80 in the U.S. Should the deal go through it would knock the current market leader, $17 billion U.S.-based Marsh & McLennan Cos., down to second place.
EC Investigating Google’s Conduct in Online Advertising Tech Sector
The European Commission announced on June 22 that it is investigating whether Google has violated EU competition rules by favoring its own online display advertising technology services in the ad-tech supply chain. Such conduct would harm competing providers of advertising technology services, advertisers, and online publishers. “The formal investigation will notably examine whether Google is distorting competition by restricting access by third parties to user data for advertising purposes on websites and apps, while reserving such data for its own use,” according to the EC’s statement. The company also faces investigations and litigation in the U.S. Read our past posts involving Google.
Farmers and Ranchers Getting Modernized Protection from Anticompetitive Conduct
It’s a 100-year-old law that was designed to protect poultry and hog farmers and cattle ranchers from anticompetitive practices in meat markets. “The pandemic and other recent events have revealed how concentration can take a painful toll on independent farmers and ranchers, while exposing working family consumers to higher prices and uncertain output,” Agriculture Secretary Tom Vilsack said on June 11. “The Packers and Stockyards Act is a vital tool for protecting farmers and ranchers … but the law is 100 years old and needs to take into account modern market dynamics,” Vilsack said, adding it “should not be used as a safe harbor for bad actors.” The USDA will begin work on rules to support enforcement of the Act. The DOJ Antitrust Division likes the move. Acting Assistant Attorney General Richard A. Powers said his team “remains committed to vigorous enforcement of the antitrust laws to protect American farmers, ranchers, and consumers, and to ensure they all benefit from robust competition.”
FTC Says Fertility Tracking App Shared Private Data Despite Privacy Pledge
The Flo Period & Ovulation Tracker app, according to its website, has been “chosen by over 180 million women worldwide.” In the privacy section of its website it says: “When you use Flo, you are trusting us with intimate personal information. We are committed to keeping that trust …" In announcing a settlement with Flo Health Inc., owner of the app, the FTC said the company shared data with Facebook, Google, and others. Data, of course, is what gives these companies their power. The FTC is requiring Flo Health to get affirmative consent of users before sharing their personal health information. It must also obtain an independent review of its privacy practices, according to the FTC’s June 22 news release. Flo Health must notify affected users about the disclosure of their health information and instruct any third party to destroy health data they may have received. As of this writing the Flo website is topped off with a banner than takes visitors to a statement about the settlement, saying to customers that between June 30, 2016, and Feb. 23, 2019, it sent “information about your period and pregnancy to companies that help us measure and analyze trends, usage, and activities on the app, including the analytics divisions of Facebook, Flurry, Fabric, and Google.” But, the company stressed, no information was shared with the social media divisions of these companies, and they did not share names, addresses, or birth dates.
FTC Rescinds Policy That Hampered Anti-competition Efforts
The FTC has been operating under a 2015 antitrust policy statement that has constrained use of its authority to stop anticompetitive business tactics under Section 5 of the FTC Act. According to its July 1 news release, the FTC said the policy was in contradiction to its Congressional mandate to fight unfair methods of competition beyond the Sherman Act and the Clayton Act. Chair Lina M. Khan was joined by Commissioners Rebecca Kelly Slaughter and Rohit Chopra in calling the 2015 policy “shortsighted.” They explained that “[i]n practice, the Statement has doubled down on the Commission’s longstanding failure to investigate and pursue ‘unfair methods of competition.’” Rescinding the statement, they concluded, is crucial to bringing the FTC back in line with its statutory obligations.
FTC Requires 7-Eleven Divestitures
The FTC has ordered the divestiture of hundreds of retail stores on the grounds that 7-Eleven’s $21B acquisition of Marathon Petroleum Corp.’s Speedway Retail Fuel Chain violated federal antitrust laws. In its June 25 news release, the FTC explained that the stores are located in 293 local markets across 20 states. “7-Eleven consummated the acquisition on May 14, 2021, even though the company knew the acquisition violated Section 7 of the Clayton Act and Section 5 of the FTC Act,” according to the FTC. A subsidiary of Japan’s Seven & I Holdings Co., Ltd., 7-Eleven owns, operates, and franchises some 9,000 U.S. convenience stores in the U.S. Nearly half of 7-Eleven's stores sell fuel. Speedway operates nearly 4,000 retail fuel outlets across the country. The FTC said markets for retail gasoline and retail diesel fuel are highly localized, and consumers have no economic or practical alternatives to the retail sale of gasoline or diesel fuel.
DOJ Antitrust Division Pressures International Auto-Parts Suppliers to Restructure Deal
Tupy S.A., a Brazilian company, is the largest supplier of iron blocks and heads for heavy-duty engines to customers in North America. Second-place supplier Teksid S.p.A., an Italian company, is a wholly owned subsidiary of Stellantis, a multinational automobile manufacturer based in Amsterdam. The components supplied by these companies are critical to engines used in large trucks, construction and agricultural equipment, which is why the DOJ Antitrust Division raised concerns about the merger. In response, the companies agreed to restructure the deal. Under the original agreement, Tupy would have acquired Teksid’s entire iron automotive components business from Teksid’s parent. The original acquisition included Teksid’s plant and other assets in Mexico where iron blocks and heads for U.S. automotive customers are manufactured. Now, Tupy will acquire only Teksid’s iron operations in Brazil and Portugal. Teksid will retain its iron operations in Mexico and continue to compete with Tupy to supply U.S. customers. The DOJ called the deal “a victory for American engine manufacturers and consumers.”
Defense Contractor Pleads Guilty to Criminal Antitrust
G4S Secure Solutions NV (G4NormalS) is a Belgian security firm that provided services to the U.S. Department of Defense, including services for U.S. military bases and installations in Belgium under a multi-million contract issued in 2020. But an investigation revealed that at least three executives had been participating in a conspiracy to fix prices, rig bids, and allocate customers in 2019 and 2020. The company agreed to cooperate with the government starting in April 2020. In addition to pleading guilty, the company will pay a $15 million criminal fine, should the deal be approved. This is the first international resolution obtained by the Procurement Collusion Strike Force (PCFS), according to the DOJ Antitrust Division. The Antitrust Division’s New York Office is prosecuting the case, which was investigated with the assistance of the FBI’s International Corruption Unit New York Field Office, the Defense Criminal Investigative Service, the New York Resident Agency and the Transnational Operations Field Office, the U.S. Army CID's Major Procurement Fraud Unit, and other PCSF partners in Europe. The investigation continues.
Edited by Tom Hagy for MoginRubin.