United States: Antitrust And Competition Newsletter: August 2014

Asia

China's MOFCOM Blocks 'P3 Alliance' Despite EU, U.S. Non-Opposition

On June 17, 2014, China's Ministry of Commerce (MOFCOM), China's competition regulator, prohibited the proposed "P3 Alliance" that would have combined the world's three largest container carriers—Maersk Line, Mediterranean Shipping Company and CMA CGM—on certain shipping routes.

MOFCOM prohibited the deal despite the U.S. Federal Maritime Commission (FMC) clearing the transaction in March 2014, and the European Commission (Commission) announcing its decision not to open an investigation just two weeks prior to the MOFCOM prohibition. The differing outcomes resulted from each authority analyzing only the effects of the deal relating to its respective market. The FMC did not analyze Asia-Europe routes since it has no jurisdiction over it and, conversely, MOFCOM did not analyze Europe-North America routes. Moreover, while the FMC and Commission assessed the deal under their respective competition rules applicable to cooperative agreements between independent undertakings, MOFCOM assessed the deal as a concentration and therefore applied merger control rules and its related economic analysis, which allow non-competition factors such as macroeconomics and collective policy considerations to be taken into account.

Characterising the P3 Alliance as a cooperative agreement rather than as a merger meant that the FMC and the Commission had limited power to impose ex ante remedies or to prohibit the deal at the outset, since antitrust law applicable to cooperative agreements in the U.S. and EU can usually be enforced ex post only. On the contrary, merger control rules normally allow the regulators to intervene ahead of the implementation of the transaction.

MOFCOM's reasons for characterizing the P3 Alliance as a merger are unclear, however, because just 10 days ahead of its prohibition decision, MOFCOM revised its merger review guidance. It appears that MOFCOM was concerned that the P3 Alliance would have controlled 46.7 percent of the Asia-Europe shipping route market and therefore would have raised barriers for new entrants and put smaller rivals at a disadvantage. This is only the second time MOFCOM has prohibited a merger since China introduced its antitrust regime in 2008 (the first prohibition addressed the acquisition of juice-maker Huiyuan by Coca-Cola in 2009); but it is the first time that the regulator has blocked a global transaction among foreign parties.

Inner Mongolia AIC Fines Fireworks Wholesalers for Market Division Under China's Anti-Monopoly Law

China's State Administration on Industry and Commerce (SAIC) recently published Inner Mongolia AIC's May 2014 decision imposing fines totaling 583,700 RMB (U.S.$94,800) on six fireworks wholesale companies in Chifeng, Inner Mongolia, for unlawful market division under the Anti-Monopoly Law.

In 2006, the local work safety department in one of the two districts of the central area of Chifeng divided the distribution areas for each of the fireworks wholesale companies within the jurisdiction, with the claimed intentions of preventing safety accidents arising from lowered product quality that could be caused by aggressive competition and guiding the companies to actively participate in market management. A similar arrangement was adopted by the other district of the central area in 2009. Under these arrangements, each designated sub-area was supplied by one wholesaler, and retailers in a sub-area were forced to purchase products only from the designated wholesaler. Although there was no agreement in writing, all the wholesalers acted in concert by following the administrative restrictions. Through coordination with local public and work security departments, each year the wholesalers were able to examine retailers' goods and confiscate goods not purchased from the designated wholesaler in each sub-area. This conduct lasted until the Inner Mongolia AIC's investigation started in January 2014.

In addition, four of the six companies were authorized by local work safety departments to hold safety training for retailers and to apply for fireworks retail licenses on behalf of retailers. With such authorization, the four companies asked the retailers applying for the licenses to make down payments for orders. Retailers that did not make the down payments could run out of stock during peak seasons, and they were not allowed to replenish their inventories from any other wholesale supplier.

Inner Mongolia AIC found that the agreements to divide markets violated the Anti-Monopoly Law. The four wholesalers imposing unreasonable trade conditions on retailers were fined 8 percent of their annual revenues for 2013, and the other two were fined 7 percent.

The Inner Mongolia AIC's decision is available here.

China's SAIC Issues New Draft of Antitrust Regulations for Intellectual Property Rights

China's State Administration for Industry and Commerce (SAIC) has issued a new draft of its regulations governing antitrust enforcement of intellectual property rights (the "Rules"). The Rules are designed to protect competition, encourage innovation, and prevent the abuse of intellectual property rights to eliminate or restrict competition. The Rules establish a general principle that undertakings shall not conclude monopolistic agreements as prohibited in the Anti-Monopoly Law by exploiting intellectual property rights.

The Rules address a broad range of intellectual property licensing conduct, including refusals to license essential patents, exclusive dealing, tying arrangements, exclusive grantbacks, no-challenge clauses, imposing restrictions or demanding royalties after a patent expires, discriminating among licensees without justification, etc. They also provide guidelines for participating in patent pools, which are similar to some of the rules the U.S. Department of Justice has developed through its Business Review Letters. In addition, the Rules provide regulations for participating in standards-setting organizations, including prohibiting refusing to disclose standards-essential patents and later asserting patent rights against entities implementing the standards, and also prohibiting companies holding standards-essential patents from refusing to license on FRAND terms. The Rules also establish principles for enforcement, including procedures for analyzing a suspected abuse of intellectual property rights, and factors for analyzing the effect of conduct on competition.

The Rules provide for penalties that include the confiscation of illegal gains and a fine between 1 and 10 percent of the turnover in the previous fiscal year. The amount of the penalty is to be determined based on factors such as the nature, particulars, seriousness and duration of the unlawful conduct.

A copy of the Rules is available here.

Beijing High Court Upholds Decisions Finding Violation of AML by Seafood Trade Association

China's Beijing High Court has upheld the Beijing Second Intermediate Court's September 2013 decision in Lou, Binglin v. Beijing Seafood Wholesale Industry Association, the first case in which a court found a violation of the Anti-Monopoly Law (AML) through horizontal monopolistic agreements since the AML was promulgated in 2008.

Binglin Lou and his wife had been selling seafood, mainly scallops originated from Dalian Zhangzi Island Group Co., Ltd., in a Beijing seafood market. Lou was a member of the Beijing Seafood Wholesale Industry Association, which was registered on Sept. 29, 2011, with 31 members. The Association Manual provided, in the section "Rules on Rewards and Penalties," that "[m]embers are prohibited from unfair competition, nor are they permitted to sell scallops at a discounted price that goes against the Association's provisions," and that "[m]embers are prohibited from selling whole packages of scallops to non-members in the market where a member operates a business." The Association organized meetings among members regarding the scallop business, including concerted consultation with the Dalian Zhangzi Island Group, on sources, prices, rewards and restrictions on sales to non-members. The Association also implemented rewards and penalties and fined Lou several times for violations.

The court found that the Association conducted activities externally as an independent legal entity from at least Sept. 29 to Dec. 31, 2011. Meeting minutes of the Association showed that although the meetings since January 2012 referred to Dalian Zhangzi Island Group Company Ltd. Beijing Sales Alliance ("Sales Alliance"), most participants were Association members, and meeting agendas related to the operations of the Association. Accordingly, the court determined that the Association was an eligible entity, and the Association's allegation and argument that all the alleged acts were conducted by Sales Alliance and the Association should not be a party of this case were invalid.

The court found that the Association had arranged for undertakings to reach monopolistic agreements on fixing or alteration of prices and thus violated the AML. The court also found that the provisions in the "Rules on Rewards and Penalties" of the Association Manual constitute monopolistic agreements that were invalid. The Association's allegations that prices were set to follow Zhangzi Island's requirements, and the restriction on sales to non-member merchants were an implementation of Zhangzi Island's sales policies, were found invalid.

The Beijing Second Intermediate Court's decision is available here.

Europe

European Court Rejects Appeal Challenging the Commission's Dawn Raid Powers

On June 25, 2014, the Court of Justice of the European Union (CJEU) dismissed a challenge brought against the European Commission (Commission) by the French cable manufacturer Nexans SA in which it sought to challenge the Commission's powers to seize documents in dawn raids.

In January 2009, the Commission launched dawn raids at the premises of Nexans France in relation to its potential participation in a suspected cartel in the market for high-voltage cables. The documents inspected during the Commission's raid included business records that concerned projects outside EU markets.

Nexans challenged the inspection decision, and its appeal was partially upheld by the General Court in 2012. The General Court found that the Commission did not have reasonable grounds to seize documents in relation to products other than high-voltage underwater and underground electric cables and associated materials. However, the Commission decision with regard to the geographical scope of its powers was upheld by the General Court.

Nexans, in its appeal against the General Court's decision to the CJEU, argued that the Commission did not have the power to seize documents relating to activities outside the EU and that its decision to inspect was overly broad in its geographic scope and failed to provide a sufficiently precise basis for the inspection.

The CJEU rejected the appeal in its entirety and stated that, "taking account of Commission's suspicions concerning an infringement, which probably had a global reach ... even documents linked to projects located outside the common market were likely to provide relevant information on the suspected infringement."

The full CJEU decision is available here.

European Court Upholds Fine Against Electrabel for 'Gun-Jumping'

On July 3, 2014, the Court of Justice of the European Union (CJEU) upheld the decision of the European Commission (Commission) to impose a €20 million fine (about U.S.$27 million) on Electrabel SA for implementing its acquisition of Compagnie Nationale du Rhone (CNR) without prior approval.

Electrabel acquired 17.68 percent of the shares and 16.88 percent of the voting rights in CNR in June 2003 and increased its shareholding to 49.95 percent of shares and 47.92 percent of the voting rights on Dec. 23, 2003. In August 2007, Electrabel commenced discussions with the Commission as to whether it had acquired control of CNR, and formally notified the Commission of its acquisition of CNR from Electricité de France (EDF) on March 26, 2008.

In April 2008, the Commission approved the acquisition but left open the question as to the date on which Electrabel acquired control of CNR. The Commission, a year later, concluded that Electrabel acquired control when it increased its shareholding in CNR in December 2003, and was therefore in breach of its obligation to notify the Commission before the acquisition was implemented. The Commission levied a €20 million fine on Electrabel, and its decision was upheld by the General Court in December 2012. The General Court agreed with the Commission's finding that Electrabel had acquired de facto sole control as of December 2003 and held that, by virtue of the wide dispersal of other shareholders, Electrabel, despite being a minority shareholder, was almost certain of obtaining a majority at future shareholder meetings.

The General Court took the opportunity to highlight the seriousness of breaches of notification obligations, and found that the early implementation of a concentration was likely to bring about significant changes in the relevant competitive environment, and was therefore not a mere procedural breach.

Electrabel appealed against the decision of the General Court to the CJEU which, in its judgment dated July 3, 2014, dismissed the appeal in its entirety and upheld the €20 million fine imposed by the Commission.

This CJEU decision cements the serious stance taken by the Commission and the European courts against early implementation of a transaction, or "gun jumping," and further highlights their willingness to impose and uphold severe fines on companies that fail to notify the Commission in advance of implementation. The Commission is clearly adhering to this position and has, subsequent to the Electrabel CJEU decision, fined Marine Harvest €20 million for closing its purchase of rival Morpol without first obtaining merger approval.

The full CJEU decision is available here.

European Commission Sets Out Proposals for Changes to Merger Rules

On July 9, 2014, the European Commission (Commission) launched a public consultation on proposals contained in its White Paper, "Towards More Effective EU Merger Control." The proposals aim to introduce a tailor-made review system targeting non-controlling minority shareholdings that may affect competition and to simplify existing referral procedures.

The proposals surrounding minority shareholdings aim to address the current "enforcement gap" that has emerged due to the Commission's current lack of power to address competition concerns arising from acquisitions of minority shareholdings. The Commission proposes to introduce a light review system requiring parties to submit an information notice containing basic information about a proposed acquisition to allow the Commission to determine which cases could potentially be problematic and therefore suitable for full review. The proposals would bring the Commission's powers in line with those held by regulators in some EU Member States (regulators in the UK, Austria and Germany are currently competent to assess the national effects on competition of acquisitions of minority shareholdings) and would allow such acquisitions to be reviewed where they have European Economic Area (EEA)-wide effects.

The proposals contained in the White Paper also aim to streamline and simplify referral procedures between Member States and the Commission. In an attempt to encourage close cooperation between the Commission and national competition authorities, the Commission proposes to: (1) abolish the requirement for two separate submissions for pre-notification referrals; and (2) afford the Commission EEA-wide competence to review a transaction received via post-notification referral to avoid parallel investigations by the Commission and national competition authorities. In addition to streamlining the referral procedures, the Commission also proposes to make procedures simpler by, for example, excluding certain non-problematic transactions (such as transactions that do not involve any horizontal or vertical relationships between the merging undertakings) from the scope of the Commission's merger review.

The Commission's proposal on minority shareholdings has been criticized for expanding the Commission's jurisdiction and creating legal uncertainty.

The deadline for the submission of responses to the Commission's consultation is Oct. 3, 2014. The Commission's full White Paper is available here.

Commission Adopts Revised Rules for Agreements of Minor Importance De Minimis

On June 25, 2014 the European Commission (Commission) issued a revised Notice on agreements of minor importance (De Minimis Notice), which are not subject to the prohibition of Article 101(1) of the Treaty of the Functioning of the European Union (TFEU). The revised Notice is accompanied by a separate guidance paper that contains a checklist of "by object" restrictions that do not benefit from the protection granted in the De Minimis Notice.

The Court of Justice of the European Union (CJEU) has consistently held that the prohibition in Article 101(1) is not applicable where the impact of the agreement on competition is not appreciable. The objective of the De Minimis Notice is to provide guidance on whether the impact of an agreement is "appreciable" and whether it therefore may be caught by Article 101(1). The original 2001 notice established that restrictive agreements entered into between undertakings whose combined market share is below certain thresholds are not capable of producing "appreciable" effects. The thresholds were fixed at 10 percent for agreements between competitors and at 15 percent for agreements between non-competitors, except were the relevant market was characterized by networks of parallel agreements, in which case the threshold was 5 percent. The thresholds remain unchanged in the revised notice.

The 2001 Notice also established that to benefit from the "safe harbor," agreements must not contain certain "hard-core restrictions" (e.g., price fixing or market sharing), since such restrictions always have appreciable effects irrespective of market shares. The Commission has now widened the list of hard-core restrictions contained in the 2001 Notice by explicitly including all agreements that have an anticompetitive object (the "by-object restrictions") as well as those restrictions listed as "hard-core" in any present or future Commission block-exemption regulation (such as the Vertical Agreements Block Exemption Regulation or the Technology Transfer Block Exemption Regulation). This change reflects developments in the case law of the European courts in clarifying that anticompetitive agreements by object are never "minor," since such agreements have, by definition, an appreciable impact on competition. The separate guidance paper on restrictions of competition "by object" provides a list of the types of restrictions that have already been considered by-object restrictions by the European courts or by the Commission in individual cases, or as hard-core/by-object restrictions in existing block exemption regulations and Commission guidelines but does not introduce any new restrictions.

Further, the revised Notice now clarifies that agreements that contain a restriction by object may still fall outside the scope of Article 101(1) where they are not capable of appreciably affecting trade between Member States. The revised Notice does not give guidance as to what constitutes an appreciable effect, referring instead to the guidance in the Commission's Notice on Effect on Trade, which quantifies those agreements that are not, in principle, capable of appreciably affecting trade between Member States.

The text of the revised De Minimis Notice is available here and the Guidance paper is available here

French Supreme Court (Cour de Cassation) Strengthens the Right of Lawyer's Presence During Dawn Raids

On June 26, 2014, the criminal chamber of the French Supreme Court (Cour de Cassation) held that during antitrust procedures, the defendants' rights of defense must be respected during the entire procedure, including during the preliminary inquiry and especially dawn raids. Cour de Cassation, 26 June 2014, n° 25.06.2014.

In this case, the date of the investigation is of crucial importance. The challenged dawn raid was held on March 18, 2008. At that time, the attendance of external lawyers during dawn raids was not provided for by French law, and their presence was thus not a right. In the interim, article L. 450-4 of the French code of commerce (which provides for the French dawn raid proceedings) was modified by an order on Nov. 13, 2008. The new rules provide that parties may be assisted by the counsel of their choice during antitrust investigations.

The Court of Appeal refused to annul the investigation on the basis that the lawyers were refused access to the investigated premises. Indeed, the Court considered that the presence of a lawyer must be provided for explicitly by the law and that the parties were not subject to any measure of constraint, therefore not benefiting from the protection granted by Article 6 of the European Convention on Human Rights (ECHR).

The Cour de Cassation reversed the decision of the Court of Appeal, and annulled the dawn raid that was carried out. The Court considered that even though the law was silent regarding the presence of lawyers during investigations, EU and ECHR case law regarding the rights of defense and a fair trial command that the presence of legal counsel must be possible during competition dawn raids.

Therefore, the Court recognized the right to be assisted by a lawyer during preliminary investigations conducted by a competition authority even when such right is not expressly provided for by the law in force.

The court's decision can be found here.

Higher Regional Court of Schleswig, Germany, Rules That Ban on Sales Via Online Marketplaces Infringes Competition Law

Many manufacturers of branded goods, who have expressed concerns about the image of their products and worry that these are sold on the cheap, have sought to restrict the use of the Internet by their distributors. In particular, distribution agreements oftentimes include provisions that ban sales via online marketplaces such as eBay and Amazon Marketplace. The legality of such sales bans has repeatedly been questioned by the German competition authority (Bundeskartellamt) and before the German courts. The manufacturer adidas AG, for instance, recently changed its distribution agreements following pressure from the German competition authority to allow the members of its distribution system the sale of adidas sports gear via online platforms.

The judgment of the Higher Regional Court of Schleswig of June 5, 2014 (Case no.: 16 U Kart 154/13), which dismissed an appeal brought by the camera manufacturer Casio Europe against an injunction of the Regional Court of Kiel, is going down the same road. The case concerned the following provision in Casio Europe's distribution agreements: "Sales via so-called 'Internet auction platforms' (e.g., eBay), Internet marketplaces (e.g., Amazon Marketplace) or independent third parties are not allowed."

The Higher Regional Court confirmed the view of the court of first instance that a ban on sales via third-party platforms is a restriction of competition both by object and by effect and, therefore, an infringement of competition law. This is the case, in particular, because the ban limits the choices for consumers and reduces the competitive pressure on prices since many consumers use large online platforms, which they trust and which are characterized by intensive price competition. The arguments brought by the defendant for a justification of the ban were dismissed in their entirety by the court. With regard to advice to customers, the court said that this is not relevant as the defendant had not shown that the products required any particular explanations and that the operating manual should suffice; that customers buying online do normally not seek advice; and, that the products in question are also offered at large electronic retailers for which Casio did not specify any criteria of a qualitative nature. Further, in the court's view, it is usually a matter of chance whether the consumer would find someone in the brick and mortar store who is really familiar with the product and could advise accordingly. Finally, as the court considered that the ban of Internet platforms was a so-called "hard-core" restriction, it also dismissed the possibility that the ban could be exempted from the prohibition on anti-competitive agreements.

As the court has allowed that its judgment may be appealed before the German Supreme Court, it is likely that soon the highest German court and, possibly even the Court of Justice of the European Union, will rule on the legality of online marketplace bans under competition law.

United States

U.S. Supreme Court To Determine Whether Natural Gas Act Preempts Price-Fixing Claims

On July 1, 2014, the U.S. Supreme Court granted review to determine whether the Natural Gas Act preempts price-fixing claims in multidistrict litigation against energy companies. In In Re: Western States Wholesale Natural Gas Antitrust Litigation, 715 F.3d 716 (9th Cir. 2013) (court of appeals decision available here), the 9th U.S. Circuit Court of Appeals held that the Natural Gas Act did not preempt state law antitrust challenges to natural gas rates and practices related to natural gas sales. The 9th Circuit relied upon the Supreme Court's 1989 decision in Northwest Central Pipeline Corp., 489 U.S. 493 (1989). There, the Supreme Court held that the Natural Gas Act provides a "regulatory role for the states" in natural gas production, and, according to the 9th Circuit, rejected the argument that federal regulations preempted all state regulations that may affect rates within federal control. The natural gas companies sought review, arguing that the 9th Circuit's decision conflicted with those of two state supreme courts. After the U.S. Supreme Court asked the federal government to address the dispute, the U.S. Solicitor General argued that the Federal Energy Regulatory Commission (FERC) had exclusive jurisdiction over the issues, but recommended that the Supreme Court deny review because there was no conflict with state supreme court decisions and the issue was not likely to recur given FERC's subsequently expanded authority. The U.S. Supreme Court nevertheless accepted the case, which will be heard during the next term, which starts in October. The case is styled in the Supreme Court as Oneok, Inc., et al. v. Learjet, Inc., Case No. 13-271.

U.S. Supreme Court to Hear Libor Antitrust Appeal to Resolve Circuit Split Regarding Appealability of Orders Before Entry of a Final Judgment in an MDL Proceeding

On June 30, 2014, the U.S. Supreme Court agreed to consider whether bondholder plaintiffs accusing several banks of violating antitrust law by rigging Libor had the right to immediately appeal the dismissal of their case even though the broader multidistrict litigation is still ongoing. See Ellen Gelboim, et al. v. Bank of America Corp., et al., Case No. 13-1174. The district court had dismissed the majority of plaintiffs' claims, including the antitrust claims, for failing to meet statutory requirements pertaining to private plaintiffs. The 2nd U.S. Circuit Court of Appeals denied plaintiffs' appeal because a final judgment not yet been entered in the district court's MDL case. See In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d 666 (S.D.N.Y. 2013).In their petition to the Supreme Court, the plaintiffs argued that there is a split of authority among the circuit courts over whether parties in their situation could appeal—the Federal, 9th and 10th circuits also would have refused to allow their appeal, but the D.C., 3rd, 5th, 7th, 8th, and 11th circuits would have permitted it. The defendant banks urged the Supreme Court to refuse to hear the case, arguing that doing so would interfere with trial courts' abilities to manage their own calendars in complex cases.

The Supreme Court is expected to hold oral arguments on the case during its next term, which begins in October.

9th Circuit Upholds Criminal Judgment and $500 Million AUO Antitrust Fine for LCD Price-Fixing Conspiracy

On July 10, 2014, the 9th U.S. Circuit Court of Appeals denied an appeal by AU Optronics Corp. and two of its former executives to reverse a $500 million criminal judgment for participating in a conspiracy to fix the prices of liquid crystal display (LCD) panels. See United States of America v. AU Optronics Corp., et al, Case No. 12-10492 __ F.3d __, 2014 U.S. App. LEXIS 13051 (9th Cir. July 10, 2014). The appellants argued that the Foreign Trade Antitrust Improvements Act (FTAIA), which limits the extraterritorial reach of U.S. antitrust laws, barred prosecution for their conduct because the bulk of panels were sold to third parties outside the United States. The 9th Circuit rejected this argument, holding that the government had sufficiently proved at trial that the defendants had engaged in import trade into the U.S., and therefore the FTAIA did not apply. The court found that although AUO's agreement to fix prices occurred in Taiwan, a substantial volume of goods containing the price-fixed panels were ultimately sold to customers in the U.S., thereby constituting import commerce. The court did not reach the merits of the defendants' argument that the district court had given an improper jury instruction on the FTAIA's domestic effects exception.

The 9th Circuit also found that the $500 million fine against AUO was proper, stating that the trial court was correct in calculating the fine based on the collective gains by all members of the conspiracy rather than the gains made by AUO alone. Furthermore, the 9th Circuit said that the trial court was right not to deduct from the fine amounts already paid by AUO's co-conspirators.

A copy of the opinion is available here.

7th Circuit Grants Motorola's Petition for Interlocutory Appeal of FTAIA Decision Eliminating 99 Percent of Its Claim in LCD Price-Fixing Case

On July 15, 2014, the 7th U.S. Circuit Court of Appeals granted Motorola's petition for interlocutory appeal of a district court decision that held that Motorola's price-fixing claims based on purchases that its non-U.S. affiliates made from non-U.S. defendants were barred under the Foreign Trade Antitrust Improvement Act (FTAIA). See Motorola Mobility LLC v. AU Optronics Corp. et al., 746 F.3d 842 (7th Cir. 2014).

As reported in the April 2014 edition of Orrick's Antitrust and Competition Newsletter, on March 27, 2014, Motorola's petition originally resulted in a 7th Circuit decision, by Judge Richard Posner, that affirmed the district court's decision based solely on Motorola's petition for review and without full briefing on the merits or a hearing. Following that decision, as reported in our June 2014 Antitrust and Competition Newsletter, Motorola filed a petition for rehearing en banc, and the 7th Circuit issued a series of unusual decisions demanding briefing from the Solicitor General on the application of the FTAIA in light of positions the U.S. government had taken in other cases. In addition, the governments of Japan, Korea and Taiwan submitted amicus briefs. On July 3, 2014, the 7th Circuit ordered expedited briefing on the petition for interlocutory review with Motorola's brief due July 9. At the same time, Motorola submitted a petition for an en banc hearing as to whether the panel assigned to determine the petition for interlocutory review also can sit as the panel to decide the merits of the appeal. Several days later, on July 15, the 7th Circuit vacated its order establishing the expedited briefing schedule and granted Motorola's petition for interlocutory appeal. Briefing on the merits of the appeal now is scheduled to be completed by Oct. 14, 2014.

The 7th Circuit's decision in Motorola's appeal will be the third of three important appellate decisions regarding the scope and meaning of the FTAIA. Prior decisions this year include the 9th Circuit's decision in United States v. AU Optronics Corp., et al., ___ F.3d ___, No. 12-10492, 2014 U.S. App. LEXIS 13051 (9th Cir. July 10, 2014) ( discussed in this edition of Orrick's Antitrust and Competition Newsletter), and the 2nd Circuit's decision in Lotes Co., Ltd. v. Hon Hai Precision Industry, Co., Ltd., et al., 753 F.3d 395 (2d Cir. 2014) ( discussed in the June 2014 edition of Orrick's Antitrust and Competition Newsletter). This trilogy of decisions may very well result in splits among the appellate courts on issues that then will be ripe for review by the Supreme Court.

2nd Circuit Affirms Dismissal of Monopolization Claim Alleging That Pharmaceutical Manufacturer Failed to Supply Competitors With Unbranded Version of Drug

On June 9, 2014, the 2nd U.S. Circuit Court of Appeals affirmed a district court ruling that wholesale dealers of the prescription drug Adderall XR failed to state a claim against the manufacturer of the drug based on allegations that it did not fulfill supply contracts with competitors that were reached in settling Hatch-Waxman litigation. See In re Adderall XR Antitrust Litig., 754 F.3d 128 (2d Cir. 2014). As part of the settlement of the Hatch-Waxman litigation, the manufacturer of Aderall XR—Shire LLC and Shire U.S., Inc.—agreed to provide generic manufacturers Teva Pharmaceuticals and Impax Laboratories with the rights and supplies necessary to participate in the market for Adderall XR. Teva and Impax claimed that Shire was only partially fulfilling its orders, which allegedly resulted in increased prices for Aderall XR for the wholesaler plaintiffs. The wholesalers filed a class action alleging monopolization claims under the Sherman Act. The 2nd Circuit affirmed the district court's dismissal of the claim, concluding that manufacturers generally have no duty to deal, that the rare exception in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), lies "at or near the outer boundary of [section] 2 liability," and that, in any event, Shire did not terminate any prior course of dealing. To the contrary, Shire had accepted a below-retail price for its product, and any alleged breach of its supply agreements with Teva and Impax may have prevented the price of Adderall XR from falling further, but did not give rise to a monopolization claim under Aspen Skiing. In other words, the breach of that contractual duty did not give rise to an antitrust claim.

A copy of the decision is available here.

District Court Dismisses With Prejudice PNY's Exclusive Dealing and Attempted Monopolization Claims Against SanDisk

On July 2, 2014, the U.S. District Court for the Northern District of California dismissed with prejudice PNY's exclusive dealing and attempted monopolization claims against SanDisk relating to flash memory drives. PNY Techs., Inc. v. SanDisk Corp., No. C 11-04689, 2014 U.S. Dist. LEXIS 90649 (N.D. Cal. July 2, 2014). The court dismissed PNY's third amended complaint after it was filed following the court's April 25, 2014 order dismissing the second amended complaint. See Orrick's Antitrust and Competition Newsletter (June 6, 2014).

In its July 2, 2014 order, the court explained that PNY alleges that SanDisk enters into contracts with retailers, making SanDisk their exclusive supplier for SD cards for sales to consumers. According to PNY, this means that PNY and other competitors cannot reach consumers, and PNY alleges that SanDisk has attempted to monopolize the market. The contracts allegedly have terms ranging from one to three years, with only one contract lasting three years. SanDisk offers retailers a variety of incentives to enter into the exclusive contracts and make it unattractive to terminate the contract.

The court rejected PNY's claims, concluding that the exclusive contracts were of relatively short duration and are terminable on 45-days' notice. The court rejected PNY's argument that the contracts are long-term in effect on the grounds that they have been renewed, and in some cases, the exclusive arrangements have been in place for eight years and even as long as 13 years. Moreover, PNY did not allege that any retailer had said that its relationship with SanDisk prevents the retailer from accepting a better deal from another SD card supplier. Nor did PNY explain why it could not seek its own exclusive contracts with the five major retailers in which it has a presence, or the 13 retailers that apparently never told PNY that they could not entertain offers from it. The court also rejected PNY's argument that there are not alternative channels of distribution, as well as PNY's argument that allegations about direct evidence of competitive harm are sufficient to sustain a charge of exclusive dealing, explaining that "[t]he crux of an exclusive-dealing case is that allegation that competitors are shut out of the market." In addition, the court rejected PNY's attempted monopolization claim.

A copy of the decision can be found here.

FTC Settles Charges Under Section 5 for Barcode Resellers' Invitations to Collude

On July 21, 2014, two Internet resellers of UPC barcodes settled charges by the U.S. Federal Trade Commission that they violated Section 5 of the FTC Act by inviting competitors to collude. An "invitation to collude" involves an improper communication from one firm to actual or potential competitors that the firm wants to coordinate on price, output, or other important terms of competition. In an invitation that the FTC deemed "particularly egregious" in its complaint, the FTC alleged that a principal from InstantUPCCodes.com sent an email to representatives of two other UPC competing resellers—Nationwide Barcode and "Company A"—inviting them to "match the price" of rival competitor, "Company B." InstantUPCCodes.com and Nationwide expressed a readiness to raise prices over several months if Company A would agree, but Company A never responded. While acceptance of the invitation would have constituted a per se violation of the antitrust statutes and criminal penalties, the invitation itself was sufficient to violate Section 5 of the FTC Act, which precludes "unfair methods" of competition. The proposed settlement, subject to public comment for 30 days, prohibits InstantUPCCodes.com and Nationwide from (1) communicating with competitors about prices; (2) entering an agreement with a competitor to divide markets, allocate consumers, or fix prices; and (3) urging any competitors to manipulate prices or limit levels of service. Despite the uncertainty about the boundaries of Section 5 liability, the settlement confirms the FTC's long-held position that invitations to collude fall within the scope of this section and will continue to be the subject of FTC enforcement. Indeed, although FTC Commissioners have had an ongoing debate about the scope of Section 5, this consent decree was adopted unanimously. The settlement reaffirms a company's need for current, ongoing and thorough antitrust compliance training for its executives and employees. A copy of the proposed settlement can be found here.

FTC Approves Final Orders Settling Charges That Ski Equipment Manufacturers Agreed Not to Compete for Ski Endorsers or Employees

On July 9, 2014, the U.S. Federal Trade Commission announced that, pursuant to Section 5 of the FTC Act, it had approved two final orders settling charges that two ski equipment manufacturers—Market Volko (International) and Tecnica Group S.p.A—agreed for many years not to compete for one another's ski endorsers or employees. The FTC's complaint alleges that starting in 2004, the companies agreed not to solicit, recruit or contact any skier who previously endorsed the other company's skis, and that the companies reached similar agreements with respect to each other's employees.

The FTC's case file is available here.

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