Source: http://wombledistributionlaw.blogspot.com/
Timestamp: 2019-04-24 10:40:56+00:00

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My partners Mark Palchick and Marty Stern have written a good article on the District of Columbia's recent antitrust ruling rejecting the U.S. Justice Department's efforts to block AT&T's acquisition of Time Warner.
AT&T/Time Warner DOJ Smack Down: You Don't Need a Weatherman to Know Which Way the Wind Is Blowing.
The District Court's opinion is 172 pages long.
There are over 20 exclamation points!
References to Rube Goldberg machines.
And at least one quote from Bob Dylan.
The evidence adduced at trial also seemed to contradict a central concern of the Open Internet rules -- that broadband distributors will block access to rival video sources. The court found that distributors have a strong incentive to maximize distribution of video programming on their networks, not curtail it.
If you read nothing else in the opinion, and want a plain English description and a clear distillation of the current state of the programming supply and distribution markets, and the cut-throat, highly competitive, knock-down, drag-out negotiations between programmers and distributors, complexity, warts and all, peruse pages one through forty of the opinion. It is a wonderful distillation of how the sausage is made. While there are many, one key take-away from that discussion is that there is no more “must have” national programming, which is now a mere marketing term, and the absence of particular channels on an MVPD platform does not preclude the ability of MVPDs to compete in the marketplace.
Mark Palchick and Marty Stern are partners in the Communications, Technology & Media practice of law firm Womble Bond Dickinson in Washington, D.C. They are co-authors of the firm’s Communications, Tech & Media Review blog.
Does Kavanaugh's Dissenting Opinion in an Antitrust Case Portend His Views on Abortion?
Much has been speculated about Trump's Supreme Court nominee Brett Kavanaugh's opinions on hot button issues, such as abortion and whether he considers Roe v. Wade to be "settled law."
What constitutes precedent and when can it be overruled were at issue in the D.C. Circuit's recent decision to block the Anthem-Cigna merger. Judge Kavanaugh dissented from the majority's opinion in that case, and he was criticized by the majority for not properly respecting Supreme Court precedent.
Can we learn anything from his dissent about whether and to what extent he considers established Supreme Court precedent to be binding or persuasive authority?
The Obama Department of Justice and multiple states sued to stop the merger of Anthem and Cigna, two of the nation's larges health insurance providers. The government argued that the merger would substantially lessen competition in the market for employers purchasing insurance. After a six-week trial, the D.C. District Court agreed and enjoined the merger under Section 7 of the Clayton Act.
There were two main issues on appeal: (1) whether courts can consider efficiencies as a defense to illegality under Section 7; and (2) whether the District Court erred in holding that Anthem's purported efficiencies were sufficient to overcome the anticompetitive effects of the merger. Anthem argued that the court had overlooked the cost savings that could be generated from the larger combined entity negotiating more favorable rates with healthcare providers.
In a 2-1 decision, the D.C. Circuit affirmed the lower court's ruling. The majority expressed some skepticism about whether efficiencies could be an ultimate defense to Section 7 illegality because of the Supreme Court's 1967 decision in FTC v. Procter & Gamble, 386 U.S. 568 (1967), that "possible economies cannot be used as a defense to illegality."
The majority noted that, despite the "clear holding of Procter & Gamble," which has not been explicitly overruled, some courts of appeals had recognized the use of efficiencies evidence in rebutting a prima facie case. In the Anthem-Cigna case, however, the D.C. Circuit sidestepped the issue by assuming that, even if efficiencies could be a defense, the District Court did not clearly err in rejecting Anthem's efficiencies defense. The majority also doubted whether there would be any such efficiencies or that any cost savings would be passed along to the employers.
Judge Kavanaugh wrote a dissenting opinion in which he determined the District Court erred by not considering that the combined Anthem-Cigna would have been able to negotiate lower provider rates, which he believed would be passed through to employers.
In reaching his dissenting opinion, Kavanaugh first argued that, despite the language from Procter & Gamble, efficiencies could be considered in a Section 7 case under a "modern" antitrust analysis. Describing the history of merger enforcement under antitrust law, Kavanaugh explained that in the 1960s the Supreme Court construed Section 7 to prohibit virtually any horizontal mergers, but subsequently cut those precedents back beginning with its 1974 decision in United States v. General Dynamics Corp., 415 U.S. 486 (1974). Thus, Kavanaugh argued that the D.C. Circuit is bound by this "modern approach taken by the Supreme Court" rather than the precise language in the outdated decision in Procter & Gamble.
The majority criticized Kavanaugh's "wishful assertion" that the older Procter & Gamble precedent could be "disregarded ... because it preceded the 'modern approach'" that Kavanaugh preferred. "Put differently, our dissenting colleague applies the law as he wishes it were, not as it currently is." Even if the Supreme Court has not recently opined on the issue, explained Judge Rogers for the majority,"it still is not a lower court's role to ignore on-point precedent so as to adhere to what might someday become Supreme Court precedent."
The majority's critique of Kavanaugh's respect for precedent may foreshadow some of the questions he will be asked during his confirmation hearings, especially with respect to Roe v. Wade. Of course, if confirmed as a Supreme Court Justice, Kavanaugh would not be in the position of a lower court constrained by binding precedent, as he was in the Anthem-Cigna merger. Instead, he truly would be in a position to decide "what might someday become Supreme Court precedent."
Is the DOJ's Approval of AT&T's Acquisition of Time Warner Conditioned on the sale of CNN?
According to several news outlets, the Department of Justice has called on AT&T and Time Warner to sell DirectTV or Turner Broadcasting, which includes CNN, in order to gain approval of AT&T's $84.5 billion acquisition of Time Warner.
The New York Times reports that executives at AT&T and Time Warner are bewildered at the request because the proposed deal is a vertical merger. When approving Comcast's similar acquisition of NBC Universal, under the Obama administration, the DOJ and FCC imposed several conditions on Comcast's business practices to prevent Comcast from withholding content from rivals. The New York Times explains that these "behavioral remedies" are typical in vertical mergers, but "[t]he Justice Department's demands for divestitures would be a major change in antitrust policy..."
Reuters reports: "Trump, who has accused Time Warner's CNN and other media outlets of being unfair to him, criticized the deal on the deal on the campaign trial last year and vowed that as president his Justice Department would block it."
The Financial Times reports: "'Its all about CNN,' said one person with direct knowledge of the talks between the company and the DOJ, adding that the regulator made it clear to AT&T that if it sold CNN the deal would go through."
An unnamed source is quoted by Politico as saying: "The only reason you would divest CNN would be to kowtow to the president because he doesn't like the coverage. It would send a chilling message to every news organization in the country."
In July, the New York Times reported that White House advisers had discussed using the deal as "a potential point of leverage over their adversary" CNN. This reporting prompted Democratic Senators to warn against political intervention. "Any political interference in antitrust enforcement is unacceptable" wrote Senator Amy Klobuchar to Attorney General Jeff Sessions, according to a CBS story. Her Minnesota colleague Al Franken stated "The Trump Administration's war against the media must not influence the fate of the transaction."
On Sunday, Kellyanne Conway said that the Trump administration is not interfering with the Justice Department's review of the deal.
To make matters more complicated, today DOJ sources apparently told Fox News that it was AT&T who offered to divest CNN, but that the DOJ rejected this offer. But according to CNN, the AT&T CEO denies this, stating: "Throughout this process, I have never offered to sell CNN and have no intention of doing so."
Apart from the "he said, she said" reporting, there are obvious political and First Amendment implications to this story, as well as antitrust concerns. This will be the first major decision for Makan Delrahim, the newly appointed antitrust chief at DOJ. Delrahim voiced tentative support for the deal prior to his nomination, but is said to be looking at it more closely now that he is in office. Even before the news came out today, analysts said that the AT&T/TimeWarner deal "could be an early test of Delrahim's public perception as an independent official."
A recent Fourth Circuit cases demonstrates the inherently subjective nature of the "plausibility" standard used to evaluate a motion to dismiss under Rule 12(b)(6). This standard, first articulated by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), requires a district court to look beyond the face value of allegations in a complaint to determine if they are, in fact, "plausible." The Supreme Court recognized that determining "plausibility" would be a "context-specific task that requires the reviewing court to draw on its own judicial experience and common sense." The problem, however, is that different judges have different "experiences" and different notions of "common sense."
Those differences are on full display in the Fourth Circuit's opinion in SD3, LLC v. Black & Decker (U.S.) Inc. et al., 801 F.3d 412 (4th Cir 2015). The opinion is worth reading both for its in-depth analysis of the "plausibility" standard and for the pithy back-and-forth attacks between the judges.
In this antitrust case, the plaintiff alleged that all of the major table-saw manufacturers conspired to boycott plaintiff's "SawStop" safety technology to keep it off the market. The district court granted defendants' motion to dismiss, finding that the complaint did not plausibly allege an "agreement" or "conspiracy," a necessary element under Section 1 of the Sherman Act.
On appeal, a two-judge majority of the Fourth Circuit reversed, finding that the complaint had adequately alleged a conspiracy because plaintiff had alleged parallel conduct among the defendants plus additional factors suggesting an agreement, thus meeting the "parallel plus" standard under Section 1. The majority criticized the district court for confusing the motion-to-dismiss standard with the standard for summary judgment and, in so doing, applying "a standard much closer to probability" than the "plausibility" standard from Twombly.
In a strongly worded dissenting opinion, Judge Wilkinson attacked the majority for misapplying Twombly. The vigor of the dissent prompted Judge Wynn, of the majority, to write a separate and equally caustic concurring opinion taking shots back at the dissent.
Apart from the entertaining back-and-forth between the judges, this opinion displays the wide, yet hard to define, difference between something being plausible and implausible. All three of the judges on the panel read the same complaint, and they all agree as to the elements of an antitrust claim and the standards for analyzing a motion to dismiss. Although both sides quote the same language from Twombly, the real difference between the dissent and the majority/concurrence is how they apply Twombly to the allegations in the complaint. This appeal did not involve a legal issue or a disputed fact so much as different perspectives or outlooks.
This case shows that "plausibility," like beauty, is in the eye of the beholder. One judge looks at the allegations and declares them implausible. Another looks at the same allegations and sees them as plausible. When legal standards turn on something as amorphous as "plausibility," it is not surprising that there are such widely disparate opinions from very smart and very well-meaning judges.
It is somewhat surprising, however, that the judges engaged in such heated rhetoric when they all agree on the substantive and procedural rules. This is not a case where the majority believes in X and the dissent believes Y. Perhaps it is this inability to precisely describe the difference between believing something plausible and believing it implausible that gives rise to the personal attacks in this case. One side cannot claim that the other side applied the wrong rule, so they attack each other's judgement, character or motives--sometimes in Latin and sometimes IN ALL CAPITAL LETTERS!
... we should [not] rush too quickly to drape innocent commercial activity in sinister garb.
If the complaint had spun even a remotely plausible narrative of impermissible collusion, I should have been the first to waive it through the Twombly gates... But I cannot conspire [pun intended, one must assume] with my colleagues in the demise of the Twombly decision.
In sum, courts exist to resolve disputes, not to pervert procedural rules into swords with which to fight policy battles... Accordingly with all due respect for the dissenting view, I joint in the judicious and well-reasoned majority opinion.
This does not sound like two judges who agree on both the procedural and substantive law, yet they do. The difference is one of perspective, which probably explains the heated rhetoric.
DISCLAIMER: Womble Carlyle represented one of the defendants in the district court case, prior to the Fourth Circuit appeal discussed in this post.
In a short statement issued yesterday, the FTC issued guidance regarding how it will interpret Section 5 of the FTC Act. Section 5 is a little-used antitrust statute for which the FTC has issued no guidance in the Act’s 100-year history. It states that “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce” are unlawful. When drafting the statute, however, Congress did not define specific acts or practices which would constitute unfair competition, leaving considerable uncertainty in the interpretation of the law.
While most of the Commission’s enforcement actions have been brought pursuant to the Sherman or Clayton Acts, Section 5 prohibits acts and practices which fall outside the scope of those statutes. In other words, Section 5 is broader than the Sherman and Clayton Acts, but the boundaries of “unfair competition” under the FTC Act have never been clearly defined.
The FTC’s new one-page policy statement describes three principals to which the Commission will adhere when enforcing Section 5 on a “standalone” basis. First, the guidance calls on the FTC to promote “consumer welfare,” which is the “public policy underlying the antitrust laws.” Second, the statement provides that any act or practice challenged under Section 5 will be evaluated under a framework “similar to the rule of reason,” meaning that the practice must “cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.” Finally, the guidance notes that the FTC will be less likely to challenge an act or practice under Section 5 if such practice can be addressed through enforcement under the Sherman Act or Clayton Act.
The agency has suggested that these short principals will allow it to keep a flexible approach to enforcement of the statute, but some critics argue that the guidance is vague and does not go far enough to address the ambiguities in the law, leaving businesses unsure of what could trigger an investigation. Prior to the announcement of these guidelines, the FTC has used the vague standards of Section 5 to negotiate settlements in several high profile and controversial cases.
The FTC has emphasized that this new guidance does not signal new or increased enforcement priorities. For example, Commissioner Joshua Wright recently stated that the new guidelines would not lead to an “explosion of litigation.” However, Wright’s fellow Republican-appointed Commissioner, Maureen Ohlhausen, dissented from the FTC’s guidelines because of her fears that the FTC’s “unbounded interpretation” of Section 5 “is almost certain to encourage more frequent exploration of this authority,” thus leading to more investigations and enforcement activity.
In addition to providing clarity under federal law, it will be interesting to see whether the FTC’s guidelines will be used by state courts when interpreting the scope of “unfair competition” under state law. Most states have their own “little FTC Act,” which in some cases can be enforced by private parties in civil lawsuits. Some states have existing case law defining the scope of “unfair competition” under state law, which may be impacted by the FTC’s new guidance.
The FTC announced yesterday that Cardinal Health, Inc. (“Cardinal”) has agreed to pay $26.8 million to resolve its investigation into the company’s alleged anticompetitive behavior. If approved by a federal court, the settlement would mark the FTC’s first disgorgement obtained in a competition case in nearly a decade and would stand as the second-highest antitrust disgorgement deal ever.
In a Complaint filed in the Southern District of New York, the FTC outlined a pattern of conduct by Cardinal aimed at monopolizing the market for the sale and distribution of radiopharmaceuticals. Radiopharmaceuticals -- drugs that are prepared by combining a radioactive isotope with a chemical agent -- are compounded and distributed by radiopharmacies. These drugs are used in a variety of nuclear imaging procedures, such as cardiac stress tests. Cardinal became the nation’s largest operator of radiopharmacies following its acquisition of Syncor International in 2003 and Geodax Technology in 2004.
From 2003-08, Bristol-Myers Squibb (“BMS”) and General Electric (“GE”) were the only producers of heart perfusion agents (“HPA”), an essential input into certain radiopharmaceuticals. According to the FTC, a radiopharmacy cannot profitably compete without obtaining the rights to distribute an HPA manufactured by either BMS or GE. Cardinal allegedly engaged in a variety of tactics in order to secure de facto exclusive distribution rights to these BMS and GE products. Such tactics included, for example, punishing BMS when it launched a plan to distribute its HPA product more broadly across the country. This conduct, the FTC posited, impeded entry by other would-be radiopharmacy operators in 25 separate geographic markets and constituted a violation of Section 5 of the FTC Act.
The Commission voted 3-to-2 to authorize the filing of the Complaint and pursue disgorgement. Commissioners Ohlhausen and Wright issued separate dissenting statements noting their disagreement with the Commission’s approach. In Commissioner Ohlhausen’s view, the evidence did not establish that Cardinal committed any antitrust violation, much less a clear one that required disgorgement. Both Commissioners noted that, in 2012, the FTC withdrew its Policy Statement on Monetary Equitable Remedies in Competition Cases, leaving private parties with little meaningful guidance on when the agency would pursue disgorgement.
Disgorgement has long been viewed as a remedy reserved only for the most egregious antitrust violations, such as price fixing. In that sense, the Cardinal case could represent a sea change in the remedies sought by antitrust enforcement agencies. On the other hand, the use of disgorgement here may turn on the unique facts underlying the Cardinal case -- including the fact that the alleged anticompetitive conduct ceased after 2008 -- making other conventional forms of relief impractical. Time will tell.

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