Antitrust Law Daily Wrap Up, STRATEGIC PERSPECTIVES: Ignore the antitrust agencies’ willingness to go to trial at your peril, (Apr 17, 2014)

By Jeffrey May, J.D.

Last week, the FTC announced that it had reached a settlement with Ardagh Group, S.A., ending a lengthy administrative challenge to Ardagh’s proposed $1.7 billion acquisition of Saint-Gobain Containers, Inc. The agency’s insistence on significant divestitures to avoid a trial in this matter is just one of a number of recent examples of the FTC’s willingness to challenge perceived anticompetitive transactions until an agreement on a satisfactory remedy has been reached.

This willingness to go to trial in order to obtain an adequate remedy is apparent at both federal antitrust agencies and applies equally for challenges to anticompetitive acquisitions and conduct. What follows is a discussion of some of the recent cases that the FTC and U.S. Department of Justice Antitrust Division have vigorously pursued (in most instances to trial), demonstrating the enforcers’ resolve.

FTC enforcement. The leading example of the FTC’s willingness to go to trial is the agency’s federal district court victory earlier this year in a challenge to an Idaho health care merger.

The federal district court in Boise in January 2014 ruled in favor of the FTC, the State of Idaho, and private plaintiffs in a challenge to St. Luke’s Health System, Ltd.’s acquisition of Saltzer Medical Group physician practice. The court in Boise has ordered St. Luke’s—the largest health care system in Idaho—to divest Saltzer—the state’s largest independent, multi-specialty physician practice. The victory followed a month-long bench trial. The agency established that the transaction would harm competition in the market for adult primary care physician services.

The case is far from over. St. Luke’s is appealing the decision, and has moved for a stay of the judge’s order unwinding the transaction, pending appeal (FTC v. St. Luke’s Health System, Ltd., FTC File No. 121 0069).

An FTC challenge to another health care merger—Phoebe Putney Health System, Inc.’s acquisition of Palmyra Park Hospital, Inc. in Georgia—never made it to trial; however, the agency was willing take the case to the U.S. Supreme Court.

In 2011, the agency challenged a local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System—the operator of nearby Phoebe Putney Memorial Hospital. The agency sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding.

Although the court action was dismissed on state action immunity grounds, it was revived by the U.S. Supreme Court. The Court ruled in February 2013 that the state action immunity doctrine did not shield the transaction from attack.

A proposed settlement was announced in August 2013 to end administrative litigation. That proposed consent order does not include divestiture relief, since such relief was deemed not feasible in light of Georgia’s certificate of need (CON) laws and regulations. However, the Commission has not yet signed off on the proposed consent order. There are some indications that the agency might still be considering broader relief than the prior-notice and other obligations imposed on the respondent. The FTC has asked a federal district court in Georgia for more time to file documents effectuating the dismissal of a preliminary injunction order in the case (In the Matter of Phoebe Putney Health System, Inc., FTC Dkt. 9348, File No. 111 0067).

Both of these cases demonstrate the FTC’s resolve in merger enforcement. And the FTC is not alone. Recently, the Antitrust Division has taken criminal, merger, and civil-non merger cases to trial and won.

Antitrust Division enforcement. The Antitrust Division has always had a vigorous criminal enforcement program. The most significant criminal enforcement victory for the Antitrust Division in recent years was the March 2012 guilty verdict against AU Optronics, Taiwan’s largest manufacturer of liquid crystal displays, for price fixing. After an eight-week trial, a San Francisco jury convicted AU Optronics (AUO), its American subsidiary, and three of its top executives. Two AU Optronics Corporation employees were found not guilty by the jury at trial, and a mistrial was declared against a third employee. That third employee was later retried and convicted.

In addition to imposing a record-tying $500 million fine, the court ordered AUO and its subsidiary to implement a compliance program and to retain a compliance monitor.

The convicted defendants have all appealed to the Ninth circuit. The parties have asked the appellate court to consider the reach of the Sherman Act in the criminal enforcement context with respect to international cartels.

It’s rare for corporations to go to trial in an antitrust criminal case and take the risk of a guilty verdict. The costs for AUO in this case were high, and a reversal on appeal appears unlikely. The conviction stands as a warning to corporate defendants to consider accepting a plea deal rather than take on the risk of a high profile criminal antitrust trial (U.S. v. AU Optronics Corp., Criminal No. CR-09-0110 (SI)).

The Justice Department’s headline-grabbing case against Apple Inc. for conspiring to fix the price of electronic books or e-books is an example of the Antitrust Division’s willingness to go to trial in a civil non-merger enforcement action. In April 2012, the Department of Justice and a number of states sued Apple and leading book publishers for conspiring to fix the prices of e-books. Eventually, all of the publishers settled the allegations under consent decrees; however, the case went to trial against Apple.

Last year, following a 3-week bench trial, Apple was found to have orchestrated the price fixing conspiracy. The court held that the government proved its case against Apple “through compelling direct and circumstantial evidence.” The court pointed to documentary evidence replete with admissions about the scheme.

The court found the conduct to be per se unlawful. However, even if rule of reason were applied, the plaintiffs would also prevail.

The court has imposed injunctive relief and a damages trial, involving plaintiff states and a class action, is set to begin in July. At the request of the government, Apple was ordered to modify its contracting practices. In addition, the remedy imposed an external compliance monitor to review Apple’s antitrust compliance policies and procedures. An appeal is pending in the case (U.S. v. Apple Inc., Case No. 1:12-cv-02826-DLC).

On the merger enforcement front, the Antitrust Division has brought a number of high-profile challenges in recent years.

One of the most notable is the American Airlines/US Airways merger. In that matter, the Justice Department, joined by a number of states, sued to block the transaction. The case was recently resolved by consent decree, and the consent decree is awaiting approval from the federal district court in Washington, D.C. (U.S. v. US Airways Group, Inc., Case 1:13-cv-01236-CKK).

But the recent merger case that really started a winning streak for the Antitrust Division was the government’s successful challenge to H&R Block’s acquisition of the maker of TaxAct do-it-yourself tax preparation software. The Antitrust Division convinced the federal district court in Washington, D.C. that combining the second- and third-largest competitors would substantially lessen competition in the do-it-yourself tax prep market. This was the first Antitrust Division win in a contested merger case in nine years (U.S. v. H&R Block, Inc., Case 1:11-cv-00948-BAH).

Other wins followed. Not long after the TaxAct case, AT&T abandoned its planned acquisition of T-Mobile USA from Deutsche Telekom in the face of an Antitrust Division challenge. Later, after a lot of back and forth, Anheuser-Busch InBev agreed to the terms of a consent decree allowing its proposed acquisition of Grupo Modelo. That settlement required the companies to divest Modelo’s entire U.S. business, which created an independent, fully integrated and economically viable competitor. The case stands as a good example of the sometimes lengthy settlement process in a Justice Department merger challenge (U.S. v. Anheuser-Busch InBev SA/NV, Case 1:13-cv-00127-RWR).

In January of this year, there was another major victory for the merger enforcement program at the Antitrust Division. The Antitrust Division prevailed at trial in its challenge to Bazaarvoice’s $168 million consummated acquisition of PowerReviews. PowerReviews was Bazaarvoice’s closest rival in the U.S. market for Internet product ratings and reviews platforms. The Justice Department challenged the merger, even though, due to the size of the transaction, it was not reportable under Hart-Scott-Rodino Act and was already consummated.

The federal district court in in San Francisco will now consider the appropriate remedy in the case. The Justice Department has said that because 20 months have passed and PowerReviews assets have deteriorated, Bazaarvoice should be required to do more than simply divest those assets. In addition to the significant divestitures, the Justice Department seeks the appointment of a Special Master to monitor the sale of the divestiture assets and to oversee Bazaarvoice’s compliance with the Final Judgment. The government is also seeking an order requiring Bazaarvoice to report any transaction with a value exceeding $10 million to the government for a three-year period (U.S. v. Bazaarvoice, Inc., Case3:13-cv-00133-WHO).

These cases show that the Department of Justice is ready and willing to go to court to block or even unwind a merger that it believes to be anticompetitive. In addition, the government’s recent enforcement successes could have a very real impact on companies’ decisions to combine with rivals.

In light of these antitrust developments, practitioners need to be prepared to propose remedies that will satisfy the concerns of the federal antitrust agencies. The agencies’ willingness to go trial should not be ignored.

Webinar available. Interested in hearing more? A free 30-minute webinar on this subject (“Antitrust Enforcement Trends: The Agencies’ Willingness to Go to Trial”) is available for viewing here.

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