With inflation and high consumer prices sure to be major issues in this year’s U.S. Presidential election, recent public statements by FTC Chair Lina Khan and Democratic Commissioner Alvaro Bedoya[1] reveal a curious enthusiasm for reviving enforcement of the Robinson-Patman Act (“RPA”), a mostly dormant statute left largely inactive for more than two decades in large part because many believe that enforcing the statute leads to higher consumer prices. To be sure, Chair Khan’s and Commissioner Bedoya’s statements are consistent with the urgings of Senator Elizabeth Warren and other Congressional progressives,[2] and they harmonize with President Biden’s stated goal of preventing unfair business practices that hinder small and independent businesses.[3] But it’s far from clear that stepped-up RPA enforcement will address the consumer prices issue – and it arguably could make things worse.

Continue Reading The Curious Revival of Robinson-Patman

The UK Digital Markets, Competition and Consumers Act (DMCCA) received Royal Assent on May 24, 2024, after a series of amendments ping-ponged back and forth between the House of Commons and The House of Lords. It is a major piece of legislation for businesses and consumers and reflects the most significant changes to the powers of the Competition and Markets Authority (CMA) since its creation. These changes are not confined to the digital arena. With the imminent advent of the General Election, the CMA rushed out its Consultation on proposed Guidance to the DMCCA (3 hours before the period of prior election ‘purdah’ imposed for such consultations). Responses to the Consultation should be made by July 12, 2024. It will likely come into force in October 2024 and this blog considers some of the implications for business.

Continue Reading The UK Digital Markets, Competition and Consumers Act: What Does It Mean for Business?
  1. Introduction

The European Commission (Commission) keeps stressing the important role of “business users” under the Digital Markets Act (DMA).[1] Business users are at the core of the DMA, with its Article 1(1) stating: “The purpose of this Regulation is to contribute to the proper functioning of the internal market by laying down harmonized rules ensuring for all businesses, contestable and fair markets in the digital sector across the Union where gatekeepers are present, to the benefit of business users and end users.[2]

The designation of gatekeepers under Article 3 DMA and the review of their status under Article 4 DMA are based on criteria related to the existence of business users. The DMA indeed places the interests of third parties, primarily business users, at the core of its functioning. The obligations listed in Article 5 and 6 DMA impose restrictions on gatekeepers which explicitly aim to protect business users. Article 12 DMA, with respect to updating obligations for gatekeepers, makes a special provision for extending this obligation for the benefit of business users, with its para 5 providing for updating the obligations on gatekeepers if any negative impact on business users appears.

Continue Reading The Role of Business Users Under the DMA

The Second Circuit, for the first time, has addressed the scope of the Supreme Court’s decision in FTC v. Actavis, 570 U.S. 136 (2013), regarding the use of allegedly anticompetitive reverse payments by a brand drug manufacturer to settle patent infringement litigation that it had brought against generic manufacturers.  In In Re Bystolic Antitrust Litigation, No. 23-410, 2024 WL 2118248 (2d Cir. May 13, 2024), the Second Circuit indicated that “the ‘relevant antitrust question’ is why the reverse payment was made.” The panel agreed with the district court that plaintiffs had failed to plausibly allege that the payments were unjustified and that the payments appeared to reflect “fair value” for goods and services obtained from the generic manufacturers. 

In Actavis, the Supreme Court held that some “reverse payment” settlements from a brand to an allegedly infringing generic to stay out of the market in order to continue the brand’s monopoly could be illegal. Under Actavis, reverse payment claims are analyzed under the rule of reason.  To determine whether a reverse payment was illegal, a court evaluates whether the payment was “unjustified,” “large,” and could have adverse effects on competition. 

Here, plaintiffs, who were purchasers of Bystolic, a high blood pressure medication, accused the brand, Forest Laboratories, of reaching anticompetitive settlements with seven generic drug manufacturers to preserve its monopoly by paying them to delay entry into the market until a few months before the expiration of Forest’s patent.  Each deal was unique, but generally involved (1) an agreement for the generic to supply nebivolol, the active ingredient in Bystolic, or a drug containing nebivolol to Forest; (2) Forest paying the generic for research into new drugs involving nebivolol; or (3) Forest paying the generic for patents involving nebivolol.  The plaintiffs alleged these were pretextual reasons for what were really illegal reverse payments designed to stop the generics from challenging Forest’s patent.  The district court dismissed plaintiffs’ complaint and later dismissed plaintiffs’ amended complaint with prejudice.

The Second Circuit affirmed.  It focused solely on the “unjustified” prong of Actavis, finding that each settlement agreement was justified by legitimate commercial concerns. The panel explained that the following “overarching” considerations applied to each deal between Forest and the generics:

  • The terms of the transactions reflect bona fide business considerations.
  • No facts were shown that demonstrated that the size of the payments was unusual for the types of agreements, which would have supported a finding that they were unjustified. (While related to the size of the payment, this factor was evaluated under the “unjustified” prong).
  • Forest’s need for alternative supplies of active pharmaceutical ingredients or finished pharmaceutical products was consistent with what Forest previously disclosed to investors.
  • A lack of public disclosures about business plans or investments does not necessarily bear upon whether those ventures are truly legitimate or genuine.
  • It is sensible for counterparties to enter into condensed term sheets with the expectation of subsequently negotiating definitive agreements that are more detailed.
  • Payments for developmental or commercial milestones, or research-and-development expenses, suggest rational commercial incentives.
  • Provisions in the transactions that are designed to ensure price competition do not fit with Forest’s alleged intention to funnel secret overpayments to the generics.
  • Agreements between Forest and other counterparties need not be identical to or even closely resemble Forest’s agreements with the generics.
  • The agreements’ provisions trump allegations of unsupported speculation about nefarious motives.

The Bystolic decision adds to the small body of appellate opinions on Actavis.  The panel provided helpful insight on ways to shore-up settlements that may later be alleged to be anticompetitive reverse payments settlements and shows the relatively high bar for challenges by plaintiffs. Even the FTC’s support as an amicus curiae failed to persuade the court.  The FTC had argued that the district court should have placed the burden on Forest to justify the payments.  Instead, in the FTC’s view, the district court engaged in its own factfinding and erroneously faulted the plaintiffs for not producing evidence at the pleading stage.  The Second Circuit had little room for this argument and did not substantively address the FTC’s filing.  Although many other reverse payment cases focus on the delayed entry and not payments for services rendered, the decision provides detailed standards on reverse payment settlements that will be useful in the Second Circuit and beyond.      

When do companies using the same pricing algorithm violate the antitrust law?  Despite the new technology, the answer seems to center on the classic issue central to a hub-and-spoke conspiracy: is there an agreement along the rim?

In Gibson v. Cendyn Group, LLC, class plaintiffs accuse Las Vegas hotels of fixing prices via a subscription software program provided by Cendyn Group.  This software suggests prices for hotel rooms and conference rooms via algorithm, relying in part on publicly-available competitor pricing data scraped from the web.  The accusation was that this created a hub-and-spoke conspiracy, with Cendyn as the hub, the hotels as the spokes, and the agreement among the hotels being evidenced by the hotels’ subscribing to and renewing their subscriptions to Cendyn’s services

But the Court disagreed for three reasons.  Most importantly, the complaint didn’t allege that Cendyn’s software recommended prices based on competitor hotels’ confidential pricing information.  This was in contrast to the In re RealPage, Inc. decision, another pricing-software-hub-and-spoke conspiracy, there in the residential apartment market.  The RealPage complaint alleged that the illegality derived from defendants’ “exchange of otherwise confidential information between competitors through the algorithm[.]” Unlike in RealPage, the Gibson court found that there was no allegation that the pricing recommendations Cendyn’s software generated relied on competitors’ confidential pricing data.  Instead, the recommendations appeared to be individualized, with no reference to competitor pricing information other than publicly available data gathered from the web.  The plaintiffs argued that Cendyn’s software inherently relies on confidential pricing information of other companies because the algorithms improve their past performances over time through machine learning.  But machine learning does not facilitate the sharing of one hotel’s confidential information with other hotels.  This was a “fatal defect” in the complaint, because it showed that the alleged hub-and-spoke price fixing conspiracy had no rim, that is, that there was no quid pro quo agreement among the hotels.

Second, Cendyn’s software only recommended prices; it didn’t set them.  Hotels allegedly often overrode the software’s price recommendations.  If the hotels had agreed with Cendyn that the software would set their prices, the court reasoned, it would have been easier to prove that a “rim” of horizontal agreements existed between the hotels to fix prices.  But the algorithm did not bind the hotels.

Lastly, hotels began subscribing to Cendyn’s software at different times over a decade—implying independent conduct rather than tacit agreement.  Plus, the software had scraped the web for competitor prices only since 2015, after most hotels had already subscribed.  The court noted that the antitrust laws do not prohibit businesses from factoring publicly-available competitor pricing information into their own decisions. 

Comparing RealPage to Gibson, it appears that courts may look for more than just use of a common pricing algorithm to find an antitrust conspiracy, because even in a hub-and-spoke configuration, there still needs to be something supporting the existence of an agreement among all of the alleged conspirators.  Without that, there is no horizontal agreement to give rise to an antitrust violation.

Under the UK’s merger control regime, there is no obligation to notify mergers to the Competition and Markets Authority (CMA).  However, where merger parties wish to formally notify a merger, there is a duty for them to make full and accurate disclosures of all relevant information.

Information requested in a Merger Notice, which is the form for businesses to use to notify the CMA of an anticipated or completed merger, includes details of the merger parties’ businesses, finances, operations and any other relevant information. The CMA will also typically issue information requests, including request notices under section 109 of the Enterprise Act 2002 (Section 109 Notices), to the merger parties to complete the Merger Notice to ensure it has sufficient information to commence its investigation.

Even after the CMA has accepted a Merger Notice, it can at any time during the 40-working day initial review period, reject the Merger Notice if it suspects information submitted to be false or misleading or if the merger parties either fail to provide information, which should in fact have been included in the Merger Notice or fail to provide requested information on time without reasonable excuse.

In respect to information requests, including Section 109 Notices, it is a criminal offence to provide, intentionally or recklessly, false or misleading information to the CMA. Criminal sanctions include imprisonment for up to two years, a fine or both. The CMA may also impose an administrative fine, which may be of a fixed amount or calculated by reference to a daily rate. The amount of the fine is determined by the CMA, up to a maximum of £15,000 per day or £30,000 for a fixed amount. The CMA has exercised some of its powers.

In addition, the CMA has the power to suspend the statutory timetables for reviewing mergers where information required under a Section 109 Notice is not provided by a relevant person or is found to be false or misleading.

Below are some of the most recent penalty decisions where fines were imposed on the parties.

  • On August 11, 2023, the CMA announced that it had imposed a penalty of £25,000 on Copart in relation to its acquisition of Hills Motors for failing, without reasonable excuse, to comply with Section 109 Notices during its Phase 2 investigation. In particular, Copart failed to provide the CMA with more than 50 documents that it considered were relevant and responsive to the Notice. 
  • On September 7, 2020, the CMA announced that it had imposed penalties totalling £55,000 on Amazon for failing to comply with requirements imposed on it by Section 109 Notices during its Phase 2 investigation of the anticipated acquisition of certain rights and a minority shareholding in Deliveroo. By way of background, the CMA had issued three Section 109 Notices in December 2019, January 2020 and March 2020, requiring Amazon to produce certain documents and information relevant to the CMA’s investigation.  However, only a total of 189 documents were provided and these were more than two months late and only after follow-up by the CMA.
  • On October 11, 2019, the CMA announced that it had imposed a penalty of £20,000 on Sabre Corporation acquiring Farelogix for failing, without reasonable excuse, to comply with Section 109 Notices, which had been sent in March and April 2019, during the Phase 1 investigation.  In its penalty decision, the CMA noted that a total of 188 unique documents were submitted around two months after the applicable deadlines had expired at a relatively advanced stage in the CMA’s investigation. It concluded that Sabre’s reliance on external US counsel to conduct a privilege review does not give rise to a reasonable excuse as its failure to adopt a quality control process that was adequate to ensure compliance with the requirements of the Section 109 Notices was a foreseeable error.

The duty to make full disclosures on time is an important aspect of the UK’s merger control regime, as it is in the EEA where parties have similar duties of full disclosure under the European Merger Regulation. This ensures transparency and fairness in the process, and enables the CMA to carry out its investigations effectively. Merger parties are strongly advised to provide accurate and complete information to ensure a fair and thorough review by the CMA. It is also important for the merger parties to notify the CMA as soon as possible after receiving a request for information if they encounter any difficulties in meeting the deadlines for providing the requested information.

In merger procedures, it is a fundamental requirement for parties to provide accurate and complete information to the European Commission as it forms the basis of the Commission’s assessment of mergers. Under the EU Merger Regulation (EUMR), the European Commission can impose fines where parties intentionally or negligently provide misleading or incorrect information during the merger review process and in response to requests for information. In March this year, the European Commission issued a Statement of Objections to Kingspan, alleging it provided misleading or incorrect information during the Commission’s EUMR investigation of Kingspan’s planned acquisition of Trimo, despite the transaction being abended earlier in the process. The case highlights that the companies should be careful not only to avoid gun jumping during their acquisition processes (see Here and Here) but also ensure the quality and truthfulness of the information submit to the European Commission.

As a background, Kingspan had notified the Commission of its intentions to acquire Trimo in March 2021. However, by April 2022, the companies abandoned the proposed transaction following concerns raised by the European Commission. Notably, in November 2022, after the transaction was abandoned, the European Commission launched an investigation to determine whether Kingspan had intentionally or negligently supplied false information during the merger investigation.

The Commission’s preliminary view is that Kingspan had either negligently or intentionally provided misleading or incorrect information regarding basic facts about Kingspan’s internal organization. In addition, it is alleged that basic facts aimed at assessing the following have been misleading or incorrect:

  • The scope of the relevant product and geographic market.
  • The existence of barriers to entry and expansion.
  • The importance of innovation.
  • The competitiveness between Kingspan and Trimo and their competitors.

As a reminder, the issuance of a Statement of Objections does not pre-determine the final outcome of the investigation. It is merely a formal step in the investigation process, informing the companies concerned of the objections raised against them. The companies then have the opportunity to respond to the Commission’s objections.

Should the European Commission conclude that Kingspan had intentionally or negligently provided misleading or incorrect information, it could impose a fine of up to 1% of the company’s annual worldwide turnover for each breach. In 2021, the European Commission imposed a fine of 7.5 million euro on Sigma-Aldrich for providing misleading information on a remedy package during the Commission’s investigation of Merck’s acquisition of Sigma-Aldrich (despite the acquisition being approved beforehand). In 2019, the Commission decided to impose fines totaling €52m on General Electric for providing incorrect information to the Commission during its 2017 merger investigation into General Electric’s acquisition of LM Wind. In 2017, the European Commission fined Facebook 110 million euro for providing incorrect or misleading information during the Commission’s 2014 investigation of Facebook’s acquisition of WhatsApp (despite the fact that the breach had no impact on the outcome of its investigation).

In addition to fines, the European Commission may also ultimately revoke one of its decisions where “the decision is based on incorrect information for which one of the undertakings is responsible”.

The Kingspan case highlights that even the withdrawal of a merger notification does not halt an investigation where the European Commission suspects that misleading or incorrect information has been submitted. While the potential maximum fine is lower than one for gun jumping (1% vs 10% of global turnover) and in practice the fines are well below the statutory maximum, it is an important requirement to comply with during the merger review process.

The European Commission can issue requests for information (RFI) not only to the parties of the case but also third parties, including competitors, suppliers and customers. The Commission has discretion to issue either a simple RFI or RFI by decision. When it comes to simple RFIs, these are not mandatory and recipients are under no obligation to provide the requested information. However, if recipients choose to respond, they cannot provide incorrect or misleading information. The same is true in respect of RFIs by decision. These are mandatory and recipients are under the obligation to provide all the requested information accurately and truthfully. The failure to reply to a formal decision within the specified time limit could also result in a fine.

The ongoing case serves as yet another example of the European Commission’s strict stance on procedural violations in the area of merger control, whether it involves providing misleading or inaccurate information, or prematurely implementing transactions. To date, the European Commission has not revoked a merger decision due to procedural infringements, but the risk persists if decisions are based on false information. Both parties involved in the transaction, as well as third parties responding to RFI, must ensure the accuracy of their responses and ensure that no information is deliberately withheld.

After a lengthy period of consultation, the European Commission has adopted a new Notice (‘Notice’) on the definition of the relevant market for purposes of EU competition law.  The Notice comes on the heels of a significant period of updating competition laws, including (i) a number of new block exemption regulations setting safe harbors (e.g. for vertical agreements, R&D, specialization agreements); (ii) new guidelines on vertical agreements; (iii) new guidelines on horizontal agreements, which have a chapter dedicated to sustainability arrangements; (iv) the Digital Markets Act; (v) the Digital Services Act; and (vi) the Foreign Subsidies Regulation.

It is worth recalling that the purpose of the Notice is to provide guidance (including transparency) to business on the approach the Commission will take in analyzing the boundaries of competition between companies and the level of market power being exercised in a market (or the level of change in market power which occurs or might occur).  The new Notice acknowledges that the world has changed considerably since the previous market definition notice which dates from 1997, with the advent of digital markets, more complex supply chains and the multiple challenges of digital and green transitions (for example, carbon zero, environmental sustainability factors).  The Commission acknowledges that product characteristics, price and intended use are not the only competitive parameters.   Other factors may play a role, such as security and privacy protection, durability, possible integration with other products, range of possible uses, as well as possible behavioral biases from choosing the default option on offer.  The Commission wants to reflect these developments as well as developments in jurisprudence, its own practices and ensure consistency with other competition authorities.  The Notice seeks to increase the transparency and therefore the predictability of the Commission’s thinking, through publication of the methodology it will follow and the evidence and criteria it will seek to rely on in the application of the competition rules.  This should help businesses anticipate the sorts of information which the Commission considers to be relevant for purposes of market definition.

The Commission uses market definition as a tool for analyzing (i) proposed mergers and full function JVs under the merger regulation; (ii) antitrust enforcement relating to bi-lateral or multi-lateral conduct under Article 101 TFEU; (iii) antitrust enforcement relating to unilateral conduct by companies which may be dominant under Article 102 TFEU; and (iv) enforcement of equivalent provisions under the Agreement on the European Economic Area.  Customers take a number of factors into account, which the Commission looks at.  These include price, innovation, various aspects of quality (including factors of sustainability, security, reliability of supply). 

What the Commission is interested in are the factors which operate as ‘effective and immediate’ disciplinary forces or restraints on suppliers of a given product and for this it looks primarily at demand substitution, then at supply substitution.  These two help to identify the products and suppliers in the relevant market.  For purposes of the market definition exercise, it does not look at potential market entry (i.e. from outside the market).  Rather this is considered subsequently as part of the competitive assessment.

In addition to clarifying and expanding on existing and well-understood market definition principles, the Notice provides practical examples and there is also discussion in the Notice on a number of new topics.  These include:

  • Product differentiation: this could occur at product or geographic levels and could result in a finding of separate markets or of a single broad market where there is no clear distinction;
  • Customer groups: they could be differentiated (including by customer location) if there are different conditions of supply.  Three conditions are required to be present: identifiable groups, an absence of arbitrage and non-transitory discrimination between them;
  • R&D: where R&D and innovation efforts are in the mix, the Notice indicates that the Commission will consider whether the R&D identifies pipeline products which can be visible for ‘expected transitions in the structure of  a market’, in which case it could form part of the present or a future product market.  For innovation efforts, the Commission will assess what the objectives of the R&D are and whether it is too early a stage of innovation and whether the boundaries of competition can be identified and who the rivals are: ‘is there sufficient probability that new types of products are about to emerge’?
  • Digital markets: the Notice outlines the Commission’s approach to multi-sided platforms where competition may not be on price and after-markets.  For multi-sided platforms, the analysis seeks to determine whether there is one market for all products or separate and distinct markets for products on each side.  The Commission will look to see what substitution possibilities exist.  Where products have zero (or even negative) monetary value, what are the relevant non-price elements (including quality and sustainability factors) and are there alternatives to the SSNIP test (which would not be applicable in such circumstances).  For after-markets, the Notice indicates that the Commission will examine whether there are system markets, multiple markets or dual markets.

The update to the Notice on the definition of the relevant market is welcome and long overdue.  At the same time, businesses should not forget that the relevant market analysis involves both legal and economic arguments, with interpretation of the relevant concepts in a fact-specific context.  Also, markets are constantly developing and evolving and regard will need to be had to guidance from the European Courts.  One point which the Commission has made clear is that the Notice only offers guidance to business: it is not a regulation binding on the Commission and nor is it bound by past decisions.  Parties will certainly rely on the Notice to support their submissions, but the Commission will need to justify its position if it intends to depart from the methodology outlined in the Notice.

The Antitrust Division of the Department of Justice  and the Federal Trade Commission recently issued a revised model second request clarifying that companies under investigation have an obligation to preserve communications on messaging platforms including those on so-called ephemeral applications.  These applications, such as Slack, Microsoft Teams, Signal, and Google Chat, can be configured to delete messages automatically, posing a problem when a litigation hold is implemented.  A federal judge sanctioned Google in March of 2023 for telling the court that it was preserving messages on Google Chat while not turning off the setting that allowed for 24-hour default deletion.  In their statement, the agencies noted that many companies have not properly been retaining documents from these ephemeral messaging systems in response to preservation requirements in second requests, voluntary access letters, and compulsory legal process such as grand jury subpoenas. 

This failure to preserve is unacceptable to the agencies.  Although they believe that the requirement to preserve ephemeral messages was obvious before, the revised language “makes crystal clear that both ephemeral and non-ephemeral communications through messaging applications are documents” that must be preserved.  The relevant language in the revised second request model now states that “‘Messaging Application’ includes platforms, whether for ephemeral or non-ephemeral messaging, for email, chats, instant messages, text messages, and other methods of group and individual communication (e.g., Microsoft Teams, Slack).”   Also, the model second request states that employee-owned electronic devices used to store or transmit documents responsive to the request are considered to be “in control of the company”.

Companies should review the use of any messaging applications capable of automatically deleting messages to determine what the default settings are and if users have overridden them to delete messages.  In the event of a government investigation and a need to issue a litigation hold notice, the notice should explicitly state that all employees subject to the hold must turn off all auto-deletion functions on all messaging applications on all electronic devices on which they conduct company business. The agencies have signaled this is a priority issue for them and that they may bring obstruction of justice charges or seek civil sanctions if companies fail to preserve ephemeral messages. 

The Federal Trade Commission (“FTC”) has announced updated size-of-transaction thresholds for premerger notification (Hart-Scott-Rodino or “HSR”) filings, as well as updates to the HSR filing fees and transaction value categories.  Separately, the FTC has also updated the de minimis thresholds for interlocking officer and director prohibitions under Section 8 of the Clayton Act.

The HSR filing thresholds, which are revised annually based on the change in gross national product, trigger a premerger notification filing requirement with both the FTC and the Department of Justice’s (“DOJ”) Antitrust Division.  For proposed mergers and acquisitions, the 2024 threshold will increase from $111.4 million to $119.5 million.

Continue Reading The FTC Updates Size of Transaction Thresholds and Filing Fees for Premerger Notification Filings for 2024