Last week, the FTC adjusted the reporting thresholds for 2014 as required by the H-S-R Act. The interlocking directorate thresholds under Section 8 of the Clayton Act have also been adjusted. The adjustments will become effective 30 days after their publication in the Federal Register. The anticipated effective date is mid-February.
FTC Adjusts HSR and Clayton Act Reporting Thresholds
Antitrust Lessons Drawn from the Challenges Contacts of the AMR/US Air Merger
Introduction
The proposed merger of the bankrupt AMR Corporation (parent company of American Airlines – hereinafter American) with US Airways Group, Inc. (parent company of US Airways – hereinafter US Airways) to create the new American Airlines was announced in February 2013. Despite the European Commission’s (EC) August 5 clearance of the merger with minimal commitments, the Antitrust Division of the U.S. Department of Justice (DOJ), joined by seven states and the District of Columbia, brought suit to permanently enjoin the merger on August 13. United States v. US Airways Group, Inc., 1:13-cv-01236 (D.D.C. Filed Aug. 13, 2013). The content of the DOJ’s complaint (Complaint) demonstrate the DOJ’s modus operandi for litigating a merger.
Judicial “Opinion”: SDNY enjoins Apple for Violation of Antitrust Practices in E-Book Pricing
On September 6 of this year, U.S. District Judge Denise Cote, from the Southern District of New York, enjoined Apple after having issued a judgment against Apple over antitrust practices in e-book pricing. Accompanying this judgment, Cote issued an injunction restricting Apple’s interactions with publishers for the next five years and ordered the appointment of special compliance auditors to ensure that Apple complies with the order of the injunction.
The State of the Empire: Amazon’s Monopoly
Up until the launch of Apple’s iPad and iBookstore, Amazon had dominated the e-book retail market, having sold nearly 90% of all e-books. Amazon launched its first e-reader, the Kindle, in 2007, which gained widespread acceptance. Amazon quickly became the market leader in the sale of e-books and e-readers.
Amazon maintained its leadership by adopting a “$9.99 or lower” retail price, making it difficult for competition within the e-book industry. At the time, Amazon had a wholesale pricing model with publishers referred to as the “Big Six” (Hachette Book Group, Inc., HarperCollins Publishers LLC, Holtzbrinck Publishers LLC, Penguin Group (USA), Inc., Simon & Schuster, Inc. and Random House, Inc.).
Amazon’s wholesale pricing model made it difficult for competition by allowing Amazon to purchase e-books from publishers at the wholesale price and then sell the e-books at a price of its choosing. This model allowed Amazon to sell New Releases and New York Times Bestsellers at a “$9.99 or lower” retail price, which often matched or was below the wholesale price. Amazon took the loss and kept its e-book retail prices at “$9.99 or lower.”
D.C. Circuit’s Rail Freight Contacts Decision Reflects Greater Scrutiny of Antitrust Class Certification in the Wake of Supreme Court’s Comcast Ruling
[Editor’s Note: The following post is authored by Arnold & Porter LLP]
Earlier this month, the influential U.S. Court of Appeals for the D.C. Circuit issued an important decision on the standards for certifying antitrust class actions. Taking its cue from the Supreme Court’s decision this past March in Comcast Corp. v. Behrend, the D.C. Circuit vacated a lower court decision certifying a class of shippers in an antitrust case against railroads alleging collusion on fuel surcharges. The ruling in In re: Rail Freight Fuel Surcharge Antitrust Litigation is significant as the first known decision to apply Comcast to reject a proposed antitrust class. Companies facing overreaching class action suits may be able to take comfort that, after a few lower court decisions sidestepping Comcast, the principles set forth in that decision are now catching on in the lower courts.
Click here to see the entire Arnold & Porter Advisory.
D.C. Circuit’s Rail Freight Decision Reflects Greater Scrutiny of Antitrust Class Certification in the Wake of Supreme Court’s Comcast Ruling
[Editor’s Note: The following update is authored by Arnold & Porter LLP]
Earlier this month, the influential U.S. Court of Appeals for the D.C. Circuit issued an important decision on the standards for certifying antitrust class actions. Taking its cue from the Supreme Court’s decision this past March in Comcast Corp. v. Behrend, the D.C. Circuit vacated a lower court decision certifying a class of shippers in an antitrust case against railroads alleging collusion on fuel surcharges. The ruling in In re: Rail Freight Fuel Surcharge Antitrust Litigation is significant as the first known decision to apply Comcast to reject a proposed antitrust class. Companies facing overreaching class action suits may be able to take comfort that, after a few lower court decisions sidestepping Comcast, the principles set forth in that decision are now catching on in the lower courts. (more…)
Supreme Court Finds Arbitration Agreements Waiving Class Actions Preclude Antitrust Class Actions Even Where Individual Claims Are Small
[Editor’s Note: The following post is authored by Arnold & Porter LLP]
On June 20, 2013, the Supreme Court issued its opinion in American Express Co. v. Italian Colors Restaurant (“Italian Colors”), significantly strengthening the application of arbitration clauses in class action cases. The Court held that arbitration clauses with class action waivers, including in antitrust cases, are enforceable regardless of whether the value of an individual plaintiff’s claim was exceeded by the cost to arbitrate. In the 5-3 decision, authored by Justice Scalia, the Court continued two trends its decisions have featured the last few years: constricting class action litigation and enforcing arbitration agreements, even those that prohibit class actions. (more…)
Supreme Court Opts for Rule of Reason Analysis in Andro-Gel Reverse Payment Decision
[Editor’s Note: The following post is authored by Arnold & Porter LLP]
On Monday, June 17, the Supreme Court handed down a decision in FTC v. Actavis, Inc., bringing some clarity to the antitrust treatment of so-called reverse payment patent settlements between brand-name drug manufacturers and would-be generic competitors, but leaving many open questions as well. In an opinion written by Justice Breyer, the Court reversed the Eleventh Circuit’s decision by a vote of 5-3 and rejected both the respondents’ proposed “scope of the patent” test that had immunized most settlements from antitrust challenge and the “presumptively unlawful” standard endorsed by the FTC. The Court instead opted for a rule of reason analysis, leaving it to the lower courts to sort out the specifics. The decision is unlikely to reduce the number of investigations or lawsuits related to such settlements, and ensures that both will be complex and protracted. (more…)
Class Action Complaint Alleges Conspiracy to Fix CDS Market
A group of institutional investors recently filed a class action complaint against some of the world’s largest banks alleging a conspiracy fix prices and monopolize the market for Credit Default Swaps (“CDS”) in violation of the Sherman Act § 1. Defendants include Bank of America, Barclays, Citibank, and Goldman Sachs. The complaint also names the International Swaps and Derivatives Association (“ISDA”), a financial trade association, which the complaint alleges is controlled by the defendant banks. The plaintiffs are claiming potentially billions of dollars in damages.
A credit default swap is a method of transferring the risk of default for a financial instrument. The purchaser pays a fixed payment to the seller in exchange for the promise to pay off the underlying debt in the event of a default. The complaint alleges that because of the CDS market structure is unregulated and over the counter, every transaction must be with one of the defendant banks.
The complaint characterizes the CDS market as “starkly divided” between the defendant banks “who control and distort the market” and the plaintiffs “who, in order to participate in the market, must abide their distortions.” The complaint alleges that this is the result of an opaque trading environment in which the defendant banks manipulate the bid-ask spreads through their negotiations with individual traders. These manipulations cost the plaintiffs billions of dollars, says the complaint. Plaintiffs allege that several of their attempts to create and regulated exchange were rebuffed by defendants.
Both the DOJ and the European Commission have been conducting their own investigations into these activities. In March, the EU indicated that “ISDA may have been involved in a coordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business.”
Experience from the Anti-Monopoly Law Decision in China – Part II
[Editor’s note: This post continues yesterday’s article, found here.]
3.2. Methodology and Assumptions
This “legal discount” test provides how much Coca Cola may lose in the acquisition of Huiyuan Juice if the application were rejected because of improper enforcement of law.
The potential loss Coca Cola suffered was the potential net income of the Huiyuan Juice for fiscal year 2009, the first year of operation if the transaction were approved.
It was difficult to predict whether the profit of the new company would increase because it was a component of the Coca Cola (by economies of scale, for example) or decrease (as actually occurred with Huiyuan in year 2010). We assumed that the annual profit of the new company was stable.
It was not sufficient that we merely estimated the profit if Coca Cola successfully purchased Huiyuan, because Coca Cola’s funding does not exist in a vacuum, i.e., Coca Cola would not be required to pay for the costs of funding, whether dividends to shareholders or interest expense to creditors, if it did not spend the USD24 billion for the deal.
Thus, potential income should be divided by the weighted average cost of capital (WACC) of Coca Cola.
Because legal risk is variable case by case, the analysis only examines the highest level of loss caused by uncertainty in the rule of law in the Chinese legal environment. This assumption also matches the conservatism in accounting principle, which suggests that expenses should be over-estimated at their highest possibility when the amount is not certain.
To reflect the possibility of judicial intervention, the discount should be multiplied by 1/67, which reflects the highest legal risk.
The potential return on the project resulting from the assumptions made above is that made for USD24 billion in investment funds.
Experience from the Anti-Monopoly Law Decision in China – Part I
1. Introduction – Reasons of Estimating Cost of Legal Risks
The general public typically has a positive view of liberty, democracy, and a reliable legal system. For their part, analysts are likely to take the legal system for granted because they have a positive view of the rule of law and are able to construct airtight arguments explaining why a reliable legal environment is important for investors.
However, simply stating that having the rule of law is always better than not having it may not be sufficient. Scholars rarely evaluate the magnitude of the positive effect of the rule of law. Certain studies may consider that legal risk increases costs at the operating level, such as the risk of suffering litigation expenses, but these studies have not analyzed how legal risk may cause investment loss.
Additionally, scholars may attempt to show that the rule of law is not a foundational concern for investors by developing models based on the interaction between governments and investors; however, these studies may miss the mark when investors hesitate to enter the market because of the perception of an unfair legal environment or when the same model is applied to a variety of industries.
In reality, it is not easy to calculate accurate figures of profit or loss resulting from the stability of the legal environment for an entire society, but a test estimating a rough ceiling of loss that might be caused by the improper application of the rule of law in a particular circumstance might be a valuable indicator for investors.
Robert Hahn et al. suggest a cost-and-benefit approach to examine the enactment of regulations; they apply it to the question of whether legislators should prohibit drivers from using cellphones while driving in 2001 and 2007.
Subject to assumptions and adjustments, such an approach might provide investors with a general idea about how much the application of the rule of law affects profitability by applying the analysis to judicial matters.