Regrettable Outcome of Sysco/U.S. Foods Merger Challenge Reflects FTC Has Nothing to Fear from “SMARTER” Act

Botti2Featured Expert Contributor – Antitrust & Competition, U.S. Department of Justice

Mark J. Botti, Squire Patton Boggs (US) LLP with Anthony W. Swisher, Squire Patton Boggs (US) LLP

Late last month, a federal district court judge in Washington, D.C. granted the request of the Federal Trade Commission (FTC) for a preliminary injunction against the proposed combination of Sysco and U.S. Foods because, according to the FTC, the merger “raised questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the FTC in the first instance . . . .” In essence, despite having already conducted an intensive, 15-month investigation, the FTC sought an injunction that would allow it to further study the merger. The court’s injunction and the likely further delay predictably put an end to the merger.

The death of the Sysco/U.S. Foods merger underscores the sensibility of the proposed Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act, now working its way through Congress. While opposed by the FTC, SMARTER can simply and fairly require the FTC to show that a merger is likely to harm competition before it blocks the deal through the procedural device of a federal court preliminary injunction. That’s the same standard the Antitrust Division of the Justice Department (DOJ) must meet, and is the standard approach for federal courts considering a preliminary injunction request. Under current law, unlike DOJ the FTC faces the lower “further inquiry” standard quoted above. Passage of SMARTER could lead to equal treatment for all mergers under the law when tested in federal court regardless of which agency happened to review them. Continue reading

FTC’s Actions on In-App Purchases Reflect Chilling Move Toward “Mother-May-I” Paternalism

amazonFederal regulatory agencies routinely act as table-setters for the plaintiffs’ bar. Class-action lawsuits can require targets of federal enforcement actions, even after those actions end in settlement, to defend against the same allegations in court. A federal judge’s April 3, 2015 dismissal of a class action on the ground that the company had already entered into a settlement with the Federal Trade Commission (FTC), therefore, was a commendable outcome. The underlying FTC action that inspired the suit, however—an industry-wide investigation into companies’ in-app purchase procedures—is far less welcome. The Commission’s investigation is yet another example of government’s steady drift away from respecting permissionless innovation and toward “mother-may-I” paternalism.

FTC’s In-App Purchase Inquest. FTC initiated an investigation in 2011 of various companies’ mobile-app sales practices. The Commission had received complaints from parents that their children were making “unauthorized” purchases on mobile app stores. On January 15, 2014, Apple agreed to settle with FTC over charges that its in-app purchase process constituted an unfair business practice under § 5 of the FTC Act. On September 4, 2014, Google entered into a similar settlement. Both app sellers agreed to provide customers with refunds and alter their app sales practices.

In addition to Google and Apple, FTC also accused Amazon of unfair business practices for failing to prevent “unauthorized” in-app purchases.  Amazon, however, refused to settle the charges. The Commission filed suit on July 10, 2014 in the U.S. District Court for the Western District of Washington. On December 1, 2014, Judge John C. Coughenour denied Amazon’s motion to dismiss. Continue reading

End of the Road in the Long-running “FTC v. Phoebe Putney” Saga

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino, Goodwin Proctor LLP

Many months ago, I wrote about the ongoing saga that was the Federal Trade Commission’s (“FTC”) attempt to unwind the acquisition of Palmyra Park Hospital (“Palmyra”) by Phoebe Putney Health System Inc. (“Phoebe”) in Albany, Georgia. There were visits to all three levels of the federal court system (yes, even the Supremes!), as well as unexpected detours through various Georgia regulatory bodies. With the FTC’s announcement late last month that it was settling its administrative litigation with a behavioral remedy, we now know how this story ends.

Where We’ve Been

This journey began back in early-2011 with the FTC’s attempt to block the deal outright on the grounds that the combined entity would have had market shares in excess of 85% in the provision of acute care services in a six-county region. The FTC initially secured a preliminary injunction at the district court level but Phoebe successfully argued that despite the concentration levels, its acquisition was legal under the state action doctrine. The state action doctrine provides that where (1) there is a clearly articulated state policy to displace competition and (2) there is active supervision by the state of the policy or activity, otherwise anticompetitive activity will be permitted. Here, Phoebe argued the acquisition was immune under both prongs of the test because it was owned by the Hospital Authority of Albany-Dougherty County, and operated under Georgia’s Hospital Authorities Law.

Continue reading

White House Privacy Protection Proposal Sets an Ominous Tone for Future Action

whitehouseSince its release in late February, the White House’s “Discussion Draft: Consumer Privacy Bill of Rights Act of 2015” has drawn a significant amount of friendly fire from privacy activists and even federal privacy regulators. Their criticism insinuates that the Discussion Draft is at best a floor, a starting point for more stringent regulation. That perspective should be quite troubling to those who work in and benefit from the Internet Economy, for as we discuss below, certain aspects of the draft impose burdens on data use that far outpace any that currently prevail or have been proposed at the federal level.

“Privacy Risk.The data rights and protections the Discussion Draft affords are predicated on consumers suffering a “privacy risk” harm. That harm is defined as “the potential for personal data, on its own or when linked to other information about an individual, to cause emotional distress, or physical, financial, professional or other harm to an individual” (our emphasis). This definition would enshrine into federal law broad, amorphous, and precautionary concepts of harm that are radically out of step with prevailing law. For instance, federal courts have almost uniformly rejected data-privacy-related class-action lawsuits where the injuries alleged reflect plaintiffs’ fears of financial harm or emotional concerns. One very recent example is a Middle District of Pennsylvania ruling, Storm v. Paytime, Inc. and Holt v. Paytime Harrisburg, Inc., in which the court found that plaintiffs who cannot allege harms that are “concrete in both a qualitative and temporal sense” lack standing to sue. An alleged injury that provides the basis for a federal law enforcement action should certainly be no less concrete. Some activists, however, view “privacy risk” as too difficult for consumers or regulators to prove and have called for an even broader concept of injury. Continue reading

Five Lessons: Ninth Circuit Upholds Decision to Block Idaho Healthcare Merger

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati*

On February 10, the United States Court of Appeals for the Ninth Circuit affirmed a lower court ruling blocking the merger of St. Luke’s Health Systems, Ltd. (St. Luke’s) and Saltzer Medical Group (Saltzer), and handed the Federal Trade Commission (FTC) yet another victory in its efforts to halt consolidation in the healthcare sector.  This opinion is instructive both because of what it reveals on the macro-level about merger review today, and for what it may portend in future healthcare consolidation cases. Continue reading

The D.C. Circuit’s “POM Wonderful” Decision: Not So Wonderful for FTC’s Randomized Clinical Trial Push

FTC_Man_Controlling_TradeThe U.S. Court of Appeals for the D.C. Circuit last Friday largely upheld the Federal Trade Commission’s (“FTC”) ruling that POM Wonderful, Inc. violated the Federal Trade Commission Act by making unwarranted disease-prevention claims for its pomegranate juice products. But the ruling is far from the sweeping endorsement of FTC advertising-control measures that the Commission might have been hoping for. In particular, the ruling provides little, if any, support for the FTC’s recent assertions that food and dietary supplement manufacturers are largely barred from including health-related claims on product labels unless their claims are supported by randomized and controlled human clinical trials (“RCTs”). To the contrary, the appeals court made clear medical studies that do not meet RCT standards may nonetheless have considerable value, and that the FTC’s regulation of advertising is subject to strict First Amendment limitations. The decision suggests that courts may be very reluctant to uphold the FTC’s application of RCT standards to claims that a product promotes general health and nutrition, as distinct from claims that a product is effective in preventing or curing specific diseases.

POM’s ads were an easy target for the FTC. The ads touted POM’s products as effective in preventing a variety of diseases/conditions, including cardiovascular disease, prostate cancer, and erectile dysfunction (“ED”). Yet they failed to mention numerous shortcomings in the medical studies on which the disease-prevention claims were based—including that the studies’ findings were directly contradicted by other, larger clinical studies. Indeed, the D.C. Circuit held that it would have concluded that the ads were deceptive even had it chosen to apply a de novo standard of review to the FTC’s findings. (Because the case was on appeal from an FTC administrative proceeding, the D.C. Circuit reviewed those findings under a far more deferential “substantial evidence” standard.) Continue reading

FTC Commissioner Looks Back, and Ahead, on Patent Litigation Reform Efforts

FTC_Man_Controlling_TradeCommissioner Julie Brill of the Federal Trade Commission (FTC) offered some interesting year-end thoughts on abusive litigation by patent-assertion entities (“PAE”, or to some, “patent trolls”) in a speech last week. Most notable in Commissioner Brill’s comments was her call for legislative change even as FTC and the federal courts are addressing some of the legal and economic incentives for abusive patent litigation.

Brill discussed the Commission’s ongoing study of patent-assertion entities (the so-called 6(b) study), for which a final report is anticipated by the end of 2015. She emphasized that one of the issues FTC is assessing is the practice of “privateering,” where an operating company sells or licenses a patent to an assertion entity, which in turn enforces the patent against the operating entity’s market rivals. A May 2014 Washington Legal Foundation Web Seminar, Patent Assertion and “Privateering”: When Do Antitrust Law Concerns Arise When the Patent Is the Product?, focused on this practice.

The speech also referenced the Commission’s first enforcement action against a patent-assertion entity, which resulted in a November 13 consent decree. The action involved notorious “scanner troll” MPHJ, which sent thousands of licensing demand letters that threatened litigation unless the target business paid MPHJ upwards of $1,000 per employee. FTC charged that MPHJ had fraudulently asserted that it had entered into licenses with some of its targets, and falsely claimed that litigation was imminent.

thumbnailTrollCommissioner Brill went on to stress the impact several 2014 Supreme Court decisions had on the larger patent-assertion problem. She focused on the indefinite nature of many PAE-held patents, an issue that the Court addressed in Nautilus Inc. v. Biosig Instruments, Inc.; the tendency of PAEs to “pass off old abstract ideas as inventions merely by implementing them using a computer,” which arose in Alice Corp. Pty. Ltd. v. CLS Bank Int’l; and the difficulty patent defendants had in seeking attorneys’ fees when they prevailed in court against PAEs, which the justices addressed in Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark v. Allcare Health Mngt. Systems, Inc.

She then stated that “despite these recent cases, there are still important issues for Congress to address.” We were pleased to see that among the areas Commissioner Brill highlighted as meriting continued congressional attention was that patent “complaints [must] provide specific allegations of what infringes a patent’s claim and how the defendant infringes them.” The current pleading standard, governed by the antiquated form (Form 18) Federal Rule of Civil Procedure 84 dictates for patent suits, encourages frivolous litigation, as we’ve argued previously.

It is unclear what lies ahead for patent litigation reform in the 114th Congress. But one can trust that with so much at stake, Senators and Representatives will heed Commissioner Brill’s admonition that Congress not “wait for completion of our 6(b) study” to move the debate forward.

Also published by Forbes.com on WLF’s contributor page