Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading

WLF Program to Address FTC’s Dual Role in Administrative Litigation: Prosecutorial and Adjudicative

FTC’S ADMINISTRATIVE LITIGATION PROCESS:

Should the Commission Be Both Prosecutor and Judge?

A Washington Legal Foundation Briefing

Tuesday, March 11, 9:30-10:30 a.m.

RSVP to attend in person (2009 Massachusetts Ave., NW) to glammi@wlf.org

To view live online click HERE to register

Our Speakers:

FTC Sets New Rules for Pharma Licenses and Antitrust Approvals

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati

Certain transfers of exclusive patent licenses in the pharmaceutical sector will face new antitrust scrutiny from the Federal Trade Commission (“FTC”).*  In a change to long-standing policy, the FTC announced that the transfer of a license providing an exclusive licensee with “all commercially significant rights” over a patent within a therapeutic area will be reportable under the HSR Act.

Under the old scheme, only the transfer of licenses giving the licensee a right to make, use, and sell the product were subject to the provisions of the HSR Act.  This meant that in cases where a licensor retained the right to manufacture the patented pharmaceutical product, even if the licensee had the exclusive right to use and sell the patented pharmaceutical product, the transfer was deemed non-exclusive and thus non-reportable.  The shift means that parties will need to prepare the HSR Act filing itself, observe the mandatory waiting period before closing (typically 30 days), and, of course, be prepared to respond to any competitive concerns raised by the FTC.  Continue reading

The Many Faces of the FTC on Display in Commissioners Review of Administrative Case

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati

[Editor's Note: Today, Washington Legal Foundation is releasing a Legal Backgrounder in which former Federal Trade Commission (FTC) Policy Director David Balto critiques the Commission's administrative litigation process, which features the five Commissioners in the role of both prosecutors and appellate judges. We asked our featured expert FTC blogger, also an FTC alumna, her views on the issue. While WLF respects her thoughts on FTC's administrative litigation process, we respectfully disagree.]

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As an alumna of the FTC, I know first-hand the many roles played by those working inside the agency:  they are investigators, prosecutors, judges, and policy-makers.   On the vast majority of days, those roles mesh seamlessly and without controversy.  But on occasion, as is happening today, there is a clash of roles.  The Commissioners is sitting as an appellate body…charged with reviewing the decision of an FTC Administrative Law Judge (ALJ) that held against the FTC complaint counsel…in a matter that some of the very same Commissioners voted to put into litigation in the first case.

During the hearing, Chairwoman Ramirez and Commissioners Brill, Ohlhausen, and Wright will examine an FTC ALJ decision In the Matter of McWane, Inc..  The case originated in January of 2012 when the Commission, including a then-Commissioner Ramirez and Commissioner Brill, found reason to believe that the defendant, McWane, Inc., a manufacturer of iron waterworks and other plumbing products, had engaged in price-fixing and unlawful information exchange with two competitors, as well as certain exclusionary conduct, and authorized staff to file a Complaint in the FTC’s administrative court.  Following a trial, the ALJ held against the FTC on the first two – and candidly, more serious counts – but found that there was evidence McWane engaged in certain exclusionary conduct and instituted an remedial order on that basis.  Both sides are appealing the portions of the decision held not in their favor.  As they listen, the Commissioners will use the de novo standard of review– which functionally means they can review all of the evidence as they see fit – and therefore ignore the findings of the ALJ.  Continue reading

Update: Transit Association Suit, FTC Chair’s Speech Highlights “Patent Troll” Developments

NYC SubwayWhile it may not have reached critical mass yet, the momentum towards “doing something” about abusive patent litigation has definitely increased since WLF held its “Patent Assertion Entities” and Antitrust: The FTC/DOJ Inquiry and Underlying Legal Policy Issues program on May 30. Of course, just five days after our program, the President made his big splash about “patent trolls,” so that might have had something to do with the momentum as well.

A Taste of Their Own Medicine? On Tuesday, the American Public Transit Association (APTA) took legal action to protect its members and other government-run transportation entities from patent-assertion entities based in Luxembourg and the British Virgin Islands. APTA v. ArrivalStar and Melvino, filed in the Southern District of New York, seeks a declaratory judgment on the invalidity of the defendants’ patents, which allegedly cover arrival and status messaging systems that transit authorities use, and also claims that the Eleventh Amendment immunizes those transit entities from patent suits.

APTA’s complaint lists ten ArrivalStar lawsuits against transit authorities which led to quick settlements for amounts that were “well below the expected cost of litigation.” It also includes a sample “license our patent or else” letter (marked on each page “FOR SETTLEMENT PURPOSES ONLY” just in case the recipient didn’t get the message), which helpfully lists some of the “over 180″ for-profit companies that have taken the licensing route with ArrivalStar.

FTC Chairwoman’s Announcement. At a June 20 program co-sponsored by CCIA and the Antitrust Institute, FTC Chairwoman Ramirez took what Lisa Kimmel discussed at WLF’s May 30 program one step further, announcing that she would encourage the Commission to pursue a formal “Section 6(b)” study of patent-assertion entities. She would need support from a majority of the Commissioners to initiate an investigation, and with the FTC populated by only four Commissioners at the moment, including one (Joshua Wright) who is skeptical of Section 5 enforcement, such a study isn’t a foregone conclusion. Chairwoman Ramirez’s statements garnered quite a bit of coverage and analysis, some of which the Patent Progress blog links to here.

Congressional Letter Writing. On the same day as the aforementioned program, Senate Judiciary Committee Chairman Patrick Leahy (not) coincidentally wrote to Chairwoman Ramirez encouraging her to “use aggressively the consumer protection and competition laws already in place.” Earlier this month, a bipartisan group of House Members led by Representatives Judy Chu and Blake Farenthold wrote to the Chairwoman supporting a deeper patent-assertion entity inquiry. And on June 25, Representative Daniel Lipinski sent a letter to Ramirez which focused on patent suits targeting public agencies. Representative Lipinski included a report, Trolling for a Public Trough: How Patent Assertion Entities Cost Taxpayers, which includes licensing demand letters and copies of complaints as exhibits.

A Simplistic Compliment Endures: The Roberts Court As “Pro-Business”

supreme court

Cross-posted at WLF’s Forbes.com contributor page

“The Roberts Court is pro-business.”  The Roberts Court “comes to the defense of business.”

Stories peddling this angle seem to be a compulsory part of reporting at the conclusion of each Supreme Court term. The completion of the October 2012 term is no exception. King & Spalding’s Ashley Parrish took strong exception to this characterization of the Court during Washington Legal Foundation’s annual end-of-the-term briefing this past Tuesday. The entire program can be viewed here.

The “pro-business” bromide is a trite and woefully simplistic byproduct of the need to label things. One could argue that the term implies judicial bias, i.e. deciding cases based on the nature of the litigant rather than on the law. It can also be seen as ideological or political in nature. If, for instance, Justice Ginsberg happened to be the Chief Justice at a time when the Court’s rulings favored free enterprise, would we be seeing stories about how pro-business the “Ginsberg Court” is? Further, has anyone seen the justices who rule against business litigants described as “anti-business”?

As an institution which for 36 years has sought to advance legal principles which support the conduct of free enterprise, Washington Legal Foundation views “pro-business” Court as a compliment. We’re pleased that in the nine cases in which we filed during the October 2012 term, seven resulted in victories for “business” litigants. Our perspectives on the law, on the judiciary’s limited role, and on constitutional protections for business entities are prevailing. But WLF should not be alone in applauding this Court’s rulings against plaintiffs’ lawyers, activist groups, and federal regulators. Businesses employ Americans, Americans invest in businesses, and our free enterprise system gives people of all backgrounds a fighting chance to succeed.

So if a label must be imposed, did the Roberts Court earn its “pro-business” stripes this term? If one looks strictly at the numbers, generally it did.

By our count, in the 28 cases which directly affected free enterprise, free enterprise “won” 21 and “lost” 7. Continue reading

Commissioner Wright Moves to Advance Discussion on FTC Act Section 5

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati*

Still just a few months into his tenure, Federal Trade Commissioner Joshua Wright made good on his early promise to move Section 5 of the Federal Trade Commission Act into the public dialogue. N1  On June 19, 2013, Wright released a “Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act,” together with an accompanying explanatory speech.  Some two months after announcing his intention (about which I wrote here), the proposal calls for the FTC to “recast its unfair methods of competition authority with an eye toward regulatory humility in order to effectively target plainly anticompetitive conduct” by clarifying the standards and limits the FTC will employ in the context of Section 5.  Wright’s call to arms is necessary, he says, because the failure to articulate clear standards by which Section 5 will be prosecuted creates uncertainty for the business community and consumers, and risks the Commission’s credibility as an expert body and future steward of Section 5.

Importantly, Wright’s proposal is not merely an intellectual think piece.  Rather, Wright provides for a specific definition of conduct that will violate Section 5, as well as concrete examples.  There is no doubt in his mind (or in the mind of this observer), that Section 5 was intended to condemn conduct beyond that which the Sherman or Clayton Acts capture.  But he finds that without a precise definition, the Commission’s ability to consistently apply Section 5, and the ability of businesses and consumers to meaningfully predict whether their conduct could be found violative of Section 5, is virtually impossible.  Thus, he proposes defining “an unfair method of competition [as] an act or practice that (1) harms or is likely to harm competition significantly and (2) lacks cognizable efficiencies.”  Continue reading

FTC’s Data Security Enforcement: Due Process Denied

150px-US-FederalTradeCommission-Seal.svgCross-posted at WLF’s Forbes.com contributor page

In its pursuit of businesses whose security measures failed to prevent malicious hackers from compromising customers’ personal data, the Federal Trade Commission (FTC) utilizes a distressingly effective one-two punch. First, it argues that the target business’s inadequate data protection is “unfair” or “deceptive” under the broad dictates of Federal Trade Commission Act Section 5. Then, it convinces that target business to enter into consent agreements which dictate data protection actions and ongoing FTC monitoring. The settlements not only reinforce FTC’s view that it has authority over data security, but also create de facto regulatory standards which FTC Commissioners and staff then go out and jawbone businesses to embrace through speeches and testimony.

After 41 targets of FTC’s data security power-grab acquiesced and settled, a forty-second — Wyndham Hotel Group — refused to settle and earned itself an opportunity to challenge the Commission’s theory in New Jersey federal district court (FTC v. Wyndham Worldwide Corp., No. 2:13-cv-01887). Wyndham’s motion to dismiss, an amicus briefs filed by several business associations, and another filed by TechFreedom, the International Center for Law & Economics, Todd Zywiki, Paul Rubin, and Gus Hurwitz, make compelling arguments about FTC’s lack of authority under FTC Act § 5 to set data security policy or pursue enforcement actions. They point out how FTC previously and unsuccessfully sought general data security rulemaking authority from Congress. Wyndham, with support from TechFreedom, also argues that FTC’s complaint doesn’t even meet the minimum requirements needed to prove “deception” or “unfairness” under § 5 or federal civil procedure rules.

Another potentially potent argument against FTC in Wyndham, which the defendant and amici address generally but don’t fully develop, is described in a forthcoming George Mason University Law Review article, Psychics, Russian Roulette, and Data Security: The FTC’s Hidden Data Security Requirements.  Authors Gerard Stegmaier and Wendell Bartnick explain how the court-created “fair notice doctrine” checks FTC’s assertion of data security oversight power. Continue reading

Update: DOJ and FTC Petitioned to “Encourage” Standard-Setting Organizations Towards More Self-Policing

carrot-with-stickIn our March 15 post Are Antitrust Agencies Nudging Standard Setting Bodies on Patent Licensing?, we discussed a journal article authored by two current and one former senior economists from U.S. and European antitrust agencies which called on patent standard-setting organizations (SSOs) to take a stronger stand against anti-competitive behavior. The economists’ hope was that SSOs could nip in the bud controversies over standard-essential patent holders seeking injunctions or what constitutes a reasonable (i.e. “RAND”) licensing fee.

Yesterday, the American Antitrust Institute (AAI) petitioned the Justice Department and the Federal Trade Commission (FTC) to escalate the nudge into a menacing carrot and stick combination. The petition urges the agencies to adopt joint enforcement guidelines that could act as a “safe harbor” for SSOs from antitrust liability. Why would SSOs need such a safe harbor? Because AAI feels that SSOs should be held responsible for the anti-competitive activity of their members if SSOs don’t have in place “important safeguards against monopoly power.”

The petition suggests that the DOJ/FTC guidelines should require SSOs to adopt as part of their agreements, which are binding on their standard setting members, the following patent policies:

  1. Disclosure of patents as well as anticipated and pending patent applications supported by “good faith reasonable inquiry”
  2. Breach of the foregoing disclosure obligation should result in a zero royalty license if an undisclosed patent is incorporated into the standard
  3. Ex Ante RAND licensing commitment
  4. Stipulation that participants whose patents are incorporated into the standard are prohibited from seeking injunctions and exclusion orders against willing licensees
  5. Licensing terms run with the patent
  6. Licensees should have cash-only licensing options on individual SEPs
  7. Efficient, cost-effective process to resolve disputes over RAND royalty and non-royalty rates.

As we noted in our March 15 post, SSOs have been reluctant to adopt more demanding policies to which standard-setting participants must adhere, though the United Nation’s International Telecommunications Union intimated last October that it might be open to such changes. A stick-wielding carrot such as a joint DOJ-FTC guidance would likely move SSOs like the ITU beyond mere contemplation.

Newest Commissioner Makes the “Wright” Call for FTC Act’s Section 5

MurinoGuest Commentary

By Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati

In a speech last week, the Federal Trade Commission’s (FTC) newest Commissioner, Joshua D. Wright, provided an unusually candid and public exploration of his would-be agenda as a sitting Commissioner.  Foremost among his to-do list is the issuance of a binding public “Unfair Methods Policy Statement,” that would specify both guiding and limiting principles the FTC would use in the application of Section 5 of the Federal Trade Commission Act.  Section 5, though deceptively straight-forward in language, has a tortured history of enforcement and remains among the more muddled doctrines in United States competition law today.  Commissioner Wright’s bold attempt to eliminate this uncertainty is assuredly the “Wright” call.

All seem to agree that Section 5 was established to reach conduct that could otherwise not be condemned under the Sherman or Clayton Acts.  There is uniform consensus behind the history of the legislation that the FTC was designed to be a tribunal which could assess potential Section 5 violations using its accumulated and competition-specific expertise and knowledge in ways that a generalist adjudicator could not.  Like so much in life, this was easier in theory than in practice.  I certainly agree with Commissioner Wright that Section 5 enforcement has fallen short.  You need look no further than the fact that not since the 1960s – over 50 years ago – is there a case where the FTC prevailed on a Section 5 appeal.  Indeed, for most of the years since, Section 5 was barely used as it was intended at all.

Using deliberate and determined language, Commissioner Wright’s call-to-arms begins with the premise that there is an “unfortunate gap between the theoretical promise of Section 5 as articulated by Congress and its application in practice by the Commission.”  He then moves on to explain that there is little hope for Section 5 application if the FTC cannot properly articulate its enforcement policy, and most importantly, that this Commission can “put an end to the state of affairs” by issuing a “policy statement articulating its views on the appropriate application of its signature statute in unfair methods of competition cases.”   Continue reading