The FTC has approved the final order resolving claims that Pool Corporation, Inc. (“PoolCorp”) acted anticompetitively in violation of Section 5 of the Federal Trade Commission Act. 

PoolCorp is a major distributor of commercial and residential swimming pool supplies, products, and equipment.  According to the FTC complaint in In the Matter of Pool Corporation, PoolCorp is the “largest nationwide buyer of pool products, commonly representing 30 to 50 percent of a manufacturer’s total sales.”  In local markets, PoolCorp allegedly has had “a market share of approximately 80 percent or higher for at least the past five years.”    

The FTC alleged that PoolCorp “unlawfully maintained its monopoly power by threatening to refuse to deal with any manufacturer that sells its pool products to a new distributor entering the market, thereby foreclosing potential rivals from an input necessary to compete.”  The Statement provided by Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez in support of the Complaint and Order highlights a lack of independent business reasons or efficiency justifications for the alleged conduct. 

Commissioner J. Thomas Rosch provided a Dissenting Statement in which he claimed there was a lack of evidence of any violation.  In particular, Commissioner Rosch noted that “no entrants were actually excluded” from the markets at issue and that there was “no consumer injury” in this case.  Moreover, Commissioner Rosch found “legitimate reasons” for manufacturers not to sell to new entrants, such as a new entrant’s failure to demonstrate that it offers “adequate facilities, a history of successful operations, and a favorable credit history ….” 

PoolCorp has executed a Consent Agreement requiring particular conduct and reporting practices.

The U.S. Federal Trade Commission (the “FTC”) has issued proposed changes to streamline its rules relating to investigatory procedures and alleged misconduct of attorneys.

The proposed changes deal with Parts 2 and 4 of the FTC’s Rules of Practice and are designed to improve investigations and to keep up with changes in electronic discovery.

The agency noted that the Part 2 rules were in need of reform because of concerns that modern discovery has become a source of delay in its investigations, especially because “information is no longer accurately measured in pages, but instead in megabytes” and because “parties can no longer complete searches by merely looking in file cabinets and desk drawers.”  The FTC is re-examining the rules to “not only account for the widespread use of ESI, but also to improve the efficiency of investigations.” 

Specific changes include:

* requiring parties to meet and confer with the FTC on an accelerated schedule to resolve electronic discovery issues related to civil investigative demands (“CIDs”) and subpoenas;

* streamlining the procedure to resolve disputes over FTC subpoenas and CIDs;

*  expediting the pre-merger review process by authorizing FTC General Counsel to initiate enforcement proceedings when a party fails to comply with the Hart-Scott-Rodino second request process;

* relieving a party of the obligation to preserve documents for an FTC investigation if a year has passed without any written communication from the FTC.

The FTC is also proposing to amend Rule 4.1(e) regarding attorney disciplinary procedures by providing additional guidance regarding the appropriate standards of conduct and procedures to address any alleged violations. 

The proposed rule changes will be published in the Federal Register and subject to public comment until March 23, 2012.

The FTC has separately approved Rule 2.17 to aid in maintaining the confidentiality of its investigations.  This new rule delays notifying targets of FTC investigations that the FTC has requested information about them from third parties, when such disclosure would tip them off or otherwise jeopardize the investigation.

The Federal Trade Commission (“FTC”) has filed a complaint alleging price fixing against the three largest U.S. suppliers of ductile iron pipe fittings – Star Pipe Products, Ltd., McWane, Inc., and Sigma Corp.

The FTC alleges that these three competitors violated Section 5 of the Federal Trade Commission Act (“FTCA”) by conspiring to fix prices for ductile iron pipe fittings, which are used in municipal water systems around the United States.  The FTC’s complaint also charges McWane with illegally maintaining monopoly power in the market for domestically-produced pipe fittings.   Sigma has settled its claims via a consent decree, which does not include an admission of liability or monetary penalties. 

According to the FTC, “McWane invited Sigma and Star to collude with it” in 2008 by outlining a plan to raise and fix prices for imported iron pipe fittings.  The FTC alleges that the companies agreed, exchanged information through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and subsequently raised their prices in January and June of 2008.

The FTC also alleges that McWane and Sigma entered into a separate anticompetitive agreement to restrain trade in the market for domestic pipe fittings.  In 2009, as part of the Stimulus Act, Congress allocated more than $6 billion to water infrastructure projects, with a mandate that only domestic materials – including pipe fittings – could be purchased with the stimulus dollars.  The FTC alleges that McWane illegally maintained monopoly power in this market for domestically-produced pipe fittings by successfully persuading Sigma to “abandon” its efforts to enter the market, agreeing instead to act as a distributor for such materials for McWane.

The proposed settlement order against Sigma would prohibit Sigma from a variety of anticompetitive activities relating to ductile iron pipe fittings, including: (1) participating in or maintaining any conspiracy to fix, raise, or stabilize the prices of these pipe fittings; (2) allocating or dividing markets, customers, or business opportunities for these pipe fittings; and (3) participating in or facilitating any agreement between competitors to exchange sales information or other competitively sensitive information relating to the price of these pipe fittings.  The proposed settlement order will be subject to public comment for 30 days, after which the FTC will decide whether to make the settlement order final.  The FTC is scheduled to make its final decision on February 6, 2012.

Although price fixing cases are more commonly prosecuted as criminal violations of the Sherman Act by the U.S. Department of Justice, Section 5 of the FTCA also provides the FTC with the power to bring such cases.  Although uncommon, there is some history of the FTC pursuing price fixing cases, such as the 2001 case against AOL Time Warner and Vivendi Universal for conspiring to fix prices of audio and video recordings of the “Three Tenors” concerts.

King Pharmaceuticals Inc. begins the new year with another antitrust headache caused by a class action complaint brought in federal court in the Eastern District of Tennessee by two pharmacies alleging that it has unlawfully conspired to suppress competition to its muscle relaxant, Skelaxin.

According to the complaint in Johnson’s Village Pharmacy, Inc. et al. v. King Pharmaceuticals, Inc., King Pharmaceuticals (which was acquired by Pfizer in 2010) restrained trade in violation of the Tennessee Trade Practices Act and common law by entering into a reverse-payment agreement in 2005 with Mutual Pharmaceutical Company.  In the agreement, Mutual agreed to delay selling a generic version of the drug in exchange for an up-front payment of $35 million and a 10%-30% annual share of King Pharmaceuticals’ sales of Skelaxin.

The plaintiffs, Johnson’s Village Pharmacy Inc. and Russell’s Mr. Discount Drugs Inc., allege that this agreement forced a class of thousands of businesses that have purchased Skelaxin for resale to overpay by millions of dollars.

The complaint follows an earlier antitrust action brought under the federal Sherman Act by SigmaPharm Inc. against both King Pharmaceuticals and Mutual.  In that case, SigmaPharm alleged that the King-Mutual agreement eliminated sales of a generic version of Skelaxin to the detriment of SigmaPharm, which had a development agreement with Mutual.

The SigmaPharm action was dismissed last year because the federal district court found that SigmaPharm did not qualify as a consumer or competitor that could bring suit under the Sherman Act.  The United States Court of Appeals for the Third Circuit affirmed that ruling in December.

Pressure from the U.S. meat industry and Congress has succeeded in trimming new competition rules designed to help farmers contained in the U.S. Department of Agriculture’s (“USDA”) final regulations for the Grain Inspection, Packers and Stockyards Administration (“GIPSA”).

The Food, Conservation, and Energy Act of 2008 (the “2008 Farm Bill”) required the USDA to promulgate new, and clarify existing, GIPSA regulations on a wide variety of topics.  The final regulations represent a significant retreat from the proposed rules and demonstrate the political power of large industrial meat companies.

As directed by Congress in the 2008 Farm Bill, the USDA proposed several changes to the relationship between farmers and meat packagers and processors.

Many industry observers have long criticized the power imbalance that exists between individual farmers, who have little bargaining leverage in the context of a multi-billion dollar industry, and large corporate meat dealers.  The proposed regulatory changes included rules that were intended to help level the playing field, such as creating definitions of competitive injury, unfair and unjust practices, and undue or unreasonable preferences or advantages. 

None of those provisions survived a year of heated debate and lobbying by the meat industry.

In addition to the notice and comment process, Congress intervened before the USDA published its final rule to prohibit the agency from passing most of the competition-related reforms.  The provisions that did make it into the final rule, such as allowing farmers to decline mandatory arbitration provisions in growing contracts, have come under heavy criticism, and the meat industry will likely continue to push for their repeal or modification.

Thomson Reuters, the worldwide provider of business and financial information, has offered to settle an EU antitrust probe.  The two-year old investigation is focused on the company’s system of requiring customers to use Reuters Instrument Codes (RICs) to access financial data.  The codes are used to identify financial instruments and indices for which a consumer wants to retrieve data.

The European Commission began the investigation in November 2009.  The ongoing proceedings are aimed at examining a possible abuse of Thomson Reuters’ dominant position.  The Commission noted that the use of RICs makes it difficult for consumers to cross-reference data with other providers.  Further, RICs could lock in customers due to the length of time and high costs involved with reconfiguring software applications to replace RICs with a competitor’s product.  If a violation is found, the Commission is able to fine Thomson Reuters up to 10% of the company’s annual turnover.

The settlement offered by Thomson Reuters would allow customers to license additional user rights for a monthly fee.  These licenses would permit customers to use RICs with the codes used by other data suppliers, increasing the number of providers a customer could access.  Thomson Reuters stated it would supply all the information needed for customers to link RICs with those used by rival data suppliers.

The proposed settlement has not yet been accepted.  Competitors, customers, and other third parties will have until January 25, 2012 to comment on the proposal.  The Commission will then determine if it will make the offer binding and terminate the investigation.

The Eleventh Circuit recently affirmed the decision of the U.S. District Court for the Middle District of Georgia to dismiss the FTC’s antitrust challenge to the proposed acquisition of Palmyra Park Hospital, Inc. (“Palmyra”) and the subsequent lease of Palmyra to Phoebe Putney Health System, Inc. (“PPHS”) or one of its subsidiaries.  As the district court did, the Eleventh Circuit predicated its decision on the state-action doctrine.

A subsidiary of PPHS currently leases Phoebe Putney Memorial Hospital (“Memorial”), a 443-bed hospital in Albany, Georgia that offers “inpatient general acute-care services.”  Memorial’s “only real competitor”—in the words of the Eleventh Circuit—is Palmyra, a 248-bed hospital offering similar services.  In its opinion, the Eleventh Circuit stated that “Memorial controls 75 percent and Palmyra 11 percent of their geographic market.”

In December 2010, PPHS announced a plan to have a political subdivision, the Hospital Authority of Albany-Dougherty County (“Hospital Authority”), purchase Palmyra and lease Palmyra’s assets to PPHS or one of its subsidiaries.  The City of Albany and Dougherty County authorities created the Hospital Authority in 1941 pursuant to Georgia’s Hospital Authorities Law, in order to address public health needs of the area. 

In April 2011, the FTC brought a federal action to preliminarily enjoin the acquisition pending resolution of the FTC’s related administrative proceeding.  In its complaint for a preliminary injunction, the FTC alleged that the proposed acquisition was practically a “merger to monopoly” that “threaten[ed] substantial harm to competition in the relevant market for inpatient general acute-care hospital services sold to commercial health plans.” 

Defendants took the position that the state-action doctrine immunized the acquisition and planned operation of the hospitals from antitrust scrutiny.  On this point, the FTC alleged that the Hospital Authority was merely a straw-man that was included in the transaction for the sole purpose of shielding the transaction from antitrust scrutiny.  

The district court agreed with the defendants, finding that the state-action doctrine applied and therefore that the defendants were immunized from antitrust scrutiny.  Accordingly, the district court dismissed the complaint with prejudice.  The FTC appealed. 

On de novo review, the Eleventh Circuit agreed with the FTC that “the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.”  However, the court affirmed dismissal on the grounds of state-action immunity. 

The court began its analysis of the state-action doctrine by citing the seminal case of Parker v. Brown, 317 U.S. 341 (1943) and the doctrine’s emphasis on principles of federalism.  The court acknowledged that state-action immunity does not automatically extend to municipalities or political subdivisions.  To resolve whether the Hospital Authority, the political subdivision at issue, was entitled to state-action immunity, the court applied the rule announced in FTC v. Hosp. Bd. Of Dirs. Of Lee Cnty., 38 F.3d 1184, 1187-88 (11th Cir. 1994) (citing Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985)) that “a political subdivision … enjoys state-action immunity if it shows that, ‘through statues, the state generally authorizes [it] to perform the challenged action’ and that, ‘through statutes, the state has clearly articulated a state policy authorizing anticompetitive conduct.’”  Of interest, particularly given the FTC’s straw-man argument, the Eleventh Circuit did not cite or address the “active supervision” element of California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) and its progeny, presumably due to the statement in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 (1985) that “the active state supervision requirement should not be imposed in cases in which the actor is a municipality.”  

Finding first, that Georgia’s Hospital Authorities Law contemplated the anticompetitive effects and conduct alleged in the complaint; second, that the state legislature granted hospital authorities the power to purchase or lease “projects” (i.e., hospitals); and third, that the state legislature “must have anticipated anticompetitive harm when it authorized hospital acquisitions by the authorities,” the court held that state-action immunity protects the proposed plan. 

The appellate court rejected the FTC’s argument that the Hospital Authority acted as a mere straw-man by citing City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 379 (1991) for the proposition that a court cannot scrutinize governmental actions to attempt to uncover “perceived conspiracies to restrain trade.” (internal quotes omitted).

The case is Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-12906, in the United States Court of Appeals for the Eleventh Circuit.

On December 9, Chief Judge Christina Reiss of the District of Vermont denied the plaintiff dairy farmers’ motion for class certification in Allen v. Dairy Farmers of America, Inc., 2011 WL 6148678 (D. Vt. Dec. 9, 2011).  However, Judge Reiss invited plaintiffs to renew their motion after addressing issues with their expert report. 

Plaintiffs are New York and Vermont dairy farmers.  Defendants are Dairy Farmers of America, Inc. (DFA) and Dairy Marketing Services LLC (DMS).  (Dean Foods was originally a defendant but it settled in May for $30 million.)  DFA is the largest dairy cooperative in the United States, and it not only produces, but also processes, markets and distributes raw Grade A milk.  DMS is a milk marketing agency allegedly created, owned and controlled by DFA and certain other cooperatives.  Some of the plaintiffs are members of DFA.  All of the plaintiffs have, at some point since 2002, sold their milk to processors through DMS. 

Plaintiffs sued DFA and DMS in October 2009 on behalf of all similarly situated dairy farmers in New York, Vermont and ten other Northeast states – an area designated by the USDA as “Federal Milk Market Order 1.”  Order 1 also is the relevant geographic market alleged by plaintiffs. 

Plaintiffs claim that defendants have conspired to fix and suppress the prices plaintiffs receive from cooperatives and processors for their raw Grade A milk, in violation of Sections 1 and 2 of the Sherman Act.  As damages, plaintiffs seek the amount they have been underpaid.  As injunctive relief, they seek to enjoin the alleged conduct and require divestiture of defendants’ processing plants.  

Judge Reiss evaluated plaintiffs’ motion under In re IPO, 471 F.3d 24 (2d Cir. 2006), which requires a “rigorous analysis” of the Rule 23 requirements and “enough evidence” that each of them has been met.  Where plaintiffs lost the motion was on Rule 23(a)(2)’s commonality requirement, specifically as to impact.  Commonality was satisfied as to “the formation, duration and implementation of the alleged conspiracy.”  However, as to adverse impact, Judge Reiss said there was “a clear failure of proof” with respect to plaintiffs’ expert report:  (1) adherence to opinions that plaintiffs had conceded were incorrect; (2) apparent use of incorrect prices in calculating damages; and (3) failure to consider the existence of either non-conspirator processing plants or class members who benefited or broke even from the alleged conduct. 

However, Judge Reiss also said that the expert analysis “may ultimately prove to be an acceptable means of analyzing causation and damages in this case,” though it is not “presently sufficient to perform this task because too many uncertainties remain . . . .”  Her other findings also indicate potential for success: Rule 23(a)(1) numerosity was satisfied, with 9,000 class members dispersed throughout several states.  Rule 23(a)(3) typicality was satisfied to the same extent as commonality, i.e., as to formation, duration and implementation but not adverse impact, for the same reasons as commonality.  And the 23(a)(4) adequacy of the named plaintiffs could be satisfied with subclasses represented by separate counsel, which would overcome the potential conflicts.  Given that prerequisite to certification, Judge Reiss declined to reach 23(a)(4)’s adequacy of class counsel.  She also declined to reach Rule 23(b)’s predominance requirement.

In light of the invitation to renew the class motion, defendants sought to extend their time to serve expert reports from December 16 until whenever plaintiffs serve their new report(s) (if they do).  Judge Reiss denied that motion, finding “no good cause to further delay the provision of expert reports in this ongoing litigation.”  No deadline has been set to renew the class motion.

Health insurance giant Aetna, Inc. has filed a complaint in a Michigan federal district court claiming that Blue Cross Blue Shield of Michigan has engaged in a scheme to force Aetna to pay more for hospital services as part of a campaign to limit or reduce Aetna’s presence in Michigan.  The complaint, filed on December 6, 2011, comes just over a year after the U.S. Department of Justice and the state of Michigan commenced a civil antitrust lawsuit against Blue Cross containing similar allegations.

Aetna claims that Blue Cross, the largest insurer in Michigan, has used most-favored nation clauses in deals it has with hospitals to force those hospitals to charge Aetna up to 39 percent more, and in other instances, to require Aetna to raise its rates until they are as high as those charged by Blue Cross.  According to the DOJ’s complaint, roughly half of Michigan’s general acute care hospitals have most-favored nation clauses in their contracts with Blue Cross. 

Blue Cross has denied doing anything wrong, and its Vice President of Corporate Communications, Andy Hetzel, called the complaint “sour grapes from a major national insurance company” trying to take advantage of the DOJ lawsuit.

The DOJ complaint was filed on October 18, 2010.  It has already survived Blue Cross’ motion to dismiss, though Blue Cross has appealed that decision to the Sixth Circuit Court of Appeals.  Trial has been scheduled for February 2013.

Right now, the smartphone patent wars are raging across the globe.

For example, Apple recently prevailed in a skirmish before the International Trade Commission that could theoretically stop the importation into the United States of all smartphones based on Google’s Android mobile operating system.  In Germany, Motorola Mobility, which Google is in the process of acquiring, won a victory against Apple for patent infringement that could lead to the iPhone and iPad being pulled from store shelves in that country.

Could patent pools, a 100-year-old legal device, provide a possible solution? Constantine Cannon recently published an article about the smartphone patent pools in Law360 and whether they would be a good way to foster innovation and protect intellectual property.  Click here to read the article.