The antitrust landscape in the United States has evolved in several ways:
- the Supreme Court ruled in American Express that both sides of certain two-sided markets must be analysed;
- a district court ruled against the Department of Justice (DOJ) in its challenge of the vertical merger between AT&T and Time Warner;
- the Supreme Court ruled in a price-fixing matter that US courts are not bound by statements of a foreign government regarding that country’s laws;
- enforcement activity has increased related to agreements among rivals not to compete for employees; and
- efforts are accelerating to modernise antitrust enforcement policy.
Supreme Court’s American Express decision
The Supreme Court found that the anti-steering rules used by American Express to prevent merchants from directing consumers to alternative credit cards do not violate antitrust law. The Court directly addressed a scenario where firms operate in industries with two-sided markets, in this case with merchants and separately with card holders. The Court described the two-sided platform developed by American Express as a ‘transaction’ platform competing to sell credit card transactions. Analysis of only one side of this platform would be incomplete owing to bi-directional ‘indirect network effects.’
The Court further distinguished between two-sided markets in which a firm seeks to sell transactions (such as credit cards) from other two-sided markets (such as newspapers) where the two sides (readers and advertisers) are not subject to indirect network effects that are bi-directional. For newspapers, though advertisers care about the number of readers, readers do not care about the number of advertisers. Going forward, American Express requires an evaluation of the type of two-sided market at issue to assess whether both sides of the market need be analysed. Industries with two-sided markets that may be impacted by American Express include healthcare, where anti-referral provisions used by health insurers have been compared to the anti-steering provisions at issue in American Express.
Vertical merger challenge denied (AT&T/Time Warner)
A district court declined the DOJ’s attempt to enjoin the proposed merger between AT&T and Time Warner, a rare challenge to a vertical merger. The decision began by stating, ‘If there were an antitrust case where the parties had a dramatically different assessment of the current state of the relevant market and a fundamentally different vision of its future development, this is the one.’ The DOJ’s case rested primarily on the theory that Time Warner’s content (including from HBO and CNN) was ‘must have’ and that AT&T would use this content to raise programming costs for rivals of its subsidiary DirecTV, thereby harming competition. The merging parties pointed to a ‘revolution’ in the video programming and distribution market. In particular, they identified declining video subscriptions and increased competition from companies like Netflix and Amazon (who are vertically integrated and increasingly creating content), as well as losses in advertising dollars to firms such as Google and Facebook. The court took a broad view of industry developments in assessing the merger’s likely competitive impact. The decision highlights the importance of demonstrating likely competitive harm through solid evidence.
Price-fixing and comity
In the vitamin C antitrust price-fixing multi-district litigation against two Chinese suppliers, a jury had found the defendants in violation of antitrust laws and had awarded damages of US$147 million. However, the Second Circuit considered issues of international comity and an amicus brief from the Chinese government (its first appearance in US federal court) stating that it required the defendants to fix quantities and prices for vitamin C sold outside China. The Supreme Court ruled unanimously that while courts can consider foreign government interpretations of their laws for ‘clarity, thoroughness, and support’, a US court is ‘not bound to accord conclusive effect to the foreign government’s statements’. Therefore, the Supreme Court ruled that the Second Circuit erred by not looking beyond a foreign government’s statement regarding the meaning of its laws, vacated the lower court decision and remanded the case.
In October 2016, the DOJ and the Federal Trade Commission (FTC) released guidance for human resource professionals related to the antitrust treatment of agreements among competitors regarding employee pay or recruitment (no-poach agreements). This guidance includes a statement that the DOJ would prosecute agreements entered into or active after October 2016 among rivals not to compete for each other’s employees as criminal cartel cases (while treating any such agreements terminated as of the release of the guidance as civil matters only). According to the agencies, no-poach agreements deprive workers of opportunities, information and the ability to obtain better employment terms. In 2018, the DOJ brought its first case since the release of the guidance, settling a matter against Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (two of the world’s largest rail equipment suppliers). This case was settled as a civil violation. The FTC similarly brought a case relating to an agreement among home health agencies in the Dallas–Fort Worth, Texas area to reduce the rates paid to physical, occupational and speech therapists. The agencies have indicated additional no-poach investigations are underway.
Both the FTC and the DOJ are engaged in activities to modernise antitrust enforcement policy. FTC hearings in late 2018 will cover topics including the consumer welfare standard, vertical merger analysis, monopsony, the digital economy, labour markets, intellectual property and big data. The DOJ has held a series of similar roundtables on competition and deregulation, and it is reviewing older antitrust judgments to identify those necessary to protect competition. The DOJ’s standard practice until 1979 was to enter into perpetual final judgments, but more recently has sought 10-year judgments. Many older judgments are no longer effective because, for example, the parties are no longer in business or market conditions have changed substantially. In several cases, legacy judgments continue to affect markets, such as the BMI and ASCAP decrees (music) and the Paramount decrees (movie distribution), and the DOJ has announced that these specific decrees are under review for modification or termination. The DOJ has moved in court to terminate its first tranche of 20 older antitrust judgments and their terminations have been approved. Nearly 1,300 legacy antitrust judgments are under review by the DOJ.
The role of big data has become a greater focus for antitrust policy as a product, an input into downstream products and a source of currency. In particular, concern has been expressed that the use of pricing algorithms (especially those that use artificial intelligence), either by design or unwittingly, may result in collusion. Finally, some have expressed concerns about concentration levels that have been measured broadly across the economy and whether this is a result of relatively lax antitrust enforcement by the agencies. While it is too early to see whether these concerns will impact the direction of antitrust policy, they are expected to play a role in the modernisation hearings.
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Henry J Kahwaty
Cleve B Tyler
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