The United States Department of Justice Antitrust Division (DOJ) is an Executive Branch agency with statutory authority to enforce the federal antitrust laws. It is led by an assistant attorney general appointed by the president.
The DOJ shares enforcement in civil matters (involving mergers and other conduct) with the Federal Trade Commission (FTC), but the DOJ alone has the authority to file criminal charges. In both civil and criminal cases, when the DOJ concludes that a transaction or other conduct is anticompetitive, it must file suit in federal court in order to obtain appropriate relief: injunctions and other equitable relief in civil cases and fines and jail sentences in criminal cases.
The DOJ’s first enforcement priority has traditionally been the criminal prosecution under Sherman Act section 1 of price fixing, bid-rigging, market allocations and other nakedly anticompetitive agreements among competitors. To facilitate uncovering and prosecuting this conduct, the DOJ employs a leniency programme under which the first firm or individual to report a criminal antitrust violation receives immunity in exchange for full cooperation.
In the merger field, both the DOJ and the FTC enforce section 7 of the Clayton Act against transactions they deem likely to harm competition and consumers. When transactions exceed certain size thresholds, the Hart–Scott–Rodino (HSR) Act requires parties to file notifications and observe an initial waiting period. Only one of the two agencies will investigate, with responsibility allocated pursuant to an inter-agency ‘clearance’ agreement that takes into account prior industry experience and other factors. The agencies can extend the waiting period by seeking additional information via a ‘second request’. Both agencies may also investigate and challenge smaller transactions that do not meet HSR thresholds even after their consummation.
The DOJ also enforces section 1 and 2 of the Sherman Act using civil processes against conduct that is not subject to criminal penalties. Civil enforcement is appropriate for single-firm conduct (monopolisation) and joint conduct subject to the ‘rule of reason’, such as information exchanges, joint ventures and vertical contractual restraints. Occasionally, as in the Apple/eBooks case, the DOJ will seek to apply per se rules to alleged horizontal agreements in civil enforcement matters.
Assistant Attorney General Makan Delrahim, appointed by President Trump in September 2017, continued to lead the Antitrust Division during 2018. The Division’s approach to enforcement during 2018 was likewise largely consistent with that of the first year of the Trump administration.
Merger enforcement and litigation
By far the highest profile DOJ case of 2018 was its unsuccessful effort to block the proposed US$85.4 billion acquisition of Time Warner by AT&T. The DOJ alleged that the vertical combination of Time Warner’s media content with AT&T’s distribution network (including DTV) would give AT&T new incentives to insist on higher fees for access to Time Warner content, leading to higher prices for consumers and potentially dampening competition from content distribution competitors. The case was tried in early 2018, resulting in a judgment against the DOJ and the court of appeals affirmed that ruling in early 2019. Both courts explained that the Division’s bargaining power theory of competitive harm failed in part because of the merging parties’ unilateral commitment to an arbitration remedy that was seen as precluding AT&T from threatening to withhold Time Warner content altogether when negotiating with other distributors. That unilateral commitment was similar to the behavioral remedy the Division had accepted in 2011 (during the Obama Administration) in allowing the combination of Comcast and NBCUniversal to proceed via a consent decree.
Among the noteworthy horizontal mergers reviewed by the Division during 2018 were the following.
After a lengthy investigation, the DOJ cleared Bayer’s US$66 billion acquisition of Monsanto based upon the parties’ agreement to divest to BASF Corp a package of assets valued at US$9 billion, a remedy the DOJ called the ‘largest negotiated merger divestiture ever’. Certain divestitures addressed horizontal competitive overlaps – including that of Bayer’s seed and trait businesses (along with ancillary assets, such as Bayer’s R&D and ‘digital ag’ technologies) needed for the buyer to replace Bayer as an effective competitor, and Bayer’s Liberty herbicide business. The divestiture of Bayer’s’ seed treatment business addressed both horizontal and vertical concerns, in particular those arising from the ‘integration of Bayer’s dominant seed treatments and Monsanto’s dominant seed businesses’.
In June 2018, in the midst of a heated contest between Walt Disney and Comcast for control of Twenty-First Century Fox, the DOJ entered a consent decree clearing Disney’s acquisition of Fox on the basis of Disney’s agreement to divest 22 of Fox’s regional sports networks. The DOJ billed Disney’s agreement as having ‘streamline[d] agency clearance’ by avoiding the need for the Division to continue its ongoing investigation. Comcast dropped its bid for Fox soon thereafter and shortly following the DOJ’s appeal of the district court’s ruling in ATT/Time Warner, which had underscored the DOJ’s continuing concerns about vertical combinations of distributors like Comcast and content owners like Fox.
In a follow-up to its successful challenge to Aetna’s attempted purchase of Humana during 2017, the DOJ cleared Aetna’s US$69 billion merger with CVS Health based on a consent decree requiring divestiture of Aetna’s Medicare Part D prescription drug business to WellCare Health Plans, a health insurer focused on government-sponsored plans. This relief eliminated concerns arising from the horizontal combination of CVS’s ‘SilverScript’ Medicare Part D business and Aetna’s competing business.
The DOJ also required the divestiture of broadcast television stations in nine markets as a condition of resolving a challenge to the proposed US$3.6 billion merger between Gray and Raycom. The DOJ alleged that the horizontal combination of stations in these markets would have enabled the merged company to charge cable and satellite companies higher retransmission fees, and to charge advertisers higher prices for spot advertising.
In three other merger matters involving significant competitors in narrow markets, the DOJ required divestitures or announced its plans to challenge:
- the proposed combination of the only qualified suppliers of sonobuoys to the US navy (Ultra electronics/Spartan, abandoned);
- the proposed combination of the two leading suppliers of general purpose hardware security modules used as components in complex encryption solutions to safeguard sensitive data (Thales/Gemalto, resolved by divestiture of Thales’ competing business); and
- the merger of two of the world’s three suppliers of two categories of aerospace components – pneumatic ice protection systems and trimmable horizontal stabilizer actuators (UTC/Rockwell Collins, resolved by divestiture of Rockwell’s businesses in these markets).
Civil non-merger enforcement
The DOJ’s most significant non-merger civil case of 2018 was another major loss, this one at the US Supreme Court. In Ohio v American Express, the Supreme Court affirmed the court of appeals’ decision overturning the DOJ’s 2015 trial victory (along with 17 state attorneys general) in its challenge to American Express’s steering rules. Early in the Trump administration, the DOJ opted not to seek Supreme Court review and urged the court not to review the case when asked to do so by the plaintiff states. After the Supreme Court granted review the DOJ chose to participate actively in merits briefing and oral argument at the Supreme Court, arguing for reversal of the Second Circuit’s ruling. The Supreme Court’s affirmance concluded that the DOJ had not ‘carried [its] burden of proving that Amex’s anti-steering provisions have anticompetitive effects’. The court viewed the credit card market as a ‘two-sided transaction platform, . . . [that] facilitate[s] a single, simultaneous transaction between participants’. As such, the Supreme Court examined the trial record to determine whether there was evidence of ‘anticompetitive effects on the two-sided credit-card market as a whole’, which required proving that ‘Amex’s anti-steering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the credit-card market’. The court found no such evidence.
The Division was also active in other non-merger civil matters during 2018.
The DOJ settled claims that Knorr-Bremse AG and Westinghouse Air Brake Technologies Corporation (Wabtec), two competing suppliers of railroad equipment, had entered ‘no-poach’ agreements not to compete for one another’s’ employees. The complaint alleged that the agreement was per se unlawful and thus the Division did not need to define a market or allege market power or anticompetitive effects. The DOJ expressly noted that it did not proceed against these agreements criminally because they had been terminated prior to the DOJ’s 2016 announcement that it would generally treat naked no-poach agreements as subject to criminal prosecution. The investigation that led to this complaint grew out of information obtained by the Division in its prior merger investigation of Wabtec’s acquisition of Faiveley in 2016.
The DOJ also settled claims against several owners of television broadcasters, alleging that they had exchanged competitively sensitive information, including ‘revenue pacing’ and other non-public sales information, which the DOJ said allowed the stations to anticipate prices charged by competing TV stations for advertising and negotiate more aggressively with advertisers. Decrees entered with these defendants forbade the continued sharing of such information.
In another civil conduct case, the DOJ challenged contractual anti-steering provisions in contracts between a dominant hospital system in Charlotte, North Carolina, and healthcare insurers that prevented the insurers from creating incentives for their insureds to choose cost-effective hospitals and physicians.
The Division also significantly expanded its participation in private antitrust cases. Assistant Attorney General Delrahim explained that the Division’s goal was to ‘more proactively and more effectively promote the use of antitrust and competition principles across the judiciary’. In pursuit of this programme, the Division filed submissions in private litigations pending in federal trial courts setting forth its views on such issues as:
- the proper legal framework to apply in alleged no-poach agreements under section 1 of the Sherman Act;
- whether an alleged market allocation agreement was properly regarded as per se unlawful under section 1;
- the relevance of an exclusive dealing agreement’s duration in evaluating whether it was unlawful under the rule of reason under section 1;
- the principles applicable in assessing unilateral refusals to deal under section 2 of the Sherman Act; and
- the equitable principles relevant to relief available in private cases challenging consummated mergers.
The Division also announced an initiative to seek termination of several hundred judgments entered in antitrust cases brought by the Division in the past, before the adoption of the general practice of including express ‘sunset’ provisions in such judgments. Among the noteworthy judgments the Division has considered terminating as part of this programme is the Paramount decree, entered in 1948, which continues to prohibit the motion picture company defendants in that case (known as distributors) from having an interest in movie theatres (known as exhibitors) or engaging in certain distribution practices, such as block booking.
Last year saw a downturn in criminal enforcement activity, with significantly fewer cases filed and corporations charged than at any time in the past decade, and the second lowest number of individuals charged and level of fines achieved during that same period (after only 2017 in both cases). Nonetheless, where naked horizontal agreements are identified, the DOJ has continued to vigorously pursue criminal charges, including jail time for culpable individuals. Among the noteworthy developments during 2018 were the following.
- The DOJ won a guilty verdict in a jury trial of two individual co-conspirators in its prosecution of LIBOR manipulation. The two defendants were derivatives traders who the jury found had participated in submitting fraudulent LIBOR contributions to further their own (or their banks’) interests rather than to reflect the ‘honest and unbiased costs of borrowing’.
- In a high-profile indictment, the DOJ charged the president and chief executive officer of Bumble Bee Foods for his participation in an alleged conspiracy to fix prices for packaged seafood sold in the United States.
- In its challenge to price fixing in the electrolytic capacitors industry, the DOJ obtained a US$60 million criminal fine against Nippon Chemi-Con, along with a five-year term of probation during which the company must implement an effective compliance program.
- The DOJ continued its long-running criminal enforcement programme against bid-rigging and fraud relating to real estate foreclosure auctions. Pleas obtained during 2018 involved defendants in Mississippi, Florida and California, adding to the DOJ’s extensive list of charged individuals and companies.
- The DOJ brought charges against several companies and individuals in separate price-fixing conspiracies in the ‘customised promotional products’ industry. One set of charges was against G Nova Corporation and its CEO, involving a conspiracy to fix prices of can coolers. The other was against Netbrands Media Corporation and two of its top executives involving price fixing of wristbands, lanyards, temporary tattoos and buttons. The DOJ noted that the Netbrands conspiracy was allegedly implemented through social media platforms and encrypted messaging applications, such as Facebook, Skype and WhatsApp.
- The DOJ obtained a litigation victory in a case involving an alleged criminal market allocation agreement among heir location services. The trial court reversed an earlier ruling that had rejected the DOJ’s characterisation of the alleged conduct as per se illegal, in favour of rule-of-reason treatment, holding that the such factors as the conspiracy’s application to only a small number of customers or the obscure nature of the industry at issue were not reasons to reject per se condemnation of naked agreements not to compete.
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