Department of Justice
Update from the Antitrust Division
Merger, civil non-merger and criminal enforcement at the Antitrust Division of the United States Department of Justice remains active. Many of those enforcement matters have significant international dimensions, which continue to be a focus of the Division.
Division investigations have resulted in three 2011 litigations involving mergers that reduced the number of significant competitors in a market from three to two: United States v VeriFone Systems, Inc; United States v George’s Foods, LLC; and United States v H&R Block, Inc.In VeriFone, the United States challenged a proposed transaction that would have had the combined effect of eliminating one of the three significant competitors selling point-of-sale terminals that merchants use to process credit and debit card transactions, and reducing competition between the remaining two competitors through a licensing arrangement that would have blunted their incentives to compete against each other. The parties announced that they were abandoning their licensing arrangement a week after the action was filed and divestiture to a buyer approved by the Department of Justice was subsequently obtained.
In George’s, the United States challenged an unreported transaction combining two of the three chicken processing facilities in the Shenandoah Valley of Virginia, alleging monopsonistic harm to competition for the services of poultry growers in the region. A month later, George’s agreed to a settlement requiring it to make capital investments that will stimulate its demand for grower services.In H&R Block, the United States sued to enjoin the proposed combination of two of the three significant providers of digital do-it-yourself tax preparation products. The proposed transaction would combine H&R Block, which is the second largest provider, with TaxACT, which is the third largest and has a history of competing aggressively. That litigation is pending.
The Division has also reached proposed consent decrees resolving its competitive concerns in four mergers. In January, Comcast was permitted to proceed with its acquisition of NBC Universal after agreeing to a proposed consent decree that, among other things, preserves the ability of emerging online video distributors, which have the potential to erode the market power of entrenched cable operators like Comcast, to acquire NBC Universal content. The Division worked closely with the Federal Communications Commission (FCC) in crafting the proposed decree, which complements the FCC’s order reached under the FCC’s public interest standard. Court review of the proposed decree under the Tunney Act is ongoing.
A second proposed consent decree concerns Google’s acquisition of ITA Software, whose products are used by competing online travel websites. Under the proposed consent decree, Google agreed to continue to license and improve ITA’s flight search technology, to observe firewall commitments to ensure the confidentiality of licensee information and to report to the United States complaints that it has acted unfairly towards any online travel company respecting flight search advertising.The third consent requires the divestiture of a medical waste transfer station in New York, enabling a new entrant to replace the loss of competition created by the merger of two competing medical waste disposal service providers. And the fourth requires the divestiture of hair-care-product brands, which again was designed to enable a competitor to replace the loss of competition posed by the merger of competing providers of hair care products.
In addition to the Division’s contested merger litigations and consent decrees, six transactions were either abandoned or restructured in response to Division concerns in 2011. One prominent example was the decision by NASDAQ and the IntercontinentalExchange to abandon their attempt to acquire the New York Stock Exchange following the Division’s determination that the transaction would have harmed competition associated with corporate stock listing services, off-exchange stock trade reporting services and real-time equity data products.
Civil non-merger enforcement
On the civil non-merger front, the United States continues to litigate against American Express, challenging rules that prohibit merchants from encouraging consumers to use lower-cost payment methods when making purchases. For example, the rules prohibit merchants from offering discounts or other incentives to consumers to encourage them to use credit cards that cost the merchant less to process. Visa and Mastercard have settled similar claims the United States made against them and the court recently approved those settlements.
Additionally, litigation against Blue Cross Blue Shield of Michigan continues over Blue Cross’s most-favoured-nation clauses that effectively require health providers in Michigan to raise the prices that they charge to other insurers. Also in the field of health care, the Division settled claims under section 2 of the Sherman Act against United Regional Health Care System regarding its use of tiered pricing contracts that effectively require insurers to deal exclusively with United Regional, the dominant hospital in the area.
The Division’s criminal programme has obtained over $1.7 billion in fines against criminal conspirators over the past two and a half years. In fiscal year 2010, the Division filed 60 criminal cases charging 84 defendants. Also, in fiscal year 2010, the Division obtained more than $550 million in fines, more than $24 million in restitution and prison sentences totalling more than 71 years.
One focus of the criminal programme is the municipal bond industry. In July 2011, JPMorgan Chase entered into an agreement with the Department of Justice to resolve the company’s role in anti-competitive activity in the municipal bond investments market, agreeing to pay a total of $228 million in restitution, penalties, and disgorgement to federal and state agencies. That payment will in substantial part be returned to municipalities that were harmed by the conduct under investigation.In May 2011, UBS AG entered into an agreement with the Department of Justice to address similar anti-competitive activity. Under this agreement, UBS acknowledged and accepted responsibility for the anti-competitive conduct of its former employees. It also agreed to pay a total of $160 million in restitution, penalties, and disgorgement to federal and state agencies, including the Securities and Exchange Commission, the Internal Revenue Service and 25 state attorneys general. And in a related matter, the Division announced last year that Bank of America entities had agreed to pay $137 million in restitution to the Internal Revenue Service and municipalities harmed by anti-competitive conduct in the municipal bond derivatives market. Bank of America’s agreement to pay restitution was a condition of its admission into the Division’s corporate leniency programme.
Two significant policy developments have also marked the last year. First, the Department of Justice and the Federal Trade Commission issued revised Horizontal Merger Guidelines in August 2010. The revised Guidelines increase transparency, closing gaps that had grown up between actual practice and the last major revision of the Guidelines in 1992. Among other changes, the revised Guidelines include a new section covering the types of evidence that the Division and the Federal Trade Commission consider when assessing competitive effects, a significantly expanded discussion of unilateral effects and a new section on price discrimination. The core of earlier versions of the Guidelines, however, remains: defining markets under the hypothetical monopolist test, assessing the likelihood of unilateral and coordinated effects, and considering the potential of entry and efficiencies to counter the potential for any harmful effects.
Second, in June 2011 the Division released an updated Policy Guide to Merger Remedies, which is a tool that the Division uses to analyse proposed remedies in merger matters. The Policy Guide, which is made publicly available to increase transparency into the Division’s operations, includes updates reflecting recent Division remedies. The Guide also highlights the newly created Office of the General Counsel, which is now principally responsible for enforcing Division consent decrees.
An important milestone in the Division’s international programme occurred in July 2011 with the signing of a memorandum of understanding among the US Department of Justice, the Federal Trade Commission and China’s three competition agencies (the People’s Republic of China National Development and Reform Commission, Ministry of Commerce, and State Administration for Industry and Commerce). The memorandum promotes communication and cooperation among the five agencies and is also a sign of the strengthening relationship among the competition enforcers of the two countries. The memorandum provides for periodic, high-level consultations among all five agencies, as well as separate communications between individual agencies. It also lists several specific avenues for cooperation, including:
- exchanges of information and advice about competition law enforcement and policy developments;
- training programmes, workshops and other means to enhance agency effectiveness;
- consultation on proposed laws, regulations and guidelines; and
- cooperation on specific cases or investigations, when in the investigating agencies’ common interest.
The memorandum is the latest example of the growing importance of the non-US competition world on the work of the Division. An important Division priority is further integrating the consideration of international issues into the day-to-day work of the Division. The role of Rachel Brandenburger, an experienced international competition-law practitioner, as special advisor to the assistant attorney general on international matters reflects this commitment. In particular, the Division is focusing on being mindful of the international implications of its actions from the start of an investigation to the remedial phase. In today’s globalised world, hardly a day goes by when the Division’s lawyers and economists are not on a video or telephone conference with another competition enforcer somewhere around the globe. The Division continues to develop ‘pick-up-the-phone’ relationships with the increasing number of non-US competition agencies that have an interest in the coordinated investigation of mergers, unilateral conduct or cartel activity.For example, the Division has cooperated on merger reviews in 2011 with agencies from Canada, Mexico, the European Union, the United Kingdom, Germany, Japan, Australia, South Africa, Brazil, Colombia and others. Building on these existing relationships and creating new ones are keys to the Division’s vision of tomorrow’s competition world.
The Division’s cooperation with fellow enforcers is premised on three principles advanced over a decade ago by the International Competition Policy Advisory Committee: transparency, cooperation and convergence. The Division’s cooperation efforts are also driven by the concepts of mindfulness, respect, trust and dialogue. Specifically, the Division strives to be mindful of the impact of its actions outside the United States and is dedicated to respecting the ideas of others and their differences. In addition, the Division seeks to build trust among competition enforcers and the business community, and it is similarly committed to ongoing dialogue among competition enforcers, businesses, consumers, practitioners, academics and the general public.
Four recent mergers help demonstrate the Division’s approach to cooperation and commitment to these values. The merger of Ticketmaster and Live Nation was reviewed by the Division and the Canadian Competition Bureau. The Division and the Bureau coordinated closely at both the investigative and remedial stages to obtain a complex remedy that included both structural and behavioural elements. The Division and Bureau decisions were announced on the same day in January 2010.
A second example of international merger cooperation is the coordinated review of the merger of Cisco and Tandberg. With waivers and cooperation from the merging parties and third-party industry participants in place, the Division and the European Commission were able to work closely together from the opening to the conclusion of their investigations. That cooperation included contacts between the investigative staffs, the exchange of documents, discussing one another’s analyses of competitive effects, and conducting joint meetings and interviews with the parties and third parties. In deciding to conclude its investigation, the Division took into account the commitments that the parties gave to the European Commission to facilitate interoperability. The Division’s announcement that it was closing its investigation was made on the same day that the European Commission announced its clearance decision.Similarly, the Division worked closely with the German Federal Cartel Office in the investigation of CPTN Holdings’s acquisition of Novell patents and patent applications. Again aided by waivers from the parties, the competition agencies discussed information and assessments of likely competitive effects and coordinated on potential revisions to the parties’ agreements. The two agencies announced their respective decisions on the same day in April 2011.
Finally, the Division’s recent complaint and proposed consent decree involving Unilever and Alberto-Culver required those firms to divest two hair-care brands to proceed with Unilever’s $3.7 billion acquisition of Alberto-Culver. The Division discussed the merger with Mexico’s Federal Competition Commission, the United Kingdom’s Office of Fair Trading and South Africa’s Competition Commission. Aided by waivers from the parties, the agencies were able to enter into dialogue with each other and to be mindful of each other’s issues as they conducted their respective investigations.
In addition to cooperation in merger enforcement, active cooperation also takes place in the cartel area. For instance, the Division has cooperated with enforcement agencies on five continents during its investigation of price fixing in the air transportation industry. With the announcement earlier this year that Taiwan-based EVA Airways Corporation had agreed to plead guilty and pay a $13 million criminal fine, the Division’s investigation has, to date, resulted in a total of 22 airlines and 21 executives being charged, as well as more than $1.8 billion in criminal fines.
In a world of nearly 120 competition agencies, where several may be reviewing the same matter, the Division is dedicated to facing the challenges and opportunities of the growing competition world to further its mission of protecting competition and consumers.
About the author
Joseph Matelis is counsel to the assistant attorney general at the antitrust division of the US Department of Justice. He works with the enforcement sections of the Antitrust Division and in particular on those matters involving coordination with non-US competition enforcers. He is also involved in Division policy initiatives, including the 2010 Horizontal Merger Guidelines and the 2011 Policy Guide to Merger Remedies.