With the election of a Republican President and the continued Republican majority in Congress, it would be expected that US competition enforcement would become somewhat less interventionist and more business friendly. However, delays in filling positions at the Federal Trade Commission (where only one Democratic and one Republican Commissioner in office contributed to ideological stalemate) and delays in the confirmation of a new Assistant Attorney General ("AAG") at the Department of Justice ("DOJ") meant much less of an initial directional shift. Past changes in US government administrations notwithstanding, both the FTC and the DOJ have traditionally maintained a fairly consistent approach to antitrust enforcement, and this largely continued through most of 2017.
The "reconstituted" FTC is still at the starting gate as its new appointees take hold. However, over at Justice the new AAG has firmly taken up the reins and begun to put his own aggressive stamp on enforcement. This review will address recent developments in Foreign Commerce and Intellectual Property, and conclude with a brief note on Mergers.
Prologue: New Guidelines
Even as the new President was inaugurated, the DOJ and FTC had issued revised "Antitrust Guidelines for International Enforcement and Cooperation" and revised "Antitrust Guidelines for the Licensing of Intellectual Property." Both documents, while reaffirming approaches taken under prior 1995 Guidelines, updated them to reflect developments in areas of the law, including a more aggressive interpretation of applicability of US antitrust law to foreign commerce.
The new International Guidelines incorporate the view of the last administration (not yet unanimously accepted in all US courts) that provisions of the Foreign Trade Antitrust Improvements Act ("FTAIA") limiting application of US antitrust law in cases involving foreign conduct unless there is a "direct, substantial and reasonably foreseeable effect" on US domestic or import commerce will not bar an action where there is a "reasonably proximate causal nexus" between foreign conduct and anticompetitive effects in the United States -- a standard which allows for a fair amount of judgmental discretion. While stating that the government will continue to assess particular fact situations carefully, the International Guidelines also emphasize that it will not apply any minimum pecuniary threshold as a requirement for substantiality. And there is every indication that the government will continue to prosecute conduct in the criminal context even where a private plaintiff seeking damages might be barred under the doctrine of Illinois Brick (barring damages claims by indirect purchasers), taking advantage of the amorphous nature of a "reasonably proximate causal nexus" standard.
Meanwhile, court decisions continue the uncertainty surrounding FTAIA exclusions, making it difficult for private party defendants to defeat damages claims at the early stages of litigation. Thus, for example, the In re Capacitors Litigation court held that sales either billed or shipped to the United States would fit within the definition of import commerce, stating that "the FTAIA does not state or support a per se rule excluding foreign purchasers just because they did their purchasing abroad." While observing that capacitors incorporated into finished products coming into the United States were "unlikely to be a substantial cost component," the Court allowed the case to proceed through discovery, although stating that plaintiffs would have to develop facts establishing directness and that its ruling "likely only leaves a small opening for plaintiffs to establish proximate cause in this category."
On the other hand, the fairly strict rule that the "effect" on US commerce must "give rise to a claim" under US antitrust laws continues to bar claims by plaintiffs who purchase goods overseas and feel the "effect" overseas, even if the goods are the subject of a global price-fixing conspiracy which includes the US This is because the US domestic effect of anticompetitive conduct must proximately cause the plaintiff's injury. Thus, for example, New York federal courts have held that claims of unlawful tying and bundling of drug sales overseas do not allow overseas purchasers to sue under US antitrust laws even if it may affect the ability of those purchasers to compete in US markets, and similarly, refusals to license technology to overseas companies will not give rise to a claim, even though US consumers may be injured.
The new AAG has stressed his commitment to international engagement, filled key foreign commerce positions and committed to add more resources and staff. The recent announcement by the DOJ that it will investigate overseas conspiracies in the China air cargo context suggests that enforcement in the area of overseas conduct will continue to be robust.
Acting in conjunction with the Solicitor General, the Antitrust Division also submitted an amicus brief to the US Supreme Court arguing the court should accept review in the long-running Vitamin C litigation. The Chinese companies' defense to claims made in 2005 that they were fixing the price of vitamin C was that their conduct was mandated by the Chinese government -- a defense buttressed by Chinese government court submissions stating this interpretation of its law was correct . While the trial court rejected this legal argument, an appeals court in New York reversed that ruling on the grounds that comity required that the Chinese government's reasonable interpretation of its law be accorded deference.
The government's amicus brief argued that "a submission from a foreign government need not be treated as conclusive in all circumstances," did not preclude a court from considering other relevant material, and that this holding resulted in failing to consider evidence suggesting that the companies admitted to voluntarily agreeing on prices and quantities without any intervention from the Chinese government.
The new Intellectual Property Guidelines continue long-standing general principles that the enforcement agencies will "apply the same antitrust analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right," "will not presume that intellectual property creates market power," and that licensing "allows firms to combine complementary factors of production and is generally procompetitive." However, they now state that acquisitions of intellectual property rights "are most appropriately analyzed by applying the principles and standards used to analyze mergers," even where there is no actual merger occurring. Moreover, this approach is not limited to transactions involving exclusive licenses and may also be invoked in a given case when a particular transactions' effect is to substantially decrease competition in a relevant market.
Standard setting organizations ("SSOs"), which select a particular IP technology to solve an industry-wide problem, and the voluntary commitment they require of the patent holder to license the selected technology on "reasonable and non discriminatory" terms can be expected to continue to be an area of scrutiny. Here, too, the new AAG -- the first registered patent lawyer to head the Antitrust Division -- is weighing in, stating that "fresh thinking about the implications of SSOs and the proper role of antitrust law is long overdue."
He has criticized the degree of focus on "hold up" situations (where "innovator" IP holders refuse to grant a license until their royalty demands are met and courts are asked to address whether terms are "fair, reasonable and nondiscriminatory" [FRAND]), stating there should equally be a concern in respect of "hold out" situations (where "implementers" who hope to market and use such technology through that license, threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met.) While conceding there are bona fide reasons for antitrust penalties in certain "hold up" cases, patent rights are constitutionally protected, the "misapplication of antitrust laws to punish the legitimate exercise of those rights" undermines those policies, and he has suggested that that remedies at common law or under other statutes may be more appropriate.
In the AAG's view there must be "a more symmetric balance" in the "dueling policy concerns" of IP and antirust law lest "incremental shifts in bargaining leverage" towards implementers "undermine incentives to innovate." Accordingly, SSO rules should not be "transform commitments to license on FRAND terms into a compulsory licensing scheme," and SSO rules purporting to clarify the meaning of "reasonable and nondiscriminatory" that skew the bargain in favor of implementers warrant a close look to determine whether they are the product of collusive behavior within the SSO.
It will be interesting to see how this philosophy develops in application. On the FTC side, observers will watch to see whether there is a shift in the Qualcomm case where the two-member Commission split on the merits of charges brought alleging that Qualcomm was refusing to license its patents and illegally forcing phone makers that wanted its semiconductor chip to take a license to its technology, and where a full complement of Commissioners may view things differently.
While there have been no changes to the FTC/DOJ Merger Guidelines, last revised in 2010, the new AAG has signaled a desire to address most issues structurally (i.e., divestitures) rather than through "regulation" (behavioral remedies). In a reminder that completing Hart-Scott-Rodino review does not mean a transaction is exempt from antitrust scrutiny, the DOJ filed a lawsuit against Parker-Hannifin Corporation and Clarcor Inc., alleging that their merger completed seven months before violated US antitrust laws. The complaint alleges a fairly straightforward horizontal overlap, but more than in the past, the DOJ will be closely watched to see if political considerations intrude into its review process of other transactions.