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Recent developments in US competition law

The US Sherman Act (1890), prohibiting "contracts, combinations and conspiracies in restraint of trade," is perhaps the oldest competition statute in the world. Yet, because the act's prohibitions are almost constitutional in dimension, its application constantly evolves and develops through case law as new technologies develop, competition becomes increasingly international, and professors, economists and courts bring new perspectives to bear. Last year continued evolution and debate over the appropriate scope of the law's application. Herewith some of the more recent developments:

Foreign Commerce. 30 years ago, Congress tried to codify extraterritorial application of US competition law with the Foreign Trade Antitrust Improvement Act (1981) providing that the Sherman Act does not apply to conduct "involving" trade or commerce (other than import trade or import commerce) with foreign nations, but with an exception when the conduct has a "direct, substantial and reasonably foreseeable" effect on US domestic or import commerce. Although intended to provide greater certainty to companies engaging in foreign commerce, the convoluted language has led to continued debate as to the impact on US commerce required before US law will apply.

There is currently a split among US appellate courts, with the Ninth Circuit in LSL Biotech stating the FTAIA requires that the effect on domestic commerce follow "as an immediate consequence" of defendant's activity while the Seventh Circuit in the Minn-Chem case would apply the standard advocated by the US Justice Department that there merely be a "reasonably proximate causal nexus." The Second Circuit may soon address the issue in the Lotes case, where a lower New York court adopted the stricter Ninth Circuit approach.

Venue. As the foreign commerce debate demonstrates, venue can sometimes be a key tipping point in antitrust exposure. Yet there is still a debate underway regarding venue requirements applicable to corporate defendants, and whether venue is nationwide by virtue of section 12 of the Clayton Act's authorization of nationwide service of process read in conjunction with general US venue provisions, or whether the service provisions of the Clayton act must be read in conjunction with the Clayton Act's more specific restrictions on court selection. The Ninth and Third Circuits have adopted an expansive reading, while the Seventh Circuit in the recent KM Enterprises case has held that a "mix and match" approach would render the venue inquiry meaningless.

The Federal Trade Commission. Application of antitrust law by the Federal Trade Commission continues to be an area of debate, owing to a statutory prohibition of "unfair methods of competition," which may (or may not) be coextensive with the Sherman Act. The Supreme Court in 1972's Sperry & Hutchinson decision appeared to support an expansive reading, but the FTC's advocacy of broader applicability was later cut back by appellate courts. There has recently been a renewed interest in applying the standard in both antitrust and consumer protection matters, coupled with the FTC's recent entertainment of remedies going beyond injunctive relief to possible disgorgement and restitution.

Not surprisingly, this has led to calls for clarification, with some Commissioners urging that the FTC issue specific guidelines. Members of Congress have joined the debate, also calling for guidance, while new Chairwoman Ramirez appears to favor the status quo and development of the law through enforcement decisions.

Merger Review. Both the FTC and the Justice Department have become increasingly aggressive in the merger area, and are more willing than ever to go to Court and seek tougher remedies, as evidenced by the US Air/American Airlines merger and the Ardagh/Saint Gobain transactions. This is not simply confined to the area of transactions filed for review, as the authorities have become active in challenging consummated deals below notification thresholds such as in the Bazaarvoice case in California, where the court was asked to weigh conflicting views of customer and economic testimony and decided that "it would be a mistake to rely on customer testimony about the effects of the merger" because of their limited access to the kind of expert economic evidence provided in the case. The court also quoted extensively from internal business documents indicating that the merger would eliminate competition, once again driving home the significance such documents play in competition assessments.

Patents. The uneasy accommodation between patent rights and antitrust continues to be worked out in assertions of standard essential patents and in settlements of pharmaceutical patents cases. Arguments in favour of a liberal standard applied to so-called "pay for delay" settlements upholding settlements within the scope of the patent, or a "presumptively illegal" approach favoured by the government, were both rejected by the Supreme Court in the Actavis decision, which adopted a "rule of reason" approach but left many of the specifics of its future development to case law application in the lower courts. Left unclear were the degree of inquiry required into the merits of the patent claim, and the extent to which likelihood of loss must be shown and whether the overall inquiry should be truncated or broad ranging.

In the meantime, US premerger regulations have been revised to take specifically into account and to require filing in many instances where a patent licensor retains co-promotion, co-development or co-marketing rights. The FTC has announced its intention to conduct an in-depth study of so-called "patent assertion entities" in order to gather further data on their activity so as to better understand both its likely costs and benefits.

Single Firm Conduct. The law of bundling and tying is being worked out as it remains uncertain whether US courts will ultimately adopt a view that merely offering a lower price for a popular product can be unlawful. Separately, courts and enforcement agencies have begun to address loyalty rebate programs on an exclusive dealing theory.

Enforcement. The DOJ and other agencies have been actively investigating allegations of coordination in connection with various benchmarking activities such as LIBOR, gold and North Sea crude, and foreign exchange. Criminal prosecutions for per se violations continue unabated, with fully 80% of those individuals convicted going to prison for sentences averaging 25 months. The Justice Department remains committed to ensuring that foreign nationals serve time for antitrust violations and to using all appropriate tools to find, arrest and extradite fugitives where appropriate. Leniency policies may soon be supplemented by "whistleblower" legislation allowing a reporting party to share in fines or recovery.

A brief review can only skim the surface but one thing is certain: evolution of US competition will continue as will the need for skilled practitioner advice to navigate the new challenges this dynamic law presents.