First, T-Mobile and Sprint argue that they need the deal to compete with the Big Two (AT&T and Verizon) – the combined firm would be able to take advantage of efficiencies and economies of scale to bring technological innovations (5th generation (5G)) to the market faster to provide customers with better broadband services at a lower cost.  Thus, customers would benefit from the merger through lower prices and investments to their network.  The parties basically acknowledge that it is a four to three deal.

Second, the parties argue that the wireless market is no longer as concentrated because an abundance of competition exists or will exist in the near future as cable companies, Google, and others are increasingly entering this space. Even using current technologies, Comcast has rolled out low-cost wireless service to its cable customers that rides on Verizon’s network.  So the argument goes that this isn’t a case of going from 4 to 3 wireless companies – there are now at least 7 or 8 big competitors in this converging market.  There is a lot of reasons why long time staffers at the FCC and DOJ might be skeptical of this claim.

Third, the merged firm is pledging to spend $40-50 billion to bring 5G to the United States.  Ultimately, the reasoning behind this transaction is to establish a “strong third” player.  Merging T-Mobile and Sprint would grant the combined company more scale, which could help it compete against AT&T and Verizon.  That is the argument that Sprint made to regulators in 2014 and it is part of the argument the companies are making today.  Promises, Promises?

In 2014, Bill Baer, then head of the Antitrust Division, told the New York Times: “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”

But on June 1, 2018, the current head of the Antitrust Division, Makan Delrahim, declined to support the Obama administration’s firm backing of the need for four U.S. wireless carriers.  Delrahim told reporters, “I don’t think there’s any magical number that I’m smart enough to glean.”  He also said the DOJ would look at Sprint and T-Mobile’s arguments that the proposed merger was needed for them to build the next generation of wireless, referred to as 5G, but that they had to prove their case.

Besides new leadership at the FCC and the Antitrust Division in the form of FCC Chairman Ajit Pai and DOJ’s Delrahim, respectively, not much else has changed so as to make a deal more palatable this time around.  Like then as now, the Big Four still make up 98% of a wireless market that is important to just about all U.S. consumers.  Nevertheless, both Pai and Delrahim agree that there is no magic number.

Unlike the last time around, the Trump administration will hear the merging parties out before pre-judging the deal.  So third parties and consumer groups will have their work cut out for them.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Net Neutrality is a principle that allows for an open and free internet.  The Internet Service Providers (ISPs”) are the gatekeepers to all content on the internet.  Net Neutrality rules prohibited ISPs from unfairly discriminating against others by speeding up, slowing down, throttling, or blocking the delivery of internet traffic.  Net Neutrality is what gives users the freedom as they browse through web pages, apps or any other content available on the internet.

By scrapping the FCC’s Net Neutrality rules, ISPs will be free to act without burdensome regulations, which imposed substantial costs, chilled investment, and lessened innovation. ISPs, however, will be required to disclose information about their practice to consumers, entreprenuers, and the Commission, including any blocking, throttling, paid prioritization, or affiliated prioritization.  While the FCC is returning to a light touch approach, its action restores the FTC’s jurisdiction to act when ISPs or broadband providers get out of line through unfair, deceptive, or anticompetitive acts.

With the light framework, the ISPs could very well surprise us by providing us with better and less expensive service.  For instance, we pay a high fixed price to stream content and browse the internet.  This may all change as ISPs will have more control without any preemptive rules to burden themselves with so they will innovate and provide us with better service at lower costs.

It reminds some about how our local incumbent cable company offers packages of channels that you do not want to watch?  The ISPs will be in control and will have the ability to innovate and offer us cheaper and better service with bundles of web pages that we may or may not want.  Will the overall cost that we pay for ISP services go down or up?  Prices may go down, but it could be more confusing in terms of what web pages are you purchasing, which sites can you visit, what streaming services will work better with your ISP service?  It is too early to tell whether the FCC’s action today is good or bad, but there are strong opinions on both sides.

If the FCC is not going to regulate the free and open internet, who will police the broadband beat going forward?  The answer appears to be the FTC, but can antitrust be an effective safeguard?  Probably not.  What is really required will be legislation.  That being said, the FTC must be prepared to enforce the antitrust laws against any ISP mischief.  Acting Chair Ohlhausen put out a statement after the Order was adopted saying that “the FTC is ready to resume its role as the cop on the broadband beat.”

The FTC-FCC issued a Memorandum of Understanding (“MOU”) which discusses how the FTC and FCC will allocate enforcement of ISPs.  The FCC will investigate and take actions against any violations of the order’s transparency requirements, under which ISPs have to disclose any blocking, throttling, paid prioritization or congestion management. That means if they don’t disclose what they are doing, the FCC’s Enforcement Bureau will handle it.  The FTC will investigate ISPs for any divergence from what they say they are, or are not, doing, as well as any other practices the FTC deems unfair or deceptive.  That unfairness could include anticompetitive blocking or throttling or paid prioritization.

FCC Chairman Ajit Pai said in a statement that “instead of saddling the Internet with heavy-handed regulations, we will work together to take targeted action against bad actors. This approach protected a free and open Internet for many years prior to the FCC’s 2015 Title II Order and it will once again following the adoption of the Restoring Internet Freedom Order.”

FTC Chair Ohlhausen says that: “The FTC stands ready to protect broadband subscribers from anticompetitive, unfair, or deceptive acts and practices just as we protect consumers in the rest of the Internet ecosystem.” But, Commissioner McSweeny warns that the FTC may not be up to the task.  She says that the FTC lacks the tools, the expertise, and the resources to carry out such a charge on its own.

Today is a new day as the FCC scraps the 2015 net neutrality rules.  The FTC must be ready to quickly step up to the plate to protect consumers from any anticompetitive conduct or bad behavior by ISPs if and when it is discovered.   If and when, the ISPs engage in any anticompetitive acts to undermine the open and free internet, let’s hope that the FTC uses its dusty tools that have been left on the shelf for so long, the wealth of experienced competition and privacy lawyers, and its vast resources to be the new strong cop on the broadband beat.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

She said that antitrust enforcers adopted the Chicago School principles, which narrowed the scope of the antitrust laws and allowed mega-mergers to proceed resulting in many concentrated industries.  She believes that antitrust enforcers already have the tools to reduce concentrated markets and that they simply must start enforcing the law again.

Senator Warren’s recommendations included stronger merger enforcement, cracking down on anticompetitive conduct and increasing agency involvement in defending competition.

Senator Warren called for the blocking of mergers instead of negotiating weak settlements that allow deals to go through:

• The DOJ and the FTC need to block any mergers that “choke off competition” and take to court any large company that is impeding competition and innovation.
• “If we’re going to begin a new era of antitrust enforcement, we need to demand a new breed of antitrust enforcers. We need enforcers with steel spines who will stand up to companies with the best-dressed lobbyists, the craftiest lawyers, and the highest-paid economists.  Enforcers who will turn down papier-mache settlement agreements and actually take cases to court.”
• “To revive competition in our economy, vertical mergers, particularly mergers in already concentrated industries, should be viewed with the same critical eye that’s needed for mergers between direct competitors.”

Senator Warren called for a crack down on anticompetitive conduct:

• The DOJ and FTC should bring lawsuits against companies using anti-poaching and non-competition agreements among companies and franchises that prevent employees from obtaining jobs that could increase their pay.
• The DOJ and FTC need to “[g]row a spine and enforce the law.  No-poach agreements are a reminder that corporate concentration not only affects consumers by limiting choices and driving up prices. It also affects workers who can’t get the salary they would be able to get in a competitive economy.  It’s time to hold those corporations accountable for these competition-killing practices. And let’s be clear: holding everyone accountable means everyone….There is no exception in antitrust laws for big tech.”

Senator Warren called for all government agencies to participate in the protection of competition:

• “Sure, DoJ is law-enforcer-in-chief, but all government agencies should defend competition” and reduce monopoly power where they have the power to do so.  The FCC should enforce strong net neutrality rules.  The FDA can reign in pharmaceutical monopolies as it controls which drugs come to market and when.  The Federal Reserve and FDIC could make sure that banks are not to big to fail. The DOD could inject more competition in its defense contracting process by not limiting the number of bidders.

President Obama lists four bright-line rules:

• No blocking. If a consumer requests access to a website or service, and the content is legal, your ISP should not be permitted to block it. That way, every player — not just those commercially affiliated with an ISP — gets a fair shot at your business.
• No throttling. Nor should ISPs be able to intentionally slow down some content or speed up others — through a process often called “throttling” — based on the type of service or your ISP’s preferences.
• Increased transparency. The connection between consumers and ISPs — the so-called “last mile” — is not the only place some sites might get special treatment. So, I am also asking the FCC to make full use of the transparency authorities the court recently upheld, and if necessary to apply net neutrality rules to points of interconnection between the ISP and the rest of the Internet.
• No paid prioritization. Simply put: No service should be stuck in a “slow lane” because it does not pay a fee. That kind of gatekeeping would undermine the level playing field essential to the Internet’s growth… I am asking for an explicit ban on paid prioritization.

President Obama also stated that he believes the FCC should take strong steps to protect net neutrality by reclassifying consumer broadband services under Title II of the Telecommunications Act, and then forbearing from applying certain burdensome regulation available under that Title.

Obviously, the cable and phone companies will have a lot to say about this if Chairman Wheeler pushes through rules that require more regulation over the internet.  President Obama appears to be sending a message to Chairman Wheeler, but at the same time, acknowledges that it is the FCC’s decision on how to handle net neutrality.  While Chairman Wheeler’s more balanced middle of the road plan leaked a couple of weeks ago indicated that he does not mind if Comcast, AT&T or Verizon charge Netflix for using more bandwidth, President Obama’s plan would go further because he wants everyone on the internet treated equally.  President Obama’s call to ban internet fast lanes and block service providers’ ability to charge content providers for faster content delivery will certainly meet heavy resistance.  Indeed, Verizon warns that intense regulation of the internet would threaten harm to an open internet, competition, and innovation.  As the net neutrality regulation debate heats up, the Antitrust Division and the FCC are currently reviewing three of the big four gatekeepers that are involved in acquisitions:  Comcast’s acquisition of Time Warner Cable and AT&T’s acquisition of DirecTV. President Obama’s statements are direct at net neutrality and do not mention the transactions.  No matter whether Chairman Wheeler implements his proposed plan or President Obama’s plan, the FCC will likely be challenged in court.  Chairman Wheeler is in a difficult position, but he has to figure out a way to resolve the net neutrality regulation debate in a fair and balanced manner to avoid a court challenge.  Is more regulation the answer or should we rely on the antitrust laws to protect us?

To see President Obama’s statement: WH.gov/Net-Neutrality

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

·            Brad Burnham – Managing Partner, Union Square Ventures

·            Ruth Livier – Writer, Independent Producer, and Actress

·            Robert McDowell – Former Commissioner, Federal Communications Commission (FCC)

·            Jeffrey Eisenach – Visiting Scholar, American Enterprise Institute Center for Internet, Communications and Technology Policy

·            Nuala O’Connor – President and CEO, Center for Democracy and Technology

Members of the Senate Judiciary Committee disagreed about the need for the FCC to enact net neutrality rules.  Some, such as Sen. Orrin Hatch (R-UT) and Sen. Ted Cruz (R-TX), argued that additional regulation would inhibit the ongoing growth of the Internet and limit the freedom the Internet represents.  Other senators, such as Chairman Patrick Leahy (D-VT) advocated for the net neutrality rules to prevent the “paid-prioritization” of network traffic by a handful of “corporate gatekeepers” from turning the Internet into a “system of ‘haves and have-nots’.”

The witnesses disagreed with each other.  Mr. Burnham’s solution would be to classify last mile broadband access as a telecommunications service, which would give the FCC the authority to protect open access to the Internet without overly burdensome government regulation.  Ms. Livier also preferred reclassification as a telecommunication service to provide a basis for permanent regulation. She testified that an open Internet empowers minority communities, promoting better representation in media and in professional and creative settings.  Mr. McDowell disagreed. He testified that as a Commissioner, he voted against earlier attempts to enact net neutrality and continues to oppose net neutrality because, among other reasons, there is no evidence there is anything wrong in the Internet access market that needs fixing. He is concerned that regulation of fixed broadband would spill over into other areas, including wireless broadband, harming competition and innovation.

Dr. Eisenach also opposed net neutrality in his testimony. He saw net neutrality as protecting the status quo financial benefits to private parties rather than benefitting consumers or public interest.  Dr. Eisenach stated that existing antitrust laws are better able to preserve competition and to check anticompetitive behavior because they have exhibited the flexibility to address market power abuses. Ms. O’Connor expressed support for a light regulatory hand.  She testified that existing antitrust laws would be insufficient in the absence of net neutrality.

While opinions differ, no one disagrees that debate regarding net neutrality matters.  As the FCC determines how it will regulate the internet going forward in an effort to keep the internet open to everyone, various stakeholders and industry players will lobby and potentially litigate in an effort to keep the status quo.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Chairman Wheeler explained that access to a 25 Mbps connection is becoming essential (or “table stakes”) to consumers with a majority of Americans having access to 100 Mbps or higher connections. However, “just because most Americans have access to next-generation broadband doesn’t mean they have competitive choices.”  Indeed, Chairman Wheeler believes that most Americans really have no competitive choices.  Chairman Wheeler applauded Google and AT&T’s introductions and plans to introduce gigabit broadband to markets around the country, but worried that characterizing competition in many markets as a duopoly “overstates the case” because of the lack of competitive opportunities open to consumers.

To address these concerns, Chairman Wheeler explained the FCC’s Agenda for Broadband Competition, which includes four broad principles: (i) protect existing competition; (ii) encourage greater competition where possible; (ii) create competition where it does not exist in a meaningful way; and (iv) promote broadband deployment where competition cannot be expected to exist.  Through the application of these principles, Chairman Wheeler hopes to improve broadband performance, promote competition, and encourage innovation.

For more information see: Tom Wheeler, Chairman, Federal Communications Commission, The Facts and Future of Broadband Competition, (Sept. 4, 2014), available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0904/DOC-329161A1.pdf.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The settlement ending an investigating into Verizon’s alleged misuse of customer information. The FCC’s Enforcement Bureau was investigating Verizon’s alleged failure to notify approximately two million new customers of their privacy rights.  Specifically, Verizon allegedly failed to provide to  new customers instructions for how to opt-out from alleged Verizon’s use of their personal information for marketing purposes.  As part of the settlement, Verizon must inform all new customers of their opt-out rights on every bill for three years.

The $7.4 million settlement is the largest in FCC history for a settlement of an investigation related solely to the privacy of telephone customers’ personal information.

For more information see Press Release, Federal Communications Commission, Verizon to Pay $7.4 million to Settle Consumer Privacy Investigation (Sept. 3, 2014), available at http://www.fcc.gov/document/verizon-pay-74m-settle-privacy-investigation-0

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Currently, the HSR Act imposes notification and waiting period requirements on individuals and companies over a certain size before they can consummate acquisitions of stock or assets valued at more than $70.9 million. The purpose of the HSR Act is to provide federal antitrust enforcement agencies an opportunity to investigate proposed transactions and determine whether the transactions would violate the antitrust laws. If the reviewing agency determines that a transaction violates the antitrust laws, it may seek to block that transaction before the waiting period expires. Therefore, the antitrust agencies take HSR violations very seriously; even ones where no competition overlaps exist. Indeed, a party is subject to a maximum civil penalty of $16,000 a day for each day it is in violation of the HSR Act.

While the HSR Act requires pre-merger notifications to be filed with both the DOJ and the FTC, a number of exemptions exist. For example, the HSR Act exempts notifications of acquisitions of 10 percent or less of a company’s stock made “solely for the purpose of investment.” To qualify, the investment must constitute less than 10 percent of a company’s shares, and the investor cannot play any role in the acquired company’s decision making.

Settlements

The DOJ filed complaints along with proposed consent agreements that will settle the charges. The first alleged violation involves MacAndrews & Forbes Holdings Inc. (“M&F”), an investment firm owned by billionaire Ronald Perelman and the second alleged violation involved Barry Diller as an individual. Both violations were inadvertent.

M&F

On June 20, 2013, M&F agreed to pay $720,000 to settle allegations it violated HSR disclosure requirements by failing to report its purchase of a large number of shares in a lottery ticket company. The antitrust agencies alleged M&F waited too long to disclose its 2012 purchase of 800,000 shares of Scientific Games Corp. (“SGC”) in violation of the HSR Act.

According to the complaint, M&F had a history of investments in SGC. Following an acquisition of voting securities in February 2007, M&F was exempt from making a new HSR filing for five years and continued to purchase SGC shares during that time. However, M&F inadvertently failed to make an HSR filing prior to its purchase of 800,000 shares of SGC on June 4 and 5, 2012; just four months after the HSR granted five-year grace period expired. As soon as it realized its filing error, M&F made a corrective filing two months later on August 16, 2012. At that time, M&F acknowledged that the SGC acquisitions of stock should have been reported, but it also indicated that its failure to file was not deliberate. Significantly, M&F quickly acknowledged and promptly corrected its mistake for not filing its HSR form of an acquisition of voting securities that had no impact on competition was severely punished.

Barry Diller

Similarly, on July 2, 2103, the Commission settled another technical HSR violation against Barry Diller, an investor with many holdings in public companies. Mr. Diller agreed to a civil penalty of $480,000 for violating the HSR pre-merger filing requirements.

Mr. Diller acquired 120,000 shares of Coca Cola on November 1, 2010, and, as a result of that acquisition, he held more than $63.4 million, the pre-merger reporting threshold under HSR at that time. Between November 1, 2010 and April 26, 2012, Mr. Diller acquired an additional 605,000 shares of Coca Cola voting securities but failed to submit the requisite HSR filings. In addition, on April 27, 2012, Mr. Diller acquired 264,000 more shares and again failed to meet his HSR filing requirements. Mr. Diller subsequently made corrective filings.

Mr. Diller gained no advantage of any kind and there was no harm to Coca Cola, nor to anyone else as a result of his HSR mis-filings. In fact, the civil penalty finally agreed to by the FTC was a fraction of the total potential penalty he could have been required to pay if the Commission sought and obtained maximum damages. The FTC chose, for whatever reason, to impose a reduced penalty on Mr. Diller. Most importantly, and like the MacAndrews & Forbes case just discussed, there were no competition issues for the antitrust agencies to consider and there was no effect on competition in any relevant market. The Diller case was purely a technical failure to file which was corrected by Mr. Diller as soon as it was discovered.

Lessons Learned

Both settlement agreements send a strong message to all corporate executives, hedge fund managers, securities traders, and institutional investors on notice that they are not exempt from the premerger notification requirements of the HSR Act and that the antitrust agencies are prepared to aggressively investigate and litigate technical and inadvertent violations of the HSR Act, even if they present no competitive harm in the marketplace. These inadvertent mistakes can lead to substantial penalties. Therefore, corporate executives, hedge funds, individual investors must take HSR reporting requirements seriously.

The HSR Act contains numerous exemptions but the antitrust agencies have construed the exemptions narrowly and the agencies have made it abundantly clear that they will prosecute those that rely on aggressively broad interpretations of HSR exemptions. These cases are excellent examples of why anyone who is a party to an acquisition that approaches the HSR Act’s minimum reporting threshold (now $70.9 million) should seek the advice of experienced HSR counsel. These oversights cost M&F $720,000 and Barry Diller $480,000 in civil penalties.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Policy Lessons from AT&T: Antitrust law remains powerful and relevant in combating anti-competitive activity and for preserving macroeconomic efficiency. Despite powerful lobbying efforts by large tech companies such as AT&T, the DOJ Antitrust Division remains relatively independent from political pressure. Moreover, Stelzer maintains that government regulation in a high-tech economy remains relevant, contrary to some critics of antitrust policy who say that “what was good for the days of steel-making and a brawn-driven economy is bad for a high-tech, brain-driven economy.”

Traditional Antitrust Concerns Remain Relevant: Stelzer elaborates on this assertion by stating that antitrust laws are needed for preventing the abuse of market dominance now more than ever. He argues that competition among firms breeds innovation, lowers prices and elevates productivity and living standards. Moreover, in Stelzer’s opinion, anticompetitive acts are harder to distinguish from competitive tactics in today’s economy, and such distinctions should be made on a case-by-case basis, suggesting that competition policy is still needed.

Competition Beats Regulation: Stelzer maintains that although regulatory supervision is preferable as a check on monopolies, such regulation outlives its usefulness. When changes in technology force a shift in the economics of the regulated industry that enables competition. He contends that the government should be present to prevent the accumulation of monopoly power through checks on mergers and anticompetitive tactics, but stop where regulation chokes innovation. He reasons that when replacing “imperfect regulation by imperfect competition” in certain industries, consumers benefited significantly.

The Social Consequences of Antitrust Policy: Though there are some people (whether those in government, those considered as “old money” or businessmen) who are opposed to competition policy because it lowers barriers to entry, competition policy is vital to ensuring that start ups created by entrepreneurs are able to prosper. The report notes that competition policy creates a relative ease of entry that spurs economic and social mobility which prevents class warfare prevalent in other nations.

Antitrust in High-Tech Industries: The report lays out concerns that must be considered as antitrust policy is applied to the high tech industry. Is the market definition process a reliable indicator of anti-competitive behavior? While the author recognizes the arguments against relying on defining the relevant market, he does see some value in it. The author notes that when considering market share in industries prone to rapid technological change, (although difficult) it may be beneficial to place more focus on future market shares rather than existing market shares, particularly in the technology industry. To be more specific, Stelzer argues that if companies like Google and Apple grow at their targeted rate, they will eventually have to make acquisitions that either complement or expand their products and offerings. An analysis based on these projected growth rates may indicate whether these acquisitions will encourage innovation or create barriers to entry.

Hauwa Otori
(202) 589-1834
hotori@dbmlawgroup.com

Melody Cheung
(202) 589-1834
mcheung@dbmlawgroup.com

Specifically, AT&T is required to divest its assets in eight Cellular Marketing Areas (“CMA”), as defined by the Federal Communications Commission (“FCC”), in southwestern and central Louisiana and southwestern Mississippi in order for the transaction to be consummated. According to the DOJ, AT&T and Centennial are each other’s closest competitors in various markets. Therefore, the transaction would have reduced competition for mobile wireless telecommunications services in the eight CMAs.

The proposed transaction is still under review by the FCC.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

The Merger Guidelines describe the analytical framework and specific standards normally used by the agencies in analyzing mergers. The Guidelines are intended to reduce the uncertainty associated with enforcement of the antitrust laws in the merger area. The last significant revision of the Guidelines was in 1992, however, the agencies issued a detailed Commentary on the Guidelines in 2006.

The goal of the workshops will be to determine whether the Guidelines need to be updated. In other words, do the Guidelines accurately reflect the current practice of merger review? Do the Guidelines take into account legal and economic developments that have occurred since 1992? Topics to be discussed include: the overall method of analysis used by the agencies; the use of more direct forms of evidence of competitive effects; market definition; market shares and market concentration; unilateral effects, especially in markets with differentiated products; price discrimination; geographic market definition; the relevance of large buyers; the distinction between uncommitted and committed entry; the distinction between efficiencies involving fixed and marginal cost savings; the non-price effects of mergers, especially the effects of mergers on innovation; and remedies.

The agencies will issue a set of questions about the current Guidelines and possible revisions. Following receipt of public comments and original research addressing those questions or other issues related to the Guidelines, the agencies will host a series of five workshops. The workshops, which are open to the public and press, will take place in December 2009 and January 2010. The first workshop will be held in Washington, D.C., on Dec. 3, 2009, followed by workshops in Chicago, New York City and San Francisco. A final workshop also will be held in Washington, D.C. The dates and times for the other workshops have not been set yet.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

The FTC comments point out that competition and consumer protection work together to benefit consumers. If competition and consumer protection are considered in developing the National Broadband Plan, the FTC believes consumers’ access to the Internet will be improved, as will their ability to enjoy specific content and applications once they have broadband capability.

The FTC’s comments question whether there is significant competition within the broadband arena. To evaluate that competition and tailor regulatory policies, the FTC suggests that the FCC use some of the analytical tools used by the FTC and DOJ in antitrust cases. Consumer protections also are essential to help foster greater adoption of broadband. They include meaningful and timely disclosures of service terms by broadband providers and strong data security policies that will safeguard consumer information and ease potential consumer concerns aboutonline privacy. Privacy protections are particularly important, given new technologies that allow broadband providers to track consumers’ online activities, to identify the source and content of much of the data they handle, and to manage that data in increasingly sophisticated ways, such as delivering targeted advertising online.

The Commission vote approving the comments was 4-0.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

This investigation follows her speech in May where she withdrew the DOJ’s Section 2 Report. Section 2 of the Sherman Act is used in monopolization cases. The DOJ did not bring a major Section 2 case during the Bush years.

The telecommunication review is not a formal investigation of any specific company rather the review is expected to cover all areas from land-line voice and broadband service to wireless. One area that might be explored is whether big wireless carriers are hurting smaller rivals by locking up popular phones through exclusive agreements with handset makers. For example, consumers have raised questions about deals such as AT&T’s exclusive right to provide service for Apple Inc.’s iPhone in the United States. AT&T’s exclusive arrangement, however, is only one example. The DOJ also may review whether telecom carriers are unduly restricting the types of services other companies can offer on their networks. Public-interest groups have complained when carriers limit access to Internet calling services such as Skype.

Through consolidation and organic growth, AT&T and Verizon have become the two largest players and have a great deal of power with equipment makers. Combined, they have 90 million land-line customers and 60% of the 274 million U.S. wireless subscribers. They both operate large portions of the Internet backbone.

The increased scrutiny of the telecommunications industry as a result of the investigation may lead to more procompetitive behavior that will allow smaller service providers to compete more effectively.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

The HSR Act is an amendment to the Clayton Act and imposes notification and waiting periods on individuals and companies of a certain size before they can complete an acquisition in holding assets over a certain value. In 2005, that amount was $53.1 million. This amount is adjusted annually to reflect changes in gross national product. The amount today is set at $65.2 million.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

He was also charged with obstruction of justice into Department of Justice’s ongoing investigation into bidding violations related FCC E-Rate program. According to the indictment, Mr. Hansen conspired with a local Internet service provider by accepting a three-year contract worth $1.6 million along with $60,000 in free goods and services.

The conspiracy took place between 2001-2004. The Telecommunication Act of 1996 authorized the FCC’s E-Rate Program to provide economically disadvantaged school districts and libraries with funds to connect to the Internet. As a result of this ongoing investigation a total of seven companies and 18 individuals have pleaded guilty, have been convicted and found guilty, or entered civil settlements, resulting in more than $40 million in criminal fines, civil settlements and restitution and jail sentences totaling nearly 29 years.

Andre Barlow

202-589-1838

abarlow@dbmlawgroup.com

In addition to the administrative complaint, the Commission authorized the staff to seek a preliminary injunction in federal district court in Washington, D.C. to stop the transaction pending completion of the adminstrative trial.

According to the Commission’s administrative complaint, the plasma protein markets are highly concentrated markets which are already exhibiting signs of coordinated behavior. The proposed acquisition would further consolidate the industry and increase the likelihood of collusion. CSL’s proposed acquisition of Talecris would be anticompetitive. The proposed acquisition would reduce the number of competitors in the U.S. markets for Ig and Albumin from five to four, leaving the top two remaining competitors – CSL and Baxter – accounting for more than 80 percent of each market. In addition, in the U.S. markets for Rho-D and Alpha-1, the proposed transaction would reduce the number of competitors from three to two.

This consolidation would continue the reduction in competition that has occurred over the past 19 years. In 1990, there were 13 plasma-derivative protein product competitors. This number was reduced to nine in 2003, and only five competitors remain today – CSL, Talecris, Baxter, Grifols, and Octapharma. The Commission’s administrative complaint alleges that firms in the plasma industry have used this consolidation as a tool to limit supply and drive higher prices, rather than to provide benefits for consumers. The proposed acquisition of Talecris is particularly concerning because Talecris was undergoing substantial expansion that – absent the acquisition – would have increased availability and lowered prices of these life saving drugs. The complaint also charges that by reducing the number of competitors, and eliminating this ongoing expansion, the acquisition will make anticompetitive harm through coordinated interaction even more likely and more successful.

Finally, the complaint states that there are significant barriers to entry and expansion in these markets, including regulatory, intellectual property, and capital requirements, that make entry or expansion unlikely to occur to a degree that is sufficient to offset the alleged anticompetitive effects of the proposed transaction.

The Commission vote approving the filing of the administrative and federal district court complaints was 2-0, with Commissioners Pamela Jones Harbour and William E. Kovacic recused.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

The HSR Act imposes notification and waiting period requirements on individuals and companies over a certain size before they can consummate acquisitions of stock or assets valued at more than $50 million. The purpose of the HSR Act is to provide federal antitrust enforcement agencies an opportunity to investigate proposed transactions and determine whether the transactions would violate the antitrust laws. If the reviewing agency determines that a transaction violates the antitrust laws, it may seek to block that transaction before the waiting period expires. Therefore, the antitrust agencies take HSR violations very seriously, even ones where no competition overlaps exist. Indeed, a party is subject to a maximum civil penalty of $11,000 a day for each day it is in violation of the HSR Act.

While the HSR Act requires pre-merger notifications to be filed with both the DOJ and the FTC, a number of exemptions exist. For example, the HSR Act exempts notifications of acquisitions of 10 percent or less of a company’s stock made “solely for the purpose of investment.” To qualify, the investment must constitute less than 10 percent of a company’s shares, and the investor cannot play any role in the acquired company’s decision making.

The DOJ filed complaints along with proposed consent agreements that will settle the charges. The first alleged violation involves Bill Gates as an individual and the second alleged violation involves Manulife Financial Corporation, a Canadian-based insurance and financial services company. Both improperly relied on the investment exemption. Mr. Gates agreed to pay $800,000 to settle charges that he violated the HSR Act in 2002 when he acquired more than $50 million of ICOS Corporation (“ICOS”) stock without first notifying antitrust regulators of the deal. The DOJ’s complaint alleged that Mr. Gates was in violation of the Act from May 9, 2002 through August 26, 2002. Apparently, Mr. Gates contended that no HSR filing was required for his purchase of ICOS stock because purchases for investment purposes are exempt from the filing requirements. According to the complaint, however, Mr. Gates did not qualify for the “solely for the purpose of investment” exemption to the pre-merger notification requirements because he intended to participate in the basic business decisions of ICOS through his longstanding membership on the board of directors of ICOS, a pharmaceutical company headquartered in Bothell, Washington. While the antitrust agencies normally will not penalize a company or individual for an inadvertent mistake, Mr. Gates had been previously made aware of the rules and the agencies considered the violation a second mistake that required a substantial penalty. On the same day, Manulife agreed to pay a $1 million civil penalty to settle charges that the company violated pre-merger notification requirements when it acquired approximately $150 million of John Hancock common stock in the spring of 2003. Following the alleged pre-merger notification, Manulife and John Hancock announced their intentions to merge on September 28, 2003, and they consummated that transaction on April 28, 2004. While the DOJ’s suit does not challenge the combination, the complaint alleges that at the time of these stock acquisitions in the spring of 2003, Manulife was considering a Manulife-John Hancock combination. Thus, Manulife’s purchases of John Hancock stock were not made solely for the purpose of investment and were not exempt from the Act’s notification and waiting period requirements. Moreover, the complaint alleged that Manulife was in violation of the Act from on or before March 24, 2003 through October 27, 2003, however, the penalties were reduced because Manulife brought the violation to the DOJ’s attention and cooperated with the investigation.

Both settlement agreements send a strong message to corporate executives and lawyers to take HSR reporting requirements seriously. The HSR Act’s investment exemption is limited to acquisitions that are “solely” for the purpose of a passive investment and does not apply if a corporation or individual intends on participating in the business of the company being acquired. The antitrust agencies have construed the exemption narrowly and the agencies have made it abundantly clear that they will prosecute those that rely on aggressively broad interpretations of HSR exemptions.

Andre Barlow

(202) 589-1834

abarlow@dbmlawgroup.com

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

According to the complaint, Raycom would have controlled over fifty percent of the broadcast television spot advertising market had the acquisition been approved without a settlement agreement. Prior to the transaction, the two broadcast stations competed head to head for buyers of spot broadcast television advertising time.

Headquartered in Montgomery, AL, Raycom owns and operates 46 television stations in 35 markets in 18 states.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

To resolve antitrust concerns, the DOJ required Verzion to divest assets in six different geographic locations in Vermont, New York and Washington. Verizon and RCC provide service to approximately 60 percent of the consumers in those areas. The Department said that the transaction as originally proposed would have substantially lessened competition to the detriment of consumers of mobile wireless telecommunications services in those areas, potentially resulting in higher prices, lower quality and reduced network investments.
Serving more than 65 million people in 49 states, Verizon is the second largest mobile wireless telecommunications services provider. RCC is the 10th largest providing its service to 790,000 consumers in15 states. Last year, Verizon made $43 billion in revenue while RCC earned $635 million. This transaction is currently under review at the Federal Communications Commission.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com