The plaintiffs argued that Section 232 of the Trade Expansion Act of 1962, as amended, did not properly delegate authority to the Executive Branch because there is no “intelligible principle” under which Section 232 authorizes presidential action.

CIT determined that Section 232 did, in fact, meet the “intelligible principle” standard to uphold Section 232’s constitutionality.  In reaching its decision, the CIT relied on a 1976 case, Fed. Energy Admin. v. Algonquin SNG Inc., 426 U.S. 548 (1976), where the Supreme Court upheld a similar challenge against Section 232, finding that Section 232 “establishes clear preconditions to Presidential action. . . .”

Plaintiffs attempted to distinguish the 1976 case from the one before it, but ultimately failed to convince the three-judge panel that the Algonquinwas not binding on the CIT.

Despite the outcome, there are avenues for appeal.  The case can be appealed to the Supreme Court, where the Highest Court can revisit its earlier rulings and revise the law.  Despite the difficulty in overruling an earlier Supreme Court decision, one judge on the CIT panel expressed “grave doubts” about the 1976 decision that was binding on the CIT.  Judge Katzmann did not dissent from the opinion, and maintained that he was bound by earlier precedent, but maintained skepticism that the earlier decision was right.  Judge Katzmann expressed concern that Section 232 violates the spirit of Separation of Powers embedded in the Constitution because it:

“provides virtually unbridled discretion to the President with respect to the power over trade that is reserved by the Constitution to Congress. Nor does the statute require congressional approval of any presidential actions that fall within its scope. In short, it is difficult to escape the conclusion that the statute has permitted the transfer of power to the President in violation of the separation of powers.”

AIIS already announced its decision to appeal the decision, so time will tell whether the Supreme Court will revisit its earlier precedent.

The decision followed a bench trial that began in September 2024 and lasted 15 days, with closing arguments in November 2024. It marks the second major antitrust loss for Google in less than a year, following a separate ruling on its search monopoly.

Remedy Trial Timeline

The remedies phase, which will determine how to address Google’s anticompetitive behavior, is scheduled to begin as a bench trial on September 22, 2025, in the same court before Judge Brinkema. Both parties proposed this date shortly after the liability ruling, and it was confirmed by the court in early May 2025. The trial is expected to focus on evidence and arguments for specific remedies, with a decision potentially following in the months after.

Proposed Remedies to Resolve the Judge’s Concerns

The remedies aim to dismantle Google’s integrated ad tech monopoly, restore competition, and prevent future anticompetitive practices as outlined in the ruling (e.g., tying, exclusive deals, auction manipulation, and data advantages). Proposals from the U.S. Department of Justice (DOJ) and plaintiff states are more aggressive, emphasizing structural changes, while Google’s counterproposals focus on behavioral adjustments. Key proposals include:

• DOJ and States’ Proposals (Structural and Behavioral Remedies):
  • Divestiture of Key Assets: Force Google to sell off significant portions of its ad tech business, such as Google Ad Manager (which includes the DFP ad server and AdX exchange). This would break up the “walled garden” that gives Google end-to-end control over ad transactions.
  • Data and Bidding Restrictions: Ban Google from using first-party data from its own products (e.g., YouTube, Search, or Android) to gain unfair advantages in ad bidding or pricing. This addresses concerns about Google’s ability to leverage its ecosystem for preferential treatment.
  • Auction and Pricing Reforms: Prohibit manipulative practices like “last look” advantages in auctions (where Google could adjust bids after seeing competitors’) and require fair, non-discriminatory auction rules to prevent rigging.
  • Interoperability and Non-Exclusivity: Mandate that Google’s tools be compatible with rivals’ products, end exclusive contracts with publishers and advertisers, and allow easier switching to competitors.
  • Oversight and Compliance: Implement monitoring by a court-appointed trustee for up to 10 years, with potential fines for violations.
• Google’s Counterproposals (Primarily Behavioral):
  • Avoid divestitures, arguing they exceed the scope of the ruling and could harm innovation and users. Instead, propose tweaks to auction mechanics (e.g., “rigging ad auctions a little less”) and limited changes to product tying without breaking up assets.
  • Focus on transparency enhancements, such as better data sharing with competitors or minor adjustments to fee structures, to mitigate monopoly effects without structural separation.

The DOJ argues that behavioral remedies alone have proven insufficient in past cases (e.g., Microsoft’s antitrust settlement), necessitating divestitures to fully resolve the integration that fueled Google’s monopoly. The court will weigh these during the September trial, with potential appeals likely regardless of the outcome.

Apple’s 30% commission has attracted criticism from app developers claiming that the commission is unfair and a product of anticompetitive practices.  Developers must create apps for a particular operating system (“OS”), and in the case of iPhones and iPads, that includes the iPhone OS (“iOS”).  Apps developed for the iOS must be specifically programmed and, as such, cannot be used for Android OS, Windows OS, or even Mac OS.  Once the app is developed for the iOS, the app is solely distributed through Apple’s App Store, where apps compete against each other for consumer selection.

Epic Games described in their complaint that there are two markets in which Apple has engaged in anticompetitive conduct.  The first is in the app-distribution market, where Apple’s App Store is the only method by which developers can sell their products to consumers.  Second, Apple has engaged in anticompetitive conduct in the in-app payment processing market by not allowing other methods of payment processing.

Companies including Facebook, Spotify, and Microsoft have complained about Apple’s policy of prohibiting alternative methods of app distribution.  Microsoft, for example, announced a cloud-based gaming service powered by its popular Xbox Game Pass service which would allow consumers to play Xbox games across multiple devices and platforms.  Microsoft, however, will not provide this offering for iOS users because Apple maintains that Microsoft’s offering is, in effect, a rival “store” in which consumers can download games that is separate from Apple’s App Store.  Facebook, too, had to withdraw their plans for releasing their Gaming App on iOS because it was an app that allowed consumers to download games from Facebook rather than from the Apple’s App Store.

In the in-app payment processing market which Epic Games alleges exists, Apple controls the means by which consumers pay for certain in-app purchases so that Apple can receive its 30 % commission.  Epic Games is not the only company to challenge this conduct.  Spotify also sought relief from Apple as they claimed that Apple’s 30 % commission caused Spotify to increase its monthly subscription price on the App store from $10 to $13, causing them to abandon in-app payments altogether and requiring subscribers to pay on Spotify’s website.

The lawsuit seeking injunctive relief, in particular, claims that Apple’s practices in these two markets are anticompetitive; however, a court will have to determine whether to accept Epic Games’ market definitions.  The complaint defines the markets narrowly, arguing the relevant market for examination is iOS in-app payment processing and iOS app distribution.  Epic Games offers many justifications for why these markets should be the relevant markets for antitrust examination.  Apple has previously fended off such lawsuits by arguing the relevant market for analysis is the global smartphone market.  Indeed, devices with iOS have significantly less global market share than Android and Windows devices.  If iOS users are unhappy or unsatisfied with Apple’s App Store offering, Apple reasons, consumers can simply switch to a product with a different OS.

Epic responds to the Apple’s point by arguing that Apple’s ecosystem creates network effects for its iOS, thereby reducing the incentive for developers and consumers to simply opt-out of iOS products or to switch to a different OS.  Once a consumer purchases an Apple product with iOS, it is effectively “locked in” to Apple’s products.  Apple has cultivated an ecosystem consisting of products, apps, ancillary hardware, and more, which allow Apple consumers to coordinate and harmonize their Apple experience across multiple devices.  Given these investments into Apple’s ecosystems, consumers are unlikely to simply switch OS because an app is unavailable on the Apple’s App Store, and developers are unlikely to forfeit billions of iOS users.

There is no question that Epic Games is capitalizing on a moment where Apple is under intense scrutiny regarding alleged anticompetitive conduct.  The EU announced that it was launching an antitrust investigation into Apple’s App store after a complaint initiated by Spotify; the Supreme Court last year ruled that plaintiffs may bring an antitrust lawsuit against Apple for its App Store practices; and, the Congressional Hearing on Big Tech last month demonstrated reservations about Apple’s App Store conduct.

[1] After being removed from Apple’s App Store, Epic Games was then removed from the Google Play Store, which serves devices operating Google’s Android OS.  Epic Games is also seeking an injunction against Google; however, Fortnite can still be downloaded on Android devices from sources that are outside the Google Play Store.

In 1938, the Department of Justice brought an antitrust action against several companies involved in the production and distribution of motion pictures—including Paramount, after which the decrees are named—alleging that their conduct of led to monopoly power in the distribution market for first-run motion pictures and conspiracies to fix licensing practices, including admission prices, run categories, and “clearances” for substantially all theaters located in the United States.

The consent decrees aimed at preventing film producers and distributors from using their positions to engage in anticompetitive conduct such as granting exclusive licenses based on geography or by tying multiple films into one theatrical license.  The DOJ announced their decision terminate the ParamountDecrees in November 2019.

Despite the fact that the DOJ prevailed, it was not without a fight.  The Independent Cinema Alliance (“ICA”) and the National Association of Theater Owners (“NATO”) opposed the DOJ’s efforts to eliminate the Paramount Decrees.   Among the issues they had with eliminating the consent decree, they argued why restrictions on “block booking” and “circuit dealing” should not be lifted.

Block booking refers to the practice of tying films into one theatrical license, ensuring that a distributor gets multiple movies of its own shown at a theater.  This mattered more when cinemas had only one-screen, and the practice could effectively block other distributors from having the opportunity to distribute their movies to a particular cinema.

Circuit dealing refers to a distributor’s practice of licensing films to movie theaters under common ownership all at once, rather than licensing on a theater-by-theater basis.

According to the government, the industry has undergone substantial transformation in the intervening 70 years to warrant termination of the Paramount Decrees.   Among the changes:

• Today’s films are mostly released in single theater runs; second and third run theaters do not have any appreciable presence in today’s market;
• Television broadcasts, streaming services, and DVDs have all made film distributors less reliant on theater distribution;
• Some of the largest players in the distribution space are not parties to the original consent decrees;
• Changes in antitrust law will protect the type of anticompetitive harm the DOJ initially sought to avoid; for example, the HSR Act requires parties in significant mergers to notify and permit the federal government to investigate any proposed merger.

Based on comments received from the public, the DOJ plans to add a sunset period of two years to the Paramount decrees’ block booking and circuit dealing provisions so that they may stay in place for a short period while the rest of the consent decrees are eliminated.

The complaint alleges improper administration of the exclusion request process.  The Presidential Proclamations imposing the Section 232 tariffs on steel and aluminum imports indicated that the Department of Commerce be permitted to “exclude from any adopted import restrictions” certain steel and aluminum “articles.”   However, the final rules promulgated by the Commerce Department approve exclusions only to the “individual or organization that submitted the request” and that “[o]ther individuals or organizations that wish to submit an exclusion request for steel or aluminum product that has already been the subject of an approved exclusion request may request an exclusion under this supplement.”

As a result, the complaint alleges that the Commerce Department has unfairly and arbitrarily granted exclusions of steel and aluminum products to some requesters, yet the same products imported by a different party may have to pay the duties on items subject to Section 232.   Thyssenkrupp lists 27 non-exhaustive subheadings under which it has imported since the Section 232 duties went into effect.  While Thyssenkrupp paid duties on these imports, the complaint alleges that other companies had the benefit of having their products under the same subheadings excluded from the duties.

The complaint alleges that this unfair treatment is a violation of Uniformity Clause of the Constitution which states “. . . all duties, imposts, and excises shall be uniform throughout the United States . . . .”  The complaint further seeks relief on grounds that Section 232 is an unconstitutional delegation of authority from Congress to the Executive Branch, that the exclusion process is arbitrary and capricious.

This lawsuit is among many over the years challenging the validity of Section 232.  Last year, for example, the CIT ruled that Section 232 of the Trade Expansion Act of 1962 was properly delegated from Congress to the Executive Branch.

If you need advice about the Section 232 tariffs on steel and aluminum, please contact Camelia Mazard at cmazard@dbmlawgroup.com or (202)589-1837.

The Department of Justice (“DOJ”) filed a Statement of Interest in the matter requesting that the Commission take into account the effects of COVID-19 on the domestic market and whether the imposition of duties on mattress imports are in the best interests of U.S. consumers.  In particular, the DOJ cited to the increase in demand for mattresses in light of the COVID-19 pandemic, and that such demand “will continue to increase significantly during the pandemic as communities around the country expand hospital capacity.”

Given the backdrop of the global pandemic, and the fact that “demand may outpace domestic supply”, DOJ wants to ensure that the imposition of dumping margins, ranging from 48% to more than 1000%, do not increase mattress prices nor affect the supply of mattresses needed around the country.

The mere fear of additional duties could deter American companies from importing sorely needed mattresses to address supply shortages.   First, preliminary duties—though they can be refunded if a final determination lowers the duty rates—can lead to price increases and supply disruption in the short term.  Second, the risk that duties may be imposed retroactively can deter American companies from importing mattresses to fill supply shortages.

The DOJ letter echoes our firm’s position about this poorly-timed petition.  U.S. importers and foreign producers are worried about the effects of duties on the American response to COVID-19, particularly with the ability of hospitals to source mattresses in response to an influx of new patients.

What is a no-poach agreement? 

A no-poach agreement is essentially an agreement between two companies not to compete for each other’s employees, such as by not soliciting or hiring them. No-poach agreements, or agreements not to approach other companies’ employees to hire, are generally considered illegal under the antitrust laws.  When companies make agreements not to compete for each other’s employees, they are restraining commerce because they are not allowing working people to freely change jobs to potentially make more money or move to another location if they wish to. It is illegal for companies or other entities to make these agreements, but it happens more often than you would think – just like the case with Seaman v. Duke University.

 What happened in Seaman v. Duke University?

Dr. Seaman is an assistant professor at Duke University’s (Duke) medical school. Duke made an anti-poaching agreement with its competitor, the University of North Carolina (UNC). Dr. Seaman and others, who were faculty at Duke and UNC medical schools, filed a class action lawsuit against Duke claiming that Duke violated the Sherman Act when it entered into the agreement to “prevent lateral hiring of certain medical employees in order to eliminate competition and suppress compensation.” See Seaman v. Duke University and Duke University Health System, Case No. 1:15-cv-000462-CCE-JLW (M.D.N.C.).

In March, the Department of Justice (DOJ) got involved in the case by filing a Statement of Interest. This allowed the DOJ to intervene to influence and actually enforce an outcome that prevents anti-poaching agreements in the future.

In the end, the parties settled the case. In the settlement agreement, it was decided that Duke would pay Dr. Seaman and faculty members $54,500,000, along with attorney’s fees, reimbursement for costs, and a service award. What is interesting is that the federal district court in North Carolina presiding over the case went a step further and allowed the DOJ to enforce the injunctive relief provisions of the settlement agreement. The injunctive relief provisions of the settlement agreement prohibit Duke from entering into any anti-poaching agreements for five years and require Duke to take steps to ensure this does not happen in the future. Such steps include enacting notification and compliance policies within the University.

Lessons Learned:

The DOJ continues to scrutinize no poaching agreements.  Given the DOJ’s focus on no poach agreements, it has become increasingly important for employers in all industries to learn about the risks of entering into agreements that limit their competition for employees.  In its ability to enforce these provisions, the DOJ will be keeping a close eye on Duke, while simultaneously using Duke as an example to other companies and entities. The DOJ’s goal is to be proactive in enforcing antitrust laws that prohibit these kinds of agreements between employers and to protect the American worker.  The courts and the DOJ are sending clear signals to employers that they are cracking down on anti-poaching agreements.  It is important for employers to make sure they are not making employment contracts that break the law.  Employers need to take anti-poaching agreements seriously.  It is time for employers to sort through and re-examine contracts and make sure they are legal.

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

Complaint

The FTC is alleging the merger of the chemical companies would substantially reduce competition in the Pacific Northwest and the Southern and Central United States for the production and sale of hydrogen peroxide, a commodity chemical used for oxidation, disinfection, and bleaching.

Most hydrogen peroxide produced in North America is sold to pulp and paper customers for bleaching pulp and de-inking recycled paper, according to the complaint.  Hydrogen peroxide is also used to sterilize food and beverage packaging, and in chemical synthesis, fracking, water treatment, and electronics.  For most end uses, there are no effective substitutes, the complaint alleges.  Because of high transportation costs, customers prefer nearby suppliers.

The complaint alleges that the acquisition would harm competition in at least two ways.  First, it would increase the likelihood of coordination in a market  that already functions as an oligopoly and has a long history of price-fixing including guilty pleas and litigation settlements.   The markets are highly concentrated, with significant transparency among rival firms, and long-term, stable customer-supplier relationships, low elasticity of demand, and a history of strong interdependent behavior, the complaint states.  Evonik has high market shares of approximately 50% in both geographic markets.  Second, the acquisition would eliminate significant head-to-head competition between Evonik and PeroxyChem in the Pacific Northwest, where it would leave only one other hydrogen peroxide producer, and in the Southern and Central United States, where it would leave three other producers.  The complaint alleges that customers have benefitted from competition between Evonik and PeroxyChem in the form of lower prices.

New competitors or expansion by existing firms is unlikely to be timely or sufficient to offset anticompetitive harm, due to the massive investment necessary to build a new hydrogen peroxide plant.

The FTC vote to issue the administrative complaint and file the agreed-upon request for a temporary restraining order in the U.S. District Court for the District of Columbia was 4-0-1.  Chairman Joseph J. Simons was recused.  The administrative trial is scheduled to begin on January 22, 2020.

Lessons Learned

The FTC’s challenge of the merger is demonstrates that the FTC will take action to preserve competition and protect consumers when the facts support a lawsuit.  The FTC action shows that  firms that propose a merger or acquisition in a concentrated industry with a history of past collusion should expect increased scrutiny. As the FTC noted in its Complaint, evidence of past collusion is important to the FTC’s coordinated effects analysis. Merging parties should be prepared to show that market conditions have changed since the past collusion has occurred. Here, the parties were not able to do that and the FTC alleged that the market is vulnerable to coordination.  Besides relying on a coordinated effects theory, the FTC alleges that the merger eliminates head to head competition, which will likely lead to higher prices.

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

Background on Section 301 Tariffs

A Section 301 investigation, conducted by USTR, revealed that numerous unreasonable or discriminatory Chinese laws and practices relating to technology transfer, intellectual property, and innovation are adversely affecting U.S. businesses. The investigation found that:

• The Chinese government’s use of joint ventures and foreign investment restrictions (among other practices) routinely pressure U.S. companies to transfer their technology to Chinese companies;
• The Chinese government has practices in place to make it difficult for U.S. businesses to set market terms in licensing matters and in technology-related negotiations;
• The Chinese government regularly authorizes and supports cyber intrusions into U.S. commercial networks to gain business information otherwise not publicly available; and
• The Chinese government unfairly facilitates systematic investment in U.S. companies to gain access to new technology.

USTR believes that the U.S. incurs damages of $50 billion a year as a result of these unfair and discriminatory practices.

As a result of the investigation, on September 17, 2018 USTR announced that the United States will impose an additional ten percent tariff on imports from China. These tariffs went into effect on September 26, 2018 and were supposed to increase to twenty-five percent on January 1, 2019, but the tariff increase was delayed due to U.S. negotiations with China. When negotiations with China stalled, President Trump announced on May 9, 2019 that List 3 tariffs will increase to twenty-five percent.

Parties interested in applying for exclusion for their products would be wise to address USTR’s investigation findings when completing their exclusion form paperwork. Successfully parties in the exclusion process will likely need to demonstrate how receiving an exclusion will not exacerbate the concerns USTR mentioned in its investigation report.

Applying for Exclusion

Interested parties may begin submitting exclusion requests beginning on June 30, 2019 at 12:00 pm EDT and the deadline for exclusion requests will be September 30, 2019. In its submission, a party should include descriptive information about its product and should provide supporting data and the rationale for the requested exclusion. The asserted rationale is of significant importance because USTR will evaluate each product on a case-by-case basis to determine whether the exclusion of the product will undermine the objectives of the Section 301 investigation. USTR also wants to ensure that products excluded from tariffs are narrowly defined to prevent exclusions from being overly broad. Interested parties need to submit a separate exclusion request for each product; however, one product may contain one or more goods with similar characteristics. Any exclusion will be effective starting from September 24, 2018 and will extend for one year after USTR publishes the exclusion determination.

Responses to Exclusion Requests and Replies

After a request for exclusion is posted on the USTR website, interested parties will have fourteen days to respond to the request- either in support of or opposition to exclusion. Responses, like exclusion requests, will be publicly available for others to read. After a response is posted on the USTR website any interested party will have seven days after the close of the response or seven days after the posting of the response (whichever is longer) to reply to the response. Replies will also be publicly available for others to read.

In declaring these new tariffs, President Trump relied on powers that Congress delegated to the president under the International Emergency Economic Powers Act (IEEPA) of 1977.   Congress enacted this statute to provide the president with the necessary authority to restrict transactions between U.S. persons and foreign entities located outside the U.S. that pose threats to U.S. national security interests.  Therefore, the president typically invokes IEEPA in sanctions matters (e.g. the Iranian, Syrian, and North Korean sanctions programs) and export control matters (e.g. regulations regarding transferring control of sensitive technology and information from a U.S. person to a foreign person).

The absence of language in IEEPA referring to “tariffs” or “immigration” combined with the stark contrast between this current invocation and past invocations of IEEPA have lead some scholars to believe that the use of this statute for imposing additional tariffs on Mexican imports may be illegal.  Members of President Trump’s own political party have expressed similar beliefs. For instance, Chuck Grassley, a Republican senator on the U.S. Finance Committee, has publically supported this view by saying that President Trump has exceeded his authority.

Regardless of whether the new tariffs on Mexican imports are legal, a five percent tariff will go into effect on Monday, June 10, 2019 on approximately $350 billion worth of Mexican imports.  Currently the U.S. and Mexican governments are in negotiations touching on immigration issues, but discussions do not appear immensely successful at this time. U.S. threats to increase tariffs on Mexican imports is certainly part of its negotiation strategy.  Mexico has stated that it will not be coerced into making immigration changes because of the U.S. threats, but President Trump likely hopes that Mexico may be more amenable to U.S. suggestions regarding immigration when faced with additional tariffs on Mexican imports.  However, if President Trump remains dissatisfied with Mexico’s commitment to and progress towards limiting immigration; negotiations between the U.S. and Mexico fail; and if a challenger fails to prove that President Trump acted outside of IEEPA’s delegation of power, tariffs on Mexican imports will likely increase by five percent each month until they reach twenty-five percent in October 2019.  The question of whether the tariff increases on Mexican imports will go into effect is present at negotiations between the U.S. and Mexico and will likely have an effect on the outcome of talks regardless of whether additional tariffs are imposed.

The new tariffs on Mexican imports will affect many U.S. consumers that rely on Mexican imports for everyday items. These Mexican imports subject to additional tariffs include automobiles (autos), auto parts, crude oil, and produce, to name a few.

With regards to autos, according to the Center on Auto Research, approximately forty percent of auto parts within the U.S. come from Mexico. Additionally, due to integrated North American supply chains, smaller auto parts are often incorporated into larger parts that travel across North American borders multiple times before finally becoming incorporated into a vehicle.  As a result, an auto part will likely be subject to these new tariffs on Mexican imports numerous times during the car production process. The additional tariffs on parts that typically across borders numerous times will make cars more expensive to produce and these additional costs will result in higher prices for consumers.  Toyota predicts that additional tariffs on Mexican imports will increase the cost of auto parts for its top selling model, the midsized Tacoma, by approximately one billion dollars. These additional tariffs will also greatly affect Ford, an American multinational car company headquartered in Michigan, because seventeen percent of its cars are manufactured in Mexico.

The additional tariffs will also have detrimental impacts on smaller goods, like avocados and plastic products.  Currently a shortage of avocados from Mexico has resulted in U.S. consumers paying higher prices. These new tariffs, however, will likely cause the price of Mexican avocados within the U.S. to dramatically increase even further than current prices, which are already at a record high.  Additionally, the U.S. imports approximately $7 billion of plastic and plastic goods per year and U.S. consumers will likely notice increases in prices relating to plastic goods.  In short, U.S. consumers of large and small goods will likely be affected by these new tariffs on Mexican imports.

Persons inside the U.S. will also likely notice the effects of additional tariffs on Mexican imports at the gas pump and while traveling.   Mexico is the U.S.’s second largest foreign source of oil and supplies oil to major gasoline distributors, like Exxon and Valero.  These additional tariffs will also increase travel costs for many U.S. persons because heavy oil that oil refineries need to produce jet fuel often comes from Mexico due to sanctions against other large supplies, like Venezuela.

Additional tariffs on Mexican imports will likely have a negative effect on the economy.  Some have predicted that these recent tariffs and their associated rising costs will result in the loss of 400,000 American jobs (specifically in manufacturing and retail), significant rises in costs of goods, and even another recession.  Although economists are unable to predict the exact consequences of these additional tariffs on Mexican imports, these additional tariffs will likely have a strong negative impact on the U.S. economy if they fail to serve as a successful part of U.S. negotiations regarding immigration of persons from Mexico.

The Trump Administration imposed the tariffs under Section 232 of the Trade Expansion Act of 1962, which allows the President to impose restrictions on certain imports if the Department of Commerce finds that such imports “threaten or impair national security.” Section 232 gives the Executive wide latitude to make such determinations, and such decisions need not receive Congressional approval.  Indeed, such broad authority caused Congress to debate the merits of Section 232 determinations, and a recent bill was introduced in the Senate to remove the national security determinations from the Department of Commerce to the Department of Defense. Such efforts have stalled.

According to a statement from the United States Trade Representative, the countries will focus on monitoring and enforcement mechanisms to prevent surges of imports of steel and aluminum.  A joint statement from the US and Canada indicated that both countries will strive to prevent transshipment from third countries, such as China, and otherwise prevent the importation of products that are unfairly subsidized or sold at dumped prices.

The removal of tariffs was the largest hurdle to Congressional approval of a renegotiated NAFTA–now called the U.S.-Mexico-Canada Agreement (“USMCA”). Now, Congress must approve the deal, although some House Democrats expressed concern over the USMCA’s protections concerning labor, environment, and prescription drugs.

Such efforts from the Trump Administration are a slight respite from the overall trade war.  For example, the Administration recently increased pressure on China, going as far as raising tariffs on $200 billion worth of goods to 25 percent, prompting China to retaliate by imposing higher tariffs on US imports.

This week, China retaliated by raising tariffs on $60 billion of U.S. goods.  The goods targeted already were subject to some tariffs.  Now 5,140 tariff lines will be subject to an increased rate, including 2,493 cotton, machinery and grain products that are going to be subject to a 25% tariff from a previous 10% tariff rate; and 1,078 products, including aircraft parts, optical instruments and certain types of furniture that will be subject to a 20% tariff rate from a previous 10% tariff rate; and 974 products, including corn flour and wine, will have a 10% tariff rate – up from 5%.

In response to the retaliatory tariffs from China, President Trump tweeted: “. . . China should not retaliate-will only get worse!”  The proposed rates will take effect on June 1.

On April 30^th, Hirsh Industries filed an antidumping (“AD”) and countervailing duty (“CVD”) petition on imports of certain vertical metal file cabinets from China.  The petition covers metal filing cabinets containing extendable file storage elements having a width of 25 inches or less and having a height greater than its width.  The petition alleges dumping margins of 120.48 percent and 196.79 percent. The Department of Commerce will decide whether to initiate its investigation on May 20, 2019.

On May 8, Cambria Company LLC filed AD/CVD petitions on imports of certain quartz surface products from India and the Republic of Turkey.  The scope of the investigation is fairly broad, and includes quartz surface products such as slabs, including tabletops, countertops, bar tops, vanity tops, tabletops, tiles, etc. The petitioner alleges a 344.11 percent dumping margin against India, and an 89.38 percent dumping margin against the Republic of Turkey.  The Department of Commerce will decide whether to initiate its investigation on May 28, 2019.

In addition to these petitions, President Trump ratcheted pressure on China in trade negotiations.  The pressure came as a result of accusations that China back-tracked on previous agreements made during the negotiations.  President Trump indicated that his Administration would raise tariffs this Friday, May 10, on $200 billion worth of goods to 25 percent from the current 10 percent rate.  He also threatened to impose a new round of tariffs on $325 billion of additional Chinese goods.

The Federal Register notice implementing the tariff increase indicates that USTR shall institute a process that allows parties to request exclusion of specific products affected by the tariff increases.  American businesses are caught between challenging the tariffs, paying higher prices to import the goods, or reconsidering their current supply chain in order to avoid hefty costs.

All persons could submit requests for exclusion of a particular product, why the exclusion was sought, along with other information such as the quantity and value of the Chinese-origin product.  The USTR then weighed several factors in determining whether to grant the exclusions, including: whether the product was only available in China, whether severe economic harm would result from the duties, and whether the products are important to Chinese industry.

The tariff exclusions from List 2 included about 87 exclusion requests, spanning three ten-digit HTS categories and thirty other product categories.  The exclusions will be dated retroactively to the date when USTR announced the tariffs, July 6, 2018.  Fortunately, any importer can take advantage of the relevant exclusion even if it was not the one that applied to the exclusion.

A third set of tariffs was imposed for products (“List 3”) on September 24, 2018 and, originally, was not intended to have a process for requesting exclusions.  Congress passed a law to ensure that that USTR provided an opportunity to request an exclusion, and USTR was to have crafted an exclusion request process no later than March 17, 2019. To date, USTR has not provided an exclusion request process for tariffs on products on List 3, presumably because they are waiting on the outcome of the US-China trade talks.

The plaintiffs argued that Section 232 of the Trade Expansion Act of 1962, as amended, did not properly delegate authority to the Executive Branch because there is no “intelligible principle” under which Section 232 authorizes presidential action.

CIT determined that Section 232 did, in fact, meet the “intelligible principle” standard to uphold Section 232’s constitutionality.  In reaching its decision, the CIT relied on a 1976 case, Fed. Energy Admin. v. Algonquin SNG Inc., 426 U.S. 548 (1976), where the Supreme Court upheld a similar challenge against Section 232, finding that Section 232 “establishes clear preconditions to Presidential action. . . .”

Plaintiffs attempted to distinguish the 1976 case from the one before it, but ultimately failed to convince the three-judge panel that the Algonquinwas not binding on the CIT.

Despite the outcome, there are avenues for appeal.  The case can be appealed to the Supreme Court, where the Highest Court can revisit its earlier rulings and revise the law.  Despite the difficulty in overruling an earlier Supreme Court decision, one judge on the CIT panel expressed “grave doubts” about the 1976 decision that was binding on the CIT.  Judge Katzmann did not dissent from the opinion, and maintained that he was bound by earlier precedent, but maintained skepticism that the earlier decision was right.  Judge Katzmann expressed concern that Section 232 violates the spirit of Separation of Powers embedded in the Constitution because it:

“provides virtually unbridled discretion to the President with respect to the power over trade that is reserved by the Constitution to Congress. Nor does the statute require congressional approval of any presidential actions that fall within its scope. In short, it is difficult to escape the conclusion that the statute has permitted the transfer of power to the President in violation of the separation of powers.”

AIIS already announced its decision to appeal the decision, so time will tell whether the Supreme Court will revisit its earlier precedent.

Why This Merger Mattered

Prior to the transaction, Thales and Gemalto were the world’s leading providers of General Purpose Hardware Security Modules (GP HSMs). These devices are critical components in complex encryption systems that safeguard sensitive government and corporate data.

Breaking into the GP HSM market is no small task—successful entry demands substantial time, capital investment, and technical expertise to design and develop products with the same level of functionality, interoperability, and reliability as established offerings. Competition is therefore crucial, as it drives innovation and ensures that customers benefit from higher-quality, more secure solutions.

DOJ’s Remedy

To address these concerns, the DOJ required Thales to divest its GP HSM business, including intellectual property and research capabilities. This remedy was designed to ensure that competitors could continue to innovate and bring advanced data security solutions to market without delay.

Key Takeaway

The Thales/Gemalto case illustrates a broader principle:
👉 The Antitrust Division closely examines mergers for their impact on innovation, not just price.

In markets where security, reliability, and cutting-edge technology are critical, preserving competition means safeguarding the pace of innovation itself.

Andre Barlow

While Congress has been grabbing the headlines by holding numerous hearings and introducing various legislative proposals aimed at lowering drug prices, the Trump Administration has introduced some consumer-friendly changes to Medicare that should change the way drugs are priced for seniors and encourage the use of generics and biosimilars.  First, the Centers for Medicare & Medicaid Services (“CMS”) proposes to change how insurance plans and PBMs conduct drug utilization management and structure drug formularies.  Second, the U.S. Department of Health and Human Services (“HHS”) proposes to eliminate the rebates that pharmacy benefit managers (“PBMs”) receive from drug manufacturers and to encourage that any rebates go directly to seniors at the point of sale.

These significant reforms are necessary as the stakes are high.  Since 2006, Medicare Part D spending has more than doubled to roughly $100 billion per year in 2017, and it is expected to climb as a growing and aging population of baby boomers becomes Medicare eligible.  Today, despite making up a modest proportion of Part D prescriptions, brand drugs account for some 84% of total Part D spending.  Generics, meanwhile, which make up most of the Part D prescriptions, account for only 16% of the total spending and saved the Part D program approximately $82 billion in 2017.

Those savings, however, could have been higher.  The formulary construction and contracting practices of both PBMs and Part D plans have cost seniors billions of dollars.  Part D plans have a lot of flexibility to design drug formularies and tier structure.  Historically, generics were placed in lower generic tiers and brands were placed in higher brand tiers.  This meant that seniors’ copays for generics were less than those for branded drugs so their out-of-pocket costs were lower when they purchased generic drugs.  Over time, Part D plans started to place generics in higher brand tiers.  And, in 2016, CMS announced a change to the formulary structure that explicitly allowed Part D plans to create a non-preferred tier, with higher copays, that could include both brands and generics.

The CMS change emboldened Part D plans to place generics and brands in the higher tier.  As a result, seniors have been faced with higher “branded” copays and out-of-pocket costs for generic drugs.  Indeed, recent studies from Avalere estimate that since 2015, seniors have paid nearly $22 billion in additional out-of-pocket costs for their prescription drugs, and seniors are paying approximately $1,000 more in out-of-pocket costs per year than they should be.

The change to formulary structure is costly enough, but matters become worse when PBM and plan incentives are considered.  Because of misaligned incentives that exist in the drug supply chain, PBMs and Part D plans seek out rebates based off escalating list prices of brand drugs.  Instead of offering seniors the best quality medicines at affordable prices, they are incentivized to implement plans designed to steer seniors from lower cost generics to branded drugs by comingling them on the same drug formulary tier.

The Administration’s proposal (1) to reverse CMS’s Part D formulary guidelines that allowed the practice of comingling generics on brand tiers and (2) to require plans to automatically include generic and biosimilar medicines on generic formulary tiers immediately after launch is a great first step in lowering drug prices for seniors.  According to HHS, besides raising seniors’ out-of-pocket costs, in 2017, this practice led to the federal government unnecessarily spending $9 billion on brand-name drugs that have a generic alternative.  HHS claims that if these prescriptions were dispensed as generics, the Medicare program would have saved $3 billion.  Moreover, implementing the current CMS proposal is estimated to save seniors approximately $4 billion in out-of-pocket costs per year.

The Administration’s proposal to eliminate rebates is also critical to lowering the cost of drugs for seniors.  The PBM market is not competitive: it lacks transparency and choice, while conflicts of interest abound.  Perversely, rebates create an incentive for PBMs to actually support higher list prices for brand drugs and sales of brand drugs over lower cost generics, which often result in higher copays for seniors.  It has been estimated that rebates cost seniors up to 30% more for their drugs.  Significantly, rebates have more than doubled in the last five years Indeed, rebates have more than doubled in the last five years and in 2018, pharmaceutical manufacturers paid $166 billion in rebates and price concessions to PBMs, insurers and the supply chain.  The PBMs pocket some of the rebates and pass some of the discounts to the Part D plans.  Seniors, who are purchasing drugs with high copays, though, do not see any significant benefits from the discounts so encouraging that discounts actually be passed on to them at the pharmacy counter is another major step in the right direction.

Implementing both of the Administration’s proposals is vital to the current and long-term success of the Medicare Part D program as they will have the effect of lowering Part D prices to seniors and the federal government.  They will also increase utilization of less expensive generics and biosimilars.  Medicare has been largely successful at moderating cost growth where there is generic competition, so regulations that make generics and biosimilars more accessible is critical to ensuring that patients have access to the therapies they need at lower out-of-pocket costs.

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

The first day of hearings was broken into three panel discussions which broadly discussed the current landscape of antitrust law, U.S. economic competitiveness, and consumer protection and data privacy. The discussions focused on process and substance and how best to reframe FTC priorities to deal with complex 21^st century issues.

Panelists drew lines in the sand when it came to whether the FTC is successfully navigating the landscape in an era of mega-mergers. Some panelists took the “populist” view that FTC’s merger guidelines are unhealthy for the overall economy and consumer welfare. The FTC has been guided by the “consumer welfare standard” when it comes to mergers, and has accommodated mergers that increase efficiencies and provide benefits in the form of lower prices to consumers.  Those in favor of the consumer welfare standard want to avoid a ‘big is bad’ mentality while keeping the interests of consumers in mind.  Proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors.  Some panelists argued, however, that the consumer welfare standard has failed to take into account important social concerns like privacy, rising social and income inequality, and decreased economic competition and dynamism. They pointed to recent studies seeming to vindicate the view that the FTC needs to reorient its enforcement procedures because the economy appears to be more concentrated and less dynamic than it used to be.

The key issue of divergence for the panelists was whether the growth of large firms would allow the accumulation of data so vast as to widen the chasm between incumbent firms and new entrants. This line of argument goes like this: firms, particularly tech firms, grow so large and are able to aggregate more data, which in turn provides those companies competitive advantages. Think about Amazon: its acquisition of companies in different sectors will allow it to accumulate vast and unique data about consumer habits, which it can then use to provide more personalized services and competitive variable pricing. While good for the consumer in the near-term, such an inherent advantage is a barrier to entry that new competitors simply cannot overcome. The jury is still out on whether data collection will provide diminishing returns or whether machine learning will ensure increasing returns for a firm that accumulates data. If the latter turns out to be true, then the largest firms will create a barrier that will bar new entrants from competing with incumbents. While the antitrust agencies have approved a number of mega-mergers recently, the FTC is now openly asking questions and allowing debate on whether it must reconsider its enforcement priorities and return to ‘big-is-bad’ enforcement style of early antitrust.

Related to data accumulation was the role of the FTC in protecting consumer privacy. Nearly every consumer device can be connected to the internet in order to provide data about consumer habits. Smart watches, cell phones, and even items like “smart” sneakers, can collect intimate details about an individual. This, in turn, requires the government to consider safeguards in order to ensure that such personal details are protected. The FTC does not have a clear principled policy for relief from harm done in these types of data breaches, for example in the case of Cambridge Analytica or the Ashley Madison breach; however, the discussion marked a clear understanding that the FTC is going to take privacy concerns seriously. Privacy law in the United States is a patchwork of various federal and state laws that do not offer a clear principle for protecting consumers. Panelists discussed how the federal government could model privacy protection laws based on Europe’s General Data Protection Regulation (“GDPR”) and California’s Consumer Privacy Act (“CCPA”). The key issue, as always, is the ability to enforce such commitments.

These inquiries proceed when suspicious conduct can be identified. But in doing so, let us avoid a ‘big is bad’ mentality and let us truly have the interests of consumers in mind. We learned long ago that proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors. We must not forget that guiding principle. Indeed, that principle is especially important in markets subject to large economies of scale, whether those scale economies are based on traditional production economies or based on network effects, which are often important in the tech sector.

The next hearing is currently slated to take place on September 21, 2018 at the FTC Constitution Center.

Some pundits have argued that the antitrust agencies should adopt a “big is bad” approach to merger reviews to prevent further consolidation of large companies. But Joseph Simons, the nominee to be Chairman of the Federal Trade Commission (FTC), understands that “big is not necessarily bad.” On February 14, 2018, Simons made clear in his testimony at his Senate Commerce Committee’s nomination hearing that his FTC will focus on harms to the consumer and competitive effects due to market power, as opposed to condemning companies due simply to their size. One factor in any such analysis must be the power of customers.

Broadcom’s offer to acquire Qualcomm is a case in point. While Broadcom’s acquisition of Qualcomm would combine two large semiconductor companies and create the third largest in the world, the merger raises few, if any, significant competitive problems. One reason is that the vast majority of Broadcom’s and Qualcomm’s businesses and product lines complement each other, and therefore, their combination does not raise substantial horizontal antitrust concerns.  And in the few instances where they do compete, Broadcom has publicly stated its intention to divest Qualcomm’s overlapping businesses in Wi-Fi networking processors and in RF front end (RFFE) chips to an appropriate buyer that would resolve the relatively minor competition concerns raised by the acquisition.

Nevertheless, there are pundits who wrongly claim that given the size of the deal, there must be competitive concerns. Those advocates raise that a spectrum of vulnerable customers could be exploited at will. However, in their haste to reach conclusions, they dismiss or ignore a key principle in merger law that no antitrust violation exists if large sophisticated customers are able to protect themselves. This begs the question: Can Broadcom, through this acquisition, act in an anticompetitive fashion when downstream buyers, such as Apple and Samsung, themselves have substantial market power?

By any measure, be it revenues or semiconductor spend, semiconductor buyers including Apple and Samsung are powerful players in the industry. In 2017, Apple and Samsung’s revenues were approximately $229 and $222 billion respectively, while their semiconductor spends were roughly $39 and $43 billion.  Moreover, these two customers combined account for about 40 percent of Qualcomm’s 2017 revenue.  This number suggests that post-merger Broadcom will have no choice but to keep Apple and Samsung satisfied, or will risk losing a phenomenally large part of its revenue. The combined company will not have any increased ability or economic incentive to bully buyers, but rather an incentive to satisfy its customers’ demands to keep them from moving their business to other competitors.

Apple, for one, has of late proven to be one tough customer. For example, while Apple actually purchases most of its chips from Dialog Semiconductor, Dialog is walking on pins and needles ever since Apple announced in December 2017 that it may bring iPhone chip design in-house. Apple’s threat is credible as demonstrated by Dialog’s stock price plummeting following the announcement. Regarding Qualcomm, Apple is pushing its weight around by taking a dual approach. First, Apple is litigating its claims against Qualcomm’s egregious licensing practices that have squeezed excessive royalties and imposed onerous terms on its customers.  Second, Apple is showing Qualcomm who is the boss by shifting its purchases of modem chips for its future smart phones away from Qualcomm to Intel and MediaTek, Inc.  These maneuvers by Apple are evidence of its power, especially with respect to its ability to shift purchases away from Qualcomm, which has a dominant share in modem chips in excess of 50 percent, to MediaTek and Intel, which only have 25 percent and 6 percent unit share, respectively.

Moreover, Apple and Samsung are not alone among powerful buyers.  A combined Broadcom-Qualcomm would need to deal with a number of other hefty smartphone manufacturers, including: Huawei, which had $92 billion in revenue last year and spent approximately $14 billion on chips; BBK Electronics, which spent about $12 billion on chips; LG Electronics, which had $58 billion in revenue in 2017 and spent some $6.5 billion on chips; and Xiaomi, which had $18 billion in revenues last year.  Further, these large customers such as Apple, Samsung, Huawei, and LG have each developed a sophistical internal semiconductor design capability and use their own chips in a number of their high end platforms.  Not only do they have the ability to switch external vendors, they build their own semiconductor chips that compete with what both Broadcom and Qualcomm offer.  Accordingly, Broadcom’s incentives would be to continue to keep these Broadcom and Qualcomm customers satisfied.

In sum, in addition to the fact that Broadcom and Qualcomm have largely complementary businesses, this transaction should not pose antitrust concerns because the customers of both companies are themselves large and highly sophisticated firms. As demonstrated by Apple’s response to Qualcomm’s illegal strong-armed tactics, these sophisticated buyers can exert countervailing power against the combined company because they have the ability and wherewithal to shift a large proportion of their business to other semiconductor manufacturers due, in part, to the competitive nature of the industry even following this acquisition.  Indeed, these power buyers have exhibited their willingness and ability to credibly threaten to vertically integrate or sponsor new entry as Apple basically is doing with Intel on modem chips.

Plain and simple, consumers have little to fear from this deal because the immediate buyers can’t be exploited after the merger.

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.