Key Themes: Antitrust and the Free Market

Slater highlighted the intersection of antitrust remedies and AI innovation, framing the current moment as an “inflection point” for both antitrust enforcement and technology policy. She argued that monopolization remedies should foster competition by opening markets to smaller tech firms while incentivizing large tech companies to innovate rather than exclude competitors. Drawing parallels between the advent of large language models (LLMs) and the internal combustion engine, she stressed that AI’s transformative potential depends on entrepreneurs having the freedom to innovate without monopolistic barriers.

“The antitrust laws are the free market laws,” Slater said, citing the Supreme Court’s ruling in N. Carolina State Bd. of Dental Examiners v. F.T.C. (2015), which underscores antitrust as a safeguard for economic freedom ([1]).

Historical Lessons in Antitrust Enforcement

Slater provided three historical examples to illustrate how antitrust remedies have spurred innovation:

1. Standard Oil Breakup (1911): President Theodore Roosevelt’s lawsuit against Standard Oil dismantled its monopoly, reducing oil prices and enabling industries like automotive and aviation to thrive. This case demonstrated that curbing monopolistic control fosters economic dynamism ([2], [3]).
2. AT&T Consent Decree (1956): The DOJ’s 1949 lawsuit against AT&T led to a settlement that opened access to transistor technology, catalyzing the growth of Silicon Valley firms like Intel and Fairchild. Gordon Moore, Intel’s co-founder, credited this decree for enabling the semiconductor industry’s rise ([4], [5]).
3. AT&T Breakup (1984): Under President Reagan, the DOJ broke up AT&T’s telephone monopoly, fostering competition in long-distance and wireless markets. This enabled innovations like the Carterfone and, later, the iPhone, showing how antitrust remedies can unlock adjacent markets ([6], [8], [10]).
4. Microsoft Decree (2001): The Bush-era settlement with Microsoft prevented the company from stifling competition in the Windows ecosystem, allowing companies like Google and Apple to grow. This case highlighted the importance of protecting “leapfrog competition” for transformative innovations ([11], [12], [13]).

Antitrust in the AI Era

Slater emphasized that today’s AI-driven technological race requires similar antitrust vigilance. Monopolists who hoard data, users, or platforms can stifle innovation, much like AT&T and Microsoft did in the past. She advocated for remedies that restructure access to these resources without picking winners, trusting the competitive process to drive growth. This approach, she argued, counters centralized models like China’s, which rely on state-backed monopolies ([1]).

Benefits for All Stakeholders

Slater concluded that antitrust enforcement benefits not only innovators but also monopolists and consumers. Post-breakup, Standard Oil’s successors (ExxonMobil, Chevron) and AT&T’s descendants (Verizon, AT&T) thrived, as did Microsoft after its decree. By fostering competition, antitrust remedies expand economic opportunities, lower prices, and drive innovation, ensuring America’s leadership in AI and beyond ([14], [15]).

Why This Matters for Antitrust and AI

Slater’s speech underscores the DOJ’s commitment to using antitrust enforcement to promote free market competition in the AI era. As LLMs and other AI technologies reshape industries, her insights highlight the need for policies that prevent monopolistic exclusion and empower entrepreneurs. For businesses, policymakers, and tech enthusiasts, her message is clear: robust antitrust remedies are essential for unleashing America’s innovation potential.

Andre Barlow

abarlow@dbmlawgroup.com

Citations:

1. N. Carolina State Bd. of Dental Examiners v. F.T.C., 574 U.S. 494 (2015).
2. Roosevelt, T., Special Message to the Senate and House (1906).
3. Standard Oil Co. v. United States, 221 U.S. 1 (1911).
4. Watzinger et al., How Antitrust Enforcement Can Spur Innovation (2020).
5. Wessner, C.W. (ed.), Capitalizing on New Needs and New Opportunities (2001).
6. Watzinger & Schnitzer, The Breakup of the Bell System (2022).
7. In re Use of the Carterfone Device, 13 F.C.C.2d 420 (1968).
8. Carstensen, P.C., Remedies for Monopolization (2012).
9. Heiner, D.A., Microsoft: A Remedial Success? (2012).
10. Hesse, R.B., Section 2 Remedies and U.S. v. Microsoft (2009).
11. United States v. Microsoft, 253 F.3d 34 (2001).
12. Comanor, W.S., Break ‘Em Up for Their Own Good (1992).
13. Id.

On August 8, 2025, the U.S. Department of Justice (DOJ) announced a landmark proposed settlement with Greystar Management Services LLC, the largest landlord in the United States, to address allegations of anticompetitive practices in the rental housing market. This settlement targets Greystar’s use of algorithmic pricing schemes that allegedly stifled competition and drove up rents for millions of American renters. This blog post explores the background of the lawsuit, the details of the settlement, and the key lessons learned from this significant enforcement action.

Background on the Lawsuit

Greystar, headquartered in Charleston, South Carolina, manages nearly 950,000 rental units across the country, making it the largest residential property manager in the U.S. The DOJ’s Antitrust Division, alongside several state attorneys general, filed a lawsuit accusing Greystar and five other major landlords of engaging in algorithmic price-fixing through the use of RealPage’s revenue management software. The complaint alleged that these landlords shared competitively sensitive data, such as pricing strategies and rental rates, to generate pricing recommendations that aligned competitors’ rents, effectively reducing competition.

The lawsuit highlighted how RealPage’s algorithms incorporated anticompetitive features, enabling landlords to coordinate pricing strategies and avoid lowering rents, even in softening markets. This practice, according to federal prosecutors, led to artificially inflated rents, with one apartment complex reportedly boasting a 25% rent increase in a single year by using RealPage’s system. The DOJ argued that such coordination, whether through direct communication or algorithms, violated antitrust laws by harming consumers through higher rental costs.

The Settlement

The proposed consent decree, filed on August 8, 2025, in the U.S. District Court for the Middle District of North Carolina, outlines several key requirements for Greystar to restore competitive practices in the rental market. If approved, Greystar must:

• Cease Using Anticompetitive Algorithms: Greystar is prohibited from using any pricing algorithms that rely on competitors’ sensitive data or incorporate anticompetitive features.
• Stop Sharing Sensitive Information: The settlement bans Greystar from exchanging competitively sensitive information with other landlords.
• Accept Monitoring for Third-Party Algorithms: If Greystar uses a third-party pricing algorithm, it must be certified as compliant with the settlement terms, and a court-appointed monitor will oversee its use.
• Avoid RealPage-Hosted Competitor Meetings: Greystar is barred from participating in RealPage-hosted meetings with competing landlords to prevent further coordination.
• Cooperate with DOJ’s Case Against RealPage: Greystar is required to assist the DOJ in its ongoing monopolization claims against RealPage, the software provider central to the alleged scheme.

The settlement, pending court approval following a 60-day public comment period as required by the Tunney Act, also aligns with a separate class-action lawsuit settlement Greystar reached with renters, which includes “significant” monetary damages to be presented for court approval as early as October 2025. Greystar has denied wrongdoing but agreed to the settlements to clarify legal standards and focus on its business operations.

Lessons Learned

This settlement marks a pivotal moment in addressing the impact of technology on market competition, particularly in the housing sector. Several key lessons emerge:

1. Algorithmic Accountability: The case underscores the growing scrutiny of algorithms in business practices. While technology can optimize operations, its misuse to coordinate pricing or suppress competition can lead to significant legal and financial consequences.
2. Consumer Protection in Housing: The DOJ’s action reflects a broader commitment to protecting working-class Americans from practices that inflate essential costs like rent. As Attorney General Pamela Bondi emphasized, free-market competition is critical to making housing affordable.
3. Collaboration Between Regulators and Industry: Greystar’s cooperation with the DOJ’s case against RealPage highlights the importance of industry players working with regulators to address systemic issues, potentially leading to broader reforms in rental pricing practices.
4. Transparency and Oversight: The requirement for a court-appointed monitor for third-party algorithms signals the need for robust oversight to ensure compliance with antitrust laws, particularly as technology becomes more embedded in business operations.
5. Impact on Renters: While the settlement does not quantify the direct relief for renters, the class-action settlement’s promise of monetary damages suggests that affected tenants may see some financial recourse, emphasizing the role of collective action in addressing widespread harm.

Conclusion

The DOJ’s proposed settlement with Greystar is a significant step toward curbing anticompetitive practices in the U.S. rental market. By targeting algorithmic price-fixing, the settlement aims to restore competition and protect renters from inflated costs. As the case against RealPage and other landlords continues, this action sets a precedent for how regulators will address the intersection of technology and market fairness. For renters, industry stakeholders, and policymakers, this settlement serves as a reminder that competition, not coordination, should drive affordability in housing.

Andre Barlow

202-589-1838

abarlow@dbmlawgroup.com

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.

Facing a tight deadline before Slater’s confirmation, the DOJ filed suit to block the deal arguing it would harm competition in the enterprise-grade wireless local area network (WLAN) market.  While the DOJ’s intent to protect customers is a worthy goal, its case rests on a flawed premise, resting on a narrow view of the market that ignores robust competition and the broader strategic imperatives at play. Far from stifling innovation or choice, this acquisition would strengthen a key American player to rival Cisco domestically and, critically, counter Huawei globally.  For those reasons, DOJ’s litigation stance should be reconsidered.

Flawed Antitrust Concerns

The DOJ’s claim that the merger would overly concentrate the enterprise-grade WLAN market misreads the competitive landscape. The complaint paints HPE and Juniper as the second- and third-largest players behind market leader, Cisco, alleging their combination would leave just two firms controlling over 70% of enterprise-grade WLAN solutions. This analysis oversimplifies the competitive dynamics of the industry.

First, the European Commission and the UK’s Competition and Markets Authority, which both cleared the merger in 2024 after determining it posed no realistic threat to competition, confirm that the transaction does not raise competition concerns. In addition, the Biden Administration could have sued to block the merger but chose not to do so.

Second, the product market definition alleged by the DOJ is much too narrow.  Even the UK’s CMA did not find any functional or technical differences between WLAN products sold to large or smaller enterprises.

Third, the WLAN market is not a cozy oligopoly but a battleground where multiple players are vying for share. Cisco is more than twice as large as a combined HPE-Juniper with over 50% share for the past ten years.  Indeed, Juniper’s share is in the single digits and the combined firm’s share is less than 25%.  Companies like Extreme Networks, Arista, Fortinet, CommScope, and Ubiquiti, which make up approximately 25-30% of the DOJ’s narrowly defined market, have the technological muscle to reposition themselves, scale, expand, and rapidly grow share. Extreme Networks, for instance, powers WLAN for major enterprises like Kroger and universities, delivering secure, high-performance networks that rival those of HPE and Juniper. These firms are well-capitalized with proven deployments and R&D pipelines poised to exploit any opportunity. If HPE-Juniper raises prices or slacks on innovation, these competitors are ready to provide real choice to large enterprises including hospitals, campuses, and retailers.

Fourth, the DOJ’s focus on market share also ignores how enterprise WLAN works in practice. Large customers routinely solicit bids from multiple vendors, pitting solutions against one another in competitive request for proposals. This process keeps pricing in check and forces innovation, regardless of who merges with whom.  Juniper’s Mist platform and HPE’s Aruba have indeed competed head-to-head, but so have they with Cisco, Extreme, and others.

Fifth, the DOJ’s complaint includes a litany of inflammatory quotes from HPE’s executives’ documents, but not one deal document was cited. Notwithstanding their provocative nature, these statements have little grounding in the reality of competition.  Documents only matter if they are reliably predictive and relevant. The selective quoting of internal documents may suggest head-to-head competition, but any suggestion that the documents demonstrate that the merger would harm competition contradicts reality.  In reality, customers of HPE and Juniper may choose between the two companies as well as an entire host of alternatives including Cisco, Extreme Networks, Fortinet, and Arista.  The idea that merging HPE and Juniper would suddenly let them dictate terms overlooks the technological strength of the competitors and the bidding process. If anything, combining HPE’s scale with Juniper’s AI-driven tools could drive sharper pricing and faster feature rollouts to fend off these hungry rivals.

Finally, the DOJ is challenging this acquisition in the same district court where it lost its challenge to Oracle’s acquisition of Peoplesoft in 2014 because evidence that Oracle and PeopleSoft competed aggressively against each other was not enough to prove anticompetitive effects and that they competed in a three firm market was too narrow.

National Security and Global Competitiveness

The DOJ’s case overlooks the significant national security stakes involved in this merger. Huawei, the Chinese tech giant banned in the United States over espionage concerns since 2019, continues to dominate global telecom infrastructure markets with state-backed pricing strategies. HPE CEO Antonio Neri has framed this acquisition as essential to creating a robust U.S.-based alternative to Huawei.  A stronger HPE-Juniper would create a number-two player with the muscle to challenge Cisco at home while taking the fight to Huawei in global markets. The deal would create a “full stack” U.S. alternative to Huawei, combining HPE’s servers, storage, and Aruba networking with Juniper’s AI-native routing and telco expertise.  Integrating AI, security, and networking is a procompetitive move that bolsters national security by offering a robust Western option for global telcos and enterprises in AI driven and 6G markets. Without this deal, the U.S. risks ceding ground to Huawei, especially in emerging markets where 6G and IoT are reshaping connectivity.  Moreover, HPE and Juniper power critical U.S. infrastructure by supporting the Department of Defense and Department of Energy making the combination a matter of “core tech” that strengthens America’s technological sovereignty.

Unlocking Innovation

HPE and Juniper bring complementary strengths that could unlock significant efficiencies post-merger. HPE’s expertise in cloud computing and hybrid IT solutions pairs seamlessly with Juniper’s AI-native networking tools. Together, they could deliver unified platforms that simplify IT management for enterprises while accelerating advancements in AI-driven infrastructure. These aren’t abstract savings; they’re the kind of edge U.S. firms need to outpace Huawei’s one-stop-shop model.

A Call for Reevaluation

Blocking this merger risks weakening a U.S.-based champion at a time when global tech leadership and national security are at stake.  Slater should use her fresh perspective to reevaluate this litigation with an eye toward getting the antitrust analysis right and balancing competition policy with broader strategic imperatives. Blocking HPE’s acquisition of Juniper Networks is counterproductive because it risks reinforcing Cisco’s dominance, undermining U.S. competitiveness against global rivals, and stifling innovation. Slater should reconsider the DOJ’s litigation decision to ensure that antitrust enforcement facilitates not hinders the ingenuity of American companies.  Importantly, the acquisition does not substantially lessen competition because Extreme Networks and others are ready to fill any void for those customers looking for another source of enterprise grade WLAN products.  In conclusion, the DOJ should let this deal proceed for the sake of innovation, competition, and national security.

Andre Barlow

202-589-1838

The lawsuit seeks to preserve competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.  This marks the first time the Antitrust Division has used its authority under the Administrative Dispute Resolution Act of 1996 (5 U.S.C. § 571 et seq.) to resolve a matter.

“This first-of-its-kind arbitration has allowed us to resolve the dispositive issue in this case efficiently, saving taxpayer and private resources, while providing critical time-certainty,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division.  “The Antitrust Division looks forward to the arbitrator’s opinion, and will study this matter both to assess the circumstances in which arbitration may be appropriate and to identify possibilities for further streamlining the process.  We will continue to examine ways to enforce our competition laws in a manner that maximizes the Division’s scarce enforcement resources to protect American consumers.”

On Sept. 4, 2019, the Justice Department’s Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of Ohio seeking to block Novelis Inc.’s proposed acquisition of Aleris Corporation.  Prior to filing the complaint, the Antitrust Division reached an agreement with defendants to refer the matter to binding arbitration if the parties were unable to resolve the United States’ competitive concerns with the defendants’ transaction within a certain period of time.

As described in Plaintiff United States’ Explanation of Plan to Refer this Matter to Arbitration, filed on the district court’s docket, fact discovery proceeded under the supervision of the district court.  Following the close of fact discovery, the matter was referred to binding arbitration to resolve a single issue: whether aluminum auto body sheet constitutes a relevant product market under the antitrust laws.

If the United States prevails, the United States will then file a proposed final judgment that requires Novelis to divest certain agreed-upon assets to preserve competition in the relevant market.   If the defendants prevail, the United States will seek to voluntarily dismiss the complaint.  Novelis has held separate the agreed-upon divestiture assets pursuant to a hold separate stipulation and order entered by the district court, and defendants are permitted to close the transaction pursuant to this order.

Complaint

The DOJ alleges that the acquisition would substantially lessen competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.  The complaint explains that steel companies are developing lighter, high strength steel varieties for the auto industry. But as Novelis has observed, high strength steel “is largely replacing existing mild steel” and “cannibalizing the existing material” (i.e., traditional steel). The threat of substitution from aluminum to high strength steel is, as Aleris confirms, “limited.”  The price of aluminum auto body sheet is three or four times more expensive than traditional steel.  The complaint further alleges that the transaction would combine two of only four North American producers of aluminum auto body sheet.  The other two suppliers’ capacity is mostly committed to automakers.  Thus, other automakers rely on Novelis and Aleris to produce aluminum body sheet for automobiles to make cars lighter, more fuel-efficient, safer and more durable.

For years, Novelis was operating in a three firm market where it was the price leader.  It had the ability to increase prices without a loss of sales.  DOJ alleges that in 2016, Aleris entered the North American market as an aggressive competitor, which had an immediate impact on pricing and services.  Indeed, Novelis’ documents show that it decreased prices and increased the quality of its services in response to Aleris’ entry.

Novelis’s acquisition of Aleris would eliminate a rival it described as “poised for transformational growth.”  The complaint quotes other internal presentations to the Board of Directors and emails describing an anticompetitive rationale for the transaction:

• Novelis worried that Aleris could be sold to a “[n]ew market entrant in the US with lower pricing discipline” than Novelis, and that an “[a]lternative buyer [was] likely to bid aggressively and negatively impact pricing” in the market.
• “[A]n acquisition by us as the market leader will help preserve the industry structure versus a new player . . . coming into our growth markets and disturbing the industry structure to create space for himself, while hurting us the most.”
• Novelis should acquire Aleris because there is a “disincentive for market leader [i.e., Novelis] to add capacity and contribute to a price drop” and an acquisition of Aleris “prevents competitors from acquiring assets and driving less disciplined pricing.”

If this deal were allowed to proceed without a remedy, Novelis would lock up 60 percent of projected total domestic capacity and the vast majority of uncommitted capacity of aluminum body sheet, enabling the company to raise prices, reduce innovation and provide less favorable terms of service to the detriment of automakers and ultimately American consumers.

Novelis Contends That DOJ Suit Ignores The Full Scope Of Automotive Body Sheet Competition

It says that the DOJ lawsuit is based on the contention that the only relevant competition among automotive body sheet providers is that among aluminum manufacturers such as Novelis and Aleris. It ignores competition from steel automotive body sheet, even though steel automotive body sheet is currently used for nearly 90 percent of the market.

Novelis says that aluminum automotive body sheet attempts to take share from steel automotive body sheet.  And argues that for the DOJ to prevail in its lawsuit, it needs to prove that there is a distinct “relevant market” for aluminum automotive body sheet, which means that steel automotive body sheet does not significantly constrain the price and quality of aluminum automotive body sheet. Novelis further states that the DOJ does not deny that steel automotive body sheet usually competes with aluminum automotive body sheet, but instead contends that the constraint from steel is absent from some procurements (where an automotive manufacturer has supposedly already decided between steel and aluminum). Novelis believes that by focusing on just a small slice of steel-aluminum competition and ignoring the broader competitive process, the DOJ’s theory contravenes well-established principles of market definition.

Novelis further contends that the DOJ also disregards the extraordinary bargaining power of the automotive manufacturers and their ability to generate bid processes that will ensure competitive pricing for automotive body sheet.

Lessons Learned:

Here, the transaction is presumptively anticompetitive because a large dominant player with 60% of a concentrated market is acquiring a new disruptive entrant.  What is noteworthy is the use of the arbitration procedure agreed to by Novelis and the DOJ.  The DOJ and Novelis clearly are debating the product market definition.  If the DOJ is right on the product market definition, the merger is anticompetitive in the North American market for aluminum auto body sheet and it would require a fix.  The merging parties can then negotiate a divestiture remedy that would resolve the competitive concerns.  As Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division put it, “[t]his arbitration would allow the Antitrust Division to resolve the dispositive issue of market definition in this case efficiently and effectively, saving taxpayer resources.” He added that “[a]lternative dispute resolution is an important tool that the Antitrust Division can and will use, in appropriate circumstances, to maximize its enforcement resources to protect American consumers.”  

This complaint also demonstrates that the DOJ will use merging parties’ own words against them when challenging their deal.  Historically, “hot docs” provide an easy way to capture the interest of a judge by saying this case is simple and all you have to do is examine the merging parties’ own words.  The DOJ routinely cites “hot docs” in its complaints.  The DOJ focuses on “hot docs” when they exist because these documents are very helpful in explaining whether a transaction is anticompetitive.  This case demonstrates why corporate executives must be mindful about what they write as careless and inappropriate language in company documents can have an extremely negative effect on a merger review.

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

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

On the same day, Assistant Attorney General Makan Delrahim of the Antitrust Division of the U.S. Department of Justice (“DOJ”) said the DOJ is working with a group of more than a dozen state attorneys general as it investigates the market power of major technology companies.  Delrahim said at a tech conference that the government is studying acquisitions by major tech companies that were previously approved as part of a broad antitrust review announced in July of major tech firms with significant market power.  “Those are some of the questions that are being raised… whether those were nascent competitors that may or may not have been wise to approve,” he said.

On July 23, the DOJ said it was opening a broad investigation into whether major digital technology firms engaged in anticompetitive practices, including concerns raised about “search, social media, and some retail services online.”  The investigations appear to be focused on Alphabet Inc.’s Google, Amazon.com, Inc. and Facebook, Inc. (“Facebook”), as well as potentially Apple Inc.

More than a dozen states are expected to announce in the coming weeks that they are launching a formal probe.  “I think it’s safe to say more than a dozen or so state attorneys general (that) have expressed an interest in the subject matter,” Delrahim said.  In July, eight state AGs met with U.S. Attorney General William Barr to discuss the effect of big tech companies on competition, and various antitrust actions.

On August 19, the New York Attorney General’s office said it is continuing to “engage in bipartisan conversations about the unchecked power of large tech companies.”  North Carolina Attorney General Josh Stein is also “participating in bipartisan conversations about this issue,” his office said.  The DOJ is looking not only at price effects, but also at innovation and quality, and the next steps in its broad antitrust review would be seeking documents and other information.  Delrahim also said that after the July announcement, the companies under investigation “immediately reached out to work with us in a cooperative manner to provide information that we need as far as the investigation.  In June, the FTC told Facebook it had opened an antitrust investigation.  Last month, the FTC resolved a separate privacy probe into Facebook’s practices after the company agreed to pay a $5 billion penalty.

Thoughts

The states joining the DOJ’s and FTC’s investigations are not a surprise.  As many as 39 states have been raising antitrust concerns about the big tech firms with both the DOJ and FTC.  They have similar concerns regarding big tech as the federal antitrust agencies.  The issues relate to whether the markets for online advertising, search, social media, app sales and certain retail sectors are currently competitive.  The state AGs involvement in these investigations adds another layer of complexity for Google, Facebook, and Amazon.  This action by the state AGs should remind everyone that sound antitrust enforcement is not just a federal affair.  Indeed, many of the seminal antitrust cases including cases creating key principles of monopolization and merger law were brought by state attorneys generals.

State attorneys generals use the power under federal and their own state statutes to protect consumers against anticompetitive and fraudulent conduct in credit card, pharmaceutical, computer and many other markets crucial to consumers.

States have significant advantages over federal enforcers.  They are closer to the market and consumers and recognize the direct harm to consumers.  They have the ability to secure monetary damages.  States are often customers and victims of anticompetitive behavior.  State enforcers can bring combined antitrust and consumer protection cases.  And although each state has limited antitrust and consumer protection resources, states increasingly are using multi-state task forces to investigate and prosecute unlawful conduct.

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

According to TCH, it claims that it will create and operate the Real Time Payment system (“RTP”) – a new payment rail that will provide for real-time funds transfers between depository institutions – and in turn, RTP will allow depository institutions to enable faster fund transfers for their end-user customers.

According to TCH, RTP will not interfere with the continued use and operation of existing payment rails, including automated clearing house, wire, and check clearing houses.  RTP will also incorporate additional features that existing payment rails do not offer, such as enhanced messaging capabilities.

In a letter written by Acting Assistant Attorney General Andrew Finch, the DOJ declared that it does not presently intend to challenge the TCH’s proposed new payment rail because the intent appears to be introduce a new, faster payment rail would benefit consumers and competition.  The DOJ believes the RTP could result in procompetitive benefits.

Observations

The DOJ issues a business review letter whenever a person concerned about the legality under the antitrust laws of a certain business practice requests a statement from the DOJ about its current enforcement intentions with respect to that business conduct.  Given the information provided and representations made to the Antitrust Division, the DOJ is fine with a joint venture between 24 banks as long as it results in procompetitive effects.  The business review letter, however, is not a blanket OK because the DOJ reserves the right to challenge the proposed action if the actual operation of the proposed conduct proves to be anticompetitive in the future.

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

On April 25, 2016, the DOJ submitted a proposed final judgment allowing the creation of New Charter as long as the parties agreed to certain behavioral conditions. The DOJ required conditions to resolve its concern that New Charter would have a greater incentive and ability to impose contractual restrictions on video programmers (producers of TV shows and video content), thereby limiting their ability to distribute their content through online video distributors (“OVDs”), such as Netflix, Amazon or Hulu.  [1]  See Complaint.

New Charter became the second largest cable company and third largest multichannel video programming distributor. MVPDs include cable companies such as Comcast, TWC and Charter, but also direct broadcast satellite providers (i.e., DirectTV and Dish Network) and telephone companies like AT&T and Verizon. Prior to the merger, however, TWC already had substantial power over programmers’ content. The company used this power to influence programmers’ behavior towards its smaller OVD rivals. TWC was the most aggressive cable company or MVPD in terms of obtaining alternative distribution means (“ADM”) clauses in its contracts with programmers that prohibited or greatly restricted programmers from distributing their content to OVDs or through online distribution. Indeed, the DOJ specifically alleged that “[n]o [cable company] has sought and obtained these restrictive ADMs as frequently, or as successfully, as TWC.”  [2]  Complaint at 3.

Acknowledging that no horizontal overlap existed between the merging parties, the DOJ noted that “the Clayton Act is concerned with mergers that threaten to reduce the number of quality choices available to consumers by increasing the merging parties’ incentive or ability to engage in conduct that would foreclose competition.”[3]  Competitive Impact Statement.  Accordingly, the DOJ sought comprehensive relief to ensure that New Charter will not have the ability to foreclose OVD competition and deny customers the benefit of innovation and new services through ADM clauses and other restrictive contracting provisions.

Similarities Between the Charter/TWC and the ABI/SABMiller Mergers

There are many parallels between the Charter/TWC and the ABI/SABMiller transactions. Both deals involve multiple tiers between the producers and the customers.[4] Both transactions involve dominant firms that already have the ability and incentive to pressure companies in other tiers to enter into contracts that have the effect of restricting rivals’ access to consumers, and as a result of the merger, the newly formed mega company would have greater incentive and ability to impose restrictions and/or incentives that could raise entry barriers or foreclose its smaller rivals.

What rings true in Charter/TWC similarly rings true in ABI/SABMiller. For example, in the Charter/TWC complaint, the DOJ expressed concern that:

In the beer industry, it is the emergence of import, craft and small independent brewers that is providing important competition in both product diversity and pricing. For smaller brewers and importers to successfully compete with ABI, they need access to distributors, and ultimately retailers, in order to sell their products to consumers. Large brewers like ABI already enter into agreements that discourage distributors from selling rival beer and prevent retailers from offering adequate or prime shelving space to craft and independent brewers as well as importers.

While the current MillerCoors JV has allowed for open and independent distribution, there is reason to believe that ABI’s proposed divestiture of SABMiller’s share of the JV to Molson Coors to purportedly retain the current levels of competition in the United States, will actually result in New MillerCoors becoming more like ABI. Indeed, the present MillerCoors JV is not a true merger; it is an agreement of limited duration. Currently, MillerCoors is not fully incentivized to maximize its brand portfolio because capital invested in any brand would only benefit its true owner if the JV were to ever be terminated by the parties. Because it is not a full merger, there has not been any realistic incentive for the JV to pursue tactics like ABI’s share of mind incentive program.

Post-transaction, however, New MillerCoors will be a completed merger as Molson Coors will take over 100 percent ownership. New MillerCoors will have integrated management and the incentive and ability to pursue stronger agreements and incentive programs that restrict craft and independent brewers’, as well as importers’, access to distributors and retailers. To the extent that both a merged ABI/SABMiller and New MillerCoors pursue the same strategy, their effectiveness in eliminating craft will increase and distributors will eventually find it financially unattractive for distributors to carry craft brands as distributors are strong-armed into participation in incentive programs or given other carrot or stick threats such as ownership transfer approvals to compel compliance. Moreover, craft brewers will not be able to find or join rival distributors of scale which is critical for volume gains in all retail accounts.[6]

Thus, the competitive concerns in the ABI/SABMiller and MillerCoors transactions effectively mirror the concerns in Charter/TWC: “[t]o the extent a transaction, such as the one at issue here, enhances [a brewer’s] ability or incentive to restrain [craft and independent brewers’] access to [distributors and retailers], and thus to prevent [craft and independent brewers] from becoming a meaningful new competitive option, consumers lose.”[7]

The New Charter Remedies

The conditions that the DOJ negotiated with New Charter are entirely behavioral in nature and serve as a good example of remedies that would be beneficial in resolving the wide-ranging competitive concerns raised by the ABI/SABMiller merger.[8]  Proposed Final Judgment.  The remedies restrict New Charter’s post-merger conduct in the following ways:

• New Charter is prohibited from entering into or enforcing agreements with programmers that limit, or forbid, OVDs’ access to video content.

• New Charter is prohibited from entering into agreements that create incentives for video programmers to limit access of programming to OVDs.

• New Charter is prohibited from discriminating against, retaliating against, or punishing any video programmer for providing its content to any video distributor.

• New Charter is prohibited from entering into or enforcing agreements with programmers that make it financially unattractive for programmers to license their content to OVDs.

• New Charter is prohibited from entering into or enforcing unconditional most favored nation provisions against a programmer for licensing their content to OVDs.

In sum, the conditions contain broad prohibitions on restrictive contracting practices to ensure that New Charter will not replace ADMs with other contracting practices that would increase barriers for OVDs or otherwise make OVDs less competitive. Indeed, the prohibitions were put in place because the DOJ was concerned that New Charter could enter into certain contracts that are designed to circumvent the order, create incentives to limit distribution to OVDs, or create economic disadvantages for a programmer to license content to an OVD.

The New Charter Remedies Are Not Industry Specific

The behavioral remedies used to resolve the vertical foreclosure concerns raised by the creation of New Charter are applicable to any industry with a multi-tier supply chain and dominant firms that already exert power over other tiers of the supply chain. The DOJ’s goal in New Charter is to prevent the merged firm from raising barriers to entry for smaller horizontal rivals or otherwise make smaller horizontal rivals less competitive. The DOJ is concerned about a merged firm’s increased incentive and ability to protect its market power by denying or raising the costs of an input to its rivals. In other words, the DOJ is concerned about transactions that substantially enhance the merged firm’s ability and incentive to foreclose competition through restrictive contracting provisions or incentive programs that make it economically unattractive to work with the merged firm’s rivals. The New Charter conditions are aimed at protecting competition and consumer choice.

Like TWC, ABI has been squeezing its smaller rivals. Unlike TWC, ABI is a much more dominant firm within its industry. ABI influences the distribution tier through direct ownership or limiting distributors’ ability to carry competitors’ products through its “share of mind” incentive program. ABI’s incentive program discourages distributors from carrying rival beers if they want to be eligible for substantial financial rewards. Post-merger, ABI’s increased global scale and New MillerCoors’ full portfolio of brands will substantially enhance their ability and incentive to obtain provisions in their contracts or promotional agreements that restrict or limit the ability of distributors from distributing their smaller rivals’ products, foreclosing these smaller rivals from effectively competing. While there is nothing illegal about ABI using incentive programs that focus on increased sales of its beer, the DOJ needs to make sure that ABI’s contracts with distributors do not contain terms that create economic disadvantages for them carrying smaller brewers’ beers. The DOJ must be mindful that no beer producer has sought and obtained these incentive programs as frequently, or as successfully, as ABI.

The New Charter remedies line up very well with what the DOJ should do in the proposed ABI/SABMiller transaction. Comparable remedies in the proposed ABI merger would: (1) prohibit or limit ABI’s and New MillerCoors’ ability to use distributor incentive programs or MFN-type agreements with ABI or MillerCoors aligned distributors that create economic disadvantages or make it financially unattractive for them to distribute independent brewers’ beer; (2) prohibit ABI from retaliating or discriminating against distributors for distributing other brewers’ beers; and (3) prohibit ABI and New MillerCoors from engaging in other conduct that would foreclose other independent brewers’ ability to distribute their products to retailers.

Such conditions would not be overly restrictive. ABI and New MillerCoors should be allowed to incentivize their distributors to increase sales of their products. But, as the DOJ addressed in the case of New Charter, they should not be allowed to engage in promotional programs that are designed to make it unattractive for distributors to carry rival products.

Approving a merger is risky business and the DOJ is increasingly aware that it needs to be as thorough as possible to prevent post-merger mischief. The approach in Charter/TWC is sound, and DOJ should take a similar one with respect to ABI/SABMiller.

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

[1] See, Complaint, U.S. v. Charter Communications, Inc., Time Warner Cable, Inc., No. 16-0795 (D.D.C. 2016).

[2] Id. at 3.

[3] See Competitive Impact Statement, U.S. v. Charter Communications, Inc., Time Warner Cable, Inc., No. 16-0795 (D.D.C. 2016). “For example, a merger may create, or substantially enhance, the ability or incentive of the merged firm to protect its market power by denying or raising the price of an input to the firm’s rival.” Id.

[4] It does not matter that the Charter/TWC and the ABI/SABMiller merger concerns involve different tiers or that the power flows in different directions. What matters is that the effects are the same – both mergers involve using power over a different tier of the supply chain in order to disadvantage horizontal rivals.

[5] Complaint, supra note 1 at 3 (emphasis added).

[6] Most local markets are primarily, if not exclusively, served by an ABI aligned distributor and/or a MillerCoors aligned distributor as the only distributors of sufficient scale and scope to service all retail accounts on a daily basis.

[7] Mirroring the language in the Complaint at footnote 5.

[8] See, proposed final judgment, available at https://www.justice.gov/opa/file/846051/download. The behavioral remedies are outlined on pages 5-7.

DOJ’s Vertical Concerns Related to the Creation of New Charter

New Charter became the second largest cable company and third largest Multichannel Video Programming Distributor (“MVPD”).  MVPDs include cable companies such as Comcast, TWC and Charter, but also direct broadcast satellite providers (i.e., DirectTV and Dish Network) and telephone companies like AT&T and Verizon.

According to the DOJ, prior to the merger, TWC, the second largest cable company and fourth largest MVPD, already had substantial power over programmers’ content.  The DOJ alleged that TWC used this power to influence programmers’ behavior towards its smaller online video distributors (“OVD”) rivals such as Hulu, Netflix and Amazon.  The DOJ further alleged that TWC was the most aggressive cable company or MVPD in terms of obtaining Alternative Distribution Means (“ADM”) clauses in its contracts with programmers that prohibited or greatly restricted programmers from distributing their content to OVDs or through online distribution.  Indeed, the DOJ specifically alleged in its Complaint that “[n]o [cable company] has sought and obtained these restrictive ADMs as frequently, or as successfully, as TWC.”

In the Complaint, the DOJ expressed the following concern:

In order for an OVD [Netflix] to successfully compete with the traditional [cable companies], it needs both the ability to reach consumers over the Internet and the ability to obtain programming from content providers that consumers will want to watch. Importantly, incumbent cable companies often can exert significant influence over one or both of these essential ingredients to an OVD’s success, because they provide broadband connectivity that OVDs need to reach consumers and are also a critical distribution channel for the same video programmers that supply OVDs with video content.  To the extent a transaction, such as the one at issue here, enhances an MVPD’s ability or incentive to restrain OVDs’ access to either of these critical inputs, and thus to prevent OVDs from becoming a meaningful new competitive option, consumers lose.

Acknowledging that no horizontal overlap existed between the merging parties in any local market, the DOJ noted in its Competitive Impact Statement that “the Clayton Act is concerned with mergers that threaten to reduce the number of quality choices available to consumers by increasing the merging parties’ incentive or ability to engage in conduct that would foreclose competition.”  Accordingly, the DOJ sought comprehensive behavioral relief to ensure that New Charter will not have the ability to foreclose OVD competition and deny customers the benefit of innovation and new services through ADM clauses and other restrictive contracting provisions.

Indeed, the DOJ required conditions to resolve its vertical foreclosure concern that New Charter would have a greater incentive and ability to impose contractual restrictions on video programmers (producers of TV shows and video content), thereby limiting their ability to distribute their content through OVDs.

The New Charter Remedies

The conditions that the DOJ negotiated with New Charter are entirely behavioral in nature.  The remedies restrict New Charter’s post-merger conduct in the following ways:

1. New Charter is prohibited from entering into or enforcing agreements with programmers that limit, or forbid, OVDs’ access to video content.
2. New Charter is prohibited from entering into agreements that create incentives for video programmers to limit access of programming to OVDs.
3. New Charter is prohibited from discriminating against, retaliating against, or punishing any video programmer for providing its content to any video distributor.
4. New Charter is prohibited from entering into or enforcing agreements with programmers that make it financially unattractive for programmers to license their content to OVDs.  In other words, New Charter is not permitted to enter or enforce an agreement whereby the programmer is obligated to provide New Charter with a massive discount if the programmer provides content to an OVD.
5. New Charter is prohibited from entering into or enforcing unconditional most favored nation provisions (“MFNs”) against a programmer for licensing their content to OVDs.

In sum, the conditions contain broad prohibitions on restrictive contracting practices to ensure that New Charter will not replace ADMs with other contracting practices that would increase barriers for OVDs or otherwise make OVDs less competitive.  Indeed, the prohibitions were put in place because the DOJ was concerned that New Charter could enter into certain contracts that are designed to circumvent the Order, create incentives to limit distribution to OVDs, or create economic disadvantages for a programmer to license content to an OVD.

Lessons Learned

While the DOJ normally prefers structural remedies when approving a merger that raises only horizontal concerns, the DOJ’s negotiated consent decree with Charter illustrates the DOJ’s willingness to impose behavioral conditions on mergers that raise vertical foreclosure concerns.  Despite no geographic overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter from engaging in future anticompetitive conduct against its smaller rivals.  The behavioral remedies used to resolve the vertical foreclosure concerns raised by the creation of New Charter are applicable to any industry with a multi-tier supply chain and dominant firms that already exert power over other tiers of the supply chain.  The DOJ’s goal in New Charter is to prevent the merged firm from raising barriers to entry for smaller horizontal rivals or otherwise make smaller horizontal rivals less competitive.  The DOJ is concerned when a merger enhances the merged firm’s incentive and ability to protect its market power by denying or raising the costs of an input to its rivals.  In other words, the DOJ is concerned about transactions that substantially enhance the merged firm’s ability and incentive to foreclose competition through restrictive contracting provisions or incentive programs that make it economically unattractive to work with the merged firm’s rivals.  The DOJ’s behavioral conditions are aimed at protecting competition and consumer choice.

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

Second Request

The transaction was announced on February 12, 2015 and the Antitrust Division issued a second request on March 25, 2015.  The transaction drew antitrust scrutiny because it came on the heels of Expedia’s acquisition of Travelocity in a deal that was cleared via early termination of the Hart-Scott-Rodino (“HSR”) waiting period on January 14, 2015.  That transaction reduced the number of sizable OTAs in the United States from the four-to-three, and consolidated 56% of the market in the hands of the enlarged Expedia.  The DOJ scrutinized the Expedia/Orbitz deal because the transaction presented a three-to-two situation, in which the combined Expedia/Orbitz would possess a commanding 75% of the OTA space in the United States, leaving just Priceline as a sizable alternative with roughly 19% share of the space.

Politicians, Consumer Watchdog, the American Hotel & Lodging Association, and hotels raised concerns about the combination noting that it would create a duopoly and lead to higher prices.  The parties maintained, however, that the market was competitive.  Indeed, OTAs compete in a  $1.3 trillion global travel market, which is fiercely competitive as evidenced by the sheer number of ways in which people book travel and hotels/airlines/car rental firms attract bookings.  OTAs compete with a host of regional and global online and offline travel agencies, meta-search sites such as TripAdvisor and Google Hotel Finder, search sites like Google and Bing, and the travel suppliers themselves, who aggressively seek to induce consumers to book directly with them via customer rewards.

DOJ’s Findings: 

In closing the investigation, Assistant Attorney General Bill Baer stated that online travel booking is important to U.S. customers and to the airlines, car rental companies and hotels that serve those consumers.  He explained that the DOJ conducted a thorough investigation  and despite concerns from third parties that the DOJ concluded that the acquisition is unlikely to harm competition and consumers.  He noted three reasons for this conclusion.

First, the Antitrust Division did not find any evidence that the merger is likely to result in new charges being imposed directly on consumers.

Second, while it focused on the commissions Expedia and Orbitz negotiate with airlines, car rental companies and hotels, the Antitrust Division found that Orbitz is only a small source of bookings for most of these companies and thus has had no impact in recent years on the commissions Expedia charges.  Indeed some independent hotel operators do not contract with Orbitz and larger hotel chains have alternative ways to attract customers and obtain bookings, including Priceline.

Third, the evidence suggests that the OTA business is rapidly evolving.  In the past 18 months, for example, the industry has seen the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.

Accordingly, Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers.

Lessons Learned:

First, when reviewing a transaction, the DOJ considers the unique characteristics of each relevant market.  It focuses on market realities and competition.  Indeed, when all channels for booking travel are taken into account, OTAs generate just 16% of total U.S. gross bookings.  When determining whether a combination of OTAs substantially lessens competition in a relevant market, the DOJ examined a broader market of intermediaries that book travel, and all of the ways that travelers can discover and book travel to determine that no there was no concern for U.S. customers.  Therefore, it focused on concerns raised by the hotel industry.  Second, third party complaints must include a credible antitrust theory.  Here, the DOJ was clear that although it acknowledged that certain third parties have concerns about the combination those concerns did not amount to anticompetitive harm.  When analyzing the dynamics and overlying factors within the OTA industry, it is clear that Expedia and Orbitz are subject to competitive constraints not apparent from a simplistic review of market shares.  Third, when there is evidence of recent entry or evidence that suggests that powerful competitors can readily enter the market, a merger between two of three large industry players will not substantially lessen competition.  Indeed, horizontal mergers that result in a duopoly are not anticompetitive if entry will deter or counteract the adverse market impact.  Given these market dynamics, Expedia/Orbitz is not a typical three-to-two merger.

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

Background

On September 24, 2013, AMAT and TEL announced a definitive agreement to merge via an all-stock combination, which valued the new combined company at approximately $29 billion.  The companies claimed that securing regulatory clearances should not be a problem because their product offerings were highly complementary with few overlaps.  Indeed, AMAT was strong in markets where Tokyo Electron was not and vice versa.  In areas, where they directly competed, the combined shares were low.  Nevertheless, the transaction would have combined AMAT, the largest semiconductor equipment supplier in the world, with TEL, the third largest equipment supplier.

It was widely known that AMAT’s scale and resources gave AMAT advantages in competing with smaller chip equipment firms, in areas ranging from research and development (“R&D”) to marketing as well as service and support.  As the standard in the chip equipment space, AMAT has a massive installed base of tools and engineers in nearly every chip-manufacturing facility in the world.  AMAT developed close relationships with major chipmakers.  AMAT has scale and resources that are unmatched and invests heavily in R&D.

Yet, AMAT/TEL believed they would be able to obtain regulatory approvals because they were relying on the outcome of past merger reviews.  Indeed, the DOJ previously analyzed consolidated and highly concentrated semiconductor markets, including AMAT’s acquisition of Varian in 2011; ASML’s acquisition of Cymer in 2013, and Advantest’s acquisition of Verigy in 2011.  In each of these situations the mergers combined complementary offerings where the actual or pipeline products were not directly substitutable.  In AMAT/Varian, the DOJ focused on R&D and innovation concerns.  In ASML/Cymer, the DOJ focused on vertical concerns.  In Advantest/Verigy, both companies were in the business of supplying semiconductor companies with semiconductor components and automated test systems.  The transaction left only one other significant player in the market.  While the DOJ demonstrated an interest in each of these highly concentrated markets by issuing second requests and conducting thorough merger investigations, the DOJ allowed these transactions to close without requiring any conditions.

Moreover, traditional antitrust analysis is generally concerned about the merged firm’s ability to raise prices, reduce output, or exclude competitors.  The antitrust agencies are normally focused on whether the combination of two competitors will substantially lessen competition such that the combined firm can illegally raise prices or exclude rivals.  But in this merger, the firms were not direct competitors in any of each other’s core products.  There was very little direct overlap and where there was, the market shares were low, so no head-to-head history of price competition.  Besides the argument that the two firms do not directly complete with regards to price, the merging firms believed that large sophisticated customers such as Intel and Samsung have the ability to sponsor entry and control pricing.  Therefore, based on past precedent and traditional merger analysis, AMAT and TEL were under the impression that merging two firms with complementary offerings even in a highly concentrated technology industry would be approved.

The DOJ, however, took a tough stance against AMAT’s proposed acquisition of TEL because they were two of a very small number of R&D leaders in their industry.  Given the DOJ’s position, AMAT and TEL determined that there was no “realistic prospect for completion of the merger”.  AMAT offered a divestiture package of assets along with a proposed buyer, but the Antitrust Division was not satisfied.  Indeed, Renata Hesse, the Acting Assistant Attorney General explained that AMAT’s “proposed remedy would not have replaced the competition eliminated by the merger, particularly with respect to the development of equipment for next-generation semiconductors.”  Ms. Hesse further stated “the proposed merger of Applied Materials and Tokyo Electron would have combined the two largest competitors with the necessary know-how, resources and ability to develop and supply high-volume non-lithography semiconductor manufacturing equipment.”  Clearly, the DOJ was concerned not about the reduction of competition for any actual product but about the loss of future head to head R&D competition.

DOJ’s Focus on Future Competition is Not New

The antitrust agencies have always been concerned about future competition concerns in merger reviews.  Indeed, the 2010 FTC/DOJ Horizontal Merger Guidelines (“Merger Guidelines”) discuss the importance of evaluating effects to innovation in merger reviews.  The Merger Guidelines state that enhanced market power can be “manifested in non-price terms and conditions that adversely affect customers, including reduced product quality, reduced product variety, reduced service, or diminished innovation.”  Moreover, under the Merger Guidelines the Antitrust Division is to “consider whether a merger will diminish innovation competition by combining two of a very small number of firms with the strongest capabilities to successfully innovate in a specific direction.”

Lessons Learned

There are a number of lessons learned from the DOJ’s recent stance against AMAT that corporate and antitrust counsel of companies contemplating a merger of firms involved in R&D competition should consider going forward.

First, when the Antitrust Division evaluates the competitive effects of a merger, it is not simply focused on actual product or service overlaps in highly concentrated markets.  The Antitrust Division does not need evidence of price effects or a long history of price competition to challenge a merger.

Second, the Antitrust Division will examine a combination for its potential impact on innovation especially in an industry where a small number of firms are driving R&D efforts to develop new products or solutions.  Therefore, when two innovative firms are merging, antitrust counsel must consider and assess as part of its competition analysis, potential anticompetitive effects related to the loss of future competition.  The analysis is difficult because innovation effects are more difficult to quantify than price effects.

Third, antitrust and corporate counsel must be prepared for a long investigation if the combination raises innovation concerns.  The AMAT investigation took 18 months.  The Antitrust Division will examine other evidence such as industry structure, internal company documents, history of innovation, and strategic documents discussing current and future R&D plans to determine anticompetitive effects.  Therefore, when evaluating the antitrust concerns of a combination of innovative firms, antitrust counsel must be ready to explain not only how the firms do not compete on actual products but also be prepared to explain how their current and future R&D plans are complementary and not competitive with each other.

Fourth, it may be difficult to craft a remedy to resolve innovation concerns as they present unique challenges that are more complex than simply divesting existing business and product lines.  The Antitrust Division will intensely scrutinize upfront buyers.  Not only must the buyer obtain existing business lines, products, and all of the assets necessary to transfer the technical know how to allow the new entrant to step into the place of the lost innovation, but the buyer must also be able to demonstrate that it has the incentive and the wherewithal to be successful in future R&D efforts.

Fifth, the Antitrust Division is serious about taking action against mega-mergers in highly concentrated industries.  While the Antitrust Division may have analyzed previous mergers within a certain industry in a particular way, the antitrust agencies are not obligated to use the same analysis in the next transaction within the same industry.

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

Background

In March of 2009, Twin America, LLC was formed by Coach USA, Inc. and City Sights, LLC.  Coach USA and City Sights were operators of double-decker tour buses that had aggressively competed against each other to attract customers, which were and are for the most part, visitors/sightseers in New York city.  Indeed, the Antitrust Division’s complaint alleged that prior to the formation of Twin America, LLC, Coach USA, the long-standing market leader through its “Gray Line New York” brand, and City Sights, a firm that launched the “City Sights NY” brand in 2005, accounted for approximately 99 percent of the hop-on, hop-off bus tour market in New York City.  Between 2005 and early 2009, the two companies engaged in vigorous head-to-head competition on price and product offerings that directly benefited consumers.

According to the complaint, Coach and its corporate parent, Stagecoach Group PLC, knew that combining with Coach’s only meaningful competitor would allow the merged firm to raise prices and communicated this idea to City Sights during joint venture negotiations.  Therefore, the purpose of the joint venture was to end that head to head competition and to become the sole provider of hop-on, hop-off bus tours in the New York city market, which allowed the joint venture to immediately raise prices by 10%.  The transaction that formed Twin America LLC and monopolized the New York city hop-on, hop-off bus tour market was not required to be reported under the Hart-Scott-Rodino (“HSR”) Act.  Because it was a non-reportable transaction and no one alerted the Antitrust Division of any competition concerns, the Division did not learn about the joint venture until after its consummation.  Similarly, the State of New York did not learn of the illegal combination that resulted in Twin America, LLC until after it was formed.  The State of New York, however, learned of the illegal transaction and began an investigation and issued subpoenas in the summer of 2009.

After receiving the subpoenas, the Coach USA and City Sights delayed the State of New York’s antitrust investigation by belatedly filing the transaction with the federal Surface Transportation Board (“STB”) and asserting that the STB had exclusive jurisdiction.  The STB rejected the joint venture in early 2011 as not in the “public interest” and affirmed its ruling in early 2012, directing Coach USA and City Sights to either dissolve Twin America, LLC or terminate minimal interstate operations that provided the basis for STB jurisdiction.  Coach USA and City Sights removed the matter from STB jurisdiction and continued to operate the joint venture.

From 2009 to 2012, there was no new entry or expansion in the market, and Coach USA and City Sights were able to sustain the 2009 price increases.  Any new competitors must obtain bus stop authorizations from the New York City Department of Transportation (“NYCDOT”) at or sufficiently close to top attractions and neighborhoods to meaningfully compete with Twin America, LLC.  Apparently, NYCDOT is the city agency in charge of managing bus stop authorizations, which are required for hop-on, hop-off operators to load and unload passengers.  Both Coach and City Sights hold large portfolios of bus stop authorizations covering virtually all of Manhattan’s key attractions that they received from the NYCDOT years ago before many locations were at capacity so new entrants cannot obtain any competitively-meaningful bus stop authorizations in Manhattan.

On December 11, 2012, the Antitrust Division and the NY State AG filed a complaint in the U.S. District Court of the Southern District of New York alleging that the March 2009 joint venture that formed Twin America violated the antitrust laws and allowed the parties to raise prices to consumers.  The trial was set for February 23, 2015, however, Coach USA and City Sights adjourned the trial date to facilitate settlement discussions with the Antitrust Division and the NY State AG.

Settlement

The settlement resolves the Antitrust Division’s and NY State AG’s competitive concerns as it requires Twin America, LLC to relinquish all of City Sights’s Manhattan bus stop authorizations to the NYCDOT and disgorge $7.5 million in ill-gotten profits that Coach USA and City Sights obtained by operating Twin America, LLC, the illegally consummated joint venture, in violation of the antitrust laws.

The relinquished bus stop authorizations include highly-coveted locations such as the areas surrounding Times Square, the Empire State Building and Battery Park, where rival firms have been chronically unable to obtain competitive bus stop authorizations.  By increasing the NYCDOT’s inventory of bus stops and freeing up capacity at approximately 50 locations throughout Manhattan, the settlement will significantly ease the barrier to new rivals being able to meaningfully compete with Twin America.  Twin America will continue to hold Gray Line New York’s bus stop authorizations for its own hop-on, hop-off service.

The disgorgement of $7.5 million in profits that Coach USA and City Sights obtained from the operation of their illegal joint venture was in addition to $19 million that they already agreed to pay to a class of consumers to settle related private litigation brought after the filing of the Antitrust Division’s complaint.  The Antitrust Division and the New York State AG, however, believed that disgorgement was appropriate because the facts of this case relate to a consummated merger involving an anticompetitive price increase and deliberate attempts to evade antitrust enforcement.  The Antitrust Division and the State AG believe that the payment of $7.5 million in disgorgement will deprive the defendants of ill-gotten profits they retained even after the class settlement and deter future antitrust law violations.  In addition to disgorgement, Coach USA further agreed to reimburse the United States $250,000 in attorney’s fees and costs to resolve claims that Coach failed to meet its document preservation obligations.

The settlement of the lawsuit also requires Coach and Twin America to establish antitrust training programs and that they provide the government with advance notice of any future acquisition in the New York City hop-on hop-off bus tour market that is not otherwise reportable under the HSR Act.

Antitrust Division’s Previous Use of Disgorgement

In 2010, the DOJ obtained disgorgement related to a financial derivative contract entered into between KeySpan Corporation and Morgan Stanley, a financial services company, that gave KeySpan a financial interest in the electricity capacity sales of its largest competitor, Astoria, and incentivized KeySpan withhold capacity to increase prices in the electricity capacity market in New York.  The anticompetitive effects of the agreement lasted from January of 2006 until March 2008, when regulatory conditions eliminated KeySpan’s ability to affect the market price of electricity capacity.

At the time, the settlement was noteworthy because it was the first time in history that the Antitrust Division sought disgorgement of profits as a remedy for a civil antitrust violation of the Sherman Act.  The Antitrust Division traditionally sought only injunctive relief in the civil cases that it brought. Normally, the Division seeks to rescind the anticompetitive arrangement or enjoin the anticompetitive conduct. The injured parties usually must recover damages through private, civil actions. In its Competitive Impact Statement, the Division indicated that it sought disgorgement because it believed the filed rate doctrine would have limited consumers ability to recover antitrust damages.  That being said, the Sherman Act expressly authorizes the DOJ only to “prevent and restrain” violations of the Sherman Act, in addition to bringing criminal prosecutions. 15 U.S.C. §§ 1, 4. The Division’s approach in the KeySpan case reflected a shift in the DOJ’s policy with the aggressive interpretation of the DOJ’s civil enforcement authority. In Twin America, however, a class of consumers actually sued and settled for $19 million.  The DOJ and the New York State AG, however, believed that the parties’ ill-gotten gains were above the $19 million settlement so they pursued an additional disgorgement of profits.

Lessons Learned

The Antitrust Division’s challenge and settlement is noteworthy for several reasons. First, the challenge reiterates that the Antitrust Division is serious about enforcing the antitrust laws against small mergers that do not meet the HSR thresholds. Second, it demonstrates that completed deals that slip beneath the Antitrust Division’s radar screen initially are fair game even if the Antitrust Division learns about them later. Third, the fact that a deal is not HSR reportable does not mean that no antitrust issues exist with the combination. Fourth, the Antitrust Division can and will challenge a consummated deal if it determines that the deal is anticompetitive. Fifth, the Antitrust Division has a particular interest in post-acquisition competitive effects of consummated mergers.  Finally, and most importantly, the Antitrust Division, for the first  time, sought and obtained disgorgement of ill-gotten profits, required the parties to introduce antitrust training programs, and obtained attorneys fees and costs related to a consummated merger.

Therefore, parties to a consummated deal that raise significant antitrust issues and avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and closely monitor post-acquisition conduct.  Moreover, corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues.  The risks may include: defending against costly and lengthy government investigations as well as government and private litigation; reorganizing to the government’s demands of possible divestitures even after integration has taken place; paying off private plaintiffs for their injuries; and disgorging profits gained from the alleged anticompetitive merger.

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

A.    Martin Marietta/Texas Industries

On June 26, 2014, the Antitrust Division approved Martin Marietta Materials, Inc.’s $2.7 billion acquisition of Texas Industries on the condition that Martin Marietta divest a quarry in Oklahoma and two Texas rail yards used by it to distribute aggregate in the Dallas area.

The transaction was announced on January 28, 2014 and the investigation along with a settlement agreement was completed within five months.  Because the Antitrust Division had a wealth of experience investigating mergers of firms that produce aggregates and the parties were cooperative in terms of providing information and a solution to remedy the competitive harms, the Antitrust Division was able to complete the investigation quickly.  Indeed, the parties’ Merger Agreement included language regarding divestiture of one of the overlapping quarries located in Mill Creek, Oklahoma and up to two of the related rail yards located in Dallas, Texas.  In other words, Martin Marietta and Texas Industries were already prepared to part with a quarry in Mill Creek, Oklahoma, and two rail yards in Dallas, Texas.

The DOJ alleged that production and sale of aggregates is a relevant market.  Aggregate is used in a variety of applications, such as road construction, and for the production of ready mix concrete and asphalt.  The DOJ also alleged that the proposed transaction would have likely resulted in increased prices for customers in Mill Creek, Oklahoma and in Dallas, Texas.  To resolve the Antitrust Division’s concerns, Martin Marietta agreed to divest its North Troy aggregate quarry in Mill Creek, Oklahoma, its rail yard in Dallas, and its rail yard in Frisco, Texas.

B.     Landmark Aviation/Ross Aviation

On July 30, 2014, the DOJ approved Landmark’s acquisition of Ross with conditions.  Each provided fixed base operator assets used to provide flight support services to general aviation customers.  The transaction involved one overlap, at the Scottsdale Arizona Municipal Airport, where the parties were the only providers of such services.  Early in the initial Hart-Scott-Rodino (“HSR”) waiting period, the parties offered to divest Ross’s relevant assets in Scottsdale and identified a buyer.  The complaint and settlement agreement were filed within 60 days of the HSR filing.  The transaction closed within three months of executing the merger agreement.

C.    Tyson Foods Inc./Hillshire Brands Co.:

On August 27, 2014, the DOJ approved Tyson Foods’ acquisition of Hillshire Brands with conditions.  The transaction was announced on July 1, 2014 and the Antitrust Division issued a second request related to monopsony concerns.  On August 12, 2014, narrowly tailored second requests were issued to Tyson Foods and Hillshire Brands related to a small portion of the overall business.  According to the DOJ, the merger would have combined companies accounting for more than a third of all sow purchases from U.S. farmers.  To resolve the monopsony concerns, Tyson quickly agreed to divest its sow purchasing business and the parties were not required to comply with the second requests.  The complaint and accompanying settlement agreement were filed within 60 days of announcement of the deal.

Lessons Learned

The DOJ’s second request investigation into Martin Marietta’s proposed acquisition of Texas Industries; Landmark Aviation’s proposed acquisition of Ross Aviation; and Tyson Foods’ acquisition of Hillshire Brands are illustrative of how merging parties can obtain approval of a transaction with conditions in a relatively short period of time.  Given the trajectory of past merger investigations involving firms’ with overlapping aggregates businesses, the DOJ had the experience to complete the investigation quickly.  In each transaction, the horizontal issues presented by the combinations were limited to either one product overlaps or an overlap in two geographic areas so full compliance with the second request was not necessary.  The DOJ focused on the specific horizontal overlaps that raised antitrust concerns.  The parties, in each case, helped the staff move the case along by providing as much information as possible at the beginning of the investigation and in each case it was clear that their antitrust lawyers knew the areas that presented the most significant antitrust concerns.  Indeed, the parties’ early decisions that they would divest the overlapping issues allowed them to navigate through the second request and negotiate a consent decree within two months (Landmark Aviation/Ross Aviation and Tyson Foods/Hillshire) and five months (Martin Marieta/Texas Industries) of announcement of the transaction.

These examples illustrate that closing a deal within a certain time frame can still be accomplished even if the transaction raises an antitrust concern. The key is to engage the staff early.  Antitrust counsel should provide customer lists, key documents, the structure of the merging companies, and identify the potential areas/markets of concern (either provide reasons why there is no problem or remedies).  If the issues are straightforward, there is no need to wait as discussions relating to remedies can begin as soon as practicable.  Antitrust counsel should be prepared to identify the assets to be divested as well as suitable and willing buyers that can maintain competition with those assets.  As the examples above illustrate, early and constructive discussions relating to remedies allow the Antitrust Division to complete its review and draft a consent decree that resolves those concerns within a short period of time.

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

The Antitrust Division was concerned that the merger of rivals in the supply of new and replacement air springs for commercial vehicles in North America would have eliminated one of only three significant suppliers of air springs.  Commercial vehicle air springs are used in trucks, trailers and buses to provide stability to the suspension system, keep the tires in contact with the road and provide comfort and reduced driver fatigue in cabins and seats.

The Antitrust Division was concerned that the creation of a virtual duopoly would have facilitated anticompetitive coordination between the two remaining suppliers and risked price increases and reductions in the quality of service by limiting availability or delivery options to original equipment manufacturers.  Similarly, the Antitrust Division was concerned that the proposed acquisition would have reduced the number of significant suppliers of replacement air springs to commercial vehicle owners, which likely would have lessened competition in the North American aftermarket for commercial vehicle air springs.

In addition to the DOJ’s horizontal competition concern relating to commercial vehicle air springs, the DOJ was concerned that the proposed acquisition would reduce competition in the market for automotive air conditioning barrier hose (“barrier hose”), which is used to carry refrigerant in automotive air conditioning systems.  Veyance manufactures barrier hose, while Continental manufactures hose assemblies that incorporate barrier hose supplied by a third party.  Because Continental had an exclusive supply agreement with the only significant firm that competes with Veyance in the manufacture and sale of barrier hose in North America, the proposed acquisition raised additional competitive concerns.

The Antitrust Division cooperated closely with Canadian, Brazilian, and Mexican antitrust agencies  in coordinating the antitrust analyses and the formulation of remedies.

Under the terms of the DOJ’s consent decree, Continental was required to divest Veyance’s North American air springs business, which included air spring manufacturing and assembly facilities in San Luis Potosi, Mexico; research, development, engineering, and administrative assets in Fairlawn, Ohio; and certain other tangible and intangible assets.  Continental was also required to waive the exclusivity requirement in its supply agreement, so its supplier could sell air conditioning hose products to any third party.

Lessons Learned

This case is noteworthy because it further illustrates how the Antitrust Division closely cooperates with other antitrust agencies around the world with respect to the analyses and the formation of remedies.  In addition, this case illustrates that the Antitrust Division is not solely focused on traditional horizontal antitrust concerns.  When it is appropriate, the Antitrust Division will require behavioral remedies to resolve vertical antitrust concerns.  In this particular case, the Antitrust Division was concerned about Continental AG’s  exclusive supply agreement with Veyance’s only significant competitor in the manufacture of barrier hoses.  Therefore, the Division required Continental AG to waive the exclusivity provision in an effort to protect competition in the supply of automobile air conditioning barrier hoses.

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

Law Regarding Pre-Merger Coordination

There is a lot of excitement when companies plan a merger.  Company executives do not want to lose any time because there is pressure to integrate and achieve the synergies of combining operations as soon as possible.  Merging parties, however, must temper that enthusiasm, otherwise, they risk not only losing the transaction, but also being punished by the Antitrust Division.

All parties to transactions that meet certain jurisdictional thresholds are required to file premerger notifications with the Federal Trade Commission (the “FTC”) and Antitrust Division.  The premerger notification filing triggers a mandatory waiting period under the HSR Act, which is normally 30 days. A “gun-jumping” violation of the HSR Act occurs when a buyer attempts to exercise “beneficial ownership” or operational control over a seller’s business prior to expiration of the HSR waiting period. Gun-jumping increasingly draws the scrutiny of the Antitrust Division and the FTC and, in several cases, has lead to significant monetary penalties.

When merging companies “jump the gun” and prematurely coordinate their activities, they are subject to antitrust exposure under two different theories: first, a collusive agreement that violates Section 1 of the Sherman Act, 15 U.S.C. § 1; second, a transfer of beneficial ownership that violates Section 7A of the Clayton Act, 15 U.S.C. 18a (“Section 7A” or “Hart-Scott-Rodino Act” or “HSR Act”).  A threshold question under both theories is whether the two parties are separate entities.

Most importantly, the parties to a transaction must ensure that they do not inadvertently run afoul of the prohibitions on price fixing and market and/or customer allocations under Section 1 of the Sherman Act.  Violations of Section 1 can be treated harshly, with multi-million dollar criminal fines and jail sentences, as well as with treble damages awards and injunctions.  Fortunately, it is comparatively easy to avoid violations of this type.  The parties to the merger discussions must simply keep in mind that they remain independent firms until after the transaction is consummated.  They must continue to compete, just as they did before the negotiations began.

In addition to potential violations of Section 1 of the Sherman Act, merging parties must try not to violate the HSR Act.  Indeed, the HSR Act requires that the merging parties observe a mandatory waiting period before proceeding with the transaction.  If the government determines that a transaction violates the antitrust laws, it may seek to block that transaction before the waiting period expires.  Each party is subject to a maximum civil penalty of $16,000 per day for each day they violate the HSR Act.

The federal antitrust agencies consider it a violation of these requirements if the parties “jump the gun”, and the acquiring company begins to exercise control over the operations of the acquired company, or begins to enjoy “the benefits of ownership”, before the end of the HSR waiting period.

DOJ’s Views Regarding Proposed Merger and Alleged Illegal Activity

On September 30, 2014, Flakeboard and SierraPine abandoned their proposed acquisition.  Reportedly, the Antitrust Division forced the parties to abandon the transaction after it expressed concerns about the transaction’s likely anticompetitive effects in the production of medium-density fiberboard (“MDF”).  MDF is a manufactured wood product widely used in furniture, kitchen cabinets, and decorative mouldings.

The Antitrust Division’s October 1, 2014 press release provided some details regarding its reasoning for challenging the deal on the substance.  Flakeboard and SierraPine are two of only four significant suppliers of MDF to the West Coast.  Both companies operate MDF mills in Oregon—Flakeboard in Eugene; SierraPine in Medford—and the nearest competing mill is several hundred miles away.  For many customers, Flakeboard and SierraPine are each other’s closest seller of MDF.  The proposed merger would have given the combined firm a fifty eight percent (58%) market share for the thicker and denser grades of MDF that Flakeboard and SierraPine sell on the West Coast.  Accordingly, the Antitrust Division had substantive concerns that the transaction likely would have substantially lessened competition in the market for the production of MDF sold to customers in the West Coast states of California, Oregon, and Washington.  An increase in the price of MDF would likely have resulted in significant harm to MDF consumers on the West Coast.

Here, the Antitrust Division was concerned that the acquisition would have eliminated significant head-to-head competition between Flakeboard and SierraPine.  In addition, the Antitrust Division was concerned that if Flakeboard obtained control over SierraPine’s MDF mill, Flakeboard would have been in a better position to raise prices by restricting the amount of MDF available to the West Coast.  In addition, the Antitrust Division was concerned that the acquisition would have enhanced the risk of coordination between Flakeboard and its few remaining rivals on output and prices of MDF on the West Coast.

While the Antitrust Division was successful in forcing the parties to abandon their transaction, the Antitrust Division was not done with the merging parties.  On November 7, 2014, the Antitrust Division filed a civil antitrust complaint alleging violations of the HSR Act (Section 7A of the Clayton Act) and Section 1 of the Sherman Act along with a settlement agreement that resolves the lawsuit in U.S. District Court for the Northern District of California.

According to the complaint, before the proposed acquisition, SierraPine operated particleboard mills in Springfield, Oregon, and Martell, California, that competed directly with Flakeboard’s particleboard mill in Albany, Oregon.  Particleboard is an unfinished wood product that is widely used in countertops, shelving, low-end furniture, and other finished products.  The Springfield and Martell mills were included in the proposed acquisition along with a third SierraPine mill that produced MDF.  The complaint alleges that after announcing the proposed acquisition on Jan. 14, 2014, and before the expiration of the HSR Act’s mandatory premerger waiting period, Flakeboard, Arauco, and SierraPine illegally coordinated to close SierraPine’s particleboard mill in Springfield, Oregon, and move the mill’s customers to Flakeboard.

The Antitrust Division alleges that this coordination led to the permanent shutdown of the Springfield mill on March 13, 2014, and enabled Flakeboard to secure a significant number of Springfield’s customers for its Albany mill.  The Antitrust Division alleges that defendants’ conduct constituted an illegal agreement to restrain trade in violation of Section 1 of the Sherman Act, and prematurely transferred operational control, and therefore beneficial ownership, of SierraPine’s business to Flakeboard in violation of the HSR Act.

Settlement

The complaint alleges that the defendants’ HSR Act violation occurred from January 17, 2014, when Flakeboard and SierraPine began coordinating on the closure of the Springfield mill, until the expiration of the waiting period on Aug. 27, 2014.  The Antitrust Division also notes that the companies voluntarily provided it with evidence of their unlawful premerger conduct.  Because the companies cooperated with the investigation, the Antitrust Division significantly reduced the maximum HSR penalty to $3.8 million.  The Antitrust Division also explained that the $1.15 million in disgorgement was a reasonable approximation of the ill-gotten profit Flakeboard received as a result of the parties’ coordination to close Springfield and move the mill’s customers to Flakeboard.  In addition to the civil penalties, both Flakeboard and SierraPine must establish antitrust compliance programs.

Lessons Learned

The Antitrust Division’s action underscores the federal antitrust authorities’ considerable concern about the transfer of beneficial ownership and control prior to the expiration of the HSR waiting period. The purpose of the HSR Act and the waiting period, in particular, is to give the government notice so that it has an adequate opportunity to investigate proposed mergers and take action before companies actually combine their operations.  Accordingly, companies should avoid any appearance of combining their operations, by restricting the flow of confidential competitive information between them and making sure that independent business decisions are not coordinated prior to the expiration of the waiting period.

The HSR waiting period keeps the parties separate, thereby preserving their status as independent economic actors during an antitrust investigation. Consistent with this purpose, an acquiring person may not, after signing a merger agreement, exercise operational or management control of the to-be-acquired person’s business until the waiting period has expired.

The Antitrust Division’s fines against the merging parties for illegally jumping the gun serves as a reminder that pre-consummation coordinated behavior during the pendency of an antitrust investigation is risky.  The potential for violating Section 7A of the Clayton Act during this critical pre-consummation time period is heightened because the merging parties already are actively engaged in information exchanges as part of the merger negotiations and the required due diligence preceding the acquisition.  Additionally, if the acquisition involves competitors, certain information about the other party may be of significant competitive value–whether or not the transaction is consummated.  The DOJ keeps a vigilant eye on the pre-consummation activities of merging parties in order to ensure free, unfettered competition for every industry at all times, including during planned acquisitions.  The rules are clear, not only as a matter of theory, but also because the Antitrust Division consistently takes action against this sort of conduct.

Companies involved in merger discussions must observe certain antitrust guidelines during their merger negotiations, and until the transaction is actually consummated to avoid “gun jumping”.  The key point to keep in mind is that until the transaction is closed, the parties to the discussions remain independent companies.  While certain pre-closing due-diligence and transition activities are perfectly appropriate, other activities may raise questions under the antitrust laws.  The antitrust risks are particularly acute if the parties to the discussions are competitors.  Under these circumstances, until the closing, the parties should be particularly careful to avoid reaching agreements or exchanging competitively sensitive information in any way that might undermine the vigor of competition between them.

Here, the alleged conduct of closing a plant and allocating customers during the antitrust investigation of a merger that raises substantive issues was clearly anticompetitive.  As a result, the Antitrust Division required the companies to pay substantial civil penalties for violating the HSR Act and Flakeboard is forced to pay back its ill gotten gain for violating the antitrust laws.  Accordingly, companies proposing to merge must remain separate and independent until closing.

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

Background  

On May 5, 2014, NCM, Inc. entered into the Merger Agreement to acquire Screenvision for $375 million.  NCM, Inc. is the managing member and owner of 45.8% of National CineMedia, LLC (“NCM”), the operator of the largest in-theatre digital media network in North America.  Following the merger, NCM, Inc. was to evaluate whether to contribute the Screenvision assets to NCM LLC.  Technically, it is not America’s largest cinema advertiser buying the industry’s second largest, but the largest member in the largest cinema advertiser making the purchase.  It is a distinction without a difference because the bottom line is the deal would have combined the only two significant cinema advertising networks.

According to the DOJ, cinema advertising networks are intermediaries between movie theaters and advertisers.  The networks create “pre-shows” – 20 to 30 minute long programs combining advertisements with special content – which movie theaters play prior to the start of each movie (pre-show services to movie theatres).  The cinema advertising networks and movie theaters share the advertising revenue based on the specific financial terms of each theater’s contract.  NCM and Screenvision provide financial incentives to movie theatres through long-term exclusive contracts.  The networks then sell advertising of 15, 30, 60 and 90 second spots to local and national advertisers.

In June of 2014, NCM and Screenvision each received a request for additional information from the DOJ in connection with the DOJ’s review of the merger.  After a four month investigation, the DOJ decided to block the deal.

Why Did the DOJ Block the Deal?

According to the DOJ, the two firms compete in pre-show services and cinema advertising.  On the face of it, the transaction would have allowed only one company to control approximately 88% of the pre-show services and advertising placement in movie theatres located throughout the United States so the transaction would have eliminated competition that benefitted movie theatres and advertisers.

Through contracts with movie theatres, NCM and Screenvision have each established a nationwide network of movie screens.  NCM’s cinema advertising network covers about 20,000 of the approximately 39,000 screens in the United States, including screens in 49 of the top 50 designated market areas (“DMAs”); Screenvision’s cinema advertising network covers about 14,300 screens, including screens in all 50 states, each of the top 50 DMAs, and 94% of all DMAs.  DMAs are geographic areas of the United States ranked by population size.  National advertisers are typically interested in reaching the top DMAs, which are the most populous areas of the country. In the United States, there is not even a significant number three player as Spotlight Cinema Networks, mentioned in the DOJ’s complaint, is a much smaller niche player with 700 screens.

According to the DOJ’s complaint, over the past couple of years, Screenvision became a very aggressive competitor.  The Antitrust Division alleges that Screenvision successfully stole business from NCM by reducing the prices it charged advertisers and offered movie theaters a variety of attractive financial incentives.  The complaint included the following statements from NCM’s and Screenvision’s executives describing the competition between the two companies:

• Screenvision’s head of advertising sales instructed his staff: “We will not lose [to NCM] on price. . . . You must do whatever we need to do and win these head to head battles.”
• NCM viewed Screenvision’s “new strategy of undercutting [NCM’s] pricing by 50 percent (or more) [as] a direct threat to [NCM’s] business model” and “a very unusual strategy in a duopoly.”
• NCM’s CEO resisted a wholesale change in NCM’s pricing policy, declaring in late 2013 that Screenvision’s pricing strategy was commoditizing cinema advertising and refusing to follow Screenvision “down the pricing death spiral!!!!!!!!!!!!”

The complaint also contains statements indicating NCM’s motivation to end that competition by entering into the transaction:

• “we need to buy [Screenvision] before either us or [Screenvision] does a stupid deal.”

• By April 2014, NCM arrived at what it called a “Strategy Decision Crossroads.”  NCM told its board it could either acquire Screenvision, which would give NCM the ability to “Control Selling Tactics,” including “Pricing,” or it could compete through more aggressive pricing and adding theaters to its network.

The key to DOJ’s complaint is that NCM and Screenviosn compete to steal share from one another when these multi-year contracts come up for renewal or are renegotiated. According to Screenvision’s internal bid tracking reports, Screenvision faced NCM on almost all of its contested bidding opportunities (measured by screens) over the past three years.  By contrast, Screenvision faced Spotlight – the niche firm that caters to art-house and luxury theaters – on only a small fraction of bids. Thus, movie theatres play NCM off against Screenvision in these negotiations.  Moreover, the DOJ alleged that NCM and Screenvision carefully monitor each other’s efforts to win contracts with movie theatres and when the other’s contracts are expiring.

The DOJ’s complaint also explains that the proposed merger has already resulted in anticompetitive harm for certain NCM movie theatre customers.  Before the decision to merge with NCM, Screenvision was ready to compete for NCM’s current movie theatres, whose contracts are set to expire. But after the deal announcement, Screenvision stopped competing.  The DOJ alleges that Screenvision’s head of exhibitor relations testified, “[I]f we had not announced a merger six months ago, I would know exactly what’s expiring when, but I’ve kind of not pursued those circuits, because I don’ t think they would think about signing a deal with Screenvision – moving from NCM to sign a deal with Screenvision when they may be – we may be one company by that time.”

The DOJ further alleges that NCM and Screenvision offered to freeze existing contract rates for an additional five years, which deprives movie theatres of the benefits of head-to-head competition that likely would have occurred if not for the proposed merger. The DOJ further alleged that NCM made one key change, eliminating “minimum patron guarantee” escalation clauses that had served to protect movie theatre revenues. These clauses had been offered when NCM and Screenvision were competing aggressively against each other, but, because NCM believed that it would soon have a monopoly, NCM determined it no longer needed to offer them.

The DOJ complaint notes that when asked whether Screenvision had ever previously offered such a blanket contract extension, Screenvision’s CEO replied: “No, we haven’t.” He explained, “Well, we actually never in the past ever expected we would get any positive response from sending out these notices.”  Clearly, movie theatres would have sought to improve contract terms but faced with the prospects of dealing with a monopolist, they accepted a renewal of existing rates.  Given the evidence that the DOJ obtained through its investigation about past competition and the parties’ decision not to compete during the antitrust investigation, it is not a surprise that the DOJ chose to block the transaction.

Faced with the DOJ’s complaint, we can only assume what the parties may have argued in support of their merger.  DOJ’s complaint states that NCM claims that the merger would enable the combined firm to offer ubiquitous coverage.  However, the DOJ claims that advertisers already can obtain ubiquitous coverage as they purchase cinema advertisements across both NCM and Screenvision already.  NCM also claims that the merger would enable them to target advertisements more effectively. The parties likely made the argument that cinema advertising is not a relevant market.  If a combined NCM/Screenvision tries to increase the price for a 30-60-90 second spot, national advertisers can simply go to other forms of media such as television, radio, print, and internet.  Some data shows that cinema advertising accounts for less than one percent of total ad spend in the United States.  The parties likely argued that cinema advertising is not just small but it is shrinking.  They probably provided data and statistics demonstrating that cinema audience numbers are declining and that the industry is hurting.  The parties may have also argued that this is a small transaction nothing like an AT&T/T-Mobile deal or a Comcast/Time Warner deal that impacts million of consumers. The DOJ’s complaint states that NCM’s efficiencies claims amount to a bald assertion that bigger is somehow better for both advertisers and movie theatres even though the merger would leave them with only one supplier of cinema advertising and preshow services.

Lesson Learned

The Antitrust Division’s challenge is noteworthy for several reasons.  First, the complaint to block this transaction demonstrates the Antitrust Division’s resolve to prevent anticompetitive mergers that would likely allow the merging parties to raise prices to consumers (i.e., movie theatres and advertisers).  Second, the challenge reiterates that internal company documents are an essential part of every merger investigation.  Hot docs can influence the DOJ’s investigation and its decision to challenge a transaction.  Corporate executives should be aware that careless and inappropriate language in company documents can have an extremely negative effect. Ambiguity or exaggeration in memoranda, marketing presentations, or board presentations may convey the erroneous impression that the acquisition will injure competition.  All internal company documents should be written clearly and carefully in order to avoid misinterpretation. Documents that contain careless language may make a perfectly legal merger appear anticompetitive.  Here, in addition to hot docs, there also appears to be some hot testimony provided in depositions of company executives.  The documents and testimony suggest that the motivation of the transaction is to consolidate pre-show advertising agencies from two to one in order to end healthy competition. Fourth, the allegations suggest that the merging parties may have also violated the antitrust laws and the HSR Act in terms of pre-merger coordination.  Company executives testified that the companies engaged in certain actions during the investigation that led to immediate customer harm.  It appears that the Antitrust Division obtained hot documents and hot testimony from the parties that confirmed the companies stopped competing with each other after the announcement of the merger.  Obviously, this type of conduct is clearly anticompetitive because until the transaction closes, each company should still be aggressively competing against each other.  Fifth, the challenge indicates that the DOJ is serious about enforcing the antitrust laws even against relatively mergers that impact a small subset of customers.

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

Background

In March of 2014, Embarcadero Technologies announced that it would acquire CA Inc.’s ERwin data modeling suite. Data modeling software is used to view and streamline enterprise data, centralize data management and reduce data redundancies.

ERwin has been the leader in the data modeling market for two decades.  Embarcadero has been the leading specialty provider of data-oriented modeling, development, and administration technologies, and competes directly with ERwin with its own ER/Studio product.  Embarcadero would have owned the clear market leadership position as provider of independent data modeling and design tools.

While it seems clear that the acquisition would have eliminated direct competition, there appears to be ample evidence that a number of other software developers offer data modeling tools.  Indeed, the leading enterprise database providers, such as Oracle, IBM, SAP/Sybase, Software AG, and Microsoft, all sell data modeling tools.  IBM and Oracle offer full feature data modeling tools, as well as related development and data management products.  Several of the integration vendors also offer data modeling capabilities, albeit not to the feature-function extent of ER/Studio and ERwin.

Nevertheless, according to the DOJ, Embarcadero’s ER Studio products and CA’s ERwin have been particularly close competitors.  By purchasing the ERwin Data Modeler, Embarcadero Technologies would have eliminated a vigorous competitor that has competed to provide expanded functionality and more affordable pricing in recent years. The Antitrust Division stated that an increase in the price of data modeling products would likely result in significant harm to users of these tools.  After the DOJ expressed concern about the transaction’s potential for anticompetitive effects, the parties terminated the deal.

Lesson Learned

Clearly, the DOJ’s press release announcing that the parties abandoned this deal demonstrates that the Antitrust Division is not only scrutinizing software mergers, but the DOJ appears to be willing to challenge them if the facts support it.  This action is noteworthy because the DOJ has approved a number of software mergers without conditions since it lost its court battle with Oracle in 2004.  Indeed, recent history suggested that the DOJ usually does not conduct long drawn out investigations in software deals.  Over the past ten years, the Antitrust Division has issued second requests to review a number of software deals that presented concentration issues, but handled them very efficiently and quickly.  The staff is open to hearing arguments relating to entry of potential and fringe competitors, as well as expansion by some of the competitors already in the overall category.  Normally, the existence of competitors such as Oracle, IBM, SAP, and Microsoft would be sufficient, but here the Antitrust Division emphasizes that Embarcadero’s ER Studio and ERwin, are each other’s closest substitute in what appears to be a narrowly defined market.  The DOJ does not provide much more in terms of information on what else made the block of this software merger necessary, but clearly the fact that they were directly competitive with each other was important to the Antitrust Division.  Not to overstate the significance of the Antitrust Division’s win in Baazarvoice, but the Division may be suggesting that the Bazaarvoice win supports its ability to define narrow antitrust markets, even in dynamic and fast moving technology environments.  Competent antitrust counsel knows that merger reviews are based on case-by-case factual determinations, and the mere fact that an arguably narrow market was found here or in Bazaarvoice does not mean that the government can always support a narrow market in a software merger.  Given the lack of information, we can only speculate that internal documents from the parties’ files may have helped define the narrow software market or characterize the anticompetitive motivation for the acquisition, either of which would have influenced the DOJ’s investigation and conclusions.

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

Alabama Public Real Estate Auction Investigation

On October 31, 2014, the Antitrust Division announced that an Alabama real estate investor pleaded guilty for his role in a conspiracy to commit mail fraud related to public real estate foreclosure auctions held in southern Alabama.

To date, 10 individuals and two companies have pleaded guilty in connection with the DOJ’s ongoing investigation into bid rigging and fraudulent schemes in the Alabama real estate foreclosure auction industry.

Chad E. Foster, a resident of Theodore, Alabama, is the latest to plead guilty to an indictment filed in the U.S. District Court for the Southern District of Alabama.  Mr. Foster was charged with one count of conspiracy to commit mail fraud affecting a financial institution.  According to court documents, Mr. Foster knowingly joined a conspiracy with others to fraudulently acquire title to selected properties at artificially suppressed prices, to conduct secret, second auctions open only to members of the conspiracy, to make payoffs to and receive payoffs from co-conspirators, and to divert money away from financial institutions, homeowners and others with a legal interest in selected properties.

The charge of conspiracy to commit mail fraud affecting a financial institution is extremely serious as it carries a maximum penalty of 30 years in prison and a $1 million fine.

The Antitrust Division’s Washington Criminal II Section and the FBI’s Mobile Field Office, with the assistance of the U.S. Attorney’s Office for the Southern District of Alabama has an ongoing investigation concerning bid rigging or fraud related to public real estate foreclosure auctions in Alabama.

Northern California Public Real Estate Auction Investigation

On October 21, 2014, the Antitrust Division announced that a federal grand jury in San Francisco returned an eight-count indictment against five real estate investors for their role in bid rigging and fraud schemes at foreclosure auctions in Northern California.

The indictment was filed in the Northern District of California in San Francisco, California.  The indictment charged Joseph Giraudo, Raymond Grinsell, Kevin Cullinane, James Appenrodt and Abraham Farag with participating in conspiracies to rig bids and schemes to defraud mortgage holders and others in violation of the Sherman Act.  The indictment alleges, among other things, that beginning in August 2008 and continuing until January 2011, the defendants agreed to rig bids to obtain properties sold at public foreclosure auctions in San Mateo and San Francisco counties, California, paid others not to bid, accepted payoffs not to bid, in turn defrauding financial institutions, mortgage holders, and struggling home owners.  Additionally, Mr. Giraudo, Mr. Grinsell and Mr. Appenrodt were charged with mail fraud.

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  Each count of mail fraud carries a maximum sentence of 20 years in prison and a $1 million fine.  The government can also seek to forfeit the proceeds earned from participating in the mail fraud schemes.  The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million.

These were the latest indictments in the DOJ’s ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California.  The ongoing investigation is conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.

To date, 47 individuals have agreed to plead or have pleaded guilty, as a result of the DOJ’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

Lessons Learned

The Antitrust Division continues to punish real estate investors engaged in illegal activity.  Indeed, October was another busy month for criminal enforcement.  The guilty plea in Alabama and the indictments in Northern California demonstrate the Antitrust Division’s resolve to prosecute individuals who violate the Sherman Act by conspiring to defraud distressed homeowners and financial institutions and rigging bids at foreclosure auctions.  Real estate investors must understand that entering into an agreement to bid or not to bid with other individual real estate investors to obtain properties at a public auction is illegal and can lead to jail time.  Indeed, the Antitrust Division will continue to hold accountable individuals who subvert the competitive process for their own gains and profit illegally at the expense of struggling homeowners and mortgage holders.

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

Background

Media General’s local broadcast stations and LIN’s stations in various designated marketing areas (“DMA”) around the country compete head-to-head in the sale of broadcast television spot advertising.  The Antitrust Division determined that Media General and LIN’s broadcast stations located in the Birmingham, Alabama, DMA; Savannah, Georgia, DMA; Mobile, Alabama/Pensacola, Florida DMA; Providence, Rhode Island/New Bedford, Massachusetts, DMA; and Green Bay/Appleton, Wisconsin, DMA competed head to head in the sale of broadcast television spot advertising to local and national advertisers.

The Antitrust Division explains that broadcast television stations attract viewers through their programming, which is delivered for free over the air or retransmitted to viewers, mainly through wired cable or satellite television systems.  Broadcast television stations then sell advertising time to businesses that want to advertise their products to television viewers.  Broadcast television “spot” advertising is sold directly by the station itself or through its national representative on a localized basis and is purchased by advertisers who want to target potential customers in specific geographic areas. Spot advertising differs from network and syndicated television advertising, which are sold by television networks and producers of syndicated programs on a nationwide basis and broadcast in every market where the network or syndicated program is aired.

The Antitrust Division has been consistent over the years on how it defines advertising markets by media.  Indeed, it alleges that broadcast television spot advertising possesses a unique combination of attributes that set it apart from advertising using other types of media.  Other media, such as radio, newspapers, internet (banner ads or video offerings such as Netflix and Hulu), or outdoor billboards, are not substitutes for broadcast television advertising.  None of these media can provide the important combination of sight, sound, and motion that makes television unique and impactful as a medium for advertising.

The Antitrust Division further alleges that subscription television channels, such as those carried over cable or satellite television, are not a desirable substitute for broadcast television spot advertising for two important reasons. First, satellite, cable, and other subscription content delivery systems do not have the “reach” of broadcast television because typically, broadcast television can reach well-over 90% of homes in a DMA, while cable television often reaches many fewer homes. Thus, cable spot advertising does not match the reach of broadcast television spot advertising.  As a result, an advertiser can achieve greater audience penetration through broadcast television spot advertising. Second, because subscription services may offer more than 100 channels, they fragment the audience into small demographic segments so it is more efficient to advertise on local broadcast stations.  The Antitrust Division further claims that advertisers buy advertising on other forms of media as a complement not a substitute for local broadcast stations. Broadcast television stations negotiate prices individually with advertisers and charge different advertisers different prices.

The Antitrust Division alleges that DMAs are relevant geographic markets.  Broadcast station ownership in each of the DMA markets is already significantly concentrated.  In each of these markets, four stations, each affiliated with a major network, had more than 90 percent of gross advertising revenues in 2013.  Because there would be a reduction of competition in each of the identified DMA, it was likely that the merging parties would have had the ability to profitably raise prices to those advertisers who view broadcast television as a necessary advertising medium, either as their sole means of advertising or as a necessary part of a total advertising plan.

Settlement

To resolve antitrust concerns raised by the acquisition, the Antitrust Division is requiring Media General to divest WVTM-TV(NBC), located in the Birmingham, Alabama DMA; WJCL-TV (ABC) and WTGS (FOX), both located in the Savannah, Georgia, DMA; WALA-TV (FOX), located in the Mobile, Alabama/Pensacola, Florida, DMA; WJAR-TV (NBC), located in the Providence, Rhode Island/New Bedford, Massachusetts, DMA; and WLUK-TV(FOX) and WCWF-TV (CW), both located in the Green Bay/Appleton, Wisconsin, DMA.  Without the required divestitures, prices for broadcast television spot advertising would likely increase to advertisers in the identified DMAs.

Under the terms of the proposed settlement, Media General and LIN must divest assets used in the operation of WVTM-TV and WJCL-TV to Hearst Television Inc.; WALA-TV to Meredith Corporation; and WJAR-TV, WLUK-TV, WCWF-TV, and WTGS to Sinclair Broadcast Group Inc., or to other acquirers approved by the United States.

Lessons Learned

The Antitrust Division’s complaint against this merger of local broadcast stations demonstrates the government’s resolve to prevent anticompetitive mergers that would otherwise lead to higher prices for spot advertising sold to local and national advertisers.  The complaint demonstrates that the Antitrust Division examines how advertisers buy advertising when it defines relevant advertising markets.  Because advertisers buy advertising in various media to supplement the overall advertising or marketing plan and not as substitutes for each other, the Antitrust Division defines advertising markets by media.

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