Antitrust Enforcement After the Rebound

1. Antitrust Enforcement After the Rebound November 17, 2009

2. Overview The Rebound Will Trigger Full Enforcement The Government’s Game Plan Best Practices For Companies’ Press Break 2

3. The Rebound Will Trigger Full Enforcement(Get Ready For An NBA-style 4th Quarter)

4. Top Bailout Recipients (11/10/09) Company All Banks AIG Fannie Mae Freddie Mac GM Chrysler Industry Banking Insurance Fin. Serv. Fin. Serv. Auto Auto • Headquarters • N/A • NY • DC • Va • Mich • Mich Amount (Bil.) $204.7* $69.8 $59.9 $50.7 $50.4 $12.5 ____ *$133.9 outstanding Source: http://bailout.propublica.org/main/list/index; http://money.cnn.com/news/specials/storysupplement/bankbailout 4

5. The Government’s Game Plan 5

6. The Government’s Game Plan: In General More Vigorous Enforcement “As President, Obama will reinvigorate antitrust enforcement, which is how we will ensure that capitalism works for consumers.” www.barackobama.com/issues/technology

8. The Government’s Game Plan: Specifics 1. Full-court Press On Single-firm Conduct 2. Finals Series: Congress/Agencies v. S. Ct. 3. International Help Defense 8

9. 1. Full-court Press on Single-firm Conduct Overview Shift in policy/Sea change in philosophy More investigations/cases in targeted industries More scrutiny of mergers in targeted industries Supreme Court pick-and-roll

10. 1. Full-court Press on Single-firm Conduct Shift In Policy/Sea Change In Philosophy 9/8/08—DOJ’s 215-page report on single-firm conduct advised caution in interfering with markets. (Under Bush.) 9/8/08—3 of 4 FTC commissioners called report “a blueprint for radically weakened enforcement” against anticompetitive practices. 5/11/09—DOJ under Obama withdrew report Withdrawal is “a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.” “[W]e can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected.” (Speech by Christine A. Varney, Assistant Attorney General in charge of the DOJ’s Antitrust Division,http://www.justice.gov/opa/pr/2009/May/09-at-459.html) 10

11. 1. Full-court Press on Single-firm Conduct 11

12. 1. Full-court Press on Single-firm Conduct Sea Change In Philosophy? • “I see democracy as a conversation to be had. According to this conception, the genius of Madison’s design is not that it provides a fixed blueprint for action. It provides us with a framework and rules, but all its machinery are designed to force us into a conversation.” The Audacity of Hope, by Barack Obama, p. 89-92 Oct 1, 2006. • “[Under Obama], [m]ultilateral diplomacy has regained a central position . . . . Dialogue and negotiations are preferred . . . .” Statement by the Norwegian Nobel Committee about President Obama, http://nobelprize.org/nobel_prizes/peace/laureates/2009/press.html.

13. 1. Full-court Press on Single-Firm Conduct

14. 1. Full-court Press on Single-Firm Conduct

15. 1. Full-court Press on Single-Firm Conduct

16. 1. Full-court Press on Single-Firm Conduct More Investigations In Targeted Industries The Talk: • Internet (Network Neutrality) • Video clip of Senator Obama speaking about the Internet on 11/14/07 at Google in Mountain View, CA. • Healthcare (Generic Drug Entry) • Obama’s Plan will “prohibit large drug companies from keeping generics out of markets.” www.barackobama.com/issues/healthcare/ The Walk: • Dairy Industry—Dean Foods (DOJ) • Mainframes—IBM (DOJ) • Seeds/Genetically Engineered Crops—Monsanto (DOJ) • Internet—Google (FTC) • Computer Chips—Intel (NY AG) ( FTC likely) • Telecommunications—AT&T and Verizon (DOJ)

17. More Industry Regulation: The Internet

18. 1. Full-court Press on Single-Firm Conduct More Scrutiny Of Mergers In Targeted Industries The Talk: • Internet • Healthcare • Media • All media mergers should be “closely scrutinize[d] … for their implications for competition and consumer choice” and for their impact “on the ability of divergent communities to participate in the national media environment.” http://www.broadcastingcable.com/index.asp?layout=article&articleid=CA6570325 The Walk: • Media—Ticketmaster/Live Nation (DOJ) • Healthcare—CVS/Caremark (FTC) • Oracle acquisition of Sun Microsystems (DOJ cleared)

19. 1. Full-court Press on Single-Firm Conduct Opportunity for a Conversation? DOJ cleared the Oracle acquisition of Sun Microsystems on November 9, 2009: “The Division concluded, based on the specific facts at issue in the transaction, that consumer harm is unlikely because customers would continue to have choices from a variety of well established and widely accepted database products.” “The Antitrust Division will continue to work constructively with the EC and competition authorities in other jurisdictions to preserve sound antitrust enforcement policies that benefit consumers around the world.” EC has objected. http://www.justice.gov/atr/public/press_releases/2009/251782.htm 19

20. DOJ aeronautics agriculture and associated biotechnology avionics beer computer software cosmetics and hair care defense electronics financial services/insurance/stock and option, bond and commodity markets flat glass health insurance industrial equipment media and entertainment metals, mining and minerals missiles, tanks and armored vehicles naval defense products photography and film pulp, paper, lumber and timber telecommunications services and equipment travel and transportation waste FTC airframes autos and trucks building materials chemicals computer hardware energy healthcare industrial gases munitions operation of grocery stores and grocery manufacturing operation of retail stores pharmaceuticals and biotechnology (other than associated with agriculture) professional services satellite manufacturing and launch vehicles textiles Source: http://www.ftc.gov/opa/2002/02/clearance/ftcdojagree.pdf DOJ and FTC—Allocation of Industries

21. 1. Full-court Press on Single-Firm Conduct Supreme Court Pick-and-Roll: Opportunity for a Conversation Illinois Tool Works v. Independent Ink, Inc., 547 U.S. 28 (2006)(Stevens, J., joined by all except Alito, J.) Abandoned per se presumption that patent = market power in antitrust tying context. 547 U.S. 28 at 31, 45-46. Based on Congress's 1986 amendment to Patent Code eliminating per se presumption in patent misuse context. 35 U.S.C. § 271(d)(5). linkLine Communications, Inc. v. SBC California, Inc., 129 S. Ct. 1109 (2009) (Roberts, C.J., joined by Scalia, Kennedy, Thomas, and Alito; Breyer, J., concurring, joined by Stevens, Souter, and Ginsburg) No "price squeeze" claim under Sherman Act section 2 in partially-regulated industry ISPs sued Pac Bell alleging unregulated retail prices to consumers were too low in relation to regulated wholesale prices it charged competitors for DSL access No duty to sell to competitors in regulated wholesale market; only viable claim—predatory pricing in retail market—not pleaded Concurrence: Would instruct C.D. Cal. to grant leave to amend. 21

22. 2. Finals Series (Congr./Agencies v. S. Ct.) Retail Price Maintenance Agreements Pay-For-Delay Settlements 22

23. 2. Finals Series (Congr./Agencies v. S. Ct.) Resale Price Maintenance Agreements—Before Leegin • 1911:  Dr. Miles, 220 U.S. 373 – per se illegal.  • 1919: Colgate, 250 U.S. 300 – no agreement where manufacturer simply announces preferred resale pricing and refuses to deal with price-cutting distributors.

24. 2. Finals Series (Congr./Agencies v. S. Ct.) Resale Price Maintenance Agreements—After Leegin 2007: Leegin, 127 S. Ct. 2705 (reversing Dr. Miles) – Vertical price restraints no longer per se illegal. Two-step review of RPM policies: Not illegal if no pricing agreement. If agreement exists, court evaluates agreement’s effect on competition under rule of reason—case-by-case analysis of factors such as: number of manufacturers using such agreements in a market; whether manufacturer or retailer is source of the restraint; market power of party imposing the restraint. (Id. at 2710.) DOJ/FTC Safety Zones collaborating competitors collectively control 20 percent or less of relevant market. (Guidelines ¶ 4.2.) collaborative research and development efforts. (Guidelines ¶ 4.3.) health care, intellectual property, and horizontal mergers. (Health Care Statements 7 & 8; Intellectual Property Guidelines; Horizontal Merger Guidelines.) 24

25. 2. Finals Series (Congr./Agencies v. S. Ct.) Resale Price Maintenance Agreements Under Obama Admin.—Undoing Leegin Discount Pricing Consumer Protection Act, S. 2261 Would reinstate Dr. Miles rule and undo Leegin. Senator Joe Biden co-sponsored. Status: Read twice and referred to Committee on the Judiciary (10/30/07). Did not become law. Reintroduced in 2009 as S. 148. Status: Read twice and referred to the Committee on the Judiciary (1/6/09). Also introduced in the House as H.R. 3190 in 2009, sponsored by Rep. Henry Johnson. Status: Forwarded by Subcommittee to Full Committee by Voice Vote (7/30/09). 25

26. 2. Finals Series (Congr./Agencies v. S. Ct.) Pay-For-Delay Settlements—Agencies • FTC’s Attack on “Pay-for-Delay” Settlements • Commissioner Jon Leibowitz in May 2008: “As our report today sadly demonstrates, pay-for-delay settlements continue to proliferate. That’s good news for the pharmaceutical industry, which will make windfall profits on these deals. But it’s bad news for consumers, who will be left footing the bill. These agreements inflict special pain on the working poor and the elderly, who need effective drugs at affordable prices.” • Commissioner Rosch in April 2007: Cases upholding settlements are “bad law and should be reversed,” because settlements violate Sherman Act sections 1 and 2.

27. 2. Finals Series (Congr./Agencies v. S. Ct.) Pay-For-Delay Settlements—Congress • Preserve Access to Affordable Generics Act, S. 369 • Would prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market. • Status: Reported by Committee; Placed on Senate Legislative Calendar under General Orders. Calendar No. 183 (10/15/09). • Also introduced in the House as the Protecting Consumer Access to Generic Drugs Act of 2009, H.R. 1706. Status : House Energy and Commerce: Forwarded by Subcommittee to Full Committee (Amended) by the Yeas and Nays: 16 - 10 (6/3/09). • Fair Prescription Drug Competition Act, S. 501 • Would amend the Federal Food, Drug, and Cosmetic Act to prohibit the marketing of "authorized generics." • Status: Read twice and referred to the Committee on Health, Education, Labor, and Pensions (2/26/09).

28. 2. Finals Series--S. Ct. Roster Justice Stevens Ginsburg Kennedy Scalia Breyer Sotomayor Thomas Alito Roberts Age 89 76 73 73 71 55 61 59 54 • Appointing • President • Ford • Clinton • Reagan • Reagan • Clinton • Obama • G.H.W. Bush • G.W. Bush • G.W. Bush Year of Appointment 1975 1993 1988 1986 1994 2009 1991 2006 2005 Source: http://www.supremecourtus.gov/about/biographiescurrent.pdf

29. 3. International Help Defense Overview Privilege and waiver issues 29

30. 3. International Help Defense Overview • EU tenacious • Slow rotations elsewhere, but coordination accelerating • Increased emphasis on leniency programs creates trap for the unwary re waiver of privilege.

31. Cartel enforcement regimes last enacted/amended: In past 2 years More than 2 years ago None 3. Help Defense: New Cartel Laws

32. 3. International Help Defense Russia/US MOU: Ex. of Accelerating Coordination • Russia’s Federal Antimonopoly Service/DOJ & FTC • More communication re policies (including periodic meetings) • Coordination re enforcement

33. 3. International Help Defense Privilege and Waiver Issues 33

34. Hypothetical: Privileged or Not Privileged? EEseeks legal advice of in-house counsel regardingproposed business strategy later alleged to be anticompetitive.

35. Hypothetical: Privileged or Not Privileged? • California • Privileged. State Farm Fire & Casualty Co. v. Super. Ct., 54 Cal. App. 4th 625, 642 (1997). • US • Privileged. U.S. v. Rowe, 96 F.3d 1294, 1296 (9th Cir. 1996). • EU • Not privileged. Akzo Nobel Chemicals & Akcros Chemicals v. Commission, ECJ Cases T’125/03 and T’253/03, 17.9.07.

36. Attorney-client Work product Joint defense Privileges: US, EU and China No privilege

37. Attorney-client Privilege

38. Prior Production to U.S. Government Involuntary Disclosure—Only way to be sure • General Rule: privilege preserved if party makes efforts “reasonably designed to protect and preserve the privilege.” United States v. De La Jara, 973 F.2d 746, 750 (9th Cir. 1992) • Because appellant “did nothing to recover the letter or protect its confidentiality during the six month interlude between its seizure [by search warrant] and introduction into evidence,” privilege was waived. If he had “immediately attempt[ed] to recover the letter, appellant could have minimized the damage caused by the breach of confidentiality.” Id.

39. Prior Production to U.S. Government “Involuntary” Disclosure=“Coercion” • Disclosure pursuant to government request during criminal investigation considered involuntary and did not constitute waiver. Regents of the Univ. of Cal. v. Super. Ct. of San Diego County, 165 Cal. App. 4th 672 (2008) • “The means of coercion the government used here were, as a practical matter, more powerful than a court order. A court order can be challenged, without penalty, by way of extraordinary writ or appeal. In contrast here, defendants had no means of asserting the privileges without incurring the severe consequences threatened by the government agencies.” Id. at 683. • “We hasten to note the DOJ has more recently amended its policy and significantly limited the circumstances under which disclosure of privileged materials will be requested from corporate defendants.” Id. at 684 n.7

40. Prior Production to Foreign Government: "Sophie’s Choice" In re Vitamins Antitrust Litig., 120 F. Supp. 2d 58 (D.D.C. 2000): Issue: Whether disclosure to foreign enforcement agency waives privilege.     Facts: • Private plaintiffs in U.S. alleged global antitrust conspiracy among domestic and foreign vitamins manufacturers. • Plaintiffs sought discovery of the leniency applications made to European Commission. • Letter from head of EC’s Cartel Unit and Amicus Brief by EC asking special master to uphold privilege. Holding: • Defendants waived privilege as to submissions voluntarily given to EC without expectation of confidentiality. • Court rejected arguments that comity principles precluded disclosure and concluded that U.S. interests outweighed potential interference with foreign enforcement.

41. Prior Production to Foreign Government In Re Methionine Antitrust Litig., Master file no. C99-3491, Report of Special Master (N.D. Cal. June 17, 2002). • Upholdingprivilege(siding with EC’s Amicus Brief).

42. Prior Production to Foreign Government Flat Glass MDL (W.D. Pa.) • EC moved to intervene to assert privilege • Plaintiffs filed opposition 10/20/09 • Court granted intervention 10/30/09.

43. Best Practices For Companies’ Press Break

44. Best Practices For Companies’ Press Break Understand Enforcement Strategies And Strengths Avoid Enforcement Strengths

45. 1. Understand Enforcement Strategies And Strengths Force offense to play the wrong way Dribble too much Fail to exploit weak side Trap in vulnerable hot spots Corners Sidelines

46. 2. Avoid Enforcement Strengths Play the right way Avoid the trapping hot spots 46

47. Play the right way No Resale Price-Maintenance Agreements Communicate a unilateral policy Refuse to deal with price cutters Embrace Opportunities For A Conversation Use Supreme Court Leverage 47

48. Avoid the trapping hot spots • One-team philosophy • Coordinate with international counterparts • Strategy/disclosure anywhere is strategy/disclosure everywhere • Preserve privilege • Address written communications re legal advice involving operations/sales outside U.S. to licensed outside local counsel. • Avoid waiver in governmental disclosures/seizures to improve Sophie’s Choice • Fight to recover seized documents • Require recitals in agreements: • non-waiver • no further dissemination • non-dissemination promise necessary to ensure cooperation with government.

49. "Winning Time" 49