February Antitrust Bulletin

February 23, 2011

DOJ May Seek Disgorgement for Sherman Act Violations

For the first time, a district court has ordered disgorgement as a remedy for a Sherman Act violation. On Feb. 2, 2011, a court entered a consent order approving a $12 million profit disgorgement settlement between the U.S. Department of Justice (DOJ) and KeySpan Corp, an electricity generator operating in New York City. In approving the consent order and DOJ’s use of disgorgement as a remedy, the court deferred to DOJ’s conclusion that there were no assets to be divested and restitution was likely unavailable. The court emphasized the deterrent capabilities of disgorgement and found the remedy to be appropriate in situations where, as in this case, the conduct at issue has ceased.

Court Offers Guidance on Pre-Merger Coordination and Information Exchanges

Even in the context of due diligence and preparing for post-merger integration and operation, coordination of current activities and exchanges of information can violate the Sherman Act and rules against “gun jumping” under the Hart-Scott-Rodino Act. Accordingly, parties to a proposed merger should be careful when exchanging internal information.

In Omnicare Inc. v. UnitedHealth Group Inc., a federal appeals court affirmed a grant of summary judgment in favor of the merging parties – rejecting allegations that UnitedHealth and PacifiCare Health Systems Inc. had exchanged competitively sensitive information during pre-merger due diligence that allowed them to coordinate their negotiations with Omnicare – after examining the specifics of the information exchanges at issue, and noting that the parties had undertaken certain precautions to limit access to competitively sensitive information, including responding “in general terms,” “sometimes disclos[ing] less information than was requested,” and having the exchanges policed by antitrust counsel.

California State Attorney General Enforces Vertical Price-Fixing Prohibition

On Jan. 14, 2011, the California Attorney General’s Office announced a settlement with Bioelements, Inc., a cosmetics company operating in California, that bars the company from engaging in resale price maintenance by mandating minimum prices for its online retailers. According to the attorney general’s press release, “[t]he settlement is one of the first applications of California’s strict, pro-consumer antitrust law banning vertical price-fixing in the wake of a controversial 2007 U.S. Supreme Court decision that weakened federal law in this area.” The case is a reminder that state statutes may be used to challenge competitive conduct that might not violate federal antitrust law.

Parent Company Responsible for Subsidiaries’ Actions under EU Competition Law

The European Court of Justice recently confirmed that under EU competition law, a 100% shareholding in a subsidiary (even if indirect through another wholly owned subsidiary) gives rise to a presumption that the parent directs the subsidiary and accordingly is responsible for its actions. Normal delegation of managerial and administrative functions to the subsidiary is insufficient to rebut this presumption. Additional information is available in our February 2011 EU/UK Competition Law Newsletter.

For more information, please contact the lawyers in the Antitrust & Trade Regulation Department at McGuireWoods.