DOJ Continues Scrutiny of MFN Provisions
Recent actions by the U.S. Department of Justice’s Antitrust Division involving “most favored nation” provisions (MFNs) include:
- This month it was widely reported that the Antitrust Division is currently investigating alleged anticompetitive practices in the cable industry, including whether cable companies are using MFNs in agreements with television networks to quash competition from online rivals.
- In April 2012, the Antitrust Division filed suit against Apple and five publishers alleging in part that agency agreements between the publishers and Apple contained retail price matching MFNs “designed to protect Apple from having to compete on price at all.”
- In October 2010, the Antitrust Division filed suit against Blue Cross Blue Shield of Michigan alleging that MFNs in the health insurance provider’s agreements with hospitals raised hospital costs to competitors and “limit[ed] the ability of other health insurers to compete with Blue Cross by raising barriers to entry and expansion, discouraging entry, likely raising the price of commercial health insurance, and preserving Blue Cross’ leading market position.”
These actions continue to reinforce the importance of exercising caution when drafting MFNs. The Antitrust Division has stated that MFNs and other contract provisions that reference rivals “deserve additional scrutiny” because they “may create a competitive problem unless the provision serves a particular pro-competitive purpose.”
Court Deems Electricity a “Commodity” Under the Robinson-Patman Act
On June 4, a federal appeals court overturned a lower court decision dismissing the claims of electricity purchasers who alleged that an electricity provider had violated the Robinson-Patman Act – which makes it unlawful for sellers “to discriminate in price between different purchasers of commodities of like grade and quality” – by paying rebates to certain large customers in exchange for the withdrawal by the large customers of their objections to the provider’s proposed rate-stabilization plan filed with the state utility commission. The lower court had ruled that the filed-rate doctrine, which bars challenges to the reasonableness of a rate approved by the governing regulatory agency, applied to the claims.
On appeal, the court ruled that the filed-rate doctrine did not apply because the purchasers’ challenge was to payments made “outside the rate scheme” set by the utility commission, and further held that the purchasers had adequately alleged their Robinson-Patman Act claim sufficient to survive a motion to dismiss because “electricity is a commodity under the terms of the [statute].” The court reasoned that electricity – unlike cellular telephone service, which “is very different from electricity” and is not a commodity – can be “produced, sold, stored in small quantities, transmitted, and distributed in discrete quantities.” The case is a reminder to sellers of commodities in industries where pricing is regulated that rebates or discounts from agency-approved rates may trigger antitrust concerns.
DOJ, EC Issue Reports on Competition in the Agricultural Sector
On May 16, the Antitrust Division issued a report, “Competition and Agriculture: Voices from the Workshops on Agriculture and Antitrust Enforcement in our 21st Century Economy and Thoughts on the Way Forward,” on what the agency learned from the series of public workshops it cosponsored with the U.S. Department of Agriculture in 2010. The report includes an analysis of the concerns raised in the workshops and details discussion points relating to anticompetitive mergers, high market concentration, monopsony power, price levels, lack of capital, contracting, market transparency and captive supply, market manipulation and genetically modified seeds.
On May 24, the European Commission Network (composed of the European Commission and the member state national competition authorities) issued a report on antitrust enforcement in the food sector across Europe. According to the report, European competition authorities have investigated all levels of the supply chain, in particular focusing on processing and manufacturing.
The two reports make clear that the agriculture and food sectors are a high priority for competition authorities on both sides of the Atlantic.
United Kingdom Supports Private Competition Law Actions
Following the announcement of proposed reforms to the institutional framework for the regulation and enforcement of competition law, the UK Government has published a consultation on methods to promote private sector challenges to anticompetitive practices in the UK. Additional information is available in our June 2012 EU/UK Competition Law Newsletter.
For more information, please contact the lawyers in the Antitrust & Trade Regulation Department at McGuireWoods.