July Antitrust Bulletin

July 30, 2013

U.S. Supreme Court Rules Pay-for-Delay Deals Can Violate Antitrust Laws

On June 16, the U.S. Supreme Court ruled that patent law does not shield pay-for-delay deals from antitrust scrutiny. In Federal Trade Commission v. Actavis, the Court ruled that a settlement situation in which a branded drug company pays a generic manufacturer a large sum of money to delay market entry might be anticompetitive. Courts therefore should use the traditional rule of reason to weigh the procompetitive benefits of such settlements against the potential harm to competition, rather than employ the “scope of the patent” test by weighing the anticompetitive effects of an agreement against patent law policy alone. Importantly, under the rule of reason analysis, the burden remains on the Federal Trade Commission, or private plaintiffs, to prove that the harm outweighs the benefits. And, while the Court’s ruling opens the opportunity for the FTC to target settlements among pharmaceutical companies, the Court stopped short of backing the FTC’s efforts to have the Hatch-Waxman Act settlements presumed illegal.

Apple E-Books Trial Concludes

On June 2, the highly anticipated antitrust trial against Apple, Inc., began in the U.S. District Court for the Southern District of New York. In U.S. v. Apple, Inc., the Department of Justice alleged that Apple colluded with five U.S. publishing houses to set increased prices on e-books in order to combat aggressive pricing on Amazon.com Inc.’s Kindle e-reader, in the weeks leading up to the unveiling of the iPad in 2010. Apple countered that the introduction of the iPad and iBooks brought competition into a market long dominated by Amazon. The bench trial was the culmination of nearly 15 months of litigation between the DOJ, Apple and five of the largest book publishers. All the publishers settled before trial, agreeing to pay fines and change their pricing systems, leaving Apple to go it alone against the DOJ. The trial challenged the business model Apple used, whereby Apple attempted to push the e-book industry from a traditional wholesale model to an agency model, which allows publishers to set retail prices for their books and Apple collects a commission on each sale. The bench trial concluded on June 20. On July 10, U.S. District Judge Denise Cote issued her ruling, finding “compelling evidence” that Apple orchestrated a conspiracy with book publishers to raise the retail price of e-books. The judge ruled that a separate trial on potential damages related to these violations of the Sherman Act will follow, and set an August 9 hearing to discuss remedies. Apple has stated that it intends to appeal this ruling.

Mars and Nestlé Charged With Price-Fixing; Hershey Pleads Guilty, Fined

Canada’s Competition Bureau charged Nestlé Canada Inc., Mars Canada Inc., a network of independent food distributors and three executives with conspiring to fix the price of chocolate candy. The criminal charges were announced June 6 against local units of the two companies and individual executives, and come six years after reports of the Competition Bureau’s investigation became public. The investigation already has spawned class actions in the United States and Canada, and arose from an immunity application, although it is unclear who came forward first about the alleged conspiracy. A multidistrict litigation over the conspiracy in the United States remains pending and, in December, a Pennsylvania federal judge certified a class of direct chocolate purchasers suing Mars, Nestlé and Hershey Canada Inc. Hershey has cooperated in the probe and was fined $3.8 million after pleading guilty on June 21.

U.S. Supreme Court Rulings Continue to Shape Future of Class Actions

The U.S. Supreme Court issued several major decisions this term that sharpened the boundaries of class actions. For example, in Comcast v. Behrend, the Court raised the bar for obtaining class certification by requiring that the showing of how damages can be calculated for class members cannot be put off until after the certification stage.

The Court further limited class actions in two more recent decisions — both of which also buttressed the enforceability of arbitration contracts. First, in American Express v. Italian Colors Restaurant, the Court ruled that the Federal Arbitration Act does not allow courts to invalidate arbitration agreements containing class arbitration waivers simply because under such agreements it would cost plaintiffs more to arbitrate their claims than they could possibly recover. In so enforcing class waivers, the Court made clear that its landmark decision in AT&T Mobility v. Concepcion, which held that the FAA preempts state laws that invalidate class waivers, also applies to cases brought under federal laws.

Next, in Oxford Health Plans v. Sutter, the Court unanimously affirmed an arbitrator’s decision to allow class arbitration, stating that courts cannot second-guess an arbitrator’s interpretation of a contract. The Court explained that, because the parties had bargained for the arbitrator’s interpretation of the contract, they had to accept the arbitrator’s construction.

EU/UK Competition Law

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