In recent months, again there have been major developments in German competition law. Some of these developments have unfolded in high-tech industries, such as chipboard panel manufacturing, online video services and telecommunications, while others have arisen in more traditional contexts.

At the legislative level, the German government has presented a draft bill for a major revision of the German Act against Restraints of Competition (ARC), which is intended to align the German competition regime even closer to the EU rules. In the merger field, the German Federal Cartel Office (FCO) has made headlines with the prohibition of a planned video-on-demand joint venture between the two main privately held TV channel operators. Moreover, while the FCO has continued with its aggressive prosecution of cartels, the Federal Court of Justice confirmed the strict limits of successor liability in cartel cases under German law, which is in stark contrast to the approach at the EU level. Finally, there have been two judgments clarifying key aspects of the legal framework for private cartel enforcement in Germany—the Federal Court of Justice recognized the standing of indirect purchasers and the admissibility of the passing-on defense while a lower court issued an important decision on access to the FCO’s leniency files.

Legislative Initiatives and Administrative Developments

On March 28, 2012, the German government published its draft bill for the eighth amendment of the ARC (Draft Bill). The Draft Bill is intended to enter into force in January 2013. The suggested changes are significant and relate to all areas of competition law. The most important proposals can be summarized as follows:

Merger Control

Introduction of the SIEC Test. The Draft Bill foresees the introduction of the so-called “significant impediment of effective competition” (SIEC) test as the substantive merger review standard. Mirroring the approach taken in the EU Merger Control Regulation (EMCR) since 2004, the current test, which refers to the creation or strengthening of a dominant position, will survive as an example of the SIEC test. With this change, the Draft Bill aims at filling a perceived gap of the current regime, under which it is not possible to prohibit certain transactions involving unilateral effects without triggering the relevant dominance thresholds. The experience with the corresponding amendment of the EMCR suggests that the practical impact of this revision will be quite limited, however.

Increased Threshold for Presumption of Single-Firm Dominance. The Draft Bill provides for an increase of the market share threshold triggering a rebuttable presumption of single-firm dominance from one-third to 40 percent—the same figure as mentioned in the European Commission’s Horizontal Merger Guidelines. Importantly, however, the controversial thresholds for the presumption of collective market dominance—three or fewer undertakings reaching a combined market share of 50 percent and five or fewer undertakings reaching a combined market share of two-thirds (Section 19(3) ARC)—will remain unchanged.

Retroactive Validity of Non-Notified Transactions. The implementation of a transaction in disregard of a notification obligation under German merger control regime leads to the invalidity of the implementing steps (Section 41(1) ARC). According to the FCO’s current practice, a post-closing notification in this scenario is dealt with under the rules for divestiture proceedings and thus is not subject to any deadlines. The Draft Bill does not alter this approach irrespective of wide-spread criticism; however, it clarifies at least that the closing of the divestiture proceedings due to the absence of competitive concerns retroactively cures the invalidity of the implementation measures (though the parties will still be subject to administrative fines for premature implementation).

Additional Enforcement Powers of the FCO

The Draft Bill clarifies that the FCO is empowered to impose structural remedies in order to bring a competition law infringement to an end. Again, this is in line with the European competition rules, which introduced the possibility of structural remedies almost a decade ago.

Moreover, the FCO will be entitled to request, in the framework of a decision ordering the termination of a competition law infringement, the repayment of any additional proceeds derived from the infringement.

FCO Issues New Guidelines on Substantive Merger Control

On March 29, 2012, the FCO published new guidelines on substantive merger control (Guidelines). The Guidelines are an update of a previous guidance paper dating back to 2000 and are intended to summarize the current practice of the FCO and German courts. Compared to the 2000 paper, the Guidelines put considerably more emphasis on the need for a holistic approach when analyzing a transaction under the merger control rules. Furthermore, the Guidelines stress the importance of economic concepts in the decision-making process. The Guidelines were prepared before the publication of the Draft Bill and therefore still focus on the dominance test. As stated above, however, it is to be expected that this concept—and the corresponding case law of the FCO and the courts—will remain the preeminent yardstick in German merger control even after the envisioned shift to the SIEC test.

Merger Control

In 2011, the FCO received more than 1,100 merger notifications, of which only 15 were subject to close scrutiny in second phase proceedings.

Only Two Prohibition Decisions in 2011

On March 17, 2011, the FCO blocked plans by the TV channel operators RTL and ProSieben/SAT.1 to form a joint venture for the operation of an online video platform reminiscent of the US TV streaming site HULU. The two parties had planned to create an Internet platform financed by advertisements and targeted at German and Austrian consumers for reruns of TV content free of charge within seven days after the program’s original airing. The platform was intended to be open to content from other private and public channels, which would have remained responsible for the editorial control and marketing of their offerings on the platform, but would have had to pay a fee to the joint venture for the use of its technical infrastructure.

The FCO found that the joint venture would further strengthen the existing duopoly of RTL and ProSieben/Sat.1 in the market for TV advertising inGermanyand would likely also result in collaboration between the companies outside of the joint venture. The FCO took the potential pro-competitive effects of the proposed deal into account—the platform would have been the first “one-stop shop” for free content inGermany—but was not convinced that these effects would outweigh the anti-competitive effects of the cooperation.

Interestingly, on November 28, 2011, the FCO announced that it had started an investigation under Section 1 ARC into similar plans of the two public TV broadcasters ARD and ZDF to set up a joint online video platform. While the FCO did not raise any objections from the merger control perspective in this case, the authority is concerned that the project might involve unlawful cooperation among direct competitors (the FCO has yet to elaborate on the nature of its concerns). The fact that several third parties have applied for admission to the proceedings demonstrates the high public interest in this case.

The FCO issued just one other prohibition decision in 2011, which concerned the plans of Tönnies, Germany’s leading purchaser and slaughterer of pigs and sows, to take over the slaughterhouse operator Tummel. Based on an in-depth market investigation, the FCO considered Tönnies to be an indispensable contract partner due to its high market shares, its far-reaching vertical integration, and a multiple links with competitors and customers. The FCO therefore concluded that Tönnies enjoyed a dominant market position, which would be further strengthened by the envisaged transaction. After rejecting a remedy package offered by Tönnies, the authority prohibited the transaction on November 17, 2011.

Liberty/Kabel BW Merger Cleared

In another noteworthy merger ruling, on December 15, 2011, the FCO cleared the acquisition of the cable network operator Kabel Baden-Württemberg (Kabel BW) by Liberty Global Europe Holding (Liberty), subject to far-reaching commitments.

The FCO raised serious concerns about the further strengthening of a dominant oligopoly among the large regional cable network operators (Kabel Deutschland, Liberty’s Unitymedia, and Kabel BW) on the German retail TV services market by reducing their number from three to two. The companies overlap in their geographical reach and compete to provide retail TV service contracts (increasingly also including phone and Internet services) to the owners of large, multi-unit housing premises. The FCO found considerable market entry barriers due to long-term contracts of 10-15 years, exclusivity arrangements, and legal uncertainty about the ownership of the house distribution networks after contract expiry. The FCO also was concerned that the transaction, as originally notified, would have had a negative impact on the competitive relationship between the cable network operators and TV channels (so-called “feed-in” market). In order to alleviate the FCO’s concerns, Libertyagreed, inter alia, (1) to grant special termination rights for large contracts; (2) to end its encryption of digital free TV programs; and (3) to renounce the use of certain exclusivity clauses.

This case is yet another example of the FCO’s skeptical approach towards three-to-two mergers—but also of its willingness to clear such deals if the parties are willing to make appropriate concessions. According to press reports, Deutsche Telekom and the telecommunication service provider Netcologne appealed against the clearance decision before the Düsseldorf Court of Appeals.

Cartels

Statitistics

In 2011, the FCO imposed fines of approximately €193 million on 42 companies and several individuals in 17 cartel cases in a multitude of sectors, including fire engines, concrete pipes, dishwasher detergent, chipboard panels, flour, and hydrants. The fact that the FCO received 37 leniency applications relating to 28 cases underlines that the FCO’s leniency program, more than ever, is a key driver in uncovering cartels. In 2011, the FCO conducted 11 dawn raids at 42 companies and the homes of five individuals.

Due to the ever-increasing number of cartel cases, the FCO has set up a third division dedicated to cartel prosecution. In the second half of 2011, the FCO adopted the following decisions on hardcore cartels:

• Fines of €42 million for a cartel relating to chipboard panels and oriented strand boards;
• Fines of €24 million for a flour and dishwasher detergent cartel;
• Fines of €17.5 million for a fire engine cartel;
• Fines of €15.5 million for a hydrant cartel;
• Fines of €12 million for a concrete pipe cartel; and
• Fines of €9 million for an instant cappuccino cartel.

In these proceedings, the FCO’s focus was on three types of anti-competitive arrangements, namely (1) illegal agreements on prices, quotas, discounts and/or specific conditions for customers, (2) the allocation of (regional) markets and/or (3) the exchange of commercially sensitive information. In most cases, at least some of the companies and/or individuals involved agreed to enter into a settlement with the FCO in order to secure a lower fine.

Strict Limits of Successor Liability for Cartel Infringements

On August 10, 2011, in a landmark ruling the Federal Court of Justice confirmed the severe restrictions under German law regarding the successor liability of a merged entity for cartel infringements committed by one of the merging entities. In the case at stake, the FCO in 2005 had imposed a fine of €19 million on Gerling Konzern Versicherung AG (GKA) for its involvement in the industrial insurance cartel.

In 2006, GKA merged with another insurance company to form a new legal entity, HDI-Gerling. HDI-Gerling refused liability for GKA’s cartel infringement and won the appeal proceedings before theDüsseldorf Higher Regional Courtand now also before the Federal Court of Justice.

Under German law, the liability of legal persons for administrative fines is dealt with in Section 30 of the German Administrative Offences Act (OWiG). Pursuant to this provision, a fine can be imposed on a legal person if one of its organs or a senior manager infringed the company’s obligations by committing an administrative offense. The Federal Court of Justice held that the requirements of this provision were not fulfilled in the case at hand because it had been the legal predecessor’s ( i.e., GKA’s) organs and senior managers who had participated in the illicit arrangements, but not the organs or employees of the merged entity.

The court further argued that an extension of liability to the legal successor is possible only in the exceptional case that both entities are “virtually identical” from an economic point of view. This requires, in particular, (1) that the assets of the former entity are used in the same or a similar way as before the merger, and (2) that they account for an “essential part” of the (total) assets of the merged entity. (At least) the second criterion is not fulfilled if the merger parties had approximately the same size. The court stated that any broader interpretation of Section 30 OWiG in order to extend the scope of successor liability would be contrary to the clear wording of this provision. Furthermore, it would violate the requirement of legal certainty and the prohibition of double jeopardy in criminal matters laid down in Article 103(2) of the German Constitution.

In the case at hand, the court rejected successor liability because GKA’s assets accounted only for 28 to 56 percent (depending on the reference base) of the assets of the combined HDI-Gerling group. Interestingly, the court explicitly criticized the current status of the law, which in stark contrast to the EU competition rules enables companies to circumvent fines for cartel infringement through mergers and restructuring, and urged the legislator to take appropriate action.

Private Cartel Enforcement

The Standing of Indirect Purchasers and the Admissibility of the Passing-On Defense

On June 28, 2011, the Federal Court of Justice handed down a key judgment regarding the legal framework for private cartel enforcement inGermany. The court clarified that indirect purchasers also are entitled to claim damages from cartel members. The court argued that this principle takes account of the fact that the impact of illicit cartel arrangements is not necessarily felt by the direct purchasers because they may be able to pass on the overcharge to their customers. Thus, market participants at all levels of the supply chain should be allowed to claim damages for competition law infringements. This ruling is in line with the jurisprudence of the ECJ, which also allows both direct and indirect purchasers to seek damages if they had to bear overcharges due to an illegal price arrangement at the upstream level.

At the same time, the court allowed the cartel members to invoke the passing-on defense, that is, to argue that the direct purchasers passed on the overcharge to the next market level and thus did not suffer any damage. In the court’s view, the admissibility of the passing-on defense is a necessary corollary to the standing of indirect purchasers. The court clarified that the cartelists bear the burden of proof for the passing-on defense and, in this context, explicitly denied a general duty of the direct customers to provide information on the passed-on overcharge. If a cartelist is sued simultaneously by direct and indirect purchasers, however, it may ask the indirect purchasers to make available information at their disposal, which can help to substantiate a passing-on defense against the direct purchasers.

No Access to Leniency Files

On January 18, 2012, the Local Court of Bonn (Case no. 51 GS 53/09) denied a private claimant for cartel damages access to leniency applications and the supporting documentary evidence in the FCO’s file. This is the first decision of a national court implementing the landmark Pfleiderer judgment of June 14, 2011, in which the European Court of Justice (ECJ) had held that it is up to the national court to determine under the applicable national rules on a case-by-case basis whether and under what conditions access to leniency files must be granted. The ECJ had further ruled that in making that determination, the national court must balance the interests of the damage claimants against the necessity of effective cartel prosecution, for which leniency programmes are acknowledged to be significant.

In applying the criteria outlined by the ECJ and the German rules on access to files in criminal investigations, the Bonn court held that disclosure of the leniency documents would undermine the effectiveness of the FCO’s leniency program since cartel members could be deterred from making leniency applications with self-incriminating information. On the other hand, the court concluded that the refusal of access to the leniency documents would not render it “impossible or excessively difficult” for the claimant to pursue its damage action. First, it would receive access to the non-confidential versions of all other documents in the FCO’s file; and second, it could rely on the FCO’s fining decision to prove the existence of a competition law infringement as the FCO decisions are binding in that regard for German courts in follow-on damage claims.

The decision at issue reflects the position of the FCO and is expected to have a significant impact not only inGermanybut also in other EU Member States where similar cases are pending or bound to come up.

Note: This article originally appeared in Computer & Internet Lawyer, Volume 29, No. 6, June 2012.

Earlier this month, the Kansas Supreme Court ruled that the reasonableness of a vertical price fixing agreement is not to be considered when determining whether such an agreement violates the Kansas Restraint of Trade Act (KRTA). Kansas Supreme Court precedent that called for a “reasonableness rubric”—a determination of whether a restraint was reasonable in view of all of the facts and circumstances—was overruled. In addition, the court decided that the “rule of reason” of federal antitrust jurisprudence did not apply. It refused to read unwritten elements, such as a reasonableness requirement, into the otherwise clear legislative language of the Kansas antitrust law.

The action was brought by a consumer against Leegin Creative Leather Products, Inc.—the manufacturer and retailer of Brighton handbags, accessories, and luggage. The defendant is the same company whose pricing practices were considered by the U.S. Supreme Court in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877. In that decision, the U.S. Supreme Court held that, for purposes of a Sherman Act claim, the pricing practices were subject to “rule of reason” analysis. The Kansas Supreme Court rejected Leegin’s argument that the consumer’sKansasantitrust claims were blocked by the rule of reason.

The consumer was permitted to pursue both horizontal and vertical price fixing claims on remand.  Vertical and horizontal price fixing agreements are per se violations of the KRTA, the court ruled. The court rejected Leegin’s argument that, because it was a dual distributor and dual-distribution systems were treated as vertical arrangements under federal law, the consumer’s allegations did not support a horizontal price fixing claim. The applicable provisions of the KRTA neither differentiated between vertical and horizontal price fixing nor outlined a particular approach to a dual-distribution situation. The provisions prohibited all price fixing combinations or arrangements, regardless of the applicable label. To the extent the consumer’s horizontal price fixing claim rested on conduct identical to that supporting her vertical price fixing claim, horizontal price fixing was an alternative theory of liability. Proof of an alternative theory did not entitle a plaintiff to additional damages, but it gave a factfinder another way to get to judgment in the plaintiff’s favor, the court explained.

Antitrust Injury

In addition, the court ruled that the consumer was not required to provide “concrete evidence” that she personally paid higher prices for Brighton products as a result of the manufacturer’s resale price maintenance (RPM) policy in order to avoid summary judgment for failure to establish “antitrust injury.” A genuine issue of material fact on injury precluded summary judgment in light of the RPM policy, its written pricing agreements, and its enforcement practices, as well as expert testimony. The expert opined that the manufacturer’s practices fixed the prices of its products, severely limiting discounting. The expert based his conclusions on information from the manufacturer regarding its practices, a survey of “authoritative opinion” on the effects of vertical price fixing in general, and “empirical evidence” of the impact of price fixing documented by other scholars. There was adequate circumstantial evidence that consumers actually paid inflated prices for Brighton goods.

Leegin’s contention that the consumer was required to offer proof of injury or damage in the form of a “benchmark analysis” set too high a bar, according to the court. Under the benchmark analysis approach, the consumer would have needed: (1) to conduct a benchmark analysis comparing the actual retail prices of the manufacturer’s products before and after the manufacturer allegedly crossed the line between a lawful pricing policy and unlawful pricing agreements, (2) to compare the prices of the manufacturer’s accessories against the prices of similar accessories from manufacturers who did not impose price restraints, or (3) to collect affidavits from Kansas retailers who were prevented from discounting.

Statute of Limitations

The consumer’s claims for full consideration damages and treble damages were both subject to a three-year statute of limitations, the court ruled. They were civil remedies, not penalties. The court rejectedBrighton’s call for an application of the one-year statute of limitations for an “action upon statutory penalty or forfeiture, on the ground that full consideration and treble damages provisions were statutory penalties because they awarded more than actual damages and were cumulative with actual damages. Moreover, the three-year statute of limitations gave a greater incentive to consumers to exercise their statutory rights by bringing private actions under the KRTA.

Class Actions

The consumer represented a class of similarly situated purchasers of Brighton products. Leegin had moved to decertify the class, but the lower court did not reach the issue. The State Supreme Court decided that it would be best for decertification to be considered on remand.

Legislative Response

Kansas legislators have quickly responded to the decision. A measure (HB 2797) was introduced in the Kansas Legislature on May 10, 2012, to overturn the court’s rejection of rule of reason analysis. The bill would call for harmonizing the KRTA with Sec. 1 of the Sherman Act.  Under the measure, an agreement that  would be deemed a reasonable restraint of trade or commerce under Sec. 1 of the Sherman Act may not be deemed unlawful under Kansas law. The measure also would prohibit private class action lawsuits.

The May 4, 2012, decision in O’Brien v. Leegin Creative Leather Products, Inc.,  No. 101,000, appears at (CCH) 2012-1 Trade Cases ¶ 77,884.

The Department of Justice Antitrust Division opened 90 merger investigations and filed 13 merger cases in Fiscal Year (FY) 2011 (October 1, 2010, to September 30, 2011). The uptick in enforcement activity over the past couple of years was in response to an increase in merger activity.

Increase in HSR Filings

According to recently released workload statistics, summarizing Antitrust Division activities over the preceding 10-year period (FY 2002 – 2011), there were 1,450 premerger notifications under the Hart-Scott-Rodino (HSR) Act in FY 2011.

The number of HSR filings in FY 2011 was more than double the number in FY 2009 (716). From FY 2010 (1,166) to FY 2011, there was a more than 24 percent increase in HSR filings. While the trend reflects healthy increases in large merger activity recently, the number of filings don’t come close to the recent high of 2,201 in FY 2008.

Merger Cases

The Antitrust Division filed 13 merger cases in FY 2011. This was the highest number of merger cases filed since FY 2008 (15). There were only seven merger cases filed in FY 2009 and 10 merger cases filed in FY 2010.

Among the transactions challenged in FY 2011 were mega-mergers, such as AT&T’s ultimately abandoned acquisition of T-Mobile USA Inc. and the combination of Comcast Corp and General Electric Co.’s subsidiary NBC Universal Inc. However, the Antitrust Division also brought two cases involving non-reportable mergers.

The first of the two challenges to transactions that did not meeting the HSR reporting thresholds was filed in May 2011. In that case, the Antitrust Division moved to block George’s Incorporated’s acquisition of a Tyson Foods poultry processing plant in Virginia. George’s later consented to a settlement requiring it to make capital improvements to the plant in order to increase in the number of chickens processed at the facility, thereby increasing the demand for grower services ((CCH) 2011-2 Trade Cases ¶77,679). In November, the Antitrust Division announced a challenge to an agreement between Blue Cross Blue Shield of Montana and five of six Montana hospitals that own New West Health Services, a health insurer that competes with Blue Cross in Montana. A consent decree resolving the matter was approved by the federal district court in Montana last month.

Merger Investigations

The number of merger investigations was up in FY 2011 over the three preceding years. While there was about a 24 percent increase in the number of HSR filings from FY 2010 to FY 2011, the number of investigations increased more than 30 percent (from 55 to 72).

Thirty one of the of the 72 HSR investigations in FY 2011 involved second requests. Second requests or requests for information and documentary material from the merging parties are made when the federal antitrust agencies are unable to make a determination on the competitive impact of a transaction based on the original HSR filings. The percentage of second requests jumped between FY 2010 and FY 2011, as well, with an increase of more than 40 percent (from 22 to 31). Eighteen of the 90 merger investigations were non-HSR matters.

The Antitrust Division’s FY 2002-FY 2011 workload statistics, which also show a significant increase in criminal cases filed and grand jury investigations initiated in FY 2011, are available at: http://www.justice.gov/atr/public/workload-statistics.html.

The U.S. Court of Appeals in Atlanta today rejected the Federal Trade Commission’s challenge to a patent litigation settlement between brand name and generic drug companies as an unlawful agreement not to compete in violation of Section 5(a) of the FTC Act.

The FTC brought the case in 2009 against Solvay Pharmaceuticals and generic manufacturers Watson Pharmaceuticals, Par Pharmaceutical, and Paddock Laboratories over a “pay for delay” or “reverse payment” patent infringement settlement agreement related to patents for AndroGel—a testosterone replacement drug often used by men whose bodies do not produce normal levels of testosterone. In 2010, the federal district court in Atlanta dismissed the complaint (687 F. Supp. 2d 1371, ((CCH) 2010-1 Trade Cases ¶76,914) because the FTC failed to allege that the settlements, which included exclusion payments to the generic drug companies, exceeded the scope of the manufacturer’s patent on the drug as required by Eleventh Circuit precedent.

Under Eleventh Circuit precedent, “absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” On appeal, the FTC unsuccessfully argued that the underlying patent had no exclusionary potential because the brand name drug company was “not likely to prevail” in the underlying infringement action against the generic drug companies, and therefore any reverse payment settlement that excluded competition from the market necessarily exceeded the potential exclusionary scope of the patent.

The FTC’s theory would require courts to decide what the likely outcome of settled patent infringement claims would have been. “The approach would require an after-the-fact calculation of how ‘likely’ a patent holder was to succeed in a settled lawsuit if it had not been settled,” according to the court.

The appellate court wanted to avoid “deciding a patent case within an antitrust case about the settlement of the patent case, a turducken task.”

“Retroactively predicting from a past perspective a future that never occurred” was “too perilous an enterprise to serve as a basis for antitrust,” in the court’s view.

The court was concerned that the approach would discourage patent litigation settlements and that predictions could be unreliable. The court also reasoned that the non-specialized circuit courts, as opposed to the U.S. Court of Appeals for the Federal Circuit, were “ill-quipped to make a judgment about the merits of a patent infringement claim.” Congress had given the Federal Circuit exclusive appellate jurisdiction over patent cases, and the FTC’s approach was in tension with Congress’ decision to have such appeals decided by that court.

The court also rejected the FTC’s “ominous forecast” if these types of agreements were to escape antitrust attack. If the patent were invalid, then another generic drug maker could come along and challenge it, according to the court. The brand name drug company might be willing to share monopoly profits with the first one or two generic challengers, but not likely more.

Other FTC Efforts to Combat Pay-for-Delay Settlements

FTC Chairman Jon Leibowitz has said that combatting anticompetitive pay-for-delay patent settlements in the pharmaceutical industry is a top priority for the agency. The Commission has supported efforts to pass proposed federal legislation; however, the bills introduced in Congress have failed to gain traction for years. A new measure (H.R. 3995) was introduced this past February.

While the FTC sees a legislative approach as a better fix, the agency continues to investigate these types of agreements and to challenge the agreements in court. The FTC has another “pay-for-delay” action pending against pharmaceutical manufacturer Cephalon, Inc. for allegedly restraining competition for its branded drug, Provigil, by paying four competing firms to refrain from selling generic versions of the drug. The federal district court in Philadelphia has denied the defendants’ motion to dismiss the allegations (702 F. Supp. 2d 514, (CCH) 2010-1 Trade Cases ¶76,950).

As the case is nearing the summary judgment phase, word is expected soon from the U.S. Court of Appeals in Philadelphia in another matter on the subject of pay-for-delay agreements. The agency has submitted an amicus brief in support of private class action plaintiffs who challenged the legality of patent settlements between branded and generic manufacturers of the high blood pressure medication K-Dur 20. The legality of pay-for-delay patent settlements is a question of first impression in the Third Circuit. The FTC’s brief urges the Third Circuit to reverse a decision of the federal district court in New Jersey granting summary judgment ((CCH) 2010-1 Trade Cases ¶76,949) in favor of the patent holder, Schering-Plough Corporation, and the alleged infringers–Upsher Smith and ESI.

The text of the April 25, 2012, decision in FTC v. Watson Pharmaceuticals, Inc., No. 10-12729, is available here.

Ah, the Spring Meeting.  God I love it.

Admittedly, the ABA Antitrust Section Spring Meeting, perhaps the profession’s preeminent event, is in some respects getting to be just a bit of a circus.  What were once a handful of calm, early evening cocktail receptions in the bowels of the Marriott have grown into a deafening barrage of extravagant drink-fests, which have spilled over into the many posh surrounding hotels and restaurants, including the Willard and that exclusive, trendy new home of $20 hamburgers, Central Michel Richard.  One venue on Thursday afternoon featured, in addition to the inability to hear, mini-sombrero party-favors and a mariachi band.  And as proof how much the Spring Meeting now resembles fraternity pledge week, walking outside the Marriott one was surrounded by quite a number of exceptionally well-dressed young men and women, oblivious both to the Occupy Wall Streeters camping on Freedom Plaza and to whatever might be the District’s open-container laws.  You could hear them saying things like “Dude, are you going to [XYZ law firm's] party?  You totally have to go to [XYZ's] party.”  And then there was the . . . well . . . there was the Teddy Roosevelt impersonator.  Put that in your pipe and smoke it.

Anyhoo, for those many of us who must follow antitrust from outside the Beltway, the Spring Meeting is also pretty priceless.  Here are a few points that especially stood out to one humble observer.

First there was the Annual Dinner address by Senator Al Franken.  Most remarkable to me was the depth and erudition of his remarks, which focused almost entirely on antitrust substance.  (In the audience there was a bit of grumbling—quite misplaced, I thought—that his remarks weren’t funny; it would hardly have befitted any U.S. Senator to come and perform stand-up, and all the less so in times of crisis in which many believe that matters of competition policy are of pressing concern.)  But here is the highlight, as far as I am concerned:  Well over half of the Senator’s lengthy remarks were devoted to the possibility of antitrust action against Google.

If this were just the random thoughts of some guy it would hardly amount to much.  But first, the Senator serves on the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights, and second, it lends weight to one of the suspicions I found most fervently discussed in the Meeting’s hallways and anterooms:  that the FTC will proceed with its apparent intention to challenge Google’s alleged monopolistic conduct.

And so many other nice tidbits jumped out at me as matters to take notice of:

1. Rich Feinstein, Director of the FTC’s Bureau of Competition, was asked whether the agencies’ failure since 1984 to modify the Vertical Merger Guidelines can be taken as proof that nothing has changed in their approach to analyzing vertical acquisitions.  Though saying he doubted the Guidelines would be revised any time soon, he said this:  “Let me put it this way.  It’s been a pretty long time since I’ve read those Guidelines.”  (Commission chief economist Joe Farrell agreed that market share—the primary consideration under the 1984 Guidelines—is no longer very important.)

2. An entire panel was devoted to what many of us may not really have known much about—that there is a major wave of health care mergers.  Entitled “Merger Mania:  Health Care Reform’s Impact on Markets,” the panel was billed this way:  “Health care reform has had a profound impact on the business activities of many health care providers. With a proliferation of mergers between hospitals and other health care providers, what role will State Attorneys General play in ensuring competitive markets while also protecting the public interest?”  Seems to me a major component of what is going on has also been a more or less concerted effort to secure as much antitrust immunity as possible for these maneuvers; witness the Phoebe-Putney case and the fairly likely consideration of it by the Supreme court.  (For more, see here.)

3. And in a speech nicely sprinkled with other erudite and careful insights, former FTC Chairman Kovacic speculated during the “Hot Topics” session that if any merger case is “in the pipeline” to break the Supreme Court’s near-40-year moratorium on merger cases, it might be the Commission’s recent decision in ProMedica. 

4. It was also just a bit arresting to hear Chairman Kovacic, less than a year after his return to academia and therefore free of the usual constraints of official decorum, waxing passionate in his denunciation of “the astonishing selfishness” of one member of Congress” who has proposed to turn the Commission’s building into an art museum.

The federal district court in New York City should not have rejected allegations that a magazine wholesaler was driven out of business as a result of an antitrust conspiracy, the U.S. Court of Appeals in New York City decided earlier this week. On April 3, the appellate court vacated the lower court’s judgment granting a motion to dismiss the wholesaler’s Sherman Act Sec. 1 claim for failure to state a claim and denying leave to file an amended complaint.

According to the appellate court, the lower court misapplied the plausibility standards set by Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129S. Ct.1937 (2009). The lower court should not have dismissed plausible allegations of a boycott, merely because it found a different version of events more plausible. By finding the plaintiff’s view of the events implausible, or less plausible than the possibility that the defendants acted unilaterally, the lower court improperly made factual findings, it was held.

Prior to being forced into bankruptcy liquidation, Anderson News was the second largest magazine wholesaler in the United States. After ceasing operations in 2009, Anderson brought an antitrust action against five national magazine publishers and their four distribution representatives, as well two smaller wholesalers. Anderson alleged that, along with the country’s largest magazine wholesaler—Source Interlink Distribution, LLC—it was the target of a boycott conspiracy.

Anderson contended that the boycott to eliminate the nation’s two largest magazine wholesalers followed a move by Anderson to impose a surcharge on publishers for each magazine copy it distributed, regardless of whether the copy was sold by a retailer. The surcharge was an attempt to recover costs associated with retrieving unsold magazine copies from retailers and deposing of them. Shortly after Anderson announced the surcharge, Source announced that it too would impose a similar surcharge.

The defendants, in an effort to get Anderson to drop the surcharge, allegedly invited the wholesaler to join in the elimination of Source. Anderson contended that it declined. According to Anderson, thereafter, the defendants met or communicated with each other and agreed to reject Anderson’s proposed surcharge, to refuse any other accommodation, and to stop supplying Anderson with magazines.

Anderson’s allegations of conspiracy were plausible, in the appellate court’s view. The appellate court explained what differentiated the complaint filed by Anderson from the complaint at issue in Twombly.

Anderson alleged an actual agreement to eliminate Anderson and/or Source as wholesalers in the market and to divide the market between two smaller wholesalers. According to the appellate court, “the facts alleged in the [proposed amended complaint] are sufficient to suggest that the cessation of shipments to Anderson resulted . . .  from a lattice-work of horizontal and vertical agreements to boycott Anderson.”

The appellate court went on to say that it had “difficulties with some of the court’s analytical constructs, including its application of Twombly‘s plausibility test.”  The lower court’s plausibility inquiry was “misdirected” when it ruled that Anderson did not state a plausible Sherman Act, Sec. 1 claim, simply because unilateral parallel conduct by the defendants was completely plausible. According to the appellate court, “although an innocuous interpretation of the defendants’ conduct may be plausible, that does not mean that the plaintiff’s allegation that that conduct was culpable is not also plausible.” Moreover, on a Rule 12(b)(6) motion it was “not the province of the court to dismiss the complaint on the basis of the court’s choice among plausible alternatives.”

The appellate court also rejected the lower court’s determinations that Anderson’s conspiracy claim was implausible because the defendants had “a variety of reactions” to Anderson’s announcement of the surcharge or because Anderson’s surcharge was a nonnegotiable demand on the publishers. There was nothing implausible about coconspirators’ starting out in disagreement as to how to deal conspiratorially with their common problem. Moreover, the presentation of a common economic offer might lend itself to independent, parallel responses, but it did not provide antitrust immunity to the publishers if they decided to get together to boycott the offeror.

One could chalk this decision, Anderson News, L.L.C. v. American Media, Inc., Docket No. 10-4591-cv, up to differing views of antitrust law held by three federal appellate court judges who were appointed by Democrat presidents and a federal district court judge appointed by President George W. Bush. However, the ruling shows that the hurdles imposed on antitrust plaintiffs by Twombly and Iqbal are not insurmountable. In this case, the plaintiff told a compelling story. Whether the plaintiff will be able to survive a defense motion for summary judgment remains to be seen.

Senator Rand Paul of Kentucky, the freshman Republican and Tea Party favorite, is only slightly more famous as the son of Representative Ron Paul than as the deliberate namesake of Ayn Rand.  Last Thursday he introduced a genuine humdinger.

Deploying that prowess for economic and legal analysis that may characterize many ophthalmologists, Senator Paul seems to believe the bill does no more than limit FTC jurisdiction (consider his comments to that effect to The Hill).

But that is quite wrong.  His so-named “Anti-Trust Freedom Act of 2012” would entirely repeal federal antitrust as to any conduct by “individuals.”  It provides in its entirety as follows:

The Sherman Act (15 U.S.C. 1 et seq.), the Clayton Act (15 U.S.C. 12 et seq.), and section 5 of the Federal Trade Commission Act (15 U.S.C. 45) shall not be construed to prohibit, ban, or otherwise extend to any voluntary economic coordination, cooperation, agreement, or other association, compact, contract, or covenant entered into by or between any individual or group of individuals.

That gets pretty much all of it—all § 1 conduct, all transactions otherwise covered by Clayton § 7, and virtually all conceivable “exclusionary conduct” under Sherman § 2—so long as the defendants consist only of “individuals” or “group[s] of [them].” And plainly the limitation to “individuals” would be chaotic and unpredictable, and I think likely devastating. It would revisit the same absence of any antitrust theory of the firm that was at the heart of American Needle. In some sense any business firm is a “group of individuals,” and while most courts might hesitate to construe that term in a way that would eviscerate antitrust, some courts would not hesitate, and even those that would will find some cases quite ambiguous. Is not a sports league really just a “group of individuals,” for example?

It may very well be, as some press reports suggest, that Paul only has in mind protecting doctors groups and other coalitions of individual professionals or small businessmen. But I think as a practical matter, as to a very wide swath of economic activity, antitrust would be gone.

A small mystery is where this came from. Senator Paul’s evident confusion suggests he didn’t write it and perhaps has not read it. There are no co-sponsors, and there is no accompanying press release, floor statement, or evidence by whom or for whom it was written. My guess is that it comes from someone at Cato, as The Hill makes reference to an apparently non-public “description” of the bill issued by Paul’s office, which appears to quote from this Cato blog post. Of course, on a practical level this is essentially a stunt, since Chairmen Leahy and Kohl would give such a bill no committee time even if it weren’t introduced at the very tail end of a congressional term in a presidential election year. 

Why exactly do they do these things?

Anyway, one should hardly be surprised. Here’s some disquieting footage from 1983 of Senator Paul’s father, appearing alongside economist Dominick Armentano, the two of them saying such things as that there has never been an “effective” conspiracy of any kind, that many or most monopolies are desirable, and that antitrust constitutes an unconstitutional ex post facto law.  “A free market,” says Dr. Armentano, “is precisely that.  It is a market free of intervention.  And once you remove the regulation [i.e., antitrust], the market will be competitive.”  (See 10:30 – 11:10)  Representative Paul, though he appears never actually to have introduced an antitrust repealer, openly endorses repeal here.  (See 11:15+)

The next Term may see significant SCOTUS consideration of the state action immunity, the first such case since 1992. The decision below in the defendants’ favor was quite plainly wrong, and so it might also become only the second antitrust case in twenty years in which the Court has ruled for a plaintiff.  That would be a nice result since it would shield the plaintiff here, the Federal Trade Commission, from yet another unjustified indignity at the hands of the increasingly anti-enforcement courts of appeals (see, e.g., this recent decision).

To wit, while no petition has yet been filed, the Solicitor General has confirmed that he will seek review in FTC v. Phoebe Putney Health System, Inc. (663 F.3d 1369, (CCH) 2011-2 Trade Cases ¶77,722). The precise issue would be whether the Eleventh Circuit properly found the Midcal requirement of “clear articulation” to be satisfied where a state does no more than empower a municipal entity to enter contracts or buy and sell property.  If the Court takes the case, it would likely clarify the “foreseeability” test for clear articulation first formulated by Justice Powell—something of a foe of antitrust enforcement—in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 42 (1985).  Handicapping the certioriari process is better left to the high court bar, but we mortals can at least hope the Court will perceive something like a circuit split here.  The Eleventh Circuit took a drastic view of what can constitute clear articulation, and it seems unlikely that many other circuits would go along with it.  It seems fair to say that a majority of the Court also dislikes antitrust enforcement rather less than they dislike pork barrel government giveaways.

The Phoebe Putney decision was strikingly, obviously wrong.  It immunized a grossly anticompetitive hospital merger even though the transaction was negotiated and executed almost exclusively by two private entities:  one private hospital proposed to buy another one, in a part of small-town southwestern Georgia where there is no other major hospital within quite a distance.  What is really remarkable was the transparent flimsiness of the parties’ effort to secure antitrust immunity, and their lack of effort to conceal it.

Under a statewide health care policy adopted in 1941, local governments in Georgia may establish “Hospital Authorities,” which are quasi-public non-profit entities that can own and operate health care facilities.  The acquiring hospital in Phoebe Putney had been owned by one such Authority for many years, but in 1990 the Authority all but handed it over to a purely private non-profit entity.  (The Authority continued nominally to own the hospital, but leased it to the non-profit, giving the non-profit full control, for an annual rent of one dollar).  To simplify, I will call that non-profit entity “Phoebe Putney.”  In 2010, after twenty years of free-standing operation with little evidence of government oversight, Phoebe Putney officials initiated an effort to buy their only serious competitor, a nearby for-profit owned by the national chain Hospital Corporation of America.  They reached a full agreement without even having notified the Authority, and their agreement included a massive break-up fee if the Authority failed to approve it in precisely the form they had negotiated.  The deal unapologetically required Phoebe Putney to take steps to secure antitrust immunity, but the steps identified were a pantomime.  The Authority would nominally be the purchaser of HCA’s hospital, but it would make the purchase with Phoebe Putney’s money, and it would instantaneously lease the HCA hospital to Phoebe Putney—again for $1 per year—under a “management agreement” giving Phoebe Putney full control.

One juicy tidbit is that Phoebe Putney was unable to secure an investment bank’s “fairness opinion” attesting that the high price it agreed to was justified.  There should not be much mystery why the price was high.

Projecting that the deal would result in a 100% share within the county and 86% within a larger, six-county region, the Commission sought what one might have thought was a slam-dunk § 13(b) injunction.  But the Middle District of Georgia dismissed at 12(b)(6) and the Eleventh Circuit affirmed. Neither court entertained doubt that the complaint alleged conduct that would be illegal on its substantive merits.  The Eleventh Circuit found the only question at 12(b)(6) to be state action immunity, and because prior circuit authority found Georgia’s Hospital Authorities to be “political subdivisions” under Town of Hallie, the defendant would be immune if it could meet the “clear articulation” element.

That’s where things went completely haywire.

The Eleventh Circuit’s substantive discussion begins with this assertion:  “The [Georgia] Hospital Authorities Law . . . contemplates anticompetitive effects,” as shown by the Authorities’ power to “operate” health care facilities, to “construct, reconstruct, improve, alter and repair” them, to “establish rates” charged in them, to “sue and be sued,” to “exchange [or] transfer” property, and to “borrow money . . . .”  663 F.3d at 1376.

To “sue and be sued”?  That’s relevant?  To “borrow money”?!?

It gets worse.  “Most important to [the] case,” the court wrote, was “the power to ‘acquire [health care facilities] by purchase, lease, or otherwise . . . .’ ”  To the court that power made clear that the “legislature . . . anticipated that such acquisitions would produce anticompetitive effects,” because “acquisitions could consolidate ownership, . . . eliminating competition . . . .”  663 F.3d at 1377.

This result is absurd.

Parker, Midcal and Town of Hallie establish a fundamental proposition of American political economy, of essentially constitutional scope:  competition is the presumptively preferred policy throughout the United States, and while state governments may deviate from that policy within their own borders, they can do so only if they comply with relatively demanding standards meant to assure that their deviations remain politically accountable.  That is, those deviations must either be sovereign acts of the states themselves, or comply with the Midcal and Town of Hallie standards.

Accordingly, local governments are “persons” that may be sued for antitrust violations, and they enjoy no protection from antitrust liability except where the state government has “clearly articulated” such protection (and except to the extent of the limited protection provided under the Local Government Antitrust Act (15 USC Secs. 35 – 37). When they act in a commercial capacity, they are required by federal law to compete, and they cannot avoid doing so unless the state, acting in its sovereign capacity, “clearly” says otherwise.  The Supreme Court has made clear in Community Communications Co., Inc. v. City of Boulder, 455 US 40 (1982), that even general grants of actual regulatory power, like home rule provisions, do not create a “foreseeable” enough likelihood of competitive restraint to clearly articulate a desire to restrain it.

So it seems unlikely that a state government repeals federal antitrust law every time it creates a municipal corporation that happens to have the power to buy stuff.

Phoebe Putney is a bad enough decision that it has already gotten a fair bit of attention. True to form, the indefatigable Professor Hovenkamp appears to have beaten everyone to the punch.  His recent SSRN postingMidcal element, “active state supervision.”  But any of them that could manage to characterize themselves as instruments of a local government might secure Town of Hallie immunity even without active supervision.)

My collaborator Peter Carstensen also has an excellent paper forthcoming in the Antitrust Bulletin, which will be available at 56 Antitrust Bull. 773 (2011), in which he studies the generally poor treatment of anticompetitive state rules.  He has some choice analysis of Phoebe Putney, and among other things he notes two rather remarkable facts for a case in which the state is said “clearly” to have chosen to displace competition:  (1) the state’s own Attorney General was the Commission’s co-plaintiff, and (2) the state’s constitution Ga. Const. Art. 3, section 6, paragraph 5] prohibits laws “authoriz[ing] any contract or agreement which may have the effect . . . of encouraging a monopoly . . . .”

Anyway, as a parting thought, one must simply love the local officials’ reaction to the Solicitor General’s decision to seek cert.  The chairman of the local Hospital Authority said:

“We are stunned and disturbed by this most recent development. . . .  The FTC continues to waste taxpayers’ money and our community’s money to challenge an already decided case, which has been confirmed by appeal.”

Really? What exactly do you suppose will happen to their money once the hospital has an 86% market share?

Update

And, as expected, the Solicitor General has filed a petition for certiorari from the Eleventh Circuit’s execrable December decision in FTC v. Phoebe Putney.  Also as expected: (1) the QPs center on whether the mere granting of general corporate powers to a municipal entity can constitute a “clear articulation,” because if that implicates a sufficiently “foreseeable” competitive restraint under Town of Hallie, then so does everything in the universe; and (2) the SG makes an elaborate case that the Eleventh Circuit has established what amounts to a circuit split—its finding of “clear articulation” from mere grant of corporate powers represents an “entrenched misapplication of th[e] [Supreme] Court’s precedents that squarely conflicts with decisions from the Fifth, Sixth, Ninth and Tenth Circuits.”  P. 11, 23-27.

In a recent letter to the House Transportation and Infrastructure leadership, all four sitting Federal Trade Commissioners joined in “grave concern” over that Committee’s plan to kick the agency out of the iconic, art deco building that FDR built for it nearly 75 years ago.  The House Committee and its chairman intend to turn the building into a wing of the National Gallery of Art.

When I first heard about this mess (in February of 2011, when the Commissioners wrote a similar letter), I had thought the story was really about competition policy and the politics of regulation.  Its apparent theme was poignant, bitter symbolism:  a hostile and radically conservative House majority, intent on protecting the plutocracy from any government interference at all, had resolved to send a message.  They would literally turn the Commission into a museum.

But as it drags on, it has come to seem quite different.  The story is not actually that Congress has unwholesome motives or even any motives at all.  The story is that Congress is completely broken.

A widely discussed opinion survey last year showed our Congress to be less popular among Americans than pornography, polygamy, British Petroleum during the Gulf oil spill, Richard Nixon at the peak of Watergate, and Communism.  Communism. King George III of England is reputed to have been twice as popular among Americans, during the American War of Independence, as their Congress is today.

Popular disgust surely reflects Congress’s massive failure to act.  The year 2011 was officially Congress’s least productive year in history (at least since productivity records were first kept in 1947), and it occurred during a period of multiple crises of international significance. But it also must reflect the foolish and trivial nature of many of the things our legislators do occasionally seem to accomplish.  Devoting their agendas to pet peeves, hobby horses, and small stunts apparently meant as campaign fodder now consumes a lot of their time, even as historic crises persist, and millions of average people suffer.

Of course, the FTC building effort could be spun as an austerity measure, meant to exploit beneficial “privatization” insofar as the Commission would rent privately owned quarters, and its proponents frequently so spin it. The handful of Republicans behind it argue that it would save at least $300 million, and they sometimes claim it would save as much as $540 million.  They lend their cost-reduction claims conservative authenticity by throwing in anti-government aspersions, as by saying that the Commissioners really oppose the plan only because “[i]t ruins [their] view of the Capitol.”

But the claim is so unlikely that one doubts it could be the real motive.  The non-partisan, competent, and well regarded Congressional Budget Office says that it will actually come at a net cost of $270 million, because the Commission must rent or build new quarters within the District and will incur costs in moving and outfitting a new building to meet its technological needs.  (Admittedly, some Republicans question CBO’s impartiality. But even if there were anything to their criticism, you can pretty safely bet on the following:  if CBO says something will cost hundreds of millions of dollars, and then a Congressman—and as we shall see, it turns out to be one lone Congressman on a decade long vendetta—says that it will save as much as a half billion, then it is actually going to cost something.)

The effort also appears to lack any clear constituency.  While the National Gallery of Art now supports the plan, it was not their idea and they were initially non-committal.

And indeed, no common sense motive seems to be at work.  This whole fiasco seems actually to be one House committee chairman’s obsessive and apparently quite personal campaign, and one that has gone on for upwards of 10 years.  Republican John Mica represents a low-population district on the northeastern coast of Florida.  He grew up in Miami, did community college and finished at the University of Florida, and then spent a few years in real estate before beginning well over three decades in politics.

He first introduced a bill to evict the Commission in 2005, and has reintroduced it many times (see, e.g., here, here and § 24(c) of a rather ominous bill incorporating it into a plan resembling one favored by the White House). He also appears to have pushed it with plenty of behind-the-scenes advocacy (see, e.g., this story and pp. 21-22 of this 2010 report).

Now, does “obsessive” seem like too strong a word?  Well, during a subcommittee meeting in March 2011, Chairman Mica said “I have no other priority for the balance of my tenure in Congress.”

Times were pretty bad just then.  Unemployment remained at nearly 9%. An alarming downward revision of economic growth estimates, along with persistent fears of European debt and increasing oil prices, put the still fragile recovery in jeopardy.

The news was full of stories of state and local budget crises so severe that the police could no longer enforce some laws. And yet Chairman Mica had no other priority than expanding an art museum.  As he seems rather fond of telling people, he is “a persistent [expletive].”

So it appears that a Republican from conservative small-town Florida wants to spend at least a hundred million or so on this project.  He wants to do it at a time when both parties are so intent on fiscal austerity that it seems not to matter that more American children live in poverty than at any time since records have been kept.

Why?

Well, it seems to be nothing more than that this one guy just really likes art.  A Mica staffer who has handled the effort for some years gave only this as an explanation:  “[Mica is] very much a fan of art in the [National Gallery] and just the arts in general.”

Mica himself feels free to tell reporters that he’s in it because art is his “weakness.”

“Some people drink, chase women, golf,” he told that reporter. “I like art, architecture, a few antiques . . . . Everybody has their own thing. And this is mine.”

He likes it, in other words, this one guy.

Meanwhile, what of the American consumer? What about that mass of average citizens who by wide, bi-partisan consensus benefit from consumer protection and antitrust enforcement?  People who, also by wide consensus, are in dire straits in part because of conduct that the Commission and other federal regulators could address?

Let them eat cake.

The people by whom we are governed have apparently all gone crazy.

And indeed, it was a rather arresting moment at this year’s Antitrust Section Spring Meeting when former Commissioner William Kovacic described Mica’s quest as “the astonishing selfishness of one Member of Congress.”

Federal legislative proposals that would have repealed the antitrust exemption enjoyed by freight railroads and would have permitted the U.S. Department of Justice to sue Organization of Petroleum Exporting Countries (OPEC) members for price fixing will not pass the Senate as part of the Surface Transportation Bill.

Senator Herb Kohl (D-Wisconsin) last month introduced two antitrust amendments to the long-stalled “Moving Ahead for Progress in the 21st Century America Fast Forward Financing Innovation Act of 2011” or “MAP-21” (S. 1813)—the two-year surface transportation bill. However, a compromise to move the legislation forward excludes the proposals.

Today, Senator Harry Reid (D-Nevada) announced that an agreement had been reached between Democrats and Republicans to advance MAP-21. Under the agreement, 30 amendments would come up for a vote. However, the antitrust amendments were not among them.

Railroad Antitrust Exemption

On February 14, Senator Kohl introduced Amendment 1591 to the transportation bill, which was identical to the proposed “Railroad Antitrust Enforcement Act of 2011” (S. 49). S. 49 was introduced on January 25, 2011, and was approved by the Judiciary Committee on March 28, 2011.

The measure would bring railroad mergers and acquisitions under the purview of the Clayton Act, allowing the federal government, state attorneys general, and private parties to file suit to enjoin anticompetitive mergers and acquisitions. Railroad mergers and acquisitions are currently reviewed by the Surface Transportation Board (STB). Moreover, the proposal would eliminate the exemption that prevents FTC scrutiny of railroad common carriers and the antitrust exemption for railroad collective ratemaking.

NOPEC

As gas prices spiked, Senator Kohl on February 28 introduced a second amendment to the transportation bill: the proposed “No Oil Producing & Exporting Cartels (NOPEC) Act.” The amendment tracked the language of S. 394, which was introduced on February 17, 2011, and passed the Senate Judiciary Committee on April 7, 2011. The proposal would permit the Justice Department to bring actions against foreign states—such as OPEC members—for collusive practices in setting the price or limiting the production of oil. The NOPEC amendment had bi-partisan support, according to Kohl.  

Both measures have been championed by Senator Kohl over the last few sessions of congress, but have failed to gain broad support. In fact, various versions of the NOPEC bill have been considered by Senate lawmakers for more than a decade.

With the exclusion of the antitrust amendments from the transportation bill, final passage of these proposals in the current congress is looking less and less likely. And with Kohl leaving the Senate at the end of his current term in January 2013, it is possible that the measures might need a new champion in the upper house of congress to become law.