Antitrust Division 2014 Civil Enforcement Update
The Antitrust Division’s civil enforcement program continues to protect and promote competition to the benefit of American consumers. During the past year, the Division’s law enforcement efforts preserved competition in a variety of industries, including airlines, e-books, and health care.
The Division has a busy docket. In fiscal year 2013, 1,326 premerger notifications were filed under the Hart-Scott-Rodino (HSR) Act. In the last twelve months, the Division challenged, restructured, or saw abandonment of 13 proposed transactions while successfully litigating a challenge to a consummated merger in the high-tech sector. Consumers benefited from the Division’s Section 7 enforcement efforts in many markets, including commercial air travel, steel manufacturing, oil and gas production, movie theaters, and broadcast television spot advertising. These efforts highlight the Division’s continuing commitment to challenge in court problematic transactions, whether fundamentally flawed or in circumstances where parties do not provide a remedy sufficient to ameliorate a proposed transaction’s competitive harm. Continuing litigation involving the tour bus and credit card industries, as well as the Division’s ongoing challenge to “no-poach” agreements between employers in high-tech markets, further show the Division’s vigilance against contractual provisions or transactions that unlawfully disrupt the competitive process.
US Airways/American Airlines
On August 13, 2013, the Antitrust Division, seven state attorneys general (Arizona, Florida, Michigan, Pennsylvania, Tennessee, Texas, and Virginia), and the District of Columbia filed a civil antitrust suit to block the $11 billion merger between US Airways Group Inc. (US Air) and AMR Corp., the parent company of American Airlines. The lawsuit alleged that the bulk of domestic routes were already highly concentrated, and that the proposed transaction not only would result in the world’s largest airline, but also would allow four airlines to control more than 80 percent of domestic commercial air travel. The chart below, a US Airways document referenced in the Division’s complaint, refers to industry consolidation as the “New Holy Grail,” and demonstrates how the number of major airlines has dropped from nine to five since 2005.
The planned merger between US Air and American would have eliminated direct competition between the two companies. These airlines were head-to-head competitors for nonstop service on routes worth approximately $2 billion in annual route-wide revenues and competed directly on more than a thousand routes where one or both offered connecting service, worth tens of billions of dollars in annual revenue. Had the proposed transaction proceeded unchallenged, the merged airline would have had the incentive and ability to raise airfares, impose new and higher fees, and reduce services.
On November 12, 2013, the Division and the states reached a proposed settlement with US Air and AMR Corp. The agreement requires the companies to divest slots and gates to low-cost carriers at key constrained airports nationwide, including Washington Reagan National, New York LaGuardia, Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International, and Miami International, in order to enhance system-wide competition in the airline industry. These divestitures include 138 slots at Reagan National and LaGuardia. Divestitures already are underway to Southwest Airlines, JetBlue Airways, and Virgin America at Reagan National and to Southwest and Virgin at LaGuardia. This settlement will increase the presence of low cost carriers at key airports, enhancing meaningful competition in the industry and benefiting air travelers.
November 12, 2013
Justice Department Requires US Airways and American Airlines to Divest Facilities at Seven Key Airports to Enhance System-Wide Competition and Settle Merger Challenge
August 13, 2013
Justice Department Files Antitrust Lawsuit Challenging Proposed Merger Between US Airways and American Airlines
Anheuser-Busch InBev/Grupo Modelo
On January 31, 2013, the Division filed a civil suit to block the proposed $20.1 billion acquisition by Anheuser-Busch InBev (ABI) of total ownership and control of its rival Grupo Modelo (Modelo). The Division’s complaint alleged that the transaction would substantially lessen competition in the market for beer in the U.S. as a whole and in 26 metropolitan areas across the U.S., resulting in consumers paying more for beer and having fewer new products from which to choose.
On April 19, 2013, the Division entered into a proposed settlement with ABI and Modelo that required the companies to divest Modelo’s entire U.S. business—including licenses to Modelo brand beers, Modelo’s most advanced brewery, Piedras Negras, its interest in Crown Imports LLC, and other assets—to Constellation Brands Inc., in order to proceed with their merger.
The licensed Modelo brands include all seven brands that Modelo currently offers in the U.S. as well as three brands not yet offered in the U.S. but which Modelo currently sells in Mexico. As part of the proposed settlement, Constellation committed to expand the capacity of the Piedras Negras brewery in order to meet current and future demand for the Modelo brands in the U.S.
The court approved the settlement on October 24, 2013, ensuring that Constellation will fully replace Modelo as an independent competitor in the U.S.
April 19, 2013
Justice Department Reaches Settlement with Anheuser-Busch InBev and Grupo Modelo in Beer Case
January 31, 2013
Justice Department Files Antitrust Lawsuit Challenging Anheuser-Busch InBev’s Proposed Acquisition of Grupo Modelo
Ecolab Inc./Permian Mud Service Inc.
On April 8, 2013, the Division obtained a settlement with Ecolab Inc. and Permian Mud requiring the companies to divest assets used by Permian’s subsidiary, Champion Technologies, Inc., in order to proceed with their proposed merger. Ecolab’s subsidiary, Nalco Company, and Champion were respectively the largest and second-largest providers of production chemical management services for deepwater wells in the U.S. Gulf of Mexico. Before the merger, they competed against each other vigorously to the benefit of their customers. The transaction, as initially proposed, threatened to eliminate significant competition between Nalco and Champion, leading to higher prices, reduced service quality, and diminished innovation. The Division required the companies, in a settlement the court has since approved, to divest to Clariant Corp. and its affiliate, Clariant International, certain assets used by Champion to provide deepwater production chemical management services in the deepwater Gulf, as well as exclusive licenses to all other production chemicals used by Champion in the Gulf, and the option to buy certain additional assets and related equipment. The settlement also provided Clariant with an expansive right to hire the merged firm’s relevant personnel, who possess key know-how and critical expertise in this field. This remedy will preserve competition in these important services, which support efficient oil and gas production in deepwater environments.
April 8, 2013
Justice Department Requires Divestiture in Merger of Ecolab Inc. and Permian Mud Service Inc. - Divestiture of Assets Supporting Oil and Gas Production from Deepwater Wells Will Provide Competitive Alternative for Producers in the Gulf of Mexico
On December 16, 2013, the Division filed suit to block Gannett’s proposed acquisition of Belo, valued at approximately $2 billion, and Sander Media LLC’s related acquisition of six Belo television stations that Gannett cannot hold under Federal Communications Commission (FCC) rules. At the same time, the Division filed a proposed settlement, which, if approved, would resolve the competitive concerns the suit raised by requiring Belo and Sander to divest their interests in a CBS affiliate station in St. Louis. The complaint alleged that the proposed transaction would have given Gannett a dominant position in broadcast television spot advertising in the St. Louis designated market area, resulting in higher prices to advertisers. To remedy the harm likely posed by the deal, the proposed settlement requires Gannett, Belo, and Sander to divest all assets used primarily in the operation of the CBS affiliate to an independent buyer to be approved by the Division.
December 16, 2013
Justice Department Requires Divestiture from Gannett Co. Inc. in Order to Proceed with Its Acquisition of Belo Corp.
Cinemark Holdings Inc./Rave Holdings LLC
On May 20, 2013, the Division and the state of Texas filed a civil suit to block the proposed acquisition by Cinemark of Rave Cinemas. The Division simultaneously filed a proposed settlement, which has been approved by the court, requiring Cinemark to divest movie theaters in Kentucky, New Jersey, and Texas before proceeding with the $220 million acquisition. Additionally, the Division and the state of Texas required Cinemark’s chairman to divest Movie Tavern Inc., which operates theaters that compete with Rave Cinemas in Forth Worth and Denton, Texas. The proposed transaction was likely to lead to higher movie ticket prices, and the settlement was structured to preserve competition in affected localities, benefiting consumers.
May 20, 2013
Justice Department Reaches Settlement with Cinemark Holdings, Inc. and Rave Holdings LLC Movie Theaters
On-Going Scrutiny of Nonreportable Transactions
Several cases this past year demonstrate the Division’s commitment to challenging anticompetitive consummated mergers not subject to reporting under the HSR Act.
In January 2014, the Division won a trial victory in its challenge to Bazaarvoice’s June 2012 $168.2 million acquisition of PowerReviews. Over the course of the three-week trial, the Division demonstrated that the acquisition eliminated Bazaarvoice’s only significant rival, depriving customers of the benefits of competition. The evidence showed that PowerReviews was a significant threat to Bazaarvoice, that other rivals were poorly positioned to fill the competitive void created by the merger, and that Bazaarvoice’s executives intended to eliminate competition through the acquisition. The remedies determination is currently ongoing. The Division’s proposal would require Bazaarvoice to sell all of PowerReviews’ assets and take other steps necessary to restore the competitive landscape to its premerger state.
For more detail on the Bazaarvoice trial team, see the Civil and Criminal Trial Successes page.
Heraeus Electro-Nite Co., LLC
On January 2, 2014, the Division filed suit challenging the consummated acquisition of Midwest Instrument Company Inc.’s (“Minco”) assets by Heraeus Electro-Nite LLC (Heraeus). At the same time, the Division filed a proposed settlement that, if approved by the court, will resolve the competitive concerns caused by the consummated transaction. Before the deal, Heraeus and Minco were direct competitors on price, service, and innovation for the supply of sensors and instruments used by steel manufacturers. The proposed settlement requires Heraeus to divest certain assets to Keystone, a purchaser approved by the Department, facilitating the entry of a new competitor and promoting robust competition in the sensors and instruments market, which the merger reduced. It also requires Heraeus to waive noncompete provisions it had imposed on certain former employees, enabling Keystone to immediately hire experienced talent with the necessary skills in this specialized industry.
January 2, 2014
Justice Department Requires Heraeus Electro-Nite LLC to Divest Assets Acquired from Midwest Instrument Company Inc. to Keystone Sensors LLC
Litigation is ongoing in the Division’s and New York State Attorney General’s case against Twin America, a tour bus joint venture formed by Coach USA, Inc. and CitySights LLC, companies that had competed head-to-head in providing “hop-on, hop-off” bus tour services in New York City. The Division alleged that the formation of the Twin America joint venture gave Coach and CitySights a monopoly over this more than $100 million market and enabled them to increase prices by approximately 10 percent. The complaint seeks dissolution of the joint venture and the imposition of other relief to restore competition and eliminate the anticompetitive effects of the parties’ conduct. Trial currently is scheduled to begin on July 23, 2014. On February 12, 2014, the court ordered a one-month extension of the trial schedule, to allow for settlement negotiations.
December 11, 2012
Justice Department and New York Attorney General File Antitrust Lawsuit Against New York City Tour Bus Joint Venture of Coach USA and City Sights
Antitrust Division Prevails in E-Books Trial and Challenges Other Anticompetitive Conduct
In the past year, the Division continued to challenge anticompetitive conduct that harms competition involving products U.S. consumers use in their everyday lives. The Division won a trial victory in its case against Apple Inc. for its role in a conspiracy to fix e-books prices. And it continues to litigate cases involving credit card merchant rules and agreements between high-tech competitors not to recruit each other’s employees. The Division also filed three new civil nonmerger cases: one challenging anticompetitive conduct in the setting of fees for chiropractic services and two involving violations of the Hart-Scott-Rodino Act filing requirements. All three cases resulted in consent decrees.
On July 10, 2013, after a three-week trial, Judge Denise Cote of the Southern District of New York ruled that Apple had violated section 1 of the Sherman Act by conspiring to raise the prices of e-books and curtail e-book sellers’ ability to compete on price. The court concluded that Apple had engaged in and furthered a horizontal price-fixing conspiracy among e-book publishers. The below graph indicates the increase in e-books prices as a result of the conspiracy.
The court also expressed concern with the credibility of several Apple witnesses who testified under oath. Ultimately, the court determined that Apple’s illegal conduct deprived consumers of the benefits of competition on e-books and forced them to pay higher prices. The Division filed its suit against Apple and five publishers on April 11, 2012, and had previously reached settlements with the publishers.
For more information about the trial, see the Civil and Criminal Trial Successes page.
On September 5, 2013, the court entered its final judgment in this case. The court’s order requires that Apple modify its existing agreements with the publisher defendants to allow retail price competition on e-books and eliminate the most-favored-nation clauses that led to higher e-book prices. The order also prohibits Apple from serving as an information conduit among e-book publishers and from retaliating against publishers for refusing to sell e-books on agency terms. Further, the order bars Apple from entering into agreements with e-book publishers that are likely to increase, fix, or set the price at which other e-book retailers may sell content. Finally, the court ordered the appointment of an external compliance monitor to ensure that Apple’s antitrust compliance polices will be sufficient to deter any future anticompetitive conduct. The monitor will work with an internal antitrust compliance officer who will be hired by and report exclusively to the outside directors on Apple’s audit committee. The antitrust compliance officer will be responsible for training Apple’s senior executives about the antitrust laws and ensuring that Apple abides by the final judgment.
August 2, 2013
Department of Justice Proposes Remedy to Address Apple’s Price Fixing - Remedy Would Require Apple to Terminate Agreements with Five Publishers; Provide for a Court-Appointed External Monitor; Allow Competitors to Provide Links from Their E-Book Apps to Their E-Bookstores
July 10, 2013
Justice Department Issues Statement on U.S. District Court Ruling That Apple Violated Antitrust Laws
Litigation continues in the Division’s case against American Express. The Division filed suit on October 4, 2010, challenging rules American Express, MasterCard, and Visa instituted that prevented merchants from offering consumers discounts or rewards for using competing card brands and from providing information about the costs associated with the use of their credit cards. These policies caused consumers to pay more for their purchases and raised merchant costs. The Division reached a settlement with MasterCard and Visa, which the court approved in July 2011, in which both companies agreed to eliminate the anticompetitive provisions. Litigation against American Express continues. Discovery is ongoing, and trial is scheduled to begin on June 16, 2014.
October 4, 2010
Justice Department Sues American Express, MasterCard and Visa to Eliminate Rules Restricting Price Competition; Reaches Settlement with Visa and MasterCard
The Division’s challenge to eBay’s agreement not to recruit or hire employees from Intuit Inc. is ongoing. Division staff has worked closely in this matter with the California Attorney General’s office, which filed a similar lawsuit. The Division seeks to prevent eBay from upholding its agreement with Intuit or entering into similarly anticompetitive agreements with other companies. These types of agreements eliminate competition to hire affected employees, depriving them of access to improved job and salary opportunities. This is the Division’s most recent challenge to a “no-poach” agreement; earlier cases involving Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc., Lucasfilm Ltd., and Pixar resulted in consent decrees. The court entered a stay in this litigation on January 22, 2014, to accommodate settlement discussions.
November 16, 2012
Justice Department Files Lawsuit Against eBay Inc. Over Agreement Not to Hire Intuit Inc. Employees
Chiropractic Associates, Ltd. of South Dakota
On April 8, 2013, the Division filed a civil antitrust lawsuit against Chiropractic Associates Ltd. of South Dakota (CASD), alleging that CASD negotiated contracts with insurers that caused consumers to pay higher fees for chiropractic services. CASD includes approximately 80 percent of all practicing chiropractors in South Dakota and its anticompetitive conduct dated to 1997. Along with this suit, the Division filed a proposed settlement, which the court approved on September 4, 2013, prohibiting CASD from jointly determining prices and negotiating contracts with insurers on behalf of competing chiropractors in South Dakota, North Dakota, Minnesota, and Iowa, and requiring CASD to terminate its current payer contracts.
April 8, 2013
Justice Department Challenges Joint Contracting on Behalf of South Dakota Chiropractor