Continued Vigorous Civil Enforcement Program
The Division’s civil enforcement program continues to vigorously protect competition for the benefit of consumers, as evidenced by the six civil cases the Division currently is litigating, and its focus on safeguarding competition in industries that directly affect day-to-day lives, including health care, telecommunications and technology, transportation, office supplies, and other consumer products.
Recent Division cases include merger challenges in the beer, consumer ratings and reviews platform, and New York City hop-on, hop-off bus tour industries. These matters show the Division’s commitment to pursuing litigation when parties do not provide a remedy sufficient to eliminate a transaction’s competitive harm. Ongoing litigation in the e-books and consumer credit card industries attests to the Division’s vigilance against contractual provisions that unlawfully distort the competitive process. In addition, the Division is also challenging an agreement between employers not to recruit or hire one another’s employees.
Brisk Pace of Merger Enforcement Continues
During the past fiscal year, 1,429 premerger notifications were filed under the Hart-Scott-Rodino (HSR) Act. And, since the Division’s last newsletter was published in March 2012, fourteen Division merger matters have resulted in litigation, consent decrees, or the parties restructuring or abandoning their transactions. The Division filed seven merger cases in this period; four were settled by consent decree and three are pending in litigation. In seven other matters the parties restructured or abandoned their transactions in response to Division concerns.
Anheuser-Busch InBev/Grupo Modelo
On January 31, 2013, the Division filed a lawsuit to block Anheuser-Busch InBev’s (ABI) proposed acquisition of total ownership and control of Grupo Modelo. The transaction would join the largest and third-largest firms in the $80 billion U.S. beer market and add the Corona and Modelo brands to ABI’s already robust portfolio.
The companies together have a market share of about 46%. With the U.S. beer market already highly concentrated, prices have been increased regularly through strategic interaction among a handful of the largest brewers. ABI acts as a price leader, implementing annual price increases across multiple segments of the industry. However, Grupo Modelo followed a strategy of winning market share from ABI by narrowing the price gap between its products and ABI’s. ABI, in turn, considered Corona to be a significant threat and targeted it by launching Bud Light Lime in 2008. Instead of competing on the merits with its own product, ABI aims to thwart competition by buying its rival. The lawsuit, which is currently pending, seeks to preserve Grupo Modelo as an important, independent competitive force.
January 31, 2013
On November 28, 2012, the Division announced that its concerns with WellPoint’s proposed acquisition of Amerigroup were resolved by the sale of Amerigroup Virginia to Inova Health System Foundation. Without the divestiture, WellPoint’s acquisition of Amerigroup would have resulted in a merger to monopoly in Medicaid managed care in multiple northern Virginia counties. The divestiture ensured that Medicaid beneficiaries in Northern Virginia will continue to have a choice of at least two Medicaid managed care entities, which will compete on the breadth and quality of their provider networks of physicians, hospitals, and pharmacies as well as in other dimensions.
November 28, 2012
On September 4, 2012, after the Division informed the parties it was prepared to file an antitrust lawsuit to block their proposed transaction, 3M abandoned its plan to acquire Avery Dennison’s Office and Consumer Product Group. The two companies had become one another’s closest competitors in the sale of adhesive-backed labels and sticky notes, after having long dominated adjacent spaces in the office products business. For many years, Avery was a leader in labels, and 3M in sticky notes sold under its Post-it brand. When 3M entered the labels market and began challenging Avery’s position, Avery responded by lowering wholesale prices, increasing promotions and consumer rebates, and accelerating innovation in labels. Avery also launched its own brand of sticky notes. Consumers benefitted from the competition between the companies through millions of dollars of savings and product innovations. 3M stood to gain a more than 80 percent share of both the U.S. labels and sticky notes markets as a result of the merger. After the Division notified the parties that it was prepared to file a complaint to prevent the sale, 3M and Avery abandoned their transaction rather than proceed to litigation. In January 2013, Avery agreed to sell its Office and Consumer Product Group to CCL Industries, a Canadian special packaging manufacturer.
September 4, 2012
Verizon-Cable Company Transactions
On August 16, 2012, the Division obtained a settlement that required Verizon and four of the nation’s largest cable companies—Comcast, Time Warner, Bright House Networks, and Cox Communications—to make changes to a set of agreements that, if unaltered, would have diminished the companies’ incentives to compete, resulting in higher prices and lower quality for consumers. Verizon and the cable companies compete directly in the many local markets throughout the United States where Verizon offers video, voice, and broadband service. In December 2011, the cable companies agreed to transfer unused spectrum to Verizon and to enter into joint development and marketing arrangements. Verizon, in turn, would have been required to sell the cable companies’ services on an equivalent basis with its FiOS service, where FiOS is available, reducing Verizon’s incentives to compete aggressively. While the spectrum sale proceeded unchallenged, the Division’s settlement prohibits Verizon Wireless from selling cable company products in FiOS areas. It also imposes restrictions on other collaborations, preserving Verizon’s incentives to reconsider its decision to stop building out its FiOS network and otherwise innovate in its digital subscriber line (DSL) territory and ensuring that each company will have access to technology developed jointly. The settlement is currently being reviewed by the District Court in accordance with the Tunney Act process.
August 16, 2012
On July 26, 2012, the Division obtained a settlement with United Technologies Corporation (UTC), requiring it to divest certain assets in order to proceed with its $18.4 billion acquisition of Goodrich Corporation, the largest merger in the history of the aircraft industry. In the absence of divestitures, the transaction likely would have resulted in higher prices, less favorable contract terms, and less innovation for a number of components of large aircraft. In particular, as originally proposed the merger would have reduced the number of suppliers of turbine engines and combined the only two significant suppliers worldwide of large main engine generators, critical systems that produce the electrical power used by an array of other aircraft systems. In addition, UTC, which is currently one of three leading suppliers of engine control systems for large aircraft turbine engines, stood to acquire Goodrich’s 50 percent share in a joint venture that forms one of the other two producers of such engine control systems and which supplies critical components to several of UTC’s leading competitors. The required divestitures ensure the preservation of the vigorous competition that currently exists among manufacturers of aircraft turbine engines, large main engine generators, and engine control systems for large aircraft turbine engines. The Division cooperated closely with a number of international authorities throughout the course of their respective investigations, particularly with the Canadian Competition Bureau and the European Commission. Each of these agencies ultimately concluded that the divestitures successfully addressed the transaction’s potential harm. This settlement is currently under Tunney Act review.
July 26, 2012
Continued Scrutiny of Nonreportable Transactions
The Division continues to vigorously challenge, where appropriate, transactions not subject to reporting under the HSR Act. The Division brought two enforcement actions against consummated mergers this year, up from one lawsuit last year.
On January 10, 2013, the Division filed a lawsuit against Bazaarvoice challenging the company’s June 2012 acquisition of PowerReviews, which the Division alleges substantially lessens competition in the market for product ratings and reviews platforms in the United States, resulting in higher prices and diminished innovation. Bazaarvoice is the dominant commercial supplier of ratings and reviews platforms in the United States, and, prior to the acquisition, PowerReviews was its most significant rival. Retailers and manufacturers use product ratings and reviews platforms to collect, organize, and display consumer-generated feedback online. Trial is set to begin on September 10, 2013.
January 10, 2013
On December 11, 2012, the Division and the State of New York challenged the formation of Twin America, the joint venture through which Coach and City Sights merged their New York City hop-on, hop-off bus tour businesses. The iconic red and blue double-decker tour buses combine a professionally guided tour of the city with the ability to “hop off” the bus tour at various locations and later “hop on” another bus to continue along the tour route. From 2005 until the formation of the joint venture, consumers directly benefitted from the vigorous head-to-head competition between Coach and City Sights on price and product offerings. The lawsuit seeks to restore the competition eliminated by the transaction for the benefit of the millions of tourists taking the tours each year. The litigation is currently pending.
December 11, 2012
Antitrust Division Pursued Civil Nonmerger Actions in E-Books, Health Insurance, and other Industries
In the past year, the Division challenged anticompetitive conduct by filing seven civil nonmerger actions and resolving one additional challenge outside of court. Five of the lawsuits resulted in consent decrees as to all defendants, and two are pending. In addition to the cases discussed below, the Division has ongoing litigation against American Express, challenging certain of its merchant rules, and eBay, challenging its agreement not to recruit or hire from Intuit.
On November 14, 2012, the Division announced that while it would not challenge Entergy’s acquisition from KGen Power of power plants in Mississippi and Arkansas, the investigation into Entergy’s conduct in relation to its transmission facilities remained open. However, the Division stated that its competitive concerns would be resolved if Entergy followed through on its transmission system commitments. The Division had been exploring whether Entergy harmed consumers by exercising its control over its transmission system to exclude rival operators from competing to sell long-term power. As the Division was evaluating whether the company’s practices had foreclosed more efficient rivals from transmission service, a necessary input for selling long-term power products to wholesale customers, Entergy announced that it would join a regional transmission organization and divest its transmission system to an independent transmission company. These significant structural changes will address the Antitrust Division’s concerns by eliminating Entergy’s ability to maintain barriers to wholesale power markets.
November 14, 2012
In the Division’s e-books litigation, filed on April 11, 2012, the Division took action to remedy the harm caused by a conspiracy to raise prices for e-books among Apple and five of the six largest U.S. publishers. The five publishers have agreed to settlements that restore competition, while the lawsuit continues against Apple. The Division and the European Commission cooperated closely throughout the course of their respective investigations, with frequent contact between the investigative staffs and senior officials of the two agencies. Within days of the initial settlements, Amazon announced that it would reduce prices for certain popular titles published by the settling defendants to $9.99. Trial against Apple, the lone remaining defendant, is scheduled to begin on June 3, 2013.
February 8, 2013
December 18, 2012
April 11, 2012
Justice Department Reaches Settlement with Three of the Largest Book Publishers and Continues to Litigate Against Apple Inc. and Two Other Publishers to Restore Price Competition and Reduce E-Book Prices
Blue Cross Blue Shield of Michigan
In October 2010, the Division and the state of Michigan filed a lawsuit against Blue Cross Blue Shield of Michigan, alleging that the most-favored-nation (MFN) provisions of the company’s agreements with hospitals have the effect of raising hospital prices, preventing other insurers from entering the marketplace, and discouraging discounts. As a result, Michigan consumers pay higher prices for their healthcare services and health insurance. On March 18, 2013, the Governor of Michigan signed a bill outlawing MFN provisions in contracts between insurers and hospitals in Michigan, barring the conduct that was the subject of the Division’s lawsuit. Because this new Michigan law will protect consumers from the anticompetitive MFNs at issue in this case, on March 25, 2013, the Division moved the court to dismiss its lawsuit without prejudice. The court dismissed the case without prejudice on March 28, 2013.
March 25, 2013
Justice Department Files Motion to Dismiss Antitrust Lawsuit against Blue Cross Blue Shield of Michigan after Michigan Passes Law to Prohibit Health Insurers from Using Most Favored Nation Clauses in Provider Contracts
October 18, 2010
The Division continues to monitor compliance with the terms of court-ordered agreements and to move for remedial action when a violation occurs. On November 14, 2012, Exelon agreed to pay a $400,000 fine to settle a civil contempt claim resulting from the company’s violation of the terms of a hold-separate stipulation and order entered into in connection with its acquisition of Constellation Energy. Exelon’s fine represents disgorgement of profits obtained through the violation, which consisted of a failure to bid certain of its electricity generation plants at or below cost through the completion of the divestiture process. In determining the disgorgement amount, the Division took into account that Exelon had taken appropriate remedial steps, including notifying the Division, upon determining that it had made above-cost offers.
November 15, 2012