Issuance of New Merger Guidelines Highlighted FTC's Accomplishments in 2010

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC’s efforts to substantially revise the Horizontal Merger Guidelines for the first time since 1992 were among the agency’s major accomplishments of 2010.

Working with the Department of Justice Antitrust Division, the FTC issued new joint guidelines in August (CCH Trade Regulation Reporter ¶13,100). The issuance of the guidelines marked the culmination of a process that began in September 2009.

Merger Enforcement Actions

Last year also saw a number of notable merger enforcement actions brought by the Commission. The agency resolved more than a dozen merger challenges in 2010 through consent decrees. Among these was an administrative challenge to Dun & Bradstreet’s consummated acquisition of Quality Educational Data, its nearest rival in the education marketing business.

The FTC's focus on consummated mergers was evidenced by another administrative complaint issued in November. The agency challenged Laboratory Corporation of America’s already-completed acquisition of rival clinical laboratory testing company Westcliff Medical Laboratories, Inc. An administrative trial is set for May 2011.

Before the year ended, the Commission ordered complete divestiture in another administrative action involving a consummated merger. In December, the Commission announced that Polypore International, Inc. must divest assets of a rival manufacturer of battery components acquired in 2008.

The FTC's decision not to take action against Google with respect to the search engine's acquisition of the mobile advertising company AdMob was also a notable development. The Commission unanimously closed its investigation in May after determining that Apple was in a position to nullify any anticompetitive effects of the merger.

The agency also suffered a tough loss in a federal district court challenge to an acquisition in the pharmaceuticals industry in 2010. The federal district court in Minneapolis rejected an action brought by the agency along with the State of Minnesota against global pharmaceutical company Lundbeck, Inc., challenging its predecessor’s acquisition of drugs used to treat premature infants with a heart condition known as patent ductus arteriosus (PDA) (2010-2 Trade Cases ¶77,160). In October 2010, the FTC and State of Minnesota appealed the decision to the U.S. Court of Appeals in St. Louis.

Non-Merger Enforcement Efforts

Also in the pharmaceutical sector, the FTC continued its efforts to target “pay-for-delay” drug patent settlements in 2010. FTC Chair Jon Leibowitz has said that ending these settlements, under which a branded drug company compensates a generic competitor for not bringing its lower-cost drug to market for a certain period of time, is one of the agency's highest priorities.

Legislative efforts to address the conduct failed in 2010. However, the agency will likely weigh in again as private litigants seek U.S. Supreme Court review of a decision of the U.S. Court of Appeals in New York City (2010-1 Trade Cases ¶76,989) rejecting an antitrust challenge to a settlement in a patent infringement lawsuit involving the antibiotic ciprofloxacin hydrochloride (Cipro).

A number of other important non-merger enforcement efforts were highlights of 2010. The agency's August settlement with computer chip giant Intel Corporation after eight months of litigation over the company's alleged monopolistic conduct was one of the them. Last year, Transitions Optical, Inc., the maker of photochromic treatments that darken corrective lenses used in eyeglasses, also agreed to settle FTC charges that it used anticompetitive practices to maintain a monopoly.

Consumer Protection

On the consumer protection front, the FTC in 2010 continued to focus on deceptive practices aimed at financially-distressed consumers. It also proposed revised “green” marketing guides. As the year came to a close, the staff of the agency threw their support behind the implementation of a “do-not-track” mechanism for Internet users that would provide them with a method to opt-out from having their online activity tracked by data-gathering firms.

New York State Charges Intel with Monopolization

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Intel Corporation unlawfully maintained its monopoly in the market for x86 central processing unit (CPUs) in violation of New York’s Donnelly Act and Sec. 2 of the Sherman Act, the State of New York alleges in an 83-page complaint filed today in a federal district court in Delaware.

The state is seeking injunctive relief and damages on behalf of its governmental agencies as well as New York consumers who purchased products containing x86 CPUs.

According to the complaint, Intel “engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors, the ‘brains’ of Personal Computers (PCs).” Intel allegedly bribed and bullied computer makers in an effort to deprive Advanced Micro Devices, Inc. of distribution channels for its competing microprocessors.

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” said New York Attorney General Andrew M. Cuomo, in a statement announcing the complaint.

“Intel’s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices," Cuomo charged."These illegal tactics must stop and competition must be restored to this vital marketplace.”

European Commission Fine

New York’s complaint follows a May 2009 European Commission (EC) decision fining the computer chip maker €1.06 billion (approximately $1.44 billion U.S.) for violating EC antitrust rules prohibiting the abuse of a dominant position. The EC found that Intel engaged in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 CPUs.

In addition to imposing the fine, the EC ordered Intel to cease the challenged practices. In September, the EC made public a redacted version of its May decision. Intel has announced that it was appealing the EC decision to the Court of First Instance of the European Community.

Federal Trade Commission Investigation

The Federal Trade Commission has also been conducting an investigation of Intel’s allegedly anticompetitive practices. Intel announced in June 2008 that the FTC had issued a subpoena related to its “business practices with respect to competition in the microprocessor market.”

At that time, the company explained that it had been working closely with the FTC since 2006 on an informal inquiry into competition in the microprocessor market and that it had provided the Commission staff with a considerable amount of information and thousands of documents.

European Commission Fines Intel for Abuse of Dominant Position

This posting was written by John W. Arden.

Computer chip giant Intel was fined €1.06 billion ($1.45 billion) on May 13 for violating European Commission Treaty antitrust rules on the abuse of a dominant position (Article 82) by engaging in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 central processing units (CPUs).
In addition to imposing the fine, the European Commission ordered Intel to cease the illegal practices that were still ongoing.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said Competition Commissioner Neelie Kroes. “Such serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”

The Commission found that Intel—while maintaining a dominant position in the x86 CPU market—engaged in two forms of illegal practices.

Exclusionary Rebates, Payments

First, Intel gave wholly or partially hidden rebates to computer manufacturers on the condition that they bought all, or nearly all, of their x86 CPUs from Intel. The chip manufacturer also made direct payments to major retailer Media Saturn Holding on the condition that it stock only computers with Intel x86 CPUs.

“Such rebates and payments effectively prevented customers—and ultimately consumers—from choosing alternative products,” the Commission stated.

Halt or Delay Products with Other Chips

Second, Intel made direct payments to computer manufacturers to halt or delay the launch of products containing competitors’ x86 CPUs and to limit the sales channels for these products, according to the Commission.

“By undermining its competitors’ ability to compete on the merits of its products, Intel’s actions undermined competition and innovation,” the Commission said.

“Abusive” Rebates

While some rebates can lead to lower prices for consumers, those offered by a company in a dominant position that are conditioned on a manufacturer buying less of a rival’s products or none at all are abusive according to settled case law of European Community courts, unless they are justified by some specific reasons.

In this case, the Commission did not object to rebates, but to the conditions Intel attached to the rebates, it was explained.

Promotion of Innovation

In a question and answer document released on Wednesday, the Commission said that this decision will promote innovation in the market because Intel’s practices stifled innovative products from reaching customers.

“Such practices deter innovative companies which might otherwise wish to enter and compete in the market. By ordering Intel to end its abusive practices, competition on the x86 CPU market will play out on the merits with the effect that innovation to the benefit of the consumer can flourish.”

The document refers to the “legal underpinning” of the Commission’s case, based on a consistent pattern of jurisprudence, including Case 85/87 Hoffmann-La Roche v. Commission; Case T-203/01 Michelin v. Commission; Case C-95/04 British Airways v. Commission; Joined Cases T-24/93 and others, Compagnie Maritime Belge v. Commission; and Case T-228/7 Irish Sugar.

The European Commission and the Federal Trade Commission kept each other regularly informed on their respective investigation of Intel.

Text of the press release and the questions and answers appear on the European Union website.

Intel’s Reaction

In a May 13 statement, Intel President and CEO Paul Otellini took “strong exception” to the Commission decision.

“We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace—characterized by constant innovation, improved product performance and lower prices,” Otellini said. “There has been absolutely zero harm to consumers. Intel will appeal.”