Category Archives: DOJ

DOJ DISCONNECTS “DO NOT CALL LIST” AS ANTITRUST VIOLATIONS

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Posted by Eric Welsh on November 1, 2010 – 6:26 am
Filed under Antitrust Developments, DOJ, Trade Secrets

Recently, the Department of Justice announced that it filed a lawsuit against Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corporation, Intuit, Inc. and Pixar (the “Do Not Call Defendants”), alleging violations of Section 1 of the Sherman Act, 15 U.S.C. 1 related to their allegedly entering into agreements not to cold call each other’s employees.  U.S. v. Adobe Systems, Inc., et al., Case No. 1:10-cv-01629 (Sept. 24, 2010) [complaint].  The DOJ alleged that these “Do Not Call Lists,” constituted naked restraints under Section 1 and per se illegal.  The DOJ, that same day, disclosed that it had entered into a proposed settlement with these defendants, which remains pending for public comment.  The Defendants have denied liability. 

While the fact that the conduct alleged — entering into a flat out prohibition against calling another competitor’s employees to hire them — gave rise to concern at the DOJ may not be terribly newsworthy, the DOJ’s analysis of the situation in its Competitive Impact Statement (attached) is.

First, some background is necessary. The DOJ contended that the defendants, at various times starting in 2005, agreed not to call each other’s employees for employment.  With the exception of Intel, each of the Do Not Call Defendants was alleged to have created internal “do not call lists” related to the competitor’s employees.  These alleged agreements precluded the cold calling of the competitor’s employees, regardless of geographic location or position.  The DOJ, looking at precedent in its complaint in U.S. v. Ass’n of Family Practice Residency Doctors, No. 96-575 CV-W-2, Complaint at 6 (challenging guidelines used for residency programs for senior medical students) and the illegal agreement found U.S. v. Cooperative Theaters of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988) (finding agreement not to solicit another’s customers a per se violation of Section 1), found support for its claims brought against the “Do Not Call” Defendants.  The DOJ viewed there to be no difference in treatment under Section 1 between customer restraints and employment restraints, or output or input markets:

“Antitrust analysis of downstream, customer-related restraints is equally applicable to upstream monopoly restraints on employment opportunities.”

For the DOJ, the restraints placed on the employees of the Do Not Call Defendants was great.  Even though these alleged agreements did not prohibit hiring of the other’s employees, the agreements interfered with the employee’s movement to another company and the pricing for those services.  Competition for hiring employees in the computer industry was impacted.  As the DOJ stated in its impact statement:

“Defendants’ concerted behavior both reduced their ability to compete for employees and disrupted the normal price-setting mechanisms that apply in the labor setting. These no cold call agreements . . . are facially anticompetitive because they eliminated a significant form of competition to attract high tech employees, and, overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”

Perhaps the most interesting part of the DOJ’s action here is its analysis of what conduct is not prohibited as a per se violation when restricting employment opportunities.  The DOJ stated that certain limited exceptions exist to a per se analysis if the challenged agreement is “ancillary to a legitimate procompetitive collaboration“.  What is considered “ancillary” is a very short list:

“To be considered “ancillary” under established antitrust law, however, the restraint must be a necessary or intrinsic part of the procompetitive collaboration. Restraints that are broader than reasonably necessary to achieve the efficiencies from a business collaboration are not ancillary and are properly treated as per se unlawful.”

In other words, agreements not to hire that are narrowly drawn to protect the interests of a legitimate joint venture are not per se unlawful but would be reviewed under a rule of reason approach.  This is the only exception noted by the DOJ to its per se treatment.

In this “No Call List” matter, the DOJ contended that the agreement was not tied to a specific collaboration and was overbroad, applying to all geographies, job functions, product groups and time periods.  The DOJ concluded that these agreements were not “ancillary” to any collaboration, even though there was some indication that there were some joint venture collaborations between the parties.  Simply put, the DOJ sees the situation as black and white: if it is not “ancillary to a legitimate collaborative effort” — i.e. a joint venture — it is a per se violation of Section 1.

The implications of this DOJ action remain unclear. Would DOJ’s analysis have differed if the defendants had entered into this type of agreement to protect their trade secret information?  Would DOJ view agreements between competitors, that are part of settlement agreements but restrain the hiring of competitor’s employees to protect those secrets, as per se violations or subject to a rule of reason analysis.  Precedent would suggest that such agreements should be subject to a rule of reason analysis, Weisfied v. Sun Chemical Corp., 210 F.R.D. 136 (D. N.J. 2002), but the DOJ’s analysis is categorical and does not lend itself, at least on the face of it, to that interpretation.

For now, we will just have to put this discussion “on hold.”

REVISED MERGER GUIDELINES RELEASED

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Posted by Eric Welsh on August 30, 2010 – 2:40 pm
Filed under Antitrust Developments, DOJ, FTC

As discussed in my prior report, the FTC, in April of this year, released for comment proposed revisions to the Horizontal Merger Guidelines.  See  Proposed Revisions To The Horizontal Merger Guidelines Released.  After months of public comment and discussion, the FTC and DOJ have now released the revised Horizontal Merger Guidelines.  Horizontal Merger Guidelines.  As noted by Chairman Leibowitz in his accompanying statement, the Guidelines have been improved in large and small ways.  Among other things, “the Guidelines emphasize the competitive effects of a deal over the more rigid, formulaic approach imposed by some interpretations of the 1992 Guidelines.”   Under the Guidelines, market definitions and economic theory, while important, are only part of the story of competitive effects.

In an accompanying statement, Commissioner Rosch provided his own thoughts regarding the final version of the Guidelines, finding some agreement with Commissioner Leibowitz’s assessment.

“These Guidelines properly consider competitive effects first, and market definition second, thereby making clear that while market definition is important to assessing competitive effects and that the market must be defined at some point in the process, ultimately merger analysis must rest on competitive effects of a transaction.”

Commissioner Rosch rejected the notion of many that under the 1992 version of the Guidelines, market shares and structure were “gating items,” or necessary predicates for considering the competitive effects of the merger.  Under the revised Guidelines, according to Commissioner Rosch, the competitive effects is given more appropriate consideration.

The Merger Guidelines no doubt provide greater clarity on a number of issues.  For example, the Guidelines contain a section dealing with Powerful Buyers and lists the types of evidence to be considered when looking at the competitive effects of a merger, including the impact on innovation and the potential elimination of a “maverick” firm.  The two year guidance for entry has been eliminated and the threshold numbers for the Herfindahl-Hirschman Index have been increased, as expected.

For Commissioner Rosch, though, the changes fall short of what is required.  For example, Commissioner Rosch notes that the Guidelines say little about non-price competitive effects and do not provide a “clear framework for analyzing non-price considerations” (i.e. how do you factor in a loss of innovation?).  According to Commissioner Rosch, economic theory should be, at best, a secondary consideration with empirical inferences to be in the forefront.

“The antitrust defense bar and its clients do not need safe harbors. That bar (including the many who are members of the Antitrust Section) are among the best and brightest lawyers in the world.  What that bar and their clients deserve is what these Guidelines promise at the outset  — namely, that they will be a complete and accurate description of what our enforcement staff considers in merger investigations and that they will be a helpful guide to courts.  These Guidelines are neither.”

Essentially, Commissioner Rosch found fault with the heavy emphasis of economist and the antitrust defense bar in the revision process which “inevitably led to overemphasis on economic formulae and models based on price theory.”

Perhaps the tension identified by Commissioner Rosch emanates from the fact that heavy reliance on “empirical inference” rather than economic theory and analysis potentially leads to greater subjectivity and would be less help than more to the courts.  The courts have required more in terms of evidence in the past and the Guidelines’ apparent move away from market definition is certainly a significant departure from the prior guidelines and indeed inconsistent with judicial precedent.  What impact the Merger Guidelines will have in the courts in the future remains to be seen.

PROPOSED REVISIONS TO THE HORIZONTAL MERGER GUIDELINES RELEASED

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Posted by Eric Welsh on May 3, 2010 – 6:47 am
Filed under Antitrust Developments, DOJ, FTC, Federal Court, Unfair Competition

Recently, the FTC released for comment the proposed revisions to the 1992 Horizontal Merger Guidelines (the “Proposed Revisions“).  Coming just a day before the beginning of the ABA Antitrust Law Spring Meeting, the release of the Proposed Revisions was sure to spark a great deal of discussion at the Spring Meeting as lawyers and economists began to digest the document.  Fortunately for those who attended the Spring Meeting, they were not disappointed, as there was much discussion both in and out of the conferences about this topic.

Certainly, the Proposed Revisions offer to make important changes to the Merger Guidelines.  For example, product market definition would not necessarily be a determinative consideration.  “Market definition is not an end in itself:  it is one of the tools the Agencies use to assess whether a merger is likely to lessen competition.”  Proposed Revisions, p. 7.  The Proposed Revisions though would apply a more expansive description of the definition of the “hypothetical monopolist” test used in determining product markets.  In addition, the threshold numbers for the Herfindahl-Hirschman Index (”HHI”) would be increased (see Part 5.3) but would not be considered as necessarily providing a safe harbor.  Also, a section would be added addressing “powerful buyers” (see Part 8).  Here again, according to the revisions, the presence of so-called “power buyers” would not be determinative:  “[T]he Agencies do not presume that the presence of powerful buyers alone forestalls adverse competitive effects flowing from the merger.”  Proposed Revisions, p. 27.  Finally, the two year guidance for market entry – formerly a central touchstone in merger cases — has been eliminated (see Part 9).

Interestingly, though, the Proposed Revisions are not viewed by some as a dramatic change from the existing Merger Guidelines.  Commenting on the Proposed Revisions at the Spring Meeting, Deputy Assistant Attorney General for Civil Enforcement, Molly S. Boast, stated that the revisions were intended to bring the Merger Guidelines in line with current practice at the Agencies when reviewing mergers. Others might disagree.  In any event, what is apparent, is that the Proposed Revisions suggest a shift away from “guidelines” to “indicators.”  This appears to have been a conscious move to provide the agencies more flexibility in how they consider a merger.

“These Guidelines should be read with the awareness that merger analysis does not consist of uniform application of a single methodology.  Rather, it is a fact-specific process through which the Agencies, guided by their extensive experience, apply a range of analytical tools to the reasonably available and reliable evidence to evaluate competitive concerns in a limited period of time.” Proposed Revisions, pp. 1-2.

In the next several weeks, antitrust practitioners will be chiming in on the Proposed Revisions.  While formal comments may result in some changes around the edges, it should be expected that the Proposed Revisions will largely remain intact.  Attention will then be focused on what role the Merger Guidelines, as revised, will play in discussions with the Agencies and in court battles over contested mergers.

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