December 2024 in Brief: Business Regulation & Regulated Industries

Antitrust Law

Two Courts Block Kroger-Albertsons Merger

By Barbara Sicalides and Julian Weiss, Troutman Pepper Hamilton Sanders LLP

Within hours of each other on December 10, an Oregon federal district court followed by a Washington state court enjoined the $24.6 billion merger of the Kroger and Albertsons grocery chains. Both courts held the enforcement agencies established their prima facie case that the Kroger/Albertsons merger would substantially lessen competition or tend to create a monopoly in the submarket limited to traditional grocery stores.

The Oregon court adopted the controversial 2023 Merger Guidelines’ market concentration presumption and largely accepted the arguments of the Federal Trade Commission (FTC) and its expert for a narrow grocery market. In a loss for the FTC, the Oregon court declined to find that the proposed transaction was likely to substantially harm competition in the labor market alleged.

The Washington court similarly relied on structural presumptions based on market concentration calculations, though it did not expressly adopt or reject the 2023 Merger Guidelines. The Washington attorney general did not assert harm to any labor market, and accordingly, that court did not address the proposed transaction’s impact on labor.

While the decisions are notable for their narrow market definition limited to traditional grocery stores, they are most noteworthy for their embrace of a 30 percent post-merger market share as “unacceptable” or a “threat,” the Oregon court’s express acceptance of the 2023 Merger Guidelines’ market concentration presumption, and the Oregon court’s rejection of the FTC’s labor market harm theory because of the lack of the type of economic evidence used in the evaluation of traditional sell-side markets. Also potentially problematic were the courts’ skeptical approaches to the merging parties’ proposed divestiture package and buyer.

The courts defined the traditional grocery submarket as stores with a large footprint, a large number of grocery products, and a large number of services like deli and gas—essentially a one-stop shop. Excluded from the market were value stores, club stores, dollar stores, and natural, gourmet, or limited assortment stores.

Although the parties have abandoned the proposed transaction, with Albertsons suing Kroger in Delaware Chancery Court, the Oregon and Washington courts’ decisions are a significant win for the Biden administration, at a minimum, with respect to its approach to defining the narrowest market possible and the burden of establishing an appropriate divestiture remedy. When considered along with the Tapestry/Capri court’s embrace of the 2023 Merger Guidelines’ market concentration presumptions, there is an increased risk of future courts applying the 2023 standard. These two wins, however, may also act as additional impetus to growing calls for the withdrawal or revision of the 2023 Merger Guidelines.

While the court ultimately did not grant an injunction on the basis of a labor theory, the Oregon court’s labor market discussion confirms the concerns raised by commentors regarding the 2023 Merger Guidelines’ emphasis on the theory.

For more information, please see the full-length article on this topic published by the ABA Antitrust Law Section.

FTC and DOJ Withdraw Decades-Old Competitor Collaboration Guidelines

By Barbara Sicalides and Julian Weiss, Troutman Pepper Hamilton Sanders LLP

The Federal Trade Commission (“FTC”) and U.S. Department of Justice, Antitrust Division (“Division”), jointly withdrew their 2000 Antitrust Guidelines for Collaborations Among Competitors (“Collaboration Guidelines”). They did not offer replacement guidelines. This follows last year’s withdrawal of three other policy statements related to competitor collaboration and information sharing in the healthcare industry. These four policy statements or guidelines were intended to provide information and to resolve antitrust uncertainty that might deter beneficial mergers or joint ventures that promise to reduce costs. Because none of these guidelines have been replaced, businesses are left with greater uncertainty and risk.

The FTC’s vote to withdraw the Collaboration Guidelines was 3–2, with all three Democratic commissioners in favor of the withdrawal. The dissenting Republican FTC commissioners objected to the withdrawal because of the imminent change in administration. The Division and FTC issued a joint statement announcing the withdrawal and asserted, as they had with the three earlier withdrawals, that the Collaboration Guidelines were withdrawn because they were outdated. According to the agencies’ statement, the Collaboration Guidelines:

• do not reflect recent federal appellate case law;
• rely in part on other outdated and withdrawn policy statements, including certain safe harbors that they allege are not based in federal antitrust statutes;
• do not capture advances in computer science, business strategy, and economic disciplines that help enforcers assess, as a factual matter, the competitive implications of corporate collaborations; and
• fail to address the competitive implications of modern business combinations and rapidly changing technologies such as artificial intelligence, algorithmic pricing models, vertical integration, and roll ups.

The withdrawn Collaborations Guidelines made clear that “[n]o set of guidelines can provide specific answers to every antitrust question that might arise from a competitor collaboration,” but they attempted to describe how the agencies examined competitor collaborations so that businesses could assess and avoid taking antitrust risks. The withdrawal of the Collaboration Guidelines and the earlier withdrawals undercut a compliance tool used by advisors and companies to assess the legality and riskiness of, among other things, joint research and development initiatives, benchmarking programs, group purchase organizations, and healthcare collaborations. More importantly, the absence of replacement guidance leaves healthcare providers and other businesses with uncertainty as to how to conduct their operations and stay on the right side of the law. The lack of replacement guidance, however, is consistent with the current administration’s preference for complete flexibility in enforcement decisions.

When the transition to the next administration is complete, the new agency leadership could reinstate or revise the Collaboration Guidelines, introduce a new set of guidance, or flesh out its position in speeches and through individual enforcement actions. Until then, companies should involve counsel early in the process of considering or structuring any collaborations or joint ventures involving an actual or potential competitor.

Consumer Finance Law

The CFPB’s Credit Card Late Fee Rule Appears Doomed

By Jim Sandy, McGlinchey Stafford PLLC

On December 6, 2024, the United States District Court for the Northern District of Texas denied a motion by the Consumer Financial Protection Bureau (CFPB) to dissolve a preliminary injunction that had enjoined its Credit Card Late Fee Final Rule, finding that the various challengers to the rule were likely to succeed on the merits of their challenges.

As previously discussed, the CFPB issued a final rule in March 2024, which, among other things, capped credit card late fees charged by “large card issuers” to $8.00. A group of trade associations on behalf of the credit card industry quickly sued to enjoin the rule, and the District Court in Texas granted their request for injunctive relief, on the basis that binding precedent from the Fifth Circuit Court of Appeals found that the CFPB was unconstitutionally funded.

After the Supreme Court reversed the Fifth Circuit in Community Financial Services, the CFPB requested that the district court dissolve the injunction. The trade associations opposed, this time focusing on the merits of the Credit Card Late Fee Rule.

The trade associations argued, among other things, that the final rule violated the Credit Card Accountability and Disclosure Act (the CARD Act), which, according to the trade associations, allowed card issuers to impose “penalty fees” provided they are “reasonable and proportional to such omission or violation.” The district court agreed and refused to lift the injunction.

In its ruling, the court noted: “[a] plain language reading reveals that the Final Rule violates the CFPB’s statutory authority under the CARD Act. To begin, the CARD Act explicitly allows card issuers to impose ‘penalty fee[s].’ The Final Rule, however, lowered the safe harbor to $8 for card issuers because it would ‘cover pre-charge-off collection costs for Large Card Issuers on average. And the CFPB’s Motion and other filings admit as much. But fees to cover ‘costs’ and fees that constitute ‘penalties’ are not the same thing.”

However, “under the CARD Act, card issuers have the opportunity to charge penalty fees reasonable and proportional to violations, and narrowing the safe harbor to cost-based fees eliminates that opportunity.”

The court concluded: “The CARD Act does two things: (1) enables card issuers to impose penalty fees, and (2) tasks the CFPB with establishing standards for those fees. Congress assigned the CFPB as an umpire to call balls and strikes on the reasonableness and proportionality of penalty fees. However, by issuing the Final Rule—which prevents card issuers from actually imposing penalty fees—the CFPB has impermissibly assumed the role of commissioner and established a strike-zone only large enough for pitches right down the middle.”

While the district court’s decision relates solely to the dissolution of the preliminary injunction, it is a telltale sign that the CFPB is destined to lose on the merits as well, since the court believes the Final Rule exceeded the Bureau’s statutory authority. It also remains to be seen whether the Bureau decides to continue to defend the Final Rule under the incoming Trump Administration.

Standing Requirements Under FCRA Clarified by Second Circuit

By Matthew Gordon and Jim Sandy, McGlinchey Stafford PLLC

On December 6, 2024, federal courts in the United States Second Circuit issued a pair of decisions clarifying that borrowers must identify a concrete injury caused by the dissemination of inaccurate information to establish standing to assert claims for violations of the Fair Credit Reporting Act (FCRA).

In Phipps, a consumer brought an FCRA claim against a credit reporting bureau based on the dissemination of allegedly inaccurate information regarding his name and address. The Second Circuit Court of Appeals held that the consumer lacked standing to bring an action for violations of the FCRA because the consumer failed to establish that the dissemination of allegedly inaccurate information caused the consumer any concrete harm.

The Second Circuit noted that slight variations in the consumer’s name and an incorrect address do not constitute concrete harm simply through their dissemination alone. Although the consumer claimed he was subsequently the victim of identity theft, the court noted a lack of evidence that the alleged harm was caused by the credit reporting bureau’s dissemination of inaccurate information.

In Alvarez, a class of consumers brought an FCRA claim, alleging that a credit reporting bureau inaccurately reported that they were identified on the U.S. Treasury Department’s list of “Specially Designated Nationals” who are, among other things, ineligible for credit or employment and are potentially subject to deportation or criminal prosecution.

The United States District Court for the Eastern District of New York denied a class member’s motion to intervene and substitute as lead plaintiff and class representative, holding that the prospective plaintiff lacked standing due to his failure to allege a concrete injury.

Although the prospective plaintiff alleged he suffered reputational harm and emotional distress as a result of the dissemination of inaccurate information to a prospective lender, the court noted that the prospective plaintiff failed to allege that the inaccurate reporting had any impact on his ability to refinance his loan, or that the prospective lender paid any mind to the inaccurate reporting. The court further noted that the prospective plaintiff did not allege that he suffered any other resulting monetary harm caused by the inaccurate reporting.

In contrast, the court noted that the original lead plaintiff and class representative had established standing as his complaint alleged that his loan application was denied as a direct result of the credit bureau’s dissemination of the alleged inaccurate information, resulting in monetary damages such as additional rent payments as well as reputational harm.

The decisions in Phipps and Alvarez make clear that while the FCRA is meant to protect consumers from harm caused by inaccurate credit reporting, the statute is not meant as a vehicle for consumers to hold credit reporting bureaus strictly liable for minor procedural errors or inconsistencies.

Intellectual Property Law

Perplexity AI: “Answer Engine” or Content Thief?

By Emily Poler, Poler Legal, LLC

Of the many lawsuits media giants have filed against tech companies for AI-related copyright infringement, the one filed by Dow Jones & Co. (publisher of the Wall Street Journal) and NYP Holdings Inc. (publisher of the New York Post) against Perplexity AI adds a new wrinkle.

Perplexity is a natural-language search engine that uses AI to improve user queries and generate concise, seemingly authoritative answers by synthesizing the most up-to-date information from news outlets and other sources across the web. Its makers call it an “answer engine”; the plaintiffs call it a thief that is violating Internet norms to take their content without compensation. Perplexity’s business model appears to be that people will use its AI (paying for upgraded “Pro” access) instead of doing a traditional web search that returns links the user then follows to the primary information sources (which is one way those media outlets generate subscriptions and ad views).

Perplexity works by web scraping, an automated method to quickly extract large amounts of data from websites. The AI’s bots analyze web pages, locating and extracting the desired content (even if it is behind paywalls) and then aggregating it into a structured format (like a spreadsheet or database) that can then be repurposed any number of ways. According to Dow Jones and NYP Holdings, Perplexity’s scraping can present verbatim extracts of the original source material and ignores a tool these media outlets (and many others) use to tell scraping bots not to copy copyrighted materials.

Significantly, Perplexity’s scraping also violates these media companies’ user agreements, the key deciding factor in a recent court victory for LinkedIn, which had sued a company called HiQ for scraping LinkedIn users’ public profiles.

Naturally, Perplexity has a defense, of sorts. Its CEO accuses the plaintiffs and other media companies of being incredibly shortsighted and wishing for a world in which AI didn’t exist. Perplexity says that media companies should work with, not against, AI companies to develop shared platforms. It’s not entirely clear what financial incentives Perplexity has or will offer to these and other content creators.

Moreover, it seems like Perplexity is the one that is incredibly shortsighted. The whole premise of copyright law is that if people are economically rewarded they will create new, useful, and insightful (or at least, entertaining) materials. If Perplexity had its way, these creators would either not be paid or have to accept whatever fees Perplexity deigns to offer. Presumably, this would not end well for the content creators, and there would be no more reliable, up-to-date information to scrape.

Should Dow Jones and NYP prevail in their suit, the Wall Street Journal and NYP could theoretically be awarded statutory damages between $750 and $30,000 per copyright infringement. Of course, in a case like this, it seems impossible to calculate how many instances of infringement Perplexity is responsible for, so it will be interesting to see how any results are determined.