The field of antitrust has continued to evolve in its time of transition. This transition has again seen a significant increase in regulatory enforcement, legislation and enhanced antitrust scrutiny across several industries. This article discusses these recent developments in the fields of telecommunications, cable and the internet; utilities; electrical power and energy; transportation; and oil and gas. In addition, this article discusses the intersection of environmental, social, and governance reporting and the antitrust laws. Now more than ever, the antitrust laws directly and indirectly impact and guide ESG efforts and initiatives in the United States and abroad.
Most U.S. companies have undertaken significant environmental, social, and governance (“ESG”) initiatives, programs, and reporting obligations. Until now, many of these companies have given little thought to the antitrust implications of such ESG plans. However, the antitrust laws have direct and indirect application to these ESG efforts in a number of ways.
First, there have been a number of more recent efforts launched under the environmental and social components of ESG. For example, companies are making collective net zero commitments by pledging to limit fossil fuel production and reduce greenhouse gas emissions. A number of other similar collective initiatives have been developed or are in discussions with the intention to provide environmental and social change and/or positive outcomes. However, the antitrust laws still apply to these efforts. Specifically, most of these new initiatives require coordinated conduct from industry competitors that may raise antitrust concerns, such as collusion to restrict supply or exclude others from the marketplace. Both the Assistant Attorney General of the U.S. Department of Justice’s Antitrust Division (“DOJ”) and the Chair of the Federal Trade Commission (“FTC”) recently testified that ESG is no exception to the antitrust laws. Further, both of them noted that companies have repeatedly tried to claim an ESG exemption to agreements that affect competition, noting that “when firms have substantial power and they use that power to achieve anticompetitive ends, that should be actionable under the antitrust laws.” Companies have also attempted to use ESG efforts proactively to defend challenged mergers. While the FTC would not condition merger approval on ESG commitments as a proposed remedy, the FTC also does not view ESG programs and commitments “as a reason to bless” or “rescue an illegal deal.”
Collaborative conduct, such as agreements and multi-firm efforts, is typically the greatest focus of antitrust law. It usually does not matter if the agreement among competitors is beneficial when it also unreasonably restrains competition. Therefore, ESG collaborations that involve traditional cartel topics (such as price fixing, bid rigging, customer or territory allocations), group boycotts or concerted refusals to deal (i.e., with vendors, suppliers or customers that are not conforming to ESG requirements), joint purchasing arrangements, or information sharing arrangements (especially any competitively sensitive information) should be avoided.
In short, both agencies warn companies engaging in or considering joint or collective commitments relating to ESG of the need to tread carefully before coordinating with competitors on such initiatives. ESG initiatives do not benefit from any special treatment or exceptions under the antitrust laws. That said, the antitrust laws do provide ways to collaborate on ESG without significant risk, such as entering into industry-wide best practices, voluntary, unilateral and non-binding codes or conduct, adopting ESG certification standards and awarding certifications or seals to companies that meet ESG requirements, and petitioning the government to adopt certain ESG standards (under the Noerr-Pennington doctrine).
Second, the antitrust laws are front and center in the governance prong of ESG. Antitrust compliance has long been a vital piece of strong corporate compliance programs. However, that importance and significance has multiplied this year. As part of various ESG initiatives, the DOJ has made strong antitrust compliance programs even more critical to its leniency program. In April 2022, the DOJ announced, in addition to increased enforcement efforts, a revised and updated corporate leniency program. The DOJ’s leniency program offers corporations and its employees amnesty from prosecution for being the first to voluntarily report a crime while also providing substantial cooperation to the DOJ. The DOJ’s revised program further complicates the leniency application and process, requiring significant corporate governance reporting programs. In fact, DOJ now not only mandates a corporate compliance program going forward but also one that is targeted at remediating past conduct and violations. Specifically, the DOJ now requires that compliance programs create a culture of compliance, be well-designed, adequately resourced, empowered to function effectively, and working in practice so as to identify and detect potential risks and behaviors prior to any violation occurring. In addition, strong compliance programs impact a company’s recommended fine and penalties under the U.S. Sentencing Guidelines. As a result, the intersection of ESG reporting and antitrust is both a complicated and congested one.
On August 25, 2022, the Washington, D.C. Attorney General filed a notice of appeal attempting to revive the District’s antitrust enforcement action against Amazon. The original lawsuit, filed in May 2021, accused Amazon of violating D.C. antitrust law by entering into anticompetitive contracts with third-party sellers and suppliers of products sold directly by Amazon. The Attorney General argued that these contracts lead to higher prices for consumers and stifle innovation and competition in the online retail marketplace.
The D.C. Superior Court dismissed the case in March 2022 based on “a lack of evidence showing the policies lead to higher prices.” Backed by the DOJ, the Attorney General then filed a motion for reconsideration noting that the complaint included specific allegations that Amazon “closely monitor[s] prices on other online markets and . . . threaten[s] sellers and suppliers with sanctions when it finds their products being sold cheaper elsewhere.” The Superior Court stood by its earlier dismissal and denied the motion for reconsideration.
On September 8, 2022, The White House held a listening session on “tech platform accountability” as part of a push for reforms intended to rein in the power of high-profile tech companies. In a statement, The White House expressed concern that a few “dominant Internet platforms” are pushing out potential competitors and seizing “intimate personal information that they can use for their own advantage.” The White House urged Congress to move forward with antitrust legislation curbing the power of these dominant platforms and promoting the ability of small and midsize businesses and entrepreneurs to “compete on a level playing field.”
This follows months of congressional efforts to pass the American Innovation and Choice Online Act (“AICOA”), meant to block large tech platforms from giving their own products and services an unfair advantage over others who use the platforms. If passed, AICOA would also prohibit platforms from “requiring businesses to buy services to get preferred placement, misusing data from rivals to compete against them and biasing search results in their favor.” Senator Klobuchar has touted AICOA’s benefits for small businesses that are unable to fairly compete when, for example, Google can “us[e] its market power as a search engine to self-preference its own products and services over those of its competitors, regardless of quality or price.” Pro-consumer groups have praised AICOA, but tech companies argue it could dampen innovation.
On April 27, 2022, the American Bar Association’s (“ABA”) Antitrust Section submitted comments warning Congress that AICOA could have unintended consequences and should be amended. Specifically, the Antitrust Section advised Congress to clarify certain key terms categorizing types of unlawful conduct, stressing that “any definitions included in the bill should focus on harm to the competitive process.” In June 2022, both chambers of Congress pressed for a vote on AICOA before the August recess, but no such vote has taken place.
Legislators announced the latest version of another bill targeting major tech platforms, the Journalism Competition and Preservation Act (“JCPA”), on August 23, 2022. The bill is intended to protect local news outlets from “free-riding” online platforms that “seize news content to enrich their platforms but never pay for the labor and investment required to report the news.” According to its text, JCPA would “provide a temporary safe harbor [from antitrust laws] for publishers of online content to collectively negotiate with dominant online platforms regarding the terms on which content may be distributed.”
Lastly, in July 2022 Congress reached a compromise on the “CHIPS Plus” bill. CHIPS Plus includes “$54 billion in emergency appropriations for semiconductor and wireless supply chain incentives.” The bill also provides a “25% advanced manufacturing investment tax credit for the construction or acquisition of property integral to a facility whose primary use is to manufacture semiconductors or semiconductor manufacturing equipment.” Both of these provisions come with guardrails to constrain the beneficiaries from undertaking certain business activities in China and other foreign countries of concern.
On May 18, 2022, a coalition of more than two hundred groups petitioned the FTC to investigate “widespread anti-competitive abuses” by electric utilities across the country. The coalition detailed political bribes in exchange for legislation obstructing renewable energy installation and subsidies for decaying energy infrastructure. According to the petition, utilities engage in additional unfair practices to drive up electricity bills, interfere with democratic processes, and dampen competition from the clean energy sector. The petition called upon the FTC to use its broad investigative and subpoena powers under Article 6(b) of the FTC Act. Suggested outcomes of the petition include “[r]ecommendations for federal and state enforcement actions against electric utilities that have committed abuses” in addition to “proposed legislative and regulatory reform.”
The U.S. Court of Appeals for the D.C. Circuit held in July 2022 that the Federal Energy Regulatory Commission (“FERC”) had the authority both to reject a Midwest regional grid operator’s proposals for dividing the costs of low-voltage transmission projects and impose its own method. Midcontinent Independent System Operator Inc. (“MISO”) undertook a joint transmission project with a neighboring regional grid operator; as required by federal law, MISO then submitted plans for passing along its portion of the costs. Essentially, MISO proposed that “consumers in the area where a low-voltage transmission line sits . . . foot the costs associated with that transmission line.” FERC rejected MISO’s proposals because they ”failed to respect the so-called cost causation principle, which requires that rates charged for electricity are reflective of the costs of providing it.” The Court held that FERC was justified in doing so because MISO had not submitted a suitable proposal, and FERC was thus empowered by Section 206 of the Federal Power Act to impose rates that were “just and reasonable.” Decisively, MISO failed to demonstrate that FERC’s imposed rates fell short of that standard.
A federal antitrust trial is set to begin in Massachusetts as the DOJ seeks to block the “Northeast Alliance” between American Airlines and JetBlue Airways. The DOJ, along with the attorneys general of six states and Washington, D.C., have likened the alliance to a “nineteenth-century business trust” and a “de facto merger” that harms competition in the airline industry and inflates costs for consumers. But American and JetBlue contend their partnership has not “caused a single higher price, any reduction in quality or the slightest reduction in output.” The airlines further claim the alliance is “an efficiency-enhancing integration of economic activity,” which is considered pro-competitive under established antitrust law. President Trump’s Department of Transportation signed off on the alliance, so the DOJ’s recent actions signal a harsher stance on antitrust enforcement under President Biden.
In the sphere of ocean shipping, high fees caused by “pandemic-related manufacturing and shipping logjams” led shipping customers to file several complaints with the Federal Maritime Commission (“FMC”) alleging unfair business practices by ocean container carriers. Prominently at issue are fees imposed by carriers when customers’ cargo is left sitting, waiting to be loaded or unloaded. The FMC approved a $2 million settlement in one such case in June. FMC Chairman Daniel Maffei stated at the time that “[t]o restore full confidence in our ocean freight system, vigorous enforcement of FMC rules is necessary.”
In recent months, Congress and the Biden Administration have taken significant legislative, regulatory, and enforcement action in the ocean carrier shipping industry in response to COVID-induced supply-chain problems. On March 31, 2022, the Senate unanimously passed the Ocean Shipping Reform Act (“OSRA”), which grants the FMC enhanced rulemaking and enforcement authority to confront purportedly unfair business practices by ocean container carriers. Such practices include “ditching smaller U.S. exporters in favor of larger retail customers who can pay higher ‘spot’ rates that climb with demand,” and charging “detention” or “demurrage” fees when cargo is left sitting on a vessel or on the docks for too long. Legal commentators have praised OSRA for growing the FMC’s regulatory capacity and providing “manufacturers, suppliers, retailers and other companies seeking to ship their goods—known as shippers—a broader avenue to bring disputes against the mostly foreign-owned ocean container carriers that transport the goods.” The ultimate impact of OSRA will only be felt once the FMC has completed the pending rulemaking process.
The above legislative effort coincides with greater DOJ scrutiny of foreign shipping companies’ compliance with competition laws. According to a fact sheet issued in advance of President Biden’s State of the Union address, “spot rates for freight shipping between the U.S. and Asia have jumped 1000% percent since January 2020, while the container shipping industry pulled in $190 billion in profits last year, a seven-fold increase from 2020.” Following President Biden’s promise to “‘crack down’ on rising ocean freight shipping costs,” in March 2022 the DOJ subpoenaed Danish shipping company A.P. Moller Maersk, seeking information about predatory business practices during the pandemic. Then, in August, China International Marine Containers Group Co. Ltd. terminated its intended acquisition of Maersk following a DOJ antitrust investigation. The DOJ expressed concern that the acquisition “would have consolidated over 90 percent of the insulated container box and refrigerated shipping container production in Chinese state-owned or state-controlled entities” and “would have substantially increased the risk of coordination among the remaining suppliers in the marketplace.”
Overseas, the U.K. also escalated enforcement efforts against the shipping industry. In response to an order by the U.K.’s Competition & Markets Authority (“CMA”), cargo handling equipment companies Cargotec Corp. and Konecranes PLC announced on March 29 that they were abandoning their proposed $5 billion merger. The CMA said the order was necessary to protect “the supply of a wide range of container handling equipment products,” worrying that “UK customers would have few remaining alternative suppliers” for container handling. Cargotec and Konecranes proposed divestitures to allay concerns about anticompetitive consequences, but this was insufficient to satisfy the CMA or the DOJ, who joined the CMA in opposition to the merger.
The Ninth Circuit upheld a lower court’s grant of summary judgment for a Southern California airport services operator that had allegedly blocked fuel sales on an adjacent property in violation of antitrust laws. The Court held that the plaintiff, a hangar operator, was initially injured in 2009 and that his 2020 suit was consequently barred by the four-year statute of limitations. Judge Lawrence VanDyke dissented, suggesting that (i) there were genuine issues of fact as to when the plaintiff was prevented from entering the fuel business and (ii) construction of a fence and a lawsuit by the airport’s service operator amounted to continuing violations that should have restarted the statute of limitations period. The plaintiff’s attorney expressed his intent to file for a panel or en banc rehearing.
On May 19, 2022, a New York federal jury decided U.S. Airways’ longstanding Sherman Act suit against seat booking company Sabre Holdings Corp., awarding the airline only nominal damages after a $15 million verdict was overturned by the Second Circuit. U.S. Airways alleged that Sabre “threatened to block it from the service or impose hefty fees unless the airline signed a 2011 agreement that barred it from selling directly to corporate customers or sharing business with upstart booking platforms.” The jury found that Sabre willfully maintained a monopoly through “exclusionary conduct,” but found nothing wrong with the 2011 distribution contract complained of by U.S. Airways.
In a turn of events in late July 2022, Spirit Airlines terminated a $6.6 billion merger with Frontier Airlines Inc. that had been announced back in February. That deal was meant to create “a single low-cost carrier that could compete with” the so-called big four: United, Delta, American, and Southwest Airlines. Instead, statements issued by both airlines as well as JetBlue indicated that the collapse of the merger could bring about a substitute deal between Spirit and JetBlue.
On May 5, 2022, the Senate Judiciary Committee advanced bipartisan legislation that would give the DOJ authority to file antitrust lawsuits against OPEC in federal district court. The No Oil Producing and Exporting Cartels Act (“NOPEC”), sponsored by Senator Chuck Grassley, seeks to hold OPEC member countries accountable for anti-competitive activity in the energy market.
The legislative push to advance NOPEC was driven by rising gas prices. Senator Amy Klobuchar, a co-sponsor of the bill, stressed that it “will help make gas prices fair and affordable here at home by ensuring the market is protected by robust competition.” A few Republican senators raised concerns that antitrust lawsuits were not the best way to curb rising gas prices, and that NOPEC could lead to retaliatory litigation against the U.S. in foreign courts.
