We continue to live in a time of transition in the field of antitrust. As the heads of the Federal Trade Commission (“FTC”) and Department of Justice’s Antitrust Division (“DOJ”) have settled into their respective roles, several industries have received enhanced antitrust scrutiny. This article discusses these recent developments in the fields of telecommunications, utilities, transportation, and oil and gas. In addition, this article discusses another major development – the retirement of U.S. Supreme Court Justice Stephen Breyer. Justice Breyer left a mark on virtually every area of law during his 40-plus years as a federal judge, and his contributions to the field of antitrust are particularly noteworthy.
On January 27, 2022, Justice Stephen Breyer announced his retirement after 14 years on the First Circuit Court of Appeals and 27 years on the U.S. Supreme Court. His retirement will take effect when the Supreme Court breaks for summer recess in late June or early July 2022. With his retirement, the Supreme Court is losing a pragmatic jurist who “advocated fiercely for considering the real-world consequences of” judicial decisions. It is also losing a scholar who played a “leading role on the Court in antitrust cases.” A professor of antitrust law at Harvard Law School before joining the federal judiciary, Justice Breyer has grounded his antitrust jurisprudence in “empirical economic data, market realities, and record evidence of business practices’ impact on consumers and competition.”
Several of Justice Breyer’s Supreme Court opinions—both majority and dissenting—have made a lasting impact on the field of antitrust. For instance, Justice Breyer wrote the majority opinion in FTC v. Actavis, where the Court considered how antitrust statutes should treat so-called “reverse-payment agreements”—i.e., payments from holders of pharmaceutical patents to generic competitors that settle patent litigation and result in generic competitors staying out of the market. Prior to Actavis, courts generally did not view these agreements as unlawful “so long as the [at-issue] patent facially covered the generic version of the drug.” Pursuant to Justice Breyer’s opinion, reverse-payment agreements are now subject to greater scrutiny. Specifically, reverse-payment agreements must pass muster under the rule of reason, and thus are permissible only if their procompetitive justifications outweigh their anticompetitive harms. One antitrust scholar has described Actavis as “one of the most significant antitrust rulings in the past generation,” noting the dramatic decrease in the frequency of reverse-payment agreements since the decision.
Justice Breyer also penned notable dissents in several antitrust cases. For instance, in Leegin Creative Leather Products v. PSKS Inc. and Ohio v. American Express Co., Justice Breyer’s dissenting opinions criticized the majorities “for being long on economic theory and short on economic reality.” A dissenting opinion co-written by Justice Breyer and Justice Ginsberg in Comcast Corp. v. Behrend is also noteworthy. In that case, the majority decertified a class of plaintiffs seeking relief under the Sherman Act because it had failed to accurately calculate class-wide damages. Justices Breyer and Ginsberg’s dissent has led lower courts to read the majority’s holding narrowly, and thus has helped “maintain[] the availability of antitrust class actions.”
The merger between Discovery and WarnerMedia, which was announced by the companies in May 2021, was recently cleared by the FTC and DOJ. Pursuant to the terms of this all-stock merger, WarnerMedia’s parent company AT&T will “spin off its WarnerMedia business unit and then merge that entity with Discovery.” The resulting business will “be 71% owned by AT&T shareholders and 29% owned by Discovery shareholders,” and will provide streaming services featuring content producers like HBO, Food Network, and CNN. Under federal law, “[t]he parties to certain proposed transactions,” such as the Discovery-WarnerMedia merger, “must submit premerger notification to the FTC and DOJ.” According to Discovery’s 8-K filed on February 9, 2022, this waiting period expired without a request for extended review of the proposed merger. Thus, the deal has survived regulatory scrutiny and may proceed to closing.
For further discussion of antitrust developments in the world of telecommunications, cable, and the internet, see recently the published Antitrust Focus on Big Tech – 2021 Update. In addition, be sure to listen to the IRIS podcast on Big Tech, posted March 2, 2022.
On January 31, 2022, the Ninth Circuit Court of Appeals reversed the dismissal of an antitrust complaint filed against the Salt River Project Agricultural and Power District, a publicly owned utility company that provides electricity to roughly two million people in central Arizona. The complaint, brought by a class of customers of the Salt River Project, alleges that the utility company “unlawfully discriminated by raising rates for customers with rooftop solar-energy systems” in order “to stifle competition in the electricity market.” This conduct allegedly violated federal and state antitrust laws, as well as the federal and Arizona Constitutions.
The district court dismissed the complaint. It held that the plaintiffs’ state-law claims were barred because the plaintiffs had not complied with an Arizona law requiring that advance notice be provided in lawsuits involving public entities such as the Salt River Project. The district court also held that the plaintiffs could not recover under federal law because: (1) their federal constitutional claims were time-barred; (2) they failed to adequately allege antitrust injury; and (3) they could not recover damages pursuant to the Local Government Antitrust Act.
On appeal, the Ninth Circuit affirmed in part and reversed in part. While it agreed with the district court that the plaintiffs’ failure to comply with Arizona’s notice-of-claim statute barred their state-law claims, it reversed the dismissal of the plaintiffs’ federal claims. With respect to the plaintiffs’ federal constitutional claims, the Ninth Circuit explained that the district court erred in concluding that the plaintiffs’ claims accrued when the Salt River Project “approved the [at-issue] pricing plan.” The proper accrual date, the court further explained, was the time when the plan caused the plaintiffs injury, and the plaintiffs’ claims were timely based on this date. The court also held that the plaintiffs adequately alleged an antitrust injury. Specifically, the court pointed to the plaintiffs’ allegations of “increased prices that [the Salt River Project] imposed on solar customers,” and concluded that this alleged misconduct was “inextricably intertwined with” the Salt River Project’s “allegedly unlawful scheme to reduce solar-energy competition.”
While the Ninth Circuit held that the plaintiffs alleged a viable claim against the Salt River Project, it also limited the plaintiffs’ potential remedy. Like the district court, the appellate court concluded that damages were unavailable to the plaintiffs pursuant to state antitrust law. However, the Ninth Circuit made clear that the plaintiffs are also seeking declaratory and injunctive relief, and that state law does not impose a similar bar on those forms of relief.
Citing its obligation to act in the best interest of its stakeholders, Lockheed Martin announced in February that the aerospace and defense technology company was walking away from “its planned $4.4 billion acquisition of rocket manufacturer Aerojet Rocketdyne.” The deal, which would have given Lockheed Martin control of the United States’ “sole independent supplier of critical missile propulsion products,” was the subject of Congressional scrutiny and an FTC lawsuit. Specifically, Senator Elizabeth Warren urged the FTC to take a close look at the deal shortly after it was announced, citing concerns about the defense industry becoming “an oligopoly of only five large rivals.” The FTC subsequently filed a complaint to block the proposed acquisition, alleging that it would allow Lockheed to “use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense.” The FTC’s lawsuit was the breaking point for Lockheed, stating that the company “determined that in light of the FTC’s actions, terminating the transaction [with Aerojet was] in the best interest of [its] stakeholders.”
The proposed Lockheed Martin-Aerojet deal was the subject of considerable internal scrutiny, as well. Aerojet’s board of directors was sharply divided over the transaction. In fact, in February 2022, Aerojet, its CEO, and three other board members sued its Executive Chairman, accusing him and his allies of undermining the Lockheed Martin transaction.
Ocean carriers have been the subject of both executive and legislative action in recent months. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy directing “federal agencies to strengthen oversight of several key industries that are perceived to have been adversely affected by the monopolistic control of a small number of dominant companies.” In the wake of this Executive Order, commentators speculated that it could “mark the beginning of a potentially significant movement by the federal government to further regulate . . . unfair or unreasonable shipping practices.” In December 2021, the House of Representatives passed—with substantial bipartisan support—the Ocean Shipping Reform Act, “which would grant the Federal Maritime Commission additional remedial authority, including a mandate to adopt rules prohibiting the imposition of unjust and unreasonable fees by ocean carriers and terminal operators.” A similar bill was introduced in the Senate in February 2022.
This increased governmental attention on the oceanic shipping industry has led some to question the future of the antitrust immunity currently afforded to ocean carriers under the Shipping Act of 1916. That Act exempts ocean carriers from antitrust laws such as the Sherman Act, and instead subjects them to regulation through the Federal Maritime Commission. Legislation proposed in the late 1990s and early 2000s sought to eliminate this antitrust exemption. While these proposed bills enjoyed “strong support from the” DOJ, they were ultimately unsuccessful. The recent executive and legislative action in this sector has led some commentators to predict that Congress will once again take up the issue of “whether the Shipping Act exemption makes sense in the current environment, or at all.”
1. Lack of Antitrust Injury Dooms City’s Case Against Energy Company
On December 3, 2021, the Second Circuit Court of Appeals found that the City of Long Beach, California’s antitrust case against energy provider Total Gas & Power could not proceed because the City had failed to adequately allege an antitrust injury. Accordingly, the court affirmed the district court’s dismissal of the City’s lawsuit.
In its complaint, the City alleged that Total Gas & Power had “engage[d] in conduct that unreasonably restrained the markets for trading natural gas and natural gas-related contracts.” Specifically, the City accused Total Gas & Power of scheming “to fix gas prices in the southwestern part of the [United States] by attempting to manipulate index prices at four major [natural gas] trading hubs between 2009 and 2012.” According to the complaint, this price manipulation resulted in Total Gas & Power “acquir[ing] and maintain[ing] monopoly power over the setting of” these key natural gas price indexes. The City sought to recover for this alleged misconduct under Sherman Act, Section 2 and California’s Unfair Competition Law.
The district court dismissed the City’s claim in its entirety, and the Second Circuit affirmed. First, the appellate court agreed that the City had not alleged “the sort of predatory pricing prohibited under Section 2.” Specifically, the court found that the plaintiffs had not plausibly established that Total Gas & Power “manipulated prices with the goal of eliminating its competitors from the market,” or that the company’s “actions were intended to be exclusionary.” This deficiency was fatal to the City’s ability to demonstrate an antitrust injury. Second, the appellate court held that the City had not stated a viable claim to relief under California’s Unfair Competition Law. This law provides for restitution, but not for the recovery of damages, and in the court’s view, the complaint was devoid of “any allegation that Total Gas [& Power] received from” the City “any monies in which [the City] had a vested interest.”
The FTC and DOJ Antitrust Division have been taking a keen interest in transactions involving oil and gas companies. On November 10, 2021, the FTC approved a consent order related to 7-Eleven’s acquisition of Speedway. The FTC had been criticized for being “caught off guard” when the companies announced this deal in May 2021. At that time, the FTC was split 2-2 and issued only “a strongly worded statement” about the merger. The terms of the FTC’s final consent order, however, requires 7-Eleven and Marathon to “divest 124 retail fuel outlets to Anabi Oil, 106 outlets to Cross America Partners, and 62 outlets to Jacksons Food Stores.” Additionally, the final order bars 7-Eleven “from enforcing any noncompete provisions as to any franchisees or employees working at or doing business with the divested assets.” While large transactions are commonly accompanied by the forced divestiture of assets, the additional measure of prohibiting 7-Eleven from enforcing noncompete provisions is relatively unique.
Just two days after the FTC approved the consent order related to the 7-Eleven-Speedway transaction, the DOJ placed similar conditions on a proposed $44 billion merger between S&P Global Inc. and HIS Markit Ltd. In order to resolve the antitrust concerns raised by this transaction, the DOJ required S&P Global “to divest three of HIS Markit[’s] . . . price reporting agency businesses.” The DOJ also required the parties “to end a 20-year non-compete agreement” in order to receive clearance for the deal.
In addition to implementing consent orders, federal regulators have displayed an increased willingness to utilize their statutory authority to subject oil and gas-related transactions to “second requests.” The FTC or DOJ issues a second request when they determine that they need more information about a proposed transaction in order to assess its antitrust impact. This process “can cause several months of delays” in the regulatory clearance process. In recent months, the FTC has issued second requests in connection with several proposed energy sector transactions; for example, HollyFrontier Corporation’s proposed acquisition of Sinclair Oil and Energy Transfer LP’s proposed purchase of Enable Midstream Partners.
This increased regulatory attention on oil and gas transactions follows pressure from the White House “to look into any potential illegal conduct or anti-competitive practices that have occurred” and contributed to the “divergences between oil prices and what people are paying at the pump.” Of note, in a letter to FTC Chair Lina Khan on November 17, 2021, President Biden encouraged the agency to address what the President views as “mounting evidence of anti-consumer behavior by oil and gas companies.” Armed with the support of the White House, the FTC and DOJ are likely to continue examining oil and gas transactions with a critical eye, especially as gas prices continue to climb.
