A. Environmental, Social & Governance Reporting
Corporate environmental, social, and governance (“ESG”) activity is generally encouraged and often publicly praised, but corporate counsel should remember that antitrust laws apply to ESG initiatives as wholly as they apply to other market activities. Domestic and multinational companies’ ESG initiatives have come under increased scrutiny by regulators, politicians, and state attorneys general. There have been several recent developments relevant to the intersection between antitrust enforcement and corporate ESG initiatives.
First, while the Biden administration has shown support for ESG initiatives, it has also made it a priority to enforce antitrust laws. And although the administration has recognized that corporations will and should collaborate on ESG initiatives, it has not provided guidance on how these corporations can do so in a way that is compliant with antitrust law. Corporations must recognize that “ESG considerations can never ‘rescue an illegal deal,’” and that even well-intended agreements have the potential to impact competition and are relevant to the FTC.
Congressional leaders have also questioned whether ESG initiatives comply with current antitrust law. On November 8, 2022, 50 law firms received a letter distributed by a group of Republican Senators advising the firms to inform clients of “the risks they incur by participating in climate cartels and other ill-advised ESG schemes.” Further, the letter instructs the recipients to preserve documents in anticipation of antitrust-enforcement action. This letter demonstrates that corporations seeking to collaborate about ESG initiatives must be cognizant of the tension between federal political and enforcement priorities. It is likely that regulators will focus their efforts on companies engaged in climate-related activities, ESG scorers, and rating providers.
The SEC too is exercising its enforcement power over companies within its jurisdiction by formulating rules and reporting mechanisms to “promote consistent, comparable, and reliable information” in the reporting of ESG factors. These rules create usable benchmarks to aid in understanding the evolution of ESG. Such guidance from the SEC will assist corporate counsel in ensuring that their clients’ public ESG reports do not run afoul of state attorneys general.
Second, various state attorneys general have begun antitrust-enforcement efforts aimed at corporations that collude with respect to ESG-related initiatives. The mounting antitrust enforcement is primarily led by Republican attorneys general, whereas Democratic attorneys general from various other states have largely solicited federal legislators to further clarify current antitrust laws. One former Republican state attorney general, Mark Brnovich from Arizona, even published an editorial in The Wall Street Journal, contending that some corporations have “coordinated [their] influence to compel companies to shut down coal and natural-gas plants.” Unfair or deceptive act or practices (“UDAP”) laws are serving as a useful tool within state attorneys general’s toolkits when scrutinizing corporate ESG practices. To avoid running afoul of UDAP laws, corporations should take steps now to ensure compliance and that their organization has a clear understanding of its ESG strategy. Whatever the goal, it is best practice to adopt controls to ensure any statements about ESG are objective and verifiable.
Certain state-level elected officials have also offered their support to laws that will hinder ESG initiatives or have opened regulatory investigations into such initiatives. Some state legislatures have even gone so far as to ban “their state pension funds from investing in companies that boycott energy companies or from including ESG considerations in investment decisions.”
Third, the lack of guidance regarding the intersection between ESG initiatives and United States antitrust law stands in stark contrast to the direction that has been provided in the European Union and the United Kingdom. Multiple European jurisdictions have provided guidance designed to promote legal and collaborative ESG-related activity. For example, the UK’s Competition and Markets Authority (“CMA”) explicitly supports ESG initiatives that will lead to a low-carbon economy. The CMA provides that so long as businesses avoid implementing serious restrictions on competition, use a fair standard-setting process, and consider the availability of “competition law allowances,” they “can avoid competition law pitfalls.” In providing these guidelines, the CMA aims to “ensure that competition policy does not create an unnecessary obstacle to sustainable development and that businesses are not deferred from taking part in lawful sustainability initiatives in the mistaken belief that they breach competition law.” Given these differences in how ESG-related antitrust law has developed in the United States and in Europe, multinational corporations must be mindful that behavior that is legal under Europe’s regulatory regime may be grounds for enforcement action under U.S. antitrust laws.
B. Developments in Telecommunications, Cable, and the Internet
1. D.C. Attorney General Seeks to Revive Suit Against Amazon
The Washington, D.C. Attorney General’s Office is requesting that the D.C. Court of Appeals breathe new life into its lawsuit against Amazon. In May 2021, the D.C. Attorney General filed a complaint accusing Amazon of restricting competition by requiring that third-party sellers on its platform abide by restrictive contracts that inflate prices and reduce competition. The D.C. Superior Court twice dismissed the complaint in 2022, and now the D.C. Attorney General is arguing that the Superior Court judge erred by ignoring the complaint’s well-pleaded allegations and misconstruing existing law. Specifically, the D.C. Attorney General is arguing that the Superior Court’s holding that “written agreements to restrain trade cannot be anticompetitive if economically rational for those involved” is not supported by the court’s antitrust precedent. The Attorney General further contends that the alleged agreements “entrench and maintain Amazon’s monopoly over online marketplaces, enabling Amazon to charge higher fees and commissions than it would in a truly competitive environment,” and “reduce the incentive for competing online marketplaces to attract sellers through lower fees or greater innovation.”
The issue on appeal is whether the Superior Court improperly dismissed the case based on insufficient pleading and wrongly refused to permit the D.C. Attorney General to amend his complaint following a dismissal with prejudice.
2. Google’s Ad and Search Businesses Continue to Face Legal Challenges
In December, the Ninth Circuit Court of Appeals held that a federal district court was correct in dismissing photo-sharing company Dreamstime’s lawsuit against Google. In its complaint, which alleged violations of Section 2 of the Sherman Act, Dreamstime claimed that Google improperly exercised its market power to shut out Dreamstime from the stock-image-photography market. Specifically, Dreamstime claimed that Google rigged its ad-bidding process, demoted Dreamstime’s ranking in search results, and favored the appearance of competitor stock-photo companies, such as Shutterfly, in search results.
In upholding the dismissal of the case, the Ninth Circuit reasoned that Dreamstime’s Sherman Act claim failed in part because the company did not “allege anti-competitive conduct in the market it defined: the online search advertising market.” In oral arguments before the Ninth Circuit, Dreamstime had characterized the relevant market as including not only the market for online-search advertising but also the organic-search market. However, the Ninth Circuit disregarded this argument as improper because Dreamstime had continually characterized the relevant market as the online-search-advertising market during the district court proceedings, which, in the Ninth Circuit’s view, amounted to a waiver of the right to argue that the relevant market included the organic-search market. This ruling exemplifies the importance of litigants’ carefully defining the relevant market before pursuing a Section 2 Sherman Act claim.
The favorable ruling in the Dreamstime case does not mark the end of Google’s defense of lawsuits filed by private entities. Google continues to face cases filed by “developers, advertisers, and consumers” that accuse Google of monopolistic behavior with respect to the market for display advertising, the Google Play Store, and YouTube. Google is also dealing with challenges from federal and state governments. The United States Department of Justice (“DOJ”) recently filed a lawsuit against Google requesting that a Virginia federal court break up Google’s illegal monopoly on digital-advertising technology. The DOJ’s action joins several others launched against Google by state attorneys general who claim that Google’s advertising business “has corrupted legitimate competition in the ad tech industry.” The complaint filed by the DOJ points to Google executives’ statements and Google’s corporate strategy and analogized that “Google’s owning so many different facets of the industry” would be akin “to Goldman Sachs or Citibank owning the New York Stock Exchange.” Additionally, the DOJ contends that Google employs a general strategy to prevent publishers from using any non-Google advertising exchange, resulting in a noncompetitive market in which Google benefits at other businesses’ detriment. According to the DOJ, a digital-advertising market with “unfettered competitive pressure” would better control prices and bolster innovation, ultimately resulting in fewer transaction costs for market participants and a higher-quality product. Google is seeking to move the DOJ’s action to a federal court in New York so that discovery can be consolidated and coordinated with cases pending in that forum brought by state attorneys general and private publishers and advertisers.
3. Apple Successfully Defends Favorable Ruling on Appeal
Late last year, a three-judge panel of the U.S. Federal Circuit summarily affirmed a district court’s dismissal of a suit that accused Apple of partaking in anticompetitive behavior. The plaintiff in this case, a messaging platform called Blix Inc., alleged that Apple’s rules governing third-party applications’ implementation of single-sign-on features were monopolistic and harmed consumers. But during oral argument before the Federal Circuit, the company’s attorney was apparently unable to clearly articulate a mechanism through which that harm occurs.
Apple requires that third-party applications that desire to offer single-sign-on functionality within Apple’s iOS operating system permit Apple log‑in credentials to be used, in addition to any other credentials the third-party developer chooses to allow. Apple contended that such a requirement did not restrict competition but “actually expands consumer choice.” But the Federal Circuit’s ruling did not address this argument—or the argument advanced by Blix’s counsel that Apple had stolen, or “sherlocked,” its client’s technology—and instead “offered no thoughts or conclusions beyond affirming” the district court’s dismissal of Blix’s claims.
4. FTC Bows Out of Fight Over Meta–Within Unlimited Merger
Earlier this month, the U.S. District Court for the Northern District of California denied the FTC’s motion to enjoin Meta’s merger with virtual-reality-media and ‑technology company Within Unlimited. Meta is pursuing a merger with Within Unlimited so that it can rapidly enter into the virtual reality industry. But according to the FTC, the merger would allow Meta to enter into that market without developing VR technology of its own, and therefore stands to “undercut competition in the quickly growing VR app distribution market.” During argument on the injunction, the FTC’s expert economist even went so far as to testify that the proposed merger would establish Meta as “a VR monopolist.”
The technology at the center of the disputed merger is Within Unlimited’ s popular fitness application, “Supernatural.” The FTC’s economist described virtual reality fitness applications as “the linchpin to owning VR.” Despite the FTC’s arguments, the district court denied the motion to enjoin the merger and extended a stay on closing the merger for one week “so the FTC could consider its options.” The FTC did not take any additional action during this one-week extension, and on February 8, 2023, Meta announced that it had closed the deal with Within Unlimited. A few weeks after Meta’s announcement, the FTC stated that it would not continue the merger fight before the agency’s in-house administrative-law judge and instead would be “return[ing] the matter to adjudication for the sole purpose of dismissing the complaint.”
5. Technology Sector Recipient of Funding, but Also Subject of Regulation
Within the past year, the tech sector has benefited immensely from public funding, but has also shouldered substantial regulation from policymakers. For example, in August 2022, a bipartisan Congress enacted the $280 billion CHIPS and Science Act in hopes of boosting America’s influence in the critical-and-emerging-technologies sector. The law is designed to bolster private‑ and public-sector investment in technology and includes a tax credit for American manufacturers of chips and other similar component parts. The law also authorizes the National Science Foundation to initiate new programs that will encourage and incentivize research and development in the technology sector.
At the same time, other congressional action has enhanced the regulatory regime governing the tech sector. For example, a number of antitrust bills have been introduced in Congress with bipartisan support which would “prohibit discriminatory conduct by dominant platforms,” “prohibit[] acquisitions of competitive threats by dominant platforms,” “eliminate[] the ability of dominant platforms to leverage their control . . . across multiple business lines to self-preference and disadvantage competitors,” and “promote[] competition online by lowering barriers to entry and switching costs.” In addition, Democratic and Republican lawmakers alike have “hauled in top tech executives to testify and defend their practices.”
Congress is also expected to turn its focus onto content moderation. For instance, Republican legislators—motivated by a perceived tendency by big technology companies to unfairly censor and moderate conservative viewpoints—have targeted “Section 230 of the Communications Decency Act, which shields tech platforms from liability.” Democrats, meanwhile, are expected to attempt to bolster the protections afforded to big technology companies relating to their authority to regulate misinformation and hateful speech.
C. Developments in Utilities, Electrical Power, Nuclear, and Renewable Energy
1. Texas Asks Supreme Court to Allow It to Maintain a Monopolistic Power Grid
On December 28, 2022, the Office of the Attorney General for the State of Texas petitioned the United States Supreme Court on behalf of the State of Texas to review a Fifth Circuit ruling that a Texas “law giving incumbent transmission companies the first chance to build new power lines is unconstitutional.” The Fifth Circuit held that the law at issue discriminates against out-of-state utility companies in violation of the dormant-commerce clause, reasoning that the law effectively prohibits any new entrants to the Texas energy market.
The State argues that the Fifth Circuit’s ruling “could undermine state regulation of electric utilities” and will “impact[] the provision of electricity to millions in Texas.” The State also argues that the Fifth Circuit erred by ignoring the implications of General Motors Corp. v. Tracy, a 1997 U.S. Supreme Court decision that rejected a commerce clause–based constitutional challenge to an Ohio tax law exemption that had been carved out for in-state utility companies.
2. Antitrust Suit Against Arizona Utility Company Settles
Earlier this month, a federal judge in the United States District Court for the District of Arizona approved the dismissal with prejudice of a case alleging the unlawful imposition of surcharges on customers with rooftop solar-energy panels. The dismissal was made pursuant to a joint stipulation submitted by the parties after reaching a settlement.
This long running litigation involved allegations that Salt River Project Agricultural Improvement and Power District (“SRP”), an Arizona public-utility company, imposed surcharges on customers who used their own solar panels instead of only consuming supplied electricity in order to ward off competition in the electricity market from producers of solar-energy systems. The suing consumers claimed that they were charged up to $600 more annually than their non–solar-panel-owning counterparts. The consumers who shouldered the surcharges brought various claims, including antitrust, Federal Equal Protection Clause, and various state statutes. However, in January 2022, the district court dismissed all causes of action except the antitrust claim.
SRP has commented that “[t]here will be no change to [its] board-approved rates as a result of” the settlement it reached with the customers. There is concern in the industry that similar actions involving other public-utility providers will result in delays and setbacks for greener alternative-energy companies, such as those that distribute solar panels to households.
D. Developments in Transportation
1. Airline Merger Still Awaiting Takeoff
American Airlines and JetBlue Airways await a ruling from a Massachusetts federal court after the conclusion of their trial against the DOJ. Despite the Department of Transportation’s approving a strategic alliance between the two airlines—which the airlines claim will provide greater flight options at lower costs to travelers in the Northeast—the DOJ is seeking to block the partnership, which it has characterized as a de facto merger. The commitments the airlines made in early 2021 when the Department of Transportation approved the alliance—i.e., “giving up certain routes and slots at other airports in exchange for” the “arrangement combining their operations in Boston and metro New York”—have not appeased the DOJ.
2. Twelve People Indicted for Participating in a Violent Used-Car Conspiracy
In United States v. Martinez, the DOJ has indicted twelve people for allegedly participating in a violent conspiracy, featuring threats and extortion, to control the transport of goods and vehicles from the United States to Central America. Prosecutors have described the conspiracy as a “long-running, multi-faceted conspiracy” to monopolize the goods-forwarding industry from Texas to Central America. The conspirators are described as transmigrantes, individuals who receive customs paperwork and services from legitimate forwarding agencies and then transport used vehicles across the border. As related to antitrust violations, the indictment alleges that the conspirators fixed prices among themselves and divided the work among one another, including a common fund of revenue, and then used violence to compel the participation of those that initially refused.
This indictment indicates that the DOJ is making good on its intention to use the Sherman Act to suppress criminal activity in the markets.
