A. Developments in Telecommunications, Cable, and the Internet
1. Telecommunications Sector Focus of Executive Order Promoting Competition
Telecommunications is one of several industries specifically discussed in President Biden’s July 9, 2021, executive order, and it remains a focus for federal regulators. The order states that “Americans . . . pay too much for broadband, cable television, and other communications services, in part because of a lack of adequate competition.” Further, “[t]o promote competition, lower prices, and a vibrant and innovative telecommunications system,” President Biden encouraged the FTC to consider various actions, such as “Net Neutrality rules” and “providing support for the continued development and adoption of 5G Open Radio Access Network.”
2. The Apple/Epic Games Saga Continues
In Epic Games, Inc. v. Apple Inc., Epic Games—the video game and software company that developed the immensely popular Fortnite game—sued Apple for engaging in allegedly anticompetitive practices related to the App Store. Epic Games alleged that Apple was a monopoly and challenged Apple’s “anti-steering provision,” pursuant to which Apple prohibited app developers from providing information to users about websites where in-app purchases could be made for lower prices than those in the App Store. The U.S. District Court for the Northern District of California ruled that Apple was not a monopolist, but did find that Apple’s anti-steering provision violated California Unfair Competition Law. Accordingly, the court issued a permanent injunction ordering Apple to cease the practice.
3. Antitrust Enforcers Clear Discovery-WarnerMedia Merger
The merger between Discovery and WarnerMedia was cleared by the Federal Trade Commission (FTC) and the U.S. Department of Justice (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, this waiting period expired without a request for extended review of the proposed merger. Thus, the deal survived in a period of intense regulatory scrutiny.
4. Big Tech Update
For further discussion of antitrust developments in the world of telecommunications, cable, and the Internet, see the published Antitrust Focus on Big Tech—2021 Update. In addition, listen to the IRIS podcast on Big Tech, posted March 2, 2022.
B. Developments in Utilities, Electrical Power, Nuclear, and Renewable Energy
1. Fifth Circuit Court of Appeals Rejects River Authority’s Antitrust Immunity
The Fifth Circuit Court of Appeals rejected the notion that the state action immunity doctrine shields liability under the Sherman Act. The San Jacinto River Authority was created by the Texas Legislature in 1937 and is responsible for developing, conserving, and protecting “the water resources of the San Jacinto River basin.” The Authority has been embroiled in antitrust litigation for years. Specifically, two private companies that purchase wholesale raw water from the Authority—which then treat and provide to residents of Montgomery County, Texas—alleged that the Authority “manipulat[ed] the supply of wholesale raw water in Montgomery County, Texas, resulting in artificially increased prices for all water consumers in the County.” The utility companies also alleged “that they are stuck in contracts” with the Authority that violate the Sherman Act “by imposing fees on pumping groundwater, limiting companies to only buying raw water from the river authority[,] and eliminating competition by allowing the river authority a right of first refusal for nearby surface water resources.” The Authority asserted the state action immunity doctrine, which shields state actors from federal antitrust liability for actions taken pursuant to a clearly expressed state policy. The Fifth Circuit Court of Appeals disagreed and held that the statutory authority vested in the San Jacinto River Authority by the Texas Legislature “would not inherently, logically, or ordinarily result in the displacement of competition in the market for allegedly cheaper, plentiful groundwater.”
2. Ninth Circuit Reverses Dismissal in Suit Against Arizona Public Utility
The Ninth Circuit Court of Appeals reversed the dismissal of an antitrust claim 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, alleged 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, holding that the plaintiffs’ state-law claims were barred under Arizona law requiring that advance notice be provided in lawsuits involving public entities such as the Salt River Project.
The Ninth Circuit agreed that the plaintiffs’ failure to comply with Arizona’s notice-of-claim statute barred their state-law claims, but reversed dismissal of the plaintiffs’ federal claims. With respect to the plaintiffs’ federal constitutional claims, the Ninth Circuit explained that the court erred in concluding that the plaintiffs’ claims accrued when the Salt River Project “approvedthe [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 allegations of “increased prices that [the Salt River Project] imposed on solar customers” and concluded the alleged misconduct was “inextricably intertwined with” the Salt River Project’s “allegedly unlawful scheme to reduce solar-energy competition.”
C. Developments in Transportation
1. Transportation Sector Focus in Executive Order on Promoting Competition
Like the telecommunications industry, the transportation industry was a focus of President Biden’s July 9 executive order. For instance, President Biden called on the Secretary of Transportation to utilize its rulemaking, enforcement, and policy guidance authority to “ensur[e] that consumers are not exposed or subject to advertising, marketing, pricing, and charging of ancillary fees that may constitute an unfair or deceptive practice or an unfair method of competition.” The order also calls on the Secretary of Transportation to coordinate with the DOJ so as “to ensure competition in air transportation and the ability of new entrants to gain access.” As with the telecommunications industry, the transportation industry’s inclusion in the executive order will likely lead to more rigorous antitrust enforcement in that field and signals that antitrust enforcement within the transportation industry is a priority on the Biden administration’s radar.
2. DOJ Seeks to Block Domestic Alliance Between American Airlines and JetBlue
The DOJ has filed a lawsuit in the U.S. District Court for the District of Massachusetts to block a recent alliance formed between American Airlines and JetBlue. Pursuant to the so-called “Northeast Alliance,” American and JetBlue have agreed to share revenues and “coordinate which routes to fly, when to fly them, who will fly them, and what size planes” to use at four airports: Logan International in Boston, John F. Kennedy International and LaGuardia in New York, and Newark Liberty in New Jersey. JetBlue’s CEO insists that, despite the alliance, the companies are not “coordinating on prices.” The DOJ alleges that the Northeast Alliance is effectively a merger of the two airlines’ “operations on flights to and from the four airports” involved. It decries the coordination between American, which the complaint labels as “the largest airline in the world,” and JetBlue, “a uniquely disruptive low-cost airline.” At bottom, the DOJ asserts that “the Northeast Alliance will eliminate significant competition between American and JetBlue that has led to lower fares and higher quality service for consumers traveling to and from” the four airports. American and JetBlue have defended the Northeast Alliance as a means of “creat[ing] a third, full-scale competitor in New York”—where Delta and United have long been the dominant airlines—and “empower[ing] more growth in Boston.”
3. First Circuit Affirms Trial Verdict in Favor of Uber over Taxicab Companies
The First Circuit Court of Appeals affirmed the district court’s judgment in favor of Uber in a case brought by Boston-area taxicab companies. The cab companies’ suit focused on the time period between June 4, 2013, when Uber arrived in Boston and the surrounding area, and August 5, 2016, when the Commonwealth of Massachusetts authorized the operations of transportation network companies such as Uber and preempted municipalities from regulating them. The cab companies alleged, inter alia, that Uber competed unfairly under Massachusetts state law. Following a bench trial, the district court held that Uber was not liable to the plaintiffs. The appellate court affirmed, holding that “the district court reasonably determined that the plaintiffs did not prove that defendants acted with the requisite, heightened standard of unfairness”—egregiousness—required to state a claim. During the bench trial, the cab companies attempted to establish that Uber acted egregiously by arguing that the company “lied to their drivers by telling them they could keep working in Boston” and by covering “$200,000 in driver tickets to induce them to keep violating the law.” But the court of appeals was not persuaded.
4. Ocean Carriers on Radars of Executive and Legislative Branches
Ocean carriers have been the subject of both executive and legislative action. 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 brings into 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 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.”
D. Developments in Oil and Gas
1. Oil and Gas Transactions Receive Increased Federal Regulatory Scrutiny
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. 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 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.
2. Lack of Antitrust Injury Dooms City’s Case Against Energy Company
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. 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.” This price manipulation allegedly resulted in Total Gas & Power “acquir[ing] and maintain[ing] monopoly power over the setting of” these key natural gas price indexes. The Second Circuit affirmed dismissal, agreeing 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..
