September 28, 2011

European Commission Gets Split Decision In Beer And Acrylic Glass Antitrust Appeals

The European Commission has received a split decision in two appeals of multi-million euro fines it imposed for anticompetitive conduct in beer and acrylic glass markets.

The European General Court has annulled the European Commission’s 31.66 million euro antitrust fine assessed against beer brewer Koninklijke Grolsch NV.  In case T-234/07, Koninklijke Grolsch v. Commission, the European General Court focused on the imputed liability to Koninklijke Grolsch for actions of its subsidiary, Grolsche Bierbrouwerij Nederland BV.

This appeal stems from a 2004 case in which the Commission found a cartel among the Netherlands’ four largest beer brewers.  The Commission determined that Koninklijke Grolsch NV, Heineken NV (jointly and severally liable with its subsidiary Heineken Nederland BV), Bavaria NV and InBev NV divided the Dutch market and coordinated on prices, price increases, and various commercial conditions.

The conduct resulted in fines totaling 273.78 million euros (including 219.28 million to Heineken and 22.85 million euros to Bavaria).  InBev was not fined as it was granted full leniency for participating in the investigation.  The three penalized companies appealed.

In June 2011, the European General Court reduced the fines assessed to Heineken and Bavaria by a total of  23.42 million euros  after finding there was a lack of evidence on the coordination of commercial terms.

On the remaining appeal, the European General Court ruled in favor of Koninklijke Grolsch stating that the Commission failed to demonstrate why Koninklijke Grolsch, which had not directly participated in the alleged cartel, should be liable.  There is a rebuttable presumption in EU law that a parent company exercises decisive influence over the conduct of a wholly owned subsidiary.  However, in the case at hand, the Commission did not discuss the economic, legal, and organizational links between Grolsche Bierbrouwerij Nederland and Koninklijke Grolsch.  Thus there was insufficient evidence to attribute liability to Koninklijke Grolsch NV.

The European Commission fared better in T-216/06, Lucite International and Lucite International UK v. Commission. In this case, Lucite International, a division of Mitsubishi Rayon Co. appealed a 25 million-euro fine from the Commission for colluding on acrylic glass prices.

Lucite claimed its fine should be reduced due to attenuating circumstances.  Lucite alleged its participation was limited to lower-level employees acquired after its 1999 purchase of Imperial Chemicals Industries plc (ICI).  Further, a commercial policy put in place by Lucite after the acquisition of ICI worked to undermine the cartel.  The European General Court disagreed, and ruled that Lucite failed to show “the Commission erred in its assessment of attenuating circumstances.”

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Categories: Antitrust and Price Fixing, International Competition Issues

    September 19, 2011

    Circuit Court Affirms Dismissal Of Challenge To Nestle Ice Cream Merger

    The U.S. Court of Appeals for the First Circuit has affirmed the dismissal of a claim that the 2003 merger between Nestlé S.A.’s subsidiary, Nestlé Puerto Rico (Nestlé PR), and ice cream distributer, Payco Foods Corp., violated the Sherman and Clayton Antitrust Acts.

    The plaintiff in Sterling Merch., Inc. v. Nestlé S.A. et al. is a distributer of ice cream in Puerto Rico.  Nestlé S.A. manufactures ice cream that is sold and marketed in Puerto Rico by Nestlé PR.  Prior to the 2003 merger, Payco was a competitor of both Sterling and Nestlé PR.  Sterling alleged that Nestlé abused its market power to gain exclusive contracts, favor Payco in distribution agreements, and reduce competition in the Puerto Rican market.

    The court of appeals affirmed the district court’s dismissal of plaintiff’s complaint on grounds of lack of standing based on an inability to prove antitrust injury.  Antitrust injury under Zenith Radio Corp. v. Hazeltine Research Inc. must “reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.”

    According to the holding, Nestlé neither restricted output nor increased prices.  The court found that the price paid by many consumers fell after the merger and that Nestlé’s market share fell by 15% in the 4 years following the merger.  Sterling was unable to demonstrate antitrust injury due to its success in the same market.  While suffering from declining financial performance prior to 2003, Sterling’s post-merger net sales grew at an average of 11% per year with market share growth over 6% during the five years immediately following the merger.  The injury alleged by Sterling was that “in a but-for-2003-merger world,” its market share would have grown more than 6%.  In the court’s view, Sterling was unable to substantiate this claim.

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    Categories: Antitrust Law and Monopolies, Antitrust Litigation

      September 14, 2011

      Federal Judge Dismisses eBay Derivative Litigation

      Judge Leonard P. Stark of the U.S. District Court for Delaware has dismissed a derivative action against eBay Inc.

      The plaintiff in In re eBay, Inc., the Robert F. Booth Trust, alleged that eBay’s board of directors violated the Clayton Act when they circulated a proxy statement recommending shareholders elect Dawn G. Lepore, a 10-year veteran of the board, to another term.  Section 8 of the Clayton Act prohibits one person from serving on the board of competing companies.

      Plaintiff alleged that the nomination of Lepore violated antitrust law because she was on the board of directors of The New York Times Company.  Plaintiff asserted that eBay and New York Times are competitors in the market for classified ads.

      The Federal Rules of Civil Procedure require that, prior to bringing a derivative action, a plaintiff request the board of directors remedy the alleged violation or show that such a request would be futile.  Judge Stark stated that to succeed on a claim of demand futility, “Plaintiff must plead facts from which one could reasonably infer that the board’s decision to renominate Lepore was in bad faith, could not be attributed to any rational business purpose, or reached by a grossly negligent process.”

      The Robert F. Booth Trust alleged a request to the directors of eBay would have been futile as the complained of action was “per se illegal,” “ultra vires,” and “in bad faith.”  In support of these allegations, the plaintiff asserted that eBay was aware of section 8 of the Clayton Act, and knew Lepore was a member of New York Times’ board of directors.

      Judge Stark held that plaintiff failed to prove any of these claims. There was insufficient evidence of per se illegality as there were “no facts that could support a reasonable inference that eBay’s board of directors renominated Lepore knowing that her service on both boards would constitute a violation.”  Further, Judge Stark found plaintiff misinterpreted the meaning of an ultra vires action under Delaware law as nominating a person to serve on the board of directors was not prohibited by the eBay charter. Finally, the court held that the bad faith claim failed for a lack of evidence that eBay’s board of directors believed eBay and New York Times competed in a manner that would cause the nomination to trigger a violation of the Clayton Act.

      In dismissing the case, Judge Stark found that “Plaintiff failed to demonstrate that his objections to Lepore’s dual service would not have been impartially handled by the company’s board of directors.”  The court did not address the merits of the Clayton Act violation.

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      Categories: Antitrust Litigation

        September 12, 2011

        Third Circuit Rules Hydrogen Peroxide Can’t Wipe Out Comcast Class

        The U.S. Court of Appeals for the Third Circuit has upheld the certification of a consumer class alleging antitrust violations against cable distributor Comcast.

        The appellate court ruled in Behrend v. Comcast Corp. that certification was wholly consistent with its instructions to district courts in the seminal case of In re Hydrogen Peroxide, 552 F.3d 305 (3d Cir. 2008), which outlines the standards a district court should apply in determining whether to certify a class.

        Plaintiffs sued Comcast in federal court in the Eastern District of Pennsylvania in 2003, claiming that it eliminated competition by (1) acquiring competitors in the Philadelphia market, (2) swapping with competitors outside the Philadelphia market for cable systems and customers within the Philadelphia market, and (3) engaging in conduct to exclude an “overbuilder,” or company that builds and offers customers a competitive alternative to an incumbent cable company.  Plaintiffs’ proposed class included virtually all Comcast subscribers throughout several counties in Pennsylvania, New Jersey and Delaware since December 1999.

        The district court originally certified in May 2007.  After the Third Circuit’s decision in Hydrogen Peroxide, the district court reconsidered, and in January 2010 it recertified.  Comcast appealed, which led to the instant decision.   

        Comcast challenged three main findings of the district court: that (1) plaintiffs could establish antitrust impact through common evidence; (2) plaintiffs’ damages methodology was acceptable; and (3) plaintiffs’ per se claim was certifiable.  The court of appeals rejected each of these, reprimanding Comcast along the way for urging it to exceed its authority under Hydrogen Peroxide.

        On antitrust impact, the Third Circuit noted that Comcast “asks us to reach into the record and determine whether Plaintiffs actually have proven antitrust impact.  This we will not do.  Instead, we inquire whether the District Court exceeded its discretion by finding that plaintiffs had demonstrated by a preponderance of the evidence that they could prove antitrust impact through common evidence at trial.”  (Emphasis in original.)  When the appellate court conducted that inquiry, it found no abuse of discretion.  

        On damages, the court likewise found “that the heart of Comcast’s arguments are attacks on the merits of the methodology that have no place in the class certification inquiry.”  It determined that those arguments did “not impeach the District Court’s ultimate holding that damages are capable of common proof on a class-wide basis,” and affirmed that holding as well.   

        The court declined even to reach Comcast’s third argument, that “the District Court lacked any legal authority to certify a [Section 1] per se claim based on the class’s allegations.”  Again, it explained: “This is a merits issue beyond the scope of our Rule 23(f) jurisdiction.  . . . The [District] Court certified the class and stated that one of the questions to be litigated is whether there has been a per se violation.  It did not declare that a per se violation had occurred.  Appeals taken pursuant to Rule 23(f) do not furnish the proper vehicle to address the merits of Plaintiffs’ antitrust claims.”    

        Plaintiffs are not out of the woods yet.  Comcast has also moved for summary judgment, and that motion has been fully briefed since June 2010.  Whatever its outcome, the parties may well appear before the Third Circuit again soon.

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        Categories: Antitrust Litigation

          September 8, 2011

          U.K. Shoots Down Sky’s Control Over Pay TV Movie Market

          The U.K.’s Competition Commission has announced that it has provisionally found that British Sky Broadcasting’s control over the pay TV movie market is restricting competition among rivals, leading to higher prices and fewer choices for consumers.

          The investigation, which the Commission began in August 2010, followed a three-year study of the pay TV market by the U.K.’s communications regulator, Ofcom.

          According to the Commission’s findings, Sky has held the exclusive rights to distribute first releases of movies on pay TV from the six largest Hollywood studios for the past 20 years.  The lead investigator for the Commission noted that Sky’s position as the largest provider of pay TV in the U.K. has allowed it to continually outbid its rivals for these rights. 

          The Commission found that Sky’s exercise of these rights and its market dominance cost consumers £50-£60 million ($80-$95 million) a year more than they otherwise would have paid in a more competitive market.  The Commission also found that while Sky provided first releases of movies to one of its competitors, Virgin Media, to distribute, it did so at unfavorable rates.

          The Commission has proposed three possible remedies for which it seeks comment: (1) restricting the number of studios granting exclusive rights to Sky; (2) restricting the nature of those rights (such as by allowing for competitors to have concurrent distribution rights through other means); and/or (3) requiring Sky to purchase and offer to its subscribers movie channels created by its rivals.

          The Commission’s final report is due August 3, 2012.

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          Categories: Antitrust Enforcement, International Competition Issues

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