Antitrust Law Post Antonin Scalia

gavel scales of justice blueWith the untimely passing of Supreme Court Justice Antonin Scalia, perhaps the best known and most controversial Justice on the Court, commentators, including this one, have been called upon to assess his legacy – both immediate and long term – in various areas of the law.

Justice Scalia was not known primarily as an antitrust judge and scholar. Indeed, in his confirmation hearing for the Court, he joked about what he saw as the incoherent nature of much of antitrust analysis. What he was best known for, of course, is his method of analysis of statutes and the Constitution: a literal textualism with respect to statutes and a reliance on “originalism” with respect to the Constitution.

Probably his most influential antitrust opinion was the 2004 decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko LLP which limited antitrust plaintiffs’ ability to hold a company with monopoly power liable for failing to cooperate with rivals.

Taking a literalist view of the Sherman Act, Justice Scalia wrote that there was a good reason why Section 2 claims required a showing of anti-competitive conduct, not just a monopoly.

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system,” he wrote. “The opportunity to charge monopoly prices — at least for a short period — is what attracts ‘business acumen’ in the first place; it induces risk-taking that produces innovation and economic growth.

Thus, Justice Scalia fashioned a majority in holding that the competitive conduct of a monopolist that had earned its hegemony was not inherently suspect. This has come to be a dominant view generally in the antitrust field, but critics have argued that the decision entrenches power and judicial liberals who might succeed Justice Scalia could take a more restrictive, less literal view of the law.

In 1991, Justice Scalia led a majority in Columbia v. Omni Outdoor Advertising Inc., a case in which a competitor had claimed that an advertising rival and a municipality had conspired in passing an ordinance favoring the incumbent. In ruling against the plaintiff, Justice Scalia wrote that there was no “conspiracy exception” to Parker v. Brown, the 1943 Supreme Court case that established antitrust immunity for anti-competitive restraints imposed by state governments. On the other hand, in the recent North Carolina Dentists litigation with the FTC, Justice Scalia joined a majority that held the state action exemption did not apply to certain guild behavior where there was no active supervision by the state – again, a literalist approach.

Justice Scalia was influential in limiting class actions, enforcing arbitration agreements and requiring strict rules of pleading plausible causes of action. Cases like the antitrust actions in AT&T v. Concepcion and American Express v. Italian Colors, backing enforcement of arbitration agreements that blocked class treatment of claims, and the now often-cited cases of Twombley and Iqbal with respect to pleading currently rule the entry gate for large-case litigation, particularly antitrust.

For all of his conservative rulings, Justice Scalia was not a results-oriented judge determined to put antitrust plaintiffs in their place, I think that he would have argued that he was strictly neutral on the merits and didn’t care whether business prevailed or whether the class action plaintiffs prevailed. Whether, the conservative majority that adopted his methods will continue to hold, or whether some of these methods will be superseded by a more-elastic interpretive mode of judging will be at the forefront of the confirmation hearing of the next Justice.

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Ninth Circuit Rules NCAA Violates Antitrust Law-Strikes Down Proposed Remedy

A three-judge panel of the Ninth Circuit Court of Appeals, in San Francisco, affirmed in part and reversed in part Judge Claudia Wilken’s August 2014 district court decision that NCAA rules restricting payment to athletes violate antitrust laws.

The Ninth Circuit agreed with Judge Wilken’s conclusion that NCAA rules restricting payment to athletes violated antitrust laws and authorized NCAA schools to provide athletic scholarships that cover the full cost of attendance. However, the Ninth Circuit rejected a key component of Judge Wilken’s decision which authorized the payment of $5,000 per year in deferred compensation for the use of individual athletes’ names, images and likenesses.

The opinion, written on behalf of the panel by Judge Jay Bybee, stated,

“NCAA is not above the antitrust laws, and courts cannot and must not shy away from requiring the NCAA to play by the Sherman Act’s rules….In this case, the NCAA’s rules have been more restrictive than necessary to maintain its tradition of amateurism in support of the college sports market.”

A more detailed analysis of the decision and its potential impact will be posted shortly.

March (Appellate) Madness re: O'Bannon NCAA Antitrust Case

Womble Carlyle Sandridge Rice, PLLC

It has been a few months since we updated on the O’Bannon antitrustcase, where federal judge Claudia Wilken ruled last summer that theNCAA’s amateurism rules violated federal antitrust laws. But this week, as the rest of the country filled out their brackets and geared up for the start of the NCAA tournament, the NCAA was getting ready for another battle – in the Ninth Circuit.  On Tuesday, the appeals court heard oral argument from both the NCAA and plaintiffs’ counsel, as the parties debated the lower court’s decision, which allowed limited compensation for the use of athletes’ name, image, and likenesses.

Central to the parties’ argument was the interpretation of NCAA v. Board of Regents of the University of Oklahoma, a 1984 case regarding football television rights. While the NCAA lost that case, one statement in that case has become central to the NCAA’s current “amateurism” defense:  “To preserve the character and quality of the ‘product,’ athletes must not be paid.”  In Tuesday’s arguments, some of the judges seemed skeptical of the NCAA’s shifting definition of “pay,” they were also concerned about opening the door to “pay for play.”

We can expect a ruling in the upcoming months, though this is unlikely to be the final appeal in the case.

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March (Appellate) Madness re: O’Bannon NCAA Antitrust Case

Womble Carlyle Sandridge Rice, PLLC

It has been a few months since we updated on the O’Bannon antitrustcase, where federal judge Claudia Wilken ruled last summer that theNCAA’s amateurism rules violated federal antitrust laws. But this week, as the rest of the country filled out their brackets and geared up for the start of the NCAA tournament, the NCAA was getting ready for another battle – in the Ninth Circuit.  On Tuesday, the appeals court heard oral argument from both the NCAA and plaintiffs’ counsel, as the parties debated the lower court’s decision, which allowed limited compensation for the use of athletes’ name, image, and likenesses.

Central to the parties’ argument was the interpretation of NCAA v. Board of Regents of the University of Oklahoma, a 1984 case regarding football television rights. While the NCAA lost that case, one statement in that case has become central to the NCAA’s current “amateurism” defense:  “To preserve the character and quality of the ‘product,’ athletes must not be paid.”  In Tuesday’s arguments, some of the judges seemed skeptical of the NCAA’s shifting definition of “pay,” they were also concerned about opening the door to “pay for play.”

We can expect a ruling in the upcoming months, though this is unlikely to be the final appeal in the case.

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The Unhappy Intersection of Hospital Mergers and Antitrust Laws

McBrayer, McGinnis, Leslie and Kirkland, PLLC

The rapidly-evolving field of health care has been moving lately towards a single-minded goal – coordination of patient care in the name of efficiency and efficacy. Hospital systems are more and more often merging with other medical practices to better achieve the standards and goals of the Patient Protection and Affordable Care Act (“ACA”). TheNinth Circuit Court of Appeals, however, recently provided a stark reminder that the ACA isn’t the only law hospitals need to consider compliance with in these mergers.

Saltzer Medical Group in Nampa, Idaho, had been seeking to make a change from fee-for-service to risk-based reimbursement and approached St. Luke’s Health System in Boise in 2012about a formal partnership. They entered into a five-year professional service agreement that contained language about wanting to move away from fee-for-service reimbursement but without any clear language on making that change. Saltzer received a $9 million payment on the deal. Other hospital systems in the area, the FTC, and the Idaho Attorney General all filed suit to enjoin the merger.

The Ninth Circuit affirmed the district court’s holding that St. Luke’s violated state and federal antitrust laws when acquiring Saltzer. St. Luke’s argued that acquisition of the other provider would improve patient outcomes and care in the community of Nampa, Idaho, where Saltzer operates, but both courts agreed that the anticompetitive concerns surrounding the merger outweighed the benefits to quality care.

This case and other similar cases brought by the FTC provide a bleak outlook for health care providers looking to merge with other entities to provide care and efficiency under the aims of the ACA. While the court ultimately found that St. Luke’s aims were beneficial and not anticompetitive in and of themselves, antitrust laws only truly take the effect on competition into account, and courts are not ready to place quality of care under the ACA on equal footing.

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Congress Begins With Renewed Efforts to Repeal Insurer’s Antitrust Exemption

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Early into the 114th Congress, multiple bills have already been introduced that would repeal the insurance industry’s limited antitrust exemption granted by the McCarran-Ferguson Act (15 USC 1011 et seq.).

On January 6, Representative John Conyers (D-Mich.) introduced the “Health Insurance Industry Antitrust Enforcement Act of 2015,” (H.R. 99). The legislation would amend the McCarran-Ferguson Act, which currently provides the insurance industry with an exemption from the federal antitrust laws for conduct that is “the business of insurance,” is “subject to state regulation,” and does not constitute “an act of boycott, coercion or intimidation,” (15 USC 1013), by removing the exemption for health insurers and medical malpractice insurers. Notably, the bill would not eliminate the exemption with respect to other lines of insurance, and is similar to McCarran repeal bills that Representative Conyers has introduced in prior sessions of Congress. Representative Conyers has previously stated that his bill would “end the mistake Congress made in 1945 when it added an antitrust exemption for insurance companies.”

Subsequently, on January 22, Representative Paul Gosar (R-Ariz.), who was a practicing dentist for many years, introduced similar McCarran repeal legislation, entitled the “Competitive Health Insurance Reform Act of 2015” (H.R. 494). Representative Gosar’s bill would only eliminate the exemption as to health insurers. In introducing his legislation, Representative Gosar stated that “Since the passage of Obamacare, the health insurance market has expanded into one of the least transparent and most anti-competitive industries in the United States,” and that there is “no reason in law, policy or logic for the insurance industry to have a special exemption” from the antitrust laws.

Both H.R. 99 and H.R. 494 have been referred to the House Judiciary Committee for further action. Whether these bills will gain traction this Congress remains to be seen, but the fact that the bill has supporters on both sides of the aisle certainly increases the chances that the legislation will, at a minimum, be considered by the House Judiciary Committee (which failed to take up similar legislation in the 113th Congress).

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U.S. Sentencing Commission Weighing Recommendation to Increase Criminal Antitrust Penalties

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In June, the United States Sentencing Commission, which is appointed by the President to make recommendations to Congress on the criminal penalties for the violation of federal law, issued a request for comments regarding whether the guidelines for calculating antitrust fines should be modified. Currently, corporate fines for cartel price fixing are calculated on a sliding scale, tied to the amount of the “overcharge” imposed by the violators, with the standard maximum fine under the Guidelines for a corporation capped at $100 million and, for an individual, capped at $1 million. The deadline for such comments was July 29, and the views expressed on the issue varied considerably.

Contending that the current Guidelines do not provide an adequate deterrent to antitrust violations, the American Antitrust Institute urged the Commission to recommend an increase in the fines for cartel behavior. The AAI stated that the presumption in the Guidelines that antitrust cartels, on average, “overcharge” consumers for goods by 10% is greatly understated, and thus should be corrected to reflect more accurate levels. Pointing to economic studies and cartel verdicts, the AAI suggests that the median cartel “overcharge” is actually in excess of 20%, and therefore the presumption should be modified in the Guidelines. If adopted, the AAI’s proposal would double the recommended fines under the Guidelines for antitrust violations.

Perhaps surprisingly, the DOJ responded to the Commission’s Notice by stating that it believes that the current fines are sufficient, and that no increase in antitrust fines is warranted at this time. The DOJ indicated that the 10% overcharge presumption provides a “predictable, uniform methodology” for the calculation of fines in most cases, and noted that the Guidelines already permit the DOJ to exceed the fine levels calculated using the 10% overcharge presumption in some circumstances. Specifically, the DOJ noted that the alternative sentencing provisions of 18 USC 3571 already permit it to sidestep the standard guidelines and seek double the gain or loss from the violation where appropriate. Notably, the DOJ utilized this provision in seeking a $1 billion fine from AU Optronics in a 2012 action, although the court declined the request, characterizing it as “excessive”. The court did, however, impose a $500 million fine, an amount well in excess of the cap under the standard antitrust fine guidelines.

Finally, D.C. Circuit Court of Appeals Judge Douglas Ginsburg and FTC Commissioner Joshua Wright offered a completely different view on the issue in comments that they submitted to the Sentencing Commission. Suggesting that fines imposed on corporations seem to have little deterrent effect, regardless of amount, they encouraged the Commission to instead recommend an increase in the individual criminal penalty provisions for antitrust violations. Notably, they encouraged the Commission not only to consider recommending an increase in the fines to which an individual might be subjected (currently capped at $1 million), but also to recommend an increase in the prescribed range of jail sentences for such conduct (which currently permit for imprisonment of up to 10 years).

The Commission will now weigh these comments and ultimately submit its recommendations to Congress by next May. If any changes are adopted by Congress, they would likely go into effect later next year. Stay tuned.

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