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Exporting U.S. Antitrust Law: Are We Really Ready for NOPEC?

The year is 1979. Inflation and lines at the gas pumps caused by a revolution in Iran have stunned Americans. Driven to action, the International Association of Machinists (IAM) files suit in the Central District of California against OPEC and its 14 member countries for participating in a cartel that controls the worldwide price of oil. None of the defendants made any kind of appearance before the court. Nonetheless, the union lost, and its case was dismissed.

Under the Constitution, federal courts are courts of limited jurisdiction. A district court has no power to decide a case over which it has no subject matter jurisdiction. The requirement cannot be waived or avoided; a court that lacks subject matter jurisdiction has no legal authority to entertain the matter. A federal statute known as the Foreign Sovereign Immunity Act of 1976 (FSIA) limits the court’s jurisdiction in cases involving foreign sovereigns and, subject to a few specific exceptions, grants foreign states immunity from the jurisdiction of U.S. courts. The court in IAM v. OPEC raised the FSIA on its own (there being no defendants present) and, finding the OPEC states immune (OPEC itself could not be served), dismissed the case. Thusly did the IAM lose its antitrust case against defendants who never even showed up in court.

The judiciary has resisted the innumerable attempts since 1979 to hold the OPEC cartel accountable for violating U.S. antitrust laws, even though the court’s IAM decision has proven erroneous. Acts by a sovereign “based upon a commercial activity” in the U.S., or affecting U.S. commerce, do not enjoy immunity under FSIA. Although the district court in IAM didn’t think so, the Ninth Circuit on appeal made clear that pricing of oil on world markets is indeed commercial activity that affects the U.S. economy and, therefore, not entitled to sovereign immunity. But the Appeals Court nonetheless sidestepped the case, taking refuge in the judge-made Act-of-State doctrine. The doctrine is prudential, as opposed to jurisdictional, and amounts to a voluntary renunciation of jurisdiction by a court when its decision could interfere with the conduct of foreign policy by the executive branch. Indeed, it is easy to see how a suit against the members of OPEC for price fixing might intrude into a sensitive foreign policy area.

In the four decades since IAM, these considerations have obstructed U.S. courts from holding OPEC accountable for a cartel formed for the purpose of and with the effect of stabilizing the price of a commodity in interstate or foreign commerce, which is illegal per se. As recently as 2010, the Obama administration urged the Fifth Circuit to dismiss an antitrust suit brought by private plaintiffs on Act-of-State grounds, it being up to the executive branch and not the courts to conduct foreign policy and protect national security interests.

Since 2000, when the first No Oil Producing and Exporting Cartels (NOPEC) Act was introduced in the House, the same legislation has been introduced no less than four times. NOPEC came closest to passage in 2007, when different versions of the bill passed the House and the Senate but were not reconciled. The House and Senate judiciary committees have now both approved the bill, and the latest version is on the Senate’s legislative calendar. Congress could act quickly if there is bipartisan support, otherwise it will take several months and require reintroduction in 2023.

NOPEC consists of three operative parts.

First, it would amend the Sherman Antitrust Act by adding a new Section 7(a) that explicitly makes it illegal for any foreign state to act collectively with others to limit production, fix prices, or otherwise restrain trade with respect to oil, natural gas, or other petroleum products. Judicial enforcement and a remedy would be available only to the Department of Justice, so the bill does not create a private right of action.
Second, it would amend FSIA to explicitly grant jurisdiction to U.S. court against foreign sovereigns to the extent they are engaged in a violation of the new Section 7(a).
Third, the legislation clarifies that the Act-of-State doctrine does not prevent U.S. courts from deciding antitrust cases against sovereigns alleged to have violated the new Section 7(a).

Calls for taking a harder line against OPEC are growing stronger in light of recent actions taken by the cartel. In May, for example, Saudi Arabia and 10 other OPEC members voted to slash oil production – resulting in high gas prices – as the U.S. and other nations imposed embargoes on Russian oil. OPEC’s production cuts provided Russia with a substantial lifeline in its increasingly difficult, costly, and prolonged invasion of Ukraine.

The Senate bill is sponsored by Senate Judiciary Committee Ranking Member Chuck Grassley and cosponsors Sens. Amy Klobuchar (D-MN) Mike Lee (R-UT), and Patrick Leahy (D-VT), who argue that OPEC’s price-fixing goes directly against the idea of fair and open markets, with current laws leaving the U.S. government “powerless” over OPEC. But are we really ready for NOPEC?

The concern over interference with foreign policy is far from trivial.

The American Petroleum Institute (API) recently sent a letter to Congress opposing the NOPEC bill, stating it would harm U.S. military, diplomatic, and business relations. API President and CEO Mike Sommers warned that while NOPEC is a noble endeavor designed to protect consumers, it would open the U.S. up to reciprocal lawsuits by foreign entities, writing that this could devastate certain political relations and trigger retaliation from OPEC countries. Other NOPEC critics say OPEC countries may limit other business dealings with the U.S., including lucrative arms deals or by pulling in their investments, as Saudi Arabia threatened to do in 2007, when the Deputy Saudi Oil Minister said the country would pull out of a multi-billion Texas oil refinery project unless the DOJ filed a statement of interest urging dismissal of an antitrust case then pending in the U.S. courts. In 2019, Saudi Arabia and OPEC threatened to start selling their oil in currencies other than the dollar, which would weaken the dollar’s position as the global vehicle currency.

For these reasons, it’s not clear what the White House would do if NOPEC passes. The Biden administration’s view of the measure seems to have shifted a bit, but it hasn’t come out strongly one way or the other. This is hardly surprising given the delicate and complex nature of the issue, the ongoing impact of Russia’s war on Ukraine, and the great importance voters place on the price of gas. Then-Press Secretary Jen Psaki said on May 5, 2022, that the “potential implications and unintended consequences of this legislation require further study and deliberation.” More recently, National Security Advisor Jake Sullivan and Brian Deese, President Biden’s Director of the National Economic Council, said that nothing is off of the table – that the administration is assessing the situation and inviting recommendations. On Oct. 5 the Department of Energy said it would release another 10 million barrels of oil from the Strategic Petroleum Reserve. In making that announcement, Sullivan and Deese said the administration will consult with Congress on “additional tools and authorities to reduce OPEC’s control over energy prices.” They also reiterated the importance of investing in clean American-made energy to reduce reliance on foreign fossil fuels.

OPEC has such tremendous sway over U.S. gas prices and national security it is no wonder Congress continues to try to do something to free U.S. from OPEC’s whims and hold it accountable for going against the ideals of free markets. But whether NOPEC is the right approach remains an open question.

The antitrust laws represent a national ideological perspective on the most beneficial way to organize an economy. Policy differences between nations are supposed to occur in the diplomatic arena, not in the courts of one country or another. And if OPEC or its members lose an antitrust case in a U.S. court, how will the court enforce its judgment?

Article By Jonathan Rubin of MoginRubin

For more antitrust and trade regulation legal news, click here to visit the National Law Review.

FTC Commercial Surveillance and Data Security Forum Highlights Industry and Consumer Perspectives

On September 8, 2022, the Federal Trade Commission hosted a virtual public forum on its Advanced Notice of Proposed Rulemaking (“ANPR”) concerning “commercial surveillance and lax data security.” The forum featured remarks from FTC Chair Lina Kahn, Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro Bedoya, as well as panels with industry leaders and consumer advocates.

Remarks from Chair Khan and Commissioners Slaughter and Bedoya focused on the need for public participation in the rulemaking process and the FTC’s role in privacy regulation in the absence of comprehensive federal legislation. Commissioner Slaughter noted that, until such federal legislation is passed, the FTC will continue to use its Section 5 authority to regulate unfair and deceptive practices related to privacy and data security.

The industry panel was moderated by FTC Senior Advisor Olivier Sylvain and focused in part on how the FTC should structure a potential rule. Multiple industry panelists emphasized the need for rules that limit out-of-context data use or tracking, while still allowing in-context use to as consumers expect. Industry panelists also highlighted the need for heightened rules for “dominant” industry players and financial penalties for bad behaviors.

The consumer advocate panel focused on issues surrounding meaningful consumer consent and the negative effects of commercial surveillance on consumers, such as one-click background checks and demographic-tailored advertising that disproportionately affects minority groups in negative ways. Similar to the industry panel, consumer advocate panelists also highlighted out-of-context data use and dominant industry actors as some of the major issues the FTC should address in its rulemaking. The FTC will receive public comments on the ANPR until October 21, 2022.

Article By Privacy and Cybersecurity Practice Group of Hunton Andrews Kurth

For more antitrust and FTC legal news, click here to visit the National Law Review.

DOJ Forces $85M End to “Long-Running Conspiracy” to Suppress Poultry Wages

Three poultry processors and a consulting firm that circulated wage information among them have entered a consent decree with the Department of Justice to end a “long-running conspiracy to exchange information about wages and benefits for poultry processing plant workers and collaborate with their competitors on compensation decisions,” a violation of the Sherman Antitrust Act. The poultry companies — Cargill Inc. and Cargill Meat Solutions Corp., Sanderson Farms Inc., and Wayne Farms LLC – agreed to pay nearly $85 million. In addition to the payment, the producers must submit to antitrust monitoring for 10 years.

The decree brings a halt to the exchange of compensation information and deceptive conduct toward chicken growers designed to lower their compensation. The DOJ charged two of the poultry processors – Sanderson Farms, which was just acquired via joint venture between Cargill and Continental Grain Co., and Wayne Farms, owned by Continental – with violating the Packers and Stockyards Act. The companies engaged in deceptive practices via a “tournament system” which pit chicken growers against each other to determine their compensation. Jonathan Meng, meanwhile, president of the data firm Webber, Meng, Sahl & Company, is banned from the industry for his role as information broker for the producers.

Cargill is a privately held, multinational corporation based in Minnetonka, Minn. The corporation’s major businesses are trading, purchasing and distributing grain and other agricultural commodities. In 2021, Cargill generated revenue of about $134.4 billion. In the meat and poultry processing industry, Cargill’s $20 billion in revenue in 2021 put it in third place behind Tyson Foods Inc. ($43 billion) and JBS USA Holdings, Inc. ($39 billion) and one notch ahead of Sysco Corp. ($18 billion).

Just days before the settlement, Bloomberg Law reporter Dan Papsucn wrote, Sanderson Farms was acquired for $4.5 billion via joint venture between Cargill and Continental Grain Co. Wayne Farms was already owned by Continental. The acquisition combined the third and sixth-largest companies in U.S. chicken production to form the new Wayne-Sanderson Farms company. Before they were merged, Sanderson Farms and Wayne Farms annually were generating approximately $3.56 billion and $2.2 billion, respectively.

The DOJ’s investigation continues into the activities of several unnamed co-conspirators. The government’s suit was filed in federal court in Maryland (U.S. v. Cargill Meat Solutions Corp., et al., No. 1:22-cv-01821 D. Md.).

Increased Federal Attention

The poultry industry case demonstrates that the antitrust law enforcers at DOJ, in addition to those at the Federal Trade Commission, remain dedicated to increasing competition in such concentrated labor markets. Worker mobility is something President Biden has promised to protect. FTC Chairwoman Lina Khan is considering new regulations to ban non-competes and to target them with enforcement actions, according to Wall Street Journal reporters Dave Michaels and Ryan Tracy.

Agreements entered without the cloak of legitimate competitive concerns by employers are called “naked” agreements. In 2016 DOJ and FTC jointly declared that naked wage-fixing or no-poaching agreements were per se illegal under antitrust laws. If the agreement is separate from or not reasonably necessary to achieve a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under antitrust laws. For these legitimate ventures the DOJ advocates the “rule of reason” or “quick-look analysis.” Also in 2016, DOJ said it would proceed with criminal actions against naked wage-fixing or no-poaching agreements.

Of course, support for the legitimacy of non-competes and no-poaching agreements splits along party lines. Sometimes the issue isn’t whether the agreements should be eliminated, but who should eliminate them. The question becomes: Is this the purview of the federal government or is it up to state legislatures?

Private Litigation

Private actions are another consideration for employers. Auto repair chain Jiffy Lube, which is owned by Shell Oil Company, recently agreed to pay $2 million to settle claims that it used illegal no-poaching agreements which prevented franchise owners from hiring current or recent employees of other Jiffy Lube franchises. The settlement will be shared among 1,250 hourly workers in the Philadelphia metropolitan area in Pennsylvania, New Jersey and Delaware.

According to the class action complaint, Jiffy Lube used these agreements to suppress wages and prevent workers from achieving better terms of employment. Employees had to wait six months after leaving one Jiffy Lube shop before attempting to work at another, according to the terms. Workers sued claiming this was a violation of the Sherman Antitrust Act.

The case was filed in U.S. District Court for the Eastern District of Pennsylvania (Victor Fuentes v. Royal Dutch Shell PLC, et al., Case No. 2:18-cv-05174, E.D. Pa.).

Employers Beware

As these cases demonstrate, many employers don’t realize (or may not care) that these types of arrangements can be considered anticompetitive or that their employment agreements can create substantial antitrust liabilities. In addition to public and private litigation, restrictive employment agreements can tank business deals. Imagine your M&A deal craters when a buyer discovers you have a no-poach agreement with competitors. You might not have seen it as problematic until your prospective buyer walks away because of the risk and your once promising deal is over.

Employers and business owners who wish to protect themselves when employees leave for new positions need to be careful how they go about building their defenses because doing it wrong can mean both civil and criminal charges against corporations and individuals, as these cases illustrate. Critical questions need to be answered in employment agreements and business deals. Is the employer – such as a franchisor – trying to stop intramural poaching within its own system, effectively causing vertical restraint? Or is it trying to legitimately protect itself from losing employees to competitors, or horizontal restraint? These are questions best addressed by counsel with a sophisticated understanding of antitrust law, employment agreements, and mergers and acquisitions.

Article By Jennifer M. Oliver of MoginRubin

For more antitrust legal news, click here to visit the National Law Review.

In the Weeds? Humira “Patent Thicket” Isn’t an Antitrust Violation

The US Court of Appeals for the Seventh Circuit affirmed that welfare benefit plans that bought the drug Humira did not have valid antitrust claims against the patent owner. The Court found that amassing patents by itself is not enough to give rise to an antitrust claim, and that the welfare benefit plans would need to prove that the patents were invalid. Mayor and City Council of Baltimore, et al. v. AbbVie Inc., et al., Case No. 20-2402 (7th Cir. Aug. 1, 2022) (Easterbrook, Wood, Kirsch, JJ.)

AbbVie owns a patent covering Humira, which is a drug used to treat arthritic and inflammatory diseases. Humira is not covered by the Hatch-Waxman Act because it is a biologic drug, rather than a synthetic drug. Biologics are covered by the Biologics Price Competition and Innovation Act (BPCIA), under which a competitor must ask the US Food and Drug Administration for permission to sell a “biosimilar” drug based on certain guidelines. From the first sale of the original drug, the competitor must wait 12 years to enter the market. If the original drug seller believes that a patent blocks competition and initiates litigation, the competitor is still free to sell its biosimilar drug. The competitor sells at risk of an adverse outcome in the litigation.

The original Humira patent expired in 2016, but AbbVie obtained 132 additional patents related to the drug. After the 12-year BPCIA requirement passed, none of AbbVie’s competitors chose to launch a biosimilar. Instead, competitors settled with AbbVie on terms to enter the US market in 2023. In exchange, AbbVie agreed that enforcement of all 132 of its patents would end in 2023 even if they were not set to expire.

Welfare benefit plans that pay for Humira on behalf of covered beneficiaries accused AbbVie of violating Sections 1 and 2 of the Sherman Antitrust Act. The payors argued that AbbVie’s settlements with potential competitors established a conspiracy that restrained competition in violation of Section 1, and that AbbVie’s “patent thicket” allowed AbbVie to reap unlawful monopoly profits from Humira after expiration of the original patent in violation of Section 2. The district court dismissed the complaint. The payors appealed.

The issue on appeal with respect to Section 2 was whether the payors had to prove that all of AbbVie’s Humira-related patents were invalid. Under the Walker Process antitrust doctrine, a party may be liable for an antitrust violation if it knowingly asserts a fraudulently procured patent in an attempt to monopolize a market. The payors did not argue that all 132 of AbbVie’s patents were fraudulent. The Seventh Circuit reasoned that because the patent laws do not set a cap on the number of patents a person (or company) can hold, the payors would need to prove that each of AbbVie’s 132 Humira-related patents were invalid to succeed in showing a violation under Section 2. Not only did the payors fail to prove that all 132 patents were invalid, but they did not even offer to do so. The Court thus agreed with the district court that AbbVie did not amass a patent thicket to maintain monopoly profits from Humira.

The issue on appeal with respect to Section 1 was whether AbbVie’s settlements with potential biosimilar competitors were anticompetitive. The Seventh Circuit found that the payors could have a Section 1 claim if they were injured by the terms of AbbVie’s settlements with its competitors (for example, by showing that AbbVie overpaid a competitor to defer entry). The terms of AbbVie’s settlements allowed the competitors immediate entry to the European market, and AbbVie agreed to US market entry before its last Humira-related patents expired. The Court found that those terms, as well as the payors’ failure to show that AbbVie overpaid the competitors to delay their entry, rendered the settlements lawful.

The Seventh Circuit therefore affirmed the district court’s dismissal.

Article By Alexandra Lewis of McDermott Will & Emery

For more intellectual property legal news, click here to visit the National Law Review.

Threats of Antitrust Enforcement in the Supply Chain

With steep inflation and seemingly constant disruptions in supply chains for all manner of goods, the Biden Administration has turned increasingly to antitrust authorities to tame price increases and stem future bottlenecks. These agencies have used the myriad tools at their disposal to carry out their mandate, from targeting companies that use supply disruptions as cover for anti-competitive conduct, to investigating industries with key roles in the supply chain, to challenging vertical mergers that consolidate suppliers into one firm. In keeping with the Administration’s “whole-of-government” approach to antitrust enforcement, these actions have often involved multiple federal agencies.

Whatever an entity’s role in the supply chain, that company can make a unilateral decision to raise its prices in response to changing economic conditions. But given the number of enforcement actions, breadth of the affected industries, and the government’s more aggressive posture toward antitrust enforcement in general, companies should tread carefully.

What follows is a survey of recent antitrust enforcement activity affecting supply chains and suggested best practices for minimizing the attendant risk.

Combatting Inflation as a Matter of Federal Antitrust Policy

Even before inflation took hold of the U.S. economy, the Biden Administration emphasized a more aggressive approach to antitrust enforcement. President Biden appointed progressives to lead the antitrust enforcement agencies, naming Lina Kahn chair of the Federal Trade Commission (FTC) and Jonathan Kanter to head the Department of Justice’s Antitrust Division (DOJ). President Biden also issued Executive Order 14036, “Promoting Competition in the American Economy.” This Order declares “that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony….” To that end, the order takes a government-wide approach to antitrust enforcement and includes 72 initiatives by over a dozen federal agencies, aimed at addressing competition issues across the economy.

Although fighting inflation may not have been the initial motivation for the President’s agenda to increase competition, the supply disruptions wrought by the COVID-19 pandemic and persistent inflation, now at a 40-year high, have made it a major focus. In public remarks the White House has attributed rising prices in part to the absence of competition in certain industries, observing “that lack of competition drives up prices for consumers” and that “[a]s fewer large players have controlled more of the market, mark-ups (charges over cost) have tripled.” In a November 2021 statement declaring inflation a “top priority,” the White House directed the FTC to “strike back at any market manipulation or price gouging in this sector,” again tying inflation to anti-competitive conduct.

The Administration’s Enforcement Actions Affecting the Supply Chain

The Administration has taken several antitrust enforcement actions in order to bring inflation under control and strengthen the supply chain. In February, the DOJ and FBI announced an initiative to investigate and prosecute companies that exploit supply chain disruptions to overcharge consumers and collude with competitors. The announcement warned that individuals and businesses may be using supply chain disruptions from the COVID-19 pandemic as cover for price fixing and other collusive schemes. As part of the initiative, the DOJ is “prioritizing any existing investigations where competitors may be exploiting supply chain disruptions for illicit profit and is undertaking measures to proactively investigate collusion in industries particularly affected by supply disruptions.” The DOJ formed a working group on global supply chain collusion and will share intelligence with antitrust authorities in Australia, Canada, New Zealand, and the UK.

Two things stand out about this new initiative. First, the initiative is not limited to a particular industry, signaling an intent to root out collusive schemes across the economy. Second, the DOJ has cited the initiative as an example of the kind of “proactive enforcement efforts” companies can expect from the division going forward. As the Deputy Assistant Attorney General for Criminal Enforcement put it in a recent speech, “the division cannot and will not wait for cases to come to us.”

In addition to the DOJ’s initiative, the FTC and other federal agencies have launched more targeted inquiries into specific industries with key roles in the supply chain or prone to especially high levels of inflation. Last fall, the FTC ordered nine large retailers, wholesalers, and consumer good suppliers to “provide detailed information that will help the FTC shed light on the causes behind ongoing supply chain disruptions and how these disruptions are causing serious and ongoing hardships for consumers and harming competition in the U.S. economy.” The FTC issued the orders under Section 6(b) of the FTC Act, which authorizes the Commission to conduct wide-ranging studies and seek various types of information without a specific law enforcement purpose. The FTC has in recent months made increasing use of 6(b) orders and we expect may continue to do so.

Amid widely reported backups in the nation’s ports, the DOJ announced in February that it was strengthening its partnership with and lending antitrust expertise to the Federal Maritime Commission to investigate antitrust violations in the ocean shipping industry. In a press release issued the same day, the White House charged that “[s]ince the beginning of the pandemic, these ocean carrier companies have been dramatically increasing shipping costs through rate increases and fees.” The DOJ has reportedly issued a subpoena to at least one major carrier as part of what the carrier described as “an ongoing investigation into supply chain disruption.”

The administration’s efforts to combat inflation through antitrust enforcement have been especially pronounced in the meat processing industry. The White House has called for “bold action to enforce the antitrust laws [and] boost competition in meat processing.” Although the DOJ suffered some well-publicized losses in criminal trials against some chicken processing company executives, the DOJ has obtained a $107 million guilty plea by one chicken producer and several indictments.

Most recently, the FTC launched an investigation into shortages of infant formula, including “any anticompetitive [] practices that have contributed to or are worsening this problem.” These actions are notable both for the variety of industries and products involved and for the multitude of enforcement mechanisms used, from informal studies with no law enforcement purpose to criminal indictments.

Preventing Further Supply-Chain Consolidation

In addition to exposing and prosecuting antitrust violations that may be contributing to inflation and supply issues today, the Administration is taking steps to prevent further consolidation of supply chains, which it has identified as a root cause of supply disruptions. DOJ Assistant Attorney General Kanter recently said that “[o]ur markets are suffering from a lack of resiliency. Among many other things, the consequences of the pandemic have revealed supply chain fragility. And recent geopolitical conflicts have caused prices at the pump to skyrocket. And, of course, there are shocking shortages of infant formula in grocery stores throughout the country. These and other events demonstrate why competition is so important. Competitive markets create resiliency. Competitive markets are less susceptible to central points of failure.”

Consistent with the Administration’s concerns with consolidation in supply chains, the FTC is more closely scrutinizing so-called vertical mergers, combinations of companies at different levels of the supply chain. In September 2021, the FTC voted to withdraw its approval of the Vertical Merger Guidelines published jointly with the DOJ the year before. The Guidelines, which include the criteria the agencies use to evaluate vertical mergers, had presumed that such arrangements are pro-competitive. Taking issue with that presumption, FTC Chair Lina Khan said the Guidelines included a “flawed discussion of the purported pro-competitive benefits (i.e., efficiencies) of vertical mergers” and failed to address “increasing levels of consolidation across the economy.”

In January 2022, the FTC and DOJ issued a request for information (RFI), seeking public comment on revisions to “modernize” the Guidelines’ approach to evaluating vertical mergers. Although the antitrust agencies have not yet published revised Guidelines, the FTC has successfully blocked two vertical mergers. In February, semiconductor chipmaker, Nvidia, dropped its bid to acquire Arm Ltd., a licenser of computer chip designs after two months of litigation with the FTC. The move “represent[ed] the first abandonment of a litigated vertical merger in many years.” Days later Lockheed Martin, faced with a similar challenge from the FTC, abandoned its $4.4 billion acquisition of missile part supplier, Aerojet Rocketdyne. In seeking to prevent the mergers, the FTC cited supply-chain consolidation as one motivating factor, noting for example that the Lockheed-Aerojet combination would “further consolidate multiple markets critical to national security and defense.”

Up Next? Civil Litigation

This uptick in government enforcement activity and investigations may lead to a proliferation of civil suits. Periods of inflation and supply disruptions are often followed by private plaintiff antitrust lawsuits claiming that market participants responded opportunistically by agreeing to raise prices. A spike in fuel prices in the mid-2000s, for example, coincided with the filing of class actions alleging that four major U.S. railroads conspired to impose fuel surcharges on their customers that far exceeded any increases in the defendants’ fuel costs, and thereby collected billions of dollars in additional profits. That case, In re Rail Freight Fuel Surcharge Antitrust Litigation, is still making its way through the courts. Similarly, in 2020 the California DOJ brought a civil suit against two multinational gas trading firms claiming that they took advantage of a supply disruption caused by an explosion at a gasoline refinery to engage in a scheme to increase gas prices. All indicators suggest that this trend will continue.

Reducing Antitrust Risk in the Supply Chain and Ensuring Compliance

Given the call to action for more robust antitrust enforcement under Biden’s Executive Order 14036 and the continued enhanced antitrust scrutiny of all manner of commercial activities, companies grappling with supply disruptions and rampant inflation should actively monitor this developing area when making routine business decisions.

As a baseline, companies should have an effective antitrust compliance program in place that helps detect and deter anticompetitive conduct. Those without a robust antitrust compliance program should consider implementing one to ensure that employees are aware of potential antitrust risk areas and can take steps to avoid them. If a company has concerns about the efficacy of its current compliance program, compliance reviews and audits – performed by capable antitrust counsel – can be a useful tool to identify gaps and deficiencies in the program.

Faced with supply chain disruptions and rampant inflation, many companies have increased the prices of their own goods or services. A company may certainly decide independently and unilaterally to raise prices, but those types of decisions should be made with the antitrust laws in mind. Given the additional scrutiny in this area, companies may wish to consider documenting their decision-making process when adjusting prices in response to supply chain disruptions or increased input costs.

Finally, companies contemplating vertical mergers should recognize that such transactions are likely to garner a harder look, and possibly an outright challenge, from federal antitrust regulators. Given the increased skepticism about the pro-competitive effects of vertical mergers, companies considering these types of transactions should consult antitrust counsel early in the process to help assess and mitigate some of the risk areas with these transactions.

Article By Elizabeth A. N. Haas, Ian T. Hampton, and Kate E. Gehl of Foley & Lardner LLP

For more antitrust legal news, click here to visit the National Law Review.

Federal Bill Would Broaden FTC’s Role in Cybersecurity and Data Breach Disclosures

Last week, the House Energy and Commerce Committee advanced H.R. 4551, the “Reporting Attacks from Nations Selected for Oversight and Monitoring Web Attacks and Ransomware from Enemies Act” (“RANSOMWARE Act”). H.R. 4551 was introduced by Consumer Protection and Commerce Ranking Member Gus Bilirakis (R-FL).

If it becomes law, H.R. 4551 would amend Section 14 of the U.S. SAFE WEB Act of 2006 to require not later than one year after its enactment, and every two years thereafter, the Federal Trade Commission (“FTC”) to transmit to the Committee on Energy and Commerce of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate a report (the “FTC Report”). The FTC Report would be focused on cross-border complaints received that involve ransomware or other cyber-related attacks committed by (i) Russia, China, North Korea, or Iran; or (ii) individuals or companies that are located in or have ties (direct or indirect) to those countries (collectively, the “Specified Entities”).

Among other matters, the FTC Report would include:

The number and details of cross-border complaints received by the FTC (including which such complaints were acted upon and which such complaints were not acted upon) that involve ransomware or other cyber-related attacks that were committed by the Specified Entities;
A description of trends in the number of cross-border complaints received by the FTC that relate to incidents that were committed by the Specified Entities;
Identification and details of foreign agencies, including foreign law enforcement agencies, located in Russia, China, North Korea, or Iran with which the FTC has cooperated and the results of such cooperation, including any foreign agency enforcement action or lack thereof;
A description of FTC litigation, in relation to cross-border complaints, brought in foreign courts and the results of such litigation;
Any recommendations for legislation that may advance the security of the United States and United States companies against ransomware and other cyber-related attacks; and
Any recommendations for United States citizens and United States businesses to implement best practices on mitigating ransomware and other cyber-related attacks

Cybersecurity is an area of recent federal government focus, with other measures recently taken by President Biden, the Securities and Exchange Commission, the Food and Drug Administration, and other stakeholders.

Additionally, H.R. 4551 is also consistent with the FTC’s focus on data privacy and cybersecurity. The FTC has increasingly taken enforcement action against entities that failed to timely notify consumers and other relevant parties after data breaches and warned that it would continue to apply heightened scrutiny to unfair data security practices.

In May 2022, in a blog post titled “Security Beyond Prevention: The Importance of Effective Breach Disclosures,” the FTC’s Division of Privacy and Identity Protection had cautioned that “[t]he FTC has long stressed the importance of good incident response and breach disclosure as part of a reasonable information security program, and that, “[i]n some instances, the FTC Act creates a de facto breach disclosure requirement because the failure to disclose will, for example, increase the likelihood that affected parties will suffer harm.”

As readers of CPW know, state breach notification laws and sector-specific federal breach notification laws may require disclosure of some breaches. However, as of May 2022 it is now expressly the position of the FTC that “[r]egardless of whether a breach notification law applies, a breached entity that fails to disclose information to help parties mitigate reasonably foreseeable harm may violate Section 5 of the FTC Act.” This is a significant development, as notwithstanding the absence of a uniform federal data breach statute, the FTC is anticipated to continue exercise its enforcement discretion under Section 5 concerning unfair and deceptive practices in the cybersecurity context.

Article By Kristin L. Bryan and Jeffrey L. Turner of Squire Patton Boggs (US) LLP

For more privacy and cybersecurity legal news, click here to visit the National Law Review.

NLRB To Begin Partnering With DOJ To Combat Collusion

The National Labor Relations Board and The Department of Justice joined forces to sign a memorandum of understanding (“MOU”) between the two entities. The MOU follows President Biden’s Executive Order in 2021 aimed at increasing competition in the economy. The NLRB and DOJ plan to coordinate in order to ensure workers are able to freely exercise their rights and to protect competitive labor markets.

According to the DOJ, this new partnership will allow the two agencies to “share information on potential violations of the antitrust and labor laws, collaborate on new policies and ensure that workers are protected from collusion and unlawful employer behavior.” The two agencies plan on greater coordination in information sharing, enforcement activity and training. Furthermore, the two agencies will now refer potential violations that they discover in their own investigations to each other.

For employers, this continues the trend of the federal government stepping up their investigatory and enforcement actions.

Article By Isaac T. Caverly of Polsinelli PC

For more labor and employment legal news, click here to visit the National Law Review.

The FTC Seemingly Thumbs Its Nose at the Supreme Court

Despite the Supreme Court’s recent 6-3 ruling in West Virginia v. EPA that regulatory agencies must have “clear congressional authorization” to make rules pertaining to “major questions” that are of “great political significance” and would affect “a significant portion of the American economy,” and the import of that ruling to the area of noncompete regulation, the Federal Trade Commission (FTC) and National Labor Relations Board (NLRB) announced yesterday that they are teaming up to address certain issues affecting the labor market, including the regulation of noncompetes.

In a Memorandum of Understanding (MOU) issued on July 19, 2022, the FTC and NRLB shared their shared view that:

continued and enhanced coordination and cooperation concerning issues of common regulatory interest will help to protect workers against unfair methods of competition, unfair or deceptive acts or practices, and unfair labor practices. Issues of common regulatory interest include labor market developments relating to the “gig economy” and other alternative work arrangements; claims and disclosures about earnings and costs associated with gig and other work; the imposition of one-sided and restrictive contract provisions, such as noncompete and nondisclosure provisions; the extent and impact of labor market concentration; the impact of algorithmic decision making on workers; the ability of workers to act collectively; and the classification and treatment of workers. (Emphasis added.)

Accordingly, the purpose of the MOU is “to facilitate (a) information sharing and cross-agency consultations on an ad hoc basis for official law enforcement purposes, in a manner consistent with and permitted by the laws and regulations that govern the [FTC and NLRB], (b) cross-agency training to educate each [agency] about the laws and regulations enforced by the other [agency], and (c) coordinated outreach and education as appropriate.”

This follows the Biden Administration’s July 9, 2021 Executive Order in which it “encourage[d]” the FTC to “consider” exercising its statutory rulemaking authority under the FTC Act “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Nothing concrete has yet come of that Executive Order, although the MOU perhaps represents the next stage of the FTC’s “consider[ation]” of the issue. As we previously reported, FTC Chairwoman Lina Khan recently told the Wall Street Journal that regulating noncompetes “falls squarely in [the FTC’s] wheelhouse,” and she has never been shy about sharing her view that noncompetes should be banned nationwide and that the FTC has the authority to do so. This view does not appear to have changed despite the Supreme Court’s decision in West Virginia v. EPA.

Only time will tell what, if any, action the FTC takes with respect to regulating noncompetes, but if it does take steps to ban or otherwise limit noncompetes nationwide under Section 5 of the FTC Act, there will no doubt be litigation challenging those regulations. And you can bet that the Supreme Court’s decision in West Virginia v. EPA will be front and center in any such challenge. Indeed, according to Law360, U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley said that the MOU shows Chairwoman Khan’s vision for the FTC “goes well beyond what is provided in law and what was envisioned by Congress.” Chairwoman Khan does not seem too perturbed by the prospect of challenges to the FTC’s authority in this regard, however, and seems intent on moving forward despite the Supreme Court’s admonition.

Article By Erik W. Weibust and Stuart M. Gerson of Epstein Becker & Green, P.C.

For more antitrust legal news, click here to visit the National Law Review.

FTC Takes First Actions Under New Made in USA Labeling Rule, Fining Battery Companies for Violations

The Federal Trade Commission (FTC) recently cracked down on Lithionics Battery, LLC, and Lions Not Sheep Products, LLC, for violating the FTC’s Made in USA Labeling Rule. These are some of the first enforcement actions after the FTC codified its longstanding informal Made in USA guidance, which makes it easier for the FTC to seek damages and levy fines. Under the proposed settlement, Lithionics will pay a $100,000 fine for falsely labeling batteries as US-made, while Lions Not Sheep will be required to pay $211,335 for falsely labeling clothing as US-made.

The Made in USA Labeling Rule

Under the Made in USA Labeling Rule, marketers suspected of making unqualified Made in USA claims must prove that their products:

are all or virtually all made in the US;
that all significant processing occurred in the US; and
that the final assembly occurred in the US.

Although Congress enacted legislation authorizing the FTC to seek relief for Made in USA fraud almost thirty years ago, the FTC long remained silent on enforcement due to a general consensus that this specific type of fraud should not be penalized. The 2021 Made in USA Labeling Rule alters this perspective, codifying the FTC’s enforcement policy. With the Commission now being allowed to levy fines, seek damages, penalties, and/or redress on marketers who deceptively and fraudulently represent that their products are made in the US, the FTC has stepped up its enforcement efforts.

The FTC’s Recent Allegations with Lithionics and Lions Not Sheep

Lithionics

Lithionics is a Florida-based company best known for its battery products. The company has become a regular brand throughout American households. It designs and sells products for vehicles, as well as amusement parks.

The FTC alleged that Lithionics has been in violation of the Made in USA Labeling Rule since at least 2018 by intentionally misrepresenting the origin of Lithionics products. According to the Complaint, Lithionics’ products are labeled “Proudly Designed and Built in the USA” and feature an American flag. The claims were also featured across company websites, social media platforms, videos, and printed catalogs. However, according to the FTC, “all Lithionics battery and battery module products contain imported lithium ion cells” and “other significant imported components,” which, if true, would render Lithionics’ Made in USA claims false or unsubstantiated under the Made in USA Labeling Rule.”

Under the proposed order, Lithionics and its owner must stop making these claims unless they can prove their statements are true. As noted above, the company must also pay $100,000 for the alleged activity.

Lions Not Sheep

Lions Not Sheep is a self-proclaimed lifestyle brand that sells sweatshirts, hats, and shirts online.

In its allegations against Lions Not Sheep, the FTC alleged that the company has violated the Made in USA Labeling Rule since May 2021. According to the Complaint, the company intentionally removed tags disclosing that items were made in a foreign country. Instead of leaving the original tags, the FTC alleged that the company replaced them with Made in USA tags despite the products being “wholly imported with limited finishing work performed in the United States.” To make matters worse, the FTC found a video posted on the internet featuring the company’s owner blatantly claiming he could hide the fact that his shirts were made in China.

In addition to charging the company with violating the Made in the USA Labeling Rule, the FTC charged the company with violating mandatory country-of-origin labeling rules, which require all products covered by the Textile Act to include labels disclosing the manufacturer or marketer name and country where the product was manufactured. The company will be prohibited from making these claims and forced to pay $211,335.

Primary Takeaway

With the FTC now levying significant fines under the new Made in USA rule, the potential cost of non-compliance has also significantly increased. Companies should provide notice to their marketing teams and carefully review any existing claims to ensure that Made in USA claims are adequately substantiated and that marketing materials are not conveying unintended implied claims.

Article By Anthony V. Lupo, Dan Jasnow, and Destiny Planter of ArentFox Schiff LLP

For more antitrust legal news, click here to visit the National Law Review.

States Target Infant Formula Price Gouging

There has been a nationwide shortage of infant formula following a recall and temporary closure of a major infant formula manufacturing facility in February 2022. This facility supplied as much as 40% of the nation’s infant formula. In the wake of these events, state attorneys general are on the lookout for unlawful price gouging of infant formula. Sellers of infant formula should make sure that they do not inadvertently run afoul of state price gouging restrictions.

State price gouging laws prohibit price increases above certain thresholds during a period of emergency. Several state governments have recently issued declarations or proclamations that trigger price increase limitations for infant formula, including in California (CA Exec. Order N-10-22, 6/7/2022), Oregon (OR Exec. Procl., 5/13/2022), Colorado (CO Exec. Order D-2022-021, 5/25/2022), New Jersey (NJ Exec. Order No. 296, 5/17/2022), and Kentucky (KY Exec. Order 2022-321, 6/9/2022). Each of these states has a different price gouging restriction. For instance, infant formula sold in California cannot exceed the February 17, 2022 price by more than 10% except in certain limited circumstances. Other states may have a different price increase threshold or a different benchmark date. Multi-state sellers must take care to comply with the restrictions in each state.

Several states, such as Colorado and Nevada, enacted new price gouging laws in the wake of the COVID-19 pandemic. See Colo. Rev. Stat. § 6-1-730; NRS § 598.09235. Enforcers have not had much experience enforcing these statutes, which may mean greater uncertainty for sellers in those states.

Most, but not all states have a price gouging law. In states that do not have a price gouging law, attorneys general will often seek to enforce their state’s unfair or deceptive trade practices act against reports of price gouging. For example, the attorney general of New Mexico, a state without a price gouging law, issued a press release on May 31, 2022 announcing that he is investigating complaints regarding infant formula price gouging. Similar to the COVID-19 pandemic, the infant formula shortage is triggering a variety of different price gouging restrictions in different states at the same time. Navigating the differences from state-to-state can be challenging, particularly in light of the new laws and amended laws that have been recently enacted. Sellers should review their normal pricing practices and make necessary changes to avoid inadvertently running afoul of the restrictions in a particular state.

Article By Leo Caseria and Thomas L. Tyson of Sheppard, Mullin, Richter & Hampton LLP

For more antitrust and trade regulation legal news, click here to visit the National Law Review.

Tag: Antitrust

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