Class action arbitrations are not likely to survive the U.S. Supreme Court’s 5-3 decision, in a closely watched antitrust case, that imposing class arbitration on parties that haven’t agreed to it conflicts with the Federal Arbitration Act.

The decision in Stolt-Nielsen S.A. et al. v. Animalfeeds Int’l Corp., No. 08-1198 (April 27, 2010), delivered by Justice Alito, reversed a panel decision by the U.S. Court of Appeals for the Second Circuit, which had confirmed an arbitration panel’s ruling which allowed Animalfeeds to pursue class arbitration against several shipping companies over alleged price-fixing.  The Supreme Court called the panel’s ruling “fundamentally at war” with the principle that arbitration is a matter of consent.

Justice Ruth Bader Ginsburg dissented from the majority opinion, joined by Justices John Paul Stevens and Stephen Breyer, writing that she would have dismissed the petition as improvidently granted, and if she had to reach the merits, she would have adhered to the Federal Arbitration Act’s strict limitations on judicial review of arbitral awards and affirmed the Second Circuit.

As it is highly unlikely – especially after this decision – that any arbitration agreement would explicitly permit class arbitration, the ruling may well be a death blow for class action arbitrations.

While in recent years the conservative-leaning high court has been favorable toward arbitration, it has also been notably hostile toward class actions as a procedural mechanism.  In this case, its hostility toward class actions appears to have trumped its general approval of arbitration as an acceptable means of resolving disputes.

Furthermore, the decision largely validated the enforceability of class action waivers, rejecting the view of some courts that have found such waivers unconscionable because they effectively preclude consumers from vindicating small-dollar claims.

Only time will tell how far-reaching the impact of this decision will be, including what will happen to the hundreds of pending class arbitration proceedings as defending parties begin using this decision to challenge claims.  However, it seems likely that class actions will continue to fare poorly in cases that reach the high court.

The European Commission has unveiled new draft rules for horizontal cooperation agreements as part of the EC’s Horizontal Guidelines and Research & Development and Specialization Agreement Block Exemption Regulations (BERs).

The new rules aim to clarify when companies’ horizontal agreements will be deemed to restrict competition and when such agreements will qualify for an exemption.  The rules include a new chapter on information exchange, and substantial revisions to the standardization chapter.  The revised rules also aim to prevent disputes over licensing fees charged by companies for their intellectual property rights once they become the standard.

Key issues addressed in the revised Horizontal Guidelines include:

• An assessment of information exchange between companies;
• Guidance on standard terms in the chapter on standardization;
• Clarification of the application of the competition rules to agreements between joint ventures and their parents; and
• Elimination of the “center of gravity test” which previously defined which parts of the guidelines were applicable to an agreement.

Key issues addressed in the revised R&D and Standardization Agreement regulations include:

• Disclosure of relevant intellectual property rights and readjustment of the “hardcore” restrictions;
• Introduction of a second market share threshold for specialization and joint production agreements pertaining to products used for internal consumption; and
• Clarifications to the notion of “potential competitor”, with the introduction of a three-year timeframe for future market entry.

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Class actions may become a scarcer commodity if Wal-Mart can convince the Supreme Court that a recent decision of the United States Court of Appeals for the Ninth Circuit applies too lenient a standard for certifying class actions.

The Ninth Circuit’s decision in Dukes v. Wal-Mart Stores, Inc., 2010 WL 1644259 (9th Cir. April 26, 2010), an employment discrimination class action under Title VII of the 1964 Civil Rights Act, may be destined for review by the Supreme Court, setting the stage for the resolution of class-action certification issues that have divided appellate courts.

In particular, the case raises the issue of the extent to which a district court should consider the merits in deciding whether to certify a proposed class.  This issue will be of particular importance in antitrust class actions, in which evidence of the violation is often in the exclusive hands of the defendants and thus unavailable to plaintiffs at the class certification stage.

The plaintiffs allege that Wal-Mart, the world’s largest private employer, discriminates against women in payment and promotion.  The district court had certified most of the claims for class action treatment.  Wal-Mart appealed, and a majority of a three-judge panel of the Ninth Circuit affirmed the district court.  Wal-Mart sought a rehearing en banc.

On April 26, 2010, in a six-to-five opinion, the en banc Ninth Circuit affirmed the district court’s order.  The majority held that a district court’s analysis under Federal Rule of Civil Procedure 23 generally must include a review of a case’s merits – but only to the extent that they overlap with the Rule 23 inquiry.  If they do not implicate Rule 23 issues, the majority held, a district court may not consider merits.  The dissent argued that even at the certification stage, a plaintiff in a putative class action must show “significant proof” that it would prevail on the merits.  Wal-Mart, arguing that serious flaws pervade the plaintiffs’ case, seeks more robust analysis of merits issues at the certification stage.

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Federal regulators are on the verge of answering the question of “Where’s the beef?” in the Obama administration’s regulation of competition the meat industry.

The United States Department of Agriculture will soon release new proposed antitrust rules for the meat industry that could significantly alter the balance of power between farmers and the big companies that buy their meat.  Although the USDA has not said when the new proposed rules will be made public, the 2008 Farm Bill requires that they be put in place by summer, which means the announcement could be made any day now.

There is widespread speculation among activists, farmers and meat industry officials about how far the Obama administration will go in regulating competition in the industry.  The proposed rules are likely to address, among other things, when a company may lawfully choose to buy one producer’s cattle or hogs over another, and when poultry companies can require farmers to upgrade their chicken houses with new equipment.

The new rules may well prove to be the most sweeping antitrust rules for the meat industry in decades.  The Obama administration has already signaled an interest in greater regulation with a series of joint Department of Justice and USDA workshops on competition and regulatory issues in the agriculture industry.  The stringency of the new rules is likely to be a good indicator of the administration’s regulatory bent.

The meat industry anxiously awaits the new rules, which could affect the prices paid by the consumer.  Although the meat industry is already heavily regulated, the market has limited competition.  For example, only four companies buy and slaughter 80% of the beef in the U.S.  Likewise, poultry companies determine chicken prices and can compel farmers to upgrade their chicken houses even though farmers argue that the upgrades only benefit the poultry company.

It seems likely that the Obama administration will be proposing – and fighting for – regulations that are tougher and father reaching than any since the Great Depression.  The big meat industry companies are already gearing up to protest any rules they deem too strict.

Reverse payment settlements, which have inhibited the use of generic drugs, may be alive and well for now, but the United States Court of Appeals for the Second Circuit is recommending that unsuccessful plaintiffs challenging such a settlement seek a second opinion.

On Thursday, a panel for the Second Circuit reluctantly upheld a so-called reverse payment settlement in In re Ciprofloxacin Hydrochloride Antitrust Litigation, but took the extraordinary step of recommending the unsuccessful challengers petition for rehearing in banc.

In the settlement, Bayer, the patent holder for ciprofloxacin hydrocloride (“Cipro”) – the most prescribed antibiotic in the world – agreed to pay Barr Laboratories to drop its validity challenge to the Bayer patent and not enter the Cipro market.  Barr had filed an abbreviated new drug application (“ANDA”), with the FDA to supply a generic form of Cipro.  Under the the Hatch-Waxman Act, ANDA filers do not have to prove to the FDA that their generic drugs are safe and effective, inasmuch as these drugs are bioequivalents of previously approved drugs.

Stating that it was bound by the Second Circuit’s 2005 ruling in In re Tamoxifen Citrate Antitrust Litigation, the panel held per curium that it is presumed that such reverse payment settlements do not offend antitrust norms, as “the right to enter into reverse exclusionary payment agreements fall within the terms of the exclusionary grant conferred by the branded manufacturer’s patent.”  As a result, it found the Cipro reverse payment settlement to be legal. 

However, the Court also noted that such reverse payment settlements have been criticized by the FTC (and virulently criticized by the FTC Chairman, Jonathan Leibowitz), the Antitrust Division, scholars and a number of courts.  Indeed, while noting that it did not have the authority to overrule Tamoxifen, the panel noted that there were “compelling reasons to revisit Tamoxifen.”  The panel thus “invited” the plaintiffs to file a petition for an en banc rehearing so that Tamoxifen could be thoroughly examined by the full Second Circuit.

If the Second Circuit reverses Tamoxifen and sets a more liberal standard for finding reverse payment settlements anticompetitive, such as a standard that would invalidate such settlements when patent challengers are paid amounts that have no relation to the risk that they face or the attendant costs of continuing with litigation, there would be a “split in the Circuits” that would make Supreme Court review of this issue ripe for Supreme Court review.

As the issue of reverse payments was recently debated as part of the federal health care reform overall, but was not ultimately dealt with in that legislation, there is a very good chance that this issue will ultimately be headed for Supreme Court.