In January, 32 state attorneys general filed an amicus brief in the U.S. Supreme Court, urging the Court to hear and overturn Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 05-2851-cv(L) (2d Cir. 2010) (“Cipro”).  In Cipro, the Second Circuit affirmed its legal standard governing so-called “reverse payments,” which are payments by a brand name drug manufacturer to a generic drug manufacturer in settlement of patent infringement litigation brought by the brand name manufacturer against the generic.  In exchange, the generic agrees not to market its allegedly infringing product.  Because the generic product has yet to be marketed, the generic does not face the risk of paying damages if its product is found to infringe.   

The Second Circuit affirmed its previous holdings that such settlements do not constitute a per se antitrust violation, and that patent settlements are presumptively lawful (unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit).  The state AGs argue in their brief that such settlements cost government agencies and consumers billions of dollars per year in the form of higher drug prices, and that “[m]aintaining open competition in pharmaceutical markets is critical to the States’ ability to provide drugs to their consumers at a reasonable cost, and to control escalating drug costs that threaten to swamp already strained budgets.”  Further, “the legal standard as to reverse payment agreements is subject to widely differing interpretations and results, [and] State antitrust enforcers need clear guidance.” 

The defendants opposed the plaintiffs’ petition for certiorari and the attorneys general’s brief, stating that it was principally a patent case that did not involve “any claims under federal antitrust laws,” thereby presenting “a poor vehicle for” the Supreme Court “to construe those laws.”  The defendants further argue that the “petitioners’ rhetoric about the importance of competition is out of place with respect to competition within the scope of a patent, which by definition grants an inventor freedom from competition within that limited scope for a limited time, in order to promote and reward invention.”

For a detailed discussion of the Cipro case, see this blog’s prior entries on the Second Circuit’s opinions.

The Supreme Court case docket is No. 10-762.

An article detailing the history of reverse-payment antitrust litigation is available here.

The Affordable Care Act provides for the creation of Accountable Care Organizations (“ACOs”), organizations of healthcare providers that agree to be held accountable for the cost and quality of care provided to Medicare beneficiaries.  Beginning in January 2012, Medicare will reward ACOs for meeting certain benchmarks set by the Secretary of Health and Human Services.  As a result, many healthcare providers that historically have been competitors are now seeking to join forces as ACOs.

Although the Affordable Care Act promotes the establishment of ACOs, Congress did not carve out an antitrust exemption for them.  Thus, there is a concern in Washington that ACOs, if not properly regulated, could become monopolies that run afoul of the antitrust laws.  J. Thomas Rosch, a member of the Federal Trade Commission, recently expressed such sentiments in letters written to the White House and the federal Medicare agency, according to The New York Times.  Commissioner Rosch notes the concern that ACOs, through their substantial bargaining power, could drive up the price of privately insured healthcare to offset the loss in Medicare revenue.

Commissioner Rosch’s letters also reveal a struggle between the FTC and the Department of Justice over who should regulate ACOs.  The DOJ is generally viewed by healthcare providers as the entity that is more understanding of their efforts to join forces and collectively negotiate with health insurance plans.  Not surprisingly, healthcare providers believe that the DOJ should regulated ACOs and have accused Mr. Rosch and the FTC of attempting to encroach on the DOJ’s territory.

The antitrust concerns inherent in the conduct of ACOs, and the uncertainty over who will regulate the ACOs’ compliance with the antitrust laws, could lead to a delay in the formation of ACOs.  Hopefully these issues will be resolved sooner rather than later, and ACOs will be allowed to operate within a regulatory framework, consistent with the antitrust laws, to allow them to deliver the cost savings and quality improvements as intended.

A judge in the Southern District of New York has approved a settlement agreement between the Department of Justice and KeySpan Corporation (“KeySpan”) in which KeySpan agreed to disgorge $12 million of profits for alleged violations of Sherman Act Section 1.  KeySpan was once the largest seller of electricity generating capacity in New York City and is owned by National Grid, which purchased it in 2007. 

The Department of Justice alleged that KeySpan manipulated New York City electricity prices to the detriment of consumers by entering into a swap agreement that provided it with an interest in the electricity generating business Astoria Generating Company (“Astoria”), its largest competitor.  According to the Department of Justice, KeySpan’s swap agreement with Astoria raised electricity prices for the consumers of New York City.  The swap was especially effective, according the Department of Justice’s complaint, because the New York City electricity market is highly concentrated, with KeySpan, NRG Energy, Inc., and Astoria, “controlling a substantial portion of generating capacity.”  Moreover, the Department of Justice alleged that KeySpan held market power in the New York City capacity market from 2003 to 2008.  The Federal Energy Regulatory Commission (“FERC”) had described KeySpan and its two principal competitors in New York City as “pivotal suppliers” in recognition of their central role in the local electricity market. 

U.S. District Court Judge William H. Pauley III stated in his decision approving the Settlement that whether the Department of Justice could seek disgorgement of profits was a novel legal question.  He stated that the Department of Justice could pursue this remedy, and added that it was the first time a federal U.S. court had approved disgorgement as an antitrust sanction.  The $12 million disgorgement by KeySpan represented 25 percent of its net revenues from the swap transaction at issue in the Department of Justice complaint.

Judge Pauley stated that such a remedy could prove to be a powerful deterrent and a way of punishing past antitrust violations.  He noted that “[d]isgorgement is particularly appropriate where, as where, the anticompetitive conduct has ceased.”  Such a remedy would, in his view, make a potentially valuable addition to the “government arsenal.”

The parent company of the New York Stock Exchange, NYSE Euronext, has agreed to merge with Deutsche Boerse, the operator of the Frankfurt stock exchange.  In an all-stock deal worth more than $10 billion, Deutsche Boerse will own a majority 60 percent of the new company, and NYSE Euronext shareholders will own 40 percent.  The merger, if approved, would create the world’s largest financial exchange operator and have headquarters in Frankfurt and New York. 

The current president and deputy of NYSE Euronext, Duncan Niederauer, would serve as the new company’s CEO.  Reto Francioni, the current chief executive of Deutsche Boerse, would become chairman. 

A merger of this magnitude will certainly face intense scrutiny by U.S. and European regulators, both because of its sheer size and also for its effect on the world’s financial markets.  The U.S. Department of Justice will review potential antitrust issues, and the Securities and Exchange Commission will also need to give the deal a green light.  In Europe, both the European Commission on antitrust, as well as the German state of Hesse’s Economy, Transport and Development Ministry will have to approve the merger. 

The name of the exchange has yet to be decided, but is already becoming a political issue.  U.S. lawmakers, including New York State Senator Charles Schumer, have expressed concern that the deal may hurt New York’s leadership role in the financial world.  Schumer recently said his approval of the merger depends on whether New York gets top billing in the exchange’s new name. 

The firms hope to complete the merger by the end of the year.

California’s largest supermarkets will have another chance to argue that actions they took in response to a labor strike did not violate antitrust laws.  This second bite at the apple comes courtesy of the Ninth Circuit which, on February 11, granted an en banc hearing to reconsider the initial panel’s decision against the supermarkets.

In the case, California sued the state’s three largest supermarkets: Safeway and its Von’s business, Albertsons, and Kroger’s Ralphs and Food 4 Less businesses.  The state charged that the supermarkets violated antitrust law. 

According to California, the supermarkets illegally agreed to split profits in the face of an impending strike that would affect the companies.  Under their “Mutual Strike Assistance Agreement,” the supermarkets agreed to allocate profits to each other during the strike according to a formula that reflected their historical market shares.  California asserted, and the initial Ninth Circuit agreed, that this conduct violated Section 1 of the Sherman Act, which prohibits conspiracies that restrain trade.  The supermarkets argued that labor law excused their agreement, which also enhanced competition.  The initial panel reversed the district court, which had denied both parties’ motions for summary judgment.

The case is California v. Safeway, Inc., No. 08-55671, D.C. No. 2:04-cv-00687, and the new en banc argument will take place the week of March 21, 2011 in San Francisco.