Although three rivals of IBM have dropped their complaints that IBM illegally tied its mainframe hardware to its operating system, the computer giant is not out of regulatory woods yet.

Both the U.S. Department of Justice (DOJ) and the European Commission maintain ongoing antitrust investigations – sparked by the complaints – into a possible monopoly IBM holds in the mainframe computer market.

In a filing with the U.S. Securities and Exchange Commission (SEC), IBM stated that two providers of IBM compatible emulator software, Neon Enterprise Software LLC and T3 Technologies Inc., have withdrawn their complaints filed with the European Commission.

Turbo Hercules SAS, a company providing similar products, has also dropped all complaints against IBM.  IBM has stated that the settlements did not involve any monetary compensation.

In addition to dropping their European Commission complaints, Neon and T3 are also dropping their antitrust lawsuits filed against IBM in the U.S.

The three companies that had lodged complaints against IBM were providers of emulator software used on mainframe computers.  This technology allows mainframe operating systems and applications to run Windows, Linux, Mac OS, or Solaris as the host environment, thereby bypassing the need for IBM’s proprietary mainframe software. 

The withdrawal of the complaints has not ended the regulatory scrutiny, however.  Neither the DOJ nor the European Commission has concluded its antitrust investigation of IBM.

These investigations came as the result of numerous complaints filed by mainframe emulator software producers.  While the complaints have been withdrawn, the DOJ has requested the documents pursuant to the settled cases.

The European Commission is investigating whether luxury watch manufacturers have suppressed competition by refusing to provide spare parts to independent repairers.

While the Commission has not identified any specific companies, the Swatch Group, parent company of such brands as Omega and Breguet, has identified itself as one of the subjects.  Swatch has said it is confident regarding the outcome of the inquiry.

The probe comes as the result of a complaint filed by the Confederation of Watch and Clock Repairers’ Associations (“CEAHR”) in 2002.  The EU Regulatory Commission initially rejected the complaint because of insufficient community interest, but a 2010 ruling from the General Court in Luxembourg overturned this decision.

CEAHR claims that watch manufacturers’ refusal to provide spare parts to independent watchmakers is harming competition by driving these artisans out of business.  According to CEAHR, consumers are being harmed because manufacturers often refuse to accommodate unique customer requests and carry out repairs without the input of the customer.  CEAHR says that such a restraint on competition enables manufacturers to charge artificially high prices.

A proposed merger of Express Scripts and Medco, two of the largest pharmaceutical benefits managers (“PBMs”) in the United States, is likely to draw a prescription for significant antitrust scrutiny from federal regulators.

PBMs contract with health insurers and employers to manage health insurance plan pharmaceutical benefits, among other ways by negotiating with pharmaceutical manufacturers and pharmacies to lower drug costs.

Express Scripts is seeking to acquire Medco for $29.1 billion in the contemplated transaction, which the FTC will review for compliance with federal antitrust laws.

A combined Express Scripts-Medco company would control at least 30 percent of the drug benefit administration market, followed by CVS Caremark with around 18 percent.  Some estimates place the combined company’s number of covered lives at 135 million Americans.  The transaction would create the largest PBM by far in the U.S., with estimated annual sales of over $100 billion.  CVS Caremark’s PBM would be a distant second at around $60 billion in annual sales, and UnitedHealthcare’s PBM would be far behind the others with only about $30 billion in revenue.

The deal is already drawing fire from pharmacy retailers, who think Express Scripts would use its enlarged market power anticompetitively.  Pharmaceutical manufacturers also have cause for concern given the combined entity’s tremendous market power. 

On the flip side, Medco and Express Scripts almost certainly will attempt to defend the deal by arguing that the combined company will lower health care costs by using its size to push down drug prices, particularly for generic drugs.  The merging parties also are likely to argue that UnitedHealthcare constitutes a fourth big competitor in the market, meaning that the PBM business is shrinking from four to three providers rather than from three to two.

Whether the FTC views a possible post-merger market as being dominated as two or three big players could be crucial to the deal.  As Constantine Cannon partner Ankur Kapoor commented in The New York Times, “[t]hree-to-two mergers have historically been quashed by the antitrust agencies.”

The acquisition agreement requires Express Scripts to take steps to obtain antitrust clearance, including, if the FTC requests such actions, divesting a mail-order dispensing facility, certain specialty pharmacy dispensing or infusion facilities, and certain contracts worth up to $115 million in annual earnings.  The question is whether these steps will be sufficient to satisfy the FTC’s antitrust concerns.

Regulatory review of the proposed merger could take as long as a year because of the size of the deal and its effects on public health.  Thus, there is plenty of time for the different industries and interest groups that may be affected by the deal to make their voices heard.

In a major victory for consumer groups and a substantial blow to deregulation proponents, the U.S. Court of Appeals for the Third Circuit has reined in the Federal Communications Commission (“FCC”) and struck down its revised rules designed to deregulate media ownership.

The Third Circuit’s second major decision in Prometheus Radio Project v. Federal Communications Commission (“Prometheus II”) rejects rules adopted by the FCC in 2007 that would have paved the way to further corporate consolidation of media ownership.  Among other things, Prometheus II blocks the FCC’s attempt to end the 35-year-old ban on ownership by the same entity of a newspaper and a radio station in the same media market.

Rather than a substantive assessment of the FCC’s proposed deregulation of media ownership rules, however, the Third Circuit’s decision was a stinging rebuke of the FCC’s disregard for public notice and comment requirements under the FCC’s then-chairman Kevin J. Martin.

The Third Circuit’s ruling in Prometheus II was not first time the court foiled the FCC’s efforts to lift the cross-ownership ban.  In adopting new rules in 2003, the FCC made its first stab at lifting the cross-ownership ban.

Consumer groups quickly challenged the changes adopted by the FCC in 2003.  In the first round of Prometheus Radio Project v. Federal Communications Commission (“Prometheus I”), the Third Circuit considered consumers’ objections to those revised rules.  The court agreed with the FCC that a complete ban on newspaper/broadcast cross-ownership was no longer necessary to protect media diversity, but held that the regulation of cross-ownership was still in the public’s interest.  Finding that the regulatory mechanism proposed by the FCC in place of the cross-ownership ban suffered a dearth of reasoned analysis, the Third Circuit rejected and remanded the FCC’s 2003 rule changes.

In rejecting and remanding the FCC’s 2003 rule changes, the Third Circuit advised the FCC that “any new ‘metric for measuring diversity and competition in a market be made subject to public notice and comment before it is incorporated into a final rule.”

Despite the Third Circuit’s admonition, the FCC’s July 2006 public notice inviting comment on issues remanded by the court in Prometheus I regarding cross-ownership was vague.  The notice asked only whether limits should vary depending on the characteristics of local markets, and if so, how should they be factored into any limits.  Two Commissioners dissented from the order calling for public notice and comment, complaining that the notice was unclear and open-ended.  Commissioner Michael J. Copps wrote, “I do not see how we can be transparent and comply with the dictates of the Third Circuit [in Promethseus I] without letting the American people know about and comment on any new standards of measurement that we are adopting in developing our ultimate decision.”

On November 13, 2007, The New York Times published an Op-Ed by then-FCC Chairman Martin disclosing the details of his proposal for a new newspaper/broadcast cross-ownership rule.  The same day, Chairman Martin issued a press release setting a 28-day deadline, not the usual 90-day period, for the public to comment on his proposal.

On November 28, 2007, with more than two weeks before the truncated public comment period was to close, Chairman Martin circulated an internal draft of the rulemaking Order to the other Commissioners.  In an effort to slow down the FCC’s rule-making process to provide for a meaningful notice and comment period, on December 17, 2007, a bi-partisan group of 25 U.S. Senators sent the FCC a letter urging it to delay its vote.  The FCC was unmoved by the Senators’ letter and adopted the new rules by a three to two vote on December 18, 2007. 

In Prometheus II, the Third Circuit vacated and remanded the FCC’s new rule governing newspaper/broadcasting cross-ownership with almost no substantive consideration of the rule.  Rather, the court’s ruling was grounded in what it deemed as the FCC’s failure to comply with the Administrative Procedures Act (“APA”).

The FCC conceded that Chairman’s Martin’s Op-Ed/Press-Release did not satisfy the APA’s notice requirements.  It argued, however, that the two sentences contained in its July 2006 notice requesting general comment regarding whether limits should vary depending local market characteristics, and if so, how, satisfied the APA’s notice requirements.

The Third Circuit disagreed, noting that until Chairman’s Martin’s November 2007 Op-Ed/Press Release, “the public did not know even what options he was considering, let alone the Commission.”  The court found the 28 days Chairman Martin provided for responses to his proposed rule in direct contravention with the APA which requires that the public have a meaningful opportunity to submit data and written analysis regarding a proposed rulemaking.

The Third Circuit issued a clear warning that the FCC comply with the APA’s notice and comment requirements in any future attempt to modify its rules.

As part of an effort to streamline their regulatory review of mergers, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) have made “substantive and ministerial” revisions to the form required for proposed mergers under the Hart-Scott-Rodino Act. 

The Hart-Scott-Rodino Act requires companies to seek prior approval for acquisitions exceeding $65 million.  The DOJ and FTC say the changes will make the form easier to complete and make the review process more effective.

Applicants for merger approval will no longer need to provide documents filed with the Securities and Exchange Commission, “base year” data, or a breakdown of voting securities to be acquired.  The updated form includes new categories such as certain revenue information that will assist the antitrust enforcers in making a ruling. 

The DOJ and FTC developed these modifications after seeking public comment.  Bank of America, JPMorgan Chase & Co., and the Sections of Antitrust Law and International Law of the American Bar Association were among the 11 entities that provided recommendations.