As CVS Caremark is learning, even an approved merger does not protect a company from later being accused of anti-competitive behavior as a result of the merger.  As we wrote in an earlier post, the Federal Trade Commission began investigating CVS Caremark Corp., which has been accused of anti-competitive practices, in spite of the fact that the FTC approved its merger several years ago.  The 2007 merger—worth $27 billion—combined CVS, a drugstore chain, and Caremark, a pharmacy benefits manager, and proceeded with the FTC’s blessing after a review under Hart-Scott-Rodino Antitrust Improvements Act.

Although the FTC has already confirmed that it is conducting an investigation—and in June FTC Chairman Jon Leibowitz confirmed that he had met with CVS Caremark officials and that the agency was in the process of receiving documents from them—the American Antitrust Institute is urging the FTC to aggressively pursue the possible antitrust violations at CVS Caremark.

The AAI claims that CVS Caremark is engaging in anti-competitive practices designed to force consumers to use CVS pharmacies.  According to Albert Foer, the AAI president, “evidence that this conduct is now occurring would clearly establish that the merger did in fact enable and incent the combined firm to engage in this conduct.”  The AAI claims that this conduct includes misusing information from the Caremark side of the business, including private patient information, to force consumers to use CVS over rival pharmacies.  In addition, the AAI claims that CVS Caremark is using its “maintenance choice” program to force consumers to use CVS.  The “maintenance choice” program allows consumers to only get prescriptions by mail or at CVS, and the company has been accused of enrolling consumers without their permission.

The AAI is not the only entity urging the FTC to take another close look at the CVS Caremark merger.  Eight members of Congress (four Democrats and four Republicans), asked the FTC to do exactly that in a September 2009 letter.  Should the FTC heed the congressmen and the AAI, a possible outcome could be divestiture.

Zipcar Inc., the worldwide leader in car-sharing with over 500,000 members and 8,000 vehicles, was granted approval in its bid to acquire Streetcar Limited, a leading car-sharing company in the UK.  The Competition Commission, the UK’s independent public body responsible for investigating mergers, found it unlikely that the merger would lead to a decrease in competition, thereby permitting the acquisition to advance.

On April 21, 2010, Zipcar acquired all of the issued share capital of Streetcar.  Given the size of these two companies in the relevant market, the UK’s antitrust watchdog, the Office of Fair Trading, referred the matter to the Competition Commission for investigation and report, pursuant to the Enterprise Act of 2002.

Car-sharing companies, or car clubs, allow members to access available vehicles 24 hours a day, without the hassles or high costs of car ownership.  A recent article found at www.prnewswire.com cites an independent study commissioned by Zipcar for the proposition that “Millennials” (18 to 34-Year Olds) are generally driving less and seeking alternative access to automobiles.  Car-sharing companies may satisfy this growing demand.

The Competition Commission found that notwithstanding the merger of two large competitors in the relevant market, the industry was poised for substantial growth and entry.  “All, else being equal, a growing market will encourage new entrants, as new entrants can gain members without having to win them away from existing relationships with other car club operators,” the Provisional Findings Report states. 

The Report made particular note of the relatively low barriers to entry given that car-sharing companies are “not high-fixed-cost businesses relative to the size of the market.”  The likelihood and magnitude of entry would compensate for any foreseeable loss of competition.

Of all the substantive areas of American law, antitrust is perhaps the one that most aggressively reaches foreign conduct.  Ever since the Second Circuit’s 1945 Alcoa opinion (United States v. Aluminum Co. of America, 148 F.2d 416), courts and Congress have recognized that foreign conduct, when it affects U.S. commerce, can violate U.S. antitrust laws.  Thus U.S. antitrust regulators sometimes seek evidence of foreign conduct as they weigh whether to bring charges.  A recent decision demonstrates the extent to which, in today’s globalized economy, courts will enforce such pre-lawsuit investigative requests by regulators.

The decision is the October 29, 2010 Order of the United States District Court for the District of Columbia in Federal Trade Commission v. Church & Dwight Co., Inc.  The U.S. Federal Trade Commission (“FTC”) is investigating Church & Dwight (“C&D”), the maker of Trojan condoms, for monopoly maintenance or attempted monopolization in the U.S. condom market – specifically by agreeing to provide retailers with rebates or discounts in exchange for certain display arrangements.  The FTC is considering whether such agreements, if they exist, violate Section 5 of the Federal Trade Commission Act.

The FTC served C&D with a subpoena and a Civil Investigative Demand (“CID”) for documents regarding C&D’s incentive programs for retailers.  C&D refused to comply.  Citing relevance and burden, it challenged several aspects of the requests, including one for documents from C&D’s Canadian subsidiary.  These documents were not relevant, C&D argued, because the FTC’s inquiry was limited to whether C&D monopolized condom sales or distribution “in the United States.”

The Court held that the Canadian evidence was relevant to the investigation.  First, the Court held, the relevance standard governing enforcement of the FTC’s requests is quite liberal: it is satisfied so long as the FTC’s relevance arguments are not “obviously wrong.”  Here, the FTC contended that the Canadian documents were relevant because they may reveal the effects of C&D’s sales practices on its market shares.  C&D has a far lower share in Canada than in the U.S., the FTC argued, and the Canadian documents may shed light on whether different sales practices in the two countries produced this result.  The Court sided with the FTC, finding its argument “not obviously wrong.”  In doing so, the Court observed that the Canadian subsidiary’s conduct could have helped C&D secure a monopoly in the U.S., or could otherwise shed light on the investigation.  In light of such possibilities “in a globalized economy,” the Court held, a federal regulator must be able to investigate foreign subsidiaries.

As to burden, the Court first held that C&D did not adequately show that the burden would be impermissible.  The Court held that C&D was required to show that the FTC’s inquiry would threaten to “unduly disrupt or seriously hinder” C&D’s business operations.  C&D offered no affidavit or other evidence to support such a finding.  The Court also suggested that C&D try to reduce the burden of producing Canadian documents by agreeing with the FTC on electronic search terms to use in screening them.

For companies with U.S. and foreign offices, Federal Trade Commission v. Church & Dwight Co., Inc. perhaps teaches a simple lesson: when an agency requests documents from the foreign office, legitimate burden objections will go further than relevance arguments in shielding foreign documents.  As this decision suggests – and many others spell out more fully – a company that can provide strong, detailed evidence of the burden that it would suffer from production of foreign documents may be spared from compliance.  As the ever-globalizing commercial world makes relevance challenges less and less compelling, a burden challenge may be the last best hope for a company seeking to shield its foreign documents from U.S. regulators.

The decision is available here.

Beer giants Anheuser-Busch Companies, Inc. and InBev, NV/SA didn’t exactly meet at a bar, but they can go ahead and merge.  The Eighth Circuit, affirming a lower court’s decision, on October 27 held that there’s no reason to roll back the consummated merger under Sections 7 and 16 of the Clayton Act. 

Until their merger in 2008, each company was already huge:  Belgium-based InBev was the largest brewer in the world, and St-Louis-based Anheuser-Busch, was the largest brewer in the United States.  Other major players in this industry included SABMiller, Heineken, Carlsberg and Molson Coors.  Following up on concerns from the Department of Justice, InBev and Anheuser agreed to divest Labatt US, the InBev subsidiary which imported that Canadian beer into the U.S.

Despite the Department of Justice’s approval, Missouri beer drinkers moved for a preliminary injunction to block the merger asserting that it violated Sections 7 of the Clayton Act.  The United States District Court for the Eastern District of Missouri denied the plaintiffs’ motion for a preliminary injunction, on November 18, 2008 and the merger was consummated that same day.  Finally, in August 2009, the District Court granted the companies’ motion to have the entire case dismissed.

The Eighth Circuit affirmed.  It held that the beer consumer plaintiffs, as indirect purchasers, could only sue for injunctive relief, and since they failed to stop the merger, the only equitable relief available to them was divestiture.  The Court continued, however, that divestiture is a “drastic” remedy that courts hesitate to use.  And plaintiffs’ failure to act diligently in seeking Section 7 relief, by waiting nearly two months after the merger announcement to file their lawsuit and filing their motion for preliminary injunction less than 10 days before the anticipated closing date, weighed against ordering a divestiture.   Since the alleged antitrust injury was speculative and localized while divestiture would have widespread dramatic effects on the now combined companies, their employees and distributors, the Court declined to order additional divestitures.  Granting the appeal would have also resulted in discovery and trial that would have increased the cost of brewing and selling beer and ultimately increased the purchase price of beer – the very injury plaintiffs feared. 

The case, Ginsburg v. InBev NV/SA, No. 09-2990 (8th Cir. Oct. 27, 2010), is available here, and also on Westlaw at 2010 WL 4226533.  Plaintiffs asked for an en banc rehearing with the U.S. Court of Appeals for the Eighth Circuit last Wednesday.

On November 15, 2010, the Federal Trade Commission announced a settlement of its claims that the proposed acquisition of Psychiatric Solutions Inc. by Universal Health Services Inc. would violate antitrust laws by combining the two largest providers of acute inpatient psychiatric services in three geographic markets (Delaware, Puerto Rico, and Las Vegas), decreasing competition for such services (click here to view the FTC complaint).  In a press release issued Monday, the FTC described the settlement as “the latest example of the FTC’s ongoing efforts to promote competition in health care markets.”  A similar agreement with Nevada’s attorney general was also reached to settle a case filed in the federal district court in Nevada.   

As a result of the settlements, Universal Health Services can proceed with its $3.1 billion acquisition of Psychiatric Solutions.  The deal gives Universal Health Services 94 psychiatric facilities in addition to the 102 facilities it already owns.

Under the terms of the FTC settlement, Universal Health Services must sell 15 facilities in the three markets to FTC-approved purchasers.  Those sales must occur within nine months.  Copies of the FTC’s consent orders and unanimous decision approving the settlement are available by clicking here and here, respectively.  Public comments on the consent orders can be made electronically on the FTC’s website.  After December 15, 2010, the FTC will decide whether to make the consent orders final.