By Gabriele Accardo
On December 16, 2015 the U.S. Federal Trade Commission approved a final order settling charges that Step N Grip, LLC, a company that sells rug accessories designed to keep rugs from curling at the corners, illegally invited its closest competitor to collude on prices of products sold on Amazon.com where both companies sell most of their respective inventory, according to the FTC.
Step N Grip generally sold one of its rug accessories on Amazon.com for $13.95 per package, whereas its closest competitor sold its competing product on Amazon.com for $16.99 per package.
The FTC’s complaint alleges that in June 2015 Step N Grip and its closest competitor reduced prices to compete with each other and gain sales. After a week of rivalry where Step N Grip’s competitor would lower its price on Amazon.com in order to compete more aggressively with Step N Grip, Step N Grip sent an email message to its closest competitor that read: “We both sell at $12.95? Or, $11.95?”
After that communication, Step N Grip raised the price of its rug device to $12.95. However, Step N Grip’s competitor reported the communication received from Step N Grip to the FTC.
According to the FTC, Step N Grip’s invitation to collude was an unfair method of competition that violated Section 5 of the Federal Trade Commission Act.
Under the settlement agreement, Step N Grip is required to stop communicating with its competitors about prices. It is also barred from entering into, participating in, inviting, or soliciting an agreement with any competitor to divide markets, to allocate customers, or to fix prices; and from urging any competitor to raise, fix, or maintain its price or rate levels or limit or reduce service. The order is in effect for 20 years.
This is yet another case where U.S. antitrust authorities tackle an alleged antitrust violation in the online environment, showing features of traditional violations, such as direct contacts between competitors. Online marketplaces such as Amazon.com and eBay are very powerful sales channels, which allow small sellers to reach a large number of potential customers.
An inherent feature of such online platforms, and generally of the Internet, is that they enhance market transparency, allowing customers to easily compare prices and pick the product of their choosing at the best price. Sellers too have the possibility to monitor more easily what their competitors do, even with the use of customized software. Last 6 April 2015, the U.S. Department of Justice’s Antitrust Division announced the first criminal prosecution against an online conspiracy, in which certain companies selling posters on the Amazon Marketplace adopted specific pricing algorithms with the goal of coordinating changes to their respective prices and wrote a computer code that instructed algorithm-based software to set prices in line with the agreement (see Newsletter 2/2015 for additional background, as well as the following article “U.S. DOJ announces second criminal prosecution into online price fixing”).
By Gabriele Accardo
Last April 6, 2015, the U.S. Department of Justice’s Antitrust Division announced the first criminal prosecution against certain companies selling posters on the Amazon Marketplace that coordinated changes to their respective prices via specific pricing algorithms and a computer code that instructed algorithm-based software to set prices in line with the agreement (see Newsletter 2/2015 for additional background).
Details arising from the new indictment show how seriously the U.S. DOJ will pursue such violations. The DOJ’s announcement comes after U.K. law enforcement and the US’s FBI successfully conducted searches at the headquarters of a Trod Ltd (doing business as Buy 4 Less, Buy For Less, and BuyForLessOnline), a U.K. company headquartered in Birmingham, England, and the residence of Daniel William Aston, the indicted executive, in West Midlands, U.K.
While the felony charges in this case are similar to those raised in April 2015, i.e. price fixing of certain posters sold online through Amazon Marketplace (see Newsletter 2/2015), the DOJ is now going after companies and their executives outside the US. Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division stated “U.S. consumers deserve competitive markets when they shop online…. It doesn’t matter whether pricefixers operate from an office in California or a warehouse in England. We will continue to prosecute conspiracies that subvert online competition”.
According to the charge, Mr. Aston and his coconspirators discussed the prices of certain posters sold in the United States through Amazon Marketplace and agreed to adopt specific pricing algorithms for the sale of certain posters, with the goal of offering online shoppers the same price for the same product and coordinating changes to their respective prices.
Price fixing in violation of Section 1 of the Sherman Act carries a maximum sentence of 10 years and a fine of $1 million for individuals.
By Nicole Daniel
On December 7, 2015, during oral argument, the U.S. FTC urged the Court of Appeals for the First Circuit to revive the Loestrin suit.
The case concerns a so-called reverse payment settlement. In 2009 Watson Pharmaceuticals agreed drop a challenge to a patent serving to protect Loestrin, which is a contraceptive pill, as long as it could market its own version six months before expiration of the patent. Warner Chilcott in turn agreed not to market its generic version of the drug for six months. Both companies are now owned by Actavis.
A number of drug buyers sued and argued that these companies essentially had agreed to divide up the market for Loestrin at the expense of the consumer. In September 2014 a district court judge threw out these suits, holding that a reverse payment not made in cash or in a very close analogue is not illegal.
Reverse payment settlements in the pharmaceutical sector have long been targeted by the FTC and others involved, e.g. drug buyers. In 2013 the Supreme Court made an important decision in the FTC v. Actavis case in this regard, holding that reverse payment deals can be challenged under antitrust laws. However, there is still debate on how to interpret “pay”. Accordingly, an ultimate decision in the Loestrin suit could help determine what counts as “pay” and set limits on what pharmaceutical companies can do to settle with their rivals that challenge their patents.
At the oral arguments a lawyer for the FTC said that the district court in this case elevated form over economic substance, and argued that a reverse payment need not be in cash.
The three judges on the panel seemed to be critical of the district court’s decision. Judge Juan R. Torruella said that in the dictionary the word payment is defined as the delivery of money or something equivalent. He also questioned the difference between a settlement including cash and a settlement including something other than cash.
Judge O. Rogeriee Thompson said that payment is “nothing but consideration“. Judge Sandra Lynch noted that the amount of profit for the generic company seemed “awfully large“.
A lawyer for Actavis argued that the court should not adopt a broad definition of payment, since payments should be quantifiable.
A decision from the Court of Appeals is expected next year.
By Gabriele Accardo
On September 16, 2015, following a six-month investigation, the U.S. Department of Justice antitrust division concluded that Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers. The DOJ was not concerned that that the transaction would lead to a duopoly in the market for online travel booking, the other main operator being Priceline.
First, the DOJ found no evidence the merger is likely to result in new charges being imposed directly on consumers for using Expedia or Orbitz.
Second, since Orbitz is only a small source of bookings for most of airlines, car rental companies and hotels, the DOJ considered that Orbitz actually has had no impact in recent years on the commissions Expedia charges. Many independent hotel operators, for example, do not contract with Orbitz, and those hotels that do often obtain very few bookings from its site. In addition, beyond Expedia and Orbitz, the DOJ noted that travel service providers have alternative ways to attract customers and obtain bookings, including Expedia’s largest online travel agent rival, Priceline.
Finally, according to the DOJ, evidence suggests that the online travel business is rapidly evolving. In the past 18 months, for example, the industry has seen the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.
Online travel agencies have been under scrutiny by several competition authorities in Europe with regards to clauses in the contracts with hotels that obliged hotels to offer certain online travel agencies the same or better room prices and conditions as the hotels made available on all online and offline distribution channels (so-called “Most Favored Nation” or “MFN” clauses) (see, Newsletter 2/2015, p. 14 Newsletter 1/2015, p. 17 Newsletter 3/2014, p.12 Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).
By Gabriele Accardo
On November 25, 2015, the Paris Court of Appeal (PCA) reversed the December 2012 ruling of the Commercial Tribunal of Paris (CTP) , which found that Google (specifically Google France and Google Inc.) abused its dominant position in the French market for “online mapping allowing for the geolocalisation of sales points on company websites,” in breach of Article L.420-2 of the French Commercial Code, and ordered Google to pay damages, amounting to Euro 500,000, to its French competitor Evermaps (formerly Bottin Cartographes).
The CTP essentially held that Google abused its dominant position insofar as it offered its geographic search engine “Google Maps” for free with the goal to exclude competition from the market and, ultimately, to further exploit its dominant position in the commercialization of targeted advertising (see Newsletter 2/2012, p. 8 for additional background).
Evermaps damage claim chiefly concerned Google’s predatory pricing of its mapping service Google Maps API, which allows companies to embed maps on their website (companies can either choose an upgraded paid version or a free version of Google Maps). Evermaps claimed that the offering of free services by Google constituted a form of predatory pricing.
However, the PCA actually followed the opinion of the French Competition Authority handed down in December 2014. The French Competition Authority was of the view that Google did not pursue a predatory or exclusionary strategy by offering a free version of Google Maps API.
In particular, the PCA found that Google’s pricing policy could not be considered as predatory, after taking into account the results of twenty tests on pricing. The Court held that although Google offered some of its mapping products for free, income from other sources, such as advertising should also be taken into account to determine whether its pricing conduct can be deemed predatory. Accordingly, eighteen out of twenty of the costs tests carried out indicated that the revenue Google generated from its online mapping services were above long-run average incremental costs and thus fully covered costs, including those generated by the free version.
The two tests that “failed” to meet that standard actually showed that although revenue generated by its online mapping tools were below long-run average incremental costs, they were nonetheless above average avoidable costs.
In addition, the PCA found that Google did not have the intention of forcing competitors out of the market, since for operators that are active on multisided markets “…It may be rational to offer products or services for free on a market not to oust competitors but to increase the number of users on another market” whereas “the free business model is quite widespread on electronic markets”, as the French Competition Authority had noted in its opinion.
The PCA also held that, in any case, Google did not have the ability to keep competitors out of the market given the presence of strong competition, as well as the possibility that other strong competitors, such as Amazon or Apple may enter the market.
By Nikolaos Theodorakis
The European Commission recently issued an explanatory note on inspections pursuant to Article 20(4) of Council Regulation No 1/2003. This marks the most updated version of the previous note, published in 2013. The note provides that data from, inter alia, private smartphones, external hard drives and cloud-computing services can be seized during an unannounced investigation.
The revised guidance relates to the conduct of inspections at business premises, also known as dawn raids. It is a codification of how the Commission plans to treat certain data found during an inspection. The note allows the search of private devices and cloud services, apart from office computers and company servers, and describes the process of handling and reviewing the data collected.
The note further widens the options of data storage and introduces the concept of technical entirety, which means that a sequence of data can be collected (e.g. an entire e-mail thread). Finally, the note allows the inspectors to gather personal data included in business documents. It is the first time that the Commission has included private data as part of its raid procedure.
What Does the Note Include?
First, the note reiterates that inspectors may search the IT-environment, including servers, desktop computers, laptops, tablets and other mobile devices of the undertaking. Inspectors are also entitled to search all storage media, including CD-ROMs, DVDs, USB-keys, external hard disks, backup tapes and cloud services. This power now extends to private devices and media used for professional reasons when found on the premises (para. 10).
The note also includes a more detailed explanation on how the regulator may handle data copied from servers (para. 14). The data can be collected to continue the inspection at a later time, secured in a sealed envelope. Previously, two options were available: opening the envelope with the undertaking present at the Commission’s premises, or returning the envelope as is. Now, the Commission can also ask the undertaking to store the data in a safe place so that the Commission can continue to search the premises in a future announced visit.
The note also introduces the term “technical entirety” (para. 16), which in practice means that the inspectors may retrieve the entire sequence of an e-mail, attachment, and/or embedded data items. For instance, even if only one e-mail attachment is selected in the investigation, the data exported will comprise the cover email and all the attachments included in that thread. Subsequently, the Commission can choose to isolate any individual component, list it individually, and assign individual reference numbers.
Lastly, the note suggests that inspectors can gather personal data found in business documents. This includes information that would otherwise classify as private, like staff names, telephone numbers and e-mail addresses. Such data can, therefore, become part of the Commission file (para. 20). The guidance however clarifies that this is aligned with the EU Data Protection rules (Regulation No. 45/2001) and that EU antitrust rules apply only to undertakings. Hence, personal data of individuals do not constitute per se an antitrust investigation target.
What Does this Mean in Practice?
The updated note means that companies have an insight on how the Commission will treat data searches from on. The inclusion of data found in private devices is a significant leap from the previous note, which expands an investigation’s scope. Further, companies are notified of the additional option to securely store the data in their own premises prior to the continuation of the investigation, and must familiarize themselves with the concept of technical entirety and the possibility of personal data being included in the Commission file.
Even though the note is not legally binding, failure to comply with the above may result to heavy fines. Besides, the Commission has already stressed the importance of compliance in the previous note and has levied fines for non-compliance. Companies should consider training their staff in accordance to the abovementioned changes and to update their own dawn raid manuals and checklists to reflect the updated note. Finally, one should not forget the broad powers that the Commission has when investigating, including the power of inspection under Article 20(4) of Regulation 1/2003. Any data collection and handling must, however, comply with Regulation 45/2001 that pertains to data protection rules.
Beyond the assertions of the revised note, the compatibility of such wide-ranging powers with data protection rules and the procedural guarantees enjoyed by investigated companies remains to be confirmed. The most recent case law illustrates that undertakings concerned by an inspection do enjoy certain safeguards. In fact, the search and seizure of electronic data may be in breach of Article 8 of the European Convention on Human Rights (“ECHR”) if certain standards are not met. For instance, the collection of data that is unrelated to the investigation, or covered by legal professional privilege, may be disproportionate to the purposes of the investigation, and therefore illegitimate. Given the sensitivity of personal devices and personal data, it is possible that this novel issue will be litigated before EU Courts in the near future. Additionally, member-state specific legislation provides safeguards that would likely not allow the seizure and search of a personal device. It is thus expected that further litigation will occur on a domestic level.
 The explanatory note can be found here: http://ec.europa.eu/competition/antitrust/legislation/explanatory_note.pdf
 Deutsche Bahn and Others v Commission, cited above.
 See Vinci Construction and GMT genie civil and services v France App no 63629/10 abd 60567/10 (ECtHR, 02 April 2015)