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U.S. FTC reaches consent agreement over alleged online collusion

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”).

U.S. DOJ announces second criminal prosecution into online price fixing

By Gabriele Accardo

On December 4, 2015, the U.S. Department of Justice’s Antitrust Division announced (see also the FBI statement) the second criminal prosecution against a conspiracy targeting e-commerce.

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.

U.S. FTC urges the Appeals Court to revive the Loestrin Suit

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.

U.S. DOJ does not challenge Expedia’s acquisition of Orbitz

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).

Paris Court of Appeal overturns Google abuse of dominance ruling

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.

Germany’s Federal Cartel Authority imposes further fines in mattress case

By Gabriele Accardo

On October 22, Germany’s Federal Cartel Authority (“FCA”) fined mattress producer Tempur Deutschland GmbH, Steinhagen, 15.5 million euros for imposing resale price maintenance on retailers selling its products, in breach of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”). The alleged anticompetitive conduct took place between August 2005 and July 2011.

According to the FCA, due to the price transparency in the online channel, Tempur agreed with (or rather “forced”) the company’s retailers that they should offer various mattresses both online and in their brick-and-mortar stores only at the sales prices recommended by Tempur.

If prices of products sold online by retailers were below 5% the price recommended by Tempur and retailers did not subsequently alter their sales prices or repeatedly undercut the minimum sales prices set, they would experience delays in supply or even a discontinuation of supply. Tempur would also withdraw the retailer’s right to use the Tempur brand name for online search advertising on Google.

This is the third case concerning resale price maintenance issues in the mattress market (see Newsletter 1/2015, p. 20 for further background). However, the FCA stated that the investigations did not reveal any indication of anticompetitive horizontal agreements between mattress manufacturers. In August 2014 and February 2015 fines were also imposed on Recticel Schlafkomfort GmbH and Metzeler Schaum GmbH on account of resale price maintenance. After evaluating the evidence the Bundeskartellamt terminated the proceedings against two other manufacturers, two purchasing cooperatives and one online retailer for discretionary reasons.

Apple and Amazon.com face antitrust probe into audiobooks in Germany

By Nicole Daniel

In Germany the Bundeskartellamt has opened an investigation into Apple and Amazon.com’s long-term agreement on audiobook distribution as it might impede competition.

In Germany, Audible – an Amazon subsidiary – is the leading supplier of audiobook downloads and one of the largest audiobook producers in Europe and Germany. Through its iTunes store Apple operates one of the largest digital media trading platforms, which includes audiobooks for download.

Through Audible, Amazon sells books in Apple’s iTunes store, and the agreement at issue which has lasted several years, gives these companies a strong position in the German audiobook market, suggesting a need for closer scrutiny.

The investigation was triggered by a complaint from the German Publishers and Booksellers Association. This association had previously complained, inter alia, about the exclusive distribution terms between Audible.com and the iTunes store.

In its November 16, 2015 statement, the German Bundeskartellamt said that audiobook publishers need sufficient alternatives for selling their digital audiobooks.

The German Bundeskartellamt is in close contact with the European Commission, which also received the complaint.

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