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									Antitrust & Competition
North America

Newsletter                           Upcoming Event: The Chicago Forum on
                                     International Antitrust Issues
April 2011 Issue
                                     Baker & McKenzie's Antitrust and Competition Group is pleased to present The
                                     Chicago Forum on International Antitrust Issues on June 9-10 at
In This Issue:                       Northwestern University School of Law that we have planned in conjunction
                                     with the Searle Foundation and other co-sponsors.
Upcoming Event: The Chicago
Forum on International Antitrust
Issues                               The program, which has been approved for up to 10.5 MCLE credit
                                     hours, including 2.0 professionalism (ethical) credits, provides a unique
FTC Dismisses Complaint Against      opportunity to discuss developments in international antitrust law. The program
Laboratory Corporation of America
                                     will provide a global perspective as to enforcement priorities in the US,
Following Denial of Preliminary
Injunction Motion                    Canada, and Mexico; developments in Brazil, Russia, India and China; hot topics
                                     in Europe; and in-house perspectives on dealing with the US and non-US antitrust
DOJ Seeks Disgorgement for First     enforcement agencies and global compliance. The program will also provide
Time to Remedy Sherman Act           practical solutions to issues of common interest from panels of distinguished in-
Section 1 Violation
                                     house lawyers, private attorneys and economists.
DOJ Settlement Unwinds 2009
Acquisition by Dean Foods            Government speakers will include William E. Kovacic, Commissioner, Federal
                                     Trade Commission; Melanie L. Aitken, Commissioner of Competition, Canada
DOJ Widens Investigation of Blue     Competition Bureau; Eduardo Perez Motta, Chairman, Federal Competition
Cross/Blue Shield Affiliate Use of   Commission, Mexico; Rachel C. Brandenburger, Special Advisor, International,
“Most Favored Nation” Clauses to     Antitrust Division, Department of Justice; Scott D. Hammond, Deputy Assistant
Additional States
                                     Attorney General for Criminal Enforcement, Antitrust Division, Department of
                                     Justice; and Russell W. Damtoft, Associate Director, Office of International
Toys “R” Us Agrees to Pay $1.3
Million To Settle Allegations It     Affairs, Federal Trade Commission. Baker & McKenzie is also pleased
Violated 1998 FTC Order              that Samantha Mobley from our London office, Clara Ingen-Housz from our
                                     Hong Kong office, Patrick Ahern, Roxane Busey and Tom Campbell from our
Canadian Commissioner of             Chicago office, and Doug Tween from our NY office will also be sharing their
Competition Challenges a Non-
Reportable Acquisition

                                     To view complete details of the program, and to register for the conference, click

                                     FTC Dismisses Complaint Against Laboratory
                                     Corporation of America Following Denial of
                                     Preliminary Injunction Motion
                                     In a case highlighting the critical role that market definition plays in merger
                                     enforcement, the Federal Trade Commission (“FTC”) has issued an order
                                     dismissing its complaint, and closing its investigation into the acquisition by
                                     Laboratory Corporation of America of financially-distressed rival Westcliff Medical
                                     Laboratories Inc.
                             In December 2010, the FTC filed an administrative complaint alleging that the
                             acquisition was likely to harm competition and cause prices increases by
                             eliminating Westcliff, a “price-cutting maverick,” and leaving Quest Diagnostics as
                             LabCorp’s only significant competitor in southern California. The FTC moved for
                             a preliminary injunction from federal court in order to require that LabCorp
                             preserve and hold separate the Westcliff business it acquired pending the
                             outcome of the FTC’s administrative trial to determine whether the acquisition
                             violated the law.

                             In February 2011, Judge Andrew Guilford of the U.S. District Court for the Central
                             District of California denied the FTC’s motion. The court rejected the FTC’s
                             alleged product market definition—“the sale of capitated clinical laboratory testing
                             service . . . to physician groups.” The Court found that capitated (i.e., per
                             member, per month) and fee-for-service arrangements are “merely two different
                             ways of paying for the same clinical laboratory services,” and observed that
                             “otherwise identical products are not in separate markets simply because
                             consumers pay for those products in different ways.” Because inclusion of the
                             fee-for-service business in the relevant market “dramatically reduces LabCorp’s
                             and Westcliff’s market shares,” the Court could not conclude that the FTC was
                             likely to succeed on the merits. In this regard, Judge Guilford echoed FTC
                             Commissioner Thomas Rosch who dissented from the agency’s action to issue a
                             complaint in part because of the market definition.

                             The Court emphasized that market definition remains an essential, threshold
                             element of a government merger challenge, notwithstanding the federal antitrust
                             agencies’ view, expressed in the recently revised Horizontal Merger Guidelines,
                             that market definition should play a reduced role. The Court also found that the
                             balancing of equities strongly favored LabCorp—given the protracted nature of
                             the FTC administrative process, and the possibility that a preliminary injunction
                             would financially devastate or destroy Westcliff, by delaying expected efficiencies
                             that otherwise would be realized upon integration. The Court also noted that
                             even if the parties integrated and a court later determined that divestiture was
                             necessary to restore competition, LabCorp could timely divest the integrated
                             assets. The FTC appealed this decision by emergency motion seeking an
                             injunction pending appeal, which a Ninth Circuit panel, by a two-to-one vote,
                             denied on March 14. Thereafter the Commission withdrew its appeal, and
                             ultimately chose to dismiss the administrative complaint.

                             The case name is In the Matter of Laboratory Corporation of America and
                             Laboratory Corporation of America Holdings, FTC File No. 101 0152. The docket
                             is available at:

                             DOJ Seeks Disgorgement for First Time to
                             Remedy Sherman Act Section 1 Violation
                             For the first time ever, the Antitrust Division of the U.S. Department of Justice
                             (“DOJ”) sought and obtained disgorgement from a defendant as a remedy for an
                             alleged violation of Section 1 of the Sherman Act, which generally prohibits
                             agreements that unreasonably restrain trade. Although the circumstances of the
                             case were relatively unique, the pursuit of a novel remedy may signal an
                             increasingly aggressive approach by the DOJ in enforcing the antitrust laws and
                             its creativity when structuring remedies.

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                             To resolve the alleged violation Keyspan Corporation agreed to disgorge $12
                             million, or approximately one quarter of the profits it generated through its
                             allegedly anticompetitive swap agreement with Morgan Stanley and Astoria
                             Generating Co., one of Keyspan’s two largest power-generation competitors in
                             the New York City market. According to the DOJ’s competitive impact statement,
                             Keyspan entered into the swap agreement to hedge against an increase in
                             available capacity in the power-generation market—and a resulting decrease in
                             prices—that was anticipated to last from 2006 to 2009, when old generation units
                             were expected to be retired. The DOJ alleged that Keyspan obtained an indirect
                             financial interest in Astoria’s sale of electricity generating capacity and as a result,
                             Keyspan no longer had an incentive to bid competitively against Astoria. The net
                             effect of this changed incentive was an increase in generating-capacity prices and
                             an increase in the cost of electricity for consumers.

                             Disgorgement was a logical remedy in this case because the agreement was only
                             in effect from 2006 to 2009. Because the agreement had expired, injunctive relief
                             would not have been meaningful or effective in fulfilling the remedial goals of the
                             Sherman Act. In addition, Keyspan was acquired in 2007 by National Grid PLC
                             and the electrical generation facility most closely associated with the swap
                             agreement is no longer in operation.

                             The DOJ also acknowledged that private litigants would face significant hurdles in
                             recovering damages from Keyspan because of the “filed rate doctrine,”
                             established in Keogh v. Chicago Northwestern Railroad Co., 260 U.S. 156 (1922),
                             which precludes monetary relief for antitrust claims relating to tariffs or schedules
                             filed with a federal regulatory agency. Without private plaintiffs to attack
                             Keyspan’s ill-gotten gains, the DOJ believed other steps were necessary to
                             prevent similar anticompetitive conduct in the future.

                             Thus, while the set of circumstances that gave rise to the Department of Justice’s
                             reliance on disgorgement as a deterrent to other anticompetitive agreements
                             does not occur frequently, the case nevertheless establishes a precedent of
                             disgorgement’s availability to address Section 1 violations.

                             The DOJ’s Competitive Impact Statement is available at:

                             DOJ Settlement Unwinds 2009 Acquisition by
                             Dean Foods
                             The DOJ has announced that it reached an agreement with Dean Foods Co.
                             (“Dean”) that settled its lawsuit to compel Dean to divest all assets and interests
                             acquired in an April 2009 transaction. In what is the first successful merger
                             challenge under the Obama Administration, the Dean Foods case signals that the
                             DOJ will continue to scrutinize consummated mergers, including smaller deals
                             that require pre-closing notification to the DOJ and Federal Trade Commission.

                             On April 1, 2009, Dallas-based Dean acquired two milk processing plants in
                             Wisconsin, located in Waukesha and De Pere, and related assets from Foremost
                             Farms USA, a daily cooperative owned by approximately 2,300 dairy farms
                             located in seven states, for $35 million.

                             Thirteen months later, in January 2010, the DOJ, joined by the attorney general
                             offices of Illinois, Michigan and Wisconsin, filed a lawsuit in the United States

3   Newsletter April 2011
                             District Court for the Eastern District of Wisconsin challenging the acquisition,
                             claiming that it violated Section 7 of the Clayton Act by effectively eliminating one
                             of Dean’s key rivals and substantial competition between the two companies in
                             the sale of milk to schools, grocery stores and other retailers in Illinois, Michigan
                             and Wisconsin. The complaint alleged that Dean and Foremost Farms were the
                             first and fourth largest milk processors in northeastern Illinois, the Upper
                             Peninsula of Michigan, and Wisconsin, and that the transaction gave Dean 57
                             percent of the market for processed milk in those geographic areas.

                             Under the settlement agreement with the DOJ, Dean will divest its Waukesha milk
                             processing plant and other assets, including the Golden Guernsey and La Vaca
                             Bonita brands. The proposed settlement agreement further requires Dean to
                             notify the DOJ before it makes any future acquisition of milk processing plants if
                             the purchase price exceeds $3 million. The attorney general of Michigan filed an
                             additional settlement agreement to address competitive concerns regarding milk
                             served in schools throughout the state.

                             “The proposed settlements restore competition so that school children and
                             consumers in Illinois, Wisconsin and Michigan, will pay lower prices for their milk,”
                             stated Christine Varney, head of the Antitrust Division of the DOJ. “The
                             divestiture of a significant milk processing plant and the provision that requires
                             Dean to notify the department of future milk plant acquisitions will ensure that
                             competition remains in this important industry.”

                             The settlement agreement is available at:

                             DOJ Widens Investigation of Blue Cross/Blue
                             Shield Affiliate Use of “Most Favored Nation”
                             Clauses to Additional States
                             The DOJ reportedly is widening it investigation of the use of anticompetitive “most
                             favored nation” clauses by health insurer Blue Cross Blue Shield of Michigan
                             (“MBC”) beyond Michigan.

                             This expanded investigation follows the October 2010 complaint which DOJ and
                             the state of Michigan filed against Blue Cross in the Eastern District of Michigan,
                             seeking to stop MBC’s practice of allegedly imposing “most favored nation” (or
                             MFN) clauses in contracts with Michigan hospitals from which Blue Cross
                             purchases hospital services. The complaint alleges that the MFNs, (also
                             sometimes referred to as “most favored pricing” clauses), harm competition and
                             violate Section 1 of the Sherman Act and Michigan antitrust law by effectively
                             setting a reimbursement floor. The DOJ alleges that the MFN clauses deter
                             hospital providers from accepting lower reimbursement terms from insurers that
                             compete with MBC resulting in higher overall health insurance premiums in

                             Specifically, that complaint alleges that MBC utilizes two types of MFNs which
                             inhibit competition. The first requires the hospital to charge competing insurers
                             higher prices than the hospital charges MBC for the same services—in some
                             cases in excess of 40% more. According to the DOJ, this type of MFN inhibits
                             competition by ensuring that competing insurers cannot obtain hospital services
                             at prices comparable to those which MBC pays. The second type of MFN
                             requires the hospital to charge competing insurers at least the same price as it
4   Newsletter April 2011
                             charges MBC. The complaint alleges that hospitals agreed to these MFN clauses
                             in exchange for higher reimbursement rates from MBC. In other words, the
                             complaint alleges, MBC “purchased protection from competition.”

                             According to the complaint, MBC is the largest commercial health insurer in
                             Michigan with approximately 60% of commercially insured lives, and therefore
                             had market power in the sale of commercial health insurance. The DOJ alleges
                             that, in addition to the increased reimbursement rates, MBC used its market
                             position to “impose” the MFN terms on hospitals, thereby protecting its market
                             position. In this case, the DOJ alleges that Blue Cross actually raised its own
                             costs by employing the MFNs because it did not use its market position to obtain
                             lower pricing.

                             In expanding its investigation beyond Michigan, the DOJ, along with some of the
                             relevant states, reportedly have served subpoenas on the Blue Cross/Blue Shield
                             affiliates in Kansas, Missouri, Ohio, West Virginia, North Carolina, South Carolina,
                             and the District of Columbia.

                             The case name is United States of America, et al. v. Blue Cross Blue Shield of
                             Michigan, 2:10-cv-15155-DPH-MKM (E.D. Mich.). DOJ filings in this case are
                             available at:

                             Toys “R” Us Agrees to Pay $1.3 Million To Settle
                             Allegations It Violated 1998 FTC Order
                             Toys “R” Us, Inc. (“TRU”) has agreed to pay $1.3 million to settle claims brought
                             by the FTC that it violated a 1998 FTC order against TRU (the “Order”). The
                             Order was the result of an administrative action brought against TRU, the major
                             toy retailer, by the FTC because TRU had used its market power to coerce toy
                             manufacturers not to sell certain products to warehouse club stores, the effect of
                             which was to keep prices artificially high and limit consumer choice. TRU had
                             also convinced some toy manufacturers to package toys together to keep
                             consumers from easily comparing prices or getting cheaper toys from discount

                             The FTC alleged that TRU’s Babies “R” Us unit violated the Order in two principal
                             ways 1) by complaining to various manufacturers of baby products about both the
                             supply of product to toy discounters and the discounting of those products by toy
                             discounters; and 2) by requesting information from manufacturers about their
                             dealings with discount stores. The FTC’s complaint alleged that such conduct
                             may lead a supplier to limit supply or refuse to sell to a toy discounter.
                             Additionally, the FTC alleged that TRU’s document retention policy failed to
                             maintain all communications with suppliers in connection with the purchase of
                             toys in violation of the Order.

                             While TRU agreed to pay $1.3 million to settle the dispute, the stipulation
                             pursuant to which TRU agreed to settle the FTC’s allegations provides that the
                             settlement does not constitute an admission that TRU violated the law or the

                             The FTC’s settlement agreement with TRU is available at:

5   Newsletter April 2011
                                     Canadian Commissioner of Competition
                                     Challenges a Non-Reportable Acquisition
For further information, please
                                     The Canadian Competition Bureau (“CCB”) has announced that it had applied to
Patrick Ahern                        the Canadian Competition Tribunal (“CCT”) for an order to dissolve the      completed, non-reportable acquisition by CCS Corporation (“CCS”) of Complete
                                     Environmental Inc. (“CEI”) (“Transaction”). Under the Competition Act (Canada)
Brian F. Burke                       (“Act”), the Canadian Commissioner of Competition has the power to challenge a        merger for a period of one year after closing; however, this authority is very rarely
Roxane Busey
                                     Even though the Transaction did not require pre-closing notification, the parties
Thomas Campbell                      voluntarily notified the CCB of the merger. The CCB concluded, based on its    review of the Transaction and internal records of CCS, that the Transaction gave
                                     CCS a monopoly over the disposal of hazardous-waste into secure landfills from
David Clanton      the oil and gas industry in North-Eastern British Columbia. The CCB determined
                                     that the relevant geographic market was the “aggregated locations of hazardous
Charles Critchlow                    waste generators located in North-Eastern British Columbia.”
                                     On January 7 , 2011 CCS acquired the shares of CEI and just over 2 weeks later
Thomas Doyle
                                     the CCB filed a notice of application with the CCT seeking an order to dissolve
                                     the merger on the basis that the acquisition substantially prevented competition in
Katie Funk                           North Eastern British Columbia.
                                     The CCB’s challenge is novel in several respects and reflects the CCB’s
Arlan Gates                          commitment to review mergers more closely and comprehensively. This is the
                                     first time since 2005 that the CCB has challenged any merger by way of
Ken Jull                             application to the CCT. Traditionally, the CCB deals with mergers that breach the           Act by negotiating consent agreements with the parties or by imposing other
                                     remedies. Furthermore, this is the first case in which a merger has been
David Laing                          challenged by the CCB after closing since significant amendments to the Act in        2009. Under those amendments, the merger review process was substantially
William J. Linklater
                                     changed through the introduction of a two-stage notification and review procedure                similar to that in the U.S. and the period in which a completed merger can be
                                     challenged was reduced from three years to one year.
S. Janice McAuley     The CCB’s actions underscore the importance of considering the potential impact
                                     on competition of any proposed transaction—whether it trigger a reporting
Darrell Prescott
                                     obligation or not.

Douglas Tween                        The CCB’s notice of Application to the CCT is available at: http://www.ct-
Lee Van Voorhis

    6   Newsletter April 2011

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