Antitrust Review - Sheppard Mullin

In This Issue

• Supreme Court WantsGovernment’s View on 3M

• The Commission Strikes Back:The FTC Task Force ReportOn The State Action Doctrine

• Air France and KLMAnnounce Landmark Deal to Create Europe’s LeadingAirline

• FTC Gives Online ApplianceExchange The Nod

• White Collar CrimeContinues as a Priority for theAntitrust Division

Recent Activities

DOJ Antitrust Highlights

FTC Antitrust Highlights

FTC Consumer Protection Highlights

International Antitrust Highlights

FCC Antitrust Highlights

© Sheppard Mullin Richter & Hampton LLP

Antitrust ReviewPublished by the Antitrust and Trade Regulation Practice Group

Volume 1, No. 5 November 2003

SUPREME COURT WANTS GOVERNMENT’SVIEW ON 3MThe United States Supreme Court seeks the government's views onwhether to review a monopoly maintenance case against 3MCorporation. (3M Co. v. LePage's Inc., U.S., No. 02-1865, 10/6/03).

The case is noteworthy because an en banc United States Court ofAppeals for the Third Circuit held that a finding of illegal monopolymaintenance can be made even if a monopolist's prices are above itscosts. Basically, the Third Circuit upheld a treble damages award against3M based on a finding of exclusionary conduct consisting of bundledrebate programs and exclusive dealing. The Third Circuit reinstated a1999 jury verdict for LePage's Inc., which ordered 3M to pay LePage'sInc. $68 million in damages for illegally monopolizing sales oftransparent tape with its Scotch brand and a variety of discounts andbundled rebates.

LePage's claimed that 3M violated Section 2 of the Sherman Act byusing monopoly power in the branded transparent tape market to gain acompetitive advantage in the unbranded, or "private label" transparenttape market. LePage's cited a variety of 3M's marketing tactics,including 3M's program of bundled rebates and discounts, which weredesigned to thwart competition. The jury found that LePage's suffered$22.8 million in damages, which were trebled to $68.4 million.

3M introduced transparent tape with its "Scotch" product over 70 yearsago and dominated the transparent tape market in the United States witha market share above 90% until the early 1990s. In fact, 3M concededin the course of the litigation that it has a monopoly in the transparenttape market. In the late 1980s and early 1990s, however, "private label"transparent tape began to make significant inroads into that market,particularly with the growth of large chains like Wal-Mart, Staples and

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OfficeMax, which began offering tape with theirnames on the label, supplied by companies such asLePage's. By 1992, LePage's gained an 88% shareof the small market for private-label tape, andthese sales of private label tape were beginning tocut into sales of 3M's branded tape.

Thus, 3M responded by marketing its own privatelabel tape. LePage's claims that 3M engaged in aseries of anticompetitive acts aimed at curbing theavailability of low-priced transparent tape.Basically, 3M began offering "bundled" or"package" rebates to its Scotch tape customers: ifcustomers increased their sales of various 3Mproduct lines by specified percentages, theserebates were awarded. The availability and thesize of the rebates depended on the customers'purchase volumes of multiple product lines,including "Post-It" notes and packaging products.In addition, LePage's alleged that 3M offered tosome of LePage's customers large lump-sum cashpayments, promotional allowances and other cashincentives to encourage them to enter intoexclusive arrangements.

3M claimed that the programs offered customersconvenience because the customers could dealwith less invoices, less shipments, and lesspackaging. According to LePage's, however, theprogram was anticompetitive because it stifled thegrowth of private label manufacturers andprevented them from gaining or maintaining alarge volume of sales. LePage's thus contended,and the jury agreed, that 3M was abusingmonopoly power in branded tape to squeezeLePage's out of the private label tape market underSection 2 of the Sherman Act.

A divided panel of the Third Circuit reversed theDistrict Court's judgment on LePage's Section 2claim. LePage's Inc. v. 3M, Nos. 00-1368 and 00-1473 (3d Cir. Jan. 14, 2002). The Third Circuitthen granted LePage's motion for rehearing enbanc and vacated the panel opinion. 3M thenpetitioned the Supreme Court for a petition ofcertiorari.

There are two essential elements of amonopolization claim: (1) the possession ofmonopoly power in the relevant market, and (2)the willful acquisition or maintenance of thatpower as distinguished from growth ordevelopment as a consequence of a superiorproduct, business acumen, or historic accident.The first element was easily met because 3Mconceded that it had a monopoly. Thus, the ThirdCircuit focused on whether 3M willfullymaintained its monopoly in the transparent tapemarket though exclusionary conduct without avalid business justification, primarily by bundlingits rebates and entering into contracts thatexpressly or effectively required exclusivedealings.

The Third Circuit held that 3M's bundled rebateprogram was structured in such a way thatLePage's customers had incentives to stoppurchasing from LePage’s and purchaseexclusively from 3M to obtain the maximumrebate, which the Third Circuit found to beextremely generous. The Third Circuit found thatLePage's introduced powerful evidence that couldhave led the jury to believe the rebates anddiscounts to retailers such as Kmart andwholesalers like Sam's Club were designed to

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induce them to award business to 3M and stopdealing with LePage's. Evidently, some of 3M'srebates were "all or nothing" discounts, which ineffect foreclosed LePage's from dealing with itscustomers. To maximize substantial discounts,some of LePage's largest customers started dealingwith 3M exclusively. The Third Circuit held thatwith this type of evidence, a jury could reasonablyfind that 3M's exclusionary conduct violatedSection 2 of the Sherman Act.

While there were procompetitive aspects to therebate program, such as simpler invoices and singleshipments, the Third Circuit found that LePage'srelations and discussions with individual chainsindicated that LePage's lost business because of thebundled rebates and exclusive dealingarrangements.

Now that the case has made it to the SupremeCourt, 3M and LePage's are framing the issuedifferently. 3M characterizes the question to bereviewed as whether a "dominant firm's discountedbut above-cost prices for volume purchases, ofeither individual products or multiple products,may be condemned as unlawful under Section 2 ofthe Sherman Act based on the incentive such lowprices offer to shift purchases away from smallerrivals." LePage's claims that the Supreme Courtshould review two questions: (1) Did the ThirdCircuit correctly reject "3M's legal theory that afterBrooke Group, no conduct by a monopolist whosells its product above cost -- no matter howexclusionary the conduct -- can constitutemonopolization in violation of Section 2 of theSherman Act"; and (2) "whether certiorari review isforeclosed by 3M's failure, in its question

presented, to address the Court of Appeals' holdingthat 3M's exclusive dealing practices independentlysupport the jury verdict in this case".

3M argues in its brief that the Third Circuit'sdecision conflicts with the U.S. government'sposition in Verizon Communications Inc. v. LawOffices of Curtis V. Trinko, LLP, which was arguedOctober 14 before the court. 3M says that thegovernment does not want to “chill” firmsnationwide from selling more for less. The ThirdCircuit's decision, the brief contends, is a retreatfrom the bright-line principle that above-costpricing provides a safe harbor. 3M maintains thatthe possibility of an exclusive dealing charge willprevent large companies with a single product fromoffering attractive pricing and will deter anynumber of large multi-product firms from offeringdiscounts to customers buying a bundle of differentproducts even when the package as a whole isabove cost, when all individual components of thebundle are above cost, and when there is and can beno 'tying' claim based on using a monopoly toforeclose sales in a competitive market. 3M alsomaintains that the government's brief in Verizon isurging the Supreme Court to adopt an AspenSkiing-based standard for predation, whichbasically means that Section 2 does not requiredominant firms to avoid sales in order to allowsmall rivals to survive. (Aspen Skiing Co. v. AspenHighlands Skiing Corp., 472 U.S. 585 (1985)).

LePage's maintains in its brief in opposition that theThird Circuit applied settled law that does notconflict with Brooke Group or decisions in othercircuits, that 3M's exclusive dealing practices

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independently support the Third Circuit's decision,that there is no reason for the Court to hold 3M'spetition pending its decision in Trinko, and that theThird Circuit's decision "will not inhibit price cutsor other pro-competitive conduct." LePage'sclaims that the Third Circuit's ruling should beupheld because the decision applies only tobusinesses with monopoly power that take steps tomaintain that power, substantial evidence of 3M'santicompetitive intent to eliminate private labeltape was presented, 3M's anticompetitive intenthad no legitimate business justification, andcustomers and distributors did not like therestrictions that foreclosed competition.

The Supreme Court's decision on these issues willbe significant because it will either indicate that amonopolist must be cautious in implementing adiscount or rebate program that may haveexclusionary or foreclosure effects, or that amonopolist has a clear bright line safe harbor onwhich to rely when offering discounts and rebateson bundled and single products.

For more information, please contact Andre Barlow at

(202) 218-0026 or [email protected].

THE COMMISSION STRIKES

BACK: THE FTC TASK

FORCE REPORT ON THE

STATE ACTION DOCTRINE

Under principles of federalism and statesovereignty, courts have long held that localgovernments and certain private actors are exempt

from the antitrust laws when the state itself hasmade a policy decision to displace competition andauthorize conduct that would otherwise violate theantitrust laws. This "state action" doctrine had itsgenesis in the 1943 Supreme Court decision,Parker v. Brown, 317 U.S. 141 (1943). It has beenapplied in recent years to shield from the antitrustlaws conduct such as exclusive contracts for localservices like cable television or airport taxiservices, denials of zoning permits, hospitalacquisitions of competitors, and to uphold rules ofa state accountancy board rule barring CPAs fromselling securities.

One of the current enforcement priorities of theFTC is to examine various antitrust immunitiesand exemptions, including the state actiondoctrine. The purpose is to determine whethersuch exemptions are being applied by courts in amanner consistent with competition policygenerally. In September of 2003, the FTC's TaskForce on State Action issued its Report ("Report")and concluded that in many instances the courtshave applied the doctrine too broadly. The Reportmakes a series of specific recommendations as tohow the state action doctrine should be properlyapplied, and the steps the FTC will take, such asfiling amicus briefs, and legislate intervention, toreturn the doctrine to its proper scope.

While the Report comes with the usual admonitionthat it represents only the views of the Task Forceitself (all FTC staffers), the Commission didauthorize its issuance by a 5-0 vote. There is littledoubt that one can expect the Commission topursue actions consistent with the Task Forcerecommendations, and in some cases it already

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has. See, e.g., Indiana Movers, FTC Docket No. C-4077. The focus of the Report, however, is onwhat the authors think the law should be, not whatit is, as some courts have already rejected positionstaken in the Report.

By way of background, while the state itself (i.e.,legislature, Supreme Court, etc.) is protected bythe state action doctrine, local government entitiesare not unless they act pursuant to a state policywhich "clearly articulates" a policy to displacecompetition. California Retail Liquor DealersAssociation v. Midcal Aluminum, Inc., 445 U.S. 97(1980). In addition, for private actors, the statemust also "actively supervise" their conduct. Townof Hallie v. City of Eau Claire, 471 U.S. 34 (1985)(active supervision required for private parties butnot local government entities). Onerecommendation of the Report is that various"hybrid" government entities, such as hospitalboards or state accountancy boards, should betreated as private parties subject to the activesupervision requirement.

Many courts have held that such hybrid entities areto be treated as government entities not subject tothe active supervision requirement. See, e.g.,Earle v. State Board of Certified PublicAccountants, 139 F. 3d. 1033, 1042 (5th Cir.1998). The Report concedes this is appropriate insome cases, but notes that the examination of thepublic/private distinction by courts is "not asrigorous as it might be." The Report recommendsthat there be a more rigorous analysis of structure,membership, decision-making apparatus andopenness to the public of such quasi-governmententities before concluding no active supervision is

required. Where the decision-making personnel ofthe company is composed largely of private partieswho may compete with each other, such as lawyersand accountants, the Report suggests that theentity be treated as a private party despite itspublic status.

A related recommendation in the Report is that,where the local government entity itself is amarket participant -- engages in commercialactivities like those offered by private entities --the court should impose an active supervisionrequirement even though Town of Halliespecifically exempted public entities from such arequirement. Most courts have rejected the marketparticipant exception, but the issue usually arisesin the context of whether there is any suchexception to the state action doctrine at all, notwhether the active supervision requirement shouldbe imposed. See Antitrust Law Development (5thEd.), p. 1222. Those courts rejecting the marketparticipant exception do so on the basis that mostlocal government "proprietary" functions alsohave a public purpose and to create a marketparticipant exception would largely eliminate thestate action immunity for local governmentsentirely. In Town of Hallie itself, for example, themunicipality was engaged in the sewage treatmentbusiness and would itself have been a marketparticipant.

That gets us to the active supervision itself. TheReport notes that the courts have provided littleguidance in this area. In its 1992 Ticor decision,dealing with whether the filing of collectivelydetermined insurance rates were immune fromprice fixing claims under the state action doctrine,

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the Supreme Court held there was no immunity forprivate parties from such price fixing claims due tothe failure to meet the active supervisionrequirement. FTC v. Ticor Title Insurance Co.,504 U.S. 621 (1992). While noting that stateregulators must play a "substantial role" for activesupervision to be present, the Ticor court providedlittle specific guidance as to what is required foractive supervision, and suggested that it may varybased upon the gravity of the offense describingthe alleged price fixing there as "pernicious"conduct that is per se illegal. Lower courts havenot filled this void.

The Report's proposal to fill this vacuum,however, may be an example of where the curemay be worse than the disease. It proposes a ratherwooden three-part test already adopted in theIndiana Movers case - there must be an adequatefactual record, a decision on the merits, and aspecific assessment of how the private actioncomports with substantive standards establishedby the legislature. When viewed in the context ofdaily decisions by water districts and airportauthorities, however, this is an onerous set ofstandards that may not be practical or workable.Moreover, the Report appears to apply the samestandard to rule of reason conduct as to conductwhich is per se illegal, although there are someoblique references to a "tiered approach" in somecases. A more relaxed standard, implicitlysuggested by Ticor, should suffice for rule ofreason conduct such as exclusive contracts orvertical restraints.

The Report is likewise critical of existing law withrespect to the clear articulation requirement. TheReport emphasizes that, as originally developed in

Parker and its progeny, clear articulation requiredthat the state intended to displace competition inthe area in which the anticompetitive conduct bylocal government occurs, usually in the form of astatute passed by the legislature. In Town ofHallie, however, the court held that theanticompetitive conduct at issue there -- a refusalto supply sewage treatment services to unannexedareas -- was protected by the state action doctrineeven though not expressly authorized by thelegislature. Stating that the statute was not"neutral" as to competition, the court held that theanticompetitive conduct was the "foreseeableresult" of the statute since it did empower the cityto refuse to serve unannexed areas. The"foreseeable" standard was reiterated by theSupreme Court in City of Columbia v. OmniOutdoor Advertising, 499 U.S. 365 (1991), whereit held that it was foreseeable that authority givena city to regulate land use and buildings wouldresult in zoning restrictions on billboardadvertising.

In recent years, a number of courts have used this"foreseeability" test to conclude that a generalgrant of authority to a local government entity toact in a specific area, such as providing taxiservice at airports or to own and operate hospitals,is sufficient to meet the clear articulation standard.The Report criticizes these decisions, anddescribes them as "conflating" a generalauthorization of conduct with a specific intent todisplace competition. It recommends a return tothe principle that the authorizing statute must alsoevince an intent to displace competition withrespect to the particular conduct at issue, arecommendation that does have some judicial

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support. See generally Surgical Care Center ofHammond v. Hospital Service District No. 1, 171F.3d 231 (5th Cir. 1999).

In dealing with the clear articulation issue, or anyother issue for that matter, the Report does notaddress the Local Government Antitrust Act(“LGAA”). 15 USC § 34-36. The LGAA waspassed in response to the City of Boulder decision,which denied immunity on the basis that a generalauthorization statute did not articulate a statepolicy to displace competition with respect to theaward of cable television franchises. CommunityCommunications Co. v. City of Boulder, 455 U.S.40 (1982). Although the LGAA bars onlydamages claims against local governments, notthose for injunctive relief, it appears to apply evenif there is no legislation that clearly articulates apolicy to displace competition.

Another section of the Report is itsrecommendation that courts consider "spillover"effects on citizens of other states in determiningwhether the alleged conduct is protected by thestate action doctrine. Citing the original Parkerdecision as an example, the Report notes that inthe affected market there (production and sale ofraisins), the benefits of the higher prices wereconcentrated in the state enacting the lawdisplacing competition but the costs spilledoverwhelmingly into other states. When such"spillover" effects are present, argues the Report,courts should consider this in their state actionanalysis, presumably to limit its application.

The Report concedes that this spillover effect hasbeen largely ignored by the courts, and is foundedmainly on various scholarly articles. Given the

fact that virtually every industry and market todayis an interstate one, this spillover concept is reallyan attack on the principles of federalism and statesovereignty that form the basis for the state actiondoctrine in the first place. One also wonders howa court would formulate a spillover rule (e.g., howmuch must go out of state before you lose stateaction protection?) and the evidentiary hearingsthat would be necessary to determine whether sucha rule should apply in specific cases.

For those lawyers dealing with state actionimmunity issues, the Report provides guidanceconcerning existing law and the enforcementintentions of the Commission. Given the currentstatus of the law and the existence of substantialprotectionist sentiment where "local control" is anissue, as exemplified by the LGAA, theCommission has an uphill battle.

For more information, please contact Carlton A. Varner at

(213) 671-4146 or [email protected].

AIR FRANCE AND KLMANNOUNCE LANDMARK DEALTO CREATE EUROPE'SLEADING AIRLINE

In a move announced on September 30th, AirFrance and KLM Royal Dutch Airlines areteaming up to create Europe's leading airline.Uniting the continent's second- and fourth-largest carriers, the new alliance would surpassBritish Airways, which grossed $12.4 billion inrevenue last year. The first major cross-borderairline merger in decades, this landmark deal

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involves the two airlines forming a holdingcompany to be called Air France-KLM. The needfor consolidation in Europe's airline industry haslong been understood by its participants. Anenvironment in which too many airlines arechasing two few passengers has only beenexacerbated by plunging revenues due to the 9/11terrorist attacks, wars in Afghanistan and Iraq, aswell as the outbreak of severe acute respiratorysyndrome (“SARS”). Whether the proposedalliance is an appropriate step towards curing theindustry's troubles remains to be seen, asanalysts, experts, and competing airlines are notall in accord. Moreover, the deal must first beapproved by both European and Americanregulatory agencies, arguably no small feat,especially in the wake of British Airways’botched merger with American Airlines in 2001.

According to the share swap arrangement, AirFrance shareholders will receive one share in thenew holding company for each Air France share.They will own approximately 81% of thecombined company, of which the Frenchgovernment's stake would be diluted from 54.4%to 44%. In contrast, KLM shareholders willreceive 11 new shares for every 10 shares ofKLM, as well as warrants for additional sharesthat are good until early 2008. To protect KLM'slanding rights under existing agreements, amajority of the voting rights, though not theequity, in the KLM subsidiary would be held forthree years by the Dutch government and twoDutch foundations, keeping it technically Dutch.The deal values KLM at 16.74 euros a share, or784 million euros ($913 million), a 40%premium over KLM's closing price prior to theannouncement of the deal and a whopping 77%

premium over the average share price in theprevious three months. In response to theannouncement, shares in KLM rose by more than12% while Air France shares fell 4%. Such aresponse was not surprising, with KLM's debt inthe order of $6.96 billion.

Air France-KLM would be the world's largestcarrier by revenue, with a combined 19.2 billioneuros ($22.4 billion). It would serve a combined58.8 million passengers a year and 226destinations worldwide, operating a fleet of 540aircraft and employing about 106,000 people. Interms of revenue passenger kilometers, the airlinewould rank third globally, behind AmericanAirlines and United Airlines.

Under the new alliance, Air France and KLMwould continue to operate as separate airlines,remaining independently managed andpreserving their distinct identities. Thus,although a single committee would be in chargeof global strategy, each airline would retain itsown logo, brand, and hub (Charles de GaulleAirport near Paris for Air France and SchipholAirport in the Netherlands for KLM). Thetakeover deal, however, has implications that gobeyond these two national carriers and directlyimpacts additional airlines across the globe.While KLM would certainly join SkyTeam, a six-member marketing alliance led by Air France andDelta, its American partner Northwest Airlineswould likely follow suit. In addition, ContinentalAirlines, which earlier this year formed a code-sharing alliance with Delta and Northwest and isitself among KLM's code-share partners, has alsoexpressed hopes of joining SkyTeam by thespring.

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The Air France-KLM merger may mark thebeginning of a transformation of the Europeanairline industry, which will increasingly resembleits U.S. counterpart with fewer, larger carrierscompeting on more routes and restraining fares.Certain executives and industry analysts suggestthat in emphasizing long-haul routes, the mergerwould spur the growth of short-haul flights ofnewer discount carriers like Ryanair and EasyJet.This would add downward pressure on Europe'straditionally high air fares. Air France chiefexecutive Spinetta further argues that the mergercould mean more frequent flights, lower fares, andmore choice in destinations for the flying public. Infact, the resulting greater corporate efficiency "willmean reducing costs and, I think, better fares interms of competition" with other carriers.

Competitors are less than optimistic. Ryanair, theafore-mentioned no-frills airline based in Ireland,scoffed at the deal, predicting passengers will sufferrather than benefit. In a statement Ryanaircontended that "[a]irline alliances and mergersresult in the coordination of schedules, thereduction of capacity and the elimination ofcompetition, which inevitably increases air fares."Other rivals of the two airlines have called forregulators to scrutinize the merger and any relatedalliances for anticompetitive issues. As Jeff Angel,a spokesman for British Airways, put it, "[w]e'reencouraging regulators to give it the same scrutinythat was given British Airways and AmericanAirlines when we applied for antitrust immunity."

Air France-KLM's hopes of regulatory approvalmay perhaps ultimately lie in distinguishing thecurrent deal from the unsuccessful merger between

British Airways and American Airlines. Those twoairlines eventually aborted attempts at an alliancewhen the Department of Transportation (“DOT”)required them to surrender 224 of their lucrativelanding slots at London's Heathrow Airport to otherU.S. carriers. KLM's landing rights, just like thoseof most other airlines, depend on its remainingmajority-owned by the citizens of its country ofregistration. Thus the unique configuration of thecurrent deal, in which a combined holdingcompany acts as a corporate umbrella over twoseparate airlines with two separate nationalities.

However, it is precisely this "non-merger merger"structure of the deal that makes some analystsskeptical about its suggested benefits. Thecollaboration reportedly hopes to cut costs bycombining their sales teams, negotiating a jointposition on catering and ground-handling partners,buying aircraft together and converging ITapplications. The expected savings of 385 millioneuros to 495 million euros a year is far fromimpressive, especially considering KLM's plans tocut 650 million euros of costs on its own. Coupledwith a conditional guarantee that KLM jobs wouldbe preserved for five years and no mention of jobcuts by Air France, the alliance leads some toquestion from where, specifically, the savings willcome.

Even so, most recognize the merger as an importantfirst step in securing the future of the airlineindustry. They expect similar deals to follow, withBritish Airways and Lufthansa likely seeking topreserve market share through comparablealliances. Presently, British Airways leads theoneworld alliance along with American Airlines,

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while Lufthansa and United Airlines head thetop-ranked Star Alliance.

Still, various competitive issues will probably beexamined, including the group's dominantposition on certain routes, such as Amsterdam-Paris and Amsterdam-Lyon, as well as on thetransatlantic axis after the broadening ofSkyTeam with the likely entry of Continental andUnited (KLM's U.S. partners). Air France andKLM claim that their combination will notreduce competition across the North Atlantic,where they have no overlapping routes.Nevertheless, most expect the examination of thedeal by regulatory agencies in Washington (theDOT advised by the DOJ) to be much morechallenging than that in Europe, where in July,2002, the EU Commission approved apartnership between Deutsche Lufthansa AG andAustrian Airlines AG, a deal that experts sayraised greater competition concerns than thepresent one does. According to AndrewLobbenberg, an aviation analyst at ABN Amro,the Dutch bank that acted as financial advisor toKLM in providing a fairness opinion for the deal,there was "a 75% probability" of the deal goingahead.

Air France and KLM submitted the merger andrelated marketing partnerships to European andAmerican regulators for approval at the end ofOctober. They expect responses six to eightweeks thereafter. The takeover is expected to belaunched in the first half of March 2004, withcompletion by mid-April.

For more information, please contact Olev Jaakson at

(202) 218-0021 or at [email protected].

FTC GIVES ONLINEAPPLIANCE EXCHANGETHE NOD

In a letter to counsel dated October 10, 2003, FTCstaff stated that the agency will not challenge theformation of an online business-to-business("B2B") exchange and catalog founded by sixdistributors of replacement parts for homeappliances. The Partslinx site will serve a varietyof functions, including a directory that will allowcustomers to look up needed replacement partsand determine the distributor in their area.Customers that are local in nature can then visitthe individual distributor’s website (as linkedfrom the Partslinx site) and order parts for eitherpickup or local delivery. FTC staff noted that theresulting sales transaction would take placebetween the individual Partslinx distributor andthe customer with no other involvement by thecollective members of the exchange. As a result,staff considered this particular aspect of the site asnot posing any anticompetitive risks.

On the other hand, the exchange's plans forserving national business customers appeared tobe a bit more problematic in nature to FTC staff.According to the FTC's business review letter,sales to national accounts via the Partslinxexchange would be coordinated jointly. Theprocess in deciding how to price products tonational accounts would require the disclosure ofwhat is otherwise considered confidential strategicand marketing information - including futurepricing plans. Moreover, Partslinx proposed tohave prices for products sold to national accountsbe decided and negotiated collectively. In

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addition to the disclosure of confidential, sensitiveinformation, FTC staff noted a concern that suchactivities could potentially result inanticompetitive price fixing.

FTC staff noted that it appeared that Partslinxmembers did not seem to compete in sales tonational accounts to "any meaningful extent." Inaddition, staff took note of the Partslinx members'assertion that the exchange will bring a newservice to customers and would result insubstantial consumer efficiencies. For instance,because customers would have access to theinventory of a collective group of Partslinxmembers, they would have a broader range ofchoices. Furthermore, growth in online salesmight enable Partslinx members to reachcustomers without having to make substantialexpenditures into "brick-and-mortar" retaillocations, and therefore lowering the cost of doingbusiness. As such, staff stated that the Bureau ofCompetition had "no present intention" tochallenge the Partslinx exchange. However, theletter noted staff concerns with the exchange ofconfidential marketing and strategic plans.

The federal regulatory agencies have generally notchallenged the formation of online B2Bexchanges, even when founding members occupya large collective market share. The first B2Banalyzed by the agencies was the Covisintexchange, formed by the "Big Three" domesticautomotive manufacturers, which was analyzed asa merger. FTC staff noted in its letters to Covisintfounders that because that exchange was "in theearly stages of its development and has not yet

adopted bylaws, operating rules, or terms forparticipant access...”, they could not determinewhether or not it would have anticompetitiveeffects. In re Covisint, Inc., FTC File No. 001-0127. Similarly, the DOJ's Antitrust Divisionopted not to challege the Orbitz collaborationbetween major airline carriers after an extendedinvestigation. According to a July 31, 2003 pressrelease, the DOJ's investigation revealed that thecollective formation of Orbitz by major airlinecarriers did not result in higher fares or restrict theonline airticket distribution market.

However, this does not mean that the formation ofB2Bs will automatically withstand regulatoryscrutiny, since both the FTC and the DOJ will takea very close look at the purpose and organizationof the exchanges, and analyze each one on a case-by-case basis. At the present time, the agencies areparticularly familiar with the arguments articulatedby counsel relating to the effects of proposedexchanges, as well as the potential efficiencies. Assuch, the Partslinx business review letter providesadditional insight into the lessons that the agencieshave learned over the past couple of years.

For more information, please contact June Casalmir at

(202) 218-0027 or at [email protected].

WHITE COLLAR CRIMECONTINUES AS A PRIORITYFOR THE ANTITRUST DIVISION

The Antitrust Division continues to send a strongmessage to corporations and corporate executivesengaged in price-fixing and market allocation

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schemes. In fact, investigations of the carbonproducts industry and the military moving andstorage industry have resulted in indictments.

Electrical and Mechanical Carbon ProductsIndustry

On October 15, a Philadelphia federal grand juryreturned a superseding indictment against Ian P.Norris, the former Chief Executive Officer of TheMorgan Crucible Company plc ("Morgan"), aUnited Kingdom corporation, adding the charge ofprice fixing on electrical and mechanical carbonproducts to the previous charges of obstructing thegrand jury investigation of a price-fixingconspiracy, which were returned on September 24.

The price-fixing charge involves six types ofelectrical and mechanical carbon products: (1)carbon current collectors; (2) carbon brushes soldto original equipment manufacturers forautomotive applications; (3) traction-transitcarbon brushes; (4) industrial carbon brushes foruse in battery-operated vehicles; (5) carbonbrushes sold to original equipment manufacturersfor use in consumer products; and (6) mechanicalcarbon products for use in pump and compressorindustries. According to the charge, from late 1989until at least May 2000, Mr. Norris engaged in aprice-fixing conspiracy that was carried out in theUnited States for periods that varied by productmarket segment.

According to the superseding indictment, theconspirators carried out the price-fixingconspiracy by: participating in meetings andconversations in Europe, Mexico, and Canada todiscuss the prices of electrical and mechanical

carbon products sold in the United States andelsewhere; agreeing, during those meetings andconversations, to charge prices at certain levelsand otherwise increase or maintain prices of therelevant carbon products sold in the United Statesand elsewhere; and discussing and exchangingprice quotations to certain customers so as not toundercut the price of a competitor.

Military Moving and Storage Industry

Gosselin World Wide Moving, N.V. (“Gosselin”),a moving and storage company, and Marc Smet, itsmanaging director, have been charged withparticipating in a conspiracy to rig bids and todefraud the U.S. government in connection with ascheme to raise rates charged to the Department ofDefense ("DOD") to move household goodsbelonging to military and civilian DOD personnelfrom Germany to the United States.

A criminal complaint, which was filed under sealin the U.S. District Court in Alexandria, Virginia,on October 8, was made public at Mr. Smet's initialappearance before a U.S. Magistrate Judge inHonolulu on October 15. The charges in the two-count criminal complaint are the first to arise froman ongoing federal antitrust investigation of bidrigging, fraud, bribery, and tax-related offenses bycompanies participating in the military movingand storage industry.

According to the complaint, the DOD, in recentyears, has spent more than $100 million annuallyto move the household goods of its military andcivilian personnel from Germany to the UnitedStates. Allegedly, Gosselin and Mr. Smetconspired with others to eliminate competition, fix

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RECENT ACTIVITIES

DOJ ANTITRUST HIGHLIGHTS

• On October 29, the DOJ announced that the nation's two largest frozen-juice can manufacturers, SonocoProducts Company and Pasco Beverages Company, agreed to abandon their proposed can-making equipmentdeal after the Antitrust Division expressed concerns that the deal could be anticompetitive. Allegedly, thetransaction would have merged the only two owners of equipment used to make spiral-wound composite cansused to package frozen juice concentrate.

• On October 27, Bank of America Corp. announced its proposed merger with FleetBoston FinancialCorp., of Boston, to create the second largest banking company in the world with a combined $933 billionin assets. The merger will create a new Bank of America serving 33 million consumers and 2.5 millionbusinesses, and holding 9.8 percent of U.S. banking deposits. The deal is worth $47 billion. It will be thelargest consumer bank and top lender to small banking businesses in the United States. The AntitrustDivision is expected to review the merger.

• The Antitrust Division, the District of Columbia, Connecticut, Illinois, Louisiana, Massachusetts, NewYork, Ohio, and Texas filed a civil lawsuit to block First Data Corporation's ("First Data") proposed $7billion acquisition of Concord EFS Inc. on October 24. The State of Pennsylvania was later added to thecomplaint. According to the complaint, Concord and First Data own STAR and NYCE, the largest andthird-largest PIN debit networks in the United States, respectively. These networks enable consumers topurchase goods and services from merchants through PIN debit transactions by swiping their bank card

prices, and rig bids for the transportation of militaryhousehold goods from Germany to the UnitedStates during a six-month period in 2002.Moreover, Gosselin and Mr. Smet are charged witheliminating competition, fixing prices, and riggingbids in violation of the Sherman Act.

The ongoing investigation is being conducted bythe Antitrust Division's National CriminalEnforcement Section.

Summary

The charges against high ranking executivesdemonstrate the Antitrust Division's resolve toprosecute individuals and corporations that harmAmerican consumers by choosing to collude ratherthan compete.

For more information, please contact Andre P. Barlow at

(202) 218-0026 [email protected].

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at a merchant's terminal and entering a Personal Identification Number ("PIN"). PIN debit networksprovide an increasingly important method of payment for consumers and retailers because PIN debit is theleast expensive, most efficient, and most secure form of card payment. The main issue in the merger willbe market definition because if the Antitrust Division's market definition is correct, the merger of two ofthe three largest PIN debit networks will lead to higher prices to merchants, forcing them to pass on thoseprice increases to consumers throughout the United States in the form of higher prices for generalmerchandise. While many observers believe that a divestiture of NYCE would be a good starting offer fora settlement that would avoid litigation, First Data and the Antitrust Division have claimed that no concretesettlement offer to divest NYCE has ever been made. Therefore, First Data forced the Antitrust Divisionto sue rather than settle the case, and First Data has vowed to vigorously defend the lawsuit in court. Thetrial is set for December 15.

• On October 24, it was reported that the National Association of Realtors, a trade association for thenation's real-estate agents, disclosed that the Antitrust Division is examining its Internet policies. Theseinclude a contentious new industry rule that will give brokers the option of restricting Internet-basedcompetitors from posting certain real estate listings online. The rule was approved by the association lastMay and is scheduled to take effect January 1. Industry critics and consumer advocates have contendedthat the new rule is anticompetitive. The Antitrust Division confirmed that it is investigating the potentialcompetitive impact of certain rules involving the display of residential real-estate listings data over theInternet. The government's interest ratchets up the pressure on the association and its members. TheNational Association of Realtors has said its policies relating to Internet use of property listings are lawfuland appropriate and that it is cooperating with the Antitrust Division's inquiry. The association contendsthat its new rule will actually increase the amount of property information available to consumers online,by reducing uncertainties within the industry about what can and cannot be displayed.

• On October 17, the Antitrust Division announced through a business review letter that it would notchallenge proposed changes in the procedures for a consortium of primarily independent and smallerowners of cable television systems to jointly purchase national cable network programming. The businessreview letter was addressed to counsel for the consortium and the National Cable Television CooperativeInc. ("NCTC"). NCTC was formed in 1985 as the Mid-America National Cable Television CooperativeInc., primarily for the purpose of achieving efficiencies in the purchase of cable programming. At thattime, the Division issued a favorable business review for the consortium. NCTC has stated thatmodification of its original procedures could result in greater efficiencies for its members. Currently,NCTC, unlike a large multiple system operator, cannot guarantee any volume of participation in a contract,as its members decide whether to participate only after the contract has been negotiated. Members who

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choose to participate in the modified joint purchasing program may be required to commit in advance topurchase programming at price levels they identify. The business review letter states that NCTC'sproposed procedures will not facilitate price collusion among NCTC's members in the sale ofmultichannel video programming distribution ("MVPD") services because those cable systems do notcompete with each other in the sale of MVPD services to consumers. The letter goes on to state that thenew procedures may result in lower programming costs to members that will then be passed on toconsumers. The letter also explains that the likelihood that collusion will occur in any overlapping areasserved by the remaining NCTC members is small.

• The Antitrust Division announced on October 14 that it entered into a settlement decree with WasteManagement Inc., which requires the company to sell certain waste hauling assets before completing itspurchase of Allied Waste Industries Inc.'s assets in Broward County and Palm Beach County, Florida. TheDivision was concerned that the deal as proposed would have lessened competition and resulted in higherprices for small container commercial hauling services in Broward County. Small container commercialhauling involves the collection of waste from commercial establishments such as retail stores, offices, andrestaurants, and the shipment of the collected waste to disposal sites. The Antitrust Division alleged thatin Broward County, Waste Management and Allied are two of only three significant firms that provide thisservice. Under the proposed settlement agreement, Waste Management must divest small containercommercial hauling assets on certain routes in Broward County. In addition, Waste Management isrequired to notify both the Antitrust Division and the State of Florida if, during the next four years, itproposes to acquire small container commercial hauling assets in Broward County.

• On October 12, Smithfield Foods, the largest pork producer and processor in the United States, outbidCargill Inc. for the right to acquire the pork division of Farmland Industries for $367.4 million.Smithfield's acquisition of Farmland will further consolidate the pork producing industry. As a result ofthe acquisition, Smithfield will produce approximately 30% of the pork sold in the United States. In July,some farm groups and politicians opposed Smithfield's initial bid for Farmland's pork division becausethey believed the purchase might give Smithfield too much buying power over small hog farmers in certaingeographic areas and in the United States as a whole. The Antitrust Division reviewed Smithfield's bidand decided to take no action on the monopsony theory because the staff found that many other porkprocessors would continue to operate in a number of regional geographic areas in the United States,generally, and in the Midwest, specifically. The staff found that hog farmers ship their hogs for slaughterup to an average distance of about 300 miles. Thus, the staff concluded that a number of large regionalmarkets within the United States existed for the sale of hogs to pork producers. In these regional marketsand in the Midwest, in particular, the staff found that a number of processors would continue to compete

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Antitrust Review

for the purchase of hogs. Opponents of the deal argue that hogs cannot be transported 300 miles, so theregional markets should be smaller and, if the government were to analyze a smaller geographical market,the number of hog processors available to purchase hogs would be significantly reduced.

• On October 2, the Antitrust Division filed an amicus brief in a private action addressing liability underSection 8 of the Clayton Act. The brief was filed in Reading International v. Oaktree in the Southern Districtof New York. The brief addressed whether a business whose deputized representatives servesimultaneously as directors or officers of two competing corporations may violate Section 8 of the ClaytonAct. The Antitrust Division argued that the United States has long taken the position that a corporation orother business entity may violate Section 8 of the Clayton Act, if its deputies serve as directors or officersof competing corporations barred from sharing directors or officers under the statute and contended thatOaktree's contrary position, that a corporation, acting through its agents, may achieve precisely thecoordinated management of competing firms that the statute is designed to outlaw, is inconsistent with thestatutory language, the statutory purpose, legal precedent, and the longstanding interpretation of the UnitedStates. Therefore, the Division concluded that the Section 8 claim should not be dismissed on the groundthat a business entity may not violate Section 8 through its deputized representatives' service as directors orofficers of competing corporations.

For more information on any of these activities, please contact Andre Barlow at (202) 218-0026 [email protected].

• On October 31, the FTC accepted three proposed consent orders against three state movers associationsthat settle charges of anticompetitive conduct in the collective filing of tariff provisions in Alabama,Mississippi and New Hampshire. Under the proposed consents, the Alabama Trucking Association ("ATA")and the Movers Conference of Mississippi ("MCM") have agreed to stop filing tariffs containing collectiveintrastate rates. Similarly, the New Hampshire Motor Transport Association ("NHMTA") will stop filingtariffs containing rules that call for automatic increases in intrastate rates. The Commission previously hadfiled administrative complaints against ATA and MCM, but removed them from administrative litigation toallow for the consent order negotiations. The Commission, on October 31, announced for the first time theNHMTA complaint. The FTC reviewed these matters carefully prior to the filing of complaints to see ifthe associations' conduct was protected by the state action doctrine. In each case, the FTC determined that

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FTC ANTITRUST HIGHLIGHTS

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Antitrust Review

the conduct was not protected because the states' oversight fell below the state action doctrine's activesupervision component. All three proposed orders allow the association to seek to modify their termsto permit collective action if they can demonstrate that the state action defense would apply. The ordersterminate in 20 years.

• On October 28, after years of hearings on antitrust and intellectual property issues, the FTC issued itslong-awaited Report on how to promote innovation by trading the proper balance of competition andpatent law and policy. A forthcoming second report by the FTC and the Antitrust Division of the DOJwill make similar recommendations for antitrust law. In particular, the FTC's Report proposes legislativeand regulatory changes to improve patent quality. Specifically, the Report recommends:

• Creating a new administrative procedure that will make it easier to challenge a patent's validity at the U.S. Patent and Trademark Office ("PTO") and allowing courts to find patents invalid based on a preponderance of the evidence, without having to find that clear and convincing evidence compels that result.

• Legislative limits on the award of treble damages for willful patent infringement.The FTC's recommended change would allow firms to read patents to learn aboutnew innovations and to survey the patent landscape to assess potential infringement

issues, yet would retain a viable willfulness doctrine that protects both wronged patenteesand competition. The Report also outlines several steps it will take to increase communication between the antitrust enforcement agencies (FTC, DOJ) and the PTO.

Shortly after the October 28 issuance of the FTC Report, "To Promote Innovation: The Proper Balanceof Competition and Patent Law and Policy," Chairman Muris addressed the annual meeting of theAmerican Intellectual Property Law Association and discussed the Report's findings andrecommendations. The Chairman's comments can be found athttp://www.ftc.gov/opa/2003/10/murisaipla.htm.

• On October 27, Chairman Muris addressed Fordham University's Annual Conference on InternationalAntitrust Law and Policy and discussed the role of competition policy in attacking public restraints ontrade. Chairman Muris emphasized that restraints imposed by governments are as important a focus ofcompetition policy as private restraints on trade. Indeed, Chairman Muris agreed antitrust policy shouldaddress both restraints in order to be effective, since both public and private restraints can rob themarketplace of its vitality. Chairman Muris' speech can be found athttp://www.ftc.gov/opa/2003/10/murisfordham.htm.

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• On October 16, both Chairman Muris and Commissioner Thompson met with the Organization ofEconomic Cooperation and Development ("OECD") in Paris to discuss the intersection of competitionand consumer protection. Commissioner Thompson chairs the OECD Committee on Consumer Policy.Chairman Muris emphasized that competition policy and consumer protection policy together enhanceconsumer welfare by fostering a vigorous, competitive marketplace that gives consumers greater chanceand greater availability of quality products at competitive prices. Price advertising and the globalizationof markets are two striking examples of the intersection of competition and consumer protection whereconsumers have benefited with the bargaining power to shop around for the lowest prices, which in turnencourages firms to compete for consumers on a worldwide basis. Both Chairman Muris andCommissioner Thompson urged greater cooperation and information sharing among OECD membersand its members' enforcement agencies.

• On October 15, the FTC accepted a proposed consent order that will allow GenCorp Inc. ("GenC") toproceed with its $133 million acquisition of Atlantic Research Corporation ("ARC"), provided GenCdivests ARC's in-space liquid propulsion business within six months of completing the deal. GenC is atechnology-based manufacturing company headquartered in Rancho Cordova, California. Through itsAerojet-General Corporation subsidiary, GenC researches, develops, manufactures, and sells propulsionproducts and systems for space and defense applications. Sequa, the parent company of ARC, is adiversified industrial company that produces a broad range of products, including propulsion basedproducts. ARC is a leading supplier of liquid and solid fuel propulsion products and systems. Accordingto the FTC’s proposed complaint, combining GenC and ARC would violate Section 7 of the Clayton Actand Section 5 of the FTC Act in four different types of in-space propulsion thrusters: (1) monopropellantthrusters; (2) bipropellant apogee thrusters; (3) dual mode apogee thrusters; and (4) bipropellant attitudecontrol thrusters. To protect competition pending divestiture, the FTC will enforce an Order to HoldSeparate to ensure that no competitively sensitive information is transferred between GenC and ARC’sin-space liquid propulsion business and to ensure that GenC maintains that business as a competitivelyviable entity.

For more information on any of these activities, please contact Robert W. Doyle, Jr. a (202) 218-0030 [email protected].

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Antitrust Review

• As of 8:00 a.m. on November 3, the National Do Not Call Registry had registered more than 51,000complaints against telemarketers who continue to call them. More than 33,000 telemarketing organizationshave accessed the Registry, with 650 telemarketers downloading all area codes in the Registry. On average,each telemarketer retrieved about 45 area codes from the total national database of 317 area codes.

• On October 30, Howard Beales, Director of the FTC's Bureau of Consumer Protection, (“BCP”) testifiedbefore the Subcommittee on Regulatory Reform and Oversight of the U.S. House of RepresentativesCommittee on Small Business that solving the problem posed by unsolicited e-mail advertisements, or"spam," will not easily be cured by a single approach. According to Beales, the spam problem will requirea blend of different investigatory and enforcement techniques. Beales' testimony noted the detrimentaleffect that spam has on businesses, and small businesses in particular. The FTC has already established aFederal/State Spam Task Force to strengthen cooperation with other state and federal agencies toovercome some of the obstacles preventing effective prosecution and enforcement.

• On October 29, the FTC hosted a day-long workshop to discuss the results of a nationwide surveyregarding the marketing of entertainment violence to children. Workshop panels included members ofentertainment industry groups, rating and labeling organizations, retailers and retailer trade associations,parent and consumer advocacy groups, and other interested parties. The FTC released the results of itsnational "mystery shopper" study, which employed 13 to 16-year-olds who, unaccompanied by a parent,attempted to purchase age-restricted movie tickets, movies on DVD, music recordings, and electronicgames at 899 theaters and stores in 39 states. The Office of Juvenile Justice and Delinquency Preventionat the Department of Justice funded the survey. Of the teenage shoppers, 69 percent were able to buyM-rated games; 83 percent were able to buy explicit-labeled recordings; and 36 percent were able topurchase tickets to R-rated shows. Moreover, 81 percent of the teen shoppers were successful inpurchasing R-rated movies on DVD.

• On October 23, the FTC issued its second quarterly summary announcement detailing the agency'scontinued enforcement against telemarketing fraud. The summary describes case developments in 25federal court cases between July and October 2003.

• On October 16, the FTC announced a nationwide ad campaign to alert consumers on avoiding scamsrelated to the posting of federal and postal jobs. Ads for these scams are often found in newspapers andoffer to help job seekers find and apply for federal jobs for a fee. The FTC's campaign includes placementof paid advertisements in U.S. newspapers. The FTC has also created a website geared towards helpingconsumers avoid these scams, located at www.ftc.gov/jobscams. The FTC recommends that job seekerscheck directly with the U.S. Postal Service in order to determine the true availability and status of jobs withthat agency.

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FTC CONSUMER PROTECTION HIGHLIGHTS

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• On October 14, BCP staff commented on the proposed final U.S. Food and Drug Administration (FDA)rule concerning trans fatty acids in nutrition labeling, consumer research to consider nutrient content andhealth claims, and possible related footnote or disclosure statements on labels. The comment was filed atthe FDA's request in the comment period for the agency's final rule on this subject. BCP staff supportedthe adoption of the rule as well as the importance of consumer research before mandating footnotedisclosure accompanying the trans fat listing on the Nutrition Facts panel.

• On October 9, the FTC and Ireland's Office of Director of Consumer Affairs ("ODCA") announced thatthey signed a memorandum of understanding to facilitate enhanced law enforcement cooperation in theconsumer protection area between the two agencies. With the emergence of the Internet, consumers areengaging in cross-border transactions more extensively than ever. Consequently, a greater need for cross-border law enforcement cooperation exists. The memorandum of understanding with Ireland is similar tothose already in existence between the FTC and Canada, Australia, and the United Kingdom.

For more information on any of these activities, please contact June Casalmir at (202) 218-0027 [email protected].

• On October 10, General Electric Co. ("GE") agreed to buy British biotech and medical imaging companyAmersham plc for $9.47 billion. GE said it would pay a 45% premium to the company's share price. Thepurchase will not dilute GE's earnings next year and will add one cent to earnings per share in 2005.Amersham makes dyes and chemicals for use with x-rays and MRI scans, as well as chemicals andequipment for use with drug and disease research. GE makes everything from light bulbs to jet engines.Last month, it also announced a definitive agreement to merge its NBC broadcast division with the mediaactivities of the French company Vivendi Universal SA, forming a company worth $43 billion.

• It was announced on October 9 that Ameritrade Holding Corp. was seen as the most likely merger partnerfor Toronto-Dominion Bank's U.S. discount brokerage, which has been exploring a deal with a handful ofcompetitors. Ameritrade, Charles Schwab Corp. and E*Trade Group Inc. began holding separatediscussions with the bank this summer about a business combination with TD Waterhouse USA ("TD").One of the main issues confronting TD is control: namely, how to bolster the bank's U.S. presence througha joint venture and at the same time retain a controlling stake in the larger company. Ameritrade, based inOmaha, Neb., is deemed by many to be the best fit for TD Waterhouse.

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FTC Consumer Protection Highlights (Continued)

INTERNATIONAL ANTITRUST HIGHLIGHTS

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• British Sky Broadcasting Group Plc ("BSkyB"), Rupert Murdoch's U.K. pay-television company, announcedon October 7 that it had sold its 9.9 percent stake in Manchester United Plc, the world's biggest soccer club,for about $104 million. Cubic Expression Co. Ltd., an investment company owned by Irish investors J.P.McManus and John Magnier, bought the stake owned by BSkyB, but had no plans to make a bid for the soccerclub. British newspapers reported that United, England's most successful soccer team in the past decade, mayreceive bids from overseas investors.

• On October 6, Scottish & Newcastle announced that the auction for its pubs estate had been won by Spirit,the pubs group. The deal will enable Spirit to become the country's largest managed pub owner, overtakingMitchells & Butlers. The purchase will add 1,406 outlets, including Chef & Brewer, Premier Lodge and JohnBarrass sites, to an existing portfolio of 1,072, including Two For One and Tom Cobleigh brands. Thecombined group, to be renamed Spirit Amber, will employ 46,000 people.

• Shares in Yukos, Russia's biggest oil company, responded to mounting speculation on October 3 that ExxonMobil ("Exxon") was poised to take a 25 percent stake in the company. Yukos' shares rose 4 percent as aresult, helping to lift the Moscow share market to record levels. In New York, volumes surged in Exxon, with1.8 million shares traded as a report surfaced that a government official, Sergei Generalov, chairman of theInvestors Rights Commission, had named Exxon as the buyer of 25 percent in the merged Yukos-Sibneft for$17.5 million.

• The European Commission ("EC") concluded on October 1 that five chemical companies operated a cartelin the sorbates market between 1979 and 1996. The firms include: Hoechst AG; Chisso Corp.; DaicelChemical Industries Ltd; Nippon Synthetic Chemical Industry Co Ltd; and Ueno Fine Chemicals IndustryLtd. Sorbates are widely used chemical preservatives that prevent the development of molds, bacteria, andother micro-organisms in foods. They are also used for the coating of cheese wrapping paper or in cosmetics.The EC staff conducted an extensive investigation and showed that, between the end of December 1978 andOct. 31, 1996 (Nov. 30, 1995 for Nippon), Hoechst, Chisso, Daicel, Nippon, and Ueno operated a cartel andagreed on prices and allocated volume quotas. In 1995, the five companies controlled about 85 percent ofthe sorbates market in the European Economic Area .

• On September 24, Randgold Resources, the goldminer listed on the London Stock Exchange, announced a$1.8 billion takeover offer for Ashanti Goldfields of Ghana, trumping a rival bid from South Africa'sAngloGold. The bid values Ashanti at $13.18 per share, which is 23 percent higher than Randgold's indicativeoffer of $1.46 billion in August, and $700 million more than an agreed all-share offer from AngloGold, adivision of Anglo American. Randgold said it would offer one share for every two Ashanti shares, the sameterms as its indicative offer announced last month, but at a higher value because of the rise in the group's

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International Antitrust Highlights (Continued)

22

stock. The goldminer believes its proposal represents a genuine and attractive alternative to the transactioncurrently proposed by AngloGold. Ashanti, however, which is twice Randgold's size, continued torecommend the merger with AngloGold.

• Legislation passed by the European Parliament on September 23 will give the EC new powers to investigatecartel conduct in the airline sector. Exercising executive powers established under EU treaties, the EC wouldbe able to demand information, launch dawn raids, and impose financial penalties on airlines infringing EUcompetition rules. Under current EU law, the EC, as the EU's executive body, is empowered to wield its fullinvestigative powers only in relation to airline operations within the EU.

For more information on any of these activities, please contact Camelia Mazard at (202) 218-0028 [email protected].

• On October 14, AT&T dropped its objections to WorldCom Inc.'s reorganization plan, which removed asignificant obstacle to WorldCom's emergence from Chapter 11. AT&T's objections were based onallegations that WorldCom illegally routed domestic calls through Canada and onto AT&T's network, whichhelped WorldCom transfer millions in access fees to AT&T. While the matter has been dropped inbankruptcy court, AT&T said it would continue to pursue its federal racketeering and fraud suit againstWorldCom in the U.S. District Court in Alexandria, Virginia.

• On October 10, the FCC put News Corp.'s proposed acquisition of Hughes Electronic Corp., parentcompany of DirecTV Inc., on hold. The commission indicated that it needed more information from theparties and was discussing the merger details with the DOJ. Concerns over News Corp.'s ability to useDirecTV to raise the price of programming for both cable and satellite consumers have been raised by CoxCommunications Inc., among others. Members of the Senate's Antitrust Subcommittee have echoed thesefears and have expressed a desire for several regulatory conditions that are designed to protect consumers andcompetition to be placed on the acquisition.

• Qwest Communication Inc.'s Section 271 Application to provide long-distance service to Arizona receivedapproval from the DOJ on October 9. In concluding that Qwest had opened its local markets in Arizona tocompetition, the DOJ's recommendation started the 90 day clock at the FCC. The 1996 TelecommunicationsAct requires the FCC to give substantial weight to the DOJ's findings, however, the final decision lies with thecommission itself.

Antitrust Review

FCC ANTITRUST HIGHLIGHTS

FFoorr ffuurrtthheerr iinnffoorrmmaattiioonn,, pplleeaassee ccoonnttaacctt::

Sheppard, Mullin, Richter & Hampton LLP

Antitrust and Trade Regulation Practice Group

Robert W. Doyle, Jr. at 202.218.0030 or [email protected]

www.sheppardmullin.com

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FCC Antitrust Highlights (Continued)

Sheppard, Mullin, Richter & Hampton LLP Antitrust Attorneys

Del Mar(858) 729-9000

Pamela J. NaughtonElizabeth Balfour

Los Angeles(213) 620-1780

James J. BurgessSuzanne B. Drennon

Frank FalzettaDavid R. Garcia

Andrea HasegawaDon T. Hibner, Jr.

Kathyleen A. O'BrienMark Riera

Michelle ShermanCarlton A. Varner

Orange County(714) 513-5100Finley L. Taylor

San Diego(619) 338-6500

James J. MittermillerRobert D. Rose

Timothy B. TaylorFrank Polek

San Francisco(415) 434-9100Gary L. Halling

James L. McGinnisThomas D. Nevins

Michael Scarborough

Washington D.C.(202) 218-0000Andre P. Barlow

M. June CasalmirRobert M. Disch

Robert W. Doyle, Jr.John R. Fornaciari

Robert L. MagielnickiCamelia C. Mazard

• On October 8, GE.'s NBC signed a deal to acquireVivendi Universal Entertainment, creating a new kid onthe cable-television block named NBC Universal. Thenew entity will combine NBC broadcast network, theNBC cable channels, which include Bravo, MSNBC,CNBC, Spanish-language broadcaster Telemundo andVivendi Universal's USA Network, Sci Fi Channel andTrio cable networks.

• An October 6 decision by the U.S. Court of Appeals forthe Ninth Circuit ruled that the FCC's categorization ofcable-modem service as "information services" was toonarrow. The Court of Appeals found that cablebroadband service providers were also providing"telecommunication services." The FCC's categorizationdoes not require the owners of the high-speedinfrastructure to open their networks to competitors.The appellate court's decision could require the ownersto share their networks since they would be subject toregulation as a "common carrier". FCC ChairmanMichael Powell has directed the agency's general counselto appeal the ruling.

For more information on any of these activities, please contact Richard Trimberat (202) 218-0006 or [email protected]

The Sheppard Mullin Antitrust Review is intended to apprisereaders of noteworthy developments involving antitrust matters.Its contents are based upon recent decisions, but should not beviewed as legal advice or legal opinions of any kind whatsoever.Legal advice should be sought before taking action based on theinformation discussed.