Criminal Antitrust Update - March 2011

    4 March 2011


    Health Care: Given the recent health care legislation and congressional pressure to increase scrutiny over insurance industry consolidation, we expect the Department of Justice's Antitrust Division (the Division) to devote substantial time and energy to anticompetitive practices in the health care industry. The Division has already initiated a lawsuit against Blue Cross Blue Shield of Michigan (BCBSM) over its use of anticompetitive contractual clauses, and both the Division and the Federal Trade Commission (FTC) have been actively reviewing consolidations of hospitals, insurers and physician networks in the health care industry. In March 2010, the Division opposed a merger between BCBSM and another large Michigan insurer citing the potential for price increases and a significant reduction in competition given the companies' combined market share. The FTC announced in January that it will seek to undo ProMedica Health System Inc.'s acquisition of an Ohio hospital because the combination limits competition for emergency medical and obstetric services. Both agencies will continue to carefully scrutinize health care mergers and investigate suspected anticompetitive practices in 2011.

    Technology: Antitrust enforcement in the technology sector is likely to continue in 2011. Consumer groups and smaller companies are actively urging the Division to investigate the dominance of many high tech leaders. The Department of Justice is currently investigating IBM's dominance in the mainframe market as well as Google's plan to acquire ITA Software, a leader in travel booking software. This continues a trend from previous years, where collusion among flat screen manufacturers has already resulted in indictments and guilty pleas. The European Union (EU) announced in November that it has opened an investigation of Google's alleged practice of favoring its own services in its search engine in violation of EU law. We expect the Division will conduct parallel inquiries of technology companies to determine whether they have violated U.S. antitrust laws.

    Financial Services Industry: The Division's October 2010 suit against American Express Co. signals a focus by antitrust regulators on financial services, in addition to investigations arising from the 2008 market meltdown. The suit against AMEX focuses on practices surrounding merchant fees; similar claims already resulted in settlements from Visa and MasterCard. With significant consolidation in the financial services industry, we expect the Division to be on the alert for alleged anticompetitive behavior.


    Monopoly leveraging occurs when a company uses its monopoly power in one market to obtain a monopoly in a second market. Monopoly power by itself does not violate the federal antitrust laws. However, a monopoly gained through anticompetitive means is unlawful.

    There are three elements that may combine to create monopolistic leverage: (1) a company possesses monopoly power in one market; (2) the company is engaging in anticompetitive or exclusionary conduct and (3) the conduct will create a monopoly in a second market. There must be a dangerous probability that the company will achieve monopoly power in the second market. Merely gaining a competitive advantage in the second market is not sufficient to support a monopoly leveraging claim. Courts have held that the leveraging must take the form of a refusal to deal, predatory pricing or tying.

    Companies with a lawful monopoly or a dominant market position in one market are well-advised to structure a compliance program to identify situations where market dominance could be used improperly. Sales promotions that offer bundled complementary products or services would be a prime target for compliance training and monitoring, both at the sales and management levels. Refusals to deal with certain customers and other exclusive arrangements should also be avoided. For example, companies with a dominant market position should refrain from refusing to do business with a customer who also does business with competitors. Companies should also refrain from requiring a customer to purchase all or most of its needs from the seller (requirements contract). Absent a procompetitive business justification for this type of behavior, companies with monopoly power or a dominant market position can open themselves up to antitrust liability under Section 2 of the Sherman Antitrust Act. Companies should, through their compliance programs, enable sales and managerial staff to identify this type of potentially anticompetitive behavior.


    In October 2010, the Division filed a lawsuit against BCBSM claiming it violated Section 1 of the Sherman Act's prohibition on restraints of trade by entering into agreements with its providers (Michigan hospitals) that prohibit the provider hospitals from offering competitive pricing to other insurers/competitors of BCBSM through the use of "most favored nation" (MFN) clauses. MFN clauses, like the ones used by BCBSM in its agreements with hospitals, provide that the hospitals cannot offer lower rates to other competing insurers. According to the Division, BCBSM's MFN clauses guaranteed it a better rate than competing insurers, and in many cases, the MFN would specify how much more BCBSM's competitors had to pay. The Division also alleges that BCBSM agreed to raise its prices to each hospital in order to obtain these MFNs. BCBSM is the largest provider of health care insurance in Michigan. According to the Division, BCBSM's use of these types of MFN clauses ensured that competing insurers could not get better rates from area hospitals, thus reducing competition in the sale of health insurance in Michigan by raising hospital costs to BCBSM competitors and discouraging competing insurers to enter and/or expand the market.

    BCBSM maintains that its contracts with hospitals serve to lower health care costs for consumers by obtaining the lowest costs possible for hospital services. However, it will be difficult for BCBSM to maintain that its contracts with hospitals are pro-competitive in light of the Division's claim that in many cases, BCBSM actually specified in its contracts the prices that each hospital must charge BCBSM's competitors, many times up to 40 percent more.

    This is a significant case in the Division's enforcement of the federal antitrust laws in the health care industry and demonstrates the Division's commitment to competitive prices and affordable health care for consumers. The use of MFNs by dominant health care insurers occurs throughout the country. We believe providers may be vulnerable under the federal antitrust laws in many areas. In fact, the Division has indicated it will pursue complaints against other insurers or health care providers that use similar practices to raise prices or reduce competition. The BCBSM case demonstrates the Division's commitment to challenging conduct it views as anticompetitive or exclusionary by dominant health care companies. Insurers, hospitals and other companies in the health care space should be vigilant about competition issues, as we expect increased enforcement activity both by the Division and by state attorneys general.