Google’s proposed purchase of mobile advertising platform AdMob now faces political heat.
Sen. Herb Kohl (D-Wis.) wrote a letter Tuesday to his former staff counsel, Federal Trade Commission Chairman Jon Leibowitz, urging the agency to “carefully” review the merger, which would combine Google’s growing presence in mobile advertising with the largest company that places ads on smart phones.
Leibowitz worked for Kohl from 1989-2000, including a stint as the Democratic staff director on the Senate Judiciary Committee’s antitrust subcommittee when Kohl was the ranking Democrat on the panel. Kohl now chairs that subcommittee.
“Without reaching any conclusion as to whether the Google/AdMob transaction would create such dominance or would cause any substantial harm to competition, I believe it is essential that the FTC scrutinize this deal very closely,” Kohl wrote.
Critics of the deal have complained Google could use its muscle in the online search market to become the dominant player in mobile advertising.
Google has responded that the market has a dozen players, is still developing and is too new for the deal to raise major regulatory issues.
“While we’re continuing to work with the FTC, there is overwhelming evidence that mobile advertising will remain competitive after this deal closes,” Google spokesman Adam Kovacevich said in a statement. “Mobile app advertising is less than two years old, there are more than a dozen mobile ad networks, app developers and advertisers routinely use multiple networks”.
Apple, he pointed out, is also getting into mobile advertising.
The FTC has reportedly asked some parties to sign sworn statements, indicating it has some concerns about the deal.
The review is important, Kohl said, because of the role mobile phones will play in the future. ”Smart phones are a uniquely powerful method for advertisers to reach consumers, because most consumers with smart phones carry them most of the day, and frequently use them to access and search the Internet,” Kohl said.
More Internet searches will be conducted on a smart phone than on the computer in the next five to 10 years, and the smart phone will become a dominant advertising medium, Kohl said, citing industry experts.
“Allowing any one firm to dominate this market could result in higher prices for mobile advertising on the Internet and with respect to smart phone applications, and also could result in lower revenues realized by applications developers,” Kohl said.
Kohl, who chairs the Senate Judiciary Committee’s antitrust subcommittee, also asked the FTC to assess the privacy concerns raised by combining the vast data troves of both companies. “The FTC should assure itself that the deal, if approved, will have sufficient safeguards to protect consumers’ privacy,” Kohl said.
While the agency also handles privacy issues as a function of its consumer protection mandate, it does not usually take privacy into account when reviewing a merger.
Kohl raised similar concerns about Google’s 2007 purchase of online ad platform DoubleClick. The FTC approved that deal without conditions.
Updated at 3:15 to include comment from Google.
Appearing at an industry panel discussion earlier this week, Federal Trade Commissioner J. Thomas Rosch said two cases on the Supreme Court docket this term that did not involve antitrust laws could have broad implications for antitrust attorneys.
Speaking at a roundtable sponsored by the Association of Corporate Counsel, Rosch highlighted a securities case — Jones v. Harris – and an intellectual property case — Bilski v. Kappos — as two cases the competition bar should pay attention to.
Jones v. Harris
The High Court handed down a ruling on Tuesday in the securities case, which involved mutual fund fees. Rosch focused on the case because two proponents of the free-market oriented Chicago School who reviewed the case came down on different sides of the question of whether the market could adequately police the fees. ”Their disagreement reflects, to some extent, a deeper debate about the role of economic thinking in the law,” Rosch said.
Courts have long used a standard that asks if the compensation falls within a range that could be reasonably negotiated in order to assess whether a fee paid to an investment adviser was too high. Investors in the Jones case argued their fund was paying an adviser too much, but the district court used the old standard and dismissed the case.
In his 7th Circuit Court of Appeals opinion, Chief Judge Frank Easterbrook affirmed the ruling but threw out the old test and advocated a more relaxed standard that relied on the market except in cases of fraud. The mutual fund industry is a highly competitive one, the panel found.
The 7th Circuit declined to hear the case again before the full panel, but in a dissent Judge Richard Posner urged his colleagues to hear the case and was skeptical that investors would be able to avoid funds that charge excessive fees. He pointed to studies that showed fund directors had weak incentives to rein-in adviser fees.
In a unanimous decision authored by Justice Samuel Alito, the Supreme Court returned to the older strict standard and “turned its back” on Easterbrook’s “pure Chicago School” decision, Rosch said. The decision was significant, he said, both because the Supreme Court ruled in favor of the plaintiff, and because it didn’t express concerns about the court’s role in overseeing competition, as it has in some recent antitrust decisions.
Bilski v. Kappos
The intellectual property case, Bilski v. Kappos, asks what types of innovations deserve patent protection. It was brought by inventors who tried, and failed, to patent a mathematical formula designed to hedge risk.
The inventors sought a controversial “business patent” or patents on methods of doing business. They appealed the rejection to the Federal Circuit, which upheld the denial and settled on a test to determine whether a process could be patented.
A patent is a legal monopoly, so the reach of some patents is of interest to the antitrust bar. The Justices, Rosch said, didn’t seem to favor a broader approach. Justice Stephen Breyer, for example, offered: “I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake. . . . That you are going to say is patentable, too?”
American Needle v. NFL
The court is also expected to rule soon on one case that does involve federal antitrust laws, American Needle v. NFL, which will assess how antitrust laws apply to the National Football League. It will be the 11th antitrust decision in the last six terms, Rosch pointed out, which is an active antitrust docket for the high court.
The NFL has licensed its merchandise as one league for decades to several manufacturers, but decided to enter an exclusive arrangement with Reebok in 2000. American Needle, a rival apparel maker who lost out, sued the NFL on antitrust grounds and said each team should be required to negotiate a separate contract.
The NFL based its defense on a Supreme Court precedent that found a parent corporation and its wholly-owned subsidiaries were one unit for the purposes of antitrust laws. The district court and the 7th Circuit agreed, but both parties asked the Supreme Court to take a look.
The Justice Department and the FTC submitted a joint brief that took a middle ground and said the league sometimes but not always acted as a “single entity” in its operations. Each action should be considered on a case-by-case basis to determine if it was anti-competitive, the agencies argued. It was the first joint brief in “many years” that supported a plaintiff, Rosch pointed out.
“My reading of the tea leaves is that the [Supreme] Court is likely to reverse the 7th Circuit and remand with instructions to apply a fact-intensive test,” Rosch said.
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The Federal Trade Commission announced a settlement Wednesday to resolve allegations that a maker of eyeglass lenses had illegally tried to sustain a monopoly in the market for lenses that darken in the sun.
The company, Transitions Optical Inc., commands more than 80 percent of the market for such lenses and, according to the FTC’s complaint, used its market power to force customers into exclusive contracts.
The company said in a statement that it is “committed to doing business under the highest standards of ethics and integrity” and that it believes its “business practices are, and have been lawful, fair, pro-competition, and pro-consumer.”
Transitions also said: “we also take seriously the FTC’s goal of fostering greater competition in the eyewear marketplace. In that spirit, the terms of the proposed consent agreement…go above and beyond what we believe is required under the law.”
When a new rival tried to enter the market, according to the FTC, Transitions pulled its business from the first distributor that started working with its new rival and threatened to do the same with any other firm that worked with its competitors. The company also forced exclusive arrangements on its retailers, according to the FTC’s complaint.
“Transitions crossed the line between aggressive competition and illegal exclusionary conduct. It used its monopoly power to strong-arm key distributors into exclusive agreements” the FTC’s Bureau of Competition director, Richard Feinstein, said in a press release. “Its actions prevented others from competing on the merits, and consumers were forced to pay more for these lenses as a result.”
In a settlement filed along with the complaint, the company agreed not to condition access to its products on exclusivity. The settlement also prohibits Transitions from some types of discounting or bundling discounts in a way the FTC deems anti-competitive.
Some of the allegations against the company resemble a complaint the FTC filed against computer chip maker Intel Corp. last year.
The proposed settlement will be published in the Federal Register, affording the public a 30-day period in which to comment. After that period, the FTC will decide whether to make its order permanent.
updated at 5:15 p.m. to include comments from Transitions Optical
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PepsiCo Inc. announced Thursday that the Federal Trade Commission had cleared its deal to purchase two companies that bottle its drinks, on the condition that it seal off confidential information about its competitors to which the bottlers have access.
Pepsi will acquire Pepsi Bottling Group Inc. and PepsiAmericas Inc., but the bottlers also will handle work for Pepsi rival Dr. Pepper Snapple Group, Inc.
In order to clear regulatory hurdles, Pepsi said, it will set up a firewall so that Pepsi officials don’t have access to confidential information from Dr. Pepper.
Pepsi announced the $7.8 billion deal last August, but worked out details of the arrangement with the FTC before filing its formal paperwork earlier this year.
Pepsi previously had minority stakes in both bottlers, which together accounted for about three-quarters of Pepsi’s U.S. sales.
In December, Dr. Pepper agreed to give Pepsi a 20-year license to distribute and sell Dr. Pepper, Schweppes, and Crush for $900 million.
The FTC found that the license agreement would limit competition in certain soft-drink markets in the United States because it would eliminate direct competition between the two companies, and would increase the chance that Pepsi would unilaterally set Dr. Pepper’s prices.
The consent order that Pepsi agreed to would limit commercially sensitive information to employees at the company who are involved in “bottler functions,” and not to anyone involved in making Pepsi’s soft drink concentrates.
The proposed agreement also provides for someone to monitor the firewall and report to the FTC.
The FTC documents on the deal are available here.
The commission voted unanimously to approve the consent order, which is subject to a 30-day waiting period.
Just as FTC officials sign off on Pepsi’s deal, they are set to review a similar proposed deal from Coca-Cola. The company announced Thursday it would acquire its own bottling business in a deal valued at $13 billion.
updated to include the FTC documents at 11:40 a.m.
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The Federal Trade Commission lost an important case Tuesday in its campaign against the practice of brand-name drug manufacturers making payments that keep competing drugs off the market, according to a Dow Jones (subscription required) report.
A federal District Court judge in Atlanta dismissed a lawsuit brought by the FTC against Solvay Pharmaceuticals, the maker of a testosterone replacement drug.
Solvay, a newly acquired subsidiary of Abbott Laboratories, had agreed to pay several drug manufacturers that planned to introduce generic versions of the drug. In exchange for the payments, the generic firms agreed to delay marketing their versions of the drug until 2015.
The FTC has long fought such arrangements, arguing that they are illegal and that they would cost American consumers around $35 billion over the next 10 years.
But courts have not always agreed.
The FTC’s Competition Bureau director, Richard Feinstein, told Dow Jones that today’s ruling was “obviously disappointing.”
The White House included a ban on such payments, known as pay-to-delay settlements, in its proposed health plan. The House included a similar ban in its 2009 health overhaul bill.
Feinstein told Dow Jones that “a new law is the quickest and most effective way to serve the interests of the millions of U.S. consumers who take prescription drugs and deserve unfettered access to lower-cost generic alternatives.”
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The White House included in the new health care plan it unveiled today a proposal that the Federal Trade Commission has long championed: a ban on payments from brand-name drug manufacturers to keep competing drugs off the market.
Pharmaceutical companies sometimes pay rivals who make generic versions of their drugs to keep those cheaper versions off the market for months or even years longer than they would otherwise — pay-for-delay, it has been called. The FTC has long argued that such payments violate competition laws, but courts have had mixed reactions.
Last July, the Justice Department’s Antitrust Division reversed the previous administration’s stance and sided with the FTC on the issue.
FTC Chairman Jon Leibowitz, who has aggressively championed the cause, said he was “delighted” the provision was included in the latest White House health proposal. “When drug companies agree not to compete, consumers lose,” he said in a statement. “Ending pay-for-delay settlements will help control drug costs.”
In a recent study, the FTC found that the payments protect “at least” $20 billion in pharmaceutical sales, and would cost American consumers around $35 billion over the next 10 years.
Today President Obama proposed that such payments should be illegal unless the pharmaceutical companies can show with “clear and convincing evidence” that the deal has pro-competitive benefits that outweigh its negative effects.
A similar provision was included in the House version of the health care overhaul package last year. In the Senate, the chairman of the Senate Judiciary panel’s Antitrust Subcommittee, Democrat Herbert Kohl of Wisconsin, introduced legislation that would ban the payments. It was not included in the final version of the health bill the Senate passed, but the stand-alone bill is still on the Senate floor calendar.
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In a little noticed filing from last Friday, the Federal Trade Commission issued a consent agreement with a director of a physicians group in Boulder, Colo. But the whole commission wasn’t on board for the agreement. Commissioner J. Thomas Rosch filed a separate statement taking his fellow commissioners to task for basing their action on “disputed facts” and undermining the agency’s “ability to effectively negotiate consent decrees in the future.”
The agency opened an investigation into the doctors group, the Boulder Valley Individual Practice Association, in 2005 to explore whether the physicians were coordinating to fix prices for insurance payments in a way that violated antitrust laws. In 2008, the physicians group entered into a consent decree with the FTC and said it would not facilitate any agreements among doctors to set pricing terms.
The executive director of the association, M. Catherine Higgins, was not named in the consent agreement and later criticized the consent decree in the press, according to Rosch’s statement. One insurance company also then told the commission that Higgins was trying to get around the agreement by coordinating prices as an individual, and not as director of the Boulder group.
The FTC then issued a separate consent decree to cover Higgins, but Rosch disagreed with that decision. “Today’s events represent a sad conclusion to an unnecessarily sordid tale,” Rosch wrote in his filing. What Higgins said after the agreement was in dispute, Rosch said, and the facts didn’t provide a sufficient basis to file a separate agreement.
The new consent decree, Rosch said, seemed overly punitive. ”I am gravely concerned that the Commission’s abrupt decision to change its tune can be viewed as retaliation for Ms. Higgins’s decision to exercise her First Amendment rights when she publicly criticized the Commission’s initial decision against Boulder Valley,” Rosch said.
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In a brief break between the blizzards that have paralyzed Washington, D.C., Main Justice sat down with former Assistant Attorney General Thomas O. Barnett in his office at the Washington, D.C., law firm of Covington & Burling.
Barnett, who led the Antitrust Division from 2005 until 2008, spoke about his tenure at the Justice Department, the Federal Trade Commission’s case against chip maker Intel Corp., and how he believes his successor’s bark may be worse than her bite.
The following is an edited transcript of the interview:
Your successor on the job, Christine Varney, has been at the Antitrust Division for less than one year. Her early speeches criticized your approach and signaled the DOJ would take a tougher line on antitrust enforcement. The Ticketmaster-Live Nation merger, which the Division approved with conditions last month, was closely watched as an early test of the new administration. How would you rate its performance?
I would distinguish between the rhetoric at the division and their actual enforcement and policy actions. They certainly came in with very strong rhetoric suggesting they would be dramatically more aggressive in enforcement actions.
But you look at the specific example of Ticketmaster-Live Nation. What the agency did do was challenge a horizontal overlap that under the market definition that they alleged, indicated that the combination would have led to a very high degree of concentration. They alleged barriers to entry, and then they obtained relief for that. That’s the sort of theory that is perfectly consistent with the enforcement actions that were taken during the previous eight to nine years.
They also adopted some behavioral remedies in the Ticketmaster settlement that affect vertical relationships.
An interesting policy question is, if you look at the merger remedy manual that the Antitrust Division puts out, it very much disfavors behavioral remedies. It indicates that the policy of the division is to seek structural remedies wherever possible.
Because a behavioral remedy is hard to enforce?
It’s hard to monitor, it’s hard to enforce, it can draw the Division and the court into regulating day-to-day operations, and there are some question that I’ve seen raised in the press about what some of the terms mean: you can bundle, but you can’t exclude, and could bundling be exclusion? Those are hard questions, and I don’t think they are answered on the face of the papers.
As head of the Antitrust Division, you issued a controversial report on bundling and other conduct that could raise antitrust concerns under Section 2 of the Sherman Act. The Federal Trade Commission, which shares the responsibility of enforcing federal antitrust laws, did not sign on.
You can think about the report in two aspects. One is the synthesize of, this is what the courts have said, this is what academics have said, this is what people on both sides of the issue have said. The second aspect is, where should we go from here? The prescriptive aspect of it. On the descriptive aspect of it, I really thought that the staffs had done a phenomenal job of collecting all of that information together. At a basic level, I wanted the public to have the benefit of that work.
And on the second, prescriptive, issue?
I viewed it as an important part of our responsibility as public servants to try to move the law forward. And businesses should have as clear guidance as possible about where the line is. If they know where the line is, they are more likely to stay on the right side of it and comply with the law. If the line is clear and they cross it, it’s going to be easier to bring a challenge and challenge the conduct. It did become clear at some point that the FTC was not going to join in either aspect of the report. And my view, I believe very much in a marketplace of ideas. You put it out there, and you let it rise or fall on the crucible of competition, and you allow people to debate it.
But wouldn’t that result in more confusion for businesses?
It revealed that there were some differences of views between at least the Antitrust Division in 2008 and the FTC. The mere fact that that difference became public, is a valuable thing for businesses to know, because it’s not like that difference wasn’t there. It just became public. And transparency is generally a good thing.
One of Christine Varney’s first actions as head of the Antitrust Division was to withdraw the report.
If the current Assistant Attorney General does not agree with the report, particularly the prescriptive aspects of the report, then as a matter of transparency, the right thing to do is to make that public, which she did in withdrawing the report. So I would agree with her decision to do it. Now what the FTC did not do at the time, and what the DOJ has not done since it has withdrawn the report, is they’ve not come forward and said, here is our alternative.
I would go further and say I was disappointed that the report was withdrawn in its entirety. I’ve drawn this distinction between the prescriptive side and the descriptive side. I mean that is still out there, and people can still reference it. But one could have at least considered in being more selective about what was withdrawn. I really do think the staff did a tremendous job in pulling all that together.
Now that you are back in private practice, do you care which agency is reviewing a deal you are working on?
Historically it has been the case that the outcome at either agency is likely to be the same. But there is now at least the possibility, based on what has happened with Whole Foods, that the standard for the FTC is significantly lower than it is for the DOJ. The amount of time between when the investigation starts and when you get to an Article III [ie: federal] court is far longer at the FTC than it is at the DOJ. As a matter of policy, it is not clear to me that the standard for seeking a preliminary injunction should be different between the two agencies, because then you end up with a situation where the burden on the parties is significantly different based on the clearance issue.
The FTC recently filed suit against Intel using its authority under Section 5 of the Federal Trade Commission Act, which has not been tested by the courts in recent years.
I’m not in a position to comment on the merits of the Intel case. As a separate policy matter, I’m very concerned about the expansion of stand-alone Section 5 enforcement because of the inability to set forth clear criteria for where the line is. If the standard is perceived by the courts as being so amorphous that it is effectively an ex-post judgment that was not reasonably foreseeable by the parties at the time they were making their decisions, I think it could be unfair to the parties and harmful to consumers, and I think the courts may react negatively to this approach.
The agencies are now considering revising the guidelines they use to evaluate horizontal mergers. Do you think they should be changed?
The basic framework of the guidelines, and the basic focus on market definition, and competitive effects, entry and efficiencies, is the right framework, I think. There have been discussion about whether the agencies might try to interject some new concepts into the guidelines, but to me it would be a mistake. I think it is a healthy discipline if you are forced to put the theory of the challenge to the merger into the framework of a relevant market, and then explaining within that framework why the merger of these two particular companies would be anti-competitive.
But some observers have said the Justice Department lost its 2004 case to block Oracle’s hostile bid for PeopleSoft, in part because of the merger guidelines’ market definition requirements.
At the end of the day, while the division presented evidence to support its proposed definition of the relevant market, the judge decided that the evidence weighed more in favor of a broader market. If the judge had accepted more of the narrower market, then the analysis of competitive effects and the theory of harm that the division was presenting would have been far more likely to be persuasive to the judge.
Once the judge had decided that the evidence didn’t support the narrow market, then the case basically fell apart. That’s not a matter of following the guidelines or not following the guidelines.
In retrospect, is there anything you would have done differently at the Justice Department?
No. That’s not to say that everything I did was perfect, but what I tried to do is to work hard on each individual matter to understand the facts, to understand the evidence, to understand the law, and to make the right decision. And I feel comfortable that that’s what we did in every case. In that respect, I don’t have any regrets.
You were at Covington & Burling before joining the Justice Department, and you went back there after leaving government. Did you move back into your old office?
No, different office, my old office was occupied. But it is a better view. I can see the Department of Justice from my window!
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The Federal Trade Commission would get a $22.3 million funding increase under the president’s fiscal 2011 budget request sent to Congress on Monday. The approximately 7.6 percent increase would support the hiring of 40 new staffers, including 17 in the competition bureau.
Nine of the new full-time competition positions would be dedicated to review mergers in pharmaceutical, health care, energy and technology markets, according to the request.
The agency signaled that energy would be a key focus, with four additional staff members slated to review price manipulation in the petroleum market and three new economists to focus on energy markets
Four additional positions would concentrate on enforcement in the pharmaceutical and tech sectors. The agency also asked for several new positions on its competition support staff, and one new member on its policy planning task force.
On the consumer protection side of the agency, the FTC asked for 23 new positions, to focus on financial services and health fraud, schemes that target “vulnerable Americans” and others.
The request also includes several new positions in the areas of privacy and data security, and mobile marketing and new media. The agency is currently reviewing Google’s acquisition of mobile advertising company AdMob. Critics of Google’s purchase have argued that the merger would decrease competition in the nascent market for advertising on mobile devices, but they have also said the deal raises concerns about consumer privacy that arise from combining Google’s vast data mines with those of AdMob.
Scientific tool manufacturer MDS Inc. will have to spin off some assets in order to complete its merger with another equipment manufacturer, Danaher Corporation, the Federal Trade Commission announced today.
MDS will divest assets related to laser microdissection devices, which are used to separate cells from larger tissue samples for specialized testing, according to a statement from the agency.
“The Commission’s order will protect competition in the specialized and highly concentrated market for laser microdissection devices, leading to lower costs and increased innovation,” said the FTC’s Richard Feinstein, who heads the agency’s competition bureau.
Danaher and MDS are two of only four companies that make the devices in North America, the FTC said.