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RegulatorGlobal News oF ReleVaNCe To eNTiTies & iNdiViduals aFFeCTed by aNTiTRusT issues wiNTeR 2009, V. ii,

IN THIS ISSUE:n International UpdatePage 2

nChina: InBev/Anheuser-Busch Merger Gets the Go-Ahead, but With ConditionsPage 2

n European Competition Law UpdatePage 2

n Enhanced Pace o International Cartel EnorcementPage 4

n EU Commission Targets Pharma IndustryPage 5

n Reed Smith Comments on the Application o the EC Merger RegimePage 6

n Germany Proposes New Merger Control ThresholdPage 7

n Latest European Court Ruling Fails to Resolve Parallel Trade UncertaintyPage 8

n United States UpdatePage 9

n The Election o President Obama and Antitrust EnorcementPage 9

n Implications o the Supreme Court Decision Rejecting Reliance as a Requirement in a

Civil RICO ClaimPage 10

n Make Way For Class Certifcation TrialsPage 11

n Federal Circuit Applies Rule o Reason and Validates Reverse Payment Patent

Settlements in In re Ciprofoxacin Hydrochloride Antitrust LitigationPage 12

n Federal Court Allows Joint Bidding Suit to ProceedPage 14

n Regulatory Update In BriePage 15

n Reed Smith At The PodiumAnd On PaperPage 13
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ANTITRUST REGULATOR WINTER 2009 2

In its irst public ruling since the adoption o the new Anti-Monopoly Law

(AML), the Chinese Ministry o Commerce (MOFCOM) has allowed InBevs

US$52 billion purchase o Anheuser-Busch, creating the worlds largest brewer.

The conditions imposed to secure clearance may,

however, leave a bitter atertaste.

The new competition law regime in China has

attracted a lot o attention since its adoption

last year and entry into orce Aug. 1, 2008. The

AML itsel is rather vague and only provides

or general principles. With most implementing

rules not yet ready and a near complete lack o

previous enorcement experience by the Chinese

authorities, the irst decisions were eagerly

awaited.

MOFCOM has approved a number o concentrations since the entry into orce

o the AML. However, this is the irst decision to be made public, and MOFCOM

has clariied it will usually only publish conditional approvals or prohibitions o

concentrations. The decision, together with some guidance on merger review

published by MOFCOM on its website, will allow companies and their advisers

to get a eel or the enorcement o merger control in China and the procedure

involved.

MOFCOM set out its decision in a one-page document briely stating the

conditions imposed on the parties. InBev is required:

n Not to increase Anheuser-Buschs existing 27 percent shareholding inTsingtao Brewery

n To inorm MOFCOM i there is any change to its controlling shareholders in a

timely manner

n Not to increase InBevs existing 28.56 percent shareholding in Zhujiang

Brewery

n Not to acquire shares in China Resources Snow Brewery and Beijing Yanjing

Brewery

Imposing conditions or merger clearance is nothing new. The paradox, however,

lies with the act that MOFCOMs assessment ound that the acquisition will not

distort competition in the beer market in China. The conditions were justiied

to ensure that no urther acquisitions take place that may deteriorate the

competitive structure o the market in the uture.

MOFCOM has indicated that its approach to merger control is not only

to contribute to the normal operation o markets, but also to the healthy

development o enterprises. Preserving a competitive market structure has

always been a concern to competition law enorcers, but imposing conditions on

uture acquisitions or unproblematic transactions appears little, i at all, justiied

on competition grounds. Businesses trying to acquire companies in China will

now have to plan their uture acquisition strategy careully, including the potential

impact on other business activities in China.

Although MOFCOM has been conscious o the timeline provided or in the AML,

it took several submissions o supplemental inormation beore the preliminary

review could be commenced or InBev. MOFCOM has stated it is currently

working on detailed implementation rules to clariy the material required to

be submitted to it or merger review. In the meantime, it is possible to submit

questions in writing to MOFCOM or clariication, or reer to the notiication

guidelines under the older Rules o Foreign Investors Acquisition o Domestic

Enterprises.

Another point that emerged rom the InBev decision was the role that

competitors and other industry players may play in the competition assessment

process. During the review, MOFCOM engaged in extensive consultations with

other government departments, beer industry associations, domestic beer

manuacturers, manuacturers o beer ingredients, and beer distributors. This is

not uncommon practice, but it remains to be seen how important an involvement

and inluence third parties may have in the merger review process in China.

The AML and merger control enorcement in China are still at a very early stage.

The InBev decision is, however, sending worrying signals o competition law

serving as a guise or industrial policy planning and national protectionism,

and it is hoped that this will not become a generalized trend o competition law

enorcement in China.

Thomas Karalis

Trainee Solicitor London

I N T E R N A T I O N A L U P D A T E

China: inBev/anheuser-BusCh merger gets the go-ahead, But with Conditions

European State-aid measures to combat the global financial crisis

The global inancial crisis that has taken hold in the latter hal o 2008 has given

rise to a lurry o activity in the State-aid ield as a number o inancial packages

have been put in place in order to save struggling European banks and to ensure

the stability o the inancial systems o various EU Member States. These

packages necessarily need prior EC clearance as State aid to ensure that the aid

does not coner on the beneiciary undertakings, an unair advantage over their

competitors within the EU.

In order to protect inancial stability and avoid spill-over eects on the rest o

the economy, new temporary arrangements were put in place by the European

Commission Oct. 1 to allow quicker approval decisions on proposed emergency

rescue measures in avor o inancial institutions. This has seen, or example, the

recent approval o rescue aid to Hypo Real Estate in Germany within a couple o

days o notiication, and the approval o aid to Bradord & Bingley in the UK within

just 24 hours o ormal notiication ollowing urgent inormal discussions with UK

authorities on how to structure the package to limit distortions o competition.

european Competition Law update

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The European Commission has also published guidance (in the orm o a

Communication) to EU Member States as to how they can structure support

schemes, such as guarantees or recapitalization schemes, in a way that would

be compatible with EU State-aid rules. The Communication considers that

Article 87(3)(b), under which the Commission may allow State aid to remedy aserious disturbance in the economy o a Member State, is available as a legal

basis or aid measures undertaken to address the

inancial crisis in light o the level o seriousness

that the current crisis in the inancial markets

has reached, and o its possible impact on the

overall economy o EU Member States. The

Commission has recently approved a number o

support schemes under Article 87(3)(b) in the UK

and other EU Member States.

The Commissions recent activity in this

ield shows its willingness to adapt its usualprocedures in exceptional circumstances. While

the above measures have helped a number o

struggling inancial institutions, struggling irms in other sectors are unlikely to

have support approved on the same basis in the absence o a comparable risk to

the wider economy.

Creation of a new public interest consideration in UK merger control

Following the Sept. 18, 2008 announcement by Lloyds o its intention to merge

with HBOS, the Secretary o State issued an intervention Notice to the UK Oice

o Fair Trading (OFT) (the body responsible or irst phase review o mergers in

the UK), stating that he believed the stability o the UK inancial system ought tobe speciied as a public interest consideration under the Enterprise Act, and that

this may be relevant to the consideration o the Lloyds/HBOS merger situation.

An order was subsequently laid beore Parliament introducing this new public

interest consideration into the Act. As with the State-aid measures described

above, the intention was to ensure that the regulatory process did not prevent

rapid action rom being taken to address issues arising rom the global inancial

crisis.

The UK merger regime provides limited powers or the Secretary o State to

intervene in mergers in order to protect legitimate public interest considerations.

Previously, the only speciied public interest considerations had been national

security and plurality o media ownership. However, it was elt that the new publicinterest consideration was necessary as the inancial services sector was vital

to the economy, and the ailure o a bank would leave individuals and businesses

unable to access savings, raise inance or meet day-to-day inancial obligations,

with potential knock-on eects in other parts o the inancial system.

Following its review o the transaction, the OFT concluded that there was a

realistic prospect that the anticipated merger would result in a substantial

lessening o competition in relation to personal current accounts, banking

services or small and medium-sized enterprises in Scotland, and mortgages. It

was elt that it would not be appropriate to deal with the competition concerns by

way o undertakings in lieu o reerence to the Competition Commission (CC).

The Secretary o State (with whom the inal decision rested), however, considered

that the stability o the UK inancial system outweighed the competition concerns

identiied by the OFT and thereore decided not to reer the merger to the CC or a

more in-depth investigation.

This is an exceptional case and is the irst time a public interest consideration

has been created in order speciically to acilitate a particular merger. As many

commentators have noted, the merged entity will, o course, be subject to the

ordinary competition rules in its daily operations.

BSkyB/ITV

A recent judgment o the UK Competition Appeal Tribunal (CAT), dismissing an

appeal by BSkyB (the UKs largest pay TV provider), has upheld a decision o the

Secretary o State o January 2008 (implementing a Report rom the Competition

Commission) that BSkyBs acquisition o a 17.9 percent shareholding in ITV (a

UK national terrestrial television broadcaster) would give rise to adverse eects

on competition. The CAT held that the CC had been entitled to ind in its Report

that the acquisition constituted a relevant merger situation, on the basis that

it granted BSkyB the ability to exert material inluence over the policy o ITV,

and that it would lead to a substantial lessening o competition. The judgment

supported the CCs approach to the consideration o material inluence, inding

that BSkyB had identiied no deect that would render the indings perverse or

irrational.

The CAT did, however, ind that the CC had incorrectly applied the plurality o

the media public-interest consideration in inding, in this regard only, that the

acquisition would not be expected to operate against the public interest. The

judgment provides interesting analysis o the media plurality public interest

consideration, this being the irst time that the Secretary o State has intervened

in a merger on this (or any other) ground since the Enterprise Act gave decision-

making authority to the OFT and CC. The CAT held that the Commission ought to

have treated BSkyB and ITV as wholly controlled by only one person, and treated

the act that, in practice, BSkyB shares control over ITV with others as irrelevant

or the purpose o the plurality assessment.

This case is also noteworthy or the act that the CAT went on to consider

separately in a second judgment whether to remit the media plurality question

back to the CC and Secretary o State. It held that the remedy imposed (requiring

BSkyB to reduce its shareholding to 7.5 percent) was not undermined by the

Reports deiciency in relation to the plurality issue, and that remitting the

plurality issue to the CC and Secretary o State would thereore serve no useul

purpose: it could not result in any lesser remedy being considered appropriate as

the reduction in shareholding was still necessary to remove the adverse eect on

competition; urther, there was no realistic prospect o any additional or dierent

remedy being imposed, as the existing remedy would also be suicient to remove

the eects o the transaction on the plurality o media owners. The CAT has

reused BSkyB permission to appeal its decision, but leave to appeal may still be

sought directly rom the Court o Appeal.

Richard J. WaiteAssociate London

European & Middle East Corporate

e C L uc 2
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New European liner consortia block exemption

On Oct. 21, the European Commission published a preliminary drat block

exemption Regulation or liner shipping companies participating in consortia

arrangements. Liner shipping essentially involves the provision o regular

services on which cargo is transported by container; consortia are deined as

arrangements between two or more carriers that provide international liner

shipping services exclusively or the carriage o cargo, chiely by container,

and the object o which is to bring about cooperation in the joint operation o a

maritime transport service.

Consortia arrangements have beneited rom a block exemption since 1995, and

the European Commission recently held a consultation period, inviting comments

on a drat Regulation revising the existing block exemption that is due to expire

April 25, 2010 (the submitted comments are now available on the European

Commissions website at: http://ec.europa.eu/competition/antitrust/legislation/

maritime/). I adopted, the revised Regulation will remain in orce until 2015.

An accompanying technical paper published by the European Commission

explains that consortia generally help to improve the productivity and quality o

liner shipping services through the economies o scale and eiciency they allow

in the operation o vessels and utilization o port acilities; customers beneit

rom the improvements in service quality and the global coverage that such

arrangements bring about.

This review comes at a time when the European Commission has been phasing

out other sector-speciic block exemptions, such as the aviation block exemption

and the liner conerence block exemption, and when the only other sectoral block

exemption regulations in orce (the Insurance Block Exemption and the Motor

Vehicle Block Exemption) are undergoing review, with the possibility that they will

not be renewed. This could thereore be the last sector-speciic block exemption

adopted by the European Commission.

European Commission imposes highest ever cartel fine

On Nov. 12, the European Commission announced that it had imposed ines

totaling 1.38 billion (roughly US$1.97 billion) on our European producers o car

glass involved in cartel activity between 1998 and 2003. (For more details, see

article on Enhanced Pace o International Cartel Enorcement in this issue o

theAntitrust Regulator.) This groundbreaking ine comes hot on the heels o a

676 million (US$965m) ine imposed by the European Commission Oct. 1 on

participants in a parain wax cartel. These are the irst signiicant ines imposedsince early 2007 and act as a clear and stark reminder to companies engaged

in cartel activity in Europe, that the Commission remains intent on sending out a

strong message that such activity will result in severe penalties. The European

Commissions press release notes the right o injured parties to seek damages or

loss arising rom the operation o the cartel.

enhanCed paCe of internationaL CarteL enforCement

In recent months, we have seen a signiicant increase in antitrust enorcementagainst international cartels. This increased activity in international cartel

enorcement is worth noting since it relects a greater emphasis on eradicating

price-ixing cartels by enorcement agencies

worldwide. The ollowing recent examples are

discussed here: (1) the imposition o the highest

ine against a cartel ever, where the European

Commission ined car glass producers more

than 1.3 billion or a market sharing cartel; (2)

LG, Sharp and Chunghwas agreement to plead

guilty and pay a total o $585 million in ines or

participating in price-ixing conspiracies; and

(3) the Eastern District o New Yorks reusal to

dismiss a class action against various Chinese

Vitamin C manuacturers.

The European Commissions Imposition of the Highest Fine Ever

On Nov. 12, 2008, the European Commission imposed ines totaling

1,383,896,000 again Asahi Glass, Pilkington, Saint-Gobain and Soliver or illegal

market sharing and exchange o commercially sensitive inormation regarding

deliveries o car glass in the European Economic Area (EEA), in violation o the

EC Treatys and the EEA Agreements ban on cartels and restrictive business

practices. Asahi, Pilkington and Saint-Gobain are the three major players in

Europes car glass manuacturing industry. Between early 1998 and early 2003,these companies discussed target prices, market sharing and customer allocation

through a series o meetings and other illicit contacts. The Belgian company

Solivar also took part in these discussions. These our companies controlled

about 90 percent o the glass used in the EEA in new cars and or original

branded replacement glass or cars, a market worth about 2 billion in the last

ull year o the inringement. The Commission started the cartel investigation on

its own initiative ollowing a tip rom an anonymous

source. The Commission increased the ines against

Saint-Gobain by 60 percent because it was a repeat

oender. Asahi provided additional inormation

to help expose the inringement, and its ine was

reduced by 50 percent under the Leniency Notice.

These are the highest cartel ines the Commission

has ever imposed, both or an individual company

(896 million against Saint-Gobain) and or a cartel

as a whole.

The ines in this case are based on the 2006

Guidelines on Fines. Under these Guidelines, ines

relect the overall economic signiicance o the inringement as well as the share

o each company involved. The cartel constitutes a very serious inringement

o the EC Treatys antitrust rules. In setting the ines, the Commission took into


Lawrence Kill

Partner New York

Commercial Litigation Eastern

Rizwan A. Qureshi

Associate New York

Commercial Litigation Eastern
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account the respective aected sales o the companies involved, as well as the

combined market share and the geographical scope o the cartel agreements.

Prctice Tip:Similar to the United States, the concepts o amnesty and leniency

are important actors in the Commissions determination o the amount o theines imposed. Here, Asahis cooperation reduced its original ine by 50 percent

rom 227 million to 113.5 million. The Commissions imposition o the highest

ine ever against a cartel is relective o its increasing emphasis on disbanding

price-ixing cartels, and highlights the importance o a deendants early

cooperation.

Second-Highest Criminal Fine Ever Imposed by the Department of

Justices Antitrust Division

Three leading electronics manuacturersLG Display Co. Ltd., Sharp Corp. and

Chunghwa Picture Tubes Ltd.have agreed to plead guilty and pay a total o

$585 million in criminal ines or their roles in conspiracies to ix prices in the

sale o liquid crystal display (LCD) panels. O the $585 million in ines, LG, a

South Korean corporation, will pay $400 million, the second-highest criminal ine

ever imposed by the Departments Antitrust Division. Sharp Corp., a Japanese

consumer electronics manuacturer, has agreed to pay a $120 million ine or

its participation in separate conspiracies to ix prices or LCD panels sold to

Dell Inc., Motorola Inc. and Apple Computer Inc. Chunghwa, a Taiwanese LCD

manuacturer, has agreed to pay a $65 million ine or its participation with LG

and others in a price-ixing conspiracy.

The three companies, which were charged with violating the Sherman Antitrust

Act, allegedly held crystal meetings and engaged in communications about

setting prices on the LCD displays. They agreed to charge predetermined prices

or the displays, issued price quotas based on those agreements, and exchanged

eu Commission targets pharma industry

Last January, the Commission spectacularly launched an investigation into the pharma sector by carrying out dawn raids on Europes major pharma groups. This

was the irst time a sector inquiry had been commenced by unannounced inspections.

The Commission published a 400-page preliminary report on its investigation, which was launched at a press conerence given by EU Competition Commissioner

Neelie Kroes in Brussels Nov. 28, 2008.

The Commissions preliminary view, on which it will now consult, is that competition in the European pharma industry is not

working as well as it should. The Commission cites certain practices o the large pharma groups that the Commission believes

restrict competition and artiicially keep the prices o drugs high.

The practices that concern the Commission are: registering lots o patentsapparently 1300 in one caseor the same drug

(patent clusters) in order to make it more diicult or other companies to produce competing (generic) versions o the same

drug; a policy o initiating litigation to keep the generic companies out o the market or delay their entry; settling these cases by

agreements that typically keep the generic competitor out o the market or a time; giving the generic competitor a license o the

patent holders drug or the right to sell it, so removing the possibility o a new generic drug entering the market; and/or including a

so called reverse payment to the generic company.

The truth is that there is really nothing new in any o these allegations or practices, many o which have already been extensively

litigated by competition authorities and industry players in the United States. The debate turns on the tension between antitrust

legislation that is aimed at promoting competition, and other laws that saeguard intellectual property rights, which by their very

nature coner an unchallengeable monopoly on the holder. Patents and other intellectual property rights are in the public interest

because they incentivize innovation by allowing innovators the exclusive right to exploit the ruits o their work during a deined period. It is natural that powerul

companies will wish to use the law in order to delay the entry o competitors and will vigorously deend any challenges to their intellectual property rights. European

law recognizes the importance o intellectual property rights, and also recognizes that it is not a breach o competition law just to be big and powerul.

So the Commission will have its work cut out i it is going to mount legal challenges to the practices it has identiied. O course, registration and vigorous deense o

patents restricts competition. That is the whole point o having a patent. When does this activity go so ar as to become something that the law should sanction?

In this connection, the Commission will take little comort rom the more recent developments across the Atlantic. Last month, a U.S. Federal Appeals Court upheld

a decision in avor o drug companies Bayer, Hoechst and Barr in a challenge by a group o health plan providers that patent settlement agreements between the

three companies had artiicially kept up the price o the drug Ciproexactly the same argument raised by the Commission in its report. See article on Bayer/Barr in

this issue o theAntitrust Regulator.

So we will wait and see what enorcement action eventually results rom this enquiry as it now goes to consultation. Consultation will inish at the end o January,

and the inal report is expected next spring. In the meantime, the Commission is keeping busy with another series o raids on the pharma sector. This, the

Commission says, is unconnected with the current enquiry, and speculation is that these raids relate to distribution o drugs, rather than preventing or delaying

generic entry. Neelie Kroes has picked a big ight with the pharma companies. It certainly promises to keep her busy.

Edward S. Miller

Partner London


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reed smith Comments on the appLiCation of the eC merger regime

At the end o October, the European Commission (the Commission) launched a

three-month public consultation on the unctioning o the EC Merger Regulation

(the ECMR), which sets out the rules or merger control in the European

Economic Area (EEA, consisting o 27 EU Member States plus Norway, Iceland

and Leichtenstein).

When the ECMR came into eect May 1, 2004,

it introduced reerral mechanisms that gave

the merging parties the right to request the

Commission to examine a transaction that was

notiiable in at least three Member States, even

when the turnover thresholds or Commission

review were not met. Conversely, the notiying

parties can request a reerral to a Member

State when the transaction signiicantly aects

competition in a distinct market in that Member

State. The Commissions consultation ocuses on

the eectiveness o these reerral mechanisms.

The Competition and EU Group at Reed Smith submitted comments to the

Commissions consultation at the beginning o December. Reed Smith noted

that, at the European level, there is a need or a reerral mechanism that allows

the parties to request that the Commission reviews a transaction that triggers

notiication in a number o EU Member States. Such a mechanism allows parties

to concentrate their resources on making one iling and managing one timetable,

without incurring iling.

However, Reed Smith noted that, while there are beneits to using the reerral

mechanism, parties will still tend to opt to make multiple ilings in dierent

Member States, especially when the transaction does not raise any competition

concerns. Parties can be deterred rom using the reerral mechanism because

the procedure lengthens the decision-making timetable and places an additional

burden on the parties to provide detailed inormation to the Commission beore

ormal notiication is made.

The reerral mechanism requires a period o 15 working days to be added to

the decision-making timetable, to allow or the reerral request to be approved

or vetoed by the Member States. Given that a notiied transaction cannot be

completed until it is approved by the Commission, this additional period candeter parties rom requesting a reerral. This is particularly the case where the

transaction does not raise competition concerns and clearance can be expected

without a detailed investigation being initiated. In such circumstances, parties wil

oten preer to coordinate notiications across a number o jurisdictions to ensure

clearance as quickly as possible so as not to delay the transactional timetable.

Reed Smith has thereore proposed the introduction o an expedited reerral

procedure under the ECMR in those circumstances where the transaction does

not raise any competition concerns, and a technical notiication requirement

has only been triggered because turnover thresholds have been met.

Lesley A. Davey

Partner London


sales inormation on the display panels, in order to monitor and enorce the

agreement.

Prctice Tip:This is yet another example o antitrust enorcement agencies

clamping down on international cartels. The ine imposed on LG is signiicantas it is the second-highest ever imposed by the Antitrust Division, and puts into

perspective the crippling eect such a ine could have on a violating entity.

Antitrust Suit Proceeds Against Chinese Vitamin C Manufacturers

Despite an amicusbrie submitted by the Chinese Ministry o Commerce, Eastern

District o New York Judge David Trager rejected a motion to dismiss and allowed

an antitrust action to proceed against Chinese Vitamin C makers. The Chinese

companies, Hebei Welcome, Jiangsu Jiangshan, Northeast Pharmaceutical

Group and Weisheng Pharmaceutical Co., claim they were compelled by their

government to ix the price o vitamin C in violation o U.S. law. The plaintis,

Ranis Co. and Animal Science Research Inc., are American manuacturers

who alleged in their complaint that the ormation o the alleged cartel led to an

increase in the price o vitamin C in the United States rom $2.50 per kilogram to

$7 per kilogram between December 2001 and December 2002. In their motion

to dismiss, the deendants did not deny the allegations, but invoked the acts o

state, oreign sovereign compulsion and international comity doctrines.

Here, Judge Trager concluded that there was not enough evidence to determine

that any o these doctrines applied to the deendants price-ixing action, despite

the arguments made by the Chinese government. The Chinese Ministry o

Commerce in its brie identiied the trade association that allegedly acilitated

the cartel as the Chamber o Commerce o Medicines and Health Products

Importers & Exporters. The brie argued that such chambers, in contrast to their

voluntary nongovernmental U.S. cousins, have played a central role in Chinas

shit rom a command economy to a market economy. Although the ministry

noted that it did not decide the speciic prices, the deendants and the ministry

insisted the companies could not have exported vitamin C without conorming

to the agreed-upon price. Judge Trager said the Chinese position was owed

deerence but was not conclusive. Further, he said it was contradicted by other

documents in the case, which suggested a complex interplay between the

deendants and the Chamber that made it diicult to determine the degree o

deendants independence in setting prices. Judge Trager denied deendants

motion to dismiss and has allowed the antitrust suit to proceed.

Prctice Tip:This case is indicative o the act that U.S. courts are taking a

more stringent stance against international cartels. Even despite the arguments

asserted by a oreign government, U.S. courts appear poised to enorce U.S.

antitrust violations by oreign cartels.

ec pc il Cl ecc 5



7/16


Reed Smith also noted that the detailed inormation that has to be provided to the

Commission when making a request acts as a deterrent rom using the reerral

mechanism. This is especially the case where the transaction obviously does

not raise competition concerns at either a Member State or Community level.

Reed Smith suggested that this inormation, which includes details o customers,

competitors, suppliers and changes to the market over a ive-year period, is

overly burdensome or parties to a transaction that maniestly do not raise any

competition concerns. Reed Smith thereore suggested that a shortened request

orm be introduced or these types o transactions.

The Commission is due to complete its consultation Jan. 30, 2009. It will then

prepare a report to the EU Council o Minister setting out its views on howeectively the reerral mechanism is working and whether any amendments to

the ECMR are needed.

r s C alc eC m rc 6

germany proposes new merger ControL threshoLd

German merger control laws prevent parties rom entering into M&A

transactions beore obtaining clearance o the proposed transaction with the

Bundeskartellamt, the German Federal Cartel

Oice. Entering into an M&A transaction

without obtaining clearance jeopardizes the

legal eectiveness o the proposed transaction,

at least with regard to any German element,

and bears the risks o substantial ines or any

individual violating German law.

In determining whether a proposed transaction

needs to be notiied to the Bundeskartellamt,

German law sets up two thresholds (assuming

the de minimis exception and the trile market

provision do not apply):

n First, the combined aggregate worldwide turnover o all companies involved

with the proposed transaction needs to exceed an amount o 500 million.

n Second, the German turnover o at least one participating company needs to

exceed 25 million.

These requirements do not necessarily take into account whether there is

an actual competitive impact in Germany. In most cases, merger ilings are

submitted or non-German M&A transactions or precautionary reasons because

one party alone exceeds the 25 million domestic threshold. I, or example, a

company headquartered in the United States intends to acquire all the shares

in another U.S. or other non-German company, a German merger iling will be

required i the acquiring party (including all ailiated companies) has worldwide

sales exceeding 500 million and the sales in Germany exceed 25 million.

The question o market impact and relevance o the transaction rom a German

merger control perspective will then (in principal) only be examined on a second

level once the notiication to the Bundeskartellamthas been submitted.

The current German laws result in a actual duty to notiy proposed transactions

to the Bundeskartellamt, even i there are obviously no concerns rom a merger

control perspective. This results in respective costs but, more important, can

also cause considerable delay i a transaction cannot close because the merger

clearance is outstanding.

On July 23, 2008, the German Federal Government took the decision to introduce

a new drat bill that, i implemented, would signiicantly reduce the number

o merger ilings. The drat o the so-called Third Small Business Relie Act

(Drittes Mittelstandsentlastungsgesetz)intends to disburden small and medium-

sized businesses (Mittelstand)in Germany rom bureaucratic constraints. The

competitiveness o the domestic medium-sized businesses, as well as the

attractiveness o the business location in Germany, shall be improved.

With regard to German merger control laws, the

drat bill proposes to introduce a new turnover

threshold o 5 million that has to be exceeded by

one o the parties, in addition to the existing turnover

threshold o 25 million that has to be exceeded by

one party only according to the current provisions. I

neither o these two thresholds is met, there would

be no requirement to notiy a proposed transaction

in Germany.

I implemented, the number o merger control

procedures would be signiicantly decreased, which

would relieve the companies concerned, may they

be in Germany or abroad. The drat bill would thereore make a contribution that

proposed transactions do not have to be notiied to the FCO i they constitute only

little or obviously no risks to the local markets.

The implementation would also align the current German laws to international

merger control regimes. Compared with the current German regulations, in

many other jurisdictions and even in the European Regulation EG/139/2004 (EC

Merger Control Regulation), the aggregate turnover o more than one company

involved in the merger has to exceed a certain domestic turnover threshold. Thus,

compared with other jurisdictions, a considerably high number o cases, including

cases in which the target is not even located in Germany, are brought beore the

FCO or merger control purposes each year at the moment.

The German antitrust authority has not yet commented on the proposed

amendments. At this stage, it remains unclear whether and when this amendmen

will be adopted by the German parliament.

Constantin F. Conrads

Associate Munich


Robert A. Heym

Partner Munich



8/16


The European Court o Justice has again reused to set down clear guidance on

the legality o reusal by pharma companies to ill export orders rom parallel

traders. The ongoing legal battle between drug wholesalers and pharma

companies about restrictions on parallel trade

enters a new phase o uncertainty ollowing

the most recent ruling by the European Court o

Justice in a case brought against pharma giant

GSK by a group o Greek wholesalers.

Parallel trade comes about where wholesalers

take advantage o dierent reimbursement prices

or the same drugs prevailing in dierent EU

Member States by buying drugs and shipping

them rom low price countries to high price

countries.

The most recent ruling (itsel in a case that has

kept the parties in litigation or eight years already) is the latest episode in a

continuing soap opera o cases zigzagging between national European courts

and competition regulators, the European Commission and the European Court

o Justice. Unortunately, the implication o the ruling is that this particular series

still has a long time to run.

In his earlier advisory opinion to the Court in this case, the European Advocate

General had clearly not been impressed with the string o amiliar arguments

that GSK had dutiully trotted out. These are essentially that drug companies

reusal to supply parallel traders or export is justiied by dierential national

reimbursement prices imposed on the drug companies by state social security

authorities, rather than set by the drug companies; that parallel trade unairly

impinges on a air return on the substantial R&D required to bring a drug to

market; that restrictions on drug exports were needed to ensure adequacy o

national supply in each country; and that parallel trade serves only to line the

pockets o the parallel traders rather than serving the interests o consumers.

As expected, the European Court did not dissent rom the views o its Advocate

General. To do otherwise would have been to open up a new exception to the

much-promoted imperative o completing the European internal ree market by

vigorously attacking any obstacle placed in the way o interstate trade. It would

have taken a very brave court indeed to do this.

However, in a signiicant move toward the position advanced by the pharma

companies, the Court held that pharma companies can reuse to supply unusual

orders rom wholesalers. But to prevent the drug companies rom jumping to the

conclusion that any export order at all could be unusual, the Court also made it

clear that a reusal to supply based only on the act that the order was or export

rather than domestic sale would be unlawul. It was or the national courts to

decide what was unusual in the light o previous regular commercial practice.

The Court raked up two previous cases, both more than 30 years old, as authority

or this idea. One admittedly is one o the leading cases in the area o abusive

reusal to supply. However, in a judgment in that case running to more than 300

paragraphs, you really need to look hard to identiy the two sentences the Court

relied on in the GSK case. The other case cited by the Court concerned a reusal

to supply petrol in a uel shortage, where it was held to be not abusive or BP to

supply less uel to an occasional customer than to a regular customer. Hardly a

compelling analogy to GSKs case.

One might speculate that the Court elt that it was caught between a rock and

a hard place. The Court did not want to make the pharma industryamong the

most vibrant sectors in the EUa new wide exception to its crusade to complete

the internal market. However, perhaps a degree o sympathy or the act that

the national pricing dierentials at the root o the problem are not the pharma

companies ault, let the Court with a desire to leave the door open just a crack.

So where does all this leave us? With about 4 billion o parallel trade annually,

one might think that there is an awul lot o regular commercial practice that

parallel traders can use to justiy their export orders. One might also ask whether

it would still be normal commercial practice or a parallel trader to request an

increase in supplies o 5 percent, or 10 percent, or 20 percentmeasured over a

month, a year or perhaps the history o the traders relationship with the relevant

drug manuacturer. What about the case o a parallel trader who currently trades

in one drug but, seeing dierentials alling away, switches his request or supply

to similar volumes o another drug manuactured by the same supplier? Such

questions will all provide irst rate opportunities to grow the practices o the drug

companies and parallel traders lawyers.

The truth is that although pharma companies are likely to hail the judgment a

major step orward, it may in practice be diicult to convince national courts

that large orders or export rom existing traders are unusual within the meaning

o todays judgment, given the already widespread nature o parallel trade. The

judgment will, however, at the same time provide support to those national courts

and competition authoritiessuch as the French Competition Councilwho

have shown sympathy with the more undamental arguments raised by the

pharma companies.

Likely reaction by pharma companies will be to pursue their existing progression

down the supply chain. As the Courts continue to ail to resolve the uncertainty

about how the law regulates drug distribution, pharma companies are likely to

attempt to gain more security by acquiring more and more direct ownership and

control o distribution. Even this, however, is not a complete answer. A reusal to

supply a third-party distributor can still be abusive even where the supplier has

established its own internal distribution systemparticularly where the supplier

was previously trading with the third-party distributor. This diiculty or the drug

companies may also then lead to a temptation to leverage the existing legal ob-

ligation to satisy demand in each national market by canny planning o creation

and utilization o production capacity so as to ensure that in a given geography,

available supply does not exceed local demand. So we might see some cases

where drug manuacturers argue that they simply dont have suicient production

capacity to be in a position to guarantee supply in the various EU member states,

while at the same time eeding demand or export orders.

Overall, this case unortunately looks like another piece o rather inelegant

sidestepping o this key issue by the European Court. The result will be more

litigation and more uncertainty in the market as to the permissible scope o

parallel trade. In shortbusiness as usual.

Edward S. Miller

Partner London


Latest european Court ruLing faiLs to resoLve paraLLeL trade unCertainty

* This article was irst published in International Clinical Trials, October 2008.


9/16


U N I T E D S T A T E S U P D A T E

the eLeCtion of president oBama and antitrust enforCement

There can be no doubt that antitrust enorcement will be invigorated under the

new administration. Traditionally, presidential candidates seldom spend a lot o

time discussing their antitrust policies. President-elect Obama, however, madehimsel clear about antitrust enorcement while on the campaign trail.

In a statement by President-elect Obama to the American Antitrust Institute,

Obama explained his belie that Antitrust is the American way to make

capitalism work or consumers. Most undamentally, it insists that

customersnot government bureaucrats, and

not monopoly CEOsare the judges o what best

serves their needs. Obama urther emphasized

that as president, I will direct my administration

to reinvigorate antitrust enorcement. It will step

up review o merger activity and take eective

action to stop or restructure those mergersthat are likely to harm consumer welare, while

quickly clearing those that do not. President-

elect Obama, in particular, pointed a inger at

the huge numbers o health care and health

insurance mergers over the past 10 years, noting

that these had not made the industry more

eicient but rather had resulted in insurance premiums skyrocketing. In other

public statements during his campaign, President-elect Obama similarly targeted

the telecommunications, media and pharmaceutical sectors as industries that

require stricter antitrust scrutiny and more enorcement.

So, what can we expect over the next our years in the United States?

n Eric Holder, Obamas choice or Attorney General, has not expressed any

antitrust positions. Obama next will appoint assistant attorneys general under

Holder, including an assistant attorney general or the Antitrust Division. It is

expected that this appointee will take a harder look at proposed mergers and

dominant irm cases.

n President-elect Obama will also appoint a new commissioner to the FTC

and name a new chairman. Because the FTC is seen as currently promoting

aggressive antitrust enorcement, it is unlikely that these appointees will

deter the FTC rom its current course o action, but instead will help bridge a

growing rit between the current FTC and DOJ.

n The Obama administration is likely to continue the current administrations

vigorous enorcement eorts against international cartels.

n The Obama administration can be expected to target the health care and

health insurance industries, including closer scrutiny o proposed mergers and

dominant market shares in these industries. In act, in an article published in

the Wall Street JournalDec. 17, 2008, FTC Commissioner Jon Leibowitz was

quoted as saying that the FTCs case against Ovation Pharmaceuticals (see

in-depth discussion in theAntitrust Regulator, at p. 15), is an example o how

aggressive we are going to be on health care issues going orward.

n Additionally, the Obama administration will ocus on agreements that retard

the entry o generic pharmaceuticals into the market, though he intends to

preserve the pharmaceutical companies incentives to continue to developcritical new drugs.

n The Obama administration is expected to support open competition on the

Internet and would seek to promote many providers o network services

through network-neutrality. Accordingly, one would expect that the proposed

telecommunications and media consolidations will have a harder time passing

muster under the new administration.

Obviously, it will take a while or the eects o Obamas policies to be elt.

Nonetheless, in the ace o what is sure to be much stricter antitrust scrutiny,

companies would be advised to consult counsel at the earliest point possible

when contemplating a reportable merger or consolidation under the antitrustregulations.

Natalie C. Moritz

Partner Pittsburgh

Commercial Litigation Midwestern

Further, dominant irms, with signiicant market share, particularly

in the health care, pharmaceutical, health insurance, media and

telecommunications industries, would be well-advised to assume tighter

application o antitrust law to mergers, and may wish to revisit with counsel

the ollowing types o activities:

n Any type o tying arrangement, i.e., a requirement that one product or

service be purchased in order to be able to purchase another product or

service

n Any decision to stop dealing, or any reusal to deal, with a vendor or

distributor

n Any new pricing structure, including volume discounts, rebates or

dierential pricing

n Any proposed restrictions on resale pricing or other resale restrictions

n Any intellectual property licenses

n Any agreements or joint ventures with competitors

In short, antitrust enorcement in the United States seems destined to showrenewed vigor.


10/16


On June 9, 2008, the U.S. Supreme Court issued its opinion in Bridge v. Phoenix

Bond & Indemnity Co., a unanimous decision explicitly rejecting the notion that

a plainti must directly rely on the misrepresentations in a mail raud scheme in

order to bring a civil RICO claim. As recently as 2006, the Court inAnza v. Ideal

Steel Supply Corp. indicated that recovery under civil RICO was limited to the

immediate victims o misrepresentation. Under the prevailing interpretation o

Anza, even i a party suered a loss proximately caused by a raudulent scheme,

it could not bring a claim unless it directly relied upon the misrepresentations

alleged. The ruling in Bridgehas enhanced plaintis ability to bring claims under

civil RICO, but has not rendered reliance irrelevant: reliance may no longer be a

ormal element o a plaintis claim, but it remains an important consideration in

determining whether the plainti was injured by

reason o the raud alleged. It also remains a

potentially relevant actor in determining whether

class certiication is appropriate.

Fct:Cook County, Ill. holds auctions to sell

tax liens on deaulted properties. The county

imposes a penalty on top o the amount o unpaid

taxes and awards liens to the bidder willing to

accept the lowest penalty. The county solved

the problem o selecting among equal bids by

imposing an allocation system and limiting

each entity to a single bid. This requirement is

enorced via a Single, Simultaneous Bidder Rule requiring bidders to submit an

aidavit stating that no agent o the entity has also submitted a bid. Phoenix Bond

brought suit against Sabre Group LLC, alleging that Sabre violated the county

rule by arranging or its ailiates to place concurrent bids. Phoenix Bond brought

its claim as a civil RICO action since Sabre used the mail to submit raudulent

aidavits to the county. The district court held that Phoenix Bond lacked standing

since it was only indirectly injured by Sabres misrepresentation. While Sabres

raudulent scheme injured Phoenix Bond by preventing it rom winning additional

tax liens in the auction, the district court held that Cook County was the only

party to directly rely on the alse aidavits.

The Seventh Circuit reversed, holding that Phoenix Bonds lossthe opportunity

to acquire additional tax lienswas real and actionable. The Court o Appeals

held that a plainti who did not directly rely on an alleged misrepresentationmay nonetheless recover damages under civil RICO, provided that the

misrepresentation was the proximate cause o the plaintis injury. Citing a circuit

split on the issue o reliance, the Supreme Court granted certiorari to resolve

whether raudulent statements made to a neutral third-party constitute suicient

grounds to sue under civil RICO.

The New Re:In a unanimous ruling written by Justice Thomas, the Supreme

Court airmed the Seventh Circuit Court o Appeals, and explicitly rejected the

existence o a direct reliance requirement. The Courts decision in Bridgedoes

not completely eliminate the role o reliance in a civil RICO action, however;

it simply departs rom prior case law in holding that irst-party reliance is not

a required element. The Court is clear that its new rule does not mean that

a civil RICO plainti can prevail without showing that someonerelied on the

misrepresentation. Indeed, in order to have standing to bring a civil RICO suit,

a plainti must both suer an injury and demonstrate that the injury was

proximately caused by the deendants raudulent scheme. A plainti cannot

sustain an injury proximately caused by raudulent statements upon which no

one relied. But by allowing claims rom third-party plaintisthose who are

injured as a result o someone else relying on a misrepresentationthe Court

has increased the number o plaintis who can bring a civil RICO action.

Reliance in Civil RICO Prior to Bridge

Lower courts considering RICO claims have long employed dierent standards

regarding the required relationship between a deendants raudulent act and a

plaintis injury. Some courts required direct injury while others permitted both

direct and indirect injury. One complicating actor was that reliance has long been

an element in the common law tort o misrepresentationa point that several

circuits cited as justiication or reading it into civil RICO. The Supreme Court

initially sought to resolve the issue in Holmes v. Securities Investor Protection

(1992) by articulating a proximate cause standard based on the directness o

the relationship between the parties. Following Holmes, only plaintis who could

demonstrate an injury directly arising rom another partys raudulent use o

the mail could bring suit. Lower courts struggled to apply the Holmesproximate

cause standard, and, once again, a circuit split ormed regarding whether reliance

was a required element o a civil RICO actionat least two circuits held that

direct reliance was required while our (including the Seventh Circuit in Bridge)

allowed a third-party plainti to bring a successul claim.

In 2006, inAnza v. Ideal Steel Supply Corp. , the Supreme Court reined the

Holmesproximate cause standard to limit recovery to immediate victims o

the alleged mail raud. InAnza, the plainti alleged that its competitor unairly

increased its market share by illegally reraining rom charging state sales tax on

cash purchases and concealing this conduct via tax raud. The Court held that

the plainti (a competitor) was an indirect victim o the tax raud and lacked

standing to bring a civil RICO action. Consequently, the Court did not reach

the question o whether direct reliance by the plainti was a required element.

In dissent, Justice Thomas argued that the majority misinterpreted Holmes.

impLiCations of the supreme Court deCision rejeCting reLianCe as a requirement

in a CiviL riCo CLaim

Civil cases brought under the RICO (Racketeer Inluenced and Corrupt

Organizations) statute are close cousins o antitrust cases. Although civil

RICO cases are usually based on an underlying allegation o raud, proo

o a conspiracy among dierent economic actors is oten at the core o

the plaintis case, just as it is in cases brought under Section 1 o the

Sherman Act. RICO claims are also similar to antitrust claims because they

permit prevailing plaintis to recover treble damages plus attorneys ees.

This causes the Plaintis Bar to preer RICO claims to common law raud

claims.

Jeremy D. Feinstein

Partner Pittsburgh

Global Regulatory Enforcement



11/16


Thomas stated that the Court should ocus on the purpose behind the alleged

misrepresentationgaining a competitive advantage through unair competition.

Furthermore, he noted that reliance is not ound in the language o RICO. Two

years later, Bridgeprovided the opportunity to revisit the issue.

Implications

n Epnion of efennt ibiit:By adopting a less restrictive view o the

elements o a RICO claim, the Bridgedecision has increased the number o

plaintis who may recover damages based on an injury resulting rom a raud

scheme. The universe o potential civil RICO plaintis has expanded to include

entities who neither relied upon nor were even aware o the deendants

misrepresentation.

n Reince p iminihe, bt ti inificnt, roe in civi RICO: As

noted above, the Court in Bridgeheld that while the plainti need not rely on

the misrepresentation, someonemust rely on it. Indeed, Cook County relied

upon Sabres misrepresentations in the sense that the county processed the

raudulent bids and corresponding aidavits. Without such reliance, no harm

could have been suered by Bridge by reason o the misrepresentations.

Thus, reliance remains a part o a civil RICO claim by virtue o the causation

inquiry. Because it is not a ormal element o a plaintis claim, however,

it may be more diicult to prevail on a motion to dismiss based on lack o

reliance. For instance, one post-Bridgecase reversed a dismissal based on

lack o reliance with the simple statement that ater Bridgeit is no longer

necessary to plead or prove reliance. Brown v. Cassens Transport Co., 546

F.3d 347, 357 (6th Cir. 2008). On the other hand, another post- Bridgecourt

ruled that while prescription drug users could in theory bring RICO claims

based on misrepresentations allegedly made to their doctors, and on which

they did not directly rely, the deendants motion to dismiss must be granted

because o plaintis ailure to properly allege proximate cause. Ironworkers

Local No. 68 v. AstraZeneca Pharms. LP, No. 6:07-cv-5000-Orl-22-DAB, at

*8-*12 (M.D. Fla. Nov. 3, 2008).

n The cope of RICO contine to epn:The Court in Bridgeexplicitlyrejected the argument that anything short o requiring direct reliance would

lead to the over-ederalization o traditional state law claims. The Court

held that i their decision results in the undue prolieration o civil RICO suits,

then Congress must correct the error with more narrowly crated statutory

language.

n Importnce of intervenin ce:Deendants accused o a civil RICO

oense by a third-party plainti are well advised to examine whether an

intervening cause broke the requisite chain o causation between the

alleged misrepresentation and the plaintis injury. For example, Justice

Thomas notes that had Sabre been able to prove that Cook County knew

Sabres aidavits were alse (yet permitted them to participate in the auction),

then the county would have broken the causal chain, thereby eliminating

proximate cause and precluding third-party liability.

n Inrnce compnie m hve tnin to brin vibe civi RICO cim

thir-prt pintiff:In a multi-billion dollar class action against Eli Lilly

or overcharging or its drug Zyprexa, U.S. District Court Judge Jack Weinstein

certiied a class o third-party insurance company payors who claim injury

derived rom misrepresentations that physicians relied upon. The plaintis

case has survived motions to dismiss, though an interlocutory appeal appears

likely.

Jeremy wishes to acknowledge the contributions o Justin Ehrenwerth to this

article.

ilc s C dc rc rlc r Cl riCo Clc 10

maKe way for CLass CertifiCation triaLs

In a signiicant year-end decision aecting all class actions, but particularly antitrust cases, the U.S. Court o Appeals or the Third

Circuit decided that trial courts must make bench-trial-like actual indings on all issues o act essential to a class certiication

decision, even i it means deciding merits issues. In re Hydrogen Peroxide Antitrust Litigation, No. 07-1689 (3d Cir, Dec. 30, 2008).

It may make class action deense lawyers into trial lawyers again. And in one area where class certiication was nearly automatic

antitrust cartel casesplaintis will ind it harder to certi y a class because it eliminates any presumption o injury in act. The

unanimous decision, authored by Chie Judge Scirica and marked PRECEDENTIAL by the court, reversed a trial courts class

certiication in an antitrust class action that ollowed on U.S. DoJ criminal enorcement action against manuacturers o the primary

bleaching agent in paper manuacturing. The court summarized its decision as ollows:

In this appeal, we clariy three key aspects o class certiication procedure. First, the decision to certiy a class calls or indings by

the court, not merely a threshold showing by a party, that each requirement o Rule 23 is met. Factual determinations supporting

Rule 23 indings must be made by a preponderance o the evidence. Second, the court must resolve all actual or legal disputes

relevant to class certiication, even i they overlap with the meritsincluding disputes touching on elements o the cause o action.

Third, the courts obligation to consider all relevant evidence and arguments extends to expert testimony, whether oered by a party seeking class certiication or by

a party opposing it.

The court also made clear that any indings on merits issues made by the trial court in connection with class certiication will not be binding on the inder o act in

any trial on the merits.

Daniel I. Booker

Partner Pittsburgh



12/16


federaL CirCuit appLies ruLe of reason and vaLidates reverse payment patent settLements

in IN RE CIPROFlOxaCIN HydROCHlORIdE aNTITRusT lITIgaTION

It is an increasingly common case that tests the inherent conlicts between

antitrust and patent law. On Oct. 15, 2008, the Court o Appeals or the Federal

Circuit took a position consistent with the Second and Eleventh Circuits and

rejected the antitrust claims o a group o direct and indirect purchasers

contesting the legality o reverse payments made by a pharmaceutical patent-

holder to a generic manuacturer to settle patent litigation. The Federal Circuit,

airming the district courts grant o summary judgment or the deendants, held

that such agreements do not violate the antitrust

laws so long as the patent was not procured

through raud, the underlying patent suit was

not a sham, and the anti-competitive eects o

the settlement agreements are not outside the

exclusionary zone o the patent.

Challenges to the Patent and the Settlement

Agreements

Bayer Corporation owns a patent or the active

ingredient in its brand-name drug Cipro. In

1991, Barr Labs, Inc. sought to manuacture a

generic version o the drug during the 180-day exclusivity period available to Barr

as a irst challenger under the Hatch-Waxman Act. Barr challenged the validity

and enorceability o Bayers patent and, in response, Bayer sued Barr or patent

inringement. In settling these claims just beore trial in 1996, Bayer and Barr

entered into a series o agreements designed to resolve both Barrs challenge to

Bayers patent, and Bayers corresponding inringement suit. On one end, Barr

agreed to delay its entry into the Cipro market until ater Bayers patent expired.Barr agreed not to manuacture its generic version o Cipro in the United

States, to amend its Hatch-Waxman certiication to the FDA, airm the validity o

Bayers patent, admit inringement, and thereby relinquish its 180-day exclusivity

entitlement. In return, Bayer agreed to pay Barr $49.1 million up ront, and

either supply Barr with limited quantities o Cipro or resale, or alternatively,

make additional quarterly payments to Barr, bringing the total reverse payment

to approximately $398 million. Bayer also agreed to allow Barr to sell a generic

version o Cipro approximately six months beore the patent expired in 2003.

Ater the settlement agreements, our other generic manuacturersRanbaxy,

Mylan, Schein and Carlsbadiled certiications with the FDA challenging the

validity o Bayers patent and seeking to manuacture their own generic versionso Cipro. Bayer sued all our companies or patent inringement and deeated

Schein and Mylan on summary judgment. Bayer also won the Carlsbadcase

in a bench trial, again airming the validity o its patent. A court dismissed the

Ranbaxycase when Ranbaxy withdrew its certiication to the FDA.

Resolution of One Dispute Leads to AnotherThe Antitrust Litigation

In 2000 and 2001, direct and indirect purchasers o Cipro and advocacy

groups iled several antitrust actions against Bayer and Barr, challenging the

reverse payment settlements. Speciically, plaintis alleged that the settlement

agreements constituted an illegal market allocation in violation o Sections 1 and

2 o the Sherman Act as well as state antitrust laws, and that Bayer unlawully

monopolized the ciproloxacin market by enorcing a patent obtained by raud

on the PTO. In 2003, the United States District Court or the Eastern District o

New York denied plaintis motion or partial summary judgment, inding that the

settlement agreements were not per se illegal. In 2005, the district court granted

summary judgment or deendants Bayer and Barr, holding that the settlement

agreements could not be challenged under antitrust laws because they had no

anticompetitive eect beyond the exclusionary zone o Bayers patent.

The appellants alleged numerous errors on the part o the district court and

appealed to the Federal Circuit. On appeal, appellants contended that the

settlement agreements were per se illegal because they allowed Bayer to exclude

a horizontal competitor, not by enorcing its patent rights in court, but by making

reverse settlement payments to Barr o $398 million. The Federal Circuit panel

held that, in reviewing the settlement agreements, the district court could not

conidently predict the pernicious anticompetitive eects necessary to ind the

agreements per se illegal. Consequently, the district court properly analyzed the

agreements under the rule o reason.

Absent Fraud or Sham Litigation, Analysis of Patent Validity is

Inappropriate as Part of a Rule of Reason Analysis

Appellants also argued that the district court erred by ailing to embrace the

position o the FTC, the Solicitor General and the Court o Appeals or the Sixth

Circuit, which appellants contended requires application o a modiied rule

o reason analysis, taking into account the validity and strength o the patent

in evaluating the legality o reverse payment

settlements. The Federal Circuit again disagreed

and took a position consistent with the Second and

Eleventh Circuits, noting that pursuant to statute,

a patent possesses a presumption o validity. The

court conirmed that the proper approach in reverse

payment cases is two-part: (1) The district court

must determine i there is any evidence that the

patent was procured by raud on the PTO, or that

the inringement suit was a sham or objectively

baseless; (2) i no such evidence exists, the only

remaining question is whether the agreements

restricted competition beyond the exclusionary zone o the patent. The FederalCircuit upheld the district courts indings that Bayer properly procured its patent

and that Bayers inringement suit had merit. The district court also correctly

noted that Bayer had prevailed in several subsequent inringement suits. As a

result, the Federal Circuit agreed that there is no legal basis or restricting Bayers

preerred means o enorcing its patent rights.

Only Anticompetitive Effects Beyond the Exclusionary Zone of the Paten

May be Redressed by Antitrust Law

The Federal Circuit noted that a patent is an exception to the general rule against

monopolies and that, by its very nature, a patent is anticompetitive. As a result,

P. Gavin Eastgate

Partner Pittsburgh


Jerey M. Weimer

Associate Pittsburgh




13/16


the Federal Circuit agreed with the district court that beore antitrust law may be

invoked to redress a claim, it must be determined whether the anticompetitive

eects all beyond the exclusionary zone o the patent. The Federal Circuit airmed

that the essence o the Bayer-Barr settlements was simply to exclude a genericmanuacturer rom proiting rom Bayers inventionan action well within

Bayers rights as a patentee. However, had the Bayer-Barr settlements included,

in addition to reverse payments, a provision by which Barr maintained its 180-day

exclusivity period (barring entry o competitors) or an agreement that Barr would

not manuacture even non-inringing versions o its generic drug, such agreements

likely would have exceeded the exclusionary zone o the patent and triggered

potential antitrust liability, as was the case in a recent Sixth Circuit decision. The

Federal Circuit noted, however, that the Bayer-Barr settlements contained no such

provisions. As a result, when considering the scope o the settlement agreements,

and the well-established judicial policy avoring settlements, the Federal Circuit

agreed that the settlements were not violative o the Sherman Act, even though

they may have some adverse eects on competition.

The Settlement Agreements Did Not Create a Bottleneck or Prevent

Other Patent Challenges

The Federal Circuit rejected appellants argument that the settlement agreements

were anticompetitive because, in the pharmaceutical patent context o the Hatch-

Waxman Act, a brand-name manuacturer can protect its monopoly or years

simply by paying o the irst challenger. Appellants argued this is the case because

the irst challenger is entitled to a 180-day period o exclusivity, which creates

a bottleneck and reduces the incentive or any other generic manuacturers to

undertake the time and expense o bringing subsequent challenges to the brand-

name patent. In this case, the Federal Circuit a irmed the district courts reasoning

that while the Hatch-Waxman Act may create burdens or generic manuacturers,

it also oers signiicant beneitsnamely the ability to get approval or a genericversion o a patented drug without having to endure the rigorous FDA new drug

application process, and also the ability to challenge the validity o a patent withou

incurring the costs o market entry or the risks o damages rom inringement. The

Federal Circuit ound these incentives clearly at work in this case, as evidenced by

the act that our other generic manuacturers challenged Bayers patent aterthe

Bayer-Barr settlements.

In addition, the Federal Circuit ound no bottleneck eect because as part o the

settlement agreements, Barr admitted inringement o Bayers patent and amended

its certiication with the FDA, thereby relinquishing its rights to the 180-day exclusivity

periodan issue that the Federal Circuit held was properly decided in 2003 by the

district court in denying plaintis motion or partial summary judgment.

Consult Counsel

Pharmaceutical patent inringement litigants may ind reassurance in the Federal

Circuits decision validating the Bayer-Barr reverse payment settlements, particularly

because the decision joins recent and similar decisions o the Second and Eleventh

Circuits. However, the legality o such settlement agreements is contingent upon the

parties awareness o the need to limit the anticompetitive eects o their settlements

to the exclusionary zone o the underlying patent. Pharmaceutical companies would

be well-served to consult with experienced counsel to avoid running aoul o antitrust

laws when structuring such reverse payment settlement agreements.

reed smith at the podium

Dec. 1, 2008: AC L rbl was held in Reed Smiths London oice. Larry Kill and Peter Roth, QC o Monckton Chambers, were the

keynote speakers. The discussion ocused on comparing the environment or competition litigation in the UK and the United States. Please contact Larry Kill or

more inormation.

Dec. 2, 2008: The CEU group held its 17th Annual Competition Forum. Peter Freeman, Chairman o the UKs Competition Commission, addressed the topic,

C plc i t - rl C C. Approximately 80 people attended the program, mostly clients. Please

contact Lesley Davey or more inormation.

Dec. 5, 2008: Fred Houwen and Richard Neville o Warner Brothers gave a presentation entitled rk B: C Cll rl

b C L C, at a conerence held at the Competition Commission in London. Please contact Fred Houwen or more inormation.

Dec. 4 - 5, 2008, Competition Law and Shipping Contracts, Marjorie Holmes conducted the ollowing seminar: Reviewing and Understanding InternationalShipping Contracts, London. Please contact Marjorie Holmes or more inormation.

Marjorie Holmes will be involved in the ollowing speaking engagements: February 2009, C gl, BIMCO Competition Workshop, Athens;

March 26, 2009, C Ll, Lloyds Maritime Academy EU Competition Law and the Shipping Industry, London. Please contact Marjorie Holmes

or more inormation.

and on paper

Richard Waite published a C L u in the Nov. 18, 2008 edition o Solicitors Journal. Please contact Richard Waite or more inormation.

Marjorie Holmes edited and co-authored Competition Law and Practice: A Review o Major Jurisdictions, published by Cameron May International Law & Policy. The

book is now available or purchase. Please contact Marjorie Holmes or more inormation.

fl Cc al rl r a vl r p p sl In re Ciprofocin Hrochorie

antitrt lititionc 12


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federaL distriCt Court aLLows joint Bidding suit to proCeed

On Dec. 15, 2008, a ederal district court judge in Massachusetts denied the

motion to dismiss iled by several private equity irms alleged to have engaged

in joint-bidding or leveraged buyout (LBO) target companies. The deendants

in this case, Dahl, et al. v. Bain Capital Partners,

et al., proceeded on two grounds in their motionto dismiss the suit: (1) The antitrust laws did not

apply to the allegedly illegal conduct because

they are preempted by Securities and Exchange

Commission (SEC) regulation; (2) The plaintis

ailed to state a claim under 1 o the Sherman

Act. Both were rejected by the court.

The plaintis in this class action antitrust suit

are shareholders in companies purchased by

the deendants, which include The Carlyle

Group, Goldman Sachs, Kohlberg Kravis Roberts

and Co., and The Blackstone Group. While joint-bidding by private equity irms

conducting an LBO is legal (such transactions are known as club deals), the

plaintis allege that deendant private equity irms engaged in additional, illegal

agreements to bid below air value or companies and to illegally allocate the LBO

market. According to the plaintis, the conspiracy was eectuated by, among

other things, the submission o sham bids and agreements not to bid.

In evaluating the motion to dismiss, the court was unconvinced that SEC

regulation o this area preempted application o antitrust laws. Under the

standard set orth in Credit Suisse Securities (USA) LLC v. Billing, 127 S.Ct. 2383

(2007), the securities laws and antitrust laws must be clearly incompatible

in order or the doctrine o preemption to apply. Applying the test established

in Billingto determine whether clear incompatibility existed with respect to

the challenged conduct, the court ound that securities laws do not govern

private equity LBOs, and, as such, the SEC is not empowered to regulate this

conduct. Furthermore, rejecting an argument made by the deendants, the court

determined that regulatory ilings related to an LBO do not constitute substantial

regulation within the meaning o Billing. In sum, because the SEC has no

substantive authority to regulate private equity LBOs, the securities laws do not

preempt the antitrust laws.

Next, the court considered whether the plaintis ailed to properly plead their

claim under 1 o the Sherman Act. Applying the standard set orth in Bell Atlantic

Corp. v. Twombly, 127 S.Ct. 1955 (2007), the court concluded that the plaintis

had plausibly suggested an illegal agreement. The court was convinced largely

because plaintis complaint included nine speciic transactions and because the

allegations tie[d] theirms together by alleging an overlap in irms bidding

in multiple transactions.

Finding no grounds on which to dismiss the case, the court has ordered discovery

regarding the transactions speciied in the complaint to proceed.

Importantly, this is the second signiicant private equity joint-bidding case

ruled on by a ederal court in the past year. In February, the U.S. District Court

or the Western District o Washington dismissed an antitrust suit brought by

shareholders o an acquired company against two private equity irms that

initially bid separately or the target company beore one irm withdrew its bid.

See Pennsylvania Avenue Funds v. Borey, 569 F.Supp.2d 1126 (W.D. Wash. 2008)

Ater the remaining irms bid was acceptedat a price lower than the original

joint bidthe withdrawing irm acquired hal o the successul bidders interestin the target company. Ultimately, the court concluded that the plaintis could not

adequately allege that the deendants had market power and thus ailed to state

an antitrust claim.

The contrasting results in these cases are perhaps

attributable to the diering levels o speciicity o

the two claims. While Boreychallenged joint-bidding

practices in a particular transaction involving only

two private equity irms, Dahlis a broader attack

on private equity club deals and alleges nine

transactions as examples o the illicit conduct. These

results might provide guidance to uture plaintis

seeking to challenge joint-bidding practices, insoar

as they demonstrate that when the court must

accept actual allegations as true, it is beneicial

to rame those actual allegations as broadly as possible. O course, it is also

possible that these cases simply illustrate the divergent approaches to reviewing

motions to dismiss under the standards set orth in Twombly.

Private equity irms should take note o the challenged conduct in these two

cases when deciding to engage in joint-bidding with other irms.

William J. Sheridan

Associate Pittsburgh


Natalie C. Moritz

Partner Pittsburgh


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