September 21, 2005

1. Antitrust Update for In-House Counsel ABA Section of Antitrust Law Corporate Counseling Committee September 21, 2005

2. Agenda • Washington NewsDebra J. Pearlstein • Horizontal Restraints, Vertical Restraints and MonopolizationScott Martin • Mergers and AcquisitionsSteven K. Bernstein • Antitrust and Intellectual PropertyAdam C. Hemlock • Consumer ProtectionHelene D. Jaffe • EU UpdateDoug Nave

3. Washington News • Debra J. Pearlstein

4. Washington NewsDepartment of Justice • Tom Barnett, now Acting Assistant Attorney General, has been nominated to fill the post • In the acting position since June 2005 and previously Deputy Assistant Attorney General for Civil Enforcement since April 2004 • He led the DOJ’s team on Oracle/Peoplesoft. Safe assumption is that DOJ will take a hard look at Oracle/Siebel deal just announced.

5. Washington NewsDepartment of Justice • Personnel Changes • Gerald F. Masoudi named as Deputy Assistant Attorney General for International, Policy and Appellate matters on September 1st • Comes to DOJ from Deputy Chief Counsel post at FDA (joined FDA in 2004) • Previously a partner at Kirkland & Ellis • Clerked for Frank Easterbrook on the Seventh Circuit • Represented Beech-Nut in the “Baby Food Case” when Beech-Nut and Heinz (#2 and #3) attempted to combine. District court denied the FTC’s preliminary injunction request, but D.C. Circuit blocked the deal. • Other clients include GTE and pharmaceutical companies

6. Washington NewsDepartment of Justice • Recent DOJ Activity • Opposed antitrust immunity for Delta/Northwest participation in SkyTeam consortium • SkyTeam includes Alitalia, Czech Airlines, Delta, KLM, Northwest and Air France • First time an international alliance has sought immunity for two U.S. airlines (as compared, for example, to immunity for KLM/Northwest alliance) • DL and NW have largely overlapping domestic networks • DOJ found “significant risk that the requested immunity would reduce . . . domestic competition related to the immunized international routes.” • DOJ concluded that alliance members could integrate to a legitimate degree without immunity and therefore immunity could permit anticompetitive activity • DOT gets last word

7. Washington NewsDepartment of Justice • Recent DOJ Activity (Cont’d) • Brought lawsuit against National Association of Realtors • DOJ and FTC have announced a one-day workshop on antitrust and the real estate industry for October 25th in Washington • Signed consent decree with two digital jukebox companies • Filed amicus brief (with FTC) in the Dagher case calling for reversal of Ninth Circuit decision

8. Washington NewsFederal Trade Commission • Personnel changes • One vacancy at the Commission now (Orson Swindle’s seat); William Kovacic, former FTC general counsel and professor at George Washington University has been nominated • Commissioner Thomas Leary’s term expires this month, but he is expected to stay until his successor is named • Recusals • Chairman Majoras is recusing herself from matters relating to Jones Day, her former (and husband’s current) law firm. If Kovacic’s nomination is approved, it is uncertain if he too will have to recuse himself from Jones Day matters because his wife is a partner at Jones Day. • Currently having only three commissioners on many matters has resulted in some anomalies, with the Democrat Jon Liebowitz and Independent Pamela Jones Harbour able to outvote the Republican Leary

9. Washington NewsFederal Trade Commission • Recent FTC Activity • Cleared Federated/May merger • Sought cert in Schering-Plough case • Issued report on pharmacy benefit company mergers • Testified on initiatives to preserve competition in the petroleum industry • Dismissed Aloha Petroleum case • Proposed new HSR rules

10. Washington NewsThe Supreme Court • Chief Justice Rehnquist’s death combined with Justice O’Connor’s announced retirement leaves possibility of a vacancy on the Court when the new term begins • Supreme Court docket already includes several potentially significant antitrust cases • Dagher – whether per se test can be applied to joint venture participants setting price at which joint venture sells products (briefing on merits now underway) • Independent Ink – whether patent creates presumption of market power in tying case (hearing: 11/11) • Volvo – Robinson-Patman secondary line case (hearing: 10/31) • Potential cases (requests for certiorari filed) • Schering-Plough – petition for cert filed 8/29 • Dentsply – petition for cert filed 9/14

11. Washington NewsAntitrust Modernization Commission • Upcoming hearing (9/29) on state action doctrine • Scheduled panelists include a representative from the FTC and several private lawyers • Upcoming hearing (9/29) on refusals to deal and loyalty discounts • Scheduled panelists include Bob Pitofsky, Tim Muris, Hew Pate, Prof. Steve Salop, and Ken Glazer from Coca-Cola • Next round of hearings (10/26) will cover government institutions (dual federal/state antitrust enforcement)

12. Horizontal Restraints, Vertical Restraints and Monopolization • Scott Martin

13. Horizontal Restraints UpdateNational Association of Realtors United States v. National Association of Realtors, No. 05C-5140 (N.D. Ill.) • Multiple Listing Service policy favors brick-and-mortar? • Internet delivery of brokerage services more efficient? • Alleged NAR working group admission: Opt-out right vs. web-based brokers would be “abused beyond belief” and “not in sellers’ best interest.” • NAR tried 11th hour fix (customer’s written consent) to no avail • Does DOJ “get” MLS and Virtual Office Websites? What about market demands? What about Realtor.com? • Where are the private suits?

14. Horizontal Restraints UpdateIn re: Canadian Import Antitrust Litigation 2005 WL 2082934 (D. Minn. 2005) • Consumers brought federal and state claims that drug companies colluded to suppress import of Canadian prescription drugs for personal use • Drugs are misbranded when introduced into U.S. commerce (e.g., “Rx only” symbol) • Federal antitrust laws not designed to protect unlawful activity, therefore consumers lack standing; supplemental state law claims consequently dismissed

15. Vertical Restraints and Monopolization UpdateIn re: Wireless Telephone Services Antitrust Litigation 2005 WL 2143335 (S.D.N.Y. 2005) • Question: Requiring customers to purchase specifically approved phones constitutes unlawful tying under Section 1? • Judge Cote: No genuine issue of necessary market power in wireless market to coerce purchase of phones and no showing of anticompetitive effect on phone market • No collusive behavior • Faulty economics from plaintiffs

16. Vertical Restraints and Monopolization UpdateClass Certified: Cox v. Microsoft No. 105193/00 (N.Y. Sup., released Sept. 2, 2005) • NY GBL § 349(a): no “deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service” in the State of New York • Microsoft: No exposure to/deception by challenged conduct • Microsoft: Don’t certify because not every member of the class suffered damages. (Don’t hold your breath . . .) • Reliance not an element of the New York General Business Law claim; it’s causation between the alleged deceptive act and injury that must be shown class-wide • Importance of consumer choice

17. Vertical Restraints and Monopolization UpdateDenial of Class Certification Upheld: Rodney v. Northwest Airlines, Inc. 2005 WL 2009178 (6th Cir. 2005) • Class alleged harm from attempted monopolization of travel to/from NW hubs; named plaintiff flew only one allegedly monopolized route • Sixth Circuit affirmed finding of no predominance on issues of monopoly power, antitrust injury and damages; plaintiff inadequate representative • 74 routes at issue: Substitutes? Monopoly power? Injury? Representativeness?

18. Mergers and Acquisitions Update • Steven K. Bernstein

19. Mergers and Acquisitions UpdateFTC v. Aloha Petroleum, Ltd and Trustreet Properties, Inc. No. CV05 00471 HG KSC(Ha. D. 2005) • Because of changed circumstances, the FTC asked the District Court in Hawaii to dismiss the FTC’s preliminary injunction action seeking to block Aloha’s $18 million acquisition of certain Trustreet petroleum assets in Oahu, Hawaii. The complaint had alleged that the acquisition would substantially lessen competition in two markets: • the marketing of gasoline by bulk suppliers, by reducing the number of marketers with ownership, or guaranteed access to, a refinery or import-capable terminal from five to four; and • the retail sale of gasoline on Oahu and geographic subdivisions within Oahu, by reducing from three to two the number of bulk suppliers willing to sell to un-integrated retailers

20. Mergers and Acquisitions UpdateFTC v. Aloha Petroleum, Ltd and Trustreet Properties, Inc. • The Commission asked the court to dismiss its case after Aloha announced that it would enter into a 20-year throughput agreement giving Mid Pac Petroleum rights to use Aloha’s gasoline import terminal • According to the FTC, Mid-Pac would essentially substitute for Trustreet as a bulk gasoline marketer in Hawaii • The agreement would enable Mid-Pac “to import virtually unlimited quantities of gasoline into Hawaii.”

21. Mergers and Acquisitions UpdateFTC v. Aloha Petroleum, Ltd and Trustreet Properties, Inc. • FTC action shows that even small, non-reportable transactions may be challenged by the antitrust agencies • The FTC continues to take a close look at petroleum mergers • FTC dismissed complaint without requiring a consent order • FTC noted close cooperation with the Hawaii Attorney General’s Office • Chairman Majoras was recused from the matter. Original vote to challenge was 2-1.

22. Mergers and Acquisitions UpdateFTC Federated Department Stores, Inc./The May Department Stores Company FTC File No. 051-0111 • FTC closed its investigation of this $17 billion proposed acquisition • Federated owned or operated 456 stores under the Macy’s and Bloomingdale’s names • May owned or operated 491 stores under names that included Marshall Field’s, Lord & Taylor and Hecht’s • FTC noted that the transaction would “create by far the largest chain of so-called ‘traditional’ or ‘conventional’ department stores in the country” and would “create high levels of concentration among conventional department stores in many areas of the country.”

23. Mergers and Acquisitions UpdateFTC Federated Department Stores, Inc./The May Department Stores Company • FTC found that product market could not be limited to conventional department stores: • “product market must be defined to include, at the very least, all department stores and all specialty stores that collectively sell substantially similar products to those offered by Federated and May.” • Precedent for separate relevant product market comprised only of department stores (The Bon-Ton Stores, Inc. v. The May Department Stores Company, 881 F. Supp. 860 (W.D.N.Y. 1994)) • FTC noted the rapid evolution of retail markets • FTC found no evidence that the merging companies priced their goods strategically in relationship to one another. Instead, they charged uniform prices over broad geographic areas and those prices did not vary based on number of department stores in the area.

24. Mergers and Acquisitions UpdateFTC Federated Department Stores, Inc./The May Department Stores Company • FTC noted that the geographic market depended on the type of merchandise being purchased • FTC concluded that the geographic market was at least as broad as an MSA, and may be larger in some areas of the country • Even though Federated had announced plans to divest 75 overlapping department stores, the FTC did not require them to do so in a consent order • Federal/State enforcement • FTC noted that in cases with multiple diverse geographic areas, participation by state agencies, which are familiar with specific local conditions may be particularly helpful • State antitrust agencies in NY, California, Pennsylvania, Massachusetts and Maryland announced settlements that involved divestitures

25. Mergers and Acquisitions UpdateFTC Federated Department Stores, Inc./The May Department Stores Company • The FTC is willing to consider changes in industry conditions even when there is established precedent • In the retail industry, pricing data may be given significant weight by the antitrust agencies • Even if the FTC does not take action, state agencies provide another level of scrutiny

26. Mergers and Acquisitions UpdateOther Notable Merger Clearances • Pfizer/Vicuron Pharmaceuticals • $1.9 billion transaction • Biopharmaceutical company focused on development of anti-infective products • Scansoft/Nuance • $221 million transaction • Voice automated solutions

27. Mergers and Acquisitions UpdatePending Mergers • Number of significant mergers are still pending at the antitrust agencies: • Procter & Gamble/Gillette • Johnson & Johnson/Guidant • Whirlpool/Maytag • Intelsat/PanAmSat • UnitedHealthCare/Pacificare • Oracle/Siebel • Several of these transactions under review in the U.S. are also being reviewed, or have been reviewed, by the European Commission and other foreign antitrust agencies

28. Mergers and Acquisitions UpdatePending Mergers • Critical that when dealing with multi-jurisdictional investigations to have a coordinated legal strategy. • Timing • Waivers • Encourage cooperation • Consistency of arguments

29. Mergers and Acquisitions UpdateOther Procedural Developments • FTC proposes amendment to HSR rules to allow internet links to SEC filings, instead of hard copies • FTC proposes amendment to HSR rules provide for expiration of merger notifications after 18 months if a second request remains outstanding • Growing efforts by merging parties to contact agencies early and provide information up-front in hopes of avoiding a second request

30. Antitrust and Intellectual Property • Adam C. Hemlock

31. Antitrust and Intellectual PropertyFTC Files Supreme Court Petition for Writ of Certiorari in FTC v. Schering-Plough Corp. • FTC v. Schering-Plough involves the antitrust legality of so-called “reverse payment” settlements (settlement between brand and generic in which generic agrees to keep its product off market for certain period, and in exchange brand pays generic) • Overview of Hatch-Waxman • Permits Abbreviated New Drug Applications (ANDA) which allows generic to obtain FDA approval by showing that generic is [bioequivalent] to brand drug • Requirement to make “Paragraph IV” certification as to whether branded drug’s patent(s) are invalid or uninfringed • If brand sues for infringement within 45 days of receiving Paragraph IV certification, FDA automatically institutes 30 month delay on the generic’s ANDA approval

32. Antitrust and Intellectual PropertyFTC Files Supreme Court Petition for Writ of Certiorari in FTC v. Schering-Plough Corp. • In Hatch-Waxman patent litigation, the generic defendant has not yet sold the infringing product • In contrast to traditional patent litigation, when defendant has already made infringing sales for which the patentee seeks to recover damages

33. Antitrust and Intellectual PropertyFTC Files Supreme Court Petition for Writ of Certiorari in FTC v. Schering-Plough Corp. • Eleventh Circuit opinion Schering-Plough Corp., et al. v FTC, 402 F. 3d 1056 (11th Cir. 2005) • Neither per se rule nor rule of reason are appropriate standards for determining antitrust legality in this case • Proper analysis of antitrust liability requires an examination of: (1) the scope of the exclusionary potential of the patent; (2) the extent to which the agreements exceed that scope; and (3) the resulting anticompetitive effects • Reverse payments are a natural by-product of the Hatch-Waxman process • No evidence on the record that generic could have attained an earlier entry without the reverse payments

34. Antitrust and Intellectual PropertyFTC Files Supreme Court Petition for Writ of Certiorari in FTC v. Schering-Plough Corp. • Two questions presented in FTC’s petition • Whether an agreement between a pharmaceutical patent holder and a would-be generic competitor, in which the patent holder makes a substantial payment to the challenger for the purpose of delaying the challenger’s entry into the market, is an unreasonable restraint of trade • Whether the court of appeals grossly misapplied the pertinent “substantial evidence” standard of review, by summarily rejecting the extensive factual findings of an expert federal agency regarding matters within its purview

35. Antitrust and Intellectual Property FTC Files Supreme Court Petition for Writ of Certiorari in FTC v. Schering-Plough Corp. • FTC’s main arguments • 11th Circuit’s approach conflicts with pro-consumer policy goal of Hatch-Waxman to encourage speedy entry of low-cost generic drugs • While 11th Circuit focused on “exclusionary potential” of the patent, FTC notes that generics prevailed in 73% of ANDA patent litigations • Payment must have reflected a quid pro quo for a delayed entry, and absent the payment, the generic would have entered earlier to compete against the branded drug • Only third time in FTC’s history that it has represented itself in front of Supreme Court

36. Antitrust and Intellectual PropertyEleventh CircuitAndrx Pharmaceuticals Inc. v. Elan Corp. PLC No. 03-03481 (11th Cir. 2005) • Facts • Generic #1 filed first ANDA to manufacture generic version of controlled release naproxen, and Brand sued for patent infringement; Brand and Generic #1 settled, and Brand granted license to Generic #1 • Generic #2 filed ANDA and was sued by Brand for patent infringement • Hatch-Waxman grants 180-day exclusivity period to first generic to file ANDA. 180-day period starts when first generic starts marketing its product. Generic #2 alleges that Generic #1 had no intention to market product, thus never triggering the 180-day period and precluding Generic #2’s entry into market.

37. Antitrust and Intellectual PropertyEleventh CircuitAndrx Pharmaceuticals Inc. v. Elan Corp. PLC • Generic #2 filed suit under Sections 1 and 2 of Sherman Act and the Florida antitrust laws, claiming: • Brand’s patent action against Generic #2 was baseless, due to invalidity of patent, and therefore was filed solely to preserve its monopoly over “controlled release naproxen market in the US” (Sherman Act section 2 claim) • Settlement agreement between Brand and Generic #1 was illegal restraint of trade (Sherman Act section 1 and 2 claims)

38. Antitrust and Intellectual PropertyEleventh CircuitAndrx Pharmaceuticals Inc. v. Elan Corp. PLC • District Court for Southern District of Florida granted judgment on the pleadings pursuant to rule 12(c) • Patent litigation was protected by Noerr-Pennington doctrine, and did not fall within sham exception because two previous courts rejected basis for Generic #2’s claim of invalidity • Generic #2’s allegations regarding license agreement were insufficient to support claims under Sections 1 and 2 • Denied motion for leave to amend

39. Antitrust and Intellectual PropertyEleventh CircuitAndrx Pharmaceuticals Inc. v. Elan Corp. PLC • 11th Circuit Opinion • Affirmed dismissal of claims based on patent litigation, agreeing that Noerr-Pennington shielded Brand from Sherman Act liability • Reversed and remanded on dismissal of claims based on settlement agreement • Repeat of standard in Schering-Plough for evaluating patent litigation settlement • Plaintiff sufficiently pled violations of Sherman Act Sections 1 and 2 • No abuse of discretion in denial of motion to amend

40. Antitrust and Intellectual Property Proposed Consent DecreeUS v. Ecast, Inc. No. 1:05CV01754 (D.D.C.) • DOJ settles with two suppliers of “digital jukebox platforms” (NSM and Ecast) • Ecast was one of two US suppliers of platforms when it learned of NSM’s plans to enter • Ecast and NSM entered agreement whereby NSM would manufacture digital jukeboxes with only Ecast’s platform, and not with NSM’s own platform • DOJ alleges that NSM’s entry into US market for digital jukebox platforms would have stimulated competition

41. Consumer Protection • Helene D. Jaffe

42. Consumer ProtectionDeceptive Advertising: Fraudulent Weight Loss Claims • FTC is increasing scrutiny of clinical study results cited in ads for weight-loss supplements • FTC Assistant Director of Advertising Practices, Richard Cleland, said in the World Obesity & Weight Loss Congress that the FTC would evaluate such studies to determine whether the results were accurately reflected by the ad and whether it was a legitimate study • Cleland also stated that the FTC is closely monitoring the use of expert endorsers in product advertisements to verify their credentials and determine whether they have substantiation for the endorsement

43. Consumer ProtectionDeceptive Advertising: Fraudulent Weight Loss Claims FTC v. No. 1025798 Ontario, Inc., 03-CV-00910A (SC) (W.D.N.Y. 2005) • FTC settled false advertising suits against U.K. based defendants concerning weight-loss claims about seaweed-based patches • FTC in 2003 sued the producers of Hydro-Gel Slim Patch and Slenderstrip for allegedly false and unsubstantiated weight-loss claims for these two patches • U.K. based defendants were added to the original complaint when the Commission discovered that they were allegedly orchestrating the manufacturing, advertising, and selling of the patches in the United States • Original U.S.-based defendants settled in September 2004 • The U.K.-based defendants settled in September 2005

44. Consumer ProtectionDeceptive Advertising: Fraudulent Weight Loss Claims • Under the announced settlement, the U.K. based companies will pay $150,000. However, if it is found that they misrepresented their financial status, defendants will be responsible for the full judgment of $5.3 million – the total U.S. sales of the two patches. • Defendants will be banned in the U.S. from making, advertising, or selling any dietary supplement, food, drug, or weight-loss product, and from making claims about other health-related products or services unless the claims are backed by scientific evidence. • The settlement also requires the defendants to give the FTC a list of people who bought the patches, and prohibits them from disclosing their mailing lists to others, except as required by law.

45. Consumer ProtectionDeceptive Advertising: Fraudulent Weight Loss Claims FTC v. Chinery, No. 05-3460 (D.N.J. 2005) • FTC filed a complaint against Robert Chinery, Jr., Tracey Chinery and RTC Research and Development LLC over allegedly false and misleading claims made in ads for the popular dietary supplement Xenadrine EFX • According to the FTC, since its introduction in 2002, Xenadrine EFX’s sales have topped $160 million • The allegedly misleading ads relied heavily on testimonials from supposedly satisfied customers, some of whom claimed to have lost over 100 pounds • On the date the complaint was filed, the FTC announced a settlement with another group of entities: Cytodyne, LLC, Evergood Products Corp., and Melvin Rich, for their role in the advertising and marketing of Xenadrine EFX • The settlement prohibits making any claims that “Xenadrine EFX or any other substantially similar product causes rapid and substantial weight or fat loss and . . . that any weight-loss product causes rapid and substantial weight loss without diet or exercise.” • The settlement also requires a payment of $100,000 to the FTC

46. Consumer ProtectionDeceptive Advertising: Smoking Related Health Claims FTC v. Emerson Direct, Inc., No. 2:05-CV-377-FtM-33 (M.D. Fla. 2005) • FTC settled with the marketers of “Smoke Away,” a dietary supplement product that was advertised as a smoking cessation product • Defendants required to pay $1.3 million • The settlement prohibits the defendants from making any claims about the benefits, performance, efficacy, safety, or effects of Smoke Away or any other smoking cessation product or program unless those claims are true, non-misleading, and substantiated

47. Consumer ProtectionDeceptive Advertising: Smoking Related Health Claims State of Vermont V. R.J. Reynolds Tobacco Co., Nos. 744-97 CnC & S-816-98 (Chittenden Sup. Ct. 2005) • Nine states and the District of Columbia filed suit in Vermont against R.J. Reynolds alleging that the company’s claims that its Eclipse brand of cigarettes may carry less risk of cancer and other health ailments were misleading • Reynolds claims that smokers’ risk of contracting cancer, chronic bronchitis, and possibly emphysema are reduced compared with conventional cigarettes because of how Eclipse cigarettes work – smokers do not light tobacco

48. Consumer Protection“Do-Not Call” Issues • Federation of the Blind v. FTC, No. 04-1378 (4th Cir. 2005) • FTC’s amended Telemarketing Sales Rule (TSR) was within the FTC’s authority • The TSR did not violate charitable organizations’ First Amendment rights because organizations were still permitted to make telephone solicitations • United States v. Columbia House Co., No. 05C4064 (N.D. Ill. 2005) • Columbia House settled FTC charges that it violated the Do-Not-Call law by calling existing and past subscribers of its home entertainment clubs after the subscribers had placed their telephone numbers on the National Do-Not-Call Registry and specifically requested that the company not call them • Columbia House will pay a $300,000 civil penalty and is barred from making illegal calls in the future

49. Consumer ProtectionSpyware FTC V. Trustsoft, Inc., No. 05-1905 (S.D. Tex. 2005) • The FTC continues to pursue injunctions against companies that falsely lead consumers to believe that their computers are infected with spyware in order to sell consumers ineffective programs to remove the spyware • FTC won an injunction against Trustsoft, Inc. to prevent it from promoting its “SpyKiller” program • The FTC alleged that the defendant used pop-up and e-mail messages that informed consumers that spyware had been “detected” on their computer through a remote scan. The defendant would then direct consumers to a website for a free scan, at which point it would inform consumers that their computers were infected and would advise them to purchase SpyKiller software.

50. EU Update • Doug Nave