Three antitrust updates this afternoon:
1. Later today the European Court of First Instance will decide whether to uphold a 6.8 million Euro fine imposed by European antitrust authorities against British Airways. In 1999, the EU sided with Virgin Atlantic, who claimed BA “abused its dominance” by giving travel agents rebates linked to the number of BA tickets sold. The EU said this was just plain unfair to Virgin, who couldn’t match the rebates.
For years, the EU has targeted rebate programs that reward a company’s loyal customers. The European Commission believes dominant firms must not take any action that might maintain or expand their market share. One antitrust lawyer told Dow Jones, “Dominant companies in Europe will continue to find themselves open to attack for pursuing anything but the most conservative pricing strategy”. On a positive note, the Court of First Instance has recently overturned a number of Commission antitrust fines. This case offers an opportunity to continue that trend, because BA presented a strong argument that the Commission botched the market definition. Lawyers familiar with the case say the EU confused the travel agent market with the air transport market, which exaggerated the actual dominance of BA.
2. Yesterday, the Supreme Court agreed to review F. Hoffman La Roche Ltd. v. Empagram, S.A., one of the many antitrust cases still pending against the worldwide vitamin industry. This case presents a curious question: Can foreign plaintiffs invoke U.S. antitrust laws over alleged infractions that occurred outside the U.S.? Obviously the answer should be “no,” but since when do antitrust laws make sense?
The plaintiffs in this case are nationals of Australia, Ecuador, Panama, and Ukraine. They claim to be victims of an international price-fixing conspiracy in the vitamin industry. Many of the defendant companies have already settled civil and criminal antitrust charges in the U.S. and abroad. These plaintiffs seek damages under the Sherman Act for their purchases outside the United States; they argue that because the underlying conspiracy affected American commerce, jurisdiction is proper here. Most federal appellate courts have rejected this argument in other cases, but the Court of Appeals for the District of Columbia went the other way, and ordered the case tried. The defendants, backed by the Solicitor General, the U.S. Chamber of Commerce, and the German government, have asked the Supreme Court to reverse that finding.
3. Finally, today’s “Corporate Coward” award goes to First Data Corporation for their last minute capitulation to the Justice Department. Earlier this year First Data, which runs ATM and debit card networks, agreed to buy competitor Concord EFS. The DOJ claimed the merger would illegally reduce competition in the market for PIN-based debit networks. This is an odd market definition, since debit networks consist of both PIN-based and signature-based models. Many debit cards actually work with both networks. Yet the DOJ insisted the markets were separate for antitrust purposes. First Data disagreed, at least at first, and vowed to fight the DOJ in court.
A hearing was scheduled for this week, but yesterday we learned the company had indeed settled. First Data will divest its interest in one of its debit networks to a third buyer chosen by the DOJ. This will protect consumers, according to the DOJ. In reality, this settlement protects the jobs of DOJ lawyers who go around imposing arbitrary market definitions. First Data’s capitulation essentially ratifies the DOJ’s decision to separate the PIN and signature debit markets, making it difficult for any other company in the field to argue the objective facts in the future.