Happy New Year and welcome to this month’s edition of the Sidley Antitrust and Competition Bulletin — thoughts on topics that are top of mind for Sidley’s Global Antitrust team and why they may matter to you. A common theme on both sides of the Atlantic has been the application of antitrust law to professional sports. At the end of 2023, the Court of Justice of the European Union (CJEU) handed down three pivotal judgments clarifying the ways in which sports governing bodies are subject to competition law. In the U.S., several state attorneys general and the U.S. Department of Justice Antitrust Division (DOJ) filed a suit alleging that the bylaws of the National Collegiate Athletic Association (NCAA) in relation to transfer eligibility act as an unlawful barrier to trade. Outside of sports, U.S. District Judge Thomas Schroeder allowed the Federal Trade Commission (FTC) to proceed with its exclusive dealing case against two large crop manufacturers when he denied a motion to dismiss, and U.S. District Judge William Young prevented Jet Blue Airways from acquiring Spirit Airlines. The UK’s Competition and Markets Authority (CMA) published a report on 10 trends in digital markets that could significantly affect competition and consumers over the next five years. Interested? Keep reading…
Our Take on Top-of-Mind Global Antitrust Issues
Game over? EU’s top court issues three landmark judgments on the interface of EU competition law and sports: On December 21, 2023, the CJEU delivered its long-awaited rulings in three cases concerning the European Super League (ESL), International Skating Union, and Antwerp Football Club. All three judgments relate to the powers of sport governing bodies (SGBs) and the rules and regulations that they apply. The CJEU clarified that SGBs’ rules on setting up new rival competitions by another undertaking and when SGBs control participation of clubs and athletes in those competitions, will be closely scrutinized. The framework and procedural rules of SGBs relating to alternative competitions should be transparent, objective, nondiscriminatory, and proportionate so as to limit the discretionary powers of the SGBs. Similarly, sanctions to enforce rules must be proportionate to the infringement, objective, and nondiscriminatory. The ESL and Antwerp Football Club cases are returning to the referring courts in Spain and Belgium respectively for final judgment.
Why it matters: The commercial aspects of organizing competitions are economic activities to which EU competition law apply; there is no general exemption from EU competition law for professional sports. Like other economic activities, restraints on trade must generate objective economic benefits (such as contributing to the improvement of production or distribution of goods, or to promoting technical or economic progress, while also providing consumers a fair share of the resulting benefit) that outweigh the negative effects of the restriction of competition, and dominant entities must ensure they do not distort competition through their conduct. Please find a more detailed Sidley-authored Update here.
State attorneys general challenge NCAA rules on transfer eligibility: On December 7, 2023, the state attorneys general of Ohio, Colorado, Illinois, New York, North Carolina, Tennessee, and West Virginia brought suit against the NCAA, alleging that NCAA Bylaw 22.214.171.124 unlawfully restrains the ability of Division I college athletes to transfer to other Division I schools without loss of athletic eligibility. A second amended complaint, including the United States as a plaintiff, was filed on January 18, 2024. NCAA Bylaw 126.96.36.199, commonly known as the transfer eligibility rule, requires a year of academic residency before a transferring Division I college athlete is eligible to participate in NCAA athletic competition. The complaint alleges that this rule and its waiver processes are not universally applied and that it acts as an unlawful barrier on both universities that seek to compete for college athletes and college athletes who seek to transfer and compete. The United States and the seven state attorneys general are seeking a permanent injunction restricting enforcement of the transfer eligibility rule and NCAA Bylaw 188.8.131.52, a restitution rule that applies to college athletes and universities for actions taken contrary to NCAA bylaws while in compliance with a court order.
Why it matters: This case is in line with the trend of increased interest by federal and state antitrust enforcers and private actors in the application of antitrust law to alleged labor market effects. Taking into consideration the DOJ’s investigations and enforcement actions in labor markets, the FTC’s proposed rulemaking on noncompete agreements, and evaluations by federal and state antitrust agencies into how mergers affect labor markets, the influence of antitrust laws on labor markets remains a significant trend to watch in 2024.
Court denies Syngenta/Corteva motion to dismiss FTC complaint: On January 12, 2024, a district court judge in North Carolina denied a motion by Syngenta Crop Protection AG and Corteva, Inc. to dismiss the FTC’s complaint, which alleges that two pesticide manufacturers violated antitrust laws by using anticompetitive loyalty discount programs that were intended to prevent distributors from offering competing generic pesticides. The FTC claims the two discount programs have foreclosed generic pesticide manufacturers from 70% or more of the market. The court found that the FTC pleaded facts sufficient to allege that Defendants’ loyalty discounts combined with threats (and alleged acts) of retaliation are illegal exclusive dealing arrangements under both Sections 1 and 2 of the Sherman Act, Section 3 of the Clayton Act, and Section 5 of the FTC Act. According to the complaint, alleged anticompetitive conduct led to antitrust injury by foreclosing entry and expansion by generic competitors, reducing options while charging higher prices to farmers, and resulting in less innovation.
Why it matters: Defendants tried to argue that the FTC’s case should be dismissed because it failed to plausibly allege anticompetitive conduct and injury to survive the “price-cost” test — where the price is set below the defendant’s costs, and the defendant may recoup its investment at below-cost prices. This test is used in predatory pricing claims, and the court points out that standard rule of reason analysis applies to other forms of anticompetitive conduct where the price-cost test is not appropriate. Here, the complaint alleges that the defendants used other nonprice mechanisms of exclusion to engage in anticompetitive conduct that require factual analysis. While the court did not dismiss the FTC’s case, it did indicate that the FTC may have limited paths to ultimately winning its case.
JetBlue’s proposed acquisition of Spirit Airlines blocked by U.S. federal district court judge: On January 16, 2024, U.S. District Judge William Young ordered that JetBlue’s $3.8 billion proposed acquisition of Spirit Airlines be permanently enjoined, effectively blocking the transaction for violating Section 7 of the Clayton Act. Following an October 2023 bench trial, Judge Young issued a 113-page order finding that it was reasonably probable the proposed merger would substantially lessen competition in low/ultra-low-cost scheduled air passenger service for some “origin-and-destination pairs” or flight routes that both JetBlue and Spirit serve. According to the judge, the merger would eliminate direct head-to-head competition between JetBlue and Spirit, eliminate Spirit as a competitor with other airlines, and eliminate Spirit as a choice for consumers, harming customers who rely on Spirit’s prices for certain flight routes. JetBlue is appealing this decision.
Why it matters: The trial took place while the 2023 Merger Guidelines were in draft form, though the DOJ took a few opportunities to argue for standards set out in the new guidelines, including with respect to the “timely” prong of its entry analysis. Defendants in Section 7 cases often seek to show that entry into a relevant market would be timely, likely, and sufficient to counteract the competitive concern of a transaction. Judge Young explained that midcase, DOJ took a position that timely entry involves entering “as fast as possible” or “immediate[ly].” This position is reflected in the 2023 Merger Guidelines, which largely discount timely entry as a defense in most industries because it takes too long to offset competitive harm. Judge Young declined to follow this interpretation of the “timely” prong and agreed with the defendants that to be timely, entry need only occur within two to three years. Ultimately, Judge Young determined that entry would not be sufficient to prevent competitive harm to certain Spirit customers. It remains to be seen if the courts will follow the 2023 Merger Guidelines on this point in cases that start under the 2023 guidelines.
CMA’s Technology Horizon Scanning Function publishes first report: The CMA’s first horizon scanning report highlights 10 trends in digital markets that the CMA expects to be most relevant for the next five years and beyond. Although the report acknowledges the possibility of new trends and innovation leading to positive outcomes for consumers and competition, it also flags numerous potential harms. These include (i) the integration of additional services to existing digital platforms, which could challenge dominant app stores and other mobile app ecosystems while potentially raising consumer lock-in concerns; (ii) large tech firms using their resources and technical capabilities to expand into new markets, particularly the “healthtech” sector, which could raise data privacy and reliability concerns; and (iii) microchip supply chain difficulties paving the way for innovation and changed market dynamics in semiconductor sectors, which, while potentially encouraging innovation, may instead lead to market concentration for the most successful incumbent companies.
Why it matters: Consistent with the UK government’s 2023 strategic steer to the CMA, this report reiterates the expected focus on regulating fast-evolving digital markets. However, both documents recognize the importance of innovation and flag the need for a degree of balance and flexibility when examining potential harms, acknowledging the possibility that the CMA’s strategy will likely change as these markets develop.
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