Haynes and Boone's Newsroom

DOJ’s Antitrust Division - Increased Civil Enforcement as the Microsoft Case Nears its Conclusion
05/04/2011
Jacqueline K. Shipchandler

Later this month, the Department of Justice’s Antitrust Division will end its oversight of the Microsoft consent decree, marking the end of the landmark antitrust case that began more than a decade ago. The lawsuit was filed in May 1998, charging Microsoft with violating Section 2 of the Sherman Act by engaging in anticompetitive and exclusionary practices designed to maintain its monopoly in personal computer operating systems and to extend that monopoly to Internet browsing software. In contrast, the last decade has been noteworthy for the lack of Section 2 enforcement by the Antitrust Division, a trend which was not reversed until earlier this year.

The Obama Administration took office in 2009, promising to reinvigorate antitrust enforcement. Assistant Attorney General Christine Varney announced that the Antitrust Division was withdrawing a Bush-era Section 2 report that raised “many hurdles to Government antitrust enforcement.” The past year has seen vigorous civil enforcement under Section 1, including cases against:

  • Blue Cross Blue Shield of Michigan (challenging “most favored nations” provisions in its agreements with hospitals);
  • American Express, Mastercard and Visa (challenging rules that prevented merchants from offering consumer discounts, rewards and information about the use of their cards); and
  • Several high technology companies and digital animation studios (challenging “non employee solicitation” agreements as per se illegal).

It was not until earlier this year, however, that the Department of Justice filed its first lawsuit charging a monopolist with engaging in traditional anticompetitive unilateral conduct in violation of Section 2. In United States v. United Regional Healthcare System of Wichita Falls, Texas, the Department of Justice and the State of Texas challenged United Regional’s practice of entering into contracts that improperly inhibited commercial health insurers from contracting with its competitors. The DOJ reached a settlement with United Regional, which is currently under judicial review. The case involved the sale of inpatient and outpatient hospital services to commercial health insurers in a relatively localized geographic market.

The complaint charged that United Regional maintained its monopoly power in the relevant markets by entering into contracts with commercial health insurers that effectively excluded United Regional’s competitors in the Wichita Falls area from the insurers’ provider networks. The contracts offered a substantially higher discount off billed charges (e.g., 25 percent) if United Regional was the only local hospital or outpatient service provider in the insurer’s network, compared with much smaller discounts of billed charges (e.g., 5 percent) if the insurer added another competing local health care facility. Although United Regional technically offered a non-exclusive option, the price penalty rendered the non-exclusive option prohibitively expensive and not commercially viable. According to the complaint, every commercial insurer that entered into the exclusionary contracts would have preferred an open network. Most attempted to add competing providers, but faced threats from United Regional of prices so high that the insurer would not be able to compete with other health insurers in the area.

The complaint charged that United Regional’s contracts were exclusionary and reduced competition, because they:

(1) 

delayed and prevented expansion and entry of competitors, likely leading to higher health care costs and premiums; 

(2) 

limited price competition for price sensitive patients; 

(3)  

reduced quality competition between United Regional and its competitors; 

(4) 

likely excluded equally efficient competitors, who would be unable to compete and convince a health insurer to turn down exclusivity unless they offered a price below United Regional’s marginal cost; and  

(5) 

lacked a valid procompetitive business justification, since United Regional did not use the contracts to achieve any economies of scale or other efficiencies.  

United Regional is a reminder that companies with large market shares should exercise caution when entering into agreements that are actually – or effectively – exclusive.

The United Regional case is also notable in that the Division describes it as “strik[ing] at a key part of surging health care costs in America: the ability of dominant health care providers to raise prices above competitive levels.” See The Division’s Spring 2011 Update (April 2011). Coupled with the Division’s ongoing litigation against Blue Cross Blue Shield of Michigan, United Regional demonstrates the Division’s commitment to aggressive enforcement in the health care sector.

As the government prepares to wrap up its enforcement of the Microsoft consent decree, it appears that the promised emphasis on increased civil enforcement under both Sections 1 and 2 of the Sherman Act may be on the rise.

If you have any questions, please contact one of the attorneys listed below. You may also view the alert in the PDF linked below.

Kathleen M. Beasley
214.651.5697

 

Ronald W. Breaux
214.651.5688

 

Lawrence A. Gaydos
214.651.5622

 

Richard A. Ripley
202.654.4503

 

Barry F. McNeil
214.651.5580

 

Bill Morrison
214.651.5018

 

 

Jacqueline K. Shipchandler
214.651.5556