Antitrust Highlights
Finding the Antitrust Section increasingly reviewing business mergers and potential antitrust violations, Attorney General Lockyer upon taking office in January 1999 secured increased staffing for the Antitrust Section for the first time in a decade. Here are some of the major activities of the Antitrust Section:
Vitamins
As part of an $80 million settlement with major drug companies to resolve a vitamin price-fixing case, Attorney General Lockyer announced the distribution of $12.98 million to 28 California nonprofit groups to provide nutrition services and public health advocacy. The grants programs include meals for the elderly and seniors with Alzheimer's disease. The settled antitrust litigation targeted three Japanese and three European drug companies which together controlled about 80 percent of the world vitamin market. The companies allegedly conspired to fix prices for such vitamins as A, C, E, H, several B vitamins and carotenoids. The companies included Aventis Animal Nutrition, BASF Corp., Daiichi Pharmaceutical, Eisai Company, Hoffman-LaRoche and Takeda Chemical.
Computer Memory Chips
Attorney General Lockyer in July 2006 filed an antitrust complaint in federal court against seven computer memory chip manufacturers alleging the firms violated antitrust laws, and harmed consumers and governmental agencies, by conspiring to fix prices they charged for widely used dynamic random access memory (DRAM) chips. The lawsuit alleges the companies violated state and federal antitrust laws through a four-year conspiracy (from 1998 through June 2002) to fix DRAM chip prices, artificially restrain supply, allocate among themselves the production of DRAM chips and markets for the chips, and rig bids for DRAM chip contracts. The defendants include the following parent companies: Infineon Technologies AG; Hynix Semiconductor, Inc.; Micron Technology, Inc.; Mosel Vitelic, Inc.; Nanya Technology Corp.; Elpida Memory, Inc.; and NEC Electronics America, Inc. Lockyer was joined in the antitrust action by 33 other state attorneys general.
Microsoft State-Federal Antitrust Judgement Extended Two Years
Citing compliance shortfalls, Attorney General Lockyer announced in May 2006 that a key provision of the settlement agreement with Microsoft aimed at increasing competition will be extended at least two years. During this time, Microsoft will revamp efforts to comply with requirements that competing software companies be helped to develop products that work on computers using Microsoft’s Windows operating system. Set to expire in 2007, the 2002 judgment filed in federal court had resolved antitrust complaints brought by the U.S. Department of Justice, California, eight other states and the District of Columbia. In 2001, the federal court of appeals in Washington, D.C. found that Microsoft had maintained an unlawful monopoly.
Oil Refiners Subpoenaed
Attorney General Lockyer announced in April 2006 that he will subpoena documents from all 21 California oil refineries, and obtain information from the chief executive officers and other relevant officials of oil companies operating in California, to determine whether the firms are profiteering and gouging consumers. Companies targeted by the subpoenas will include ChevronTexaco, ExxonMobil, ConocoPhillips, Valero, Shell, BP and others. Lockyer also announced he has convened a multi-disciplinary task force from his antitrust, corporate responsibility, consumer law and criminal units to explore all potential law enforcement options in his ongoing investigation of California’s oil and gasoline market. In California – where seven oil companies control more than 95 percent of the state’s refining capacity – refiners’ margins historically have far outstripped the national average. So far in 2006, according to the California Energy Commission, the difference between the price oil companies pay for crude and the price they charge at the pump has spiraled upward by 130 percent. Meanwhile, the price for crude has risen only 14 percent.
Pharmaceutical Giant to Pay $14 Million to Resolve Antitrust Complaint
GlaxoSmithKline (GSK) in March 2006 agreed to pay $14 million to resolve allegations that state-government programs paid inflated prices for the firm’s anti-depressant drug Paxil because GSK engaged in patent fraud, antitrust violations and frivolous litigation to maintain a monopoly and block generic versions from entering the market. GSK entered the settlement with California, 46 other states, Washington D.C., Puerto Rico and the Virgin Islands. Lockyer and the Attorneys General in the other jurisdictions represented government agencies and programs that bought Paxil during a six-year period, from 1997 to 2003, when GSK unlawfully monopolized the market. In California, these purchasers included Medi-Cal, University of California medical centers, the Department of Health Services and the Department of General Services. California government purchasers will receive $2 million of the $14 million national recovery. The $14 million includes $900,000 GSK paid New York City under a separate agreement reached in December 2005.
Insurance Company Settles Antitrust Complaint
Attorney General Lockyer announced in March 2006 that Zurich American Insurance Company will pay some $152 million in restitution and reform its business practices to settle allegations that it unlawfully rigged bids for commercial insurance and made undisclosed payments to brokers for steering clients to Zurich. “Zurich participated in schemes with brokers and other insurers that inflicted financial harm on businesses and damaged the marketplace,” Lockyer said. “This settlement holds Zurich accountable for its misconduct, compensates clients it harmed, and provides reforms and ongoing enforcement by Attorneys General to help ensure the company does not commit similar abuses in the future.” The settlement resolves antitrust and unfair business practices investigations by Lockyer and Attorneys General in nine other states. Lockyer in October 2004 launched an investigation into bid rigging and contingent payments in the commercial insurance industry. The broader investigation remains ongoing.
Lowes and AMC Movie Theater Merger Given Conditional Approval
Attorney General Lockyer in December 2005 announced approval for the merger of movie theater chains Loews Cineplex Entertainment Corp. (Loews) and AMC Entertainment, Inc. (AMC), conditioned on AMC divesting two theaters in San Francisco. Under the settlement filed in federal court, AMC must sell two theaters it now owns in San Francisco: the AMC Kabuki on Post Street, which has eight screens, and the AMC Van Ness on Van Ness Avenue, which has 14 screens. The buyer must be approved by the Attorney General’s Office and must operate the theaters to exhibit first-run movies. If AMC fails to sell the theaters within the specified time, a trustee selected by Lockyer and appointed by the court will complete the divestiture. The merger raised concerns about increased market control in San Francisco and in the Los Angeles area, specifically in Burbank and Santa Monica. In the first-run commercial movie theater market, the combined entity will control 51.3 percent of box office revenues and 41.7 percent of the screens in Burbank, and 54.4 percent of box office revenues and 45.8 percent of the screens in Santa Monica.
Patient Protections Required in Merger of Major Dialysis Provider and Competitor
Attorney General Lockyer in October 2005 required specified patient protections as a condition of the $3.1 million merger of DaVita Inc and Gambro Healthcare, two health care companies providing crucial kidney disease treatment. “This merger of California’s two largest dialysis providers threatened to undermine stable care and increase treatment costs for kidney disease patients throughout the state,” Lockyer said. “The divestiture required as a condition of approving the transaction will keep open clinics that patients need, and help control costs for consumers by alleviating the merger’s anti-competitive effects on the market.” Under the divestiture plan filed in federal court in California, El Segundo-based DaVita will sell to Renal Advantage, Inc. 32 clinics now owned by DaVita or Gambro, which is headquartered in Lakewood, Colorado. Renal Advantage – based in Brentwood, Tennessee – will pay $320 million for divested clinics in California and other states. The consent decree also resolved a lawsuit that alleged the merger violated federal antitrust laws (Clayton and Sherman Acts) and state law that prohibits unfair business practices. The court must approve the consent decree before it becomes final. The Federal Trade Commission also announced conditional approval of a divestiture plan involving DaVita clinics in Florida, Georgia, Illinois, Maryland, Michigan, Nebraska, North Carolina and Virginia.
Post-Hurricane Price-Gouging Investigation Launched
Attorney General Lockyer in September 2005 launched an investigation into possible illegal profiteering by gasoline retailers and oil companies in the wake of Hurricane Katrina. Lockyer said his office has received complaints from California consumers about rising prices at gas stations following Hurricane Katrina. Lockyer’s investigation will examine whether oil companies or retailers have colluded to violate antitrust laws, run afoul of state laws that prohibit unfair business practices, or violated state law that prohibits retailers from unduly increasing gasoline prices more than 10 percent during government-declared emergencies. Violations of the price-gouging statute are subject to civil enforcement actions or misdemeanor criminal prosecutions. The federal government on August 27 and August 28 declared emergencies in states hit by Hurricane Katrina. Lockyer said he would support calls for Governor Schwarzenegger to declare a state of emergency in California.
Increasing Crude Oil Storage
California's fragile gasoline market will be strengthened by the addition of almost one million barrels of crude oil storage capacity under an enforcement settlement reached by Attorney General Lockyer and Valero. The settlement in June 2005 resolved antitrust objections to Valero's $2.8 billion acquisition of Kaneb. Under the agreement, Valero must construct at its Benicia refinery crude oil storage tanks with a total capacity of 900,000 barrels. To further address concerns the merger would have anti-competitive effects and harm consumers, the settlement requires Valero to sell gasoline and petroleum terminal facilities in Martinez and Richmond currently owned by Kaneb. The settlement also requires Valero to agree to terminate its lease of crude oil storage tanks at the Martinez terminal, and remove the oil held in those tanks.
Landmark Grocery Chain Ruling
Attorney General Lockyer in May 2005 won a landmark court ruling that holds grocery chains are liable for any antitrust violations arising from a profit-sharing agreement they entered prior to the start of a months-long labor strike in Southern California that ended February 2004. While the ruling did not find the profit-sharing pact violates federal antitrust laws, the ruling by Judge George H. King, U.S. District Court for the Central District of California was the first-ever to hold a profit-sharing agreement like the grocers' is not immune from antitrust laws. The decision means Lockyer's lawsuit can proceed to a decision on the merits of his allegation that the profit-sharing agreement is unlawfully anti-competitive.
Illegal Conspiracy Alleged in Enron-Devised Trading Schemes
Attorney General Lockyer filed suit in Sacramento County Superior Court against PowerEx and Public Service Company of New Mexico (PNM), alleging for the first time that Enron-devised trading schemes used to inflate prices during the Energy Crisis – in this case "ricochet" transactions – constituted a conspiracy to restrain trade that violated California antitrust laws. During the Energy Crisis, sellers used the ricochet scheme, also known as "megawatt laundering," to evade price caps in the market operated by the California Independent System Operator (ISO). During supply shortages, ISO paid premium prices far exceeding caps for energy imported from outside the state. These sales were completed outside ISO's centralized market and were called "out of market (OOM)" transactions. Go to the ENERGY web page for more energy enforcement actions.
Music CDs
To address unfair competition in the sale of music CDs, Attorney General Bill Lockyer, other state attorneys general, and private counsel sued five major music distributors and three national chain stores alleging a price-fixing scheme that prevented other retailers from advertising discount prices. As part of the court-approved settlement in this matter, the defendants provided $67,375,000 in cash and music CDs worth $75.7 million.
Gasoline Pricing
Recognizing that policy changes may be necessary to address the erosion of competition in the California gasoline market over more than a decade, the Attorney General directed a five-month study by his Task Force on Gasoline Pricing. As a result of the Attorney General's 70-page final report, the California Legislature and state Energy Commission are acting on recommendations that include building pipelines and establishing a strategic reserve to avoid gasoline supply and price spike problems. The report provides a comprehensive overview of the California gasoline market which was found to lack adequate competition and be highly concentrated in only a handful of oil companies. Meantime, the Attorney General's antitrust investigation into gasoline pricing is being pursued.
Oil Company Mergers
The Attorney General has undertaken at least four major antitrust investigations into oil company mergers since 1999 to determine potential harm to competition in California. In analyzing the mergers, the Attorney General has sought to encourage new competition or at minimum avoid further eroding the limited competition in the gasoline market. Oil company mergers reviewed include MOBIL-EXXON and ARCO-BP.
Petris Center Endowment
The Nicholas Petris Center on Health Care Markets and Consumer Welfare was established at the University of California, Berkeley, in September 1999 with the court-approved endowment of $2 million from settlement payments in the Levi Strauss jeans price-fixing case. The Center since has since prepared the report, "California's Closed Hospitals, 1995-2000," commissioned by Attorney General Lockyer, providing the first close look at hospital closures statewide. The study focuses on reasons for hospital closures, distribution of the closed facilities and the characteristics of the closed hospitals.
Contact Lenses
California in June 2001 was actively involved in negotiating a multi-state settlement with Johnson & Johnson allowing consumers who purchased contact lenses in the last 14 years to be eligible for cash rebates on future lens purchases and eye exams. Johnson & Johnson was the last non-settling defendant in an antitrust action brought by California, 31 other states, and a private consumer class against contact lens manufacturers and the American Optometric Association. Settlements were reached earlier with the American Optometric Association and 13 individual optometrist defendants.
Hospital Mergers
In August 1999, the Attorney General sued in federal court to block the proposed acquisition of Oakland's Summit Hospital by Sutter Health Systems. The Attorney General argued that the merger would allow one hospital chain to dominate hospital services and dictate health care prices in the East Bay. The hearing in US District Court in San Francisco raised important legal and factual issues on health care delivery and the role of competition in an urban setting.
Bookstores
The Attorney General joined with the Federal Trade Commission in an investigation into the merger of the nation's largest chain bookseller, Barnes & Noble, with the country's largest book wholesaler. Concerns were raised about the merger's adverse impact on competition in the California market, especially for the large number of independent booksellers and book buyers. In June 1999, the parties canceled the proposed merger following announcement of opposition from the government.
Drugs
Settlements with major drug companies over alleged anti-competitive practices have made hundreds of millions of dollars available for consumer refunds and to support programs that benefit the public generally. These cases include a $100 million settlement with Mylan Laboratories over patient payments for the anti-anxiety drug Lorazepam and Clorazepate; a $55 million settlement with Bristol-Myers Squibb involving the anti-cancer drug Taxol; and $80 million settlement with Aventis Pharmaceuticals Inc. and Andrx Corporation over the popular generic heart medication Cardizem CD.