Posted by Arnold & Porter
Supreme Court Nominee Brett Kavanaugh’s Antitrust Record
By Sarah Licht, John A. Rackson, Arnold & Porter
On July 9, 2018, President Trump announced the nomination of DC Circuit Judge Brett Kavanaugh to fill Anthony Kennedy’s seat on the US Supreme Court, in light of Justice Kennedy’s retirement effective July 31, 2018. This Advisory reviews Judge Kavanaugh’s approach to antitrust law as reflected in his opinions.
Since Judge Kavanaugh joined the DC Circuit in 2006, he has weighed in on two significant mergers and a number of other antitrust issues. Judge Kavanaugh has been skeptical of government efforts to block mergers, dissenting from the majority in United States v. Anthem, Inc. and F.T.C. v. Whole Foods Market on efficiencies and market definition grounds.
MERGER CASES
Most recently, Judge Kavanaugh dissented from the majority in United States v. Anthem, Inc., in which the court affirmed the district court’s injunction preventing the proposed $54 billion merger of two health insurance companies, Anthem and Cigna. The majority rejected Anthem’s argument that efficiencies created by the merger would outweigh any anti-competitive effect. The majority opinion also questioned the proper weight given to efficiencies in merger analysis.
In his dissent, Judge Kavanaugh agreed with Anthem. He argued that even though evidence showed that Anthem would raise fees on its employer customers anywhere from $48 million to $930 million annually, the employers would ultimately save $1.7 to $3.3 billion annually in medical costs due to the merged firm’s stronger negotiating position with health care providers. Judge Kavanaugh relied on United States v. General Dynamics Corp. for the proposition that merger analysis under Section 7 of the Clayton Act requires consideration of “the efficiencies and consumer benefits of the merger.”
At the same time, Judge Kavanaugh acknowledged one path by which the government could have blocked the merger: by proving harm to the upstream provider market of hospitals and doctors. He cautioned that the merged firm could have monopsony power over providers. Since the district court did not examine the upstream effects of the merger, Judge Kavanaugh said he would remand for further fact finding.
Judge Kavanaugh also dissented from the DC Circuit’s opinion in the FTC’s 2007 challenge to the Whole Foods/Wild Oats merger. The FTC sought to block Whole Foods’ acquisition of rival organic grocery chain Wild Oats, and the district court denied the FTC’s motion for a preliminary injunction under 15 U.S.C. § 53(b). In a 2-1 decision, the DC. Circuit reversed the district court, but Judge Kavanaugh agreed with the lower court ruling. In particular, Judge Kavanaugh did not think that the FTC had put forward sufficient evidence that organic supermarkets were a separate market from regular supermarkets. He pointed out that the record demonstrated that “Whole Foods makes site selection decisions based on all supermarkets and checks prices against all supermarkets, not only so-called organic supermarkets” and that conventional supermarkets and “so-called organic supermarkets” “aggressively” competed for customers.
Judge Kavanaugh also criticized the majority for agreeing with the FTC’s argument on the standard it had to meet to obtain a preliminary injunction. The majority explained that 15 U.S.C. § 53(b) permits a district court to grant a preliminary injunction “[u]pon a proper showing that, weighing the equities and considering the Commission’s likelihood of ultimate success, such action would be in the public interest.” In deciding whether to grant a preliminary injunction under this standard, the court held that “a district court must not require the FTC to prove the merits.” Judge Kavanaugh disagreed, writing that the FTC cannot “just snap its fingers and temporarily block a merger.” Judge Kavanaugh also disagreed with the majority that “core consumers, demanding exclusively a particular product or package of products,” are a cognizable submarket. He concluded that using the “watered-down preliminary injunction standard” adopted by the majority would give the FTC “far greater power to block mergers than the statutory text or Supreme Court precedents permit.”
PHARMACEUTICAL CASES
Judge Kavanaugh has written or joined two decisions involving allegations that brand-name drug manufacturers attempted to delay the entry of generic competitors.
In Meijer, Inc. v. Biovail Corp., decided in 2008, Judge Kavanaugh joined a unanimous opinion by Judge Douglas Ginsburg that affirmed a grant of summary judgment in favor of Biovail Corp., a brand-name drug manufacturer. The plaintiffs were wholesale purchasers of a brand-name drug for hypertension and angina. They alleged that Biovail had misused its patents to delay the entry of a generic version of the drug by Andrx Pharmaceuticals.
The court rejected both theories of liability advanced by the plaintiffs. First, the plaintiffs alleged that Biovail had falsely claimed in litigation and in statements to the FDA that one of its patents covered the brand-name drug, thereby allegedly delaying FDA approval of the generic drug. The court found that the plaintiffs had not alleged any antitrust injury, because they had not shown that the FDA would have approved the generic drug sooner if Biovail had not misused the patent. Second, in an amended complaint, the plaintiffs alleged that Biovail and its distributor had violated the antitrust laws by deciding not to sell their own generic version of the drug. The court rejected this theory as well, holding that it was both untimely and insufficient to establish an antitrust claim.
