In the 130 years since Iowa passed the world’s first antitrust statute in 1888,11888 Iowa Acts 124 (“An Act for the Punishment of Pools, Trusts and Conspiracies . . . .”). enforcement of state antitrust laws has grown into a sophisticated and coordinated enforcement mechanism in our nation’s economy. State antitrust regulators have brought dozens of large cases over the last twenty years in areas from telecom mergers to complex pharmaceutical cases.
In the early years of antitrust enforcement, States were concerned about trusts abusing their power, and focused enforcement efforts on the effects of in-state activity—as the raft of state litigation against Standard Oil attests.2E.g., Standard Oil Co. v. Tennessee ex rel. Cates, 217 U.S. 413 (1910); see also Abbott B. Lipsky, Jr., Improving Competitive Analysis, 16 Geo. Mason L. Rev. 805, 823 (2009) (noting that “the case against Standard Oil was a broad pillar upon which judicial interpretation of U.S. antitrust law was based”). Often these cases were brought by individual states in state court.3See Standard Oil Co., 217 U.S. at 419 (noting the case is on appeal from the Supreme Court of Tennessee). Fast forward a century, and many cases are now brought as multistate actions incorporating large groups of attorneys general joined into one litigation that is filed in federal court under the Sherman or Clayton Act (“multistate”). State Enforcer coordination follows naturally as businesses become more national, supply chains become more diverse, and distribution mechanisms become more dynamic.
The National Association of Attorneys General Multistate Antitrust Task Force coordinates this multistate work and helps provide the initial infrastructure for attorneys general to bring their cases. When coordinated in federal court, these large multistate cases have created new law and leveraged their many hands to make lighter work for any one state, while also allowing under-resourced attorneys general to pursue more complex cases, and a greater variety of cases at any one time.
While critics have skeptically viewed state enforcement actions as “follow-on” litigation after private plaintiffs, or as taking a back seat in litigation after the federal government pursues their claims, perceptions are changing.4See generally Bonnie Gill & Stephen C. Piepgrass, State AGs: Are More Antitrust Enforcement Actions on the Horizon?, Troutman Pepper: Regulatory Oversight (Oct. 6, 2021), https://perma.cc/9TD8-R55K. Today, even state enforcement’s toughest critics admit that the past twenty years have seen that states have come into their own as the third leg of antitrust enforcement in the United States.5See id.
The States burst into the public consciousness as antitrust litigators in the late 1990s when a group of states joined with the U.S. Department of Justice in the case against Microsoft.6United States v. Microsoft Corp., 253 F.3d 34, 44 (D.C. Cir. 2001) (per curiam). As that litigation ended, the states took on the pharmaceutical industry, with a series of cases building a successive framework that enabled them to successfully challenge anticompetitive conduct: Colorado v. Warner Chilcott Holdings Co. (Ovcon),7No. 05-2182, 2007 WL 9813287 (D.D.C. May 8, 2007). which provided important discovery rulings;8Id. at *2, *4–5. New York v. Actavis PLC (Namenda),9787 F.3d 638 (2d Cir. 2015). a case brought solely by New York, which embraced the exclusionary standard articulated in Microsoft;10Id. at 652. and Federal Trade Commission v. Vyera Pharmaceuticals, LLC,1179 F. Supp. 3d 31 (S.D.N.Y. 2020). a multistate case where the FTC joined, which articulated state enforcement power.12Id. at 50–51. When some states challenged the T-Mobile and Sprint merger, this cemented the states in the public consciousness as enforcers of antitrust law, willing to sail against a headwind.13See New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179 (S.D.N.Y. 2020). The state antitrust enforcement community has solidified into a force to be reckoned with, bringing cases whose threads are visible in modern litigation from big tech to smaller procedural battles. Among many, these five cases have had an outsized impact on state enforcement.
In Part I, this Article analyzes the impact that the government’s case against Microsoft had on the antitrust enforcement community. Part II reviews the Ovcon and Namenda cases for their impact on antitrust procedures and methods. Part III discusses how state enforcement changed expectations and pushed the boundaries of antitrust law through the case against the makers of Daraprim and the states’ challenge to T-Mobile and Sprint.
I. Some Things Never Change: Taking on Big Tech
In the late 1990s, the states and the U.S. Department of Justice began a well-publicized and epic battle against the largest technological giant the world had yet known: Microsoft. To read the case now is to peer back through the mists of time into what seems like ancient history as the court describes “information appliances” like phones, which are noted as only used to supplement a PC.14United States v. Microsoft Corp., 253 F.3d 34, 52 (D.C. Cir 2001) (per curiam).
Though times have changed, some things have not. State attorneys general often hear concerns from constituents and industry about alleged anticompetitive conduct by large businesses, particularly for those in crucial technology industries.15See Susan Creighton, Fed. Trade Comm’n, A Federal-State Partnership on Competition Policy: State Attorneys General as Advocates, Remarks Before National Association of Attorneys General 2003 Antitrust Seminar (Oct. 1, 2003), https://perma.cc/T7H3-SJEU; Geoffrey Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 Geo. Mason L. Rev. 1279, 1291 (2021) (discussing the waves of antitrust regulation which typically follow advancements in big tech and noting that “Antitrust Dystopia is the pessimistic tendency for competition scholars and enforcers to assert that novel business conduct will cause technological advances to have unprecedented, anticompetitive consequences”). During the incipiency of the computer revolution in the 1990s, there were concerns that Microsoft was the new Standard Oil that would dominate technology forever.16John J. Flynn, Standard Oil and Microsoft—Intriguing Parallels or Limping Analogies, 46 Antitrust Bull. 645, 681–83 (2001). Even today there are calls by regulators and stakeholders to ensure that access to platforms is fair, and that natural monopolies, built upon superior product design or innovation, do not abuse this power by excluding or crushing the next big thing.17See, e.g., Platform Competition and Opportunity Act of 2021, S. 3197, 117th Cong. (2021); American Innovation and Choice Online Act, S. 2992, 117th Cong. (2021).
The case against Microsoft significantly impacted antitrust jurisprudence, and is commonly cited in technology, pharmaceutical, and merger cases.18E.g., New York v. Actavis PLC, 787 F.3d 638, 652 (2d Cir. 2015); New York v. Facebook, Inc., 549 F. Supp. 3d 6, 24 (D.D.C. 2021); Deutsche Telekom, 439 F. Supp. 3d at 241. Enforcers still struggle with the complexities of dealing with dynamic markets or Schumpeterian competition, utilize the burden shifting approach to litigation, and address nascent competitor issues, foreclosure, and appropriate remedies.
The States took on Microsoft in coordination with the U.S. Department of Justice (“DOJ”) after a long-running investigation of the tech giant, and after the DOJ’s failed attempt to get a preliminary injunction that would have barred bundling of technology software with Microsoft’s operating system.19Microsoft, 253 F.3d at 47.
The States and DOJ alleged that Microsoft was tying the Windows operating system and Internet Explorer together to exclude browser rivals.20Id. at 46–47. In its decision, the Court of Appeals for the D.C. Circuit noted how difficult it is to examine an ever-changing market: “We decide this case against a backdrop of significant debate amongst academics and practitioners over the extent to which the ‘old economy’ § 2 monopolization doctrines should apply to firms competing in dynamic technological markets characterized by network effects.”21Id. at 49.
Regulating complex, dynamic markets—especially markets that contain participants that compete over time, rather than head-to-head in a moment (“Schumpeterian competition”)—is still a challenge that has not been solved.22See Joseph A. Schumpeter, Capitalism, Socialism and Democracy 83 (3d ed. 1950); see also William R. Drexel, Telecom Public Policy Schizophrenia: Schumpeterian Destruction Versus Managed Competition, 9 Va. J.L. & Tech. 1, 3–4 (2004). Using different approaches around the globe, some enforcers regulate dynamic markets by creating regulatory enforcement regimes, such as Europe did under the EU’s Digital Markets Act,23Regulation of the European Parliament and of the Council on Contestable and Fair Markets in the Digital Sector, COM (2020) 842 final (Dec. 15, 2020) [hereinafter Digital Markets Act]. while others rely on litigation, as seen in the United States in recent multi-state litigation against Facebook.24New York v. Facebook, Inc., 549 F. Supp. 3d 6 (D.D.C. 2021). As of this writing, the States’ case is on its first appeal to the D.C. Circuit. The author represents the State of Wisconsin in this case. Whether through regulation or litigation, enforcers face many of the same challenges: serial acquisitions of app developers, the implications of which, as the states allege in their case against Facebook, did not become clear until significantly later.25Complaint at 6–9, New York v. Facebook, Inc., 549 F. Supp. 3d 6 (D.D.C. 2021) (No. 20-03589).
One of the most important and long-lasting effects of Microsoft has been the Court of Appeals’ statement of the influential and widely used burden–shifting approach, adapted from a century of monopolization cases.26Microsoft, 253 F.3d at 58–59. First, a plaintiff must meet its prima facie burden to show an anticompetitive effect which harms the competitive process, and thereby harms consumers.27Id. If successful, the burden then shifts to the defendant to show a “procompetitive justification” such as “greater efficiency” or “enhanced consumer appeal.”28Id. at 59. The plaintiff must then rebut that claim or demonstrate that the anticompetitive harm outweighs the procompetitive effects.29Id. The court notes that in section 2 the focus is on the effect of the conduct, not the intent.30Id.
The burden shifting approach has not only been widely adopted, but also frames how states investigate conduct cases. Its similarity to the Baker Hughes merger burden shifting framework31United States v. Baker Hughes Inc., 908 F.2d 981, 982–83 (D.C. Cir. 1990). has meant that states hire economists early to determine economic harm, and focus significant efforts on proving a prima facie case, and on rebutting efficiencies.
Microsoft also breaks ground on nascent competition. When exclusionary conduct is aimed at producers of nascent competitive technologies, a court may infer causation, just as when such conduct is aimed at producers of established substitutes.32See Microsoft, 253 F.3d at 79. “[I]t would be inimical to the purpose of the Sherman Act to allow monopolists free reign to squash nascent, albeit unproven, competitors at will—particularly in industries marked by rapid technological advance and frequent paradigm shifts.”33Id.
Because it can be difficult to prove the potential impact of a not-yet-extant or newly born competitor on a market, the court’s inference is the groundwork for several future cases, including the States’ case against Facebook, which alleges serial acquisitions of nascent or potential competitors.34Complaint, supra note 25, at 28–30. Enforcers and the regulated community are still discussing how to best address nascent competition in other contexts as well, including the States’ recent comments on the FTC and DOJ rewrite of the horizontal and vertical merger guidelines.35See Press Release, Fed. Trade Comm’n, Federal Trade Commission and Justice Department Seek to Strengthen Enforcement Against Illegal Mergers (Jan. 18, 2022),
https://perma.cc/EF2G-NH7P; Comment Letter on Request for Information on Merger Enforcement: Public Comments of 23 State Attorneys General (Apr. 21, 2022), https://perma.cc/6HXG-UZSD.
Technology cases are not the only cases influenced by Microsoft. It also set the stage for a number of pharmaceutical cases, with language on competitor exclusion often cited by enforcers and courts alike:
Apart from copyright, Microsoft raises one other defense of the OEM license agreements: It argues that, despite the restrictions in the OEM license, Netscape is not completely blocked from distributing its product. That claim is insufficient to shield Microsoft from liability for those restrictions because, although Microsoft did not bar its rivals from all means of distribution, it did bar them from the cost-efficient ones.36Microsoft, 253 F.3d at 64.
Barring rivals from cost-effective means of competition has particular resonance in the pharmaceutical industry, where patent holders’ alleged misconduct often excludes rivals as seen in fact patterns described by Actavis, Ovcon, and Vyera, discussed below, as well as the States’ Suboxone case.37In re Suboxone, No. 16-cv-5073, 2017 WL 3967911, at *10 (E.D. Pa. Sept. 8, 2017) (citing Microsoft, 253 F.3d at 64). The author is lead counsel for the States in the Suboxone case.
Before appeal and after extensive litigation, the D.C. District Court initially issued an order requiring a divestiture plan, separating the company into an operating systems business and an applications business.38Microsoft, 253 F.3d at 48 (emphasis omitted). On appeal, the D.C. Circuit dismissed the remedy, noting how difficult it is to “restor[e] competition to a dramatically changed, and constantly changing, marketplace.”39Id. at 49. The case was remanded back to the district court, where a new presiding judge ordered the parties to mediation.40New York v. Microsoft Corp., No. 98-1233 (D.D.C. filed Sept. 28, 2001), ECF No. 224.
While acknowledging that district courts are afforded “broad discretion” to craft remedies to address anticompetitive conduct, the circuit court cautioned against the use of structural remedies in non-merger cases: “[D]ivestiture ‘has traditionally been the remedy for Sherman Act violations whose heart is intercorporate combination and control.’”41Microsoft, 253 F.3d at 105 (emphasis omitted) (quoting United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 329 (1961)). The judge on remand ordered the parties to begin negotiation, where they ultimately settled on a behavioral remedy requiring Microsoft to accept oversight from a “Technical Committee” that would ensure software developers had access to the “source code” of the Windows Operating System.42United States v. Microsoft Corp., 231 F. Supp. 2d 144, 196–97 (D.D.C. 2002) (per curiam). Although there are drawbacks to behavioral remedies, including the complexity and duration of oversight, some states still choose behavioral remedies as an effective enforcement solution.43See, e.g., Press Release, Cal. Dep’t of Just., Attorney General Bonta Conditionally Approves Ownership Change of High Desert Hospital (Dec. 17, 2021), https://perma.cc/LXP7-KRHC (describing how the California attorney general crafted behavioral remedies to address the merger of competing hospitals).
While Microsoft was extensively litigated, most litigation never makes it to a courtroom, and in antitrust that is even more so.44See Steven C. Salop & Lawrence J. White, Economic Analysis of Private Antitrust Litigation, 74 Geo. L.J. 1001, 1011–12 (1986). Both the expense of antitrust litigation, and the complexity and uncertainty of trials, makes it highly unlikely that any given litigation will ever see a verdict.45Id. at 1015, 1030. This creates a real deficit in the antitrust bar, as trial antitrust attorneys are often few and far between. Appellate antitrust practice is also vanishingly rare.46Compare Michael R. Baye & Joshua D. Wright, Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity & Judicial Training on Appeals, 54 J.L. & Econ. 1, 10 (2011) (noting that antitrust cases are appealed at a rate of 33.75%), with Theodore Eisenberg, Appeal Rates and Outcomes in Tried and Nontried Cases: Further Exploration of Anti-Plaintiff Appellate Outcomes, 1 J. Empirical Legal Stud. 659, 664 (2004) (noting an appeal rate of 40.9% for all federal cases with judgments). Thus, Microsoft served an important role as trial training for a significant number of antitrust assistant attorneys general across the country, as the States played a unique role in the litigation alongside their federal counterparts.
When the case was appealed to the D.C. Circuit, the States and U.S. Plaintiffs divided the questions before the court amongst themselves.47E-mail from Kevin O’Connor to Gwendolyn J. Lindsay Cooley (Feb. 18, 2022) (on file with author). According to Wisconsin’s then-Antitrust Chief and one of the States’ lead counsel, Kevin O’Connor, “We had long discussions about [who] should [argue from the States’ side and] concluded that we needed someone with more gravitas on the ethics issue to argue for us. We hired John Roberts, yes, that John Roberts . . . .”48Id. Having fought their way to the Court of Appeals, the States acknowledged that while they were experts on antitrust law, they were not experts in appellate practice.49Id. Now-Chief Justice Roberts’s successful argument avoided a reversal on the district court judge’s controversial media practices, and allowed the case to survive and be remanded to the district court.50Id.
Overall, Microsoft is crucial to the way the state attorneys general view monopolization, the tech industry, and the ability of the antitrust laws to weather rapid technological change, and is an affirmation of the States’ ability to take on large defendants and complex litigation.
II. Procedures and Methods of Enforcement: Ovcon, Vyera
Although procedural rulings can be easy to overlook, several have made a significant impact on state enforcement. Both 2007’s Ovcon case, and the recent Vyera case have procedural reasoning that addressed questions that arise in almost every state litigation: whom does the AG represent? From whom can the parties get discovery? Can a state make a company disgorge ill-gotten gains? Can a court order an injunction with nationwide effect pursuant to a state law violation?51See Colorado v. Warner Chilcott Holdings Co. (Ovcon), No. 05-2182, 2007 WL 9813287, at *52 (D.D.C. May 8, 2007); Fed. Trade Comm’n v. Vyera Pharms., 479 F. Supp. 3d 31, 45 (S.D.N.Y. 2020).
In Ovcon, a pharmaceutical reverse-payment case, an e-discovery dispute arose between the parties over the defendants’ requests for production of Medicaid documents to the attorneys general under Federal Rule of Civil Procedure 33.52Ovcon, 2007 WL 9813287, at *1–2. The States objected to producing Medicaid documents because they were not in the possession, custody, or control of the Attorney General’s office.53Id.
It may surprise readers that state agencies are not necessarily willing to turn documents and information over to an attorney general. Some state executive branch agencies require an open records request or a subpoena directly to their agency before they are willing to turn over any documentation to the requestor. Given the heavy burden that discovery places on agencies, particularly where the agency is not a party or where it does not stand to benefit from the litigation, agencies are often unwilling to do the comprehensive search and review required to respond to voluminous discovery requests.
Agencies are also the keepers of sensitive business information, confidential records, and subscribers to proprietary databases that require the agency not to share the information by contract.54See Courts Lock up Public Databases, Reps. Comm. for Freedom Press (July 21, 2013), https://perma.cc/BGN5-NBKB; Pierre Fricke, Why Government Needs Open Source Databases, GCN (July 16, 2015), https://perma.cc/7SMH-L747.
Although attorneys general may have contact with agency legal counsel, they are in separate branches of government. Attorneys general are, by and large, independently elected constitutional officers in an individual state, whereas agencies report to a governor.55Ovcon, 2007 WL 9813287, at *4. As attorneys general do not oversee these agencies, some agencies treat the attorney general as if he or she is an external party, a citizen to whom they have no responsibilities unless required by law.
This is not an issue unique to the states; it is also an issue in the federal government. President Biden’s recent “Whole of Government” executive order on competition requires all agencies to cooperate with antitrust officials at the U.S. Department of Justice or FTC.56Exec. Order No. 14,036, 86 Fed. Reg. 36,987, 36,989 (July 9, 2021).
The difficulties faced by attorneys general coordinating with or producing discovery from state agencies were crucial to the states’ pursuit of the motion in Ovcon. There, while the Medicaid documents at issue were potentially relevant to the defense,57Ovcon, 2007 WL 9813287, at *. the court held that because State Medicaid agencies were not parties to the litigation brought by the attorneys general, the defendants could not get documents through the attorneys general.58Id. at *4. The fact that some states communicated with their Medicaid agencies was insufficient to show that Plaintiff States had the practical ability to obtain Medicaid data, and the court held that Medicaid agencies may be subpoenaed under Federal Rule of Civil Procedure 45, which outlines discovery for non-parties.59Id. at *5.
“[T]he Plaintiffs (i.e. the State Attorneys General) are independent of executive control, and not the agency in possession of the discovery (i.e. the Medicaid agencies) . . . . [T]hey will not be aggregated together for purposes of discovery.”60Id. at *4. The court in Ovcon recognized that state agencies are separate entities and that unlike agency heads, attorneys general are part of a divided executive branch and are not subject to removal by their governors.61Id. Even in Alaska and the District of Columbia, where the attorneys general are appointed by their governors, “the Court will not aggregate state agencies without a strong showing to the contrary by Defendants.”62Id.
Though a relatively minor issue to the outside world, whether a state must produce documents for all state government agencies can have a significant impact on the cost of litigation for states. Communication with outside agencies is often difficult. And even when there are lines of communication between attorney general offices and other parts of state government, states think carefully about the discovery burdens they place on their agencies when filing litigation.
While some cases like the Ovcon case fly under the radar, others do not. The recent high-profile Vyera case gave state law center stage. New York’s 2015 investigation, which ultimately expanded to include the FTC and six other states,63See Fed. Trade Comm’n v. Vyera Pharms., 479 F. Supp. 3d 31, 37 (S.D.N.Y. 2020). took on the so-called Pharma Bro and won.64Fed. Trade Comm’n v. Shkreli, No. 20-CV-00706, 2022 WL 135026 at *1, *79 (S.D.N.Y. Jan. 14, 2022). Targeting Martin Shkreli—dubbed by the media as the “pharma bro”—and his company Vyera, New York investigated the company’s 2015 purchase of Daraprim, a toxoplasmosis drug that had been cheap and accessible for decades.65Id. at *1. After purchasing the drug, Vyera implemented a 4000% price hike while simultaneously obstructing generic entry.66Id. After the company settled in December 2021, the States and FTC went to trial against Shkreli.67Id. at *2. State law played a very important role in the case, with precedent-setting rulings on injunctions, disgorgement, and joint and several liability for company executives.
Asking “if not now, when?”68Id. at *46. the very efficient Judge Cote held that Shkreli was the remorseless brainchild of the anticompetitive scheme, and that even after he went to federal prison, he continued to control Vyera as the majority shareholder with the help of a contraband phone.69Id. The court opined that “in the face of public opprobrium, Shkreli doubled down. He refused to change course and proclaimed that he should have raised Daraprim’s price higher.”70Shkreli, 2022 WL 135026, at *45. Unimpressed by the defendant admitting responsibility for the price increase but not for any anticompetitive conduct, the judge remained unmoved by Shkreli’s arguments that he was not liable because he did not actually sign the contracts that restricted competition. Shkreli also argued that his conduct was not egregious because “the Plaintiffs have not proven that any patient died due to the price he set for Daraprim.”71Id. (emphasis added). Refusing to adopt this considerable expansion of the consumer welfare standard, the judge turned to the injunction question.72Id. at *46.
In many contexts, the states face opposition from defendants when seeking an injunction, especially after allegedly anticompetitive conduct has ceased. Under section 13b of the FTC Act,7315 U.S.C. § 53(b)(1)–(2). the FTC retains its authority to seek injunctions in federal court only in “proper cases . . . and after proper proof.”74Shkreli, 2022 WL 135026, at *44 (quoting § 53(b)(1)–(2)). Plaintiffs must “prove an ongoing or likely future violation of the antitrust laws that injunctive relief will not only remedy . . . but also ‘be in the interest of the public.’”75Id. However, it was state law that significantly bolstered the injunctive provisions in this case.76Id. Specifically, the court held that the Donnelly Act allowed New York to seek an order to enjoin illegal conduct and that under New York Executive Law section 63(12), “a court may exercise its discretion to issue a permanent and plenary ban in a particular industry.”77Id. Here, the judge found a real likelihood of recurrence (even if not specifically with Daraprim), and banned Shkreli from participating in the pharmaceutical industry in any way.78Id. at *45. Shortly thereafter in early 2022, Shkreli asked for a rehearing on the lifetime ban.79Fed. Trade Comm’n v. Vyera Pharms., LLC, No. 20-CV-00706, 2022 WL 1081563 at *4 (S.D.N.Y. Feb. 4, 2022). Judge Cote declined.80Fed. Trade Comm’n v. Vyera Pharms., LLC, No. 20-CV-00706, 2022 WL 336973 at *5 (S.D.N.Y. Feb. 4, 2022).
The court’s decision on disgorgement carves out a clear role for the states to secure monetary relief after AMG Capital Management, LLC v. Federal Trade Commission81141 S. Ct. 1341 (2021). removed FTC’s disputed disgorgement authority under section 13b of the FTC Act. Citing New York’s Donnelly Act, Judge Cote held that New York’s law was broad enough to afford nationwide relief, regardless of where sales took place.82Fed. Trade Comm’n v. Vyera Pharms., LLC, No. 20-CV-00706, 2021 WL 4392481, at *4 (S.D.N.Y. Sept. 24, 2021). In a pretrial decision, the court held that “the New York Attorney General, should it succeed in proving a violation of the Donnelly Act . . . stemming from Vyera’s New York based operations, may obtain disgorgement of Vyera’s net profits attributable to the entirety of its US sales.”83Id. Relying on that decision at trial and following the court’s own holding, Judge Cote ruled that the New York Attorney General was empowered “to disgorge unlawfully gained profits wherever they were derived.”84Shkreli, 2022 WL 135026, at *46 (citing Vyera, 2021 WL 4392481 at *4). Crafting a nationwide injunction and ordering disgorgement as a result of state law set an important precedent and showed the court’s willingness to continue to support states’ roles in national antitrust enforcement.
Shkreli was found jointly and severally liable with the company, despite not having signed the allegedly anticompetitive contracts, and so was liable for the entire $64.6 million disgorgement award.85Id. at *48. Having participated in violations of antitrust laws by “negotiating, voting for, and executing agreements which constituted steps in the progress of the conspiracy,”86Id. at *43 (quoting Hartford-Empire Co. v. United States, 323 U.S. 386, 407 (1945)). Shkreli was liable for the entirety of the conduct as he “conceived of, implemented, maintained, and controlled Vyera’s anticompetitive and monopolistic scheme . . . even after he entered federal prison.”87Id.
Shkreli’s ability to exercise power over the company is a cautionary tale for all senior executives whose companies engage in anticompetitive conduct. The states have shown a willingness to sue individual executives in litigation as shown not only in Vyera, but also in the States’ Generic Drugs case, Connecticut v. Aurobindo,88Connecticut v. Teva Pharmaceuticals USA, Inc., No. 19-00710 (D. Conn. filed May 10, 2019). The author represents the State of Wisconsin in this case. which names multiple executives that the complaint alleges participated in price fixing.89Complaint at 148, 278, 317, 377, 386, 389, Connecticut v. Teva Pharmaceuticals USA, Inc., No. 19-00710 (D. Conn. May 10, 2019).
III. Creating Change: Namenda and T-Mobile
The States have been active and aggressive enforcers for decades,90See, e.g., Hartford Fire Ins. Co. v. California, 509 U.S. 764, 764 (1993). and have been willing to push the legal envelope. While Vyera set precedent, it also built on precedent that started with Microsoft and New York v. Actavis91787 F.3d 638 (2d Cir. 2015). (Namenda): “Generic drug companies need not undertake herculean efforts to overcome significant anticompetitive barriers specifically erected to prevent their entry into a market. It bears repeating that ‘generics need not be barred from all means of distribution if they are barred from the cost-efficient ones.’”92Shkreli, 2022 WL 135026, at *43 (quoting New York v. Actavis (Namenda), 787 F.3d 638, 656 (2d Cir. 2015)).
Pharmaceutical regulation is critical to states. As both purchasers and consumers of pharmaceuticals, citizens often find their interests represented only by class counsel. Pursuing cases against defendants who are sophisticated and have a business model that often relies on anticompetitive behavior, state attorneys general have stepped into this enforcement breach. Since the creation of the NAAG MATF Pharmaceutical Industry Working Group in the early 2000s, which serves as a case generator for the attorneys general, multistate groups have brought many cases including those concerned with the drugs Cardizem, Plavix, BuSpar, Ovcon, TriCor, Taxol, Paxil, and Suboxone, amongst others.93See State Antitrust Litigation and Settlement Database Results, Nat’l Ass’n Att’ys Gen., perma.cc/LM7R-KE8E. In 2016–2020, a multistate group led by Connecticut filed three separate complaints alleging a multifaceted conspiracy among dozens of generic pharmaceutical manufacturers.94See Press Release, Off. Att’y Gen. Conn., Attorney General Tong Leads Coalition Filing 3rd Complaint in Ongoing Antitrust Price-Fixing Investigation into Generic Drug Industry (June 10, 2020), perma.cc/ZU99-RTN8.
Having carved out an enforcement niche in the crucially important industry of pharmaceuticals, states have focused on those who bar rivals from cost-efficient methods, as can be seen in Namenda.95See Namenda, 787 F.3d at 642–43, 655–56. “The test is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market’s ambit.”96Id. at 656 (quoting United States v. Dentsply Int’l, Inc., 399 F.3d 181, 191 (3d Cir. 2005)).
In Namenda, the New York Attorney General’s office moved quickly to block market withdrawal of a twice-daily Alzheimer’s drug, Namenda IR, after Actavis decided to pull the drug off the market and to force patients to switch to its new patent-protected once-daily Namenda XR.97Id. at 642–43. New York argued that the switch would impede generic competition that would otherwise be automatically substitutable for the twice-daily version.98Id. at 643.
The defendant argued that the new version of the drug was an innovation and that their conduct was protected by the patent laws.99Id. at 659. After a preliminary injunction was granted, the drugmaker appealed to the Second Circuit, which also held in favor of the New York Attorney General.100Id. at 663.
Hatch-Waxman and state substitution laws were enacted, in part, because the pharmaceutical market is not a well-functioning market. In a well-functioning market, a consumer selects and pays for a product after evaluating the price and quality of the product. In the prescription drug market, however, the party who selects the drug (the doctor) does not fully bear its costs, which creates a price disconnect. . . .101Namenda, 787 F.3d at 645–46. [However], neither product withdrawal nor product improvement alone is anticompetitive. But . . . when a monopolist combines product withdrawal with some other conduct, the overall effect of which is to coerce consumers rather than persuade them on the merits . . . and to impede competition . . . its actions are anticompetitive under the Sherman Act.102Id. at 653–54 (emphasis omitted) (citations omitted).
Building on the Microsoft ruling, the court held that “competition through state drug substitution laws is the only cost-efficient means of competing available to generic manufacturers. . . . [G]enerics need not be barred ‘from all means of distribution’ if they are ‘bar[red] . . . from the cost-efficient ones.’”103Id. at 655–56 (second alteration in original) (quoting United States v. Microsoft Corp., 253 F.3d 34, 64 (D.C. Cir. 2001)). Under Microsoft’s burden shifting framework, the court found that the “[d]efendants’ procompetitive justifications [were] pretextual.”104Id. at 658. Successfully rebutting those justifications, the record was “replete with evidence showing that Defendants . . . ‘put up barriers’ . . . to generic competition,” which the New York Attorney General’s office used direct evidence to prove.105Id. (quoting testimony of the pharmaceutical company’s CEO). The court also distinguished between the procompetitive benefit of introducing the XR drug, but found there is no procompetitive benefit of withdrawing IR.106Id. at 659.
As payors and as law enforcers, this ruling ensured that the bargain struck by Hatch Waxman remains: where citizens are willing to pay for innovation by agreeing to a short-term monopoly, and in exchange, innovators give up this monopoly after a period of time in order to allow less expensive competitors on the market. Generic drugs are often fifty percent or so cheaper than name-brand prices, and this is money that comes directly out of the pockets of state taxpayers.107See Generic Competition and Drug Prices, U.S. Food & Drug Admin. (Dec. 13, 2019), https://perma.cc/LQ9K-FQSX. The ruling cemented that patent holders do not have an “absolute and unfettered right to use [their] intellectual property as [they] wish,”108Namenda, 787 F.3d at 660 (quoting Microsoft, 253 F.3d at 63). and this case set the precedent for states’ product-hopping prosecutions, including the states’ challenge against the makers of Suboxone.109In re Suboxone, No. 16-5073, 2017 WL 4810801 (E.D. Pa. Oct. 25, 2017).
It is not only pharmaceuticals where states have shown themselves to be aggressive enforcers. In New York v. Deutsche Telekom,110439 F. Supp. 3d 179 (S.D.N.Y. 2020). a group of fourteen state attorneys general challenged the T-Mobile and Sprint merger, alleging that it was an anticompetitive 4-3 merger that should be blocked.111Id. at 198. The U.S. Department of Justice and a different group of state attorneys general agreed that the merger was anticompetitive, but negotiated a remedy wherein Sprint would divest 9.4 million subscribers of its prepaid wireless plan to Dish Network, a potential entrant into the Mobile Network Operator (“MNO”) market.112Press Release, U.S. Dep’t of Just., Justice Department Settles with T-Mobile and Sprint in Their Proposed Merger by Requiring a Package of Divestitures to Dish (July 26, 2019), perma.cc/6FB7-6EA4; Press Release, T-Mobile, T-Mobile Closes Deal with DISH to Divest Sprint Prepaid Business (July 1, 2020), https://perma.cc/J4GS-388V. The fourteen states who challenged the merger argued that the remedy was inadequate and unnecessarily invented a fourth competitor when the simpler answer would be to block the merger.113See Redacted Third Amended Complaint at 16–18, New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179 (S.D.N.Y. 2020) (No. 19-05434). For simplicity, we will call those states who litigated against Deutsche Telekom “the States.” The author represented the State of Wisconsin in Deutsche Telekom.
States have only rarely challenged merger cases after the federal government has cleared a deal. In the early 1990s in California v. American Stores Co.,114495 U.S. 271 (1990). California challenged a proposed merger of the fourth largest supermarket in the state, in a case which wound its way to the U.S. Supreme Court.115Id. at 274–75. Twenty-seven years later, in State v. Valero Energy Corp.,116No. 17-03786, 2017 WL 3705059 (N.D. Cal. Aug. 28, 2017). the State of California challenged a petroleum distribution terminal deal after the FTC cleared the transaction, and the deal ultimately fell apart.117Id. at *1; see also Press Release, Cal. Dep’t of Just., Attorney General Becerra: Valero’s Abandoned Takeover of Independent Petroleum Distributor Is Welcome News for Californians and Competition (Sept. 18, 2017), https://perma.cc/MG9T-3RJ2; Wallace Witkowski, Valero, Plains All American Drop Deal After California Lawsuit, MarketWatch (Sept. 18, 2017, 5:07 PM).
Building on California’s more recent merger experience in Valero, and emboldened by the seemingly straightforward nature of the prima facie case, the States spent two weeks trying the question of whether the merger was anticompetitive, and whether the efficiencies or the remedy were sufficient to address any anticompetitive effects.118See New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179, 236–37 (S.D.N.Y 2020). This was an unprecedented case, and the first time that attorneys general joined together to litigate when the federal government had cleared a transaction with a remedy.119See David McLaughlin & Scott Moritz, U.S. Wireless Industry Has a Court Date; States Suing to Block T-Mobile’s Purchase of Sprint Say Merger Would Push Up Prices., L.A. Times, Dec. 7, 2019, at C3. This was also the first merger challenge that the states litigated without the federal government that had both local and nationwide markets, rather than solely intrastate impact.120See Deutsche Telekom, 439 F. Supp. 3d at 248.
Despite their best efforts and having made the prima facie case to block the merger, the States’ efforts were unsuccessful.121Id.
In an allegorical decision, Judge Victor Marerro of the Southern District of New York was not persuaded by the “blurry product” that resulted from the antitrust litigation and the experts’ “shades-of-gray forecasts.”122Id. at 187. After a two-week trial, the court found that the trial evidence “propound[ed] sheds little light on a clear path to resolving the dispute. In the final analysis, at the point of sharpest focus and highest clarity and reliability, the adversaries’ toil and trouble reduces to imprecise and somewhat suspect aids: competing crystal balls.”123Id. Finding that the experts “cancel each other out,” the fact witnesses held sway as the court gazed into its own “crystal ball.”124Id. The cynical among us might believe that reliance on fact witnesses in a complicated case might help reduce the likelihood of being overturned on appeal, as factual assessments by the trial court are reviewed under the “clearly erroneous” standard.125Fed. R. Civ. P. 52(a); see also United States v. U.S. Gypsum, 333 U.S. 364, 395 (1948).
The court was persuaded that the States had satisfied their prima facie burden, showing that there was both a nationwide market and a local MNO market—and that the States satisfied either the Philadelphia National Bank thirty percent presumption standard, or the HHI greater than 2500 standard.126Deutsche Telekom, 439 F. Supp. 3d. at 205–06 (citing United States v. Phila. Nat’l Bank, 374 U.S. 321, 364–66 (1963)).
However, that presumption of illegality is a mere presumption: “rather than conclusive proof of a transaction’s likely competitive impact. . . . presumptions are not self-executing . . . [they] require real-world conduct and decisions by the actors involved.”127Id. at 206 (emphasis added). The judge found that “HHI measures may not be as informative as they might first appear [to the markets] and the already extensive scrutiny of the Proposed Merger by the FCC and DOJ.”128Id. This is an important caution for states and other enforcers who hang their hat on presumptions as the solution to merger enforcement; it is important for enforcers to be prepared to address the rebuttal of the presumption and efficiencies.
Despite the lack of precedent for crediting efficiencies, the court was persuaded by defendants’ claimed $18.74 billion in consumer welfare benefits by 2024, an accelerated provision of 5G services, and combined spectrum.129Id. at 210. Discounting the States’ arguments that they were neither merger-specific nor verifiable,130The States’ position has turned out to be correct post-merger thus far. See e.g., Scott Moritz, T- Mobile Customer Service Is Getting As Bad As All the Others,Bloomberg, (Dec. 6, 2021, 7:00 AM), https://perma.cc/V98C-CVBG. the court reasoned that there was incentive to reduce consumer prices because “doing so would actually be profitable” because it would attract more consumers.131Deutsche Telekom, 439 F. Supp. 3d. at 210. The court was not persuaded by the States’ quibbles with the companies’ projections.132Id. at 215.
Additionally, while “not bound by the conclusions of . . . regulatory agencies,” here the U.S. Department of Justice and the Federal Communications Commission, the court acknowledged their intimate familiarity with merger review and the telecommunications industry.133Id. at 225. As outlined in section 9 of the Merger Guidelines, the court found that the negotiated relief—the Dish Divestiture—will be “timely, likely, and sufficient in its magnitude.”134Id. at 226. “The Court [disagrees with the states] that the two-year standard once specified by the Merger Guidelines should carry any talismanic force here.”135Id. at 232. But see Allison Johnson, Predictably, T-Mobile’s Merger Promises Weren’t Enough to Make a Carrier out of Dish, The Verge (July 2, 2021, 6:00 AM), https://perma.cc/XG8Q-LSV5.
As delightful as it may be to relitigate the T-Mobile-Sprint Dish Divestiture via footnotes in this Article, there are other portents to glean from the court’s crystal ball. Building on Microsoft, the court provides an insight into the evolution of a dynamic market analysis in the last twenty years. While noting that there is still “debate among practitioners and academics concerning the extent to which ‘old economy’ doctrines should apply to firms competing in ‘dynamic technological markets characterized by network effects,’” the court undertook just such analysis.136Deutsche Telekom, 439 F. Supp. 3d. at 241–42 (quoting United States v. Microsoft Corp., 253 F.3d 34, 49–50 (D.C. Cir. 2001)). Citing the AT&T–Time Warner decision in the D.C. Circuit, the court held that “‘in the context of a dynamic market,’ the district court properly rejected as inaccurate the projection of content costs forecasted by the government’s traditional economic theory.”137Id. at 241 (quoting United States v. AT&T, Inc., 916 F.3d 1029, 1039–40 (D.C. Cir. 2019)). Thus, the AT&T–Time Warner court cautioned for judicial restraint, which the judge in Deutsche Telekom heeded.138See id.
As has been widely discussed, the most important takeaway from the T-Mobile-Sprint challenge is that states will challenge mergers and file merger litigation when they believe it is in the public interest. In the last few years we have seen more merger activity among the states—from California to Rhode Island139See Press Release, Peter F. Neronha, Rhode Island Attorney General, Attorney General Denies Application for Merger of Lifespan and Care New England Health Systems (Feb. 17, 2022), https://perma.cc/G2TX-2G34 (Rhode Island Attorney General blocks merger application for two Rhode Island hospitals).—as well as a renewed interest in state HSR notification laws,140See e.g., Wash. Rev. Code § 19.390.010 (2022); Or. Rev. Stat.§ 415.501 (2021). and with increasing attention paid to the attorneys general and their views on merger transactions.141See Fed. Trade Comm’n v. Hackensack Meridian Health, Inc., 30 F.4th 160, 179 (3d Cir. 2022).
States continue to aggressively pursue conduct and merger cases, often in huge groups. Of currently pending litigation, the Generic Drugs cases have over fifty sovereigns, Suboxone has forty-two, Google Search has fourteen states joined with the U.S. Department of Justice and thirty-eight sovereigns joined a complaint led by Colorado and Nebraska in the same proceeding, while a different complaint against Google has thirty-nine states and territories led by Utah.142Amended Complaint, Connecticut v. Teva, 19-CV-02407 (E.D.Pa. 2019); Complaint Wisconsin v. Indivior, 16-CV-5073 (E.D. Pa. 2016); Complaint, United States v. Google, No. 20-CV-3010 (D.D.C. 2020); Complaint, Colorado v. Google, No. 20-CV-03715 (D.D.C. 2020); Complaint, Utah v. Google LLC, et al., No. 21-CV-05227, (N.D. Ca. 2021). These combined enforcement actions in complex industries are indicative of the states’ evolving position in the enforcement regime of the United States.
State unity in a time of political divisiveness is also remarkable, and helps show the broad appeal of antitrust enforcement in creating a fair marketplace. Over the last twenty years, these five cases, large and small, illustrate that attorneys general are continuing to keep an eye on competition across the country, as they have been since 1888.
Over the last twenty-five years, state attorneys general have expanded their antitrust enforcement beyond me-too prosecutions, and become a critical part of antitrust law enforcement.
The States’ efforts in Microsoft proved to be pivotal training—regulating complex, dynamic markets where conduct occurs over time, rather than head-to-head, as it does with nascent competitors.143Supra Part I. Microsoft’s exclusionary framework helps courts analyze what constitutes market foreclosure, even in apparently unrelated pharmaceutical cases. The burden shifting approach in Microsoft has been the gold standard for courtroom procedure—and its approach to behavioral remedies has informed a generation of antitrust enforcers.144Id.
Both Ovcon and Vyera strengthened state antitrust prosecution through their procedural rulings. Ovcon recognized that when an attorney general brings an enforcement case, he or she does not need to produce discovery from every individual in government.145Supra Part II. Vyera similarly showed that state attorney general prosecutions are a valuable addition to federal government prosecutions which allow the states to be awarded nationwide disgorgement remedies and a lifetime ban from participating in an industry and finding that the defendants—including the CEO—were jointly and severally liable for their conduct.146Id.
Namenda and T-Mobile pushed the states to the cutting edge of litigation and enforcement: Namenda created modern product-hopping caselaw, and T-Mobile showed that even old merger law has some new tricks, when brought by state attorneys general.147Id.
The States are in the backseat no longer, and whether driving solo or with the federal government, they are making meaningful contributions to both jurisprudence and antitrust regulation.