Facebook, Google investigations in US could be hampered by strained relations between states, DOJ

The state attorneys general and US antitrust agencies have a long history of working together on major conduct cases, starting with the landmark Microsoft case in the 1990s. As the states move forward with antitrust probes into Google and Facebook, how well they are able to work with federal antitrust officials looking into the same conduct remains an open question.

In the Microsoft case, the states began investigating first, with Texas and New York proceeding independently of the DOJ through several years of evidence-gathering. The states and DOJ didn’t even meet to compare investigative notes until the states were preparing to file litigation against Microsoft in the late 1990s.

The e-books case took a similar route. Texas first began investigating Apple and its relationship with book publishers after the introduction of the iPad. Only later did DOJ prosecutors open their own probe.

In the Microsoft case, the DOJ hired David Boies as outside counsel to serve as lead trial counsel. In e-books and American Express, the states and DOJ split the work and both teams fielded lawyers at the trial.

Even in those cases, disputes arose, sometimes bitterly. In 2001, for example, as the states, Microsoft and DOJ began to discuss a settlement in the long-running case, the assistant attorney general for antitrust at the time, Charles James, issued a release ruling out the possibility of a break-up. That infuriated some of the states, which felt that taking the most severe remedy off the table weakened their negotiating position.

While DOJ and several states, including New York, reached a settlement with the company, a group of nine other states, led by California, declined to sign on and insisted on continuing the litigation through a remedies hearing. The judge and appeals court eventually accepted the DOJ’s settlement.

Throughout the George W. Bush and Obama administrations, the states and DOJ worked together on dozens of merger cases — some losses, such as the failed 2004 effort to block Oracle-PeopleSoft, but more often wins, such as the 2016 challenges to Aetna/Humana and Anthem/Cigna.

But the relationship, which the DOJ declined to discuss, has been rocky throughout the Trump administration.

While the states and DOJ had prevailed against American Express at the trial court, the US Court of Appeals for the Second Circuit negated that win in November 2016.

In the summer of 2017, the Justice Department decided against seeking Supreme Court review of the Second Circuit’s decision. The states, however, asked the Supreme Court to hear the case, and the high court agreed in October 2017, against the recommendation of the Justice Department. The Supreme Court ultimately sided with American Express and the Second Circuit.

Around that same time, another dispute between the states and DOJ was brewing.

In October 2016, AT&T announced that it would buy Time Warner, the parent company of CNN, HBO and Warner Bros., for $85.4 billion. Over the next year, the states and DOJ staff worked to analyze the merger, which was a vertical deal, a type of merger generally considered less problematic than horizontal deals.

Based on the US history of approving vertical deals, the states, DOJ and the parties moved toward a settlement.

On Sept. 27, 2017, Makan Delrahim — President Donald Trump’s pick to head the DOJ’s antitrust division — was confirmed by the Senate.

Delrahim, however, didn’t want to settle with AT&T. Within weeks, the Justice Department was moving toward a suit. Some — but not all — of the states that had been working with DOJ investigators were invited to join the suit. Ultimately, none did.

Delrahim, MLex has learned, was particularly annoyed when the state of Washington confirmed it was invited to join but declined.

The Justice Department would take the AT&T and Time Warner case to trial and lose — the agency’s first merger trial loss since Oracle-PeopleSoft.

Bruised feelings worsened. In November 2017, Connecticut and attorneys general from 45 other states and territories filed a federal complaint alleging price-fixing on 15 generic drugs by 18 major drug companies, including Mylan, Teva, Actavis and Sun Pharmaceuticals.

Connecticut had started the probe years before, initially looking at the price of one drug before the investigation ballooned into an examination of dozens of generic drugs and companies. Soon after, the DOJ opened a criminal investigation into the same conduct.

Because the Justice Department’s investigation was criminal in nature, it couldn’t collaborate with the states, who were pursuing a civil case. The Justice Department asked the judge overseeing the states’ case to put a hold on it over concerns it might damage the criminal probe. The states unsuccessfully opposed such a move.

In the midst of the DOJ’s trial against AT&T and Time Warner in April 2018, T-Mobile and Sprint announced that they would merge — the companies’ second shot at the deal. In 2014, Sprint had sought to buy T-Mobile, but the merger died before it was ever announced because of opposition from the Obama DOJ and Federal Communications Commission.

Given the difficult relationship with DOJ, the states decided they needed to be ready to litigate against T-Mobile and Sprint on their own, if necessary. While normally the DOJ and states share some of the investigative burdens of a review, the states opted to hire their own economists.

News stories surfaced this spring that the states were preparing to sue to block the merger of T-Mobile and Sprint. Delrahim reportedly felt that the states were deliberately leaking information in an attempt to pressure him to contest the wireless carriers’ merger.

A group of states led by California and New York sued to block the deal in June. The complaint is unprecedented; never before had states sued on their own to challenge a merger still under review by the federal agencies.

A month later, the Justice Department asked a different court to approve the merger with conditions. Six states, including Nebraska and Ohio, have signed onto the DOJ’s settlement. The states’ case is set to go to trial in December.

Last week, Mark Tobey, the DOJ’s lead liaison with the state attorneys general, left the agency. Tobey, a lead investigator in the Microsoft case, spent the past decade with the DOJ’s antitrust division.

David Shaw, an attorney with the antitrust division since 2006, took over the state attorney general portfolio. In an Aug. 28 article in Competition Policy International, Shaw spent the opening paragraphs highlighting the importance of confidentiality in joint investigations by DOJ and the states, a not-so-subtle dig at the perceived state leaks.

“DOJ is committed to collaborating with the state attorneys general where doing so is necessary to protect competition for the benefit of the American consumer,” he wrote.

Whether the coming Big Tech probes suffer from some of the same distrust and communication issues that have plagued the states and DOJ for the past several years remains to be seen.

The addition of a few more players might help clear the air.

While New York and California led on Sprint-T-Mobile and Connecticut took charge in generics — all Democratic leaning states — Texas and Utah, both helmed by Republicans, are understood to be leading on the states antitrust probe into Google and other Big Tech companies.

The state AGs themselves have also been highly involved to date. A number of them met with US Attorney General Bill Barr and other DOJ staff in Washington last month.

Barr himself has also been playing a key role in the probe. Lauren Willard, who joined the antitrust division in September and is now on detail to Barr’s office, has been tasked with coordinating the Big Tech review. She will report directly to Barr.