In both the US and Europe, anticompetitive behavior in key industries has drawn the scrutiny of governments and regulators, not to mention efforts by companies harmed by this behavior to be made whole. Learn how companies will alleviate the timing and cost risk traditionally associated with antitrust cases in the year ahead.
With an administration change in the US, increased scrutiny from European regulators and the continued impact of Covid-19, we anticipate an uptick in competition claims—and increased interest from companies in solutions that address the timing and cost risk traditionally associated with antitrust cases.
2020 trends
Food and pharmaceuticals drove antitrust litigation in the US
Last year, US antitrust litigation was driven primarily by two sectors: Food and pharmaceuticals. In the food sector, the meat production industry continues to be beset by allegations of price fixing among producers of beef, turkey, chicken and pork. The past year saw high profile indictments of current and former chicken executives, an announcement that Tyson Foods was a cooperating witness in a Department of Justice (DOJ) leniency program and a criminal guilty plea from Pilgrim’s Pride, admitting to anticompetitive conduct through 2019. A call from Congress to investigate sky-high beef prices also led to DOJ subpoenas of the four largest meatpackers in 2020. Civil suits in each of these industries are well underway, with the chicken case headed towards expert discovery and both the pork and turkey cases surviving motions to dismiss in October 2020.
In the pharmaceutical space, we continued to see both government enforcement and civil suits demand answers from an industry that has enjoyed record profits over the last decade. In 2020, the DOJ filed and resolved a number of criminal charges against companies and executives in connection with price fixing in the generic drug market. In March, Novartis/Sandoz settled criminal charges relating to four conspiracies for $195 million after one of its executives pled guilty. In May, Apotex settled criminal charges relating to one drug for $24.1 million. In June, the DOJ filed charges against Glenmark in connection with pravastatin. In July, Taro settled charges for $205.7 million (with a separate civil settlement with the government for $213.3 million) following the February indictment of one of its executives. And in August, the DOJ filed charges against Teva in connection with three price fixing conspiracies. Related civil suits have grown in scope, with a coalition of state attorneys general filing a third complaint in June in the sweeping generics MDL adding new price fixing allegations regarding more than 80 topical drugs.
Economic pressure and continued uncertainty incentivized companies to settle
Antitrust cases are time consuming and costly to litigate in the best circumstances, so court delays resulting from the Covid-19 pandemic forced some companies to reconsider their litigation strategies and incentivized some to settle early. For many companies, 2020 was a cash poor year, creating pressure on legal departments to realize value from its affirmative claims. For defendants, the ability to take their losses in an already depressed year may have brought both parties to the table. We saw several noteworthy civil antitrust settlements in 2020, including Blue Cross Blue Shield’s $2.7 billion settlement of a policyholder class action, a $386.5 million class settlement in the GSE Bonds litigation, and a modest but surprisingly early settlement between JBS and the direct purchaser class in the pork litigation, just two weeks after a judge denied JBS’s motion to dismiss price fixing claims against US pork producers.
Tech giants faced renewed scrutiny in the EU
While EU competition investigations and penalties against big tech largely have proven ineffectual in curbing anticompetitive behavior, recent regulatory activity signals renewed scrutiny of the sector and the potential for civil recovery actions. In June, the European Commission opened an investigation into Apple’s App Store policies and at the end of the year, the commission charged Amazon with abusing its position to gain an unfair advantage over competitors. This activity follows the $2.7 billion fine levied by the EU against Google in June 2017, cumulatively suggesting there are likely to be civil recovery actions that follow in the years ahead.
What to expect in 2021
Technology will be a sector to watch
The House Judiciary Committee’s long-awaited report on competition in digital markets was published in the autumn of 2020. The report was highly critical of the state of competition in the digital economy and recommended legislative reforms to address rampant anticompetitive conduct in digital markets. The report also advocated for strengthening merger and monopolization enforcement and far-reaching revisions to the antitrust laws more generally. It was followed by two major enforcement suits: The DOJ’s suit against Google and the Federal Trade Commission’s suit against Facebook, both alleging that these tech behemoths have maintained monopolies through anticompetitive and exclusionary practices. The final days of 2020 brought the civil suits: A complaint by a coalition of nearly 40 state AGs and several class actions were filed against Google in late December while a separate coalition of states filed a claim against Facebook.
In 2021, we expect an onslaught of civil claims against these and other technology companies that dominate the digital market. Particular attention will be paid to mergers and acquisitions in the tech sector, monopolistic pricing practices for online advertising, and the manipulation of search features to eliminate price competition.
In the US, enforcement activity expected to rise (and be more globally focused)
Following four years of reduced enforcement activity and an emphasis on domestic cartel cases, a new administration in Washington likely will result in new enforcement priorities for the Antitrust Division. In 2020, the Antitrust Division filed 20 criminal cases, compared to an average of 51 cases filed annually from 2013-2016. While 2021 may not see volumes of cases approaching that average, there is likely to be increased activity, especially as the new administration places renewed focus on international cartel cases and cooperating with foreign counterparts in cross-border investigations.
Economic pressure may slow popularity of opt-out litigation in the US
In the last two years, companies have increasingly opted out of group actions to pursue individual claims, recognizing that doing so can lead to significantly higher recoveries—but the decision-making calculus behind these opt-outs is changing. At a time of increased economic pressure, companies that decide to pursue the bigger recoveries of litigating their matters on an opt-out basis face significantly greater budgetary pressures when taking on the enormous financial burden of competition litigation.
Claimants will seek redress against European cartels
The European Commission’s July 2020 settlement in connection with the ethylene purchasing cartel likely will spur follow-on actions from claimants globally. In addition, follow-on actions stemming from the EU’s 2016 ruling against participants in the trucks cartel are now set for trial. Success in any of those claims would represent a significant step forward for European claimants seeking redress for anticompetitive behavior.
Claim and award monetization will offer claimants a new solution for managing risk
Regardless of sector or geography, we expect to see a significant rise in the demand for antitrust financing, particularly through monetization arrangements. As distinct from funding that finances the fees and expenses of pursuing a commercial claim, monetization advances a portion of the pending recovery associated with that claim on a non-recourse basis, providing claimants with immediate cash and eliminating both the risk of loss and the timing risk associated with lengthy antitrust actions. In a downturn, companies with pending antitrust claims will be incentivized to extract working capital from those claims as quickly as possible.
Monetization will be an attractive solution for companies in the year ahead. In a recent monetization of more than $75 million, Burford enabled a Fortune 100 company to offload the cost of pursuing a high-value claim while generating significant capital for the company with no downside risk. Monetization also will be an attractive option for claimants in sectors with increased insolvency risk on the defendant side, as it guarantees a recovery and helps ensures claimants can be made whole.
Key takeaway
Sector-specific anticompetitive behavior has shown no sign of abating in recent years, and we expect that trend to continue in the year ahead. As the economic impact of the pandemic and ongoing recession continue to be felt, antitrust and competition claimants will leverage finance solutions to pursue and sustain claims and, crucially, generate much-needed working capital for their organizations.
Kelly Daley is a Director and the head of the US commercial underwriting group with responsibility for supervising the team that assesses and prices investment opportunities in US commercial litigation.. Prior to joining Burford, she was a senior litigator at Orrick Herrington, where her practice focused on the litigation needs of media and technology companies, including intellectual property litigation, contract disputes, content protection and product liability.
Leeor Cohen is a Senior Vice President who assesses and models legal risk as part of Burford’s core team. Prior to joining Burford, he was a Director in Leveraged Finance at Bank of America Merrill Lynch in London and in New York and a Consultant for Bain & Company in Chicago.