Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 1 of 14

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

JEAN RENE

Plaintiff,
v. Case No. 000-000001

JONATHAN ROSEN

Defendant.

TITLE (CREATE LATER)

INTRODUCTION

This Brief is submitted on behalf of Plaintiff Jean René (“J.R.”) in support of his

Complaint against Defendant Jonathan Rosen (“Defendant”) for trademark infringement

pursuant to 15 U.S.C. § 1125. J.R. respectfully moves for a preliminary injunction pursuant to

Fed. R. Civ. P. 65 enjoining Defendant’s unlawful use of J.R.’s well-known, unregistered

trademarks. This court should grant J.R.’s Motion for a Preliminary Injunction since

Defendant’s use of INSERT WHY DEFENDANTS ACTIONS VIOLATE § 1125.

 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 2 of 14

STATEMENT OF THE FACTS

Plaintiff (“J.R”) is a world-renowned photographer and street artist from Paris, France.

While not a U.S. citizen, J.R. is a U.S. resident who currently lives in Manhattan, New York.

J.R.’s career as an artist began in 2001 and while J.R. started creating his art in Paris, J.R.’s

works of art have also been displayed in the streets and art galleries of Manhattan. However,

these works are merely part of a larger portfolio spanning across 127 countries.

J.R. has produced works featuring the same distinctive style since 2001. Having a flair for

the contemporary, J.R.’s unprecedented art style is easily recognized, whether it be a mural on a

Manhattan skyscraper, a wheat-paste painting on a brick wall on the outskirts of Shanghai, or a

collection of portraits plastered to the side of Israel-Gaza barrier. J.R.’s artistic style is

immediately recognizable due to his custom of imposing photos of individuals in public places as

a means of attracting attention to statements about humanity and the world we live in. He utilizes

images of the human eye and a distinct combination of colors and locations to spread messages

about anti-consumerism, global policy, and human nature itself.

J.R. has received international critical acclaim for his works, which include but are not

limited to: Portrait of a Generation, Face2Face, Women Are Heroes, The Wrinkles of the City,

Unframed, and Inside Out. Recently, J.R.’s art was featured in the commercially and critically-

successful film, Faces, Places. J.R.’s artistic portfolio demonstrates that his popularity expanded

alongside his ability to reach audiences across different mediums such as film and traditional

photography.

He has received compensation for his works as well, selling his works at auctions across

the globe and winning a TED prize of $4,000. While being compensated for his work, J.R. has

developed a reputation for rejecting corporate sponsorships. SEE

[Link]

In Fall 2018, J.R. was informed that Jonathan Rosen (“Defendant”) had opened a café

(J.R.’s Café) in Manhattan, where J.R. resides and where many of his art projects are displayed.

Defendant is a 53-year-old resident of Manhattan, New York, and the owner of Themed Cafés,
 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 3 of 14

LLC., a multimillion-dollar business based in Manhattan, New York. He currently holds the

trademarks to and operates five cafés: two locations for “The Impressionist Café,” two locations

for the “The Surrealist Café,” and one location for J.R.’s Café. Defendant is a self-proclaimed

“big fan” of J.R., having seen many of J.R.’s other works, including Faces, Places, which

Defendant “loved.” CITE DEPOSITION OF JONATHAN ROSEN.

Opened in 2013, the interior walls of J.R.’s Café was filled with large black-and-white

photographs of imposed faces that “emulate[ed] the style of J.R.” CITE DEPOSITION OF

JONATHAN ROSEN AND J.R. Defendant registered the “J.R.’s Café” trademark Defendant

testified under deposition that he had hired art students at New York University to create the

artworks, instructing them that he wanted the art to “emulate the style of J.R.” CITE

DEPOSITION OF JONATHAN ROSEN. The tables of the restaurant had human eyeballs in the

center of each, which Defendant selected in order to further emulate the style of J.R. CITE

DEPOSITION OF JONATHAN ROSEN. Defendant owns the trademark rights to the artwork in

J.R.’s Café and the name “J.R.’s Café.” CITE DEPOSITION OF JONATHAN ROSEN. While

Defendant does not sell J.R.-inspired artwork, he has considered using the artwork on business

cards. CITE DEPOSITION OF JONATHAN ROSEN.

Defendant testified under oath in a deposition that his newest restaurant, J.R.’s Café, is

named after J.R. CITE DEPOSITION OF JONATHAN ROSEN Defendant claimed that the

“J.R.” in J.R Café stands for the first letters of “Jonathan Rosen.” CITE DEPOSITION OF

JONATHAN ROSEN. However, Defendant has never been referred to as “J.R.” and he hopes

that customers would associate J.R.’s Café with J.R. (Jean René). CITE DEPOSITION OF

JONATHAN ROSEN. Defendant claims that his café is not infringing upon J.R.’s unregistered

trademark because J.R.’s art is political, while Defendant’s café is non-political. CITE

DEPOSITION OF JONATHAN ROSEN. Defendant testified that he strategically placed J.R.’s

Café in Manhattan (J.R.’s current city of residence) and that he suspects that some customers

recognize the work as that of J.R. CITE DEPOSITION OF JONATHAN ROSEN.

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LEGAL ARGUMENTS

I. PLAINTIFF IS LIKELY TO SUCCEED ON THE MERITS OF HIS CLAIM OF

TRADEMARK INFRINGEMENT

A plaintiff seeking a preliminary injunction must demonstrate (A) a likelihood of success

on the merits; (B) irreparable injury (Winter v. Natural Res. Def. Council, 555 U.S. 7, 20, 129

S. Ct. 365, 172 L. Ed. 2d 249 (2008)); (C) considering the balance of hardships between the

plaintiff and defendant, a remedy in equity is warranted (eBay Inc. v. MercExchange, L.L.C.,

547 U.S. 388, 391, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006)).; and (D) the public interest

would not be disserved by a preliminary injunction. eBay Inc. v MercExchange, L.L.C., 547

US 388 at 391 [2006] (instituted to motions for preliminary injunction in XXX Amoco

Production Co. v. Gambell, 480 U.S. 531, 542, 107 S. Ct. 1396, 94 L. Ed. 2d 542 (1987)),

Salinger v Colting, 607 F3d 68, 74-75 [2d Cir 2010])

A. Defendant’s use of Plaintiff’s mark meets the criterion for trademark infringement by

false designation within the definition of 15 U.S.C. 1125(a).

Defendant meets the criteria for trademark infringement within the definition 15 U.S.C.

1125(a). The first section of 15 U.S.C 1125(a) provides declares that “any person who, on or

in connection with any goods or services, or any container for goods, uses in commerce any

word, term, name, symbol, or device, or any combination thereof, or any false designation of

origin, false or misleading description of fact, or false or misleading representation of fact,

which (a) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation,

connection, or association of such person with another person, or as to the origin, sponsorship,

or approval of his or her goods, services, or (b) commercial activities by another person, or in

commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or

geographic origin of his or her or another person's goods, services, or commercial activities.”

CITE LANHAM ACT SEC 43(a) It continues, stating that “those who are guilty of trademark
 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 5 of 14

infringement shall be liable in a civil action by any person who believes that he or she is or is

likely to be damaged by such act.” CITE LANHAM ACT SEC 43(a).

Whether an unregistered trademark is entitled to protection is determined using the

principles of 15 U.S.C. 1052. Wal-Mart Stores v. Samara Bros., 529 U.S. 205, 120 S. Ct.

1339 (2000). There are four categories of marks: (1) generic, (2) descriptive, (3) suggestive,

and (4) arbitrary or (5) fanciful. Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4

at 9 (2d Cir. 1976). A “generic” term refers “to the genus of which the particular product is a

species” i.e. computer, car. Id. Generic terms cannot be trademarked, even if the mark has a

secondary meaning. Id. Furthermore, a registered mark may be cancelled if it becomes a

commonplace term. Id. “Descriptive” terms

Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir. 1976

Two Pesos, Inc. v Taco Cabana, Inc., 505 US 763 at 773 [1992]).

The elements of a false association trademark claim under the Lanham Act track the
elements of a common law trademark infringement claim: a plaintiff must prove that “(1)
the marks are valid and legally protectable; (2) the marks are owned by the plaintiff; and
(3) the defendant’s use of the marks to identify goods or services is likely to create
confusion concerning the origin of the goods or services.” Ford Motor Co. v. Summit
Motor Prod., Inc., 930 F.2d 277, 291 (3d Cir. 1991)

B. The trade dress of Plaintiff’s mark (“J.R.”) is sufficiently distinct enough to afford

Plaintiff protection as the holder of the mark under Section 43(a) of the Lanham Act.

Section 43(a) of the Two Peso, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768-69 (1992).

C. Confusion
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It is likely that Plaintiff will be able to succeed on the merits of his claim under Section

43(a) of the Lanham Act. Where the products are different, the prior owner's chance of

success is a function of many variables: the strength of his mark, the degree of similarity

between the two marks, the proximity of the products, the likelihood that the prior owner will

bridge the gap, actual confusion, and the reciprocal of defendant's good faith in adopting its

own mark, the quality of defendant's product, and the sophistication of the buyers. Even this

extensive catalogue does not exhaust the possibilities -- the court may have to take still other

variables into account. Polaroid Corp. v Polarad Elecs. Corp., 287 F2d 492, 495 [2d Cir

1961]) (citing American Law Institute, Restatement of Torts, §§ 729, 730, [**9] 731.)
 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 7 of 14

ARGUMENT

Anthem’s proposed acquisition of Cigna—the largest merge

I. Section 7 of the Clayton Act: general principles

Section 7 deals with probabilities, not certainties. A merger is unlawful when its effect

“may be” substantially to lessen competition. 15 U.S.C. § 18. The words “may be” are

intentional: the statute is concerned with “probabilities, not certainties.” Brown Shoe Co. v.

United States, 370 U.S. 294, 323 (1962). Plaintiffs are not required to show that Anthem will

increase prices, decrease provider reimbursement, or cause the quality of medical care to
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diminish. “All that is necessary is that the merger create an appreciable danger of such

consequences in the future.” Hosp. Corp. of Am. v. FTC, 807 F.2d 1381, 1389 (7th Cir. 1986).

If the merger gives Anthem substantially more market power—the ability to raise prices or

reduce output, see Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 464 (1992)—

the merger violates Section 7 even if it is difficult to predict exactly how Anthem will exercise

that market power. See FTC v. H.J. Heinz Co., 246 F.3d 708, 713 (D.C. Cir. 2001) (“Merger

enforcement . . . is directed at market power.”).

Harm in a single market is sufficient to enjoin the entire transaction. A merger is

unlawful under Section 7 if its effect may be substantially to lessen competition in “any line of

commerce” in “any section of the country.” 15 U.S.C. § 18 (emphasis added).1 The Court need

not evaluate every market alleged in the Complaint. Probable harm to national accounts alone, or

to customers or providers in any of the 35 local markets, is enough to enjoin the merger.

Defendants do not get a free pass to harm competition in some local markets even if their merger

does not reduce competition in each of the alleged markets across the country.

II. Definition of product and geographic markets

Relevant product market definition. A relevant product market “is composed of products

that have reasonable interchangeability for the purposes for which they are produced—price, use

and qualities considered.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 404

(1956). A product market is determined by the “reasonable interchangeability of use or the cross-

elasticity of demand between the product itself and substitutes for it.” Brown Shoe, 370 U.S. at

325. A product market can also be defined with reference to “such practical indicia as industry or

1
See also Brown Shoe, 370 U.S. at 337 (Section 7 violated “if anticompetitive effects of [the]
merger are probable in ‘any’ significant market”); Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 972a (4th ed. 2014).

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public recognition of the submarket as a separate economic entity, the product’s peculiar

characteristics and uses, unique production facilities, distinct customers, distinct prices,

sensitivity to price changes, and specialized vendors.” Id.

To define a relevant market, courts often apply the merger-analysis tools described in the

Horizontal Merger Guidelines issued by the Department of Justice and Federal Trade

Commission.2 Under the Guidelines, a relevant product market consists of a set of reasonably

interchangeable products such that a hypothetical monopolist of those products could impose a

small but significant and non-transitory increase in price (“SSNIP”) on one or all of those

products.3 If a set of products satisfies that test, they constitute an appropriate product market for

antitrust analysis even if another possible collection of products would also satisfy the test.

Relevant geographic market definition. “The criteria to be used in determining the

appropriate geographic market are essentially similar to those used to determine the relevant

product market.” Brown Shoe, 370 U.S. at 336. “The arena of competition affected by the merger

may be geographically bounded if geography limits some customers’ willingness or ability to

substitute to some products, or some suppliers’ willingness or ability to serve some customers.”

2010 Merger Guidelines § 4.2. In healthcare provider cases, “there are often only a few hospitals

in a geographic market” because “most patients prefer to go to nearby hospitals.” FTC v.

Advocate Health Care Network, Civ. No. 16-2492, 2016 WL 6407247, at *6 (7th Cir. Oct. 31,

2016); see also FTC v. Penn State Hershey Med. Ctr., No. 16-2365, 2016 WL 5389289, at *5–6

2
See Heinz, 246 F.3d at 716 (applying 1992 Merger Guidelines); United States v. H & R Block,
Inc., 833 F. Supp. 2d 36, 52 (D.D.C. 2011) (applying 2010 Merger Guidelines); Chi. Bridge &
Iron Co. N.V. v. FTC, 534 F.3d 410, 431 n.11 (5th Cir. 2008) (“Merger Guidelines are often used
as persuasive authority when deciding if a particular acquisition violates anti-trust laws.”).
3
U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines §
4.1.1 (2010) (“2010 Merger Guidelines”); see also H & R Block, 833 F. Supp. 2d at 52 (applying
hypothetical monopolist test).

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(3d Cir. Sept. 27, 2016) (defining geographic market locally as “the four counties encompassing

and immediately surrounding Harrisburg, Pennsylvania”). For similar reasons, courts typically

define the geographic markets in which insurance companies purchase healthcare services from

hospitals and physician groups, as well as the markets for the sale of commercial health

insurance (including access to those providers), as local. See United States v. Blue Cross Blue

Shield of Mich., 809 F. Supp. 2d 665, 673 (E.D. Mich. 2011) (complaint sufficiently alleged

“consumers demand access to local providers and, therefore, the health insurance markets are

local”). Geographic markets can also be aggregated—as with the markets for national

accounts—for administrative convenience. See ProMedica Health Sys., Inc. v. FTC, 749 F.3d

559, 565 (6th Cir. 2014), cert. denied, 135 S. Ct. 2049 (2015) (aggregating product markets).

“Price discrimination” markets. With some products, sellers can “price discriminate,”

raising prices to certain targeted customers and not others. In these situations—which include the

markets for commercial health insurance—the effects of a merger can vary significantly for

different customers, and so courts will define markets around different customer groups.

“Antitrust laws exist to protect competition, even for a targeted group that represents a relatively

small part of an overall market.” FTC v. Staples, Inc., Civ. No. 15-2115, 2016 WL 2899222, at

*16 (D.D.C. May 17, 2016). “If a hypothetical monopolist could profitably target a subset of

customers for price increases, the Agencies may identify relevant markets defined around those

targeted customers, to whom a hypothetical monopolist would profitably and separately impose

at least a SSNIP.” 2010 Merger Guidelines § 4.1.4. Courts in this District have applied this

section in defining price discrimination markets. See Staples, 2016 WL 2899222, at *8, 17; FTC

v. Whole Foods Mkt., Inc., 548 F.3d 1028, 1037–38 (D.C. Cir. 2008) (applying 1992 Merger

Guidelines § 1.12). Because insurers bid for these accounts individually, they can identify and

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target most of the relevant customers and suppliers in this case—national accounts, large-group

employers, hospitals, and many physician practices. Most of the relevant markets in this case are

thus properly considered “price discrimination” markets.

Markets and market shares need not be defined with perfect precision. The alleged

markets in this case are reasonably drawn and well-recognized by the industry, including Anthem

and Cigna, and thus easily satisfy Plaintiffs’ burden. “The ‘market,’ as most concepts in law or

economics, cannot be measured by metes and bounds.” Times-Picayune Pub. Co. v. United

States, 345 U.S. 594, 611 (1953). That holds true for both product and geographic markets. See

Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 331–32 (1961). Likewise, plaintiffs “need

not present market shares and HHI estimates with the precision of a NASA scientist. The ‘closest

available approximation’ often will do.” FTC v. Sysco Corp., 113 F. Supp. 3d 1, 54 (D.D.C.

2015) (quoting FTC v. PPG Indus., Inc., 798 F.2d 1500, 1505 (D.C. Cir. 1986)).

III. Anticompetitive effects and the presumption of illegality

Market share data can create a presumption of illegality. A merger significantly

increasing concentration in an already concentrated market is presumptively illegal. See United

States v. Phila. Nat’l Bank, 374 U.S. 321, 363–65 & n.42 (1963); Sysco, 113 F. Supp. 3d at 52. In

Philadelphia National Bank, the Supreme Court found that a combined market share of 30% was

sufficient to establish that presumption. 374 U.S. at 364; see also FTC v. Swedish Match, 131 F.

Supp. 2d 151, 166 (D.D.C. 2000). Courts also routinely apply the Herfindahl–Hirschman Index

(“HHI”) thresholds set forth in the Merger Guidelines in determining a merger is presumptively

unlawful. See Heinz, 246 F.3d at 716 (applying thresholds from 1992 Merger Guidelines); H & R

Block, 833 F. Supp. 2d at 71–72 (applying 2010 Merger Guidelines). HHIs are calculated by

summing the squares of the individual firms’ market shares. 2010 Merger Guidelines § 5.3.

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Markets with HHIs of 2500 or over are “highly concentrated.” Id. “Mergers resulting in highly

concentrated markets that involve an increase in the HHI of more than 200 points will be

presumed to be likely to enhance market power.” Id. This court has treated a merger—where it

increased the HHI by over 200 points and left the market highly concentrated—as presumptively

unlawful even where the combined firm had less than a 30% share. See H & R Block, 833 F.

Supp. 2d at 72.

Once plaintiffs establish the presumption, the burden shifts to defendants to show “that

the market-share statistics [give] an inaccurate account of the [merger’s] probable effects on

competition.” Heinz, 246 F.3d at 715 (alterations in original) (quoting United States v. Citizens

& S. Nat’l Bank, 422 U.S. 86, 120 (1975)). In this case, Plaintiffs intend to show the opposite—

that the market shares significantly understate the likely competitive harm.

IV. Plaintiffs’ buy-side case

Anthem’s proposed merger also threatens competition for the purchase of healthcare

services, which Plaintiffs intend to prove in the “buy-side,” or monopsony, part of the case.

Similar legal principles apply to buy-side markets as courts apply to sell-side ones.

The antitrust laws prohibit anticompetitive mergers between buyers, not just sellers.

The antitrust laws “also appl[y] to abuse of market power on the buyer side.” Todd v. Exxon

Corp., 275 F.3d 191, 201 (2d Cir. 2001). Monopsony (where there is only one buyer in a market)

and monopoly have a “close theoretical connection”—monopsony is “‘the ‘mirror image’ of

monopoly.” Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 321–22

(2007) (quoting John B. Kirkwood, Buyer Power and Exclusionary Conduct, 72 ANTITRUST L.J.

625, 652 (2005)). Section 7 thus protects against anticompetitive mergers between buyers. Health

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insurers are purchasers of providers’ healthcare services. See Grp. Life & Health Ins. Co. v.

Royal Drug Co., 440 U.S. 205, 214 (1979).

A similar presumption of illegality applies in a buy-side case. As with a “sell-side” case,

a “buy-side” merger is unlawful when its likely effect is to substantially reduce competition. See

United States v. Rice Growers Ass’n of Cali., Civ. No. 84-1066, 1986 WL 12562, at *12 (E.D.

Cal. Jan. 31, 1986) (competition for “purchase or acquisition for milling of paddy rice grown in

California”); United States v. Pennzoil Co., 252 F. Supp. 962, 985 (W.D. Pa. 1965) (competition

“in the purchase of Penn Grade crude”).4 Because monopsony is the mirror image of monopoly,

see Weyerhaeuser, 549 U.S. at 321–22, courts apply the traditional burden-shifting framework of

Section 7 when analyzing a merger between buyers. When a merger substantially increases

concentration in a concentrated market of buyers, the merger is presumed unlawful. See Rice

Growers, 1986 WL 12562, at *12; Pennzoil, 252 F. Supp. at 985.

Plaintiffs need only prove an increase in Anthem’s bargaining leverage. In sell-side

cases, including those in the healthcare industry, plaintiffs need only prove increased

concentration or increased market power, which creates a likelihood that anticompetitive effects

will occur. See Hosp. Corp. of Am., 807 F.2d at 1389. For example, mergers between hospitals

that substantially increase their bargaining leverage over health insurers are presumed illegal.

Saint Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 786, 788

(9th Cir. 2015); ProMedica Health Sys., Inc. v. FTC, 749 F.3d 559, 570 (6th Cir. 2014). Under

the mirror-image principle, mergers between health insurers substantially increasing their

bargaining

leverage over physician groups, hospitals, or other providers are illegal.

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4
Cf. Todd, 275 F.3d at 201 (Sotomayor, J.) (“a horizontal conspiracy among buyers to stifle
competition is as unlawful as one among sellers”).

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There is no requirement of proving downstream harm in a buy-side case. To establish

buy-side harm, it is sufficient to show the merger will increase Anthem’s bargaining leverage

over providers, which will likely reduce reimbursement rates. Plaintiffs need not take the extra

step of proving that those lower rates will restrict access to medical care, reduce the quality of

medical care, or otherwise harm patients. Although the merger will likely have such effects (as

Plaintiffs intend to show), the law is clear that “suppliers . . . are protected by antitrust laws even

when the anti-competitive activity does not harm end-users.” Telecor Commc’ns, Inc. v. Sw. Bell

Tel. Co., 305 F.3d 1124, 1134 (10th Cir. 2002); cf. Fishman v. Estate of Wirtz, 807 F.2d 520,

539 (7th Cir. 1986) (conspiracy to eliminate competition to buy Chicago Bulls team was illegal

though unlikely to affect output of Bulls games; no “burden of articulating how the welfare of

the ultimate consumer has been diminished by an injury to competition at another level”); Heinz,

246 F.3d at 719 (“no court has ever held that a reduction in competition for wholesale purchasers

is not relevant unless the plaintiff can prove impact at the consumer level”).

In Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000), the Ninth

Circuit addressed this issue in a case involving a conspiracy among cheese makers that reduced

the prices they paid for milk. The defendants argued that such a conspiracy would benefit, not

harm, consumers by reducing cheese prices. The Ninth Circuit rejected that argument, holding

that “the central purpose of the antitrust laws, state and federal, is to preserve competition” and

that cases discussing how competition leads to low prices for consumers “do not mean that

conspiracies among buyers to depress acquisition prices are tolerated.” Id. at 988.

That principle protects doctors against insurer market power even where consumers may

pay lower premiums. See West Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85 (3rd

Cir.

2010). In West Penn, the second-largest hospital system in Pittsburgh, West Penn, sued the
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largest hospital and the local Blue Cross licensee (Highmark), alleging they had conspired to

reduce West Penn’s rates. Defendants argued that reduced rates did not constitute antitrust injury

and that consumers, in turn, would benefit from lower premiums. The Third Circuit disagreed,

noting that any reduction in premiums would not necessarily benefit subscribers because “the

premium reductions would have been achieved only by taking action that tends to diminish the

quality and availability of hospital services.” Id. at 103–04. Regardless of whether that reduction

in output or quality occurred, the Third Circuit noted that defendants’ argument “reflects a basic

misunderstanding of the antitrust laws”: “Highmark’s improperly motivated exercise of

monopsony power, like the collusive exercise of oligopsony power by the cheese makers in

Knevelbaard, was anticompetitive and cannot be defended on the sole ground that it enabled

Highmark to set lower premiums on its insurance plans.” Id. at 105.

V. Defendants’ efficiencies defenses

Defendants have a heavy burden to overcome the presumption of harm with an

efficiency defense. Although a defendant may theoretically rebut a presumption of harm with an

efficiencies defense, courts are extremely cautious when evaluating these arguments. Indeed,

“[t]he Supreme Court has never expressly approved an efficiencies defense to a § 7 claim.” St.

Luke’s, 778 F.3d at 788–89 (citing Heinz, 246 F.3d at 720). And “none of the reported appellate

decisions have actually held that a § 7 defendant has rebutted a prima facie case with an

efficiencies defense.” Id. at 789. Moreover, the courts of appeals have tightly circumscribed its

availability. Efficiencies can rebut a presumption of harm only if “the proposed merger will

create a more efficient combined entity and thus increase competition” rather than decrease it. Id.

at 790. Efficiencies also must be merger-specific and verifiable. See H & R Block, 833 F. Supp.

2d at 89 (citing 2010 Merger Guidelines § 10).

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Out-of-market efficiencies are not relevant. The relevant market is the “locus of

competition[] within which the anti-competitive effects of a merger [are] to be judged.” Brown

Shoe, 370 U.S. at 320–21. Because a merger is illegal if it would likely harm competition in any

market, the law does not allow “anticompetitive effects in one market [to] be justified by

procompetitive consequences in another.” Phila. Nat’l Bank, 374 U.S. at 370; see also St.

Luke’s,

778 F.3d at 789 (Ninth Circuit rejected “argument that the merger would allow the defendant to

compete more efficiently outside the relevant market”).

Defendants’ medical/network synergies are not procompetitive purchasing efficiencies.

Where firms enhance or exercise buy-side market power to lower the price they pay for goods or

services, as Anthem proposes to do so here, courts have found a violation.5 Procompetitive

purchasing efficiencies permitted by the antitrust laws involve very different facts. “Reduction in

prices paid by the merging firms not arising from market power can be significant in the

evaluation of efficiencies from a merger . . . .” 2010 Merger Guidelines § 12 (emphasis added).

For example, a merger could “lead to a reduction in prices paid by the merged firm . . . by

reducing transactions costs or allowing the merged firm to take advantage of volume-based

discounts.” Id. In a 1979 case, the Supreme Court provided an example of how purchasing

efficiencies can be achieved without violating the antitrust laws:

Suppose, for example, that an insurance company entered into a contract with a
large retail drug chain whereby its policyholders could obtain drugs under their
policies only from stores operated by this chain. The justification for such an
agreement would be administrative and bulk-purchase savings resulting from
obtaining all of the company’s drug needs from a single dealer.

5
E.g., Mandeville Island Farms v. Am. Crystal Sugar Co., 334 U.S. 219, 236 (1948); West Penn
Allegheny Health, 627 F.3d at 105; Knevelbaard Dairies, 232 F.3d at 988; Rice Growers, 1986
WL 12562, at *12; Pennzoil, 252 F. Supp. at 985.
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 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 18 of 14

Grp. Life & Health, 440 U.S. at 215. In the merger context, if two merging firms consolidate

their purchases from a supplier, that supplier may benefit from economies of scale and thus offer

lower input prices to the merged firm via a volume discount. By contrast, Plaintiffs will prove

that Anthem’s proposed medical/network efficiencies do not provide doctors or hospitals with an

incremental benefit. Instead, Anthem will be demanding “an incremental discount with no

corresponding incremental value (no new members).” Compl. ¶ 73, Dkt. #1 at 27.

Anthem’s efficiency claim is extraordinary and would allow it to harm competition in one

market (the purchase of provider services) so long as some of its anticompetitive profits are

shared with consumers in another market.6 This claim ignores the Supreme Court’s insistence

that the antitrust laws protect suppliers as well as consumers. See Mandeville Island Farms, 334

U.S. at 236. Moreover, “merely shift[ing] revenue among the participants in the market” does not

establish “true efficiencies.” FTC v. ProMedica Health Sys., Inc., No. 3:11 CV 47, 2011 WL

1219281, at *36 (N.D. Ohio Mar. 29, 2011).

Countervailing market power is not a defense. It is no defense that a merger will enable

Anthem to better counteract the market power possessed by some hospitals. The Supreme Court

“reject[ed]” a similar “application of the concept of ‘countervailing power’” in Philadelphia

National Bank. 374 U.S. at 370; see also Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340

U.S. 211, 214 (1951) (rejecting defense that concerted price-setting among sellers was justified

to offset alleged conspiracy among buyers). A contrary view would allow Anthem and other

insurers to grow to counterbalance large providers, and then providers to grow to counterbalance

6
Plaintiffs will prove at trial that Anthem’s greater market power over downstream customers
will enable it to increase its administrative fees, thereby reducing the amount of anticompetitive
rents it shares with them.
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 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 19 of 14

the larger insurers. This arms race could end with a monopolist hospital bargaining with a

monopolist insurer in each market—hardly the intent of the antitrust laws.

Similarly, it is no defense that the merger is needed to enable Anthem to lower hospital

rates to a more “reasonable” level, allegedly closer to their marginal costs. The Supreme Court

rejected the “reasonable prices” defense as contrary to the antitrust laws more than a century ago.

See United States v. Trans-Mo. Freight Ass’n, 166 U.S. 290, 331–32, 339 (1897).

Plaintiffs’ buy-side allegations are relevant to assessing defendants’ medical/network

efficiencies defense in Phase I of the trial. Anthem’s central defense—that its greater market

power will result in so-called “medical/network savings”—is linked to the buy-side harm in this

case. Anthem’s medical/network savings all stem from the increased market power (bargaining

leverage over providers) it will obtain by acquiring Cigna. As a result, the Court should reject

those savings as non-cognizable efficiencies based on the evidence in Phase I of the trial. If the

Court does not reach this conclusion in Phase I, however, Plaintiffs will prove in Phase II that

this greater market power will enable Anthem to unlawfully reduce reimbursement rates to

providers in the 35 local markets. This evidence will give this Court an independent basis on

which to find the merger unlawful. It will also further show that Anthem’s claimed savings all

will derive from its unlawful exercise of market power and therefore cannot rebut Plaintiffs’

proof of harm to competition in national accounts and local commercial markets.

VI. The preferred remedy of injunction

Where Plaintiffs have established that a merger violates Section 7, the preferred remedy

is for the court to issue a “full stop injunction” preventing the parties from completing their

unlawful merger. PPG Indus., 798 F.2d at 1506–07.

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 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 20 of 14

Dated: November 10, 2016 Respectfully submitted,

/s/ Jon B. Jacobs

Paula Lauren Gibson Jon B. Jacobs (D.C. Bar No. 412249)
Deputy Attorney General Scott I. Fitzgerald
Office of the Attorney General of California Daniel E. Haar
300 S Spring Street U.S. Department of Justice
Suite 1702 Antitrust Division, Litigation I Section
Los Angeles, CA 90013 450 Fifth Street, NW, Suite 4100
Phone: (213) 897-0014 Washington, DC 20530
E-mail: [Link]@[Link] Phone: (202) 598-8916
E-mail: [Link]@[Link]
Attorney for the State of California
Attorneys for United States of America

Rachel O. Davis
Assistant Attorney General
Office of the Attorney General of Connecticut
55 Elm Street, PO Box 120
Hartford, CT 06106
Phone: (860) 808-5041
E-mail: [Link]@[Link]

Attorney for the State of Connecticut

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 Case 1:16-cv-01493-ABJ Document 325 Filed 11/10/16 Page 21 of 14

CERTIFICATE OF SERVICE

I certify that on November 10, 2016, I caused the foregoing document to be served upon

all counsel of record via the Court’s EM/ECF system.

Dated: November 10, 2016 /s/ Jon B. Jacobs

Jon B. Jacobs (D.D.C. Bar #412249)
U.S. Department of Justice
Antitrust Division, Litigation I Section
450 Fifth Street, NW, Suite 4100
Washington, DC 20530
Telephone: (202) 598-8916
Facsimile: (202) 307-5802
E-mail: [Link]@[Link]

Attorney for United States of America