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Wednesday, May 28, 2008, 1:11 PM

The Reshaping of Antitrust

Randy Picker of the University of Chicago Law School has posted a paper entitled "Twombly, Leegin and the Reshaping of Antitrust" on the SSRN website. The article looks at four antiturst cases from the Supreme Court's 2006 Term (Weyerhaeuser, Twombly, Leegin, and Credit Suisse), all of which have been discussed in this blog. Below are a few interesting quotes from the article:

The Court’s 2006 Term was an unusually active one for antitrust as the Court decided four substantial antitrust cases. Each of the cases will undoubtedly attract substantial academic attention. The overall direction of the four cases is reasonably clear: plaintiffs face greater regulatory obstacles to reaching the court system (Credit Suisse), are more likely to get tossed from court without reaching a jury once they get there (Twombly), and will have to work harder to make outsubstantive antitrust liability (Weyerhaeuser and Leegin).


Twombly and Leegin are each, in their own ways, blockbusters. Twombly will appear in case after case, as antitrust defendants try to rely on its new tougher rules for FRCP 12(b)(6) motions. Twombly represents a preference for blunt instruments over sharp edges. The central problem confronted by Twombly is discovery run amok. The Court has the tools in its hands to control that by rewriting the discovery
rules and overturning lower court decisions implementing those rules. Twombly suggests that the Court believes that refinement of those rules will fail in controlling discovery and it is willing to pay the price that private plaintiffs will have no good way to get at the best-hidden antitrust conspiracies.


Leegin is really a two-issue case: (1) as a matter of first consideration, should contractual minimum RPM be treated as per se illegal or should it instead receive rule-of-reason treatment?; and (2) if rule-of-reason treatment is appropriate, should the Court nonetheless adhere to the result of per se illegality established in Dr. Miles? On the first issue, the Court returned to 1628, the date of Coke upon Littleton, which Dr. Miles cited for the general proposition that restraints on alienation were invalid. The Court seemed skeptical that a nearly 300-year old analysis should have sufficed in 1911 and saw no basis for that nearly a century later (“[t]he general restraint onalienation … tended to evoke policy concerns extraneous to thequestion that controls here”). With the analysis in Dr. Miles itself pushed to the side, the Court then turned to a fresh consideration of the policies at stake in minimum resale price
maintenance. That took the Court to the defining feature of modern antitrust analysis, namely the role of economics in understanding how we should evaluate particular practices. As has been the Court’s pattern in other cases moving practices away from per se illegality and towards rule-of-reason analysis, the Court cited the extensive literature arguing that minimum RPM can have procompetitive benefits.


That is a question of stare decisis and Leegin ends up in an all-out fight
over stare decisis in antitrust. That is new: the Court has been overturning old decisions in antitrust for some time and has done so with little stare decisis fanfare. That suggests that the dispute over stare decisis in Leegin is just a convenient forum for the larger dispute over stare decisis that is percolating through a divided Court. I don't have a full-blown theory of stare decisis but I do suggest why the Court has been mistaken to treat stare decisis in statutory cases differently from that in constitutional cases. The Court has made too little of one of its critical tools in shaping statutes, namely, the power to set a default point for subsequent congressional action. Once we treat the Court's decisions as inputs in subsequent lawmaking, there is greater reason to think that the Court should have a uniform approach to stare decisis across the Constitution and statutes.

New Law Review Article On The Relationship Between Patent Law And Antitrust Law

The Spring 2008 volume of the Virginia Journal of Law & Technology will contain an interesting article entitled Patent and Antitrust: Differing Shades of Meaning by Robin Feldman, Professor of Law at U.C. Hastings College of Law. The introductory paragraph asks: "Can a body of case law that grants monopoly opportunities be reconciled with a body of case law that curtails monopolization?" In her conclusion, Professor Feldman states:
The intersection of patent and antitrust has frustrated courts and scholars since the inception of antitrust law more than a century ago. The trend across time has been to try to harmonize the two, most recently in the direction of subsuming patent doctrines under antitrust doctrines. Harmonization in any direction, however, is far more challenging than it has appeared. Difficulties are enhanced by the fact that the two fields use concepts with similar terminology but with differing meanings, contexts, and implications. Understanding these different shades of meaning will be critical for navigating the intersection between patent and antitrust. Trying to slide blithely between the two without understanding the divergences could distort the essence of each.


On May 6, 2008 the U.S. House of Representatives' Subcommittee on Telecommunications and the Internet held a hearing regarding proposed bill H.R.5353, the Internet Freedom Preservation Act of 2008 ("Act"). At the hearing, public witnesses close to the broadband telecommunications industry presented testimony both favoring and opposing the Act.

H.R. 5353, which was proposed in February of 2008, calls for the establishment of federal policy and regulations regarding broadband telecommunication network management practices. Such policies and regulations are intended to ensure freedom to use the Internet for lawful purposes against "unreasonable interference from, or discrimination by, network operators." The Act further charges the Federal Communications Commission with the duty to "conduct proceedings to assess competition, consumer protection, and consumer choice issues relating to broadband Internet access services."

Two days after the hearing, on May 8, 2008, a similar bill, titled the "Internet Freedom and Nondiscrimination Act of 2008" (H.R. 5994) was introduced to the U.S. House of Representatives. This bill is intended to "amend the Clayton Act with respect to competitive and nondiscriminatory access to the Internet." It proscribes certain practices currently in use by some Internet service providers ("ISPs") to the extent that those practices are unreasonable or discriminatory against certain types of Internet content.

The proposed bills have implications for both ISPs and companies using the Internet as a business tool because they have the potential to change the way content is distributed and accessed over the Internet. Currently, ISPs have the option and ability to determine the availability of specific content to their customers. Many commentators believe that the Internet Freedom Preservation Act of 2008 (H.R. 5353) would prevent ISPs from regulating, in any manner, the nature of the content an individual may distribute or access via an ISP’s network. And the Internet Freedom and Nondiscrimination Act (H.R. 5994) directly proscribes certain types of ISP interference with information accessibility.

The proposed legislation stems from a concern that large ISPs have the ability to block and control Internet content distributable and receivable over each providers individual network. Those concerned worry that, unless regulated, these practices may have an anticompetitive result on the broadband industry.

Critics, however, argue that legislation in this area could do more harm than good. One concern is that federal regulation of ISP network management practices will curtail investments in innovation and development of broadband technology, as well as discourage entry into the market.

The Internet Freedom Preservation Act (H.R. 5353), if passed into law, would require the FCC to conduct proceedings to assess, among other things, the current state of competition in the broadband telecommunications market.

In 2007 the Federal Trade Commission ("FTC") reported that its Internet Access Task Force could not come to a consensus with regard to the state of competition in the broadband Internet industry. On one hand, the rapid growth of the industry and the steady decline in service prices are tell-tale signs of a competitive marketplace. On the other hand, others argue that telephone and cable companies have a duopoly on the market, which could potentially allow for abuse of their market power.

Tuesday, May 13, 2008, 1:34 PM

State AGs Continue To Prosecute Resale Price Maintenance After Leegin

On March 27, 2008, the U.S. District Court for the Southern District of New York entered a Consent Decree in a case brought by the Attorneys General of New York, Illinois and Michigan against Herman Miller, a seller of high-end office chairs. The Complaint alleged that Herman Miller's suggested retail price policy ("SRP policy") was unlawful price fixing under state and federal antitrust laws. The policy forbade retailers from advertising Herman Miller's furniture below the suggested retail price or lose access to Herman Miller furniture for one year.

(The suggested retail price for Herman Miller's popular Aeron chair (which I used to have in my old office!) is over $900 -- although I have heard that you can purchase an Aeron chair for significantly less ).

In the Consent Decree, Herman Miller agreed to pay $750,000 and agreed not to enter into any agreement with any dealer to fix the resale price at which Herman Miller's chairs are advertised. Herman Miller also agreed not to terminate, suspend or fail to fill orders of any dealer in order to coerce the dealer to adhere to Herman Miller's suggested retail price. The Consent Order, however, provided that: "Herman Miller retains the unilateral right to terminate, suspend, or fail to fill orders of any dealer or reduce the supply of or discriminate in delivery, credit, or other terms provided to any Dealer for lawful business reasons..." This last provision allows Herman Miller to keep its Colgate policy. A Herman Miller representative stated: "It remains our contention that the law says we can have a minimum advertised pricing policy and that we can enforce that unilaterally."

The New York Attorneys General office began investigating Herman Miller in 2003, at which time minimum resale price maintenance was per se illegal under both federal and state antitrust laws. The Complaint and Consent Decree, however, were filed in March 2008. In the interim, the Supreme Court ruled that minimum vertical price fixing was not per se illegal under the Sherman Act. Therefore, at least for purposes of federal antitrust laws, the conduct that the state Attorneys General were challenging was not per se illegal and instead was to be judged under the rule of reason. It is unclear, however, how such conduct will be analyzed under state law. State courts may disagree with Leegin and hold that minimum vertical price fixing is still per se illegal under state antitrust laws. The Herman Miller Consent Decree demonstrates that, at the very least, state Attorneys General are still concerned about and willing to prosecute minimum retail price policies.

Neither the Complaint nor the Consent Decree addressed whether the challenged conduct was to be analyzed under the per se rule or the rule of reason. It is noteworthy that the Complaint did not allege that Herman Miller possessed a large share of the market or otherwise had market power -- nor did it analyze whether the SRP policy promoted competition against other brands of office chairs even if it reduced intrabrand price competition for Herman Miller's chair. The absence of such allegations suggests that the state Attorneys General may consider minimum vertical price fixing to be per se illegal, despite Leegin.

One explanation for this Consent Decree is that the state Attorneys General had already been investigating Herman Miller before the Supreme Court's decision in Leegin, and did not want to give up their investigation without something to show for it. Still the lesson to be learned from this case is that companies (even companies with small market share) need to be careful when dealing with any minimum retail price policy.

To learn more about Leegin, see this PowerPoint Presentation.

FTC Modifies Price-Fixing Consent Order After Leegin

On Tuesday, May 6, 2008, the FTC announced that it had modified a 2000 consent order that settled retail price-fixing charges against shoe seller Nine West. Under the conset order, Nine West was prohibited from penalizing its dealers for selling its goods below retail prices set by Nine West. In 2007, however, the Supreme Court ruled that minimum resale price maintenance was not per se illegal. See Leegin Creative Leather Products, Inc. v. PSKS, Inc. (For a discussion of Leegin see this Power Point presentation). Nine West cited Leegin as the reason why the FTC should modify its 2000 consent order. In granting Nine West's request, the FTC identified the following relevant factors from the Leegin decision:

"One factor is the source of the resale price mainentance program: if retailers were the impetus for the adoption of RPM, that could indicate the existence of a retailer cartel or support for a dominant, ineffecient retailer. A second factor is whether RPM programs were ubiquitous in an industry.... A third factor is whether the practice is likely to increase prices because a manufacturer or retailer is a dominant player in the market in which it competes."

The FTC recognized that the Leegin Court "did not spell out which variation of the rule of reason should be applied to RPM going forward." The analytical options include the elaborate and comprehensive full-blown rule of reason inquiry, a truncated rule of reason analysis as applied by the Supreme Court in FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986), or another type of truncated inquiry into the likely effects of RPM.

The FTC stated that "a truncated analysis ... might be suitable for analyzing minimum resale price maintenance agreements, at least under some circumstances.... The question is whether post-Leegin, RPM can be considered in some circumstances as 'inherently suspect,' and thus a worthy object for the scrutiny under the presumptions and phased inquiries" of a truncated rule-of-reason analysis.

Althought the FTC did not definitively answer that question, the FTC explained: "RPM agreements ordinarily might be seen by the Court as less intrinsically dangerous than horizontal price-setting arrangements, but not invariably so." Therefore, the FTC stated that it will use the relevant factors identified in Leegin as a guidline for determining whether a truncated rule of reason analysis should apply in a given case.

Applying this analysis to Nine West's petition, the FTC stated that "two ways that Nine West can demonstrate that its use of RPM will not harm competition is to show that it lacks market power, and that the impetus for the resale price maintenance is from Nine West itself and not retailers." The FTC conlcuded that Nine West "has only modest market share" in the relevant market; that there was "no evidence of a dominant, ineffecient retailer in the market"; and that Nine West stated that its desire to engage in RPM "is based on its wish to increase the services offered by retailers that sell Nine West products."

Therefore, the FTC granted in part and denied in part Nine West's petition to modify the consent order. In the event Nine West engages in RPM agreements, it must provide to the FTC periodic reports that document the effects of the RPM agreements on Nine West's prices and output. The FTC would then use these reports to analyze Nine West's RPM agreements and challenge them if they appear to be illegal.

Also, the FTC's order does not affect the legality of RPM agreements under state law. As previously noted, it is not clear whether states will follow Leegin or maintain the per se rule under state antitrust law. In 2000, Nine West settled RPM lawsuits with state attorneys general, which settlement agreement contained its own injunctive relief. The FTC order does not affect Nine West's obligations under this state settlement agreement.

Supreme Court Denies Cert In Challenge To Tobacco Master Settlement Agreement

On May 12, 2008, the Supreme Court denied cert. in an antitrust case challenging the tobacco Master Settlement Agreement ("MSA") and its implementing statutes. See Sanders v. Brown, --- S.Ct. ---, No. 07-995 (May 12, 2008). The Ninth Circuit had held (1) that the MSA implementing statutes were not pre-empted by the Sherman Act, (2) that the Noer Pennington immunity doctrine protects a private party from liability for the act of negotiating a settlement with a state entity and any injuries that result directly from valid government action taken on the petitioner's behalf, and (3) that the Parker state-action immunity doctrine protects a state from liability for entering into the MSA and for enacting the implementing statutes. See Sanders v. Brown, 504 F.3d 903 (2007). In its petition for cert, the plaintiff argued that the Ninth Circuit's decision was contrary to the Second Circuit's decision in Freedom Holdings Inc. v. Spitzer, 357 F.3d 205 (2d Cir. 2004). In response, the State of California argued that there was no real circuit split because "the tension among the circuits regarding federal antitrust preemption of the MSA and related state laws is inchohate and likely to be resovlved by the lower courts." As is almost always the case, the Supreme Court offered no explanation for its denial of cert. Click here to read about the Supreme Court's denial of cert in Freedom Holdings.
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