Antitrust and Distribution Law Blog

DOJ Sues to Stop AT&T and T-Mobile Merger

2011-08-31T13:45:00.002-04:00

The Department of Justice has filed a civil antitrust suit to block AT&T's proposed $39 billion takeover of T-Mobile USA on the grounds that the deal would "substantially lessen competition." The deal would combine the second and fourth largest carriers to create a new market leader in the United States, ahead of current leader Verizon Wireless. Bloomberg reports that AT&T was surprised by the lawsuit and intends to fight so that "the enormous benefits of this merger can be fully reviewed." The DOJ's statement can be found here and the complaint here.

Jay Rogers Writes on Brazil’s New Positive Credit Registry

2011-08-11T14:55:00.001-04:00

GREENVILLE, S.C.—Brazil’s new “Positive Credit Registry” law appears to be an important, and promising, development in the Brazilian credit market. For the first time, the world’s fifth-largest country is allowing the collection and maintenance of positive credit histories of consumers and businesses.

The new law stands to benefit lenders, retailers and consumers alike. Womble Carlyle attorney Jay Rogers has co-authored a new article on the Brazilian Positive Credit Registry for Credit Today.

Brazilian attorneys André de Almeida and Caio Iadocico de Faria Lima of the Almeida law firm in São Paulo, Brazil joined Rogers in writing the article.

Jay Rogers advises U.S. and foreign companies in mergers and acquisitions; corporate and capital structures; dispute resolution, including cross-border arbitration, litigation and mediation; commercial relationships with vendors, customers and lenders; U.S. and foreign Customs matters; immigration issues; and economic development incentives offered by local, state and national governments. He previously practiced in Brazil and Mexico, and is fluent in Portuguese and Spanish. Rogers practices in Womble Carlyle’s Greenville, S.C., office.

Reckless Abandon and the Mongol Rally

2011-07-22T11:30:00.001-04:00

Womble Carlyle is a proud sponsor of Team Reckless Abandon in the Mongol Rally. The Mongol Rally is a diminutive-car road rally that begins in Europe and ends in Ulan Bator, Mongolia. Our support of Team Reckless Abandon benefits Water.Org, a U.S.-based nonprofit organization committed to providing safe drinking water and sanitation to people in developing countries. The organization seeks to create a global awareness of the water supply crisis and to help people respond. They carefully invest donors’ funds in only the highest quality projects through locally-based water development organizations. Water.org’s most prominent spokesperson is the actor Matt Damon.

Follow Team Reckless Abandon, learn more about the race or make a charitable donation at http://www.wcsr.com/mongolrally or on Twitter at http://twitter.com/#mongoliaorbust.

California Court Relies on “Common Sense” in Rejecting Twombley Challenge

2011-07-21T16:49:00.001-04:00

Perhaps there is life for conclusory antitrust claims after Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). On May 24, the United States District Court for the Central District of California denied a motion to dismiss allegations that Duro Bag Manufacturing Company (“Duro”) put one of its primary competitors−plaintiff Western Pacific Kraft, Inc. (“WPK”)−out of business. WPK−which is also supplied by Duro−alleged that by raising its prices to WPK, and concurrently lowering its own prices to WPK’s customers, Duro violated the California Business and Professions Code provision that prohibits secretly extending special privileges to certain purchasers. In other words, WPK alleges that Duro implemented a “price squeeze.”

Citing Twombly and Ashcroft v. Iqbal, 129 U.S. 1937 (2009), Duro countered that WPK’s allegations did not plead sufficient factual allegations to show that Duro’s price discriminations were “secret.” However, the Court acknowledged that even if Duro informed WPK it would no longer adhere to the old pricing arrangement, it still acted “secretly” by surreptitiously raising its prices to WPK’s customers. The Court also rejected Duro’s argument that WPK failed to adequately allege how it was injured: Because “virtually all of the plaintiff WPK’s major customers began buying paper products directly from defendant Duro,” Duro allegedly effectively ran WPK out of business.

Many would argue that WPK’s allegations are of the “conclusory” nature that Twombly proscribes. Nevertheless, the Court held that WPK’s allegations were sufficiently “plausible” to pass muster. The Court emphasized the need to rely on “judicial experience and common sense” in measuring a Twombly challenge, suggesting that courts should look outside the verbiage of Twombley and Iqbal. Is this “common sense” standard any different than Twombly’s “plausibility” standard? Both seem equally ambiguous. Moving forward, it will be interesting to see if other courts adduce similar reasoning in handling the litany of Twombly challenges that have become a staple in judicial dockets.

Google Investigation

2011-07-21T16:11:00.003-04:00

After months of a rumors about government action against Google, there are reports that government agencies are begining to take action. On June 24, the Wall Street Journal reported that the FTC is primed to serve subpoenas on the internet giant.

A July 19, 2011 Bloomberg article states that DOJ and FTC (the two federal agencies charged with enforcing antitrust law) have agreed to divide responsibilities related to Google. The DOJ will review any planned acquisitions by Google for their possible effects on competition and the FTC will conduct a broad investigation of the company's dominance of Internet search. The European Union and various state Attorney Generals are conducting their own independent investigations.

Google's critics claim that it unfairly utilizes its search engine to advance its own services over those of rival providers. For example, the FairSearch Coalition, an organization of Google competitors, asserts that “Google engages in anti-competitive behavior across many vertical categories of search that harms consumers by restricting the ability of other companies to compete to put the best products in front of Internet users, who should be allowed to pick winners and losers online, not Google.” Google maintains that users can easily locate other service providers on its website, which was “built for users, not websites.”

Policy watchers believe the FTC probe could be the most important antitrust investigation since the Justice Department’s investigation of Microsoft in the 1990s. Since then, however, courts have significantly narrowed the scope of antitrust law. See, e.g., Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438 (2009); Fed. Trade Comm’n v. Rambus Inc., 522 F.3d 456 (D.C. Cir. 2008), cert. denied 129 U.S. 1318 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007). Therefore, it will be very interesting to see how the Google investigation is resolved. Stay tuned ...

FTC Announces Major Changes to Disclosure Requirements under HSR Antitrust Improvements Act

2011-07-21T14:32:00.002-04:00

On July 7, the Federal Trade Commission (“FTC”) announced major changes to disclosure requirements under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”). Although intended to reduce the burden on the filing parties by eliminating certain disclosure requirements, the updated rules are likely to increase drastically the expense of HSR filings for most companies. The changes should take effect in mid-August, 30 days after they are published in the Federal Register.

The most significant changes include:

--Introduction of the concept of “associates,” which will now require companies to make disclosures for all “managed” entities;
--Additional requirements for offering memoranda and related materials; and
--Changes to required revenue data, specifically revenues derived from products manufactured outside the United States and sold into the country.

Associates: Perhaps most significantly, the changes to the rules introduce the new concept of “associates,” which the FTC defines to include entities under common management of the acquiring party, as well as all entities controlled or managed by these entities. Under the revised rules, acquiring parties must report information about associates’ significant minority holdings (defined as more than 5 percent, but less than 50 percent) in entities with revenues in North American Industry Classification System (NAICS) codes that overlap with the acquired business.

This change will affect hedge funds and private equity firms, which were not previously required to disclose information about holdings of affiliated companies with no direct involvement in the acquisition. For example, under the old rules two investment funds managed by a single organization would have been treated as separate entities, requiring that competitive information be provided only for companies held by a single fund.

Under the new rules, the acquiring fund would be required to make disclosures for all qualifying companies held by the second fund as well. Although this broader disclosure requirement may aid the FTC in assessing competitive interaction between companies held by commonly managed funds, the burden on the organization to prepare disclosures for each of its individual funds will likely result in significantly increased costs.

Increased Offering Document Requirements: The current rules require submission of documents prepared by or for an officer or director “for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets.” The new Item 4(d) formalizes the FTC’s practice of requiring parties to submit offering memoranda and other materials prepared by investment bankers up to one year before the date of filing. Required submissions include: all Confidential Information Memoranda prepared by or for any officer or director, and all surveys, studies, analyses, and reports prepared for any officer or director (whether for analyzing or evaluating synergies and/or efficiencies, or for analyzing or evaluating market shares, competition, competitors, markets, potential for sales growth, etc.). Item 4(d) will not only increase the cost of preparing HSR filings, but will also require companies to ensure that appropriate preservation policies are in place at the outset of any acquisition activity.

Revenue Data: Under current rules, both base-year (currently 2002) and current year revenue derived from domestic operations must be provided by means of a seven-digit NAICS code; revenue derived from foreign operations need not be reported. The revised rules eliminate the base-year reporting requirements, potentially reducing the disclosure burden for some parties. The revised rules also add a reporting requirement for revenue from products manufactured outside of the United States and sold into the country. This new requirement is likely to create a substantial amount of work for companies with extensive overseas manufacturing operations. In addition, companies must now make revenue disclosures using a more detailed 10-digit NAICS code. Although this latter change may eventually bring more consistency to HSR filings, it will likely create significant short-term burdens as companies are forced to re-categorize revenue.

This post is a reprint of a Womble Carlyle Client Alert written by David Hamilton, Brent Powell and Jacob Hansen. Click here for a printable version of this client alert.

$35 Million Settlement For Baby Products Antitrust Litigation

2011-04-19T15:50:00.002-04:00

So much for Leegin...

As we have mentioned previously in the blog, companies still face real risks with respect to resale price maintenance despite the Supreme Court's 2007 ruling that such policies are not per se illegal. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007).

A recent $35 million class action settlement involving retail giant Babies R Us is one example of the continued risks. See McDonough v. Toys ‘R’ Us, et al., No. 2:06-cv-0242-AB (E.D. Pa.) and Elliott v. Toys ‘R’ Us, et al., No. 2:09-cv-06151-AB (E.D. Pa.).

In this case plaintiffs alleged that Babies R Us, a dominant retailer of baby products, coerced manufacturers of baby products to adopt resale price maintenance polices that insulated Babies R Us from price competition -- particularly internet retailers. Babies R Us allegedly threatened not to carry the manufacturer's products unless the manufacturers agreed to prevent internet retailers from discounting their products.

The court granted plaintiff's motion to certify the class in July 2009. The court recognized that vertical price restraints are analyzed under the rule of reason, under Leegin, but the court found that plaintiffs could prove their case under the rule of reason because the RPM policies were instituted at the request and direction of a dominant retailer -- rather than as a means for the manufacturers to more effectively compete against each other.

A $35 million settlement agreement was announced in January 2011.

There seem to be two big lessons from this case: (1) RPM policies need to come from the top down -- not from the bottom up; and (2) beware of email communications between manufacturers and retailers.

Make sure you follow your antitrust attorney's advice about the correct way to implement a RPM polices consistent with the Supreme Court's Colgate decision.

Black Friday For Online Poker?

2011-04-19T15:10:00.002-04:00

American Lawyer reports that federal prosectures have inducted 11 people linked to some of the world's largest Web-based poker operations, such as PokerStars, Full Tilt Poker, and Absolute Poker. Forbes reports that the online poker industry generated $30 billion in betting per year with $1.4 billion in revenue.

The crackdown on online poker began when Congress enacted the Unlawful Internet Gambling Enforcement Act in 2006. And in 2009, federal prosecutors in New York seized $34 million in bank accounts associated with popular online poker sites.

Although this blog focuses on antitrust and distribution law, we have occassionally reported on these developments in the online poker industry. For more information about Womble Carlyle's Gaming Law Team, click here.

Websites Report FTC Crack Down On Advertisements That Look Like Fake News Stories While Linking To Advertisements That Look Like Fake News Stories

2011-04-19T14:38:00.009-04:00

Fox News reports that the FTC is cracking down on websites falsely advertising acai berry weight-loss pills. The FTC says the websites are deceiving consumers by emulating real news organizations.

If you have not seen these ads, they look like investigative reporting and often contain tantalizing headlines such as "The HCA Diet Exposed: Miracle Diet or Scam" or "Acai Berry Diet UNCOVERED." For an example, click here.

Dow Jones has a similar story.

The funny thing about the Fox News story is that many of the advertisements on the Fox News website are written in a way that suggests they are news stories, instead of advertisements. For example, the headlines for the advertisements on the Fox News article read: "Is it a scam? We investigated work at home jobs and what we found may shock you!" and "Mom discovers $9 car insurance trick. Auto insurers are scared you will learn this too."

Not to be outdone, the Dow Jones article contains paid-advertising links to the very same Acai Berry websites that are being investigated by the FTC.

Event! Join NC Attorney General Roy Cooper & Womble Carlyle for the CLE Symposium for Top NC Legal Counsel on May 5

2011-04-12T13:49:00.001-04:00

Womble Carlyle CLE Symposium for Top NC Legal Counsel
A full-day CLE event for in-house counsel
May 5, 2011 -- 8:30-4:30 p.m.
10 CLE Sessions, Lunch and Keynote Address by North Carolina Attorney General Roy Cooper

On May 5, Womble Carlyle will offer CLE sessions on such topics as:

political contributions/lobbying

data management

economic development

crisis/catastrophic event planning

employee defection/personnel departures

outsourcing agreements

intellectual property minefields

legal project management

the China market

‘green’ strategies

Event information

Location: Proximity Hotel
704 Green Valley Road
Greensboro, NC 27408
(800) 379-8200
http://www.proximityhotel.com/
Reference this event when booking overnight stay to receive special rate.

RSVP: There is no fee to attend but seating is limited.
Please RSVP by Friday, April 22nd, using one of the following methods:
phone: (336) 433-5699
email: greensbororsvp@wcsr.com

Click here for information on the ten panels that are being offered to top legal counsel in North Carolina.

Register today!

Resale Price Maintenance Remains Per Se Illegal In California

2011-01-14T15:30:00.004-05:00

The California Attorney General announced a settlement agreement that prohibits a cosmetics company from agreeing with its retailers not to sell its products online at prices below the MSRP. In a stipulated court judgment, Bioelements agreed to permanently refrain from fixing resale prices and pay $51,000 in penalties and attorney fees.

Bioelements markets a line of beauty-care products it claims have quasi-medical properties such as reducing wrinkles. Products such as this -- also known as "cosmesceuticals" because they supposedly merge the attributes of cosmetics and pharmaceuticals -- are sometimes the target of investigations by state and federal regulators for overstating their medical benefits. This time, however, the California Attorney General brought suit against Bioelements for vertical price fixing -- also known as resale price maintenance ("RPM").

RPM used to be per se illegal under federal antitrust laws, until the Supreme Court's decision in Leegin Creative Leather v. PSKS. In that case, the Supreme Court held that a manufacturer may reach an agreement with its retailers as to minimum resale price without automatically violating federal antitrust laws. Instead of being per se illegal, such agreements are analyzed under the rule of reason -- a fact specific inquiry that balances the anticompetitive effects and procompetitive benefits of a particular restraint. At the time the Leegin decision was said to have opened the door for all sorts of vertical price fixing agreements between manufacturers and retailers. Such has not been the case, however, because certain states, such as California and New York, have threatened to prosecute such arrangements under state antitrust laws. RPM agreements may still be per se illegal under state antitrust law, even if such agreements are not per se illegal under federal law.

This is what happened in the Bioelements case. The California Attorney General's complaint alleges that Bioelements entered into dozens of "Internet Only Accounts Agreements" with third party companies for the distribution and sale of its products over the Internet. These contracts stated that "Accounts are prohibited from charging more or less than the Manufacturer's Suggested Retail Price (MSRP)."

The Attorney General's press release stated: "Bioelements operated a blatant price fixing scheme by requiring online retailers to sell its products at high prices.... Price manipulation harms consumers, competition and our business community." The United States Supreme Court, however, would disagree with this assertion because in Leegin the Court held that RPM is not always anticompetitive and can have procompetitive benefits. The United States Supreme Court, however, does not have the last say when it comes to interpreting state antitrust law.

Although Bioelements' distribution agreement referred to "MSRP," it was not a lawful Colgate policy. Instead of merely suggesting prices and unilaterally terminating discounting retailers, Bioelements made its retailers "agree" not to sell below MSRP. Thus, the agreement went beyond a unilateral Colgate policy.

Given that Bioelements sells products -- cosmesceuticals -- that are sometimes the target of false advertising investigations, it would not be surprising if the Attorney General discovered the price fixing agreements while investigating false advertising claims. It would be unwise, however, to presume that the Attorney General will only bring vertical price-fixing claims against companies she suspects of false advertising. Since Leegin, regulators have investigated or brought claims against several respected manufacturers -- such as Herman Miller and Toys-R-Us -- for vertical price fixing.

For more information on how to structure pricing and distribution policies that do not violate state and federal antitrust law, contact Jason Hicks or Mark Poovey.

Twombly Plus Leegin Equals Dismissal of Price Fixing Claims By Eleventh Circuit

2010-12-29T09:29:00.007-05:00

On December 2, 2010, the Eleventh Circuit affirmed the dismissal of vertical and horizontal price fixing claims against Tempur-Pedic Intern., Inc. based on plaintiff's failure to allege a plausible relevant product market or horizontal conspiracy. See Jacobs v. Tempur-Pedic Intern., Inc., --- F.3d ---, 2010 WL 4880864 (11th Cir. 2010). The Eleventh Circuit's decision was based on the Supreme Court's rulings in Leegin that vertical price fixing was not per se illegal and Twombly which raised the bar for pleading a cause of action in federal court. Neither of these cases had been decided when plaintiff originally filed its complaint against Temper-Pedic in January 2007. At that time, vertical price fixing was per se illegal and a complaint alleging a horizontal conspiracy did not need to contain detailed facts to overcome a motion to dismiss. The Eleventh Circuit's decision in Jacobs demonstrates how powerful of a shield Twombly and Leegin can be for antitrust defendants in federal court. The dissenting opinion, however, argues that the majority went too far in applying Twombly and Leegin.

Background

Tempur-Pedic manufactures 80-90% of the visco-elastic foam mattresses sold in the United States. Tempu-Pedic sells its mattresses through distributors and directly to consumers through its own website. Tempur-Pedic sets the minimum retail price its distributors can charge, and it adheres to those minimum prices when selling mattresses through its own website.

Plaintiff, a consumer who purchased a Tempur-Pedic mattress, alleges that Tempur-Pedic's enforcement of retail price maintenance agreements with its distributors constitute unlawful vertical price fixing. Plaintiff also alleges that, when selling mattresses directly to consumers via its website, Tempur Pedic is acting as a distributor, and thus its agreement/conspiracy to set prices with other distributors constitutes horizontal price fixing which is per se unlawful.

The Vertical Price Fixing Claim

The majority recognized that Plaintiff's vertical price fixing claim was governed by the rule of reason. (There was no discussion about whether a quick-look analysis or some other truncated analysis should govern the vertical price fixing claims). The majority dismissed the vertical price fixing claim because Plaintiff had not properly alleged that visco-elastic foam mattresses constitute a separate and district relevant submarket from mattresses generally. The crux of this holding is that, under Twombly, an antitrust plaintiff must plead detailed facts "'plausibly suggesting' the relevant submarket's composition." The court explained:

Jacobs's skimpy allegations of the relevant submarket do not meet this obligation. The complaint alleges, without elaboration, that “[v]isco-elastic foam mattresses comprise a relevant product market, or sub-market, separate and distinct from the market for mattresses generally, under the federal antitrust laws.” This conclusional statement merely begs the question of what, exactly, makes foam mattresses comprise this submarket. The complaint provides no factual allegations of the cross-elasticity of demand or other indications of price sensitivity that would indicate whether consumers treat visco-elastic foam mattresses differently than they do mattresses in general. Consumer preferences for visco-elastic foam mattresses versus traditional innerspring mattresses, and the costs associated with their sale, may vary widely, may vary little, or may not vary at all. Jacobs's complaint, however, gives no indication of which of these is the case. The allegations that visco-elastic foam mattresses are more expensive than traditional innerspring mattresses and that visco-elastic foam mattresses have “unique attributes” are similarly of little help. They do not indicate the degree to which consumers prefer visco-elastic foam mattresses to traditional mattresses because of these unique attributes and differences in price. Would, for example, a consumer whose innerspring mattress was due for replacement be more likely to purchase another innerspring mattress or substitute a visco-elastic foam model for it? Are visco-elastic foam mattresses put to different uses (as luxury goods, such as in fine hotels and within higher income brackets) than are traditional mattresses? These types of questions, which our precedent makes clear are crucial to understanding whether a separate market exists, go unanswered in the complaint.
Moreover, 'the broader economic significance of a submarket must be supported by demonstrable empirical evidence.'... While we acknowledge that Jacobs did not have the chance to undertake extensive discovery because this case was dismissed on a Rule 12(b)(6) motion, he nevertheless had the obligation under Twombly to indicate that he could provide evidence plausibly suggesting the definition of the alleged submarket. Such an indication is conspicuously lacking here; in its place is the unsupported assertion that visco-elastic foam mattresses constitute a distinct submarket of the larger mattress market.

The dissenting opinion, on the other hand, argues that "the majority goes too far when it interprets Twombly to require a plaintiff to include actual evidence in the complaint" and the majority's "demand for 'empirical evidence' at this stage of litigation is improper." According to the dissent, "[p]roduct market analysis is detailed and complicated" and "simply cannot be determined on a motion to dismiss." Therefore, the dissent would have accepted as true Plaintiff's "bald" factual allegation that foam mattresses constitute a distinct and relevant submarket without requiring additional facts regarding the "cross-elasticity of demand" for mattresses generally.

(The majority also held that plaintiff failed to allege anticompetitive effects, but this ruling largely flows from the ruling that plaintiff failed to allege that foam mattresses were a separate relevant market because, given Tempur-Pedic's 80-90% market share, it would have had market power if the market was limited to foam mattresses.)

The Horizontal Price Fixing Claim

Plaintiff's horizontal price fixing claim was based on the theory that Tempur-Pedic, acting as a distributor when selling mattresses directly to consumers through its website, entered into a horizontal price fixing agreement with its distributors. Unlike vertical price fixing, horizontal price fixing is per se illegal and, therefore, there is no need to allege or prove a relevant product market. The district court dismissed the horizontal price fixing theory because (1) courts generally treat dual distribution models (i.e. when manufacturers also compete against their distributors by selling directly to consumers) as vertical rather than horizontal in nature; and (2) Plaintiff did not allege a freestanding horizontal agreement among Tempur-Pedic, as a distributor, and its distributors.

The majority noted that the Eleventh Circuit has not established a bright-line rule that all dual distribution models are vertical rather than horizontal. Therefore, the majority based its ruling on the second rationale. In so doing, the majority again applied Twombly and concluded that Plaintiff's allegation that Tempur-Pedic (acting as a distributor) tacitly colluded with its distributors to fix prices was not plausible because it was just as likely that Tempur-Pedic and its distributors were independently acting in their own economic self-interest. (The majority's economic analysis heavily relies on the fact that Tempur-Pedic was a manufacturer and a distributor; therefore, the majority seems to conflate the two rationales articulated by the district court).

Again the dissent argues that the majority's opinion goes too far, explaining:

My judicial experience and common sense leads me to conclude that it is entirely plausible that TPX and its distributors colluded to set prices. Indeed, it is totally implausible that TPX and its distributors set prices independently of each other. Horizontal price-fixing is still a per se violation, and this allegation satisfies the plausibility pleading standard: it is entirely plausible that this uniformity in pricing is the result of collusion rather than market forces. Jacobs has a colorable horizontal price fixing claim, and his horizontal price-fixing claim should have been allowed to proceed.

Conclusion

As a whole, the Eleventh Circuit's decision demonstrates how different judges can come to very different conclusions regarding the "plausibility" of a plaintiff's allegations of conspiracy and relevant market. The majority's opinion shows how difficult a hurdle Twombly and Leegin can be for a price fixing claim. On the other hand, the dissent's opinion shows that application of Twombly and Leegin can differ wildly from judge to judge. Therefore, manufacturers should not take too much comfort in the majority's analysis. Additionally, this case only involved price fixing claims under the Sherman Act. As noted elsewhere in this blog, state law may impose more stringent prohibitions on price fixing than federal law.

FTC Releases Proposed Updates To "Green Guides"

2010-10-08T14:20:00.003-04:00

On October 6, 2010, the Federal Trade Commission released proposed revisions to the guidance it gives marketers to help them avoid making misleading environmental claims -- called the "Green Guides." The original Green Guides were introduced in 1998 and have not been updated since. Over the past 12 years, green marketing claims have increased dramatically, new environmental marketing terms have emerged, and concerns about greenwashing have grown.

“In recent years, businesses have increasingly used ‘green’ marketing to capture consumers’ attention and move Americans toward a more environmentally friendly future. But what companies think green claims mean and what consumers really understand are sometimes two different things,” said FTC Chairman Jon Leibowitz. “The proposed updates to the Green Guides will help businesses better align their product claims with consumer expectations.”

The changes to the “Green Guides” include new guidance on marketers’ use of product certifications and seals of approval, “renewable energy” claims, “renewable materials” claims, and “carbon offset” claims.

The FTC's press release also states:

The revised Guides caution marketers not to make blanket, general claims that a product is “environmentally friendly” or “eco-friendly” because the FTC’s consumer perception study confirms that such claims are likely to suggest that the product has specific and far-reaching environmental benefits. Very few products, if any, have all the attributes consumers seem to perceive from such claims, making these claims nearly impossible to substantiate.

Along with the 229-page text of the proposed revisions, the FTC also published a two-page Green Guide's Summary of Proposal and a webiste which contains links to additional information. The FTC is accepting comments on its proposed revisions to the Green Guides through December 10, 2010.

Womble Carlyle frequently advises clients on how to comply with advertising laws and regulations. Womble Carlyle also has assembled a green practices team to provide experienced knowledgeable guidance to businesses looking to "go green."

Antitrust and Credit Card Steering

2010-10-05T15:31:00.002-04:00

The Department of Justice filed a civil antitrust suit against Visa, Master Card and American Express challenging their policies that prohibit merchants from steering customers to other forms of payment. Credit card companies earn fees from credit card transactions, and these transaction fees are higher on some types of cards than others. (Typically, reward cards charge higher fees). Visa, MasterCard and American Express prohibited merchants from offering discounts to customers who use a cheaper type of credit card (i.e. one with less transaction fees). The Justice Department claims that these restraints prevent "merchants from freely promoting interbrand competition among [credit card] networks by offering customers discounts, other benefits, or information to encourage them to use a less-expensive [credit card] or other payment method."

Visa and Mastercard hare already entered into a settlement agreement with the Department of Justice and have agreed not to prohibit merchants from offering discounts or otherwise steering customers to less expensive types of payment methods.

American Express, who usually charges higher transaction fees, however, vows to fight the DOJ's charges and claims that the settlement agreement gives more market power to Visa and Mastercard because they will be able to steer customers away from American Express. The Wall Street Journal quotes American Express's CEO as saying: "We are confident that courts will recognize the perverse anticompetitive nature of the government's case and that we will continue providing a competitive, superior service to card members and merchants."

Attorney General Eric Holder responded: "Because American Express has refused to change its rules, consumers are being held hostage from receiving the expanded choices and lower prices that they deserve under our settlement. We cannot allow this to stand."

Juiced Advertising or Persecution of the Pomegranate?

2010-09-28T14:07:00.006-04:00

On Monday, September 27, 2010, the FTC brought charges against Pom Wonderful for making false and unsubstantiated claims about the health benefits of their pomegranate juice. The New York Times explains: "Pom Wonderful, the pricey and popular pomegranate juice sold in the distinctly curvaceous bottle, is advertised as helping to reduce the risk of heart disease, prostate cancer and impotence." As explained in their advertising, Pom has spent millions of dollars on medical research. The FTC, however, believes Pom is overstating the results of that research because pomegranate products often show no more efficacy than a placebo.

The FTC's press release states:

“Any consumer who sees POM Wonderful products as a silver bullet against disease has been misled,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “When a company touts scientific research in its advertising, the research must squarely support the claims made. Contrary to POM Wonderful’s advertising, the available scientific information does not prove that POM Juice or POMx effectively treats or prevents these illnesses.”

In response, Pom says it does not claim that its product acts as a drug: "What we do, rather, is communicate, through advertising, the promising science relating to pomegranates. Consumers and their health care providers have a right to know about this research and its results." The New York Times quotes Pom as saying: "Its a shame that the government is unable to understand this fundamental distinction ... and instead is wasting taxpayer resources to persecute the pomegranate."

The FTC's administrative complaint comes on the heels of a lawsuit that Pom filed against the FTC challenging the commission's new rules requiring advertisers to obtain FDA approval before claiming that food, beverages or dietary supplements are useful in preventing disease. Pom argues that FTC's new standards violate its First Amendment free speech rights.

Obama's Antitrust Policy: Speak Loudly and Carry A Big Stick

2010-09-08T14:30:00.004-04:00

Obama's antitrust enforcement (or percieved lack thereof) is the subject of a frontpage story in today's Washington Post. The story begins: "When President Obama took office, he promised to undo eight years of what he called the weakest antitrust enforcement in half a century. Consumer advocates [and businesses] held their breath for a dramatic shift [in antitrust enforcement].... A year and a half later, they're still waiting."

The premise of the article is that the Obama administration has not lived up to his tough rhetoric because DOJ has obtained consent decrees from most of the targets of its investigation and has not brought a case against a corporate titan or blocked a large merger. Instead of litigating cases, DOJ has negotiated consent decrees. Instead of blocking mergers, DOJ has forced the merging companies to make changes, such as spinning of part of their business.

The fact that there is not a lot of litigation does not strike me as proof that DOJ is weak on antitrust enforcement. As the article points out, Obama's selection of Christine Varney and her tough speeches in 2009 "stoked excitement among antitrust advocates--and jangled nerves in the business community." That tough talk (and the economy's slowdown) may have as much to do with the lack of government antitrust litigation than anything else. Businesses are less likely to go forward with a risky merger or transaction if they know there is an aggressive antitrust cop on the beat. And it takes two to tango, as they say. The target of an antitrust investigation has to agree to the consent decree to avoid litigation. Varney is quoted in the article as saying: "I'm happy to litigate. I think everyone knows that." That type of attitude is very effective at the negotiating table.

Unlike Teddy Roosevelt, Obama and Varney do not "speak softly" but the DOJ Antitrust Division does carry a "big stick." If you speak loudly and carry a big stick, you won't have to use it very often.

Scope of Patent Misuse Doctrine Sparks Debate In Federal Circuit

2010-09-02T16:44:00.004-04:00

On August 30, 2010, the Federal Circuit issued an en banc decision in Princo Corporation v. International Trade Commission --- F.3d ---, 2010 WL 3385953 (C.A. Fed. 2010). As described in the concurring opinion, "[t]his case arises at the uneasy intersection of antitrust and patent law, in essence posing the novel question of whether (and if so, to what extent) patentee competitors may enter an agreement regarding the licensing of their patents."

The case involved a patent pool licensed by Philips relating to "Orange Book" standards for encoding data on recordable CDs. Princo licensed these patents from Philips, but then stopped paying license fees and was sued. As a defense, Princo claimed that Philips misused its patents by agreeing with Sony not to license a different patent that would have allowed for the development of an alternate method of encoding data.

The original Federal Circuit panel held that Princo could proceed with its misuse defense. The majority en banc decision, however, held that Princo's patent misuse theory failed for two reasons. First, the majority held that the alleged wrongdoing (suppressing the patents for the potential alternative technology) did not involve the misuse of patents at issue, but rather involved an agreement not to license other patents. The majority viewed the agreement to suppress the competing technology as "unrelated antitrust violation" because it did not involve the use (or leveraging) of the patents at issue. The majority explained:

The misuse must be of the patent in suit. An antitrust offense does not necessarily amount to misuse merely because it involves patented products or products which are the subject of a patented process....

Reduced to its simplest elements, the question in this case comes down to this: When a patentee offers to license a patent, does the patentee misuse that patent by inducing a third party not to license its separate, competitive technology?

The majority concluded that it would not constitute misuse because "[s]uch an agreement would not have the effect of increasing the physical or temporal scope of the patent in suit, and it therefore would not fall within the rationale of the patent misuse doctrine as explicated by the Supreme Court and this court."

Second, the majority held that Princo bore the burden of proving that the agreement to suppress the competing patents had an adverse effect on competition under the rule of reason. The majority declined to apply the "quick-look" analysis, which applies to "naked restraints" where the arrangement is "so plainly anticompetitive that courts need undertake only a cursory examination before imposing antitrust liability." Instead, the majority concluded that agreements not to compete among joint venturers is not a "naked restraint" -- "[p]articularly when the purpose of the joint venture is to set standards for an industry." Princo failed to meet its burden of proving anticompetitive effects under the rule fo reason because Princo had not demonstrated there was a reasonable probability that the competing technology, if available for licensing, would have matured into a competitive force in the data storage technology market.

While the majority opinion takes a narrow view of the patent misuse doctrine, Judges Dyk and Gajarsa wrote a 13 page dissenting opinion which takes a much broader view. The dissent argues that agreements to suppress competing technology may constitute patent misuse if the agreement protected the asserted patents from competition. In other words, patent leveraging is not the only type of patent misuse.

The dissent argued that antitrust laws do not provide an adequate remedy for such an agreement given the undeveloped nature of the competing technology that was suppressed and the strictures of the indirect purchaser rule which limit who has standing to assert an antitrust claim. "Unless the protected patents are held to be unenforceable" under the patent misuse doctrine, the dissent argues, "there will be no adverse consequences to the patent holder for its misconduct nor will the patent misuse be remedied."

The dissent also objected to the majority's application of the rule of reason. The dissent argued that patent misuse is broader than an antitrust violation, but that if there was an antitrust violation, then it will also constitute misuse. Under antitrust analysis, the dissent argued that Princo had satisfied its initial burden of proof by proving an agreement to suppress competing technology. Since this type of agreement is inherently suspect, the dissent would have applied the "quick look" rule of reason. "Competitive harm is thus presumed, and the burden falls on Phillips to come forward with some plausible" justification for the restraint.

The dissent also objected to the majority's requirement that Princo prove a "reasonable probability" that the competing technology would have been commercially viable if it had not been suppressed. The dissent argued:

[T]here is ... no procompetitive benefit from the suppression of potential competition, no matter how remote the possibility of success... [T]he antitrust laws are designed to protect not only full-fledged competition but also nascent competition. It is vitally important to protect competition from being stifled in its infancy. There is great difficulty in predicting commercial viability in the early stages of technological development, and indeed the patent system itself recognizes the importance of protecting technologies that have not yet reached the stage of commercial viability.... In short, it would be inimical to the purposes 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.

The vast difference between the majority and dissenting opinions demonstrates the uncertain nature and scope of the patent misuse doctrine. The majority says not all antitrust violations constitute misuse; the dissent says patent misuse is broader than antitrust law. The majority says the accused infringer (or antitrust plaintiff) bears the burden of proving anticompetitive effects under the rule of reason; the dissent says the patentee (or antitrust defendant) bears the burden of proving procompetitive effects under the quick look analysis. There is supporting caselaw for both positions. The scope of the patent misuse doctrine is sometimes in the eye of the beholder.

The majority's narrow view of patent misuse, however, may not be the last word on this issue. Given the vigorous dissenting opinion (and the vagaries of the patent misuse doctrine in existing caselaw), this is an inviting case for the Supreme Court to review.

New Horizontal Merger Guidelines

2010-08-31T15:55:00.003-04:00

On August 19, 2010, the DOJ and FTC issued new Horizontal Merger Guidelines. The Guidelines were updated to reflect current agency practice. One of the changes in the new Guidelines is less reliance on market shares/concentration and more emphasis on the likely competitive effects of a transaction. The new Guidelines are supposed to be more flexible and fact dependent and less formalistic.

The new Guidelines are the result of a year long project that begain in September 2009. Draft versions of theGuidelines were issued in April, and the agencies held a series of workshops to solicit comments on the draft Guidelines.

Although the FTC's press release claims the new Guidelines will "give businesses a better understanding of how the agencies evaluate proposed mergers," FTC Commissioner Thomas Rosch called the new Guidelines "flawed." He explained: "These guidelines do not describe the way that the Bureau of Competition and enforcement staff at the commission proceed today. They also do not reflect the way that the courts proceed." Commissioner Rosch, however, voted in favor of the new Guidelines because he saw them as an improvement over the old Guidelines.

For our prior coverage of the new Guidelines, go here.

Supreme Court Rules Second Amendment Applies Against States In McDonald v. City of Chicago

2010-06-28T12:00:00.002-04:00

On Monday June 28, 2010, the Supreme Court issued its ruling in McDonald v. City of Chicago.

The issue in the case was whether the Second Amendment private right to bear arms, recognized in Heller, was applicable against States and localities. In Heller, the Court addressed the scope of the Second Amendment as it applies against the federal government (i.e., the handgun ban in Washington, DC), and left open the question of whether the private right to keep and bear arms applies in the same manner against the States.

In McDonald v. City of Chicago, the petitioners challenged a similar hand gun ban in the City of Chicago. They argued that the Second Amendment applied against States and localities by virtue of the Privileges and Immunities Clause and Substantive Due Process Clause in the Fourteenth Amendment. The Seventh Circuit, however, ruled in favor of the City because they were bound by prior decisions of the Supreme Court and Seventh Circuit. In other words, the Seventh Circuit essentially said that it would not strike down Chicago’s hand gun ban until the Supreme Court had overruled its prior case law.

In a 5-4 decision, the Court held that the Second Amendment did apply against the States and localities.

Judge Alito’s plurality opinion held that the Second Amendment applied against the States because it was incorporated into the substantive Due Process Clause of the Fourteenth Amendment. That holding only received 4 votes. Although, Justice Thomas also believed that the Second Amendment applied against the States (thus providing the fifth vote), he thought it did so because of the Privileges and Immunities Clause. Justice Thomas would have overruled the Slaughter House Cases (cases that almost everyone believes were wrongly decided, but virtually no one wants to revisit after 137 years of precedent).

Regardless of the basis for the ruling, five members of the Court agreed that the Second Amendment applies against the States. Therefore, the case was remanded so that the lower court could consider whether Chicago’s hand gun ban violates the Second Amendment. The lower court is expected to rule in favor of petitioners and strike down the hand gun ban. However, certain aspects of the Court’s ruling suggest that less restrictive gun control laws may be allowed under the Second Amendment.

DOJ/FTC Workshop on Updating the Horizontal Merger Guidelines

2009-12-04T14:38:00.004-05:00

On December 3, 2009, the Department of Justice and Federal Trade Commission held a joint public workshop to explore the possibility of updating the Horizontal Merger Guidelines used by both agencies to evaluate potential competitive effects of mergers and acquisitions. Below is a summary of the major points from the workshop's four sessions (which are available for re-play here):

Introduction

In his introduction, Jon Leibowitz (Chairman of FTC) said "we are a long ways from the bad old days" of the Schering brief and Section 2 Guidelines (when the FTC and DOJ disagreed on antitrust policy). Nowadays, he said, FTC and DOJ work well together. Christine Varney (from DOJ) spoke after him, but the only thing she said was "I have no comment on the Comcast/NBC merger."

Carl Shapiro was the moderator of the first panel. He spoke about the need to update the Horizontal Merger Guidelines because: (1) there may be gaps between the Guidelines and actual agency practice; and (2) new economic analysis and evidence may change the way we think about antitrust policy.

There were four major issues discussed: (1) Innovation Competition; (2) Direct Evidence of Competitive Effects, (3) Market Definition, and (4) Unilateral Effects.

Innovation

As for the first issue, everyone agreed that the current Guidelines do a poor job of explaining how to measure harm/benefits to innovation (or how to define an innovation market). The agencies have some experience measuring innovation in the pharma industry, but not in any other context. The consensus was that perhaps the agencies should produce some additional commentary or extremely general guidelines on innovation, but that we simply were not ready for formal Guidelines because no one really knows how to measure innovation.

Direct Evidence / Market Definition / Unilateral Effects

The real debate came during the discussion of the next three issues, all of which “merged” together. Generally speaking, some academics and former government attorneys were in favor of using direct evidence of competitive effects, to the extent it exists (i.e., smoking gun documents from officers and directors of the companies who were to merge; customer surveys; natural experiment data as in the Staples case; or unilateral effects evidence). The academics and former government attorneys thought one could use direct evidence of competitive effects as a way to "back into" the market definition. In other words, if you could prove an effect, then you automatically proved a relevant market--you don’t need to do anything else. If that's true, then what happens to the traditional market definition and the presumptions and safeharbors that go with them?

The private practice attorneys (and a few of the academics) were more skeptical of such an approach. They thought the traditional market definition was essential before you could identify direct evidence of competitive effects. Robert Willig, Professor of Econ at Princeton, said: "Direct evidence without competitive analysis is full of pitfalls for the foolish looking for magic bullets." The folks on this side of the debate said that even if you had direct evidence, the judge/jury will want to know more.

Everyone loved the SSNIP test and had nothing bad to say about it. But some folks thought there were other ways (direct evidence) to prove relevant markets. And there was some discussion of a "variable" SSNIP test in some circumstances.

As for unilateral effects, the panelists seemed to agree that if you did a unilateral effects analysis of differentiated products, then all mergers would look like they would raise prices. But this is not true. Some folks said unilateral effects analysis would cause over-enforcement and prevent mergers that were good for the economy. Others said not to worry because you could rebut the unilateral effects analysis with other evidence.

Conclusion

Everyone seemed to agree that the Guidelines should be revised to address the use of direct evidence of competitive effects and unilateral effects. But there was debate about what the Guidelines should say. Everyone wanted to keep the SSNIP test. And everyone also agreed that any revised Guidelines should be general and flexible (like the current ones).

US Antitrust Policy Enters a New Phase

2009-11-05T12:47:00.003-05:00

Financier Worldwide published an article that I co-authored on recent developments in US antitrust law. You can read the article here.

Senate Bill Limiting Reverse Payment Settlements

2009-10-16T10:58:00.004-04:00

Reverse payment settlements occur when a brand-name drug manufacturer makes a "reverse" payment to settle a patent dispute with a generic drug manufacturer. In exchange for this payment, the generic drug manufacture agrees to delay its entry into the drug market. These payments are called "reverse" payments because it is the patent-holder/plaintiff that is making a payment to the alleged patent-infringer/defendant.

The FTC has challenged these payments as anticompetitive, with mixed results. See Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) (reversing FTC's ruling that reverse payment settlement agreement was unlawful under Sherman Act). During the Bush administration, the DOJ disagreed with the FTC's position -- a rare split between the two federal agencies charged with enforcing the antitrust laws. The DOJ under the Obama administration, however, has realligend itself with the FTC's position. See DOJ's brief in In re Ciproflaxin Hydrochloride Antitrust Litigation (2nd Circuit). This blog has followed this issue here and here and here.

On October 15, 2009, the Senate Judiciary Committee passed the Preserve Access to Affordable Generics Act, S. 369. The bill originally outlawed all reverse-payment settlements. But the bill was later amended to create a rebutable presumption that reverse-payment settlements were anticompetitive. To overcome this presumption, the drug manufacturer would have to prove by "clear and convincing evidence" that the deal promotes competition. Opponents of the bill argue that the standard for rebutting the presumption should be reduced to the "preponderance of the evidence."

The bill raises some interesting questions. How would these shifting burdens differ from the structured rule of reason analysis that the DOJ has already advocated for analyzing reverse-payment settlements? How would a drug company prove that such a deal was procompetitive? Would it be enough to prove that the reverse-payment was commensurate with the avoided litigation cost? How much in excess of the avoided litigation costs is too much? What role would the underlying merits of the patent dispute play in such an analysis? Would the court have to hold a "little trial" on the patent dispute before deciding the antitrust issue? How does the regulatory framework of the Hatch Waxman Act affect the competitive analysis?

DOJ Proposes Structured Rule of Reason Analysis for RPM

2009-10-14T09:00:00.003-04:00

Christine A. Varney, the Assistant Attorney General of the U.S. Department of Justice, gave a speech in which she proposed a “structured rule of reason analysis” for analyzing resale price maintenance. See Christine A. Varney, “Antitrust Federalism: Enhancing Federal/State Cooperation,” Remarks as Prepared for the National Association of Attorneys General (October 7, 2009).

As noted elsewhere on this blog, the law of resale price maintenance has changed dramatically in the last two years. The Supreme Court's 2007 decision that RPM is no longer per se illegal raises the question of how RPM should be analyzed under the rule of reason--a question which no court had the chance to answer during the previous 100 years when RPM was per se illegal. Some courts are addressing the issue now, such as the Eastern District of Pennsylvania case involving retail giant Babies "R" Us. See McDonough et al. v. Toys “R” Us, Inc. et al., No. 06-242, 2009 WL 2055168 (E.D. Pa. July 15, 2009) (certifying class action).

In a speech to the National Association of Attorneys General, Ms. Varney suggested a "structured rule of reason analysis" which creates a presumption of illegality if certain structural conditions are present in the market. Those structural conditions would exist when RPM was used: "(1) by a manufacturer cartel to identify members that are cheating on a price-fixing agreement; (2) when used to organize a retailer cartel by coercing manufacturers to eliminate price cutting; (3) when used by a dominant retailer to protect it from retailers with 'better distribution systems and lower cost structures,' thereby forestalling innovation in distribution; and (4) when used by a manufacturer with market power to give retailers an incentive not to sell the products of smaller rivals or new entrants."

Under Varney's proposal, if a plaintiff established a prima facie case that one of these four structural conditions existed, then the burden of proof "would shift to the defendant to demonstrate either that its RPM policy is actually--not merely theoretically--procompetitive or that the plaintiff's characterizations of the marketplace were erroneous."

In her address to the states Attorneys General, Varney noted that states may not be limited by the per se rule. She explained: "In the wake of Leegin, many states are reevaluating their legal oversight over RPM arrangements and considering whether state law may treat them as per se illegal." As previously noted on this blog, Maryland has already acted on this issue by amending its antitrust laws to specifically state that RPM is per se illegal under Maryland law despite Leegin.

House Acts To Restore Per Se Rule Against Resale Price Maintenance Overruling Recent Supreme Court Decision

2009-08-25T15:27:00.001-04:00

On Tuesday, July 30, 2009, the House Judiciary Courts and Competition Policy Subcommittee approved the Discount Pricing Consumer Protection Act of 2009 (HR 3190). The bill would make all resale price maintenance agreements per se illegal under the Sherman Act, thus overruling the Supreme Court’s decision in Leegin Creative Leather Products v. PSKS, Inc., 127 S.Ct. 2705 (2007).

In Leegin, the Supreme Court held that manufacturers may have very good, pro-competitive reasons for establishing minimum resale prices for their goods. For example, minimum resale prices encourage retailers to invest in advertising and promotion, prevent “free-riding” retailers from undermining the marketing efforts of others, and promote interbrand competition, which, the Supreme Court pointed out, is the purpose of the antitrust laws. Given the benefits of resale price maintenance, the Supreme Court held that such agreements are not per se illegal. Rather, such agreements are unlawful only if they constitute unreasonable restraints of trade under the Rule of Reason (a familiar test in antitrust law).

As a result of the Leegin decision, many manufacturers have changed their distribution policies, and some have adopted resale price maintenance agreements which allow them to more effectively market their products and compete against other brands.

The Discount Pricing Consumer Protection Act, however, would return antitrust law to the days when all such agreements were per se illegal, regardless of their procompetitive benefits. The bill provides: “Any agreement setting a price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate section 1 of the Sherman Act (15 U.S.C. 1).” Those twenty-eight words, if enacted into law, would overrule the Supreme Court’s decision in Leegin and the economic literature upon which the Leegin Court relied. Next the bill will be considered by the full Judiciary Committee, which is headed by Rep. John Conyers (D-MI). Although many bills die in committee, this bill is more likely to be considered because Rep. Conyers is a co-sponsor of the bill.

The Senate is considering its own version of the Discount Pricing Consumer Protection Act. S.B. 148. The Senate bill is sponsored by Senator Herb Kohl (D-WI) whose family founded the eponymous retail department store chain. The Senate bill is also likely to receive committee attention because Senator Kohl is the Chairman of the Antitrust, Competition Policy and Consumer Rights Subcommittee.

Constructive Termination Actionable Under New Jersey Franchise Practices Act

2009-08-25T10:35:00.003-04:00

The New Jersey Appellate Division has ruled that constructive termination is actionable under the New Jersey Franchise Practices Act. See Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc., 975 A.2d 510 (N.J. App. 2009).

The Act prohibits a franchisor from "terminating" a francisee without "good cause" and also prohibits the franchisor from imposing "unreasonable standards of performance" on a franchisee. The court held that "termination" also includes the common-law concept of "constructive termination."

The court explained that "rather than directly and unambiguously terminating the plaintiff, [defendant] engaged in a course of conduct geared to forcing out the plaintiff." For example, the defendant expressed its desire to be rid of plaintiff, appointed a second dealer in plaintiff's territory, and gave the second dealer favorable terms and conditions, in the hopes that plaintiff's business would be destroyed. The court held that this constiuted a "constructive termination" of plaintiff's franchise without good cause. The court also held that plaintiff did not have to resign or actually be driven out of business before filing a claim under the NJFPA. It was enough that defendant attempted to constructively terminate plaintiff and that the scheme would have succeeded but for the plaintiff's lawsuit.

House Introduces Bill To Reinstall Per Se Rule Against Resale Price Maintenance

2009-07-16T15:30:00.002-04:00

On Monday, July 13, 2009, the Discount Pricing Consumer Protection Act of 2009, H.R. 3190, was introduced in the House of Representatives. The bill would essentially overturn the Supreme Court's 2007 decision in Leegin Creative Leather Products v. PSKS, Inc., 127 S.Ct. 2705 (2007). In that decision, the Court held that minimum vertical price fixing was not per se illegal and rather should be analyzed under the Rule of Reason.

Many thought that the Leegin decision would open the doors for manufacturers to enter into price fixing agreements with their distributors and retailers. Leegin's effect, however, has been muted due to the possibility that the per se rule would still apply under certain state antitrust laws and that Congress would legislatively "overrule" Leegin.

The Discount Pricing Consumer Protection Act would reinstate the per se rule against resale price maintenance agreements in federal court. Importantly, however, Colgate policies would still be lawful under existing Supreme Court precedent. (In a Colgate policy, a manufacturer unilaterally announces that it will not do business with a retailer that sells its products below a certain level. Properly written and implemented, these policies are not illegal under antitrust law because there is no concerted action.).

A similar bill has been introduced in the Senate. The House version was sponsored by Henry Johnson, D-Ga. and Co-Sponsored by Rep. John Conyers, D-MI. The bill has been referred to the House Judiciary Committee.

Maryland Daily Record Article About Leegin Repealer

2009-06-18T08:37:00.002-04:00

The Maryland Daily Record published this article about resale price maintenance under Maryland's recently revised Antitrust Laws. The article was written by David Hamilton and Jason Hicks, antitrust and business litigation attorneys at Womble Carlyle. Hamilton and Hicks conclude that Maryland's new law raises the stakes for national manufacturers whose products are sold in Maryland:

Understanding and complying with federal antitrust laws is no longer enough. Beginning Oct. 1, national manufacturers and suppliers will also have to evaluate their policies under Maryland’s more strict standards. Failure to do so may result in the automatic imposition of a treble damages award under Maryland law.

Follow these links for more information about the Supreme Court's approach to price fixing, how businesses can protect themselves with a Colgate policy, Maryland's "Leegin Repealer," and how Congress may overrule Leegin and reinstate the per se rule with respect to federal antitrust law.

Feds Freeze Accounts of On-Line Poker Players

2009-06-10T14:49:00.003-04:00

The Wall Street Journal reports that the US Attorney for the Southern District of New York has frozen or seized $34 million in bank accounts belonging to 27,000 on-line poker players. The accounts are managed by Allied Systems, Inc. and Account Services, which handle transactions for several popular online poker sites. In 2006, Congress passed a law making it illegal for banks to process payments for unlawful Internet gambling. These gambling web sites were already considered illegal by the U.S. government, but it was hard to prevent the off shore sites from operating without going after the credit card companies and banks that handled the transactions. Others, however, say that the law is unclear with respect to on-line poker. Some argue that poker is a game of skill, not a game of chance, and therefore legal under the traditional three-pronged definition of gambling (i.e., 1. consideration, 2. chance, 3. prize). Last year, House Representative Barney Frank introduced a bill that would legalize and regulate Internet gambling.

Google Investigation Reflects Increased Antitrust Enforcement By Government Regulators

2009-06-10T14:15:00.004-04:00

The Wall Street Journal and New York Times have reported that the Justice Department has set formal demands, known as civil investigative demands or CIDs, to Google and book publishers regarding a deal that would allow Google to post millions of books online. Google has been scanning out-of-print books since 2004 and was sued for copyright infringement by the Authors Guild and the Association of American Publishers. Google settled the lawsuit last year, and part of the settlement agreement allowed Google to use the out-of-print books in exchange for payments to publishers and authors. Critics claim that the deal gives Google broad copyright immunity and prevents competitors from entering the market for digital titles. Others applaud the deal because it will expand digital access to books. The Justice Department CIDs reflect a broader interest by government regulators into antitrust law, especially in the technology industry. Google and other tech companies are the subject of other government investigations including:

Whether tech companies agreed not to poach each other's workers;
The overlap of directors on Apple's and Google's boards; and
The sufficiency of standards on behavioral advertising.

The Wall Street Journal reports that "People close to Google say the company considers the investigations part of a broader push by new antitrust regulators to step up scrutiny of the technology industry after a lull during the Bush administration." This increase in antitrust scrutiny may not be limited to Google or the technology industry. There are signs that antitrust regulators, as well as state and federal lawmakers, are taking an increased interest in antitrust enforcement in a variety of industries. This increase in antitrust enforcement comes on the heels of a variety of decisions that have limited remedies for private plaintiffs under federal antitrust law.

Fourth Circuit Says Leegin Did Not Implicity Overrule Colgate

2009-06-02T11:48:00.002-04:00

On March 24, 2009, the Fourth Circuit issued a ruling in Valuepest.com v. Bayer Corp, Case No. 07-1760 ("Valuepest"), in which the Court affirmed the District Court's grant of summary judgment to defendants. Plaintiffs, who provide pest control services to individual customers, brought a price fixing claim under Section 1 of the Sherman Act against a manufacturer of pesticies for allegedly illegally conspiring with its distributors to set a minimum resale price for certain pesticide products. Defendant argued that its policy did not involve concerted action under Section 1 of the Sherman Act because its distributors were bona fide agents, and thus there was no "agreement" between two separate parties. The principal-agency defense was recognized by the United States Supreme Court in United States v. General Electric Co., 272 U.S. 476 (1926).

The Valuepest court noted that principal-agency relationships do not fall within the purview of Section 1 for the same reasons that "Colgate" policies do not involve concerted action. "Unilateral action by a manufacturer does not suffice to implicate s 1; a manufacturer can, for example, refuse to sell retailers who resell its products for less than the manufacturer's preferred price. See United States v. Colgate & Co., 250 U.S. 300 (1919).

The plaintiffs in Valuepest argued that the Supreme Court's 2007 decision in Leegin Creative Leather Products, Inc. v. PSKS, Ins., 127 S. Ct. 2705 (2007) implicitly overruled the principal-agent defense in General Electric. In Leegin, the Supreme Court held that minimum resale price agreements were no longer per se illegal and were instead governed by the rule of reason. The Valuepest plaintiffs further argued that Leegin required a "generalized inquiry into market power and procompetitive beneifts even where a genuine agency relationship exists" and thus there is no agreement. The Fourth Circuit, however, rejected this argument, stating:

Plaintiffs' argument conflates the distinction between the two elements required to prove liabiltiy under s 1. General Electric concerned the first necessary element of s 1 liabiltiy--the existence of an agreement. Where a manufacturer sells its products through its genuine agents, there is no 'contract combination,' or 'conspiracy,' and thus no basis for antitrust liabiltiy. 15 U.S.C. s 1. At issue in Leegin was an entirely different question regarding the second element of s 1 liabilty that applies when an agreement has been proven: should that agreement be considered per se unlawful or should it be analyzed under the rule of reason? The two cases dealt with separate and distinct issues, and thus no part of Leegin's reasoning casts the slightest bit of doubt on the underpinnings of the rule of General Electric.

The same thing can be said for Colgate. Like the principal-agency relationships under General Electric, Colgate policies do not violate section 1 of the Sherman Act because when a manufacturer unilaterally terminates a discounting retailer there is no "contract, combination" or "conspiracy" between the two parties. The reasoning behind the Valuepest decision confirms that Leegin did not implicitly overrule Colgate.

The importance of Colgate and General Electric has resurfaced because several states have indicated that they still consider RPM to be per se illegal. In fact, Maryland recently amended its state antitrust laws to make it clear that RPM agreements were per se illegal in Maryland. And Congress is considering similar legislation with respect to the Sherman Act. (See here and here). These efforts to "overrule" Leegin should not affect Colgate policies because such policies are not "agreements" to begin with. Therefore, you never get to the question of whether the agreement should be considered per se unlawful or analyzed under the rule of reason.

The Fourth Circuit's decision in Valuepest was not surprising. But it is a nice reminder that the classic defenses to vertical price fixing are still available in the post-Leegin world.

Bye Bye Bargains? Congressional Hearings On Repealing Leegin

2009-05-26T17:24:00.000-04:00

The House Judiciary Committee recently held a hearing entitled "Bye Bye Bargains? Retail Price Fixing, the Leegin Decision, and Its Impact on Consumer Prices." The committee heard testimony from several antitrust lawyers, including FTC Commissioner Pamela Jones Harbour, about whether Congress should overrule the Supreme Court's 2007 Leegin decision and reinstate the per se rule against resale price maintenance ("RPM"). Maryland has already enacted such a law with respect to its state antitrust laws. This hearing came within a few weeks of the Justice Department announcing a more aggressive approach to enforcing antitrust laws.

DOJ Signals More Aggressive Antitrust Enforcement By Withdrawing September 2008 Report On Monopolization

2009-05-26T16:14:00.000-04:00

On May 11, 2009, Assistant Attorney General Christine A. Varney, Chief of the DOJ's Antitrust Division announced a policy shift in the Department of Justice regarding single-firm conduct under Section 2 of the Sherman Act. In her speech, Varney announced that the DOJ was withdrawing its report Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act, which had been unveiled during the last few months of the Bush Administration.

Varney explained that the DOJ, under the Obama administration, believed the report "misses the mark" because it "raise[d] the hurdles to government antitrust enforcement." She explained that the report "characterize[d] a dominant firm's ability to act efficiently as a core concern in evaluating any possible anticompetitive impact of its conduct." Although this is an important aspect of the analysis under Section 2 of the Sherman Act, Varney stated that the report "goes too far in evaluating the importance of preserving possible efficiencies and understates the importance of redressing exclusionary and predatory acts that result in harm to competition, distort markets, and increase barriers to entry." Varney said the repudiation of the report represents "a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers."

There is no doubt that Varney's speech is part of a larger effort by the Department of Justice to "reinvigorate" its antitrust enforcement policies, which some say were too lax during the prior administration. What this will mean for antitrust law, however, is yet to be seen. The Department of Justice may be more willing to bring cases, but the scope of the antitrust laws is determined by the courts--not the DOJ.

However, given the cost of responding to and defending a DOJ investigation, businesses should not simply view Varney's speech as a symbolic gesture. A recent headline in the US News and World Report reads: "Obama's New Antitrust Rules Have Big, Powerful Companies Sweating." This begs the question: who is a "big, powerful company"? Market definition and identification of monopoly power are just as (if not more) important issues in an antitrust case than whether the alleged monopolist misused its monopoly power. Varney's speech did not address those issues. The question is not whether "big, powerful companies" should be worried. Of course they should. The real question is whether your company is big and powerful enough to be worried.

Judicial Empathy

2009-05-26T15:47:00.000-04:00

I wrote an op-ed column that was recently published by the Daily Progress, the newspaper in my hometown of Charlottesville, Virginia. Given that President Obama nominated Sonia Sotomayor as his first Supreme Court justice today, I am re-printing my op-ed column here. The focus of this column was President Obama's use of the word "empathy" when describing his ideal judge. "Policy," however, may be the buzz word for Judge Sotomayor's confirmation hearing given her off-hand comment that "policy" is made at the court of appeals.

Judicial Empathy

When describing what he would look for in a Supreme Court Justice, President Obama said that he viewed empathy “as an essential ingredient for arriving at just decisions and outcomes.”

What did he mean by “empathy”? Some complain that it is a code word for a liberal, activist judge. Others rejoice that it is a code word for a liberal, activist judge. I think it means neither. Put aside, for a moment, that the words “liberal” and “activist” are themselves code words whose meanings depend on the person using the words.

If you actually were able to “put aside” your view, then you have exhibited that quality of judicial empathy that I believe the President was describing.

Webster defines empathy as “the experiencing as one’s own the feelings of another.” Dahlia Lithwick of Slate magazine explained that President Obama defined “empathy” in his book, The Audacity of Hope, as “a call to stand in somebody else’s shoes and see through their eyes.” This got me thinking. Legal philosophers have written about judicial empathy (perhaps not in those terms), and I have seen judicial empathy in practice. It is nothing to be ashamed of. It has nothing to do with emotions or favoring one side (or one type of litigant) over another. Rather, judicial empathy is a thought experiment that helps judges make fair, impartial decisions consistent with the rule of law.

My notion of judicial empathy comes from John Rawls’s Theory of Justice, one of the most important works of political philosophy in the twentieth century. At the time I first read Rawls in law school, the only thing I knew about political philosophy was that Hobbes believed life was “solitary, poor, nasty, brutish and short,” while Rousseau believed “man is born free.” I failed to realize that their discussion of the state of nature was designed as a through experiment to uncover the foundations of law and government. What underlying rules would persons in the state of nature agree upon to govern themselves? The answer to that question, according to social contract theory, is the justification for government and the underpinnings of the law.

Rawls took this thought experiment one step further by asking what would persons in the “original position” agree was a fair way to organize society? Persons in Rawls’s original position were placed behind a “veil of ignorance” which prevented them from knowing any of the individual characteristics about themselves. If you stepped behind the veil of ignorance, you would be unaware of your own talents, religion, gender, race, class, or abilities.

What type of rules would you want if you were in this original position behind the veil of ignorance? You would want rules that were fair to everyone since you would not know where you may end up after the veil of ignorance was lifted. You would want a basic set of minimum rights and privileges that all people could enjoy. And you would want everyone to have the opportunity to make the most of what they had been given, whatever that may be—remember if you are behind the veil of ignorance, you don’t know what your specific circumstances might be.

My idea of judicial empathy involves a similar thought experiment. The empathetic judge imagines herself to be in the shoes of the litigants, but she does not know in whose shoes she is standing. The resulting decision is simultaneously impartial and empathetic. Judicial empathy is not arbitrary. To the contrary, judicial empathy demands fealty to the rule of law because one of the things we would agree upon, behind the veil of ignorance, is that the law should be consistent, uniform and predictable.

Although I read Rawls in law school, I learned much more about the practice of judicial empathy when I served as a law clerk for two federal judges. Both of these judges were Republican appointees, but I doubt they would object if I complimented them on their judicial empathy. Although their rulings were always based on legal precedent, their decision-making process was not necessarily mechanical. After fully considering the arguments of both sides, these judges would make decisions that were impartial and fair. Although I do not profess to know everything went on inside their heads, I believe that their impartiality and fairness resulted from their ability to empathize with both sides without favoring either side. This is what I believe the President meant when he described “empathy” as a desirable characteristic in a judge.

I hope neither of the judges for whom I clerked take offense when I suggest they decided cases behind the “veil of ignorance.” Sometimes ignorance is a good thing.

Jason C. Hicks lives in Charlottesville, Virginia and is an attorney at Womble Carlyle Sandridge & Rice, PLLC. Jason was a law clerk for Judge Samuel G. Wilson in the Western District of Virginia in Roanoke, Virginia and Judge Susan H. Black on the Eleventh Circuit Court of Appeals in Jacksonville, Florida.

Maryland's Leegin Repealer

2009-05-26T15:38:00.002-04:00

On April 14, 2009, Maryland enacted a law designed to counter a recent United States Supreme Court decision that made it easier for manufacturers to require their retailers to charge a minimum price for their goods. Unlike the current federal law, the new Maryland law treats any agreement that establishes a minimum resale price for goods or services as a per se antitrust violation of the Maryland Antitrust Act (MD. COM'L LAW CODE ANN. 11-204(a).) This per se rule once was the rule everywhere because, for nearly 100 years, the federal Sherman Act was interpreted to prohibit minimum vertical price fixing, also known as resale price maintenance.

The universal per se approach changed, however, in June 2007 when the Supreme Court held in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), that minimum vertical price fixing was not per se illegal but rather should be analyzed under the "rule of reason." The rule of reason is a multifaceted balancing test that analyzes whether an agreement constitutes an "unreasonable" restraint on trade. Generally speaking, under the rule of reason, a restraint is not "unreasonable" (and thus illegal under federal antitrust law) unless the parties to the agreement have "market power" which, again, generally speaking, is defined as something more than a 30% market share for a given market.

Given these generalities, it became a popular notion that the Leegin decision had opened the door for manufacturers to set a minimum resale price for their goods. More thoughtful lawyers, however, realized that resale price maintenance agreements were still risky because state antitrust laws could be more restrictive than federal antitrust laws and because legislatures could "overrule" the Leegin decision by passing special legislation outlawing minimum resale price maintenance. That is exactly what happened in Maryland.

The Maryland bill, which goes into effect October 1, 2009, amends the Maryland Antitrust Act to specifically state that "a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce" for purposes of the Maryland Antitrust Act. See Maryland Senate Bill 239 (repealing and reenacting, with amendments, MD. COM'L LAW CODE ANN., Section 11-204). The accompanying notes to the bill recognize that the Maryland Antitrust Act previously had been interpreted to be consistent with federal antitrust law. By enacting this bill, however, Maryland is departing from federal law, specifically the Supreme Court's decision in Leegin. Maryland's actions demonstrate why the conservative approach to Leegin is for manufacturers to continue avoiding any "agreements" as to the minimum resale price for their products.

Maryland's new law, however, does not prevent what is known as a Colgate policy. Colgate policies are named after a Supreme Court decision holding that the unilateral termination of a dealer that sold goods below a suggested resale price was not an "agreement" in restraint of trade. See United States v. Colgate, 250 U.S. 300, 307 (1919). The Court's opinion was based on the "contract, combination or conspiracy language in the Sherman Act. Unless there was an agreement between two parties then there was no "contract, combination or conspiracy" and, accordingly, there was no antitrust violation. With a Colgate policy, a manufacturer unilaterally announces suggested resale prices for its products; retailers remain free to sell those products at discounted prices; and, the manufacturer also remains free to unilaterally terminate any discounting retailers. Since there is no agreement between the two parties, Colgate policies were considered lawful under federal antitrust law even before the Supreme Court's decision in Leegin. Maryland's recent revisions to its state antitrust law should not affect Colgate policies because Maryland's Antitrust Law contains the same "contract, combination, or conspiracy" language as the Sherman Act. Therefore, Colgate policies should remain lawful in Maryland. Of course, there is a fine line between a lawful Colgate policy unilaterally announced by a manufacturer and an unlawful "agreement" as to the resale price of goods.

Mack Trucks: Third Circuit Reverses Summary Judgment In Price Fixing Claim Under Rule Of Reason, Applying Leegin

2008-06-20T09:10:00.001-04:00

On June 17, 2008, the Third Circuit issued a precedential decision applying the rule of reason to an alleged price fixing conspiracy between a manufacturer of heavy duty trucks and its dealers. See Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., --- F.3d --- (3d Cir. 2008). This is one of the first decisions from the Court of Appeals after the Supreme Court's decision in Leegin Creative Leather Prods., Inc. v. PSK, Inc., 127 S. Ct. 2705 (2007). The case demonstrates that price-fixing claims may survive summary judgment, under the rule of reason, if the plaintiff can present evidence that the defendant manufacturer had "market power" and that the dealers/retailers (rather than the manufacturer) were the source of the alleged restraint.

Summary of Toledo Mack Sales & Service

Defendant Mack Trucks manufactured heavy-duty trucks and sold them to dealers across the country for resale. An important aspect of the price of a Mack truck is the transition-specific discount ("sales assistance") that Mack provides to the dealer. The larger the sales assistance, the less the dealer can charge the customer.

Each dealer was given an assigned "Area of Resonsibility" ("AOR"). Although a dealer's AOR was not exclusive (i.e. dealers were free to sell anywhere), Mack adopted an official policy denying sales assistance to out-of-AOR sales. Additionally, plaintiff alleged that this official policy (and unofficial policy of discouraging price competition among dealers) was taken at the bequest of dealers and in aid of the "gentelman's agreement" among dealers not to compete against each other.

Plaintiff was a Mack truck dealer who aggressively competed against other Mack truck dealers. Plaintiff sued Mack claiming that the official policy of denying sales assistance for out-of-AOR sales (and unofficial policy of discouraging price competition among its dealers) was part of an unlawful conspiracy to restrain trade under the Sherman Act and price discrimination under the Robinson Patman Act. The district court granted defendant summary judgment based on the Supreme Court's recent decision in Leegin that price fixing agreements were not per se illegal. The Third Circuit, however, reversed and held that plaintiff produced sufficient evidence under the rule of reason to survive summary judgment.

The Court found that there was evidence of a horizontal agreement among Mack dealers to control prices which would be per se unlawful under the Sherman Act. The Court also found there was evidence of a competition-reducing vertical agreement between Mack and its dealers including Mack's official policy not to provide sales assistance for out-of-AOR sales. The vertical agreements between Mack and its dealers, however, were not per se illegal (after Leegin) even if they supported the illegal horizontal agreements among the dealers. Citing Leegin, the Court held that the rule of reason would apply to a vertical agreement entered upon to facilitate a horizontal cartel among competing retailers.

In determining whether such an agreement was unreasonable under the rule of reason, the Court applied the following four factors that it had previously identified as relevant in a rule of reason case:

"(1) that the defendants contracted, combined or conspired among each other; (2) that the combination or conspiracy produced adverse, anti-competitive effects within the relevant product and geographic markets; (3) that the objects of and the conduct pursuant to that contract or conspiracy were illegal; and (4) that the plaintiffs were injured as a proximate result of that conspiracy."

The Court then identified two additional factors from the Supreme Court's decision in Leegin: (1) whether the source or impetus of the restrain was from the retailers/dealers or from the manufacturer; and (2) whether the manufacturer had market power. Applying these factors, the Court concluded that plaintiff's allegations created jury questions under the rule of reason. First, the Court noted there was evidence that the dealers were the impetus of Mack's policy not to provide sales assistance for out-of-AOR sales and that this policy furthered the dealer's horizontal agreement not to compete on price. Second, the Court noted that plaintiff presented expert testimony that Mack possessed market power in two relevant product and geographic markets for heavy-duty trucks, which in turn, was sufficient evidence that the alleged agreement had anticompetitive effects.

The Court, therefore, reversed the district court's summary judgment ruling and directed that plaintiff's Sherman Act claim be heard by a jury. The Court, however, affirmed dismissal of the Robinson Patman claims because the RPA does not apply in the context of a single sale of a customized good via a competitive bidding process. (In order for there to be price discrimination under the RPA, there must be actual sales at two different prices to two different buyers. Because no sale of a Mack truck took place until after the customer accepts a dealer's bid, the amount of sales assistance Mack provides to a particular dealer is part of an offer to sell -- not a sale. See also Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006)).

Analysis

Toledo Mack Sales & Service demonstrates that price fixing cases can survive summary judgment even after the Supreme Court's decision in Leegin. A manufacturer (especially one that might have market power in a relevant market) should be careful that its policies and agreements with its dealers do not appear to be in aid of an illegal agreement among its dealers not to compete against each other. As demonstrated in Toledo Mack Sales & Services, a manufacturer that gets caught up in the illegal agreement between its dealers may be liable to a dissatisfied dealer (or at least have to defend itself in a jury trial).

For more information about price fixing after Leegin see this powerpoint presentation.

For a copy of the Third Circuit's decision in Toledo Mack Sales & Service, click here.

The Reshaping of Antitrust

2008-05-28T13:11:00.000-04:00

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

2008-05-28T11:28:00.001-04:00

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.

LEGISLATION PROPOSED TO CURTAIL "ANTICOMPETITIVE" ISP PRACTICES

2008-05-28T09:52:00.003-04:00

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.

State AGs Continue To Prosecute Resale Price Maintenance After Leegin

2008-05-13T13:34:00.000-04:00

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

2008-05-13T09:53:00.000-04:00

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

2008-05-13T09:14:00.000-04:00

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.

FTC Announces Revised Proposal For Business Opportunities Rule

2008-03-20T13:37:00.000-04:00

In April 2006, the FTC sought comment on a proposed trade regulation rule governing business opportunities that was separate from and more expansive than the FTC franchise disclosure rule. For example, the FTC's franchise disclosure rule applies to opportunities that require a buyer to make a payment of at least $500 within the first six months, but under the inventory exception, voluntary purchases of reasonable amounts of inventory at bona fide wholesale prices do not count toward the $500 threshold. The Business Opportunity Rule, as originally proposed, did not contain such an "inventory exception."

Given the breadth of the original Business Opportunity Rule, many manufacturers and distributors were concerned that it would include traditional distribution networks that were previously exempt from franchise laws. One commenter on the rule feared that it "could be read to cover... product distribution through retail stores simply because the retailer pays for inventory and the manufacturer provides sales training to its retail accounts." We wrote about the issues with the proposed Business Opportunity Rule here, here and here.

On March 18, 2008, the FTC announced a revised notice of proposed rulemaking that modified the proposed Business Opportunity Rule. The revised proposed rule narrows the definition of a "business opportuinty." Among other things, the revised rule excludes from coverage distribution arrangements in which the only required payment is for reasonable amounts of inventory at bona fide wholesale prices. The FTC explained:

The changes to the IPBOR’s definition of “business opportunity” are three-fold. First, the RPBOR definition includes a prong limiting coverage to opportunities for which “the prospective purchaser makes a required payment” for the purchase of the business opportunity. This change will exclude from the definition business relationships in which the only required payment is for inventory at bona fide wholesale prices. Second, the RPBOR definition eliminates two types of “business assistance” that formerly would have triggered the Rule’s strictures and disclosure obligations, namely tracking paymentsand providing training. Third, the RPBOR no longer links the definition of “business opportunity” to the making of an earnings claim. Each of these changes is discussed in detail below.

For businesses that still fall within the revised definition of a "business opportunity," the revised rule streamlines and eliminates some of the disclosure requirements in the original proposed rule. The FTC is accepting comments on the revised Notice of Proposed Rulemaking through May 27, 2008.

If you have further questions about the scope of the revised rule or wish to comment on the revised rule, contact Jason Hicks or the Womble Carlyle attorney with whom you work.

"Preemption, Preemption, Preemption" Says The Supreme Court

2008-02-21T15:35:00.000-05:00

As previously mentioned in this blog, there are several high profile preemption cases pending before the Supreme Court this term. Yesterday, the Supreme Court decided three of them -- all in favor of federal preemption of state laws.

In Rowe v. New Hampshire Motor Transport Association, the Court held that Maine's Tobacco Delivery Law (which required carriers to verify that the recipients of tobacco shipments were not minors) was preempted by the Federal Aviation Administration Authorization Act (which prohibits states from regulating prices, routes or services of shipping companies).

In Preston v. Ferrer, the Court held that the Federal Arbitration Act preempted a California law that required an administrative hearing prior to arbitration.

And in Riegel v. Medtronic, the Court found that the Medical Devices Amendment (MDA) preempted state common law tort claims that would impose different or additional requirements than those approved by the FDA.

The following is an excerpt from Womble Carlyle Client Alert explaining the significance of the Riegel decision:

The United States Supreme Court, in Riegel v. Medtronic, sided with the
majority of the federal circuit courts today, holding that federal law
regulating medical devices preempts common law tort actions that would impose
different or additional requirements than those approved by the federal Food and
Drug Administration (“FDA”). This ruling puts to rest a long running dispute
over whether there is federal preemption for medical device product liability
lawsuits, but may have opened the way for an even longer dispute on the scope of
that preemption.

...

Justice Scalia, who delivered the opinion of the Court, broadly confirmed
federal preemption for any state law requirements different from or additional
to those imposed by the FDA on approved medical devices. The Court specifically
declined to adopt a more narrow view (once espoused by the FDA but now
abandoned) that the statute only preempted requirements specific to medical
devices, not requirements of general applicability to all types of products. The
Court’s opinion even suggests that preemption might extend to unfair trade
practice or UCC-based claims, which the FDA had previously declined to say were
preempted. Only one Justice, Justice Ruth Bader Ginsberg disagreed and in her
dissenting opinion accused the majority of "a radical curtailment of state
common-law lawsuits seeking compensation for injuries caused by defectively
designed or labeled medical devices" that was never intended by the Congress.

The opinion leaves open many questions about the scope of federal
preemption of state law claims for FDA-approved medical devices and will likely
be the subject of much debate and litigation.

These case will likely have an impact on preemption analysis far beyond medical devices, tobacco sales, and arbitration. Several preemption cases remain to be decided this term.

Unintended Consequences Of Leegin: No Antitrust Exemption For Baseball?

2008-02-12T13:04:00.000-05:00

FTC Commissioner Pamela Jones Harbour wrote an interesting article about the collateral fallout of the Supreme Court's decision in Leegin. As explained here and (in more depth) here, the Leegin Court held that minimum vertical price fixing is not per se illegal, thus reversing the long-standing decision in Dr. Miles.

Commissioner Jones Harbour suggests Leegin may have the following unintended consequences:

First, Leegin potentially revitalizes the state action and Twenty-First
Amendment defenses to price fixing that had been rejected in the Midcal case;
and second, Leegin seems to remove any foundation for Justice Holmes's
exemption of major league baseball from the reach of the antitrust laws.

The Commissioner's first point is that in Midcal the Supreme Court balanced competing state and federal interests. In this particular case, the Court determined that California's interests in producer-controlled vertical minimum price fixing was less substantial than the federal policy of per se prohibition of vertical minimum price fixing. Commissioner Jones Harbour suggests that this balancing test might tip in the other direction now that there is no federal per se rule against vertical minimum price fixing:

When balancing federal verses state sovereign interests, the balance
materially shifts in favor of the states when the rule of reason, rather than a
per se standard, is applied. As state regulators and the industries they
regulate begin to appreciate the implications of Leegin, we may see a new round
of state action and constitutional issues percolating up to the Court.

The Commissioner's second point is that, given the Leegin Court's "loose regard" for stare decisis and its willingness to discard outdated antitrust cases, baseball's antitrust exemption may be the next case to be overruled. In the 1992 decision Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, Justice Holmes famously found professional baseball games to be "purely state affairs" not within the jurisdictional of the Sherman Act. Since then the Court's jurisprudence has changed such that, if decided today, the Court would not exempt professional baseball from federal antitrust laws. Although the Court has criticized the baseball exemption and called it an "aberration," the Court has twice reaffirmed Federal Baseball based on stare decisis -- leaving the issue to Congress.

(Coincidentally, lawmakers have argued that the baseball antitrust exemption gives them the right to meddle in the game and, for example, hold hearings on steroid use in baseball).

Commissioner Jones Harbour believes that Leegin may portend a successful assault on the baseball exemption: "If the Court has as loose a regard for the reliance interests of baseball club owners as it had for discount merchant investors in Leegin, stare decisis should not constrain the Court."

Although there is much to debate, both of these points are very interesting. I suspect the second issue is more likely to materialize than the first. Litigants who want to avoid outdated (but still binding) precedent will surely use Leegin to support their arguments.

Regulatory Preemption And The Supreme Court

2008-02-07T16:19:00.000-05:00

There was an interesting article (State, Federal Powers Collide) in the Wall Street Journal last week about federal agencies enacting new rules that preempt state law. The article explained: "These new initiatives, largely applauded by business interests, affect products including drugs, autos and passenger railcars." Generally speaking, companies prefer a single federal standard to a "patchwork" of differing state guidelines. Additionally, federal preemption can be a defense against state law tort claims.

The article references the following federal agency actions:

--An effort by the EPA to block California and other states from regulating carbon-dioxide emissions.

--A decision by the Consumer Product Safety Commission that its rules on mattress flammability preempt state laws.

--A rule by the FDA regarding warning labels on drugs.

--A Federal Railroad Administration rule that would strengthen safety standards for commuter trains and includes language that preempts efforts by states.

The article failed to mention the preemption issue surrounding the federal Do-Not-Call registry, which I wrote about here.

The article also notes that "the[se] regulatory moves may be trumped by the Supreme Court, which is set to rule on a series of cases related to preemption in the next year or two."

Presumably, the article is referring to Reigel v. Medtronic, Wyeth v. Levine, and Phillip Morris v. Good. The Supreme Court heard oral argument in Reigel on December 4, 2007. This issue is whether the Medical Devices Act preempts state tort claims involving PMA devices. In Wyeth, the Supreme Court is reviewing a Vermont Supreme Court decision involving preemption of state law failure-to-warn claims for prescription drugs. And Phillip Morris involves the interaction of federal and state laws governing the labeling and advertising of cigarettes.

Over the last several years, the Supreme Court heard and decided many important antitrust cases (which were discussed and followed on this blog). Perhaps this will be a big year for preemption jurisprudence.

Do Not Call Improvement Act

2008-02-06T10:24:00.000-05:00

Identical versions of the Do Not Call Improvement Act have passed both the House (H.R. 3541) and Senate (S. 2096). The Act eliminates the need for consumers to re-register their numbers on the Do Not Call registry. When the Do Not Call program was first established in 2003, consumers could list their phone numbers for a five-year period after which they were required to re-register. In October, the FTC suspended the deletion of expired numbers pending Congressional action.

To read about a tricky preemption issue involving the Telephone Consumer Protection Act and the Do Not Call program, click here.

Antitrust Claim Against Wintergreen Allowed To Proceed

2008-01-31T15:33:00.000-05:00

The Wintergreen Resort is a ski resort and conference center in Nelson County, Virginia (between Lynchburg and Charlottesville). According to the allegations in Plaintiff's complaint, Wintergreen entered into an agreement with Wintergreen Resort Premier Properties (WRPP), a local real estate company, which granted WRPP the exclusive right to operate a real estate office in Wintergreen's Mountain Inn. Plaintiff, a competing real estate company, alleged that this agreement imposed an unreasonable restraint of trade under Section 1 of the Sherman Act.

Plaintiff alleged that the exclusive right to operate a sales office within the Mountain Inn gives WRPP an unreasonable advantage over competitors. According to the Court's opinion: "The presumed advantage flows primarily from the location of WRPP in the Mountain Inn. MAR asserts that the majority of buyers of residential properties are also visitors to the resort who are likely to pass by the Mountain Inn and see WRPP's office. Plaintiff argues that WRPP's superior access to these potential "leads" allows them to charge higher commissions than MAR and other competitors."

The Court held that the alleged facts were sufficient to state a claim because Plaintiff alleged relevant product and geographic markets -- real estate services within Wintergreen Resort and Nelson County -- and anticompetitive harm supported evidence of price discrepancies between the two real estate companies and a decline in Plaintiff's market share. The Court concluded: "At this stage of the litigation that is all that is required of Plaintiff."

Some have criticized this ruling, but I will refrain from commenting. This case, however, is of personal interest to me because I grew up in Lynchburg, I met Judge Moon when I was a law clerk in the Western District of Virginia, and I went skiing at Wintergreen when I attended the University of Virginia.

Tricky Preemption Issue Re: Established Business Relationship Under TCPA and Do Not Call Registry

2008-01-15T10:36:00.000-05:00

In 2003, the Federal Trade Commission and the Federal Communications Commission jointly established a national do-not-call registry pursuant to the Telephone Consumer Protection Act (TCPA). Even when a number is listed on the do-not-call registry, solicitation calls can be placed to persons with whom the caller has an "established business relationship."

Several states have enacted their own do-not-call laws, and some of these state laws are more restrictive than the federal do-not-call rules. For example, some states do not recognize the "established business relationship" exception.

What is a business to do when faced with these differing state and federal regulations?

The answer (if there is one) lies in the Supremacy Clause of the United States Constitution. State law is preempted by federal law when: (1) Congress explicitly says so; (2) state law regulates a field that Congress intended the federal government to exclusively occupy; or (3) state law actually conflicts with federal law. See generally English v. General Electric Co., 496 U.S. 72, 110 S.Ct. 2270 (1990); Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 121 S.Ct. 2404 (2001).

Section 227(e)(1) of the TCPA contains a “savings clause” in which Congress specifically stated that the TCPA does not preempt any state law that imposes more restrictive intrastate requirements or regulations. The savings clause, however, does not address whether the TCPA preempts states from imposing more restrictive regulations on interstate calls. One can argue that the negative implication of Congress’ statement that regulation of intrastate calls are not preempted is that regulation of interstate calls may be preempted. If state law regulating interstate laws is preempted, however, then telemarketers could avoid the state regulations simply by moving their call center to a state that did not have more restrictive regulations; thus all calls made to states that had more restrictive laws would be interstate calls.

In its July 2003 Order revising the do-not-call rules, the FCC recognized the ambiguity in the TCPA’s savings clause, but nevertheless ruled that: "any state regulation of interstate telemarketing calls that differs from our rules almost certainly would conflict with and frustrate the federal scheme and almost certainly would be preempted." See In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, FCC 03-153, paragraph 84 (June 26, 2003).

Since then, several courts have addressed this issue and have come to differing and conflicting conclusions:

Utah Division of Consumer Protection v. Flagship Capital, 125 P.3d 894 (Utah 2005) (more restrictive state laws not preempted because telemarketer can comply with both).

Stenehjem v. FreeEats.Com, Inc., 712 N.W.2d 828 (N.D. 2006) (North Dakota law that prohibited calls using an automatic dialing device not preempted even though federal law contained an exception for non-commercial (political) calls), cert. denied by FreeEats.com, Inc. v. North Dakota, 127 S.Ct. 383 (2006).

FreeEats.Com, Inc. v. State of Indiana, 2006 WL 3025810 (S.D. Ind. 2006) (same with respect to Indiana law), reversed on other grounds, 502 F.3d 590 (7th Cir. 2007).

TSA Stores, Inc. v. Department of Agriculture & Consumer Services, 957 So.2d 25 (Fla. App. 2007) (TCPA did not completely preempt cause of action under Florida do-not-call statute).

Chamber of Commerce of the United States of America v. Lockyer, 2006 WL 462482 (E.D. Calif. 2006) (California law banning unsolicited faxes was preempted because it did not contain an exception for general business relationships).

Charvat v. Teleytics, LLC, 2006 WL 2574019 (Ohio App. 2006) (TCPA preempted Ohio law that prohibited calls without providing an exception for non-commercial calls and which required telemarketers to state the purpose of the call and register with the Ohio Secretary of State -- none of which was prohibited by TCPA).

Although these courts applied the same preemption analysis, they reached different conclusions and had different opinions about the interpretation of the TCPA's savings clause and the deference to be given the FCC's interpretation. It will be interesting to see how this issue is resolved. It is very possible that there will be a conflict among several state supreme courts or federal courts of appeals, in which case the issue may have to be resolved by Congress or the United States Supreme Court.

Happy New Year: An Explanation For My Absence

2008-01-01T11:35:00.000-05:00

As some readers may (or not) have noticed, I was not able to post as often in 2007 as I did in 2006. I have two excuses.

First, I was working on a very complicated and interesting antitrust/IP case which went to trial in the Spring/Summer of 2007. Although the case is not over, you can read about it here. It involved the intersection of antitrust and intellectual property, the scope of the patent misuse doctrine, the first-sale doctrine, the definition of a relevant market in an aftermarket context, and many other interesting issues.

My second excuse is just as complicated and interesting -- but much cuter. Now that she is in full-time daycare and sleeping through the night, I should have more time to post.

In-Depth Analysis Of Leegin

2007-08-01T16:56:00.000-04:00

This powerpoint presentation contains an in-depth analysis of the Supreme Court's decision in Leegin and what the new era of resale price maintenance under the rule of reason means for manufacturers, distributors and retailers.

Supreme Court Overrules Dr. Miles: Minimum Resale Price Fixing Subject To The Rule Of Reason

2007-06-28T13:16:00.000-04:00

On the last day of the 2006-2007 term of court, the Supreme Court issued its long-awaited opinion in Leegin Creative Leather Products, Inc. v. PSKS, Inc. By a vote of 5-4, the Court held that minimum vertical price fixing is no longer per se unlawful under the Sherman Act, but rather should be analyzed under the rule of reason.

The Court's decision reverses the 1911 case Dr. Miles Medical Co. v. John D. Park & Sons Co. 220 U.S. 373 (1911). The opinion is available here.

Below are the relevant portions of the Court's syllabus explaining why resale price maintenance should be governed by the rule of reason:

Because the reasons upon which Dr. Miles relied do not justify a per se rule, it is necessary to examine, in the first instance, the economic effects of vertical agreements to fix minimum resale prices and to determine whether the per se rule is nonetheless appropriate. Were this Court considering the issue as an original matter, the rule of reason, not a per se rule of unlawfullness, would be the approrpiate standard to judge vertical price restraints.

Economic literature is replete with procompetitive justifications for a manufacturer's use of resale price maintenance, and the few recent studies on the subject also cast doubt on the conclusion that the practice meets the criteria for a per se rule...

Setting minimum resale price may also have anticompetitive effects ... Thus, the potential anticompetitive consequences of vertical price restraints must not be ignored or underestimated. Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of confidence that retail price maintenance "always or almost always tend[s] to restrict competition and decrease output."...

The rule of reason is designed and used to ascertain whether transactions are anticompetitive or procompetitive. This standard principle applies to vertical price restraints. As courts gain experience with these restraints by applying the rule of reason over the course of decisions, they can establish the litigation structure to ensure the rule operates to eliminate anticompetitive restraints from the market and to provide more guidance to businesses.

The Court's opinion raises many questions. What types of resale price maintenance agreements would be unlawful under the rule of reason? There is no case law on this issue because for the last 96 years such agreements have been treated as per se unlawful. Given this uncertainty, is it still necessary to follow the Colgate doctrine?

The Court's decision also raises the academic question of when it is appropriate to overturn established precedent under stare decisis. Traditionally, long-standing decisions of statutory interpretation are not overruled because if the Court's interpretation was wrong, Congress would have amend the governing statute. In Leegin, the Court explained why it was appropriate in this case to overturn a long-standing decision of statutory interpretation:

Stare decisis does not compel continued adherence to the per se rule
here. Because the Sherman Act is treated as common-law statute, its
prohibition on "restraint[s] of trade" evolves to meet the dynamics of
present economic conditions. The rule of reason's case-by-case adjudication
implements this common-law approach.... In addition, this Court has
"overruled [its] precedents when subsequent cases have undermined their
doctrinal underpinnings."... It is not surprising that the Court has
distanced itself from Dr. Miles' rationales, for the case was
decided not long after the Sherman Act was enacted.

In his dissent, Justice Beyer disagreed:

The Court justifies its departure from ordinary considerations of stare
decisis by pointing to a set of arguments well known in the antitrust
literature for close to half a century. Congress has repeatedly found in these
arguments insufficient grounds for overturning the per se rule.
And, in my view, they do not warrant the Court's now overturning so
well-established a legal precedent.

Supreme Court Decides Predatory Bidding Case

2007-02-20T16:27:00.000-05:00

On Tuesday, February 20, 2007, the Supreme Court issued a unanimous opinion in Weyerhaeuser Co. v. Ross-Simmons Hard-Wood Lumber Co., Inc. In this case, the plaintiff, a sawmill, alleged that defendant drove it out of business by bidding up the price of sawlogs to a level that prevented plaintiff from being profitable. The Supreme Court held that test applied to predatory-pricing claims in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., also applied to predatory-bidding claims such as plaintiff's claim.

Predatory pricing is a scheme in which the predator reduces the sale price of its product hoping to drive competitors out of business and, once competition has been vanquished, raises prices to a supracompetitive level. In Brooke Group, the Supreme Court established two prerequisites to recover on a predatory-pricing claim: (1) the prices complained of are below cost; and (2) the predator had a "dangerous probability of recouping its investment in below-cost pricing."

Predatory bidding involves the exercise of market power on the market's buy, or input, side. To engage in predatory bidding, a purchaser bids up the market price of an input so high that rival buyers cannot survive, thus acquiring monopsony power (which is market power on the buy side of the market). Once a predatory bidder causes competing buyers to exit the market, it will attempt to drive down input prices to reap supracompetitive profits that will at least offset the loses it suffered in bidding up input prices.

In Weyerhaeuser, the Supreme Court held that, given the analytical similarity between predatory-pricing and predatory-bidding and the close theoretical connection between monopoly power and monopsony power, the same standards should apply in both cases. Thus, the Court held that Brooke Group's two-pronged test should apply in predatory-bidding claims. Accordingly, a predatory-bidding plaintiff must show (1) that the predator's bidding on the buy side caused the cost of the relevant output to rise above the revenues generated in the sale of those outputs; and (2) that the defendant has a dangerous probability of recouping the losses incurred in bidding up input prices through the exercise of monopsony power. Making such a showing will require "a close analysis of both the scheme alleged by the plaintiff and the [relevant market's] structure and conditions."

Keep checking this blog for updates on the other antitrust cases pending before the Supreme Court...

FTC Reports on Pharmaceutical Patent Settlement Agreements

2007-01-19T16:09:00.000-05:00

The FTC issued its annual report on pharmaceutical patent settlement agreements that are required to be filed with the FTC under the 2003 Medicare Modernization Act. The chart below (taken from the FTC's report) categorizes the agreements based on whether there is a restriction on the generic's ability to compete and what compensation, if any, flows between the parties. As explained in the previous post, the Senate held hearings on reverse payment settlement agreements on Wednesday, and a bill may soon be introduced that outlaws such payments.

Senators To Introduce Bill To Stop "Reverse" Settlement Payments That Delay Introduction of Generic Drugs

2007-01-19T14:33:00.000-05:00

On Wednesday, January 17, 2007, the Senate Judiciary Committee held a hearing entitled "Paying Off Generics to Prevent Competition With Brand Name Drugs: Should It Be Permitted?" Senators Leahy, Kohl, Grassley, Feingold, and Schumer voiced their support for a bill to prohibit settlement agreements between brand-name and generic pharmaceutical companies that would delay the introduction of the generic drug. These so-called "reverse payment settlements" have been a hot topic in antitrust law and the subject of several previous blog posts. See here, here, here and here.

The Senators commented that in 2005, two appellate decisions overturned FTC enforcement actions that challenged the reverse payment settlements. See Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) (overturning an FTC ruling that Schering-Plough's agreement with generic over its blood pressure drug K-Dur was anticompetitive); In re Tamoxifen Citrate Antitrust Litigation, 429 F.3d 370 (2nd Cir. 2005) (affirming district court's decision to dismiss similar case involving AstraZeneca's cancer drug Tamoxifen). This summer the Supreme Court declined to grant cert in Schering-Plough. In December, the plaintiffs in Tamoxifen filed a petition for cert arguing that their case is more appropriate for review than Schering Plough. The Supreme Court has not yet decided whether it will hear Tamoxifen.

In Wednesday's hearing, FTC Commissioner Jon Leibowitz testfied in support for legislation banning reverse payment settlements. He said that these agreements were growing in number. He reported that there were 14 patent settlements in which a generic competitor received compensation and agreed to restrict the introduction of a new generic drug. That was half of all the drug patent settlements reached in 2006 and double the number in 2005.

The FTC and the above-mentioned Senators are particularly concerned with reverse payment settlements in the context of the Hatch-Waxman Act, which grants the first generic ANDA-filer a 180-day exclusive marketing period that does not commence until the generic enters the market.

In Schering Plough and Tamoxifen, however, the 11th Circuit and 2nd Circuit held that such reverse payment settlement agreements are not per se unlawful. The bill that is planned to be introduced in the Senate -- the "Preserve Access to Affordable Generics Act" -- will explicitly prohibit brand-name drug manufacturers from paying to keep generics off the market. Senator Leahy stated that this "bright-line approach" would "avoid endless litigation and set forth a clear standard." The House is said to be entertaining similar legislation.

It will be interesting to see who acts first, Congress or the Surpreme Court. If Congress enacts a bill that makes reverse payment settlements per se illegal, will the Court be less inclined to grant cert because the issue (at least prospectively) will be resolved? If the Supreme Court grants cert in Tamoxifen, will Congress wait until the Court's decision to act?

Stay tuned for more developments...

NC Court of Apeals Allows Quran Lawsuit To Continue

2007-01-17T14:08:00.000-05:00

On Tuesday, January 16, 2007, the North Carolina Court of Appeals issued its opinion in ACLU v. North Carolina, a case addressing whether the Quran is a "Holy Scripture" upon which witnesses and jurors may take oaths. Although the case does not involve antitrust law, the court's decision was on the front page of my local newspaper, so I decided to write a post about it.

North Carolina law mandates that a person giving an oath "shall ... require the party to be sworn to lay his hands upon the Holy Scriptures" N.C.G.S. 11-2. The American Civil Liberties Union of North Carolina (ACLU-NC) filed suit seeking a declaratory judgment that the term "Holy Scriptures" refers not only to the Christian Bible, but also to other religious texts such as the Quran, the Old Testament, and the Bhagavad-Gita. Alternatively, if the statute excluded these other religious texts, the ACLU-NC sought a declaratory judgment that the statue was unconstitutional under the federal and state constitutions.

The state trial court dismissed the suit after ruling that no actual case or controversy existed among the parties. The Court of Appeals, however, found that the complaint presented a justiciable controversy under North Carolina's Declaratory Judgment Act. The Court of Appeals explained that that "we are careful to express no opinion on the merits of those claims."

As was reported in the Greensboro News and Record, this case began when Syidah Mateen asked to take her oath on a Quran in a Guilford County court during a domestic-violence hearing. After being told that she could not do so because the court did not have any, Mateen and other members of Greensboro's Al-Ummil Ummat Islamic Center donated eight Qurans to Guilford County courts. Their offer was rejected, however, because the Guilford County judges determined that state law only allows for oaths on the Bible. When the Administrative Office of the Courts did not intervene, the ACLU-NC filed suit in Wake County Superior Court on behalf of its 8,000 members, some of whom are Jewish and Muslim and would prefer to take oaths on a holy text other than the Christian Bible. Mateen was later added as a plaintiff.

The North Carolina Court of Appeals addressed whether the ACLU-NC and Mateen had standing under North Carolina's Declaratory Judgment Act. The operative test was whether litigation was "unavoidable." The Court stated:

We consider this question first with respect to plaintiff Syidah Mateen. When Ms. Mateen appeared as a witness, she requested that her oath to tell the truth be sworn on the holy text of her religious faith, the Quran. When her request was denied and because she would not swear on the Christian Bible, her options were to affirm without the use of a religious text or be denied the opportunity to testify.... Ms. Mateen chose to affirm to tell the truth, and she now seeks a declaratory judgment determining whether, under N.C.G.S. § 11-2, she has the right to swear on her holy text, the Quran. Under these circumstances, Ms. Mateen clearly demonstrated her intent to avail herself of her asserted right to swear on her religious text and her intent to litigate that right. The State has clearly demonstrated, by its refusal to permit witnesses to swear on any text other than the Christian Bible, its intent to continue the course of action; thus, its actions are not speculative. The facts do not suggest any impediments to litigation that would make litigation avoidable in the absence of a declaratory judgment. Finding no impediment to litigation, we conclude that litigation between plaintiff Mateen and defendant is unavoidable.
We next consider whether an impediment to litigation exists between ACLU-NC and the State. ACLU-NC submitted affidavits from eight of its members from Guilford County, eligible for jury duty, who are Jewish and would prefer to swear on the Old Testament rather than the Christian Bible. ACLU-NC further alleged that it has approximately 8,000 members throughout the state, many of whom are of Islamic or Jewish religious faith. ACLU-NC argues that it is not a matter of “if” one of its members who would prefer to swear on a different religious text will be called to serve as a juror or witness, but rather it is a matter of “when.” We agree. ACLU-NC has sufficiently indicated that its members intend to avail themselves of their rights, and ACLU-NC has manifested an intent to litigate the issue. The State's policy is not speculative. Although it cannot be predicted exactly when or how much time will pass until a member of ACLU-NC who would prefer to swear on a holy text other than the Christian Bible is required to take an oath in court, there is sufficient practical certainty that such situation will occur. Accordingly, there is no impediment to litigation which would render litigation avoidable. Because litigation is unavoidable, the case is justiciable under the Declaratory Judgment Act, allowing ACLU-NC to obtain from the court an interpretation of N.C.G.S. § 11-2 and the rights of its members under the statute.

SCOTUS Reverses MedImmune On Standing Grounds

2007-01-16T12:39:00.000-05:00

On January 9, 2007, the Supreme Court issued its opinion in MedImmune, Inc. v. Genetech, Inc., No. 05-608. This case originally involved antitrust claims, but the high court's opinion was based on the standing requirements of Article III.

The patent licensee had brought a declaratory judgment action against the patent owner challenging the validity of a biotech patent and a violation of the Sherman Act based on an interference settlement between the patent owner and another biotechnology company. The Federal Circuit affirmed the district court's dismissal of the suit for lack of jurisdiction because a patent licensee in good standing cannot bring a declaratory judgment action to challenge a patent it had licensed. The Federal Circuit also rejected the patentee's theory that the interference settlement was per se illegal under the Sherman Act.

The Supreme Court's decision reversed the Federal Circuit's jurisdictional ruling but did not address the antitrust issue. The Court held that the "case or controversy" requirement did not require the licensee to materially breach the license agreement before challenging the licensed patent. Justice Scalia wrote: "The rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III." The Court rejected the patent owners argument that the parties settled this dispute when they first entered into the licensing agreement and distinguished the common law rule that a party to a contract cannot at one and the same time challenge its validity and continue to reap its benefits. The Court left it up to the lower courts on remand to consider whether there were any prudential or merits-based arguments for denial of declaratory relief.

Football Fairness Act of 2007

2007-01-16T12:27:00.000-05:00

As reported in the San Francisco Chronicle, California Senator Dianne Feinstein introduced legislation in the Senate that would grant the National Football League limited exemption from antitrust law. The measure, called the Football Fairness Act of 2007, would give the NFL the right to block a team's move, thus giving cities the opportunity to lobby NFL owners to keep a franchise. The NFL supported the measure, saying: "We have long supported legislation that would continue the right of sports leagues to determine the markets where their franchises are located." Major League Baseball enjoys broad antitrust exemption which allows owners to vote on relocations. Only one baseball team has relocated in the past 25 years (the Montreal Expos moved to Washington, D.C. and were renamed the Washington Nationals). During the same time period, seven NFL teams have moved.

Supreme Court To Decide Antitrust Immunity In Securities Underwriting Case

2006-12-14T09:25:00.000-05:00

On December 7, the Supreme Court granted cert in Credit Suissee First Boston v. Billing. The case is a class action lawsuit against investment banks and institutional investors that took part in syndicates to underwrite the IPOs of technology companies in the 1990s. The purchasers of stocks complain that the sharing of information among the underwriters and the way in which they allocated shares amounted to an antitrust conspiracy. The problem with these allegations, however, was that much of this conduct was explicitly permitted by the Securities and Exchange Commission. Thus, the district court dismissed the lawsuit finding that defendants were entitled to antitrust immunity. The Second Circuit, however, reversed on the grounds that Congress had not granted such immunity. New York Times reporter Linda Greenhouse says the issue for the Court to decide is "how to treat the inherently collaborative activity of an underwriting syndicate, activity that -- while it would appear to violate the Sherman Antitrust Act -- is permitted by the regulatory agency that oversees it."

Interestingly, this was the second antitrust case that the Court agreed to hear on December 7. The other case, Leegin Creative Leather Products v. PSKS, addresses the continued viability of the per se rule against resale price maintenance. See this post for a discussion of Leegin.

Supreme Court Grants Cert In Case Challenging The Dr. Miles Per Se Rule Against Vertical Minimum Price Fixing

2006-12-14T08:40:00.000-05:00

On December 7, 2006, the Supreme Court agreed to hear an appeal from the Fifth Circuit decision in Leegin Creative Leather Products v. PSKS, Inc. The issue in the case case, involving a dispute over retail sales in Texas of a line of women's shoes, is whether vertical minimum resale price policies are judged by the "per se" rule or "rule of reason" analysis. Plaintiff, operator of the retail store Kay's Kloset, was cut off from selling the Brighton line of accessories after selling some of the items at discounted prices in violation of defendant's pricing policy. The jury found in favor of plaintiff and awarded damages of $3.6 million (after being tripled) plus attorneys' fees. Defendants asked the Fifth Circuit to apply the "rule of reason" analysis to the price-fixing claim and thus reverse the jury's award. The Fifth Circuit, however, held that it was bound to apply the "per se rule" under the Supreme Court's decision in Dr. Miles Medical Co. v. John D. Park & Sons Co.

The Question Presented by the Petition for Cert. was as follows:

"This Court has held that antitrust "per se rules are appropriate only for conduct that ... would always or almost always tend to restrict competition." Modern economic analysis establishes that vertical minimum resale price maintenance does not meet this condition because the practice often has substantial competition-enhancing effects. The question presented is whether vertical minimum resale price maintenance agreements should be deemed per se illegal under Section 1 of the Sherman Act, or whether they should instead be evaluated under the rule of reason."

We have noted the dispute between academics and regulators regarding resale price maintenance and commented on this case before. We will continue to follow this case as it develops.

The Death of Dr. Miles?

2006-11-12T17:29:00.000-05:00

An article on Law.com by Tony Mauro suggests that the Supreme Court may soon grant cert in a case challenging "one of the biggest and hoariest precedents in antitrust law, known to law students everywhere as the Dr. Miles rule." The Dr. Miles rule is that minimum verticle price fixing (otherwise known as resale price maintenance) is per se illegal under the Sherman Act. According to the article, a recent order by the Supreme Court staying a judgment of the 5th Circuit in Leegin Creative Leather Products v. PSKS suggests that the Court may soon reevaluate whether resale price maintenance should be judged under the per se rule or the rule of reason.

The Antitrust Review reports the same story and explains that the rule in Dr. Miles has spawned a number of comical circumvention devices including the Colgate policy, which was described as follows:

"I suggest that you sell for at least $10 and I will terminate you immediately if you don’t, but, please, don’t say yes, don’t nod, don’t respond at all to what I just said so that we won’t have to call this an agreement, okay? Oh no! I shouldn’t have asked!"

SCOTUS Denies Cert In MSA Antitrust Case

2006-10-12T16:12:00.000-04:00

On Tuesday, the Supreme Court declined to hear an appeal from the Second Circuit involving an antitrust challenge to various state statutes enacted pursuant to the Tobacco Master Settlement Agreement. Three small tobacco companies sued 30 states alleging that the statutes, which required them to place money in an escrow account to help cover potential future damages awards in tobacco-related lawsuits, violated antitrust laws as well as the Commerce Clause. The Second Circuit allowed the companies to pursue their antitrust claims. The states asked the Supreme Court to review the case to consider whether principles of due process and state sovereignty permitted a federal judge in New York to exercise jurisdiction over the state attorney general in another state. The Supreme Court, however, declined to hear the case. For more information, see this article.

Congress Passes Online Gambling Bill

2006-10-12T16:08:00.000-04:00

On September 30, 2006, Congress enacted a bill that would restrict online gambling in the United States. The measure, a compromise between two earlier versions passed by the House and Senate, passed both chambers as part of a larger bill aimed at port security. The gambling provisions of the Safe Ports Act would prohibit banks and financial institutions from transmitting funds from U.S. residents to gambling web sites, which are located off shore. These gambling web sites were already considered illegal by the U.S. government, but it was hard to prevent the off shore sites from operating without going after the credit card companies and banks. That is what the new bill aims to do.

Three large British-based gambling web sites announced that they are withdrawing from the U.S. market if the bill is signed into law by President Bush (which is expected to happen). Others, however, think that the bill may not end all online gambling in the United States. The government may still have difficulty enforcing the provisions of the bill against third-party payment processing sites located off shore. Much will depend on what type of regulations and procedures the US Treasury and Federal Reserve enact, assuming the measure is signed by the President.

In an article in the San Francisco Chronicle, an owner of an online poker web site is quoted as saying: "This will not end the industry; it will just evolve with new sites stepping up to replace the old ones. New third-party payment processes will come up. It might involve non-US bank accounts or sending payment to someone in the UK. There will be hundreds of ways around it."

For more information, see this article.

Weekly Newspaper in North Carolina Sues KKK Over Hate Leaflets

2006-09-06T15:48:00.000-04:00

The Greensboro News and Record reports that the Rhinoceros Times -- a conservative alternative newspaper printed weekly in Greensboro and Charlotte -- is suing the Knights of the Ku Klux Klan because the KKK have been distributing racist leaflets within the Rhinoceros Times and throwing them on people's lawns. The Rhino Times claims that the KKK is committing an unfair and deceptive trade practice by distributing its leaflets in this manner because the public gets the incorrect impression that the Rhino Times supports the KKK's anti-Semitic and racist principles.

The KKK defended the way its leaflets are distributed, saying that no newspaper has perpetual ownership of its product and that, over time, anyone with copies can do with them as they please.

The News and Record also reports that one expert said that, to his knowledge, no court has ruled on the legality of the KKK's distribution method and that the Rhino lawsuit may establish a precedent.

FTC's Internet Access Task Force and Net Neutrality

2006-09-06T15:39:00.000-04:00

On August 21, the FTC announced the formation of an Internet Access Task Force which will address important issues being raised by converging technologies and regulatory developments, and educate the Commission in its enforcement, advocacy and education initiatives. The task force will also address one of the most hotly debated issues in communications -- "network neutrality." FTC Commissioner Deborah Platt Majoras explained:

"'Network neutrality' has been variously defined and may mean different things to different people. On one level, it appears to mean that Internet users should have the freedom to access and use it as they choose, without any restriction by network providers. On another but related level, it means, at a minimum, the right of content providers to unfettered access to the many privately owned networks that comprise the Internet and may also mean that all data transmissions are assigned equal priority as they are passed along from network to network in cyberspace.

Fear of restrictions or discrimination in access has led proponents of 'net neutrality' to seek legislation that would, for example, prohibit broadband providers from discriminating against any person's ability to use a service to access or provide lawful content, from refusing to interconnect facilities with another service provider on reasonable and non-discriminatory terms, or from charging a fee for prioritizing transmission of particular types of data."

Chairman Platt Majoras, however, "urge[d] caution in proceeding on the issue." She "question[ed] the starting assumption that government regulation, rather than the market itself under existing laws, will provide the best solution to a problem."

To read more of her speech, go here.

FTC To Keep Fighting Generic Settlements

2006-09-06T13:10:00.000-04:00

In an interview with the Associated Press (available here), FTC Chairman Deborah Platt Majoras said that despite some setbacks in court, the FTC is "not walking away" from its efforts to prevent drug companies from entering into settlement agreements with generic competitors which the FTC believes are anticompetitive. These "reverse payment" settlement agreements have been the subject of much debate in antitrust circles (and have been the subject of previous posts in this blog). The FTC recently lost its attempt to seek review of the 11th Circuit's decision in Schering-Plough when the Supreme Court denied its petition for cert. Majoras said that the drug companies are not especially worried about the FTC threat because they continue to negotiate new patent settlement agreements, but "they do so at their own peril." Majoras said she is concerned that there will be even more reverse payment settlements in the future because numerous blockbuster drugs are set to lose patent protection soon. It is estimated that in the next four years, drugs with combined sales of $48 billion will lose patent protection, according to Medco Health Solutions, Inc.

Two New Cases Under Wisconsin Fair Dealership Law

2006-07-28T15:39:00.000-04:00

The Wisconsin Fair Dealership Law (WFDL) according to its terms, "protects dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships." The statute applies only to dealership arrangements that create a "community of interest" between the dealer and the grantor. Although there are many factors which may be considered by the courts when deciding whether a "community of interest" exists, in Home Protective Services, Inc. v. ADT Security Services, Inc., 438 F.3d 716 (7th Cir. 2006), the Seventh Circuit condensed the analysis down to asking whether "the grantor has the alleged dealer 'over a barrel' - that is whether it has such great economic power over the dealer that the dealer will be unable to negotiate with the grantor or comparison-shop with other grantors." To read more about this decision see the May 26, 2006 posting: Seventh Circuit Rules on "Community of Interests" Under Wisconsin Fair Dealership Law.

Recently, more than one dealer filing a claim under the WFDL has had some difficulty proving that the grantor had them "over a barrel." In Bearing Distributors, Inc. v. Rockwell Automation, Inc., No. 1:06CV831, 2006 WL 1174379, slip op. (N.D. Ohio 2006), a federal judge in Cleveland held that no "community of interest" existed where purchases of automotive parts by the dealer, from the grantor, accounted for only 2.4% of the dealer's overall purchases. The dealer failed to prove any sunk costs caused by the relationship in the form of "financial investment in inventory, facilities, or good will." Based on these factors the court found no threat to the dealer's economic health existed as a result of the termination of the dealership agreement by the grantor. Absent a finding of "community of interest" the court found that no dealership arrangement existed which would give rise to a claim under the WFDL.

If a dealership relationship protected by the WFDL does exist, the grantor may not terminate or materially change the agreement without "good cause." What constitutes "good cause" was at issue in Brown Dog, Inc. v. Quizno's Franchise Co. LLC, No. 04-C-18-X, 2005 WL 3555425 (W.D. Wis. 2005), where a franchisee sued Quizno's after it unilaterally terminated the franchise agreement. Under the WFDL, "good cause" exists if a franchise has not substantially complied with "the essential and reasonable requirements" imposed by the franchisor. The court found that the franchisee's failure to meet six straight development quotas for opening new franchises was sufficient to give Quizno's "good cause" to terminate the franchise agreement. The WFDL requires that the franchisee be in non-compliance for 90 days followed by 60 days notice of the grantor's intent before the grantor may end the relationship. The court essentially interpreted the WFDL as providing a five month safeharbor for non-compliance, after which, non-compliance of "an extent and nature that there has been no practical fulfillment of the terms of the agreement" constituted "good cause" to terminate the agreement. The court also determined that it was not unlawfully discriminatory for the franchisor to evaluate each franchisee's situation differently when deciding whether to terminate the relationship.

These recent decisions are favorable to grantors of dealership rights by requiring dealers to prove that the grantor has them over a barrel, and allowing grantors to terminate those relationships which are unproductive for the grantor. Where the dealer has been unable to substantially comply with the terms of the agreement for more than five months, with proper notice, the WFDL will not prevent the grantor from ending the relationship.

Settlement of Franchise and Antitrust Suit Against Oil Company

2006-07-28T10:19:00.000-04:00

Consumers aren't the only ones complaining about high gas prices. Recently, ExxonMobil settled a lawsuit brought by over a dozen Michigan Exxon franchise owners alleging that Exxon was forcing franchisees to pay unfair prices for Exxon brand gasoline in an attempt to put them out of business. The independent franchise owners alleged that Exxon planned to replace their gas stations with corporate gas stations owned by Exxon. The complaint filed by the franchise owners asserted violations of franchise and antitrust laws and sought recession of the franchise contracts in addition to damages. The amount and terms of the settlement were undisclosed, but reports indicate that some franchise owners could have received over one million dollars, while Exxon entered into a separate agreement to pay attorney fees.

New Online Gambling Laws From The State Of Washington and Washington, DC

2006-07-11T12:00:00.000-04:00

A law outlawing online gambling that critics say impinges upon free speech was passed in the state of Washington on June 7, 2006.

The new law, which was passed by an overwhelming majority in the legislature, says that anyone who "knowingly transmits or receives gambling information" through the Internet is guilty of a class C felony, which is punishable by up to five years in prison and a $10,000 fine.

The State of Washington Gambling Commission's website notes that enforcement of the law will focus on "higher level Internet gambling activities, such as gambling sites and service providers." However, the Commission cautions that although "there will not be an active campaign against regular players," such players run the risk of a felony conviction. The Commission plans to send the players a warning letter if their names appear once in an operator’s seized records. If a player’s name reappears, charges may be filed.

Some free speech proponents have criticized the law for being too broad becasue it might apply not only to gambling websites, but also to websites that provide links to gambling websites or write about gambling in a promotional manner. As one editorial in the Seattle Times pointed out, "the state's gone from trying to control gambling . . . to trying to control people speaking about gambling."

Others argue that the law is valid because linking to a gambling site can be interpreted as a form of advertising. David Skover, a professor of constitutional law at Seattle University, noted in the Seattle Post-Intelligencer that, "[t]here is neither federal nor state constitutional protection for advertising an illegal activity."

Rick Day, executive director of the Washington State Gambling Commission, stated that "telling people how to gamble online, where to do it, giving a link to it – that’s all obviously enabling something that’s illegal." He claims that publishing such information can be considered aiding and abetting. Separately, he was quoted in the Bellingham Herald as saying that "[a]ny party involved . . . could be guilty of a violation of state law." The scope of the Washington statute, however, is far from clear.

Additionally, the US House of Representatives passed a bill that purports to ban online gambling by amending the Wire Act. The bill would also make it illegal for financial institutions or intermediaries to process payments to offshore casinos through bettors' electronic funds, checks, debits and other e-transactions. It is unclear whether the Senate will address this legislation before the November elections. For more information, read this NY Times article.

Supreme Court Antitrust Activity

2006-07-06T07:39:00.000-04:00

Certiorari Denied in Schering

The Supreme Court denied certiorari on June 26, 2006 in FTC v. Schering-Plough Corporation, 402 F.3d 1056 (11th Cir. 2005) (see case summary and holding here). The FTC had asked the Court to review the Eleventh Circuit's decision that reverse payments in a pharmaceutical patent settlement agreement did not constitute a violation of antitrust laws. As noted previously in this blog, the case has been an interesting one to follow because it involves a hot issue in antitrust law and has pitted one agency of the federal government against another.

In response to the Supreme Court's refusal to review the Schering appeal, four members of the Senate Judiciary Committee introduced legislation aimed at outlawing the practice of brand name pharmaceutical companies paying generic drug competitors to stay off of the market. Senators Charles E. Schumer (D-NY), Charles E. Grassley (R-IA), Herb Kohl (D-WI), and Patrick J. Leahy (D-VT) are sponsoring the legislation.

Although it refused to review the 11th Circuit's Schering decision, the Supreme Court has displayed its willingness to address economic issues by granting certiorari in two other antitrust cases.

Motions to Dismiss Antitrust Claims

Bell Atlantic v. Twombly, 425 F.3d 99 (2d Cir. 2005), which will be heard in the Supreme Court's next term, has gained attention because it could set the standard for motions to dismiss antitrust claims filed under Section 1 of the Sherman Act. The country's largest telephone companies have been accused of carving up local markets to preserve their monopolies. Instead of offering direct evidence of a conspiracy, the complaint alleges that the telephone companies engaged in "parallel conduct" by not moving into each other's service areas. The Second Circuit determined that the case is sufficient to proceed to discovery. Consequently, the telephone companies, supported by a host of briefs written by influential business interests, asked the Supreme Court to dismiss the case for lack of evidence.

The significance of the case revolves around how much evidence is necessary to overcome a motion to dismiss an antitrust claim for lack of evidence. Discovery is often a costly process in which defendants can be compelled to turn over large amounts of records. The telephone companies and other business interests believe that the Second Circuit has set the standard so low for what is needed to proceed to discovery that plaintiffs inevitably will be encouraged to file frivolous claims with the purpose of inducing settlements.

Predatory Bidding?

The second antitrust case the Supreme Court has agreed to review, Weyerhaeuser v. Ross-Simmons Hardware Lumber, 411 F.3d 1030 (9th Cir. 2005), concerns "predatory bidding." Predatory bidding occurs when a company buys raw goods at inflated prices with the intention of driving smaller competitors out of the market.

In Weyerhaeuser, the Ninth Circuit upheld a $78.8 million verdict for the plaintiff after the plaintiff alleged that Weyerhaeuser Corp., a leading hardwood manufacturer, paid an excessively high price for red alder logs and ordered more of the logs than was necessary to meet its business needs. A federal jury subsequently found that Weyerhaeuser monopolized the market for the logs through its purchases and violated Section 2 of the Sherman Act. The Bush Administration has filed a brief asking the Supreme Court to reverse the decision, arguing that it "threatens to chill pro-competitive conduct by companies that bid aggressively in order to ensure access to inputs or to increase their output."

Senate Judiciary Committee Reports Bill to Improve Competition in the Oil Industry

2006-06-26T12:06:00.000-04:00

On April 27, the Senate Judiciary Committee unanimously reported a bill designed to improve competition in the oil industry and to strengthen antitrust enforcement of industry mergers. The Oil and Gas Industry Antitrust Act of 2006 [S. 2557] is an attempt to temper the escalating price of gasoline, petroleum products, and natural gas. The bill would allow the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to bring antitrust suits against oil producing and exporting countries.

Committee Chairman Arlen Specter [R-PA] introduced the measure, which has bipartisan support among its sponsors. The bill has the following provisions:

Amendment to the Clayton Act

The bill amends the Clayton Act to make it "unlawful for any person to refuse to sell, or to export or divert, existing supplies of petroleum, gasoline, or other fuel derived from petroleum, or natural gas with the primary intention of increasing prices or creating a shortage in a geographic market" [S. 2557].

In order to determine if a person has acted with the requisite intent to create a shortage, the bill instructs courts to consider whether:

1) the cost of acquiring, producing, refining, processing, marketing, selling, or otherwise making such products has increased; and
2) the price obtained from exporting or diverting existing supplies is greater than the price obtained where the existing supplies are located or intended to be shipped [S. 2557].

Studies

The bill instructs the Comptroller General, Attorney General, and Chairman of the FTC to perform industry-specific studies. First, the General Accounting Office (GAO) must study the effectiveness of divestitures required under certain prior oil and gas industry consent decrees to which the FTC or the DOJ was a party in the past 10 years. The GAO will report its findings to Congress, the FTC, and the DOJ.

Following the GAO's report, the Attorney General and the FTC Chairman must conduct studies on whether Section 7 of the Clayton Act, which prohibits certain mergers or acquisitions, should be amended "to modify how that section applies to persons engaged in the business of exploring for, producing, refining, or otherwise processing, storing, marketing, selling, or otherwise making available petroleum, gasoline or other fuels from petroleum, or natural gas" [S. 2557].

Joint Task Force

The bill directs the Attorney General and the FTC Chairman to establish a joint federal-state task force to investigate information sharing among persons in the oil and gas industry.

NOPEC & The Sherman Act

The bill also includes the No Oil Producing and Exporting Cartels Act of 2006 (NOPEC), which amends the Sherman Act to make it illegal for any foreign state or instrumentality to act collectively with any other foreign state or instrumentality to:

1) limit oil production or distribution;
2) set or maintain the price of oil; or
3) take any other action in restraint of trade for oil, natural gas, or any other petroleum product [S. 2557].

The Attorney General would have enforcement responsibilities of NOPEC. Additionally, NOPEC would remove both sovereign immunity and the act of state doctrine from the acts of OPEC and other nations.

Court Rules that FACTA Eliminated a Private Right of Action for Violations of the FCRA

2006-06-26T08:10:00.000-04:00

A recent United States District Court opinion in the Northern District of Indiana reiterated the thus far unanimous view among courts that the 2003 Fair and Accurate Credit Transaction Act (FACTA) has eliminated the private right of action to enforce the disclosure provisions of section 1681m of the Fair Credit Reporting Act (FCRA). See Bruce v. Wells Fargo Bank, N.A., No. 2:05 CV 243 PS, 2006 WL 1195210 (N.D. Ind., 5/2/06). The outcome of the decision hinged on the court's interpretation of FACTA, which amended the FCRA in 2003. The court determined that the enforcement responsibilities of section 1681m now fall within the exclusive domain of federal agencies and officials.

As noted in the opinion, the FCRA imposes limits on a creditor's ability to access a consumer's credit report without the consumer's authorization. In order to access a credit report without the consumer's authorization, a creditor must extend a "firm offer of credit" to the consumer. The "firm offer" must contain certain "clear and conspicuous" statements, one of which is that "the consumer has the ability to prevent future use of his credit report for pre-screening purposes." Bruce, 2006 WL 1195210, at *1. See 15 U.S.C. section 1681m(d)(1) (listing "clear and conspicuous statement" disclosure requirements).

While section 1681n creates a private right of action for willful violations of the FCRA, the Bruce court held that FACTA eliminated the private right of action by adding a new subsection, section 1681m(h)(8), entitled "Enforcement." The subsection has two components. First, it says that section 1681n does not apply to any person who fails to comply with "this section." Second, it says that "this section" is to be enforced under section 1681s by "the Federal agencies and officials identified in that section." Therefore, the issue addressed in Bruce is whether the phrase "this section" in the new subsection applies to section 1681m as a whole or only a particular portion of section 1681m.

The case arose after the plaintiff in Bruce issued a complaint alleging that Wells Fargo targeted certain consumers through a mailing with offers to refinance their mortgages after it had prescreened the consumers to determine if they fit within a certain credit rating. The plaintiff alleged that Wells Fargo violated section 1681m because the company's mailing failed to disclose certain rights of the plaintiff in a "clear and conspicuous" manner. Consequently, the plaintiff sought statutory relief, claiming that Wells Fargo willfully violated section 1681m. However, Wells Fargo moved to dismiss the complaint under Rule 12(b)(6) on the premise that no private right of action exists under section 1681m as a result of the enactment of FACTA.

In siding with Wells Fargo that FACTA applies to section 1681m as a whole, the court relied primarily on what it considered to be the "plain and unambiguous language" of the statute. It noted that "Congress, for better or worse, has taken the enforcement of the statute away from private attorneys general and instead has tasked federal agencies to enforce section 1681m." The court concluded that "any private right of action for a violation of section 1681m has been eliminated."

Supreme Court Won't Review Decision That Deceptive Trade Practices Claim Against Cigarette Manufacturer Was Removable To Federal Court

2006-06-19T14:42:00.000-04:00

On May 22, 2006, the Supreme Court declined to review an Eighth Circuit decision that allowed a cigarette manufacturer to remove a deceptive practices suit to federal court based on a finding that the cigarette manufacturer was "acting under" the control of the FTC when it advertised that certain cigarettes were "lights" and "lowered tar and nicotine." See Watson v. Philip Morris. The plaintiffs brought suit in state court under the Arkansas Deceptive Trade Practices Act claiming that Philip Morris's Marlboro Lights cigarettes deliver more tar and nicotine than its use of the labels "lights" and "lowered tar and nicotine" suggests. Philip Morris's label is based on the Cambridge Filter Method of testing as required by the FTC. Philip Morris removed the case to federal court claiming that it was acting under the control of the FTC. Section 1442(a)(1) of Title 28 permits removal by "any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office." The district court determined that Philip Morris was entitled to federal officer removal and the Eighth Circuit affirmed. In the petition for certiorari, the plaintiff posed the question: whether a private actor doing no more than complying with a federal regulation is a "person acting under a federal officer" for purposes of 28 U.C.S. 1442(a)(1) and is entitled to remove to federal court a civil suit brought in state court under state law"? The Court denied the petition for certiorari.

FTC Files Supplemental Brief In Support of Cert in Schering-Plough

2006-06-16T15:38:00.000-04:00

As mentioned before in this blog, the Supreme Court will soon decide whether to grant cert. in FTC v. Schering-Plough Corporation, a case involving so-called "reverse payments" from a branded pharmaceutical manufacturer to a generic to delay entry. The FTC claimed such practices are anticompetitive, the Eleventh Circuit disagreed, and the FTC is seeking review by the Supreme Court. In response to a request by the Supreme Court, the Solicitor General filed a brief on behalf of the United States recommending that the Court deny cert. because this was not the best case to address this sticky issue (I'm paraphrasing here). Now, the FTC has filed a supplemental brief in favor of granting cert. and responding to the Solicitor General's brief. It is very interesting to see two federal agencies take opposing positions on this issue. Here is a juicy quote from the FTC's supplemental brief:

"Despite the acknowledged importance of the legal issue presented by the petition, the United States asks that the Court await a hypothetically more suitable vehicle for review. The reasons it advances, however, fail to refute the Commission's showing that plenary review is both appropriate and much needed.... [T]he United States fails to appreciate the extent to which the ruling below will place pharmaceutical patent settlements beyond antitrust scrutiny, or the fundamental inconsistency between such a rule of law and the policies of Congress, as set forth in the Hatch-Waxman Act. The United States also overstates the difficulty this Court would have in reversing a court of appeals ruling that wholly disregards the proper standard of review of administrative factfinding.

More importantly, however, the United States does not address the urgent practical reasons why immediate review is needed. As the Commission and several amici have explained, the economic impact of the ruling below on consumers of prescription drugs -- including the States -- is staggering.... Indeed, billions of dollars in added prescription drug costs annually are at stake.... The decision has 'opened a Pandora's box' of anticompetitive settlements between brands and generic competitors.... Harm is very likely ongoing each day that the decision below prevails."

This case raises many interesting conflicts, including:

(1) Conflict between different agencies of the federal government.
(2) Conflict between the lower court decision and congressional intent.
(3) Conflict between the lower court decision and federal agency factfinding.
(4) Conflict between businesses and consumers (which include state governments).
(5) Conflict between the courts of appeal.
(6) Conflict between antitrust law and patent settlements.

To read a previous post on the Solicitor General's brief, click here.

To read a previous post on a speech by a FTC Commissioner on this topic, click here.

A copy of the FTC's supplemental brief is archived at the Antitrust Review.

Keep reading for more updates on the Schering-Plough saga.

FTC Extends Comment Period For Business Opportunity Rule

2006-06-09T09:43:00.000-04:00

On June 1, 2006, the FTC announced that it was extending the period to submit comments in response to the Notice of Proposed Rulemaking in connection with the Business Opportunity Rule. The previous deadline was June 16, 2006. The new deadline is July 17, 2006 and rebuttal comments must be submitted by August 7, 2006.

The proposed Business Opportunity Rule, if promulgated, may require many manufacturers, suppliers, and distributors to comply with certain pre-sale disclosure requirements even if those companies were previously exempt from the FTC's Franchise Rule. As explained in my previous post and recent Womble Carlyle Client Alert, the proposed Rule broadly defines "business opportunity" to include any commercial arrangement in which:

(1) the seller solicits a prospective purchaser to enter into a new business;
(2) the prospective purchaser makes payments or provides other consideration to the seller, directly or indirectly; and
(3) the seller, expressly or by implication makes an earnings claim or provides business assistance.

The definition of entering into a "new business" and providing "business assistance" are similarly broad and may cover ordinary distributorship and dealership arrangements. Unlike the Franchise Rule, there is no minimum purchase requirement and no exception for purchases of reasonable amounts of inventory at bona fide wholesale prices for resale. In short, the scope of coverage of the proposed Business Opportunity Rule is much broader than that of the Franchise Rule. Many manufacturers, suppliers, and distributors who were exempt from the Franchise Rule will have to comply with the more limited disclosure requirements of the Business Opportunity Rule if promulgated.

To download a copy of the proposed Business Opportunity Rule, click here.

To read my previous post about this rule, click here.

To read a client alert about the broad scope and requirements of the proposed Business Opportunity Rule, click here.

North Carolina General Assembly Passes Bill To Phase-Out Video Poker Machines

2006-06-08T11:18:00.000-04:00

On June 6, 2006, the North Carolina General Assembly ratified a bill that would lead to the eventual ban of video poker machines in North Carolina. Instead of enacting a complete ban on video poker, the Senate approved a compromise bill proposed by House Speaker Jim Black which phases-out video poker machines in North Carolina over the next year. The bill was presented to the Governor, who is expected to sign it. (UPDATE 6/12/06 -- The Governor has signed the Video Poker Legislation as approved by the Senate).

The phase-out period is as follows: (1) On October 1, 2006, it will be unlawful to operate more than two existing video gaming machines; (2) On March 1, 2007, it will be unlawful to operate more than one existing video gaming machine; (3) on July 1, 2007, it will be unlawful to operate any video gaming machine. There are exceptions for video gaming machines operated in accordance with a Class III Tribal State Compact. This exception is intended to allow the Eastern Band of Cherokee Indians to keep video gambling machines at their casino. Speaker Black says the exception for tribal gaming could lead to a lawsuit invalidating the ban. The last sentence of the bill reads: "If a final Order by a count of competent jurisdiction prohibits possession or operation of video gaming machines by a federally recognized Indian tribe because that activity is not allowed elsewhere in this State, this act is void."

Keep checking this blog for more updates on the phase-out. You can read more about the bill here and view the text of the bill here.

The "Over A Barrel" Case

2006-06-01T16:55:00.000-04:00

The Seventh Circuit's decision in Home Protective Services, Inc. v. ADT Security Services, 483 F.3d 716 (7th Cir. 2006) will likely be known as the "over a barrel" case because of the court's statement that the Wisconsin Fair Dealership Law does not apply unless "the grantor has the alleged dealer 'over a barrel' -- that is, [the grantor] has such great economic power over the dealer that the dealer will be unable to negotiate with the grantor or comparison-shop with other grantors." To read more about this case, see this previous post.

This case prompted me to explore the origin of the phrase "over a barrel." The Oxford English Dictionary reports that the first use was Raymond Chandler's The Big Sleep, published in 1939. The OED suggests the expression was an allusion to placing a person rescued from drowning over a barrel to clear their lungs of water. This origin, however, does not fit the current meaning of the phrase: to have someone in a helpless position. Others, however, claim that the true origin of the expression is from the practice of placing a person on or rolling them over a barrel as a humiliating punishment.

Regardless of the origin of the phrase, it will be interesting to see how courts apply the "over a barrel" test to future disputes involving the WFDL.

Supreme Court Issues Decision in eBay v. MercExchange

2006-06-01T11:39:00.000-04:00

On May 15, 2006, the Supreme Court issued its opinion in eBay Inc. v. MercExchange, L. L. C., 547 U.S. (2006), in which it clarified the appropriate test courts should apply when determining whether injunctive relief is appropriate for a dispute arising under the Patent Act. Although this is not an antitrust case, the issue is important to antitrust lawyers because many antitrust cases arise out of patent disputes.

The Supreme Court rejected the Federal Circuit's application of a "general" rule that "courts will issue permanent injunctions against patent infringement absent exceptional circumstances." In so rejecting, the Supreme Court held that "according to well-established principles of equity, a plaintiff seeking permanent injunction must satisfy a four-factor test before a court may grant such relief." Under the four-factor test, a plaintiff must show: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

The Supreme Court stated that the equity principles of the four-factor test "apply with equal force to disputes arising under the Patent Act." In making this determination, the Supreme Court referenced the language in the Patent Act, which "expressly provides that injunctions 'may' issue in accordance with the principles of equity." Additionally, the Supreme Court noted that their approach to patents is similar to their approach to copyrights, since holders of both possess the right to exclude others from using their property.

In his concurring opinion, Chief Justice Roberts examined the history of injunctive relief in patent cases, noting that there is a "long tradition of equity practice." He agreed that a significant departure from this practice "should not be lightly implied."

Justice Kennedy also wrote a concurring opinion, examining the future of injunctive relief in patent cases. He advised trial courts to "bear in mind [that in current and future patent infringement cases] the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases." For instance, he noted that there is now an "industry" where firms use patents primarily to obtain licensing fees. Thus, such firms could use the prospect of violating an injunction as a "bargaining tool to charge exorbitant fees" to potential licensees. Justice Kennedy also indicated that business method patents, like the one at issue in the present case, may be of particular concern, as the "potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test."

This decision will help companies fight lawsuits filed by so-called "patent trolls" -- companies that own a portfolio of patents for the primary purpose of suing other companies in the hopes of forcing a lucrative settlement. MSN reports:

"This decision is a clear victory for innovation and for consumers and a defeat for patent trolls and others who are abusing the legal system," said Robert Holleyman, president of the Business Software Alliance, whose members include Microsoft, Intel and other large computer software and hardware companies. "By giving courts greater latitude on whether or not to issue an injunction, we are making progress towards restoring much-needed balance to the out-of-control patent litigation process."

U.S. Solicitor General Files Brief in FTC/Schering-Plough Case

2006-05-31T16:28:00.000-04:00

Pursuant to an invitation from the Supreme Court, the U.S. Solicitor General recently submitted a Brief for the United States as Amicus Curiae in the case of Federal Trade Commission v. Schering-Plough Corporation. The case involves one of the hot issues in antitrust and IP law: whether reverse payments in a pharmaceutical patent settlement agreement constitute a violation of the antitrust laws. As explained more fully below, the Eleventh Circuit ruled that such reverse payments did not, by themselves, violate antitrust laws, the FTC is seeking a petition of certiorari from the Supreme Court, and the Supreme Court asked the Solicitor General for its position. In its brief, the Solicitor General stated that the petition should be denied--a position contrary to that of the FTC.

Schering-Plough produces and markets K-Dur 20, a brand-name drug for treating high blood pressure and congestive heart disease. The drug contains an unpatented potassium chloride encapsulated in an extended release coating protected by Schering-Plough's patent number 4,863,743. This patent expires on September 5, 2006. Schering-Plough sued two of its competitors, Upsher-Smith Laboratories and ESI Lederle, Inc., who proposed to market generic drugs that Schering-Plough alleges would infringe patent number 4,863,743. The two competitors settled with Schering-Plough and the settlement agreement provided that the two competitors would not sell their generic versions until a future date (before the expiration of the patent) and in return Schering Plough would make substantial payments to the two competitors. The FTC challenged the settlement agreements as an unreasonable restraint of trade in violation of the Sherman Act.

The 11th Circuit Court of Appeals ruled in favor of Schering-Plough, finding that the reverse payment cannot be the sole basis of an antitrust violation. The FTC filed a petition for a writ of certiorari from the Supreme Court. The two questions presented by the FTC are as follows: (1) Whether the antitrust laws prohibit a brand name drug patent holder and a prospective generic competitor from settling patent infringement litigation by agreeing that the generic manufacturer will not enter the market before a future date within the term of the patent and that the patent holder will make a substantial payment to the generic manufacturer; and (2) Whether the court of appeals erred in concluding that "substantial evidence" did not support the Federal Trade Commission's factual finding that a payment from a patent holding to an allegedly infringing generic manufacturer was consideration for the generic manufacturer's delayed entry into the market rather than a separate royalty for a license concerning a different product.

The Supreme Court asked for the Solicitor General's views on granting the petition for certiorari. The Solicitor General responded that it was the Government's view that, although the issues are important, the petition for certiorari should be denied because the issue was not squarely addressed by the 11th Circuit and there is no circuit split. The Solicitor General noted:

"[Reverse payment] settlements may pose a risk of restricting competition
in ways that are not justified by a lawful patent, to the detriment of consumers. This case, however, does not present an appropriate opportunity for this Court to determine the proper standards for distinguishing legitimate patent settlements, which further the important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade in violation of the antitrust laws."

Class Action Certified in BAR/BRI Case

2006-05-31T15:29:00.000-04:00

At a hearing on May 15, 2006, a judge in the US District Court for the Central District of California certified a class action in the case of Rodriguez v. West Publishing Corp., d/b/a BAR/BRI, and Kaplan, Inc., 05 CV 3222 (C.D. Calif.). The class consists of approximately 300,000 law students who purchased the BAR/BRI full-service bar exam review course between August 1997 and 2006.

According to the complaint, BAR/BRI is the only full-service bar review course in the United States, offering courses for almost all jurisdictions, and Kaplan is the largest provider of preparatory courses for the LSAT. As the complaint alleges, a person desiring to pass the grueling and important bar exam is almost certain to take a full-service bar review course.

The complaint contains three claims or causes of action. The first claim involves an alleged violation of Section 7 of the Clayton Act with regard to BAR/BRI's acquisition of the assets of its direct competitor, West Bar. The complaint alleges that because of this unlawful acquisition, the competition in the full-service bar review course submarket was substantially lessened. The second claim involves an alleged violation of Section 1 of the Sherman Act with regard to BAR/BRI's conspiracy, primarily with Kaplan, to eliminate competition in the full-service bar review market. According to the complaint, BAR/BRI and Kaplan agreed to a market division whereby BAR/BRI agreed to stay out of the LSAT business and Kaplan agreed to stay out of the full-service bar review business. The third and final claim involves an alleged violation of Section 2 of the Sherman Act. The complaint alleges that BAR/BRI has created a monopoly on the full-service bar review course market by agreeing to a market division with Kaplan, by engaging in other anticompetitive activities to preserve and maintain its monopoly, by continuing to charge excessive, supracompetitive prices for its full-service bar review course.

In the interests of full disclosure, I want to note that I am a member of the class, having purchased BAR/BRI's full service bar review course in 2001. Thanks to Sara Decatur, another class member and law school classmate of mine, for alerting me to this case. I expect that nearly all of the associates in any law firm are also members of the class. Unlike many other class members, I was not reimbursed by any law firm for the cost of BAR/BRI because I spent two years clerking for federal judges before joining a law firm. I wonder if the fact that most law firms reimburse attorneys for the cost of BAR/BRI will have any impact on the potential damages? I also wonder whether BAR/BRI is represented by a firm that has attorneys who are members of the class, and if so, whether this presents a conflict?

Seventh Circuit Rules on "Community of Interests" Under Wisconsin Fair Dealership Law

2006-05-23T17:18:00.000-04:00

Like other state franchising laws, the Wisconsin Fair Dealership Law (WFDL) applies to agreements by which a person is granted the right to sell or distribute goods or services or use a trade name "in which there is a community of interest in the business of offering, selling or distributing goods or services." Wisc. Stat. 135.02(3)(a). If applicable, the WFDL prohibits the termination of any dealership agreement without good cause, notice, and an opportunity to cure. In Home Protective Services, Inc. v. ADT Security Services, Inc., 438 F.3d 716 (7th Cir. 2006), the Seventh Circuit affirmed the district court's decision that the WFDL did not apply to the "Authorized Dealer Agreement" between defendant ADT and plaintiff HPS because the parties did not share a "community of interests."

Relationship Between The Parties

ADT -- the leading alarm monitoring company in the US -- markets its products through internal sales and through its relationships with small dealers like HPS. HPS was an ADT dealer from 1996 to 2002 when its relationship with ADT was suddenly terminated. The Authorized Dealer Agreement contained exclusivity and non-compete provisions which prevented HPS from working with any ADT competitors unless ADT first rejected the customer's contract. HPS received a one-time payment of $800 for each customer contract it tendered, and HPS would then install the electronic security system (which bore the ADT logo and met ADT specifications). If the customer renewed the contract, HPS shared in the renewal income. If the customer cancelled or defaulted, HPS paid ADT an attrition chargeback. HPS was required to advertise itself exclusively as an ADT authorized dealer. During the relationship, HPS devoted 95% of its time and derived 95% of its revenues from its ADT business. It spent about 10% of its annual revenues ($32,000 per year) on ADT-specific direct mail advertising.

In 2002, following a corporate restructuring, ADT ended its relationship with 200 of its 700 Authorized Dealers, including HPS. As a result of the termination, HPS claimed that it incurred over $63,000 in one-time losses (including $10,000 worth of ADT promotional materials which it could no longer use) and over $14,000 in recurring monthly losses once it began a less profitable relationship with one of ADT's competitors. HPS sued ADT, alleging that ADT violated the WFDL without providing notice or an opportunity to cure. The district court granted summary judgment in favor of ADT, and the Seventh Circuit affirmed.

The 7th Circuit's Discussion Of The "Community Of Interests" Test (aka The "Over A Barrel" Test)

The Seventh Circuit began its discussion by noting that "there is no bright-line test for determining whether community of interests exists" but the "two primary guideposts" are "(1) continuing financial interest and (2) interdependence, which must be great enough to threaten the financial health of the dealer if the grantor exercises its power to terminate."

Wisconsin courts have identified a long list of factors to consider, which can be "distilled into two highly important questions": "(1) the percentage of revenues and profits the alleged dealer derives from the grantor and (2) the amount of time and money an alleged dealer has sunk into the relationship."

"The ultimate question," explained the court, "is whether the grantor has the alleged dealer 'over a barrel' -- that is, whether it has such great economic power over the dealer that the dealer will be unable to negotiate with the grantor or comparison-shop with other grantors."

Although it was undisputed that HPS derived 95% of its revenue and devoted 95% of its personnel hours to its arrangement with ADT, the court found that "because [HPS] could and did find another grantor to work with, it was not 'over a barrel.'" Although the new relationship was not as profitable, the WFDL provides no protection from that kind of sustainable economic harm. As for HPS's lost investments, the court pointed out that the funds HPS invested in marketing the ADT name over the years may well have been recouped via increased sales during that time, "and the $10,000 in unusable ADT promotional materials it currently has on hand is not sufficient to render it 'over a barrel.'" Lastly, the court noted that HPS was not left with unsaleable inventory or unusable buildings as a fast food franchisor might be.

Since there was no community of interests between the parties, the protections of the WFDL did not apply and the judgment of the district court was affirmed.

Fourth Circuit: Denial of State Action Immunity Not Immediately Appealable

2006-05-18T16:05:00.000-04:00

On May 1, 2006, the Fourth Circuit issued this decision in South Carolina State Board of Dentistry v. Federal Trade Commission. This administrative action was brought by the FTC against the SC Board of Dentistry alleging unfair competition by promulgating an emergency regulation that prevented oral hygentists from performing certain services in school settings unless a dentist had first examined a student and prescribed a course of treatment. The Board argued it was immune under the "state action" immunity doctrine of Parker v. Brown. After the FTC refused to grant the protection, the Board brought an interlocutory appeal, arguing that the denial of Parker immunity was a "collateral order" that may be appealed notwithstanding its lack of finality. The Fourth Circuit, however, disagreed and dismissed the appeal for lack of jurisdiction.

The court noted that the circuits are split on whether the denial of Parker protection is an immediately appealable collateral order. The Fifth and Eleventh Circuits have held that it was a collateral order, the Third and Seventh Circuits have suggested the same in dicta, but the Sixth Circuit has held that the denial of Parker protection fails to meet the collateral order requirements. The Fourth Circuit joined the Sixth Circuit, concluding "that the Parker analysis is neither 'completely separate from the merits' nor 'effectively unreviewable' after trial. The Fourth Circuit's decision further divides the existing split among the circuits on this issue.

FTC Consent Order Involving A Public Invitation To Collude

2006-05-15T14:54:00.000-04:00

On March 14, 2006, the FTC announced a consent order settling FTC's complaint with Valassis Communications, Inc., a leading producer of free-standing newspaper inserts. The FTC complaint alleged that, during Valassis' quarterly earnings conference call, the company's president invited its direct competitor, News America, to join in a scheme to allocate customers and fix prices, thereby ending an ongoing price war between the two companies. Specifically, the company's president stated that Valassis would: (1) abandon its efforts to regain a 50% market share; (2) defend its existing customer base and market share; (3) increase prices above the current market price for current News America customers; and (4) monitor News America's response to its new business strategy. The FTC's Complaint charged that Valassis' conduct was anticompetitive and constituted a violation of section 5 of the FTC Act because, if the invitation had been accepted, it would have resulted in higher prices and reduced output.

In the past, the FTC has used the FTC Act--rather than the Sherman Act--to address "invitations to collude" because such "invitations" may not constitute an "agreement" under the Sherman Act. What is unique about the Valassis case, however, is that the alleged invitation to collude occurred during a public earnings call with securities analysts rather than a private communication between competitors.

"Collusive agreements to fix prices or allocate markets are condemned by the antitrust laws," said Jeffery Schmidt, Director of FTC's Bureau of Competition. "The action taken by the Commission today demonstrates that the FTC will protect consumers by challenging, in appropriate circumstances, invitations to collude before the invitations are accepted and become agreements to fix prices or divide markets."

The Valassis case demonstrates the care that companies must take whenever they disclose (publicly or privately) pricing strategies and market share goals.

Will Poker Bots Doom Online Poker?

2006-05-12T14:05:00.000-04:00

This article by Tim Harford in the Financial Times (thanks to Truth on the Market) discusses the possibility that poker-bots (computer programs trained to play online poker) will one day play better than all human beings, thus threatening the booming online poker industry. Currently, even a novice human player can beat a poker-bot, but many people think it is only a matter of time before the poker-bots take over. The article states:

"I believe that bots will eventually play better than all human beings," predicts [Darse] Billings. [World Series of Poker champion and computer scientist Chris] Ferguson agrees. "If poker robots had a tenth of the resources that were spent on chess, they'd already have beaten us." Many commentators now fear that the robots will destroy the online game that so enthused their creators in the days of IRC poker. Online poker players are thought to wager more than $250m a day - a tempting incentive to write a software program that could be let loose on unsuspecting "fish" all over the world. A decent poker player can make thousands of dollars a month playing the online game, so what if that player was replaced by an unlimited number of copies of a fiendish computer program? Billings is convinced that the risk of this happening soon has been exaggerated. His own SparBot, an academic project, does not play for money, while he dismisses the other programs as simply not good enough. "The fear of bots is a much bigger problem than the threat of bots. There are dozens of poker robots out there on the internet, but all they are doing is contributing money to everyone else." But he admits that it is only a matter of time before anyone will be able to download a free poker robot that will outplay the world champion. At that point, people may not care to risk money online against unidentified opponents.

Updates On New State And Federal Legislation Affecting The Gaming Industry

2006-05-11T13:53:00.000-04:00

As a member of Womble Carlyle's Gaming Law Practice Group, I plan on using this blog to post about issues in the gaming industry even though such issues may not technically fall within the scope of antitrust and distribution law.

The front page of today's Greensboro New & Advance contained a story about efforts in the North Carolina legislature to ban video poker. Under the proposed ban only casinos on federally recognized tribal lands would be able to have video-poker machines. Currently, video-poker machines are allowed, but cannot pay out more than $10 in store credit.

At the federal level, Rep. Bob Goodlatte has proposed legislation to amend the Wire Act to make it clear that its prohibitions include Internet gambling. (The Fifth Circuit has held that the Wire Act only applies to wagering on sporting events, but the Department of Justice continues to assert that it has a broader application). The bill also prohibits a gambling business from accepting certain forms of non-cash payment, including credit cards and electronic transfers, for the transmission of bets and wagers, and provides an enforcement mechanism to address the situation where the gambling business is located offshore but the gambling business used back accounts in the United States.

If you have any questions about the scope of these proposed laws or any other gaming law issue, please feel contact me or any member of Womble Carlyle's Gaming Law Practice Group.

Class Action Antitrust Suit In Auto Industry

2006-05-11T13:32:00.000-04:00

The Auto Industry web site is reporting on a class action suit against original equipment manufacturers and part distributors in the automobile industry under the Robinson-Patman Act. The suit alleges that components manufacturers are being forced to sell their products and product lines to large corporate retailers at 50% of the price at which they are selling the same products to independent competitors. Plaintiffs seek to use the "product lines" they purchased as proof of the required "product markets" in their antitrust suit.

For a discussion of the Supreme Court's recent Robinson-Patman Act case, click here.

Changes to Hart-Scott-Rodino Requirements

2006-05-11T13:22:00.000-04:00

Womble attorney Thomas McLain has authored this client alert about the FTC's final amendments to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 Rules. The amendments require HSR filers to use the 2002 NAICS data when reporting economic data on the HSR Form. If you would like to discuss filing questions under the HSR Act or other compliance questions, please contact the Womble Carlyle attorney with whom you work or one of the attorneys listed in the client alert.

House Bill on Price Gouging and FTC Website on Oil and Gas Issues

2006-05-04T16:29:00.000-04:00

The U.S. House or Rep. approved a bill yesterday that would prohibit price gouging -- at any time -- in the market for gasoline, diesel fuel, crude oil, home heating oil, and biofuels. The bill directs the Federal Trade Commission to define the terms "price gouging" consistent with the traditional unfairness principles under section 5(n) of the FTC Act, as well as the terms "wholesale sale" and "retail sale." The bill authorizes civil enforcement by the FTC and state attorneys general and criminal enforcement by the U.S. Attorney General and Department of Justice. The WSJ reports that a version of this bill is likely to be approved by the Senate. For more information on the bill see this link.

In related news, the FTC debuts an enhanced website dedicated to oil and gasoline related issues. The overview states:

"The Federal Trade Commission maintains competition in the petroleum industry, and has invoked all the powers at its disposal -- including the investigation of possible antitrust violations, the prosecution of cases, the preparation of studies, and advocacy before other government agencies -- to protect consumers from anticompetitive conduct and unfair or deceptive acts or practices in the industry. In doing so, the FTC has assembled vast competition policy and enforcement expertise in matters affecting the production and distribution of gasoline. This website describes the FTC's oversight of the petroleum industry, with special sections on our activities related to merger enforcement, anticompetitive nonmerger activity, and gasoline price data. It also features reports and economic working papers, Congressional testimony, advocacy work, conference proceedings, and studies. Check it often for updates and information on new initiatives."

Beverage Marketers Agree to Halt Sales of Sugared Sodas in Schools

2006-05-04T16:03:00.000-04:00

The Wall Street Journal reports that Coca-Cola Co., PepsiCo Inc., and other beverage marketers have agreed to halt sales of sugared sodas in schools. But what is to happen to the bottlers, schools and others in the distribution network that have existing contracts covering these types of sales? According to the WSJ: "Bottlers and schools that sell their beverages will have to renegotiate existing contracts to incorporate the changes. Susan Neely, president and chief executive officer of the ABA [American Beverage Association], said the industry would strive to amend contracts in a way that is 'financially fair to the school and the bottler.'"

"The Gecko's Demise Is Portrayed By An Unsavory 'Splat' Sound"

2006-05-01T17:38:00.000-04:00

So alleges a complaint filed by Geico against Tri-State Consumer Insurance Company for trademark disparagement. According to the Wall Street Journal, the suit arises from a radio ad in which an English-accented gecko, Geiko's mascot, is struck by a skidding car and then "subsequently struck by another automobile, which 'squishes' the chatty reptile." Tri-State claims the trademark lawsuit is "an assault on humor." The article can also be accessed via Reuters at this link.

More On Gas Prices and Price Gouging

2006-05-01T07:00:00.000-04:00

There have been many newspaper stories in the past week about high gas prices and investigations into possible price gouging and price manipulation.

From the Wall Street Journal Weekend Edition:

"Since the 1990s, the FTC has engaged in multiple gas-price investigations, but it has yet to find a case of price manipulation. The last major investigation, which was in 2001 after gasoline in the Midwest was priced at about 30% more than the national average, found that the high prices were primarily a product of refinery production problems, pipeline disruptions, low inventories, and high crude prices."

From NPR Online:

"Big oil companies are making most of their money by producing crude oil. They invested in oil fields when prices were much lower, with the expectation that they could break even at, say, $25 per barrel. Since the market price is now more than $70 a barrel, the extra money is gravy. It's like a farmer who can raise corn for $1.50 a bushel. If the market price is $1.75, he makes a quarter per bushel. If the market price jumps to $2.25, his profits jump as well. (If the market crashes to $1 per bushel, the farmer loses money. That can happen to oil companies as well.) Oil companies, like the farmer, are the beneficiaries of high market prices, but they can no more control those prices than a farmer can dictate what he gets for a bushel of corn.

Critics would say the oil industry is far less competitive than the corn market, which is certainly true. But if oil companies could control the price of crude oil, they would not have allowed the price to fall to $10 a barrel as it did in 1998."

From Slate.com:

"[T]alk about price-gouging is inane at several levels. If you don't have some sort of monopoly power, gouging is another word for charging the highest price the market will bear, also known as capitalism. This is why the FTC investigation has turned up nothing. What constrains filling stations from marking up gas excessively is not the fear of prosecution but competition from other filling stations....

What none can acknowledge is that higher gas prices in the United States are a good thing. To be sure, oil at $70 a barrel causes hardships for working people and delights some of the world's worst dictators. But cheap gasoline imposes its own costs on society: greenhouse gas emissions, air pollution and its attendant health risks, traffic congestion, and accidents. The ideal way to cope with these externalities would be with higher gas taxes or a carbon tax. But these are politically impossible ideas at the moment--Democrats lost control of Congress in part because they passed a 4-cent-per-gallon tax increase in 1993. The next best solution is the one that has arrived on its own: a high market price for oil, which spurs conservation and substitution. Sustained high prices will bring about behavioral and political changes: energy conservation, public transportation, less exurban sprawl, and eventually the economic viability of alternative fuel sources such as biomass, fuel cells, wind, and solar power, which may one day undermine the power of the oil oligarchs. Are politicians too stupid to understand this, or just smart enough not to say it aloud?"

To read about the President's announcement that federal and state regulators will investigate illegal price manipulation in the gasoline industry, see this post.

Google Makes Fortune In Ads Off Internet Typos

2006-04-30T10:45:00.000-04:00

The print edition of the Greensboro News & Record printed this story via the Washington Post. The article stated: "Google, which runs the largest ad network on the Internet, is making millions of dollars a year by filling otherwise unused Web sites with ads. In many instances, these ad-filled pages appear when users mistype an Internet address, such as 'BistBuy.com'" Google defends its practice, saying it removes sites from its ad network if a trademark owner complains that those sites are confusingly similar. Google's trademark attorney noted: "Unless it is confusing to somebody, trademark law doesn't apply."

HSR Gun-Jumping Case Results in $1.8 Million Fine

2006-04-27T06:00:00.000-04:00

WCSR attorneys Tom McLain and Jim Phillips have authored an interesting client alert regarding DOJ's complaint against QUALCOMM and Flarion for gun-jumping under the HSR Act based, in part, on rather standard terms in their merger agreement. The client alert explains:

On April 13, 2006, the US Department of Justice ("DOJ") charged two companies with unlawful premerger coordination in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). In announcing a case settlement that requires the companies to pay $1.8 million in civil penalties, Thomas O. Barnett, Assistant Attorney General in charge of the DOJ's Antitrust Division, stated that "merging parties must continue to operate independently until the end of the premerger waiting period" under the HSR Act. He added that the DOJ "will vigorously enforce this requirement" against any company that prematurely attempts to assume "operationally control of a business that it is acquiring" (conduct
commonly referred to as "gun-jumping").

The DOJ's complaint charged QUALCOMM Incorporated ("QUALCOMM") and Flarion Technologies Inc. ("Flarion") with gun-jumping based on the terms of their merger agreement and certain conduct by the parties prior to the closing of the transaction. It is noteworthy that the DOJ brought this suit even though it concluded after its HSR premerger review that the proposed merger itself did not raise competitive concerns.

The client alert continues to describe the actions scrutinized by the DOJ, including several negative covenants customarily found in merger and acquisition agreements as well as other actions including coordination of marketing and pricing, the related exchange of information, and assumption of key decision-making.

The client alert concludes:

Typically it is not just one contractual provision or action that creates the problem, but a series of smaller things that ultimately add up to gun-jumping. By working with antitrust counsel, a company involved in a merger or acquisition transaction can develop a plan that properly balances business needs with antitrust concerns.

To read more, click here.

FTC Summary Of Agreements Filed By Generic And Branded Drug Manufacturers And Commissioner Leibowitz's Speech On Pharmaceutical Patent Settlements

2006-04-26T11:37:00.000-04:00

The Antitrust Review has a long blog entry entitled Pharmaceutical Patent Settlements & The FTC which discusses: (1) the FTC's press release on Monday summarizing the agreements filed with the FTC by generic and branded drug manufacturers under the Medicare and Prescription Drug Improvement and Modernization Act of 2003; and (2) FTC Commissioner Jon Leibowitz's speech on the same day at the 2nd Annual In-House Counsel's Forum on Pharmaceutical Antitrust. In this speech, Commissioner Leibowitz stated:

[S]tarting in the late 1990s, the Commission began to see pharmaceutical patent settlements in which brand firms paid generics to stay off the market. This conduct stopped, though, after we challenged several such agreements.

Having said that, recent appellate decisions that sanction this type of conduct are threatening the core of Hatch-Waxman. If the Supreme Court -- or Congress -- doesn't reverse this trend, the result could be a substantial increase in drug costs -- and substantial harm to the consumers who pay for these drugs.

...

The unquestioned vitality of that statute [Hatch-Waxman], though, is being threatened by the Schering and Tamoxifen decisions.
...

Sadly, these appellate decisions are affecting behavior in the market -- we believe adversely. We are seeing far more settlements today that potentially raise competition concerns than before these decisions.

...

In addition to seeing more settlements with payments today, we are also seeing another interesting trend. Brand firms are not stopping after settling with the first ANDA-filer; in some instances, they are settling with most or all subsequent filers to guarantee no generic entry by anyone until a date certain -- one that's usually near patent expiration.

...

Why are we seeing these settlement trends? First of all, pharmaceutical firms recognize that the Commission's view in Schering is under attack, and thus they believe they have less to fear from potential antitrust enforcement. If I were in-house counsel at a pharmaceutical company, that might be the way I'd view the world too.

Second, the growing threat of authorized generics may diminish a generic's
incentive to fight. If a first-filer believes that the brand will sponsor an authorized generic -- something that many expect today on any significant drug -- the profits to be made in the 180-day exclusivity period are reduced substantially, perhaps even cut in half. So the generic firm's calculus in the fight-versus-settle equation may now be more heavily weighted towards settling.
Rather than gamble on winning in court, a generic may decide that a fixed entry date and guaranteed revenue stream is a better value than rolling the dice. Indeed, by settling under terms that include the brand's promise not to launch an authorized generic -- the generic can even assure itself of some exclusivity down the road.

President Asks Federal And State Regulators To Investigate Illegal Price Manipulation In Gasoline Industry

2006-04-25T13:59:00.000-04:00

Today President Bush announced that he is "directing the Department of Justice to work with the FTC and the Energy Department to conduct inquiries into illegal manipulation or cheating related to the current price of gasoline." This is in addition to a previous directive to the FTC to investigate whether there was any manipulation of gasoline supply and prices in the wake of Hurricane Katrina. In conjunction with this announcement, US Attorney General Alberto Gonzales and FTC Commissioner Deborah Platt Majoras issued a letter to all fifty state attorneys general (who have primary authority over price gouging) urging them to vigorously enforce state law "against any anticompetitive, anticonsumer conduct in the petroleum industry." The letter stated: "Consumers around the nation have expressed concerns about what they have perceived as anticompetitive or otherwise unfair conduct by the world's major oil companies."

You can read more about this story here, here, or here.

How Many Chicago School Economists Does It Take To Change A Light Bulb?

2006-04-22T16:26:00.000-04:00

The American Antitrust Institute provides this short essay describing some of the best (or worst) antitrust law jokes. The essay was prompted by a speech by Attorney General Alberto R. Gonzales in which he "reported that after a team of researches had worked 'furiously for days,' he could 'confidently report' 'that there are no jokes about antitrust law.'" By the way, the punch line to the joke in the title of this post is: "None. If the light bulb needed changing the market would have already done it."

FTC To Study Competitive Effects Of Authorized Generics Under Hatch-Waxman Act

2006-04-21T15:52:00.000-04:00

On March 29, 2006, the FTC announced that it will conduct a study of the use, and likely short- and long-term competitive effects, of authorized generics in the prescription drug marketplace. Pricing and competition in the pharmaceutical industry is one of the hottest topics in antitrust law.

The FTC notice explains:

In certain circumstances, the Hatch-Waxman Act allows the first-filing generic competitor of a branded drug a 180-day marketing exclusivity period. This marketing exclusivity period granted to certain generic first-filers, however, does not preclude competition from "authorized generics" that have an approved New Drug Application (NDA) on file with the FDA. Recently, brand-name drug makers have begun marketing authorized generics at exactly the same time the generic first-filer is beginning its 180-day marketing exclusivity period, leading to questions about the effects of authorized generics on pharmaceutical competition.

The goal of the Commission's study will be to assess the likely short- and long-run effects of market entry by authorized generics on generic drug competition. Among other things, the study will examine actual wholesale prices (including rebates, discounts, etc.) for brand-name and generic drugs, both with and without competition from authorized generics; business reasons that support authorized generic entry; factors relevant to the decisions of generic firms about whether and under what circumstances to seek entry prior to patent expiration; and licensing agreements with authorized generics. The data collected will enable the FTC to advance the understanding of the effects of generic entry on prescription drug prices -- in particular, the role of the 180-day exclusivity period in generic competition prior to patent expiration -- beyond what is available in the economic literature today.

Fourth Circuit Affirms Dismissal Of Antitrust Suit Against Microsoft Under Indirect Purchaser And Antitrust Standing Doctrines

2006-04-20T17:16:00.000-04:00

Yesterday the Fourth Circuit affirmed the dismissal of a multidistrict class action antitrust suit brought against Microsoft Corporation by purchasers of Microsoft's operating system and applications. Since plaintiffs did not buy their software directly from Microsoft (but rather bought such software preinstalled on their computers from the original equipment manufacturers), the court concluded that plaintiffs were indirect purchasers who were barred from seeking recovery for illegal pass-through overcharges under the principles of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). As an independent reason for the dismissal of plaintiffs claims, the court found that plaintiffs' lacked standing because they did not suffer an antitrust-type injury under the five factor test in American General Contractors v. California State Council of Carpenters, 459 U.S. 519 (1983). The opinion is a good example of how the indirect purchaser doctrine is similar to but conceptually different from the antitrust standing/injury doctrine. The decision can be accessed at this link.

Supreme Court Rejects Presumption Of Market Power In Patent Tying Cases

2006-04-19T12:55:00.000-04:00

On March 1, 2006, the Supreme Court issued its much anticipated opinion in Illinois Tool Works, Inc. v. Independent Ink, Inc. The Court reversed several vintage Supreme Court cases, United States v. Loew's, Inc., 371 U.S. 38 (1962) and International Salt Co. v. United States, 332 U.S. 392 (1947), which established a presumption of market power in tying cases from the mere ownership of patent or copyright. In abrogating this market power presumption, the Supreme Court noted: "Because a patent does not necessarily confer market power upon the patentee, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product."

The Court dismissed Loew's and International Salt as "a vestige of the Court's historical distrust of tying arrangements," which distrust has "substantially diminished" over time. In addition to relying on economic and scholarly criticism, the Court also relied on the Patent Misuse Reform Act and the Department of Justice/Federal Trade Commission's Guidelines for the Licensing of Intellectual Property. Although the Patent Misuse Reform Act was not directly applicable to the antitrust claims at issue, the Court found that the Act "invites the reappraisal of" antitrust doctrine, and that "it would be absurd to assume that" Congress did away with the market power presumption in the patent misuse context but intended the same conduct to constitute a felony under the antitrust laws. The Court's reliance on the Guidelines is also noteworthy because the Guidelines are merely the DOJ/FTC's enforcement policy.

Independent Ink is not likely to have an immediate effect in antitrust law because many of the regional circuits had already rejected the market power presumption. The opinion, however, may highlight the Court's willingness to reverse decades-old precedent when not consistent with a modern view of economics and/or the government's enforcement policies.

Court Narrowly Interprets "Good Cause" Provision Of State Franchise Statute

2006-04-18T13:54:00.000-04:00

In Volvo Trademark Holding v. AIS Construction Equipment Corp, -- F. Supp. 2d --, 2006 WL 435973 (February 16, 2006 W.D.N.C.), the Western District of North Carolina addressed the scope and constitutionality of the "good cause" termination provisions of the Arkansas Franchise Practices Act ("AFPA"). Volvo argued that its stated cause for termination -- "Volvoization" (re-engineering and rebranding its brands for sale under the single VOLVO trademark) and "dealer rationalization" (integrating overlapping channels of distribution by utilizing dealers willing and able to offer the entire Volvo line) -- constituted good cause under the AFPA. Volvo's problem, however, was that the AFPA listed eight specific circumstances constituting good cause and "Volvoization" and "dealer rationalization" were not among them. Nevertheless, Volvo argued that "good cause" must include such business decisions and market withdrawls because, if "good cause" was limited to the eight circumstances in the statute, the statute would violate the Dormant Commerce Clause.

The court, however, held that "good cause" under the AFPA is limited to the eight occurrences specifically enumerated in the statute and did not extend to Volvo's stated reasons for termination. Next, the court found that the AFPA's "good cause" provisions, as interpreted by the court, was not per se invalid and did not create an excessive burden on interstate commerce under the Dormant Commerce Clause.

In addition to highlighting the pitfalls of state franchising laws, this case shows the unpredictability of the cannon of constitutional avoidance. Although some courts (including the Supreme Court, see here) have aggressively used this cannon to interpret statutes to avoid constitutional doubts, the Western District of North Carolina interpreted the AFPA without aid of the cannon and addressed the constitutional argument head-on.

Administrative Appeal Saves Client More Than $12 Million In USDA Assessments

2006-04-18T13:39:00.000-04:00

Although not directly related to antitrust or distribution law, check out this article describing a recent Womble Carlyle victory.