Unilateral Conduct Committee E-Bulletin
Issue 37
December 07, 2005

The Section 2 Committee’s monthly E-Bulletin is intended to offer the antitrust community updates and information on the latest developments relating to monopolization law and policy. If you have any comments or suggestions on the E-Bulletin, please e-mail Tanya Dunne (tdunne@cgsh.com), Adam Nyhan (anyhan@constantinecannon.com) and Jay Modrall (jmodrall@cgsh.com).

SUPREME COURT INVITES UNITED STATES TO SUBMIT BRIEF IN PREDATORY OVERBIDDING CASE

Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., No. 05-381 ( U.S. Sup. Ct.) (petition for cert. filed Sept. 23, 2005) (appeal of Confederated Tribes of Siletz Indians of Oregon v. Weyerhaeuser Co., 411 F.3d 1030 (9th Cir. 2005)). The United States Supreme Court on Nov. 28 invited the Solicitor General to submit a brief for the United States in the Weyerhaeuser case. The move suggests that the Court will likely grant certiorari. At issue is whether buy-side predatory overbidding falls within the rule that Brooke Group v. Brown & Williamson Tobacco Corp. , 509 U.S. 209 (1993), set for sell-side predatory pricing. Under Brooke Group , a plaintiff in a predatory buying case must prove that defendant priced below its costs and had “a dangerous probability” of recouping its losses. Brooke Group , 509 U.S. at 222, 223-24. In Weyerhaeuser , defendant had a 65% share of the finished hardwood lumber market. Confederated Tribes , 411 F.3d 1030, 1034. Plaintiff, a competitor, alleged that defendant used its market share to increase artificially the prices that both firms paid for their raw materials, in an effort to drive plaintiff out of business. Such predatory overbidding allegedly constituted monopolization and attempted monopolization in violation of Sherman Act § 2.

Following a verdict for plaintiff, the Ninth Circuit declined to apply Brooke Group ’s “high liability standard” to the challenged conduct. Confederated Tribes , 411 F.3d at 1036-37. Unlike predatory pricing, the court held, predatory buying produced no benefits such as lower prices for consumers. Id. at 1038. It thus affirmed the district court’s decision not to instruct the jury to follow Brooke Group ’s high standard. The petitioner argues that the Ninth Circuit created a “wholly subjective rule” that will chill competition. Petition for a Writ of Certiorari at 2, 7, available at www.appellate.net/briefs/WeyerhaeuserCertPetition.pdf .

See also Opposition to Petition for a Writ of Certiorari, 2005 WL 2844967, Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc. , No. 05-381 (U.S. Sup. Ct. Oct. 26, 2005). Numerous briefs amici curiae supporting petitioner are also available on Westlaw. The case is also covered in the Unilateral Conduct Committee E-Bulletin, Issues 31 (June 2005) and 36 (November 2005).

INTERNET GROUPS ALLEGE MONOPOLIZATION IN PROPOSED ICANN-VERISIGN DEAL

World Ass’n of Domain Name Developers, Inc. v. Verisign, Inc., 5:05-cv-04828-RS (N.D. Cal. filed Nov. 28, 2005); Coalition for ICANN Transparency Inc. v. Verisign, Inc., 5:05-cv-04826-RMW (N.D. Cal. filed Nov. 28, 2005). Two new complaints invite § 2 analysis into the ongoing debates concerning the governance of the Internet. Both cases concern competition in the worldwide market for domain name registering services – the market for purchasing and selling Internet domain names. Domain names, such as www.abanet.org or www.uscourts.gov , direct Internet users to the appropriate servers they seek. The Internet Corporation for Assigned Names and Numbers (ICANN) is a non-profit California corporation chartered by the U.S. Commerce Department to manage technical aspects of the Internet’s domain name management system. Both lawsuits seek to enjoin an agreement that ICANN is poised to execute with Verisign, one of many registering services. The agreement allegedly would grant Verisign a virtual monopoly over the registry services for websites that have .com or .net suffixes. Both complaints allege that various aspects of the deal would violate an express mandate to ICANN from the Commerce Department to ensure competition in the domain name system.

One plaintiff, the World Association of Domain Name Developers, describes itself as an association that helps companies maximize their revenue with respect to domain name ownership. The other plaintiff, the Coalition for ICANN Transparency, says that its members include Verisign’s competitors in the registration market as well as registrants – i.e., companies and individuals who purchase the services of registrars such as Verisign and its competitors.

The complaints come at a time when foreign governments are increasingly criticizing the United States’ control (through ICANN) of the domain name system. The U.N.’s Working Group on Internet Governance (WGIG), established by the 2003 World Summit on the Information Society, regards the United States’ control of the system as one of its “issues of highest priority.” Working Group on Internet Governance, Report of the Working Group on Internet Governance 5 (June 2005), available at http://www.wgig.org/WGIG-Report.html . The World Summit on the Information Society convened a second time in Tunis, Tunisia in November. An eleventh-hour compromise reached by attendees during the meeting permits the United States and ICANN to retain their current domination of the domain name system. See http://www.itu.int/wsis for more information on the World Summit.

SECOND CIRCUIT RULES AGAINST CLASS ACTION PLAINTIFFS IN GENERIC BREAST CANCER DRUG CASE

In re Tamoxifen Citrate Antitrust Litigation, 2005 WL 2864654 (2d Cir. Nov. 2. 2005). The Second Circuit affirmed the district court’s 12(b)(6) dismissal of claims of monopolization against a drug patent holder and claims of conspiracy to monopolize between the patent holder and a generic drug manufacturer under the terms of a patent litigation settlement agreement. 2005 WL 2864654, at *1.

Class action plaintiffs were consumer advocacy groups and consumer purchasers of drugs manufactured by defendants. They had alleged, inter alia, that defendants Zeneca, Inc., and AstraZeneca Pharmaceuticals LP, monopolized, and together with Barr Laboratoriesconspired to monopolize the market for tamoxifen, the most commonly prescribed drug for breast cancer treatment, by suppressing competition from other generic manufacturers of the drug under the terms of a 1993 settlement agreement among defendants in an earlier patent infringement case. Id. at *1, 7. The settlement agreement provided for, among other things, a $21 million payment from the patent holders (Zeneca group companies) to the generic manufacturer (Barr), and a non-exclusive license from Zeneca to Barr which allowed Barr to sell an unbranded version of Zeneca-manufactured tamoxifen, on the condition that Barr would not market its own generic version of tamoxifen until Zeneca’s patent expired. Id. at *1, 4. The district court held that the settlement agreement did not restrain trade in violation of the antitrust laws and that the plaintiffs suffered no antitrust injury as a result of the alleged violations. Id. at *1. Plaintiffs appealed.

Underlying the appeal, the Second Circuit reasoned, was the tension between restraints on anti-competitive behavior imposed by the Sherman Act and grants of patent monopolies under the patent laws. Id. at *11. The plaintiffs contended that several factors, including the fact that the patent was unenforceable at the time of the settlement, indicated that if their allegations were proved, the defendants violated the Sherman Act, § 1 and § 2. Id. at *12. The court noted that the Sherman Act does not preclude a settlement by agreement over conflicting patent claims, even if the settlement may have an adverse effect on competition. Id. at *12. The court, citing the Fourth Circuit in Duplan Corp., noted “[i]t is only when settlement agreements are entered into in bad faith and are utilized as part of a scheme to restrain or monopolize trade that antitrust violations may occur.” Id. at *13. The court reasoned that “[w]hatever damage is done to competition by settlement is done pursuant to the monopoly extended to the patent holder by patent law unless the terms of the settlement enlarge the scope of the monopoly.” Id. at *20. The Court held that as the settlement agreement did not extend the patent monopoly by restraining competition, it did not foreclose competition in the market for tamoxifen. Id. at *21-23.

SIXTH CIRCUIT REVERSES AND REMANDS DISTRICT COURT’S DECISION TO GRANT SUMMARY JUDGMENT TO MAJOR AIRLINE IN PREDATORY PRICING CASE BROUGHT BY LOW-COST CARRIER

Spirit Airlines, Inc. v. Northwest Airlines, Inc., 2005 WL 2990632 (6th Cir. Nov. 9, 2005). The Sixth Circuit reversed and remanded the district court’s decision to grant summary judgment in favor of defendant Northwest Airlines in a predatory pricing case. 2005 WL 2990632, at *1.

Plaintiff Spirit Airlines, a low-cost carrier, had filed suit against Northwest Airlines claiming monopolization and attempted monopolization under § 2 of the Sherman Act by alleging that Northwest Airlines engaged in predatory pricing and predatory tactics in the leisure passenger airline markets for two routes: Detroit-Boston and Detroit-Philadelphia. Id. The Sixth Circuit concluded that a reasonable trier of fact could find that: (1) a separate and distinct low-fare or leisure passenger market existed; and (2) at the time of predation, Northwest Airlines had engaged in predatory pricing to force its competitor Spirit Airlines out of business because: (i) Northwest Airlines’ ticket prices were below its relevant costs for these two routes; (ii) the markets at issue were highly concentrated; (iii) Northwest possessed very high market shares on the relevant routes (70-89%); and (iv) barriers to entry were high; and (3) once Spirit Airlines exited the market, Northwest recouped its losses incurred during the predation period by raising prices. Id.at 1, 11.

CALIFORNIA DISTRICT COURT DENIES DIGITAL MAP DATA PROVIDER MOTION TO DISMISS ON EXCLUSIVE DEALING AND ILLEGAL TYING CLAIMS

Tele Atlas v. NAVTEQ, 2005 WL 2893782 (N.D.Cal. Nov. 2, 2005). District Court denied defendant NAVTEQ’s motion to dismiss plaintiff Tele Atlas’ allegations of exclusive dealing and illegal tying arrangements in violation of § 2 of the Sherman Act. 2005 WL 2993782, at *1.

Plaintiff Tele Atlas and Defendant NAVTEQ license digital map data to manufacturers of navigation devices. 2005 WL 2993782, at *1. Tele Atlas alleged, inter alia, that NAVTEQ’s anticompetitive conduct in violation of § 2 of the Sherman Act prevented Tele Atlas from entering the market. Id.

Tele Atlas alleged that NAVTEQ: (1) entered into contracts with automakers “that effectively require[d] embedded device makers to license NAVTEQ data”; (2) gave digital map data away for free to the Automobile Association of America for up to two years; and (3) used its “first mover” advantage in the embedded device market to protect its monopoly power. Id. at *2. Moreover, Tele Atlas alleged that NAVTEQ excluded Tele Atlas from the “PNV” (personal navigation) device market by: (1) requiring licensees to pre-pay for at least five years of service; (2) giving away free devices to retailers who commit exclusively to promote PNV devices with NAVTEQ data; and (3) illegally tying Perspective Navigation Display Technology to the licensing of NAVTEQ’s data for use in PNV devices. Id. Additionally, Tele Atlas alleged that NAVTEQ threatened to sue two PNV device makers -- Navman and TomTom -- who licensed digital map data from Tele Atlas, unless they licensed the NAVTEQ patented technology. Id.

Tele Atlas asserted three relevant product markets in which NAVTEQ’s market shares ranged from 70-95%: (1) the “embedded device market”, i.e., licenses to digital map data for use in permanent navigation devices installed in automobiles; (2) the “PNV device market”, i.e., licenses to digital map data for use in personal navigation devices (including handheld devices that may be attached to an automobile dashboard); and (3) the “navigation device market”, i.e., licenses to digital map data for use in navigation devices. Id. The relevant geographic market was the United States. Id.

NAVTEQ moved to dismiss, inter alia, the § 2 claims to the extent that they alleged exclusive dealing and illegal tying arrangements. Id. at *3-5. NAVTEQ contended that Tele Atlas failed to assert “specific customers, agreements, or products supposedly involved,” and failed to “allege that the tying arrangement at issue affects a substantial amount of commerce in the tied product market.” Id. The court held that, although Tele Atlas failed to name particular entities with which NAVTEQ had had exclusive dealing, Tele Atlas had explained how NAVTEQ’s alleged scheme operated, rendering the exclusive dealing claims “sufficiently detailed” to survive a motion to dismiss. Id. at *4. The court also upheld Tele Atlas’ tying claims as sufficient for purposes of stating a claim as Tele Atlas identified specific customers and a specific contract, provided estimated shares for NAVTEQ between 70-95% in specific markets, and alleged the misuse of a specific patent. Id. at *5. The court held that Tele Atlas’ claims sufficed to state a tying claim and denied NAVTEQ’s motion to dismiss on these grounds. Id. at *5. The court did dismiss certain tying claims, however, on the grounds that a patent license is not a tangible good under § 3 of the Clayton Act. Id. at *6-7.

FEDERAL ANTITRUST ENFORCERS TO HOST HEARINGS ON SINGLE-FIRM CONDUCT

The Federal Trade Commission and the Justice Department on November 28 announced that they will hold joint public hearings in Spring 2006 on the antitrust implications of single-firm conduct. These hearings will follow the agencies’ recent public meetings relating to antitrust policy’s application to real estate, health care, and intellectual property. They will invite critical discussion from practitioners, economists and other parties. They will examine some of the most closely-watched recent and pending cases, including the private § 2 cases Trinko and Lepage’s and the government’s cases against Dentsply, Microsoft, American Airlines, Unocal, Intel and Rambus. The agencies also emphasize the importance of a more sophisticated understanding of the international context of single-firm conduct. Seehttp://www.usdoj.gov/atr/public/press_releases/2005/213369.htm and http://www.ftc.gov/opa/2005/11/unilateral.htm.

Jay Modrall
Vice-Chair, Unilateral Conduct Committee
Cleary Gottlieb Steen & Hamilton LLP
Rue de la Loi 57
B-1040 Brussels
+32 (0)2 287 2024
jmodrall@cgsh.com

Adam Nyhan
Constantine | Cannon
450 Lexington Avenue
New York, N.Y. 10017
(212) 350-2772
anyhan@constantinecannon.com

Tanya N. Dunne
Cleary Gottlieb Steen & Hamilton LLP
Rue de la Loi 57
B-1040 Brussels
ph.: +32 (0)2 287 2057
fax: +32 (0)2 231 1661
tdunne@cgsh.com