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April 4, 2012

Second Circuit Finds Arbitration Waivers Unenforceable a Third Time


On February 1, 2012, the Second Circuit ruled that American Express cannot enforce an arbitration agreement containing a class-action waiver against a group of merchants pursuing antitrust claims despite the U.S. Supreme Court’s recent ruling in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011). In In re Am. Express Merchs. Lit., 667 F.2d 204 (2d Cir. 2012) (Amex III), the Second Circuit held that Concepcion did not require the appeals court to overturn its earlier finding that an arbitration clause was unenforceable because compelling individual arbitration would preclude the plaintiffs’ ability to bring antitrust claims by making it financially impossible. This decision marks the third time the Second Circuit has held these agreements to be unenforceable.


When it first addressed the agreements in January 2009, the Second Circuit relied on Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (2000) and held that the waivers were invalid because their enforcement “would grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery.” In re Am. Express Merchs. Lit., 554 F. 3d 300 (2009) (Amex I). In May 2010, however, the Supreme Court vacated that decision and remanded the matter for reconsideration in light of its decision in Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 130 S. Ct. 1758 (2010). In that case, the Court held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Id. (emphasis in original). On remand, the Second Circuit found that its original analysis was unaffected by Stolt-Nielsen and once again reversed the district court’s decision and remanded for further proceedings. In re Am. Express Merchs. Lit., 634 F.3d at 199–200 (2011) (Amex II). This time, however, the court placed its mandate on hold to allow American Express to file another petition to the Supreme Court. During the interim, the Supreme Court decided Concepcion, which held that the FAA preempted a California law barring the enforcement of class-action waivers in consumer contracts. Id. at 1750–51. American Express argued that, under Concepcion, the Second Circuit was required to reverse its decision in Amex II.


To the contrary, the appeals court found that, although Stolt-Nielson and Concepcion addressed the issue of whether parties can be forced to arbitrate disputes in a class-action arbitration, those decisions did not require that all class-action waivers be deemed per se enforceable and therefore left open the question presented by Amex: whether a class-action arbitration waiver is enforceable even where the plaintiffs are able to demonstrate that the practical effect of enforcement would preclude their ability to vindicate their federal statutory rights. Relying once again on Green Tree Fin. Corp. v. Randolph, the Second Circuit held that, because the evidence presented by the plaintiffs “establishe[d] as a matter of law that the cost of plaintiffs’ individually arbitrating their dispute with American Express would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws,” the waiver was unenforceable, even under Concepcion. The appeals court also noted that other circuits permit plaintiffs to challenge class-action waivers on similar grounds, citing In re Cotton Yarn Antitrust Litig., 505 F.3d 274 (4th Cir. 2007), Livingston v., Assocs. Fin. Inc., 339 F.3d 553 (7th Cir. 2003), and Adkins v. Labor Ready, Inc., 303 F.3d 496 (4th Cir. 2002). In accordance with its ruling, the Second Circuit remanded the action back to the district court with instructions to deny American Express’s motion to compel arbitration.


Peter E. Moran, White & Case, New York, NY


 

February 16, 2012

Federal Circuit Agrees to Hear Appeal in Ritz Camera v. Sandisk Corp.


On January 13, 2012, the Federal Circuit agreed to consider whether antitrust allegations related to fraudulent patent procurement can be raised by direct purchasers in Ritz Camera & Image, LLC v. Sandisk Corp, et al., No. 2011-M101 (Fed. Cir. January 13, 2012). The court granted SanDisk permission to appeal a Northern District of California court’s refusal to dismiss a class action that alleged Sandisk used false patents and sham litigation to maintain a monopoly on flash memory. Sandisk argued that the antitrust claims should be dismissed because direct purchasers lacked standing to bring Walker Process antitrust claims.


In Walker Process Equipment Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that the enforcement of a fraudulently procured patent is grounds for a Sherman Act antitrust claim, but that plaintiffs must still demonstrate antitrust standing. In the years since Walker Process was decided, it has become clear that a competitor can sue for antitrust violations on the basis of an improperly obtained patent, but the question of whether direct purchasers share Walker Process standing has never been answered.


In Ritz Camera, a class of direct purchasers alleged that SanDisk committed fraud on the U.S. Patent and Trademark Office to obtain two “crown jewel” patents on flash-memory drives. SanDisk was then able to assert those patents to suppress competition and monopolize the industry. SanDisk argued that the class lacked standing to sue under Walker Process and, that even if it did have standing, there were no claims of inequitable conduct in the antitrust suit and the patents were valid and untarnished because no court had found that the patents were fraudulently obtained.


On February 10, 2011, Judge Jeremy Fogel denied SanDisk’s motion to dismiss the complaint and held that Ritz would be allowed to pursue its Walker Process antitrust claims despite its consumer status. The court relied on In re DDAVP, 585 F.3d 677 (2d Cir. 2009), which held that consumers had standing to assert Walker Process claims where the patent at issue is “unenforceable due to inequitable conduct.” Judge Fogel found that the patents had been “tarnished” by the district court’s determination in SanDisk Corp. v. STMicroelectronics, Inc., et al., No. C 04-4379-JF, an earlier litigation between SanDisk and its main flash-memory competitor involving the same patents. There, the court denied in part a request for summary judgment because it found that triable issues of fact existed as to whether SanDisk procured the patents by fraud. Because of the heightened evidentiary requirements necessary for a showing of fraud, the court in Ritz Camera concluded that those claims which had survived summary judgment in SanDisk raised “at least some question as to the validity of the subject patent.”


SanDisk consequently filed for interlocutory appeal and the district court granted its request in September 2011. The trial court also determined that the appeal belonged in the Federal Circuit despite there being no patent-infringement issue in the class action because that court has jurisdiction over all patent-related appeals. In agreeing to take up the appeal, the Federal Circuit said it was aware of the jurisdiction issue but “deem[ed] it the better course to defer the jurisdictional issue . . . to the merits panel.”


Peter E. Moran, White & Case, New York, NY


 

December 8, 2011

MDFla Finds Exception to Illinois Brick, Refuses Class Action Dismissal


On July 25, 2011, the District Court for the Middle District of Florida refused to dismiss a class action brought by a Florida hospital alleging that Astellas violated the antitrust laws by tying the purchase of its branded drug Andenoscan to the acquisition of a license to perform an adenosine infusion process, even though only the process was patented. In Lakeland Regional Medical Center, Inc. v. Astellas Pharma U.S., Inc. et al., No. 8:10-cv-02008 (M.D. Fla. July 25, 2011), Judge Virginia M. Hernandez Covington held that Lakeland’s complaint did not run afoul of Illinois Brick v. Illinois, 431 U.S. 720 (1977), despite Astellas’s assertion that Lakeland failed to allege it purchased Adenoscan directly from Astellas.


Read the full case note.


Peter E. Moran, White & Case, New York, NY


 

December 8, 2011

9th Cir. Rejects Bundling Claim, Dismisses TV-Programming Action


On June 9, 2011, the Ninth Circuit affirmed the dismissal of a proposed class action that sought to force television programmers and distributors to sell channels individually rather than in multi-channel packages. In Rob Brantley et al. v. NBC Universal Inc. et al., No. 09-56785 (9th Cir. June 9, 2011), a class of retail cable and satellite television subscribers alleged that the practice of selling multi-channel cable packages by programmers violates section 1 of the Sherman Act, 15 U.S.C. § 1. A three-judge panel affirmed the district court’s 2009 dismissal, concluding that the plaintiffs had failed to allege an injury to competition as required by the act. “This case is a consumer protection class action masquerading as an antitrust suit,” Circuit Judge Sandra S. Ikuta wrote for the panel.


Read the full case note.


Peter E. Moran, White & Case, New York, NY


 

December 8, 2011

Eighth Circuit Affirms Dismissal of Catheter Case


On June 8, 2011, the Eighth Circuit upheld for the second time, in Southeast Missouri Hospital v. C.R. Bard, Inc., No. 09-3325 (8th Cir. June 8, 2011), the dismissal of an antitrust class action accusing C.R. Bard of violating state and federal antitrust laws by exercising its monopoly power to prevent and eliminate competition in the urological catheter industry. In a split decision, a three-judge panel affirmed a Missouri federal court’s grant of summary judgment to defendant Bard in the suit brought by St. Francis Medical Center. The court also rejected challenges to several other pricing practices, holding that the plaintiffs “fail[ed] to offer sufficient evidence that Foley and intermittent catheters sold through GPO [group purchasing organization] contracts are distinct product submarkets” for antitrust purposes. Id. at * 14.


Read the full case note.


Peter E. Moran, White & Case, New York, NY


 

December 8, 2011

ECJ Confirms Parent Company Is Responsible for Subsidiaries' Actions


On January 20, 2011, the European Court of Justice issued a decision in General Quimica v. European Commission, case C-90/09P, confirming that, for the purposes of EU competition law, 100 percent ownership in a subsidiary, even indirectly through another wholly owned subsidiary, gives rise to a presumption that the parent company directs the subsidiary and will be held responsible for the subsidiary’s actions. This decision partly upheld and partly annulled the dismissal of the appellants’ previous action for annulment of Commission Decision 2006/902/EC of 21 December 2005. The earlier decision imposed a €3.38 million fine on Repsol YPF SA (RYPF), jointly and severally with its wholly owned subsidiary Repsol Quimica SA (RQ) and RQ’s wholly owned subsidiary General Quimica SA (GQ), for GQ’s role in a price-fixing and information-sharing cartel in the rubber-chemicals sector.


Read the full case note.


Peter E. Moran, White & Case, New York, NY


 

June 29, 2011

California Court Grants in Part Apple’s Motion for Summary Judgment


On May 19, 2011, the Northern District of California granted in part defendant Apple’s motion for summary judgment in The Apple iPod iTunes Antitrust Litigation, 5:05-cv-00037-JW (N.D. Cal. May 5, 2011), a dispute over Apple’s former policy of encoding digital music files sold through iTunes with proprietary software that made it impossible to use a competitor’s technology to play songs on an iPod. Relying on the recent Ninth Circuit holding in Allied Orthopedic Appliances, Inc., v. Tyco Health Care Group LP, 592 F.3d 991 (9th Cir. 2010), Judge James Ware concluded that software updates to iTunes 4.7 constituted a “genuine improvement” and absent evidence of anticompetitive motive, could not support an antitrust claim. He said he could not, as a matter of law, reach the same conclusion regarding iTunes 7.0.


Read the full case note.


 

June 29, 2011

California Court Applies Foreign Trade Antitrust Improvements Act


On May 9, 2011, the Northern District of California held that the Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a (FTAIA), denied the court subject-matter jurisdiction over foreign claims arising out of flights originating from Asia in a multidistrict litigation that accused more than two dozen airlines of conspiring to fix prices on transpacific air travel. In In re Transpacific Passenger Air Transportation Antitrust Litig., No. C 07-05634 (N.D. Calif. May 9, 2011), the district court dismissed those injury claims that originated overseas, but denied the part of the defendants’ motion that  sought to dismiss the remaining Sherman Antitrust Act claims based on the “filed rate” doctrine.


Read the full case note.


 

June 29, 2011

Tenth Circuit Affirms Application of Noerr-Pennington to Dismiss Antitrust Claims


In Coll v. First American Title Insurance Co. et al, No. 08-2174 (10th Cir. 2011), decided April 26, 2011, the Tenth Circuit affirmed a New Mexico district court’s application of the Noerr-Pennington doctrine to dismiss antitrust claims against a group of insurers alleged to have violated that state’s antitrust act. Applying the doctrine to allegations that defendant insurers conspired with each other and with the state superintendent of insurance in a scheme to inflate premium rates for title insurance, the court noted that many states had adopted and applied Noerr-Pennington to state antitrust as well as other state-law claims.


Read the full case note.


 

June 29, 2011

Ohio Court Denies Motion to Dismiss in Google AdWords Case


On March 28, 2011, the Southern District of Ohio held that the sham exception to Noerr-Pennington applied to a trademark infringement and unfair competition suit and denied The Scooter Store’s (TSS) motion to dismiss defendant SpinLife’s antitrust counterclaims in The Scooter Store, Inc. v. SpinLife.com, LLC, 2011 U.S. Dist. LEXIS 32654 (S.D. Ohio, March 28, 2011).


Read the full case note.


 

April 28, 2011

Third Circuit Affirms Aspartame Holding


On January 28, 2011, the Third Circuit Court of Appeals decided In re: Aspartame Antitrust Litigation, 2011 U.S. App. LEXIS 1882, affirming the August 11, 2008, order of the U.S. District Court for the Eastern District of Pennsylvania granting summary judgment in a putative class action brought by plaintiff direct purchasers of an artificial sweetener under section 1 of the Sherman Act, 15 U.S.C.S. § 1. The case was dismissed on summary judgment (before certification of the putative class), and the basis for dismissal was specific to the named class representatives and their complaint.


Read the full case note.


 

April 28, 2011

Federal Circuit Affirms Noerr-Pennington Defense to Sham Series Claim


On December 9, 2010, the Federal Circuit Court of Appeals decided ERBE Elektromedizin GMBH, et al. v. Canady Tech. LLC, et al., on appeal from the Western District of Pennsylvania, affirming summary judgment of non-infringement of certain patents, and rejecting Canady’s antitrust counterclaims. Id., 629 F.3d 1278 (Fed. Cir. 2010). In a split decision, the panel held that there was no evidence that Canady had infringed on ERBE’s patent or violated a related trademark. The court also held that the “sham litigation” exception to the Noerr-Pennington doctrine did not apply because ERBE’s patent claims were not objectively baseless.


Read the full case note.


 

April 28, 2011

ArcelorMittal SA Wins 80 Percent Reduction in EU Antitrust Fines


On April 4, 2011, the European Commission announced that it would reduce a fine issued to ArcelorMittal SA for its role in a price-fixing cartel that involved more than a dozen steel manufacturers and spanned almost two decades. The cartel, which formed in January 1984 and stretched across most of the European Union, employed a system of national coordinators to fix individual quotas and prices, allocate clients, and exchange sensitive commercial information in the market for prestressing steel. ArcelorMittal, the world’s largest steelmaker, will now be required to pay €45.7 million ($65 million), instead of the €230.4 million previously levied against it by the commission. This is the second time the commission has reduced the fine. In October 2010, regulators cut ArcelorMittal’s fine from €315 million, citing a calculation error.

 

The most recent reduction comes in response to a 2006 application made by ArcelorMittal and a dozen other fined companies based on an “inability to pay” defense available under point 35 of the commission’s 2006 fining guidelines. At the time the requests were made, Commission Vice President Joaquim Almunia announced that “the Commission will have no sympathy for cartelists; recidivists will be fined more and inability-to-pay claims will be accepted only when it is clear the fine would send a company into bankruptcy.” But spokeswoman Amelia Torres said the commission ultimately decided to “reduce the fine for the first fifteen years of the cartel when the subsidiaries were solely responsible for their behavior.” ArcelorMittal was involved in the violations for a much shorter period of time than its three subsidiary units and may not be in a position to step in and save them. In February, ArcelorMittal, which is based in Luxembourg, reported a fourth-quarter loss of $780 million, blaming falling prices and increased raw-material costs.


Whether this reduction will undermine the credibility of the commission’s fining policy remains to be seen. EU regulators have raised penalties against other parent companies, saying that they will be held liable for the competition-law violations committed by their subsidiaries. For instance, in 2009, Akzo Nobel NV, the world’s largest maker of paints and coatings, lost an appeal over its financial liability for a unit’s violations. More recently, however, the commission granted a similar request in June 2010 by three defendants in a bathroom-fixtures cartel, cutting their fines by 50 percent. In granting that request, Commissioner Almunia stated that the size of the fines “shouldn’t push the companies off the cliff.”


Peter E. Moran, White & Case, New York, NY


 

April 27, 2011

Second Circuit Reaffirms Unenforceability of Arbitration Waiver


On March 8, 2011, on remand by the Supreme Court for reconsideration in light of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), the Second Circuit Court of Appeals reaffirmed its earlier decision in In re American Express Merchants. Litig., 554 F.3d 300 (2009), that a mandatory class-action waiver in a credit-card agreement was not enforceable because “the cost of plaintiffs’ individually arbitrating their dispute would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.”  In re Am. Express Merchs. Litig., No. 06-1871 (2d Cir. Mar. 8, 2011).


In its 2009 decision, the Second Circuit applied Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), in which the Supreme Court ruled that, as a matter of public policy, a mandatory-arbitration clause was not enforceable when the costs of arbitration would be so high as to prohibit that party from vindicating its federal statutory claims.  The Second Circuit concluded that the class-action waiver contained in the American Express Card Acceptance Agreement could not be enforced under the Federal Arbitration Act “because to do so would grant Amex de facto immunity from antitrust liability by removing plaintiffs’ only reasonably feasible means of recovery.”  In re Am. Express, 554 F.3d at 320.  


After the Supreme Court ruled in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010) that parties cannot be forced into class-wide arbitration where an agreement is “silent” as to class actions, American Express petitioned the Supreme Court for a writ of certiorari from the Second Circuit’s decision.  The Supreme Court granted certiorari, vacated the Second Circuit’s decision, and remanded the case back to the Second Circuit for reconsideration in light of Stolt-Nielsen.


On remand, the Second Circuit concluded that, although Stolt-Neilson barred compulsory arbitration in the absence of an express agreement to arbitrate, this did not alter the earlier holding in In re Amex, which focused on whether a “class action waiver is enforceable [under the federal substantive law of arbitrability] when it would effectively strip plaintiffs of their ability to prosecute the alleged antitrust violations.”  In re Am. Express, No. 06-1871 at 11. The court found that plaintiffs, a class of merchants that accept American Express charge cards with an annual charge volume of less than $10 million, had established that individual arbitrations would be prohibitively expensive.  Plaintiffs accomplished this by submitting an expert affidavit estimating the costs of individual litigation compared to the amount of a potential individual recovery.  Id. at 18-19.  The affidavit also showed that the fee shifting provisions of the antitrust statutes were “inadequate” to alleviate these concerns.  Id. at 19-20.  Accordingly, the circuit court held, as it had prior to remand, that the class action waiver was unenforceable because it “flatly ensures that no small merchant may challenge American Express’s tying arrangement under the federal antitrust laws.” Id. at 20 (quoting In re Am. Express, 554 F.3d at 319).


 

April 27, 2011

Seventh Circuit Applies State-Action Doctrine to Disposal Contracts


In Active Disposal, Inc. v. City of Darien (7th Cir. March 14, 2011), the Seventh Circuit affirmed the Northern District of Illinois’s holding that the state-action doctrine shielded municipalities’ exclusive trash-disposal contracts from federal antitrust scrutiny. The state-action doctrine is based on principles of federalism and stems from Congress’s intention that the Sherman Antitrust Act should not regulate the activities of the states themselves. Over time, the doctrine has been extended to immunize the conduct of municipalities as “authorized by the State pursuant to state policy to displace competition with regulation or monopoly public service.” Town of Hallie v. City of Eau Clair, 471 U.S. 34, 39 (1985).


Read the full case note.


 

March 23, 2011

NFL Players to Tackle the "Lockout" and Other Restraints in Court


On March 11, 2011, the National Football League (NFL) players decertified the players' union (NFLPA), thereby terminating the NFLPA's status as their collective-bargaining representative. The same day, the players filed an antitrust class action complaint against the NFL in the District of Minnesota alleging that certain agreements between the 32 NFL teams, including the "lockout," the draft, the salary cap, and free-agency restrictions, are per se violations of section 1 of the Sherman Act and unreasonable restraints of trade under the rule of reason.


The plaintiffs allege a class comprising (i) all players under contract to play in the NFL (ii) all players not under contract with an NFL team and seeking employment as professional football players (free agents), and (iii) all college and other football players not previously under contract with any NFL team, but eligible to play in the NFL as rookies in the future. The defendants are the 32 NFL member teams and the NFL itself, an association consisting of the 32 NFL teams.

The dispute arose from the NFL's decision to opt out of the 1993 stipulation and settlement agreement (SSA), which resolved the case White v. National Football League, No. 4-92-902 (D. Minn. 1992) and the collective-bargaining agreement (CBA), two years early; the agreements were set to expire at the end of the 2012 NFL season. The complaint alleges that the NFL terminated these agreements for the purpose of obtaining a greater share of revenues at the expense of the players and to impose new, more onerous restraints upon the players.


First, the players allege that the NFL defendants have jointly conspired to impose a "lockout," which prohibits all competition for player services, player signings, and payments under existing contracts. The players allege that the purpose of the lockout is to force the players to agree to massive wage reductions and other restrictions, and that this conduct constitutes an illegal group boycott and price-fixing agreement. The players also allege that the NFL draft divides the market for rookie player services among NFL teams, which would otherwise compete for those players. This market allocation, along with limitations on compensation to drafted players, are anticompetitive restrictions in violation of antitrust laws, according to the players. Finally, the players contend that the NFL defendants' plan to impose restrictions on players if the lockout is terminated (such as a price-fixed cap on player salaries, limitations on free agency, and other anticompetitive restrictions that limit players' movement) will unlawfully restrict competition.


In American Needle Inc. v. National Football League, 130 S. Ct. 2201 (2010), the Supreme Court ruled that the 32 NFL teams are separate entities. Therefore, everything that the NFL does on behalf of the teams is technically an agreement between competitors. Section 1 of the Sherman Act prohibits agreements in restraint of trade and the players argue that the restrictions sought by the NFL amount to such restraints. While the CBA was in place, the NFL's collective actions were protected by the non-statutory labor exemption, which protects a collective-bargaining process even when a CBA results in certain restraints on competition. The NFL defendants are expected to argue that the non-statutory labor exemption survives even after the players decertified their union. They will argue that decertifying is a merely an act of posturing; that while the union has officially decertified, the collective-bargaining relationship between the players and the NFL continues to exist. The NFL will also likely argue that no single triggering event leads to the expiration of the non-statutory labor exemption, so a decertification by itself is not enough to overcome the exemption. Instead, the NFL's position will be that the court has to analyze the totality of circumstances surrounding the bargaining process in determining whether a collective-bargaining relationship exists. The players have argued otherwise, that the exemption does not apply after renunciation of the NFLPA and that the NFL explicitly waived any rights to assert a labor exemption in the 1993 SSA. 


Prior antitrust battles between the players and the NFL have favored the players. After the NFLPA decertified in 1989, in McNeil v. National Football League, 764 F. Supp. 1351 (D. Minn. 1991) Judge Doty of the Minnesota District Court ruled that the NFL was no longer exempt from antitrust laws, and a jury eventually awarded damages of $1,629,000 to be split among four players. In Jackson v. National Football League, 802 F. Supp. 226 (D. Minn. 1992) Judge Doty granted an injunction against the NFL's right-of-refusal system, and players were immediately free to sign with new teams. In 1992, a class-action lawsuit, White v. National Football League,sought treble damages for a large group of NFL players, but the NFL opted to settle with the players, which lead to a new CBA. Finally, on March 1, 2011 Judge Doty ruled that the "lockout provisions" in the NFL's television contracts, under which NFL owners would be paid a combined $4 billion even if there were no NFL games, violated the NFL's obligation under the 2003 SSA to act in good faith and use best efforts to maximize total revenue for both the NFL and the players. Not only was this decision another victory for the players, but it also neutralized the most NFL's most powerful economic weapon.


These precedents, of course, do not guarantee a victory for the players. And, indeed, the Supreme Court's American Needle decision contains language that could give the NFL some comfort:


The fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions . . . . Other features of the NFL may also save agreements amongst the teams. We have recognized, for example, ‘that the interest in maintaining a competitive balance' among ‘athletic teams is legitimate and important' . . . . It is . . . unquestionably an interest that may well justify a variety of collective decisions made by the teams.

This suggests that the league may be able to overcome an antitrust challenge by showing that a rookie draft, reasonable limits on player movement, and a salary cap are necessary to maintain a competitive balance and preserve competition in the league.


While the players allege several restraints on competition, the main relief sought by the players is a declaration that the "lockout" violates antitrust laws. The players filed a request for an injunction to stop the "lockout" as part of the suit and the court is scheduled to hear arguments on that request on April 6, 2011. If the injunction is granted, the NFL is likely to play the 2011 season with no salary cap, using the same restrictions on players' movement the league had in 2010, and because the players agreed to those restrictions in the last CBA, the NFL will argue that those restrictions should withstand an antitrust challenge. This would be a positive outcome from the players' perspective, as they are seeking to preserve the status quo. The players successfully argued in Jackson that the court should grant a preliminary injunction where anticompetitive restraints by the NFL have prevented the players from offering their services in a competitive market and they use the same argument to terminate the lockout. On the other hand, if the injunction is not granted, the players will be at a disadvantage because they cannot play or get paid, and the sides will likely negotiate a settlement much sooner. Regardless of the district court's decision, however, the losing side will likely appeal, further prolonging this battle.


Aleksandr Livshits, Fried Frank, New York, NY


 

March 9, 2011

Retail Price Markup Statute Not Preempted by Federal Laws


On September 3, 2010, the Seventh Circuit decided Flying J Inc. v. Van Hollen and held that a Wisconsin statute that mandated a retail price markup of gasoline sold in Wisconsin was not preempted by the Sherman Antitrust Act. In reversing the district court, the circuit court held that the plaintiff's failure to show that the statute authorized collusive conduct by gasoline retailers was fatal to its claims.


Wisconsin's Unfair Sales Act prohibits retailers of motor vehicle fuel from selling below a minimum price calculated by using a mathematical formula. The plaintiff, Flying J, argued that it could sell fuel for substantially less than the statutory minimum and still make a profit. Flying J sued to enjoin the state from enforcing the statute, alleging that the statute was preempted by the Sherman Act. Flying J also argued that the act, by establishing a minimum price for gasoline, facilitated a horizontal price-fixing scheme where competitors could match, but not beat each others' prices.


The court determined that a statue is preempted if it "mandates or authorizes conduct that necessarily constitutes a violation of the antitrust laws in all cases, or if it places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute." The court held that the Unfair Sales Act does not mandate or authorize conduct that is illegal under the Sherman Act because it neither requires nor authorizes gasoline dealers to get together and agree on price. The court determined that the plaintiff's challenge to the statute was a facial challenge; that the plaintiff alleged that the statute required private parties to fix prices, and that, on its face, there is "simply nothing that compels collusive private conduct that would violate the Sherman Act," and that "[t]he fact that the parties or the court can envision scenarios under the regulatory scheme in which private parties could more easily collude is insufficient to invalidate statute." The court also concluded that there was not enough evidence that gasoline dealers were colluding to fix or raise prices to support a facial challenge to the statute. In addition, the court dismissed the plaintiff's contention that the Unfair Sales Act is a hybrid statute—a statute typically preempted by federal antitrust laws—because it did not give gasoline dealers discretion to set prices.


 

March 9, 2011

Fifth Circuit Dismisses Price-Fixing Suit Against Oil Producers


On February 8, 2011, the Fifth Circuit Court of Appeals decided Spectrum Stores Inc., et al. v. CITGO Petroleum Corp., et al., affirming the dismissal of two class actions, consolidated into a multi-district litigation in the Southern District of Texas, brought by purchasers of petroleum products. Both complaints alleged that foreign-national oil companies have conspired with OPEC member nations to fix prices of crude oil and refined petroleum products in the United States. The court affirmed the dismissal under the political question and act of state doctrines, and held that "any ruling on the merits of this case would . . . impermissibly interfere with the Executive Branch's longstanding policy of engaging with OPEC nations regarding the global supply of oil through diplomacy instead of private litigation."


The plaintiffs argued that a group of oil companies, most of which were owned indirectly by OPEC member nations, conspired to restrain the output of crude oil and to limit the operating capacity of crude-oil refineries. While one complaint specifically identified OPEC agreements as part of the conspiracy, the other attempted to circumvent naming the organization or its members as coconspirators. The court, however, was not deceived by the language of that complaint, stating that it was obvious that the plaintiffs "seek nothing short of the dismantling of OPEC."


In affirming the dismissal under the political question doctrine, the court focused on two points. First, the court addressed whether the Constitution gave the responsibility of examining this issue to Congress or to the executive branch. The court noted that the executive branch has long been managing relations with foreign oil-producing states through diplomacy. Moreover, the court held that to adjudicate this case on the merits would involve determining the legality of other sovereigns' actions, which falls within the realm of foreign-policy questions committed to the political branches. Second, the court determined that a statutory scheme to address the issues raised does not exist, holding that the Sherman and Clayton Acts are inappropriate to resolve foreign-policy issues.


The court reached the same conclusion through an analysis under the act of state doctrine, which prohibits U.S. courts from adjudicating acts other governments committed within their territories. The Fifth Circuit held that reviewing this suit would require the court to sit in judgment on the acts of sovereigns relating to the exploitation of natural resources within their own territory, which is precluded by the act of state doctrine.


 

September 22, 2010

Third Circuit Reverses Dismissal of Broker-Centered Conspiracy Claims


On August 16, 2010, the Third Circuit decided In re Insurance Brokerage Antitrust Litigation, partially reversing the district court’s dismissal of the plaintiffs’ class-action antitrust-conspiracy claims. The plaintiffs, purchasers of insurance, alleged that insurance brokers and insurers participated in “broker-centered” and “global” conspiracies that reduced the competitive bidding process for insurance contracts, a per se violation of section 1 of the Sherman Act. After the Third Circuit acknowledged that the conduct alleged was not exempt from antitrust scrutiny under the McCarran-Ferguson Act because it did not constitute the “business of insurance,” the court considered whether the claims sufficiently alleged a plausible horizontal conspiracy, as required by Twombly.


Read the full case note.


 

September 22, 2010

Motorsport Decision Provides Possible Guidance on American Needle


On July 23, 2010, the Third Circuit decided Race Tires America Inc. v. Hoosier Racing Tire Corp. The court, approving the legality of exclusive dealing contracts between a tire manufacturer and motorsports sanctioning bodies, held that “sports-related bodies should be given leeway with respect to their . . . decision to enter exclusive contracts with . . . suppliers.” The decision was in accordance with the Supreme Court’s decision in American Needle v. NFL, where the Court, refusing to apply a single-entity defense to the league’s contracts with suppliers, appeared to accord sports organizations a certain degree of deference and freedom with respect to exclusive dealing arrangements. The Third Circuit’s decision, implementing an extensive rule-of-reason analysis, could provide guidance to the Seventh Circuit in its hearing on remand in American Needle.


Read the full case note.


 

Supreme Court Rules Against NFL in American Needle


In a highly anticipated decision, the Supreme Court in American Needle v. National Football League unanimously held that the National Football League's (NFL) licensing activities pertaining to teams' intellectual property should not receive single-entity treatment and are therefore within the reach of section 1 of the Sherman Act. By refusing to grant NFL "single entity" treatment, the Court prevented a significant shift in leverage in favor of sports leagues.


Background
In 1963, NFL teams formed National Football League Priorities (NFLP) to develop, license, and market their intellectual property. Between 1963 and 2000, NFLP granted nonexclusive licenses to a number of vendors, including the petitioner, American Needle, allowing them to manufacture and sell team apparel. In December 2000, the teams voted to authorize NFLP to grant exclusive licenses and NFLP granted Reebok an exclusive 10-year license to manufacture and sell trademarked headware for all 32 teams. American Needle alleged that the agreement violated sections 1 and 2 of the Sherman Act. The respondents argued that they could not have conspired within the meaning of section 1 "because they are a single economic enterprise" with respect to licensing of teams' intellectual property. The District Court for the Northern District of Illinois and the Seventh Circuit Court of Appeals held that the operations of the NFL are so integrated that they should be deemed a single entity in some contexts. Both American Needle and the NFL petitioned the Supreme Court to hear the case.


Supreme Court's Decision
In a 9–0 decision written by Justice Stevens, the Supreme Court reversed the Seventh Circuit, emphasizing that "substance, not form, should determine whether a[n] . . . entity is capable of conspiring under §1." Based on that premise, the Court concluded that the relevant inquiry is not whether the defendant is a single legal entity but "whether there is a contract, combination . . . or conspiracy amongst separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decision-making."


The Court determined that the teams compete in the market for intellectual property, in the sense that teams are competing suppliers of valuable trademarks (e.g., the Dallas Cowboy blue star on a metallic silver blue helmet or the midnight green and white "helmet wings" of the Philadelphia Eagles). According to the Court, when each team licenses its intellectual property, "it is not pursuing the common interests of the whole league, but is instead pursuing the interests of the corporation itself." Therefore, "decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent centers of decisionmaking" and are concerted activities under the Sherman Act subject to section 1 analysis. The Court was not persuaded by the argument that the respondents constitute a single entity because, without their coordination, there would be no NFL football. The Court held that the justification for the cooperation is not relevant in determining whether the action is concerted or independent.


The Court, however, held that this agreement is not per se illegal but is subject to the Rule of Reason analysis because some degree of cooperation between the teams is necessary to preserve the market.


Implications
A holding in favor of the NFL would have established that individual teams have no independent economic power and that joint actions by teams would make them legally immune from antitrust laws. That decision would have reshaped the nature of sports law and opened the door for professional sports leagues to pursue single-entity protection for a wide range of business activities, from negotiating television and video-game contracts to labor conditions. Therefore, American Needle could have resulted in a massive diminution of players' collective bargaining power. Now that the Supreme Court has rejected the NFL's single-entity defense, the NFL and other sports leagues will not have significant negotiating leverage and their anticompetitive actions will still be subject to antitrust scrutiny.


Follow Up
The Antitrust Litigation Committee will be sponsoring a program on American Needle. Stay tuned for the specifics.


 

Supreme Court Denies ETG's Certiorari Petition in Antitrust Class Action


Electronic Trading Group LLC's (ETG) petition for certiorari was denied by the U.S. Supreme Court on May 17, 2010. ETG, a short-seller, filed an antitrust class action claiming that "prime brokers" formed a conspiracy, decided that certain securities should be designated as "hard-to-borrow," and fixed the fees for borrowing those securities. The defendants named in the suit were UBS Financial Services Inc., Citigroup Inc., Credit Suisse, Morgan Stanley & Co., Goldman Sachs & Co., Lehman Brothers Inc., Banc of America Securities LLC, The Bear Stearns Cos. Inc., Merrill Lynch Pierce Fenner & Smith Inc., Deutshe Bank Securities, and CIBC World Markets Group.


In December 2009, the Second Circuit affirmed the district court's dismissal of the Sherman Act claims citing the Supreme Court case Credit Suisse Securities LLC v. Billing. The Second Circuit explained that under Billing, antitrust causes of action are precluded if the alleged antitrust activities are "within the heartland of securities regulations." Additional factors that the Second Circuit considered under Billing are:


  1. Does the U.S. Securities and Exchange Commission (SEC) have the authority to regulate the activity?
  2. (2) Is the SEC in fact regulating the activity?
  3. (3) Will "a serious conflict" arise between antitrust law and securities regulations if the federal courts adjudicate the activity?

After consideration of these factors, the Second Circuit concluded that preclusion was appropriate. ETG filed the case in April 2006 in the U.S. District Court for the Southern District of New York.


 

Third Circuit Issues Decision in Key Dentsply Litigation


Last month, in the longstanding Dentsply antitrust litigation, the Third Circuit Court of Appeals affirmed the dismissal of exclusive dealing and conspiracy to monopolize claims against a group of eight dental dealers and affirmed a grant of summary judgment refusing to enter a private injunction against Dentsply.


The unanimous panel opinion addressed two related antitrust class actions brought by dental laboratories after the U.S. Department of Justice had proceeded against Dentsply. The labs had sought treble damages and attorney fees based on their purchases of premium artificial teeth at allegedly inflated prices—originally against Dentsply International, Inc. alone. When the court held that the labs were barred from recovering damages against Dentsply because they were indirect purchasers, the labs sued the dealers as alleged coconspirators.


The labs also sought to extend the injunction that the government had earlier secured. As the Third Circuit recognized, "the Plaintiffs sought to meet their burden primarily by relying on the doctrine of collateral estoppel and this Court's decision in United States v. Dentsply International, Inc., 399 F.3d 181 (3d Cir. 2005)." The Third Circuit affirmed the district court's finding that collateral estoppel did not apply. It also recognized that the plaintiff had failed to demonstrate a distinct injury given that the other injunction was already in place.


In moving to dismiss the conspiracy to monopolize and exclusive-dealing claims, the dental dealers had argued that the plaintiffs had not sufficiently alleged a horizontal conspiracy involving both Dentsply and the downstream dealers and that the labs had not pled that the dealers conspired to create or protect a monopoly for Dentsply. The Third Circuit recognized that "the viability of the Plaintiffs' Section 1 and Section 2 claims in Counts Two through Five turns on whether the Plaintiffs have adequately alleged an agreement among Dentsply and the Dealers" and that to meet that requirement, a plaintiff "must allege facts plausibly suggesting ‘a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement.'" Because the allegations of an agreement among the dealers was conclusory, the complaint failed to state a claim – and that deficiency was not overcome by the plaintiff's assertions that each individual dealer might have been economically motivated to join an exclusive dealing conspiracy. The Third Circuit also rejected the labs' attempt to recast its complaint as merely averring many separate bilateral conspiracies: "As we read the amended complaint, we see no indication of the Plaintiffs' intention to allege that every single agreement between Dentsply and each Dealer had anticompetitive effects." This was a key finding by the Third Circuit, because in its wake, plaintiffs will need to plead with sufficient specificity either that individual conspiracies between a manufacturer and a dealer itself had anticompetitive effects, or that the dealers agreed among themselves as well as with a manufacturer to restrain trade.


The Third Circuit opinion is also significant in clarifying that more than knowledge of alleged monopolistic conduct by the upstream manufacturer is required to state a conspiracy to monopolize claim, because there were no facts pled that would plausibly suggest that the dealers knew that "Dentsply was spearheading an effort to squash its competitors by pressing the Dealers into its service and keeping prices artificially inflated"—that is, the amended complaint was inadequate to plead that the dealers knew that by agreeing to Dentsply's policies, they knew that those policies were unlawful.


The Third Circuit also rejected the labs' argument that Illinois Brick had no application to their complaint against the dealers, holding that "to state a viable claim against the Dealers, the Plaintiffs must come within the coconspirator exception—or some other exception—to Illinois Brick. Because they have failed to do so, the Plaintiffs in essence are asserting their claims against the Dealers as mere middlemen. This they cannot do."

The Third Circuit awarded costs to the appellees.


Two committee leaders—Subcommittee Chair Eric McCarthy (on behalf of Dentsply) and Committee Cochair Alicia Hickok (on behalf of the dealers)—were members of the team representing appellees in the case before both the district court and the court of appeals.


 

The Supreme Court Limits Class Arbitration


Stolt-Nielsen v. AnimalFeeds International Corp.


On April 27, 2010, the U.S. Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., a case that arose out of an antitrust arbitration in which AnimalFeeds alleged price fixing among seagoing shipping companies. The Court held in a 5–3 ruling that, under the Federal Arbitration Act (FAA), where a commercial agreement that calls for arbitration is silent on whether it allows for class arbitration, an arbitration panel or court cannot allow class arbitration. (Justice Sotomayor took no part in the decision.)


The topsy-turvy procedural history of the case began in 2003 when AnimalFeeds filed a putative class-action claim in federal court. The next year the Second Circuit held that the case (and others) were subject to valid arbitration agreements, and AnimalFeeds filed an arbitration. The arbitration agreement to which AnimalFeeds was a party was silent on the issue of class arbitration. Before the arbitration panel, the parties stipulated that the agreement was silent on the issue and asked the panel to determine whether class arbitration was allowed under the agreement. The panel answered in the affirmative but did not make its reasons clear. The issue (as a preliminary ruling) was appealed to the District Court for the Southern District of New York, which reversed the arbitration panel's ruling; that decision, in turn, was appealed to the Second Circuit Court of Appeals, which reversed the district court; the Supreme Court granted certiorari and reversed the Second Circuit.


Writing for the Court, Justice Alito emphasized the contractual nature of arbitration, "an arbitrator derives his or her powers from the parties' agreement to forego the legal process and submit their disputes to private dispute resolution." The Court noted that "the FAA imposes certain rules of fundamental importance, including the basic precept that arbitration ‘is a matter of consent, not coercion.'" Based on these principles, the Court determined that a commercial agreement with an arbitration clause that is silent regarding class arbitration cannot be read to allow class arbitration: "[t]his is because class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator."


The dissenters, per Justice Ginsburg, would have held that under the FAA, the Court did not need to reach the merits and should have determined that certiorari had been improvidently granted because the preliminary ruling was not subject to appeal. The dissenters also pointed out that the parties' agreement to allow the panel to determine whether to allow the class arbitration could, itself, be seen as an agreement that empowered the panel to make that decision.


For those with existing commercial agreements that are truly silent on class arbitration, Stolt-Nielsen should offer comfort that an arbitration panel or court will not allow class arbitrations. A note to the wary is in order, however. Stolt-Nielsen only applies where it is undisputed that the agreement at issue is truly silent on the issue of class arbitration—that is, where the parties reached no agreement as to class arbitration. (Indeed the parties in Stolt-Nielsen stipulated that there was no agreement on the issue.) In other commercial agreements, "silence" may be in the ear of the beholder. The better practice for those who are drafting commercial agreements and wish to avoid class arbitration would be to exclude class arbitration explicitly rather than run in the murky waters of ambiguity and parole evidence.


While Stolt-Nielsen clearly applies to arbitration agreements in the commercial context, the Court this week also heard Rent-a-Center West, Inc. v. Jackson, a case about the enforceability of arbitration provisions in consumer contracts such as short-term rental agreements. Such agreements have been challenged as unconscionable. It is unclear whether Stolt-Nielsen would have any applicability in the consumer or employment context.


 

Obama Names Varney To Head DOJ Antitrust Division


On March 2, 2009, the Senate Judiciary Committee will hold a confirmation hearing to determine whether Christine Varney, a partner at Hogan & Hartson, will become the next assistant attorney general in charge of the Department of Justice's Antitrust Division. If confirmed, Varney will be the first former Federal Trade Commissioner to hold the position. Varney, an expert in antitrust and Internet law, is expected to bridge the often tense relationship between the FTC and the Antitrust Division.


Varney is recognized as a proponent of aggressive antitrust regulation. With Varney at the helm of the Antitrust Division, most attorneys predict that mergers will be more closely scrutinized in contrast to the last administration, particularly mergers involving the high-tech industry or vertical integration. According to Morrison & Forester's Sean Gates and Tej Srimushnam, who coauthored a report on a possible Varney Antitrust Division, Varney is a strong proponent of evaluating the competitive effects of a company's research and development, as well as its products when evaluating a merger. Even with a vigorous merger review agenda, Varney will need to strike a balance between increased merger scrutiny and current economic challenges. Varney is also expected to intensify the Antitrust Division's already aggressive enforcement of criminal cartels that was the defining characteristic of the last administration.


Before entering into government service, Varney practiced law with Hogan & Hartson. She served as chief counsel to the Clinton/Gore Campaign, and from 1989 to 1992, Varney was general counsel to the Democratic National Committee. Varney then joined the Clinton administration as an assistant to the president and secretary to the cabinet. In 1994, President Clinton appointed Varney to head the FTC. In 1997, Varney rejoined Hogan & Hartson to head the firm's Internet practice group. Her clients include eBay, Fox Interactive Media/MySpace, Orbitz Worldwide, Inc., Ernst & Young, Intelius, Gateway, Netscape, and Compaq. While in private practice, Varney has been involved in the founding of several industry self-regulation associations, including the Network Advertising Intitiative.


 

Obama Appoints Leibowitz to Head FTC


On Friday, February 27, 2009, President Barack Obama appointed Jon Leibowitz to the post of chairman of the Federal Trade Commission. Leibowitz, a Democratic member of the commission since 2004, follows William Kovacic, a Republican. Kovacic will step down, but he will remain on the five-member commission. Because Leibowitz is currently a member of the commission, the appointment does not require Senate confirmation.


Since Leibowitz has joined the FTC, he has been an advocate of aggressive enforcement:


  • Pharmaceutical Companies: Leibowitz has sought penalties against numerous pharmaceutical companies who enter into drug-patent settlements that require "reverse payment" arrangements. "Reverse payments" are arrangements under which brand-name drug companies pay generic drug companies to keep their products off of the market for a period of time.
  • Internet issues: Leibowitz has placed emphasis on combating spam and spyware and creating guidelines for collecting Internet users' browsing history for targeted advertising.
  • Energy: Leibowitz was the sole dissenting commissioner in connection with the FTC Report on Spring/Summer 2006 Nationwide Gasoline Price Increases (pdf). The report concluded that gasoline price increases could be the result of market forces. Leibowitz did not believe that market forces was the only plausible explanation.
  • FTC Act: Leibowitz is a proponent of using Section 5 of the FTC Act to target conduct that the Sherman Act does not reach. Leibowitz was also highly critical of the Department of Justice's recent report on monopolization complaining that the DOJ granted far too much leniency to firms with monopoly power.

Before joining the FTC in 2004, Leibowitz served as vice president for Congressional Affairs for the Motion Picture Association of America from 2000 to 2004. From 1997 to 2000, he was Democratic chief counsel and staff director to the Senate Antitrust Subcommittee. Other positions that Leibowitz has held include chief counsel and staff director for the Senate Subcommittee on Terrorism and Technology; chief counsel and staff director for the Senate Subcommittee on Juvenile Justice; and chief counsel to Senator Herb Kohl.

 


 

Supreme Court Refuses to Recognize "Price Squeeze" Claim


On February 25, 2009, the U.S. Supreme Court released its opinion in Pacific Bell Telephone Company, d/b/a AT&T California, et al v. Linkline Communications, Inc. The Court ruled in favor of AT&Tholding that a price squeeze claim is not actionable under Section 2 of the Sherman Act when there is no antitrust duty to deal. Specifically, the plaintiffs in the case alleged that AT&T raised its wholesale prices, while lowering its retail price for DSL Internet services. The Supreme Court found that under Trinko, AT&T had no antitrust duty to deal causing the plaintiffs price squeeze claim to fail at the wholesale level. To prevail at the retail level, the Court found that the plaintiffs would need to prove the predatory pricing requirements under Brooke Group: (1) prices are below cost and (2) there is a "dangerous probability" that AT&T will be able to recoup its losses. The complaint before the Court failed to allege that AT&T's conduct met the Brooke Group requirements. The Court remanded the case to the district court to determine whether the plaintiffs' amended complaint, which was not under consideration by the Supreme Court, states a claim under which relief may be granted under Twombly and whether the plaintiffs should be granted leave to further amend their complaint to allege a Brooke Group claim.


Chief Justice John Roberts was joined in his opinion by Justices Antonin Scalia, Clarence Thomas, Anthony Kennedy, and Samuel Alito. Justices Stephen Breyer, Ruth Bader Ginsburg, John Paul Stevens, and David Souter concurred only with the judgment.


 

Cert Denied: FTC v. Rambus


On February 23, 2009, the U.S. Supreme Court denied the Federal Trade Commission's petition for writ of certiorari in its long-running dispute with Rambus Inc., a technology licensing company specializing in the manufacture and design of computer chips.


The FTC charged that Rambus's failure to disclose its interests in obtaining patents to the Joint Electron Devices Engineering Council constituted unfair competition and deceptive practices in violation of section two of the Sherman Act. In 1992, Rambus was involved in a JEDEC committee that was setting the synchronous dynamic random access memory standard for JEDEC. In 1996, Rambus left the committee, and in 1999, JEDEC set the standard incorporating technology that Rambus later asserted patent rights over. According to Rambus general counsel Tom Lavelle, the FTC argued that Rambus had a duty to disclose its intention to file patents in the future that would relate to the standard even though the company did not hold the patents at the time the standard was set. Lavelle said that holding Rambus to a duty that "wasn't written in the rules . . . is just not a good standard for an antitrust case to go forward on."


The case began as an administrative proceeding in 2002. In 2004, Chief Administrative Law Judge Stephen McGuire dismissed the charges against Rambus. The FTC appealed; in August 2006, the commission held that Rambus violated Section 5(a) of the FTC Act. After a denial for reconsideration, Rambus appealed to the D.C. circuit. The D.C. circuit held in favor of Rambus, finding that the FTC had failed to prove monopolization. The circuit court stated that JEDEC's disclosure policies were "murky on both the relevant margins: what JEDEC's disclosure policies were and what, within those mandates, Rambus failed to disclose." The FTC filed its petition for certiorari in November 2008.


 

United States Supreme Court Hears Oral Argument in Pacific Bell Telephone Co. v. Linkline Communications, Inc.


On December 8, 2008, the Supreme Court heard oral argument in Pacific Bell Telephone v. linkLine Communications. You can read the transcript from the oral argument below.


 

Section 2 and Standard Setting: Rambus, N-Data & the Role of Causation


On October 2, 2008, FTC Commissioner Rosch gave a speech entitled "Section 2 and Standard Setting: Rambus, N-Data & the Role of Causation." In his speech, Commissioner Rosch discussed, among other things, why he believed the D.C. Circuit's decision in Rambus was improperly decided, and contrary to the D.C. Circuit's decision in United States v. Microsoft. Commissioner Rosch also discussed why the decision in Rambus placed an inappropriate burden on the FTC to show causation.

 


 

Ninth Circuit Upholds Ruling that Foreign Purchasers of Memory Chips May Not Sue Under U.S. Antitrust Laws


On August 14, 2008 the Ninth Circuit Court of Appeals affirmed the dismissal of claims against various manufacturers of dynamic random access memory ("DRAM") brought by foreign purchasers who bought DRAM solely in foreign commerce. The District Court judge in the Northern District of California dismissed these foreign commerce claims for lack of subject matter jurisdiction under the Foreign Trade Antitrust Improvements Act (the "FTAIA"). The FTAIA precludes antitrust claims under the Sherman Act which are based in foreign commerce unless the plaintiffs can demonstrate that the defendants' conduct had a direct, substantial and foreseeable effect on U.S. commerce, and that those domestic effects gave rise to the foreign plaintiffs' injury. Deciding the issue for the first time, the Ninth Circuit upheld this dismissal and joined other Circuits in holding that the "gives rise to"  language in the FTAIA requires proximate causation, as opposed to mere "but-for" causation.  The court further rejected plaintiffs' arguments that a correlation between the prices paid by both domestic purchasers and foreign purchasers demonstrated that the payment of higher prices in the U.S. proximately caused the foreign plaintiffs' injury. Plaintiffs therefore did not satisfy the FTAIA "domestic injury exception," and their claims were dismissed with prejudice.


 

The United States Court of Appeals for the District of Columbia Circuit Issues its Decision in the Rambus Matter


On April 22, 2008, the United States Court of Appeals for the D.C. Circuit issued its long-awaited decision in the Rambus matter. The Court of Appeals ruled that the FTC failed to sustain its allegation of monopolization. The Court of Appeals concluded that deceit merely enabling a monopolist to charge higher prices than it otherwise could have charged would not in itself constitute monopolization. The Court also addressed whether there was substantial evidence that Rambus engaged in deceptive conduct at all, and expressed its serious concerns about the sufficiency of the evidence on two particular points.


 

Executive Order on Sustainability


October 5, 2009.  The Obama Administration has issued a new Executive Order titled "Federal Leadership in Environmental, Energy and Economic Performance" setting forth numerous sustainability efforts that will be undertaken by the various Federal agencies.



 

Everything You Thought You Knew About Twombly is Now Wrong


In Twombly v. Bell Atlantic, the Supreme Court told us that the allegations of an antitrust complaint must be "plausible". This was not a "heightened pleading standard," the Court instructed, but merely an application of Rule 8.


This has led to a vigorous debate over whether in fact Rule 8 requires "plausibility" in all cases. If Twombly was just an application of Rule 8, it should apply to all complaints, not just antitrust cases. There are policy reasons to limit Twombly to antitrust cases, particularly conspiracy cases, but the Supreme Court's language indicated a broader applicability.


On March 7, 2008, the Ninth Circuit weighed in and stated that "at least for the purposes of adequate pleading in antitrust cases, the Court [in Twombly] specifically abrogated the usual ‘notice pleading' rule" found in Rule 8. Kendall v. Visa U.S.A., Inc. Thus, there is a heightened standard, at least in the Ninth Circuit, for antitrust cases, thus strongly implying that Twombly should not apply outside of antitrust.


What's the right answer? Who knows. The only thing one knows for sure is that parties and courts are now going to spend even more time and energy bickering about what the standard is. And those of us briefing the issues in any case but an antitrust conspiracy case will have the unenviable task of either saying something contrary to the Ninth Circuit or contrary to the Supreme Court.


 

Recent Leegin and Twombly Decisions


Here are some recent lower court decisions interpreting and applying Leegin and Twombly.



 

Janet L. McDavid Gives Statement Concerning the Leegin Decision


Janet L. McDavid, on behalf of the American Bar Association, recently testified before the Subcommittee on Antitrust, Competition Policy and Consumer Rights of the Committee on the Judiciary of the United States Senate concerning the Leegin Decision.


 

High Court Reverses Century-Old Dr. Miles Precedent in Leegin Creative


The U.S. Supreme Court on June 28th issued another major antitrust ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc. The Court reversed the Fifth Circuit and overturned a nearly century-old precedent, holding that challenges to vertical price restraints under Section 1 of the Sherman Act should be judged by the rule-of-reason analysis.


Under the Supreme Court's decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), mandatory minimum price agreements between manufacturers and distributors were per se illegal. The defendant in Leegin argued that this rule was based on outdated economics. It contended that a better legal analysis would be the "rule of reason," under which price minimums should be held illegal only in cases where they could be shown to be anticompetitive. Both the District Court and Fifth Circuit Court of Appeals rejected these arguments. The courts felt compelled to follow the rule in the Dr. Miles case, under which the defendant's practices were illegal regardless of whether they were anticompetitive.


In a 5 to 4 opinion written by Justice Kennedy, the Supreme Court reversed the Fifth Circuit, holding that challenges to vertical price restraints would be judged by the rule-of-reason analysis. In reaching its decision, the Court noted that it had abandoned the rule of per se illegality for other vertical restraints a manufacturer imposes on its distributors and that respected economic analysts have concluded that vertical price restraints can have procompetitive effects. The Court concluded that the reasons upon which Dr. Miles relied do not justify a per se rule.


DOCUMENTS

» Full text of decision | PDF

» Oral argument transcript | PDF


MEDIA COVERAGE

» New York Times

» Wall Street Journal (subscription required)

» WSJ Blog

» Law.com


 

Supreme Court Issues Decision in Billing v. Credit Suisse


The Supreme Court issued a major antitrust and securities ruling in Billing v. Credit Suisse First Boston on June 18th. The Court reversed the Second Circuit, holding that underwriters are entitled to immunity from antitrust suit for their actions in underwriting initial public offerings ("IPOs").


The Court reasoned that there should be implied immunity because: IPOs and related activities are "squarely within the heartland of securities regulation"; the SEC has clear authority to regulate such activities; the SEC, in fact, regulates the very conduct at issue; and there is a "serious conflict between the antitrust and regulatory regimes." The Court clarified that "plain repugnancy," which has been the cornerstone standard of implied immunity cases, arises when the regulatory system and the antitrust laws are "clearly incompatible."


Respondents were investors who brought private antitrust actions seeking treble damages and alleging that Petitioners (16 IPO underwriters and institutional investors) had violated the Sherman Act, Robinson-Patman Act and state antitrust law by manipulating the prices of securities through illegal tie-in agreements and "laddering" schemes that affected the allocation of shares during IPOs and prices in the aftermarket. The Second Circuit had held that because Congress had not made clear its intent to immunize such conduct from the antitrust laws, there was no implied immunity.


DOCUMENTS

» Full text of decision | PDF

» Oral argument transcript | PDF


MEDIA COVERAGE

» Bloomberg

» Washington Post

» WSJ blog

» SCOTUSblog


 

Legislative Updates


Numerous bills are currently pending in both houses of Congress that would prohibit price gouging relating to gasoline and other fuels in areas affected by major disasters. These bills are in response to complaints made about price gouging in areas affected by Hurricane Katrina. For example, Senate Bill 1520, would make it "unlawful for a supplier to sell, or offer to sell, gasoline or diesel fuel in an affected area at an unconscionably excessive price." The phrase "unconscionably excessive price" means a price charged in an affected area for gasoline or diesel fuel that "(A) represents a gross disparity, as determined by the FTC" between "the price charged for gasoline or diesel fuel and the average price of gasoline or diesel fuel charged by suppliers in the affected area during the 30-day period ending on the date the President declares the existence of a major disaster; and (B) is not attributable to increased wholesale or operational costs incurred by the supplier in connection with the sale of gasoline or diesel fuel." Under Senate Bill 1529, the FTC would be responsible for enforcing the law. In addition, the bill provides for a private right of action for, among other things, disgorgement, special and punitive damages, injunctive relief, reasonable attorney's fees and costs. The text of this bill, as well as other proposed bills are below. Check back here to follow these, and other, legislative developments.


PROPOSED BILLS

» S. 94 | PDF

» S. 1520 | PDF

» S. 1263 | PDF

» H.R. 2460 | PDF

» H.R. 1252 | PDF

» H.R. 1252 | PDF

» H.R. 2492 | PDF


 

Intel Cites Twombly In Support of Motion to Dismiss


Barely a week after the Supreme Court ruled in Twombly, Intel relies upon the case as support for dismissal of a Sherman Act complaint filed by Advanced Micro Devices and a class of consumers. Intel's May 29, 2007 supplemental filing in support of its motion to dismiss is available online.


 

High Court Decides Twombly


The U.S. Supreme Court issued its opinion in Bell Atlantic Corp. v. Twombly (No. 05-1126) on May 21, 2007. The issue before the Court was:


  • How much detail must a plaintiff allege in order to state a claim of conspiracy for violation of Section 1 of the Sherman Act?
  • Must a plaintiff allege more than parallel conduct by several defendants in order to state a claim for conspiracy?
  • Must the plaintiff allege facts beyond the parallel conduct would, if true, establish the existence of an agreement?

The District Court held that a plaintiff must do more than allege parallel conduct and assert such conduct was evidence of conspiracy. The plaintiff must also allege facts which are sufficient, if proven, to establish at least some of the "plus factors" which will be necessary to overcome a motion for summary judgment. According to the District Court, a plaintiff is required to allege facts which, if proven, tend to exclude legitimate business explanations for the defendants' conduct.


The Second Circuit reversed, holding that a plaintiff did not need to do more than advance the bare allegation of conspiracy—that the parallel conduct is the result of an agreement among the defendants—together with sufficient information to give notice of the nature of the alleged conspiracy. For the Circuit Court, the allegations of parallel conduct were enough to give notice of the nature of the alleged conspiracy.


In a 7 to 2 decision by Justice Souter (2007 WL 141066 (U.S.)), the Supreme Court reversed the Second Circuit, holding that alleging parallel conduct alone is not sufficient to state a claim for conspiracy under Section 1. A plaintiff must also allege facts sufficient to suggest an actual agreement. More generally, the complaint must allege facts which "raise a right to relief above the speculative level." In context, this means that a complaint for conspiracy must allege facts which, if proven, would show the conspiracy. This does not require the plaintiff to advance allegations making recovery probable, but it does require that the factual allegations raise a reasonable expectation that discovery will reveal evidence of an illegal agreement. The Court was influenced by recognition of the tremendous costs which discovery can impose on defendants in private antitrust litigation.


The decision can be seen as a victory for antitrust defendants, allowing fewer complaints to proceed to discovery. One may then expect a decline in private antitrust actions, at least over the medium term, because it will be harder for plaintiffs to get such cases started. Interestingly, it might also mean that a higher portion of those complaints which do survive Rule 12 challenges will ultimately succeed, or at least surmount summary judgment.


 

Oral Argument Before Supreme Court in Leegin Creative Leather Products, Inc.


On March 26, 2007, the Supreme Court heard oral argument in Leegin Creative Leather Products, Inc. v. PSKS, Inc. Blog analysis of the issues and arguments is available at ScotusBlog and AntitrustReview.



 

High Court Hears Oral Argument in Credit Suisse First Boston


On March 27, 2007, the Supreme Court heard oral argument in Credit Suisse First Boston (USA), LLC v. Billing.



 

Tamoxifen Citrate Antitrust Litigation: Amicus Briefs


Amici seeking to overturn the Second Circuit's decisions in Tamoxifen Citrate Antitrust Litigation request the Supreme Court to grant cert on the issue of name brand drug companies' ability to use reverse payments to keep generic drugs off the market.



 

Brief in Opposition to Certiorari


On February 15, 2007, respondents filed their Brief in Opposition to Petitioner's Petition for Writ of Certiorari. Respondents argued that cert was not appropriate in this case because: 1) there was no conflict in the courts of appeals as to when settlements of genuine patent disputes may violate the Sherman Act; 2) the 2nd Circuit correctly held that petitioners' allegations failed to state a claim under the Sherman Act; and 3) this case is a poor vehicle for determining when settlements of drug patent claims may violate the Sherman Act.


» Download Opposition Brief | PDF


In a related development, that very same day, the Senate Judiciary Committee passed the "Preserve Access to Affordable Generics Act" that, if enacted, would prohibit the type of "reverse payment" settlements at issue in the Tamoxifen litigation.



 

Rambus Update


Following the FTC's final decision in Rambus, the respondent has filed a motion for reconsideration and a motion for a stay of the FTC's order.



 

Comes v. Microsoft Update


Microsoft reached a settlement with the plaintiffs in the consumer antitrust case pending in Iowa state court. Terms of the settlement are to remain confidential until April when the parties are expected to present the settlement to the judge for approval.



 

Weyerhaeuser Update


Today the Supreme Court issued its decision in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co.



 

Rambus Update


The FTC limited the royalty rate that Rambus can charge for its industry standard (but patented) high-speed memory chips. Read more in the FTC press release, final order, and opinion.



Also, Commissioners Harbour and Rosch prepared separate statements, each concurring in part and dissenting in part.



 

Antitrust Modernization Commission


The Antitrust Modernization Commission ("AMC") was created pursuant to the Antitrust Modernization Act of 2002. The Commission is charged by statute to (1) examine whether the antitrust laws need to be modernized and to identify and study related issues; (2) solicit views of all parties concerned with the operation of the antitrust laws; (3) evaluate the advisability of any proposals with respect to the modernization of the laws; and (4) prepare and submit a report to Congress and the President.


» AMC Website


The AMC recently released two documents which were discussed at the January 11, 2007 meeting—the AMC's tentative recommendations and a preliminary draft outline of the AMC Report Introduction and Executive Summary. In those documents, the AMC summarizes its tentative positions on various substantive antitrust issues, including but not limited to, the AMC's recommendations to (a) repeal the Robinson-Patman Act, (b) modify Hannover Shoe and overrule Illinois Brick to facilitate direct and indirect purchaser litigation in one federal court for all purposes and (c) enact a statute that would permit non-settling defendants to obtain reduction of plaintiff's claim before trebling, by the amount of the settlement or the allocated share of liability of the settling defendant(s), whichever is greater.


 

FTC Commissioner Provides Testimony on Patent Settlements in U.S. Pharmaceutical Industry


On January 17, 2007, FTC Commissioner Jon Leibowitz testified on behalf of the Federal Trade Commission before the Senate Committee on the Judiciary on the subject of anticompetitive patent settlements in the U.S. pharmaceutical industry. Commissioner Leibowitz said, among other things, that recent court cases have made it difficult to bring antitrust cases to stop exclusion payment settlements between manufacturers of brand name pharmaceuticals and their generic counterparts. The Commissioner defined "exclusion payment settlements" as settlements of patent litigation in which a brand name drug manufacturer pays its potential generic competitor to abandon the patent challenge and delay entering the market. According to the testimony, the FTC "supports legislation to prohibit these anticompetitive settlements" and strongly supports the intent of legislation introduced by three senators, including the objective to "adopt a bright-line approach to addressing exclusion payments."


 

Intel Corp. Illegally Thwarting Competition?


European Union investigators have recommended that EU Competition Commissioner Neelie Kroes formally charge Intel Corp. with illegally thwarting competition in the computer-chip market. Intel rival in the computer-chip market, Advanced Micro Devices Inc. ("AMD") originally filed an EU complaint against Intel in October 2000, alleging that Intel illegally punished computer makers when their purchases from AMD reach a certain level."


» Read More: Wall Street Journal (subscription required)


 

FTC Announces Review Calendar for 2007 to 2017

On December 26, the FTC approved the Regulatory Reform Project and Rule Review for 2007 and a revised regulatory review calendar for the next 10 years. In the coming year, the FTC will conduct a review of the Guides for Select Leather and Imitation Leather Products; the Mail or Telephone Order Merchandise Rule; and the Guide Concerning Fuel Economy Advertising for New Automobiles. The FTC will request comments on, among other things, the economic impact of, and the continuing need for, the rule and guides; possible conflict between the rule and guides and state, local, or other federal laws or regulations; and the effect on the rule and guides of any technological, economic, or other industry changes.


» View the contents of the notice, including the entire ten-year review calendar | PDF

 


 

Mather v. Willet


In Mather v. Willet, 07-3454, the Second Circuit held that plaintiffs waived their claims under the Clean Water Act before 1999 regarding large scale dairy operations that were alleging discharging hazardous pollutants. The court also held that the CWA permit shield prohibited claims between 1999 and 2006. And the court held that plaintiffs' RCRA claims were prohibited under the statutes non-duplication provision.


 

Certiorari in Two Antitrust Cases


The Supreme Court has granted certiorari to two antitrust cases. The first case, Credit Suisse First Boston v. Billing, raises the issue of 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. The second case, Leegin Creative Leather Products v. PSKS, raises the question of how antitrust law should treat the minimum prices that manufacturers require retailers to charge for their products.


All files below are available in PDF format unless otherwise noted. (PDF)


Leegin Creative Leather Products v. PSKS

» Certiorari Petition

» Economists' Amicus Brief

» The Wireless Association's Amicus Brief

» National Association of Manufacturers's Amicus Brief

» Supreme Court Grants Certiorari


On February 26, 2007, FTC Commissioner Pamela Jones Harbour wrote an open letter to the United States Supreme Court regarding the illegality of vertical minimum price fixing. In the letter, Commissioner Harbour urges the Court, as it considers the Leegin case, to refrain from overruling Dr. Miles.


» Commissioner Harbour's Speech

» Comanor and Scherer Amicus Brief Supporting Neither Party


Credit Suisse First Boston v. Billing

» Certiorari Petition

» Respondent's Brief

» U.S. Amicus Brief

» Supreme Court Grants Certiorari


 

Comes v. Microsoft, Inc.


Read about recent developments in Comes v. Microsoft, Inc., the antitrust, class action suit pending in Iowa state court.


BLOG COVERAGE

» Iowa Update – Allchin 2004 email

» Comes v. MS Antitrust Trial Begins in Iowa

 


 

Bell Atlantic Corporation v. Twombly: Briefs and Transcript


QUESTION PRESENTED

Whether a complaint states a claim under Section 1 of the Sherman Act, 15 U.S.C. § 1, if it alleges that the defendants engaged in parallel conduct and adds a bald assertion that the defendants were participants in a "conspiracy," without any allegations that, if later proved true, would establish the existence of a conspiracy under the applicable legal standard.


All files below are available in PDF format unless otherwise noted. (PDF)


BRIEFS

» Petitioner's Brief

» Respondents' Brief


AMICI SUPPORTING PETITIONERS

» Amicus Brief of Washington Legal Foundation

» Amicus Brief of the United States

» Amici Brief of States

» Amici Brief of Legal Scholars

» Amici Brief of the Chamber of Commerce, et al.


AMICI SUPPORTING RESPONDENTS

» Amicus Brief of American Antitrust Institute


TRANSCRIPT

» Transcript of Twombly oral argument (from Nov. 27, 2006)


BLOG

» Blog coverage at SCOTUSblog [webpage]


 

Weyerhaeuser Company v. Ross-Simmons Hardwood Lumber Company: Briefs and Transcript


QUESTION PRESENTED

In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), the Court held that an antitrust plaintiff alleging predatory selling must prove that the defendant (I) sold its product at a price level too low to cover its costs and (2) had a dangerous probability of recouping its losses once the scheme of predation succeeded. The question in this case is whether a plaintiff alleging predatory buying may, as the Ninth Circuit held, establish liability by persuading a jury that the defendant purchased more inputs "than it needed" or paid a higher price for those inputs "than necessary," so as "to prevent the Plaintiffs from obtaining the [inputs] they needed at a fair price"; or whether the plaintiff instead must satisfy what the Ninth Circuit termed the "higher" Brooke Group standard by showing that the defendant (I) paid so much for raw materials that the price at which it sold its products did not coyer its costs and (2) had a dangerous probability of recouping its losses.


All files below are available in PDF format unless otherwise noted. (PDF)


BRIEFS

» Petitioner's Brief

» Brief for Respondent


AMICI SUPPORTING PETITIONERS

» Amici Brief of Business Roundtable, et al.

» Amici Brief of the Chamber of Commerce, et al.

» Amici Brief of Economists


AMICI SUPPORTING RESPONDENTS

» Amici Brief of States

» Amicus Brief of American Antitrust Institute

» Amici Brief of Forest Industry Participants


TRANSCRIPT

» Transcript of Weyerhaeuser oral argument (from Nov. 28, 2006)


BLOG

» Blog coverage at SCOTUSblog [webpage]