Jan

14

Posted by : Matthew Wild | On : January 14, 2011

The Seventh Circuit accepted an interlocutory appeal on a certified question arising from the district court’s denial of a motion to dismiss the second amended complaint in In re Text Messaging Antitrust Litig., No.10-8037, 2010 WL 5367383 (7th Cir. Dec. 29, 2010).  Judge Posner held that the sufficiency of a complaint’s allegations to state a claim was a controlling question of law within the meaning of 28 U.S.C. section 1292(b).  Judge Posner then affirmed the denial of the motion to dismiss because:

“The second amended complaint alleges a mixture of parallel behaviors, details of industry structure, and industry practices, that facilitate collusion. There is nothing incongruous about such a mixture. If parties agree to fix prices, one expects that as a result they will not compete in price-that’s the purpose of price fixing. Parallel behavior of a sort anomalous in a competitive market is thus a symptom of price fixing, though standing alone it is not proof of it; and an industry structure that facilitates collusion constitutes supporting evidence of collusion. An accusation that the thousands of children who set up makeshift lemonade stands all over the country on hot summer days were fixing prices would be laughed out of court because the retail sale of lemonade from lemonade stands constitutes so dispersed and heterogeneous and uncommercial a market as to make a nationwide conspiracy of the sellers utterly implausible. But the complaint in this case alleges that the four defendants sell 90 percent of U.S. text messaging services, and it would not be difficult for such a small group to agree on prices and to be able to detect “cheating” (underselling the agreed price by a member of the group) without having to create elaborate mechanisms, such as an exclusive sales agency, that could not escape discovery by the antitrust authorities.

Of note is the allegation in the complaint that the defendants belonged to a trade association and exchanged price information directly at association meetings. This allegation identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect. The complaint further alleges that the defendants, along with two other large sellers of text messaging services, constituted and met with each other in an elite “leadership council” within the association-and the leadership council’s stated mission was to urge its members to substitute “co-opetition” for competition.

The complaint also alleges that in the face of steeply falling costs, the defendants increased their prices. This is anomalous behavior because falling costs increase a seller’s profit margin at the existing price, motivating him, in the absence of agreement, to reduce his price slightly in order to take business from his competitors, and certainly not to increase his price. And there is more: there is an allegation that all at once the defendants changed their pricing structures, which were heterogeneous and complex, to a uniform pricing structure, and then simultaneously jacked up their prices by a third. The change in the industry’s pricing structure was so rapid, the complaint suggests, that it could not have been accomplished without agreement on the details of the new structure, the timing of its adoption, and the specific uniform price increase that would ensue on its adoption.”

As this case indicates, Twombly should not be overly difficult to satisfy even in the absence of a governmental investigation to support the conspiracy allegations.  It is also noteworthy that the although the court entertained an interlocutory appeal by permission, such an approach is the exception, not the rule.  Indeed, even in this case, the court expedited the appeal by not accepting additional briefing and not hearing oral argument.

Mar

12

Posted by : Matthew Wild | On : March 12, 2010

On February 23, 2010, the California Attorney General entered into a consent decree with Dermaquest, Inc., which prohibits Dermaquest from engaging in resale price maintenance.  Specifically, the order enjoins Dermaquest from requiring resellers to charge a specified price or to increase their prices.  The action was brought under the Cartwright Act and the Unfair Competition Law.  California now joins Illinois, New York and Michigan (see March 31, 2008 Post) in treating resale price maintenance as a per se offense in violation of its state antitrust law even though such conduct is subject to rule of reason review under section 1 of the Sherman Act after Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007).  This case reinforces the dangers to a manufacture when it implements a resale price maintenance program under the belief that because such conduct might be permissible under the Sherman Act, there is no genuine exposure.  The California complaint and consent decree appear here:Dermaquest Complaint  and Dermaquest Judgment.

Oct

29

Posted by : Matthew Wild | On : October 29, 2009

In letters dated October 27, 2009 (State AG Letter re HR 3190; State AG Letter re S 148), 41 state attorneys general wrote to Congress asking them to overrule Leegin Creative Leather Product, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).  In Leegin, the Supreme Court held that resale price maintenance — the practice in which a manufacturer requires a retailer to sell its products at a certain price — was subject to the rule of reason.  In doing so, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons, Co., 220 U.S. 373 (1911), which held that resale maintenance is a per se violation of section 1 of the Sherman Act.  The state attorneys general urge passage of H.R. 3190, which provides that “[a]ny contract, combination, conspiracy or agreement setting a minimum price below which a product or service cannot be sold by a retailer, wholesaler or distributor shall violate section 1 of the Sherman Act.”  As reported in the May 23, 2008 Post, 35 state attorneys general wrote to Congress on May 8, 2008 asking that it enact nearly identical legislation (S. 2261).

Practitioners should know that resale price maintenance can still be a per se violation of state antitrust laws.  As reported in the May 4, 2009 Post, Maryland enacted such a law.  And as reported in the March 31, 2008 Post, the New York, Michigan and Illinois attorneys general brought an action against Herman Miller in which they alleged that Herman Miller’s resale price maintenance program was a per se violation of their state antitrust laws.  Herman Miller entered into a consent decree.

Oct

13

Posted by : Matthew Wild | On : October 13, 2009

Google announced today that Arthur D. Levinson resigned from its board of directors.  However, Mr. Levinson remains on Apple’s board of directors.  Mr. Levinson was the remaining common director on the Google and Apple boards.  As reported in the June 3, 2009 Post, Eric D. Schmidt, Google’s CEO, resigned from Apple’s board amid antitrust concerns raised by the FTC.  The June 3 Post noted that it was unclear whether the FTC would require Mr. Levinson’s resignation from one of the boards.  Apparently, the FTC did just that as FTC Chariman Jon Leibowitz said, “Google, Apple and Mr. Levinson should be commended for recognizing that overlapping board members between competing companies raise serious antitrust issues, and for their willingness to resolve our concerns without the need for litigation.”  Chairman Leibowitz further warned, “[b]eyond this matter, we will continue to monitor companies that share board members and take enforcement actions where appropriate.”  It seems that the FTC is warning corporations that it plans to take an increased interest in enforcing section 8 of the Clayton Act, which prohibits interlocking directorates among competitors under some circumstances.  That statute has not been enforced with much frequency.  Nevertheless, antitrust practitioner always have to be concerned that the existence of common directors could be used as evidence of a conspiracy between the two corporations in violation of the Sherman Act because it provides an opportunity to conspire.  Accordingly, antitrust practitioners know to advise against such overlaps among corporations vulnerable to Sherman Act litigation without regard to section 8 of the Clayton Act.

Sep

30

Posted by : Matthew Wild | On : September 30, 2009

As noted in the June 29, 2009 Post, the Supreme Court granted certiorari to review the Seventh Circuit’s decision in American Needle v. Nat’l Football League.  As explained in the September 4, 2008 Post, American Needle applied the Copperweld doctrine to a sports league’s joint licensing scheme for the first time. In so doing, it affirmed summary judgment in favor of the NFL, its teams and Reebok in an antitrust challenge to an exclusive license of team names and logos to Reebok for use on headwear.  (The decision is linked to the September 4 Post).  As explained in Wild, et al., “Private Equity Groups Under Common Legal Control Constitute a Single Enterprise Under the Antitrust Laws,” 3 NYU Journal of Law and Business 231, 237 and n.31 (attached under articles above), that doctrine treats two or more firms that are under common ownership or have a unity of interest in a common course of action as a single firm incapable of conspiring or otherwise acting collectively under the antitrust laws.

In their amici curiae brief, the government urges reversal.  It argues that the Seventh Circuit extended the Copperweld doctrine in a manner inconsistent with prior precedent — e.g., Texaco Inc. v. Dagher, 547 U.S. 1 (2006), in which the Supreme Court applied the rule of reason to a price-setting joint venture and NCAA v. Board of Regents, 468 U.S. 85 (1984), in which the Supreme Court applied a “quick look” to a NCAA restriction on each individual college’s right to broadcast their football games.  While the government conceded that the league should be entitled to Copperweld immunity under circumstances in which the teams need to cooperate such as to produce games, the licensing of NFL team logos is not one of them.  Indeed, the government observed that the NFL joint licensing scheme was similar to the type of scheme under review in Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979).  In BMI, the Supreme Court applied the rule of reason to a joint venture in which composers created a clearinghouse to sell a blanket license to works by more than one of them.   The American Antitrust Institute and Consumer Federation of America also filed a brief as amici curiae urging reversal.  Their brief and the government’s brief are linked below.  DOJ and FTC BriefAAI Brief

Aug

12

Posted by : Matthew Wild | On : August 12, 2009

On August 6, 2009, the New York Times reported that Major League Baseball granted an exclusive license to Topps for baseball cards.  To justify its legality under the antitrust laws, the MLB Executive Vice President is quoted as having relied on the recent Seventh Circuit decision in American Needle v. NFL, under review by the Supreme Court, which upheld a similar licensing scheme implemented by the NFL with respect to headwear (see September 4, 2008, February 24, 2009 and June 29, 2009 Posts).  In that case, the Seventh Circuit held that the NFL was shielded from liability under the Copperweld doctrine.  The Court reasoned that because “the teams share a vital economic interest in collectively promoting all of NFL football,” they could not conspire within the meaning of the antitrust laws when jointly marketing a license that no one time could sell by itself.  MLB’s reliance on American Needle might be unnecessary, however, in light of the Second Circuit’s decision in Major League Baseball Properties, Inc. v. Salvino, Inc., No. 06-1867 (2d Cir. Sept. 12, 2008) (see October 6, 2008 Post).  In that case, the Second Circuit upheld MLB’s exclusive licensing of team logos under the rule of reason.  Although it would be easier to obtain immunity under the Copperweld doctrine than litigate a full blown rule of reason case, the MLB should take comfort in the fact that two circuits would uphold the licensing scheme regardless of which rationale is applied.

Aug

03

Posted by : Matthew Wild | On : August 3, 2009

Eric Schmidt, Google’s CEO, resigned today from Apple’s board of directors because the increased competition between Google and Apple raised conflicts for him that precluded his participation in many of Apple’s business decisions.  It is unclear whether his resignation was in response to an inquiry by the FTC into Google’s and Apple’s interlocking directorates first reported on May 5, 2009 by the New York Times.  Section 8 of the Clayton Act forbids competitors from having common directors and has been interpreted broadly.  Nevertheless, it is a toothless statute that is rarely enforced and imposes no penalties for violations.  The offending director must simply resign from one board.  In this case, it is unclear whether the FTC has undertaken to enforce the statute as Arthur Levison remains on the boards of Google and Apple.  His presence on both boards would seem to violate Section 8.  It should be noted, however, that the genuine issue that can arise from interlocking directorates is that it can provide circumstantial proof of a conspiracy in violation of Section 1 of the Sherman Act.  If the two firms engage in parallael conduct, for example, plaintiffs might allege that the companies had an opportunity to conspire through the common directors.  Thus, antitrust practitioners advise companies to avoid interlocking directorates where meaningful competition between the two companies exists.

Jun

29

Posted by : Matthew Wild | On : June 29, 2009

The Supreme Court granted certiorari to review American Needle Inc. v. Nat’l Football League, No. 07-4006, 2008 WL 3822782 (7th Cir. Aug. 18, 2008). As explained in the September 4, 2008 Post, that case applied the Copperweld doctrine to a sports league for the first time. In so doing, it affirmed summary judgment in favor of the NFL, its teams and Reebok in an antitrust challenge to an exclusive license of team names and logos to Reebok for use on headwear.  (The decision is linked to the September 4 Post).  This case’s journey to the Supreme Court was unusual.  As explained in the February 24, 2009 Post, the NFL — the prevailing party — also sought review because it wanted an authoritative decision on the scope of its antitrust liability for league activity.  And the Supreme Court requested the Solicitor General’s view about whether to grant certiorari.  The Supreme Court ultimately disagreed with the Solicitor General’s view and granted certiorari.

May

04

Posted by : Matthew Wild | On : May 4, 2009

Maryland has amended its antitrust law to make resale price maintenance agreements per se illegal, thus overruling Leegin Creative Leather Products v. PSKS, 127 S.Ct. 2705 (2007).  In Leegin, the Supreme Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911), and held that a resale price maintenance agreement in which the manufacturer requires a reseller to sell at a certain price is no longer a per se violation of Section 1 of the Sherman Act but instead is subject to rule of reason analysis.  Application of the rule of reason creates a burden on plaintiffs because they have to show that the restraint had an adverse effect on the relevant market and not just the price of the manufacturer’s goods that were subject to restraint.  This abrupt change in the law has been poorly received by state antitrust authorities.  As reported in the May 23, 2008 Post, 35  state attorneys general petitioned Congress to amend the Sherman Act to overrule Leegin.  And as reported in the March 31, 2009 Post, the state attorneys general of New York, Illinois and Michigan obtained a consent decree against Herman Miller in the United States District Court for the Southern District of New York for resale price maintenance involving the Aeron chair.  Their position was that their state antitrust law do not recognize the departure by Leegin and still provide that resale price maintenance is a per se offense.


Mar

08

Posted by : Matthew Wild | On : March 8, 2009

As examined in the February 17, 2009 Post, there have been a number of recent appeallte decisions reviewing successful Noerr-Pennington immunity defense assertions.   Alternative Electrodes, LLC v. EPMI, Inc., No. 08-CV-1247 (JFB)(ETB), 2009 WL 250474 (E.D.N.Y. Feb. 4, 2009), provides a recent illustration of the allegations necessary to defeat that defense.
In that case, plaintiff, a medical device manufacturer, claims that its competitor filed sham patent litigation against it and other competitors and made false statements about the patent litigation to plaintiff’s customers to allow it to monopolize (or gain a dangerous probability of monopolizing) the market for electrical muscle stimulation devices used to treat difficulty swallowing.  Plaintiff alleged, among other things, “from the beginning of the patent litigation that the primary, if not sole purpose, of instigating suit was to advise customers of the pending (but meritless) litigation and attempt to drive [plaintiff] from the market.  The litigation was objectively unreasonable and was initiated in order to interfere directly with [plaintiff’s] business relationships and activities. …  The sham patent suit strategy failed.  Recognizing the frivolity of the claim in light of prior art, these Defendants completely dismissed their suit … without any penalty or payment of any kind.”  Id. at *7.  The Court held that “such allegations are sufficient to withstand a motion to dismiss” based on the Noerr-Pennington immunity defense because “Plaintiff alleges that the litigation was both subjectively and objectively baseless and plausibly supports this claim with the assertion that there could be no valid patent claim due to the existence of ‘prior art.’”  Id.