Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Digital Content Producers (Still) Lack Antitrust Standing to Sue Wireless Carriers Over MMS

In a prior post, I covered the district court’s decision in Davis v. AT&T Wireless Services, Inc.  There, the Central District of California dismissed antitrust claims against various wireless telephone companies and other defendants brought by a purported class of commercial producers of multimedia content. Plaintiffs claimed that when the wireless carriers created the Multimedia Messaging Service standard for sending multimedia data files, they agreed not to implement digital rights management measures that would have protected materials copyrighted by third parties. Allegedly, the carriers’ motive was to increase revenues and profits from the use of MMS. The court ruled that the plaintiffs had not alleged antitrust injury, and therefore lacked antitrust standing.

On April 17, 2014, in an unpublished, two-page opinion, the Ninth Circuit affirmed the dismissal of the antitrust claims, agreeing that plaintiffs lack standing.

Perhaps obvious moral of the story: in evaluating potential antitrust claims on either side of the “v.,” it’s vital to consider whether the plaintiffs have standing to assert them.

On the Difficulty of Dauberting Antitrust Economists

It’s difficult.  Despite a valiant effort, the defendants in In re: High-Tech Employee Antitrust Litigation, 2014 U.S. Dist. Lexis 47181 (N.D. Cal. Apr. 4, 2014) (Koh, J.), failed to exclude the expert testimony of plaintiffs’ economist, who has opined on the purported wage impact of the defendants’ alleged bilateral agreements not to cold call each other’s employees.

I won’t cover the complex statistics and econometrics here, but if you’re interested, I’m attaching a copy of the decision (click the link).

In re High-Tech Employee Antitrust Litigation

UC Hastings — Antitrust and IP

I’m pleased to have spoken today to a group of law students at the University of California, Hastings College of the Law on the intersection of antitrust and IP law.  It was nice to see an almost-full lecture hall — lots of interest in the topic.

Book Review: Louis Kaplow’s Competition Policy and Price Fixing

Competition Policy and Price Fixing

Competition Policy and Price Fixing

Undoubtedly you’ve seen television commercials by a well-known insurance company where one character turns to another and says: “you can save 15% or more in 15 minutes.” The other character then replies: “everyone knows that, but did you know . . . .” In antitrust, everyone knows that horizontal price-fixing agreements are per se illegal, while oligopolistic pricing is not. But did you know that there is an argument against this dichotomy? In a recent and thought-provoking book entitled Competition Policy and Price Fixing (Princeton University Press 2013), Harvard professor Louis Kaplow argues that the rule makes little or no sense, and instead urges that the core inquiry of antitrust enforcement be jettisoned in favor of the application of economic tests.

Kaplow begins by outlining various criticisms of the inquiry into price agreements – some of which are familiar. Agreements can be inchoate and hard to detect (even with access to relevant documents). Industry participants can develop means of communicating even if certain statements or techniques are off-limits. Outside observers, including courts and regulators, “are at a disadvantage in determining what is actually happening if parties attempt to be clever and subtle.” Lower courts sometimes infer agreements from communications and certain “plus” or facilitating factors, even where there is no explicit agreement and even though there is no uniformly agreed-upon list of plus factors. And even stating with precision what we mean by the term “agreement” is fraught with definitional, linguistic, and perhaps logical problems.

These problems alone might not justify overturning antitrust law’s somewhat single-minded focus on ferreting out price agreements, but Kaplow thinks that, when combined with another problem, they militate strongly in favor of a different approach. That problem is the “paradox of proof,” which he acknowledges has been noted in the literature but says has never been systematically explored. While in some settings greater ease of coordinated oligopolistic behavior and its resulting harmful effects make liability more likely, in others – where the danger is most serious – liability may become less likely.

The basic reason for the latter result is that, if successful interdependence is sufficiently easy (think about . . . two [competing] gasoline stations [that can see each other’s prices]), then firms may find it unnecessary to rely on communications [to agree on prices] . . . . so that any inference that they in fact did so is less plausible. As a result, evidence that a market is less conducive to successful coordinated oligopolistic pricing may make the inference that firms’ actions included at least some falling within [the rule against price-fixing] more plausible.

(Chapter 6, p. 126.) In other words – price communication (and price agreements) are more likely or at least more plausible in markets that are less susceptible to price agreements having any actual impact. That is the paradox of communications in the context of interdependent or oligopolistic pricing.

If we follow Kaplow’s prescription to eschew focusing on whether competitors entered into a price agreement, what test or tests should we instead apply? The answer, Kaplow says, is to look to economic evidence to distinguish between types of interdependent oligopolistic behavior. Economic theory has no corresponding term to the law’s use of the word “agreement,” but successful oligopolistic interdependence may be a good proxy for what the law is attempting to define. In this view, communications are not the holy grail of liability, but when they occur, they may suggest that competitors expect that communications will be helpful. They also may help to enforce coordinated oligopolistic pricing. The central question becomes “whether the communications at issue . . . are more likely to promote or suppress competition, and modern oligopoly theory offers the best set of tools for undertaking that inquiry . . . .”

To detect coordinated oligopolistic price elevation, then, one would look to market-based evidence, not to the existence of agreements per se. This evidence would consist of pricing patterns, including evidence of price elevations and nonresponsiveness to changes in market conditions. Additionally, regulators or private plaintiffs would look to the existence of facilitating practices – including price communications, advance price announcements, product standardization, cross-ownership of firms, the existence of side payments or most-favored-customer clauses, etc. Also relevant would be the overall conduciveness of the market to coordinated pricing (market structure, concentration, firms’ capacities, price transparency, product heterogeneity, etc.).

Professor Kaplow’s book raises some cogent criticisms of antitrust law’s current approach to price-fixing. While he does address the issue of administrability, I tend to think he overlooks how difficult it might be in practice to fully implement his proposals. Moving regulators and courts to an economic-based analysis is one thing; moving companies and their inside and outside counsel is another. It is difficult enough as it is to counsel companies on antitrust compliance. Repealing the per se prohibition on horizontal price agreements and mandating that counsel explain to their clients ex ante that inter-firm price communications and agreements might sometimes be unlawful, but sometimes might not, depending upon a complex stew of economic concepts and measurements, may just be a bridge too far.

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U.S. Supreme Court to Decide When Professional Licensing Bodies Have Antitrust Immunity

teeth whitening

teeth whitening (Photo credit: torbakhopper)

The state action immunity doctrine shields private actors from antitrust liability if their activities are actively supervised by a state.

But arms of the state itself generally don’t have to satisfy the actively-supervised requirement to enjoy the immunity.

What about a state agency that consists of professionals who are regulating their own profession?  Is such an agency an arm of the state, or is it more like a private actor that must meet the actively-supervised requirement to enjoy antitrust immunity?

That’s the issue the Supreme Court will decide in North Carolina State Board of Dental Examiners v. Federal Trade Commission, Case No. 13-534.   The Board had engaged in efforts to block non-dentists from offering tooth-whitening services.  The Fourth Circuit agreed with the FTC that a North Carolina agency made up almost entirely of practicing dentists must satisfy the actively-supervised requirement for the immunity to attach.  See 717 F.3d 359 (4th Cir. 2013).   “[W]hen a state agency is operated by market participants who are elected by other market participants, it is a ‘private’ actor.”  Id. at 370.

Although the issue of the regulation of dentists may be a narrow one, the case has broader implications for the regulation by states of many professions and industries.  

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Hot Topics in Intellectual Property and Antitrust Law

I’ve posted my slides from my webinar presentation on hot topics in IP and antitrust law.  You can find them here.

Speaking on Hot Topics in Antitrust/IP Law

On February 19, 2014, I’ll be speaking on hot topics at the intersection of antitrust and IP law.  See this link for more information about the webinar.

Strategic Refusals to License IP — Slide Deck

I’ve uploaded my slide deck from the Advanced Antitrust U.S. conference (Feb. 6, 2014) on strategic refusals to license IP.  You can find a copy here.

Lithium Ion Batteries Court Addresses Illinois Brick Exception, Finds Standing for Certain Indirect Purchasers of Component Products

In In re: Lithium Ion Batteries Antitrust Litigation, 2014 U.S. Dist. LEXIS 7516 (N.D. Cal. Jan. 21, 2014) (Gonzalez Rogers, J.), the Northern District of California largely rejected a motion to dismiss an antitrust price-fixing complaint, but held that the plaintiffs had not adequately pled that they fell within a recognized exception to the Illinois Brick rule against indirect purchaser suits.

Lithium ion battery by Varta (Museum Autovisio...

Lithium ion battery by Varta (Museum Autovision Altlußheim, Germany) (Photo credit: Wikipedia)

Under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), indirect purchasers lack standing to sue under the federal antitrust laws. There are several exceptions to the Illinois Brick rule, including the so-called Royal Printing exception (see Royal Printing Co. v. Kimberly Clark Corp., 621 F.2d 323 (9th Cir. 1980)). Under Royal Printing, indirect purchasers may sue when, inter alia, a conspiring seller owners or controls the direct purchaser.

In Lithium Ion Batteries, purchasers purchased batteries (not lithium ion battery cells) from “packers,” not from the defendant manufacturers. The court held that the complaint did not adequately allege that the defendants controlled the packers, and that influence over their business was insufficient.

Significantly, the court also rejected defendants’ argument that Royal Printing bars standing for an indirect purchaser who has purchased a price-fixed component (here, battery cells) as part of a finished product (here, batteries) from an entity owned or controlled by a conspirator. Otherwise, “[p]rice-fixers of components of complex goods . . . would be immunized.” In so holding, the court followed two other recent cases from the Northern District of California.  The court gave plaintiffs an opportunity to replead to establish that they satisfy the Royal Printing exception.

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Speaking at “Advanced Antitrust U.S.” Conference on February 6

I’m pleased to be speaking at the “Advanced Antitrust U.S.” Conference on February 6, 2014 in San Francisco.  I’ll be speaking on “Antitrust and Intellectual Property,” along with my co-panelists, Dean Pinkert, U.S. International Trade Commissioner, Greg Sivinski, Assistant General Counsel Antitrust for Microsoft, and John Scribner of Weil.

 

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