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

Could Amazon Possibly Be a Monopolist? (Updated) (Again)

Deutsch: Logo von Amazon.com

(Photo credit: Wikipedia)

Franklin Foer, at the New Republic, argues that the answer is yes.  The alleged “crime”: predatory pricing — if not express, than at least in spirit.

In “There’s one huge problem with calls for anti-trust action against Amazon” at vox.com, Matthew Yglesias rightly points out that market share does not by itself a monopoly make, and further argues that

One important hint about Amazon’s non-monopoly status can be found in its quarterly financial reports. That’s where you find out about a company’s profits. In its most recent quarter, for example, Amazon lost $126 million. Losing money is pretty typical for Amazon, which is not really a profitable company. If you’d like to know more about that, I published 5,000 words on the subject in January. But suffice it to say that “low and often non-existent profits” and “monopoly” are not really concepts that go together.

Competitors hate Amazon because retail was an ultra-competitive low-margin game before Jeff Bezos ever came to town. To delve into this field and make it even more competitive and even lower-margin seems somewhere between unseemly and insane — but it’s the reverse of a monopoly.

Of course, U.S. price predation law can be violated when a firm prices below cost — and loses money — if it is likely to recoup its losses later after its competitors exit the market and it raises prices.  Query whether that is a possibility with online distribution — I don’t know, and am not taking a position for now, but there are certainly reasons to be pretty skeptical — low entry barriers and the like.

Interesting discussion, though.

Update: Paul Krugman says that “Amazon’s Monopsony Is Not O.K.”  But the problems he identifies seem largely theoretical.

Update II: The Wall Street Journal reports that Amazon just reported its biggest operating loss.

Can you ever successfully Daubert an antitrust economist?

English: The iPod family with, from the left t...

The iPod family with, from the left to the right : the shuffle 4G, the nano 6G, the classic 6G and the touch 4G (Photo credit: Wikipedia)

It’s really a very difficult thing to do — and query whether it’s worth the effort.  See, e.g., The Apple iPod iTunes Antitrust Litigation, 2014 U.S. Dist. LEXIS 136437 (N.D. Cal. Sept. 26, 2014) (Gonzalez Rogers, J.) (denying Daubert motions all around).  At least that’s true when the economist is a well-known professor at a major university.

The iPod litigation is, by the way, quite interesting . . . the court has refused to grant Apple summary judgment on the claim that an iTunes update caused consumer lock in.  In an earlier summary judgment order, the court found a triable issue of fact as to whether iTunes update 7.0 was a genuine product improvement so as to not be anticompetitive.

Ninth Circuit Holds State Action Immunity Doctrine Bars Claims Against Convention Center

The San Diego Convention Center in San Diego, ...

The San Diego Convention Center in San Diego, California. (Photo credit: Wikipedia)

In United National Maintenance, Inc. v. San Diego Convention Center, Inc., No. 12-56809 (9th Cir. May 14, 2014), the United States Court of Appeals for the Ninth Circuit held that the San Diego Convention center enjoyed state-action immunity from antitrust claims brought by a supplier of cleaning services whose business was negatively impacted by the convention center’s decision to be the exclusive supplier of cleaning services.

The California Legislature specifically authorized San Diego (and other cities) not only to build a convention center but also to create a commission that would “manage the use” of the convention center.  This type of managerial authorization, the court held, was sufficient to make any anticompetitive effects the result of a clearly articulated and affirmatively expressed state policy – the first prong of the test for state action immunity.

The Ninth Circuit also held that the center did not need to meet the second state action immunity requirement (that its actions were “actively supervised” by the state).  That is because (1) the City of San Diego appoints all of the center’s board members, (2) upon dissolution, the center’s asserts revert back to San Diego, and (3) the center must publicly account for its operations.  Overall, the court held, the center acts as an agent that operates the convention center for the benefit of its principal, the city of San Diego.  It is an extension of the municipality of San Diego and thus does not require active supervision by the state in order to retain its immunity from antitrust liability.

Furthermore, the court noted, the specific facts indicate there is no need for the evidentiary function of active supervision.  Although the center’s actions may reflect the pursuit of parochial interests, there is no evidence that it entered into any kind of private price-fixing arrangement with other convention center operators.  This fact, the court held, distinguishes the center from other cases where groups of private actors, entrusted with state regulatory authority over a profession, may have taken actions to further their own private interests.  The case is available here.

N.D. Cal. Just Opened the Damages Umbrella

English: Opened umbrella

(Photo credit: Wikipedia)

In County of San Mateo v. CSL, Limited, Case No. 3:10-cv-05686-JSC (N.D. Cal. Aug. 20, 2014) (Corley, M.J.), the Northern District of California held that California’s antitrust law, the Cartwright Act, allows the recovery of umbrella damages.  If the decision stands or is upheld, it could stimulate a new wave of antitrust litigation.

Umbrella damages are damages due to overcharges paid to non-conspirators who raise their prices because they are protected by the cartel’s price “umbrella.”  Federal courts, including the Ninth Circuit, have predominantly held that such damages are too speculative to be recovered.

In CSL, Magistrate Judge Corley held that the federal courts’ reasoning — which derives from the Illinois Brick doctrine which bars indirect purchaser claims under the Sherman Act — is not applicable to the Cartwright Act, which does allow for indirect purchaser suits.  The case reaches a conclusion opposite to that of the court in In re TFT-LCD (Flat Panel) Antitrust Litigation, 2012 WL 6708866 (N.D. Cal. Dec. 26, 2012).

It will be very interesting to see how this decision holds up.  It is a boon to antitrust plaintiffs, and a problem for antitrust defendants.

A copy of the decision is attached.

Order – Doc 146 – Cnty San Mateo vs CSL – 10cv05686

The Senate is Considering Minimum Resale Pricing for Contact Lenses

NPR has the story.  Under federal law, of course, RPM is subject to the Rule of Reason.  Apparently the Senate is interested because a large portion of the contact lens market is subject to the restrictions.

It is unclear to me whether the manufacturers have truly nationwide policies or whether they have excepted those states that still treat — or may treat — minimum RPM as per se unlawful.

Update: After hearing a bit more about this, it sounds like these are Colgate unilateral pricing policies (no agreement; if retailers don’t abide, they don’t receive more product).  But I’m not entirely sure.

Northern District of California Addresses Functional Discounts, Price Discrimination Claims

Chrysler 1959

Chrysler 1959 (Photo credit: Wikipedia)

In Mathew Enterprise, Inc. v. Chrysler Group, LLC, 2014 U.S. Dist. LEXIS 95522 (N.D. Cal. July 11, 2014) (Freeman, J.), the court dismissed certain Robinson-Patman Act price discrimination claims and allowed others to proceed, and in so doing addressed the contours of the functional availability defense.

The plaintiff is a car dealership. It alleged that Chrysler grants “volume growth” incentives which function as a subsidy and amount to roughly $700 per vehicle sold by a qualifying dealer. The plaintiff alleged that Chrysler allowed competing dealerships to be established in plaintiff’s area but did not adjust the formula by which plaintiff could qualify for volume growth incentives. That is, plaintiff’s sales objectives continued to be based on its past year’s sales without consideration of the reduction of sales expected due to the addition of new dealerships in the market.

In addition to its allegations about volume growth incentives, the plaintiff further alleged that Chrysler provided disguised reductions in the net prices of vehicles to a competing dealership in the form of below-market rent subsidies which were not also provided to plaintiff.

On Chrysler’s motion to dismiss, the court held that plaintiff had adequately alleged that the volume growth incentives were not functionally available to it. “Defendant’s incentive program could not be applied in an even-handed manner, Plaintiff alleges, because its formula as applied to Plaintiff took into account Plaintiff’s prior year sales, while the formulas put in place for the [competing] dealerships did not, because neither new dealer had prior-year sales.” The court also held that plaintiff had plausibly alleged an effect on competition in the form of sales diversions. “Although Plaintiff acknowledges that other factors contributed to its declining sales, such as increased competition and geographic convenience to customers, those others factors are not more plausible than Plaintiff’s allegations of diverted sales.”

As to the rental subsidies, however, the court held that a rental agreement itself is not a commodity within the reach of the Robinson-Patman Act, and that the plaintiff had not plead facts that would permit the court to infer that the rental agreement in some way was tied to the volume of cars sold. Therefore, the court rejected plaintiff’s argument that the rental agreement was a “disguised discount.”

A World Without Patents?

Patents are only for the old machine

(Photo credit: Alexandre Dulaunoy)

Planet Money’s recent podcast interviews two economists who advocate for the ultimate patent law reform: the abolition of patents.

They argue that patents inhibit innovation.  For example, the Wright Brothers supposedly secured a number of patents on their early airplane design — which didn’t work very well and which stalled (pun intended) airframe development in the U.S. for a number of years.  The industry migrated to France to avoid the U.S. patents.

What about pharma, you might ask (as did I?)  Are pharma companies really going to invest hundreds of millions of dollars into new drugs if there is no patent protection?

Even these economists seem to concede the answer is “no,” so they propose an alternative — the government would pay for initial R&D.  When the government finds a promising new molecule, it would put it out to bid to pharma companies.  The lowest bidder would pay for the expensive clinical trials but would then receive a royalty on all drug sales for some number of years.

It’s an interesting idea — although frankly it doesn’t sound that different from a patent.  Or at least it’s not much different from a patent associated with a duty to license at some fair and reasonable rate.

There’s another issue — not mentioned in the podcast: if the U.S. gets rid of patents, but other countries don’t, won’t that distort all the economics?  R&D may migrate elsewhere, and the supply and price of goods (those subject to foreign patents) in the U.S. may be adversely affected.

It’s an interesting idea to think about — but one that as a practical matter isn’t going to go anywhere.  At least not for many years.

Happy Fourth of July

English: fireworks seen across the at Washingt...

(Photo credit: Wikipedia)

For your weekend reading, here’s an interesting article by Joseph Stiglitz in the New York Times: “Inequality is Not Inevitable.”

“Taking the Law Out of Harvard Law School”

Harvard Law School Langdell Library in Cambrid...

Harvard Law School Langdell Library in Cambridge, Mass. (Photo credit: Wikipedia)

The absurd disconnect between legal education and practice has often been noted, but Max Kennerly has a superbly-articulated critique of the continuing state of affairs at HLS and other law schools.

(No, I don’t agree with everything else on Max’s blog.)

Blog “Hop” — Why I Write

My fellow blogger Brian Rogers recently asked me to participate in a “blog hop.” This particular blog hop got rolling (hopping?) with a post by Bill Ellis. What’s a blog hop, you may ask? Well, I didn’t know either before this post, but the idea is that it’s a way to connect readers to other complementary blogs they might not otherwise discover on their own. At the end of this post, I’ll introduce you to some other bloggers who are going to continue hopping (as it were) and also provide some information on Brian, who wrote his hop post last week.

The topic of this blog hop is “Why I write.”

What am I working on?

In addition to monitoring recent cases for developments that may warrant a mention, I’m also planning to do some more in-depth, multi-part pieces (similar to a set last year that I did on patent licensing issues). Possible ideas include a treatment of various vertical restraints (exclusive dealing, resale price maintenance), California competition law issues, and issues involving the extraterritorial application of antitrust/competition law.

How does my writing differ from others of its genre?

I’ve tried hard to keep blog posts to a few hundred words or fewer. I’ve also tried to keep them pithy and interesting but also sufficiently informative. The biggest danger in legal blogging – and in particular, I think, with blogging about complex areas such as competition law – is TMI (too much information). I review statistics on what people read here, and they confirm that posts that are short, succinct, and have practical value are the ones that are most widely read (and presumably the most useful). I may not always live up to this standard . . . but it is what I try to do.

Why do I write what I write?

I started writing this blog for my own use – as a resource. But I’ve discovered that it’s a great way to tell people about competition law issues – which really are often fascinating. It’s also allowed me to “meet” (at least on the Internet) lots of folks who have a similar interest. Nowadays, I’m writing with an eye towards growing the blog’s readership further and to encourage debate and discussion both on the comments here and elsewhere.  (I’m pleased to say that the blog readership — both on this webpage and in several other syndicated channels– typically is 5,000 to 10,000 a month.)

How does my process work?

Antitrust law is very active these days – particularly in California. There’s simply too much of it to cover everything, and I don’t try (there are better resources out there for instantaneous and comprehensive coverage). Instead, I try to look for one significant development each week that’s worth writing about. Some weeks, I’ll do a more substantive piece instead, or will do part of a multi-part posting on some issue that warrants even deeper explanation. Occasionally I’ll do a book or article review, or post something tangentially (but perhaps humorously) related to antitrust issues.

Please visit my blogging colleagues’ blogs

Finally, let me introduce you to some blogging colleagues and encourage you to visit their blogs, which are highly readable and make accessible even complicated topics. They’re also all on Twitter.

Brian Rogers

brian-rogersBrian (@_thecontractsguy) writes a blog at The Contracts Guy that discusses issues involving the legal aspects of contracts and the process of contracting. He’s also the founder of Blue Maven Law LLC, a new(ish) firm dedicated to bringing a new and innovative legal services approach to building businesses. Brian is of counsel at the St. Louis-based law firm Evans & Dixon, LLC.

Katie Lane

KatieLaneKatie (@_katie_lane) writes a blog at Work Made for Hire. She used to work as in-house counsel for a company but is now a freelance attorney. She writes for an audience of freelancers and focuses on contracts and negotiation.

 

Jennifer Romig

JenniferRomigJennifer (@JenniferMRomig) writes the Listen Like a Lawyer blog. She’s a legal writing consultant in Georgia. In her blog Jennifer explores the theory and practice of effective listening. She’s also a fan of checklists.

 

Adrian Walters

Adrian (@walters_adrian) writes The Walters WaAdrianWaltersy blog. He’s a law professor at Chicago-Kent College of Law in Chicago. His blog is a resource for law students and he tries to use it to connect students in a practical way to the law of contracts, bankruptcy, and business organizations.

 

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