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

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.

 

Basketball, Surreptitious Recordings, and Antitrust

Donald Sterling — yes, that Donald Sterling — filed an antitrust lawsuit a few days ago against the National Basketball Association.  You can download a copy here: Sterling Antitrust Complaint.

It’s not clear if the complaint has now been mooted — Mr. Sterling apparently filed it after reaching an agreement to sell the Los Angeles Clippers to Steve Ballmer only because the NBA allegedly refused to confirm that it was cancelling the June 3, 2014 owners’ meeting(*) regarding a forced sale of the franchise.

The complaint asserts causes of action for breach of contract and the like.  The gist of the single antitrust claim is that there is a market for ownership of NBA franchises and that a collective decision to force a sale of the Los Angeles Clippers would injure not only Mr. Sterling but also competition in the market.  It would “mak[e] the relevant market unresponsive to consumer preference and to the operation of the free market.”

The complaint seeks at least $1 billion in damages.

The issue raised is an interesting one: can a sports league collectively control its membership?  If the answer is “no,” how far does the principle extend?  Is there a “market” for golf club memberships which cannot be constrained by collective action to vote out a club member for boorish behavior?  What about membership in non-profit associations generally?  If you think these latter restraints are OK, is the limiting principle found in the relevant market definition (i.e., being banned from one golf club out of dozens or hundreds in a metropolitan area isn’t competitively significant)– or somewhere else?

(*) Technically, a meeting of the NBA Board of Governors.

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Collusion Regarding Terms of Medical Resident Employment?

Did you ever wonder why teaching hospitals can conduct their medical residency “match” program?  And why they can share data and use it to help set wages for residents?  And why the match program effectively forbids salary negotiation?  The apparent result is that medical residents’ wages have remained flat for about 40 years.

Slate has the story — including the explanation for the above phenomenon, an antitrust exemption granted by Congress.  Discuss among yourselves the wisdom of that exemption.

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A Rare Challenge to a Class Action Settlement . . . From a Named Plaintiff

One of the named class plaintiffs in the high-tech employee antitrust case has filed an objection to the proposed class settlement.  The plaintiff, Mr. Michael Devine, analogized the approximately $300 million settlement (worth approximately 10% of alleged damages) to a “shoplifter . . . caught on video stealing a $400 iPad from the Apple Store” and a resulting settlement of $40, with the shoplifter keeping the iPad and making no admission of wrongdoing.

Objections by named plaintiffs are quite rare — though a single objection, even by a named plaintiff, is unlikely to carry the day.

The New York Times has the details here.

 

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Northern District of California Raises the Bar on Exclusive Dealing Claims

In PNY Technologies, Inc. v. SanDisk Corp., Case No. C-11-04689 (N.D. Cal. Apr. 25, 2014) (Orrick, J.), the court dismissed PNY’s exclusive dealing and attempted monopolization claims. I previously covered the case here.

The case is significant because it found – on a motion to dismiss – that allegations of foreclosure from a substantial percentage of retail outlets were insufficient as a matter of law. The court took judicial notice of SanDisk’s contracts with retailers under the “incorporation by reference” doctrine, and proceeded to conclude that because they were terminable on short notice, they did not plausibly foreclose competition. Unfortunately, due to protective order issues, the court redacted information on the term(s) of SanDisk’s exclusives, so we don’t know precisely how long would be too long.

The court also determined that PNY had failed to adequately plead a lack of alternative channels of distribution. Although PNY alleged that non-retail channels were insufficient, the court held that PNY’s allegations were wholly conclusory and therefore insufficient. The court gave PNY leave to amend.

The case is a (relatively) uncommon exclusive dealing victory at the motion to dismiss stage for defendants. It shows that courts will scrutinize and look at exclusive dealing contracts (even if not attached to the complaint). It also demonstrates that in the case of short-term exclusives, and where the plaintiff does not allege in substantial detail why other distribution channels are insufficient to compete, plaintiffs’ claims may be dismissed.

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