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

San Jose Strikes Out in Baseball Antitrust Challenge

23:22, 24 July 2006 . . Coasttocoast . . 2272×...

(Photo credit: Wikipedia)

“Baseball? It’s just a game — as simple as a ball and a bat. Yet, as complex as the American spirit it symbolizes. It’s a sport, business — and sometimes even religion.” Ernie Harwell, “The Game for All America,” 1955.

In City of San Jose v. Office of the Commissioner of Baseball, Case No. 14-15139 (9th Cir. Jan 15, 2015), the United States Court of Appeals for the Ninth Circuit applied the judge-made antitrust exemption for baseball to bar a challenge by the City of San Jose, California to a rule adopted by Major League Baseball (“MLB”) that three-quarters of MLB teams must approve a baseball franchise relocation – a rule which San Jose argued has been interfering with its ability to lure the Oakland A’s to San Jose.

Those who are not antitrust aficionados may find it somewhat surprising that baseball enjoys an antitrust exemption. In fact, the court-crafted exemption has a long pedigree and has been discussed in three U.S. Supreme Court opinions. Almost a century ago, in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, 259 U.S. 200 (1922), the Supreme Court held that the “business [of] giving exhibitions of base ball” did not constitute interstate commerce and was therefore not subject to the reach of the Sherman Antitrust Act. Id. at 208-09.

A quarter century later, in Toolson v. New York Yankees, Inc., 346 U.S. 356 (1953), the Supreme Court affirmed Federal Baseball Club, but on stare decisis rather than interstate commerce grounds. (Under the modern interpretation of the Commerce Clause, it would be difficult if not impossible to argue that Major League Baseball – which requires teams to travel to each other’s stadiums throughout the country – does not involve interstate commerce.) The Court noted that “Congress [had] the [Federal Baseball Club] ruling under consideration [and had] not seen fit to bring [baseball] under the [antitrust] laws by legislation . . . .” Id. at 357. Baseball was thus left for thirty years to develop on the understanding that it was not subject to antitrust regulation. If there were circumstances that warranted application of the antitrust laws, the Court wrote, those circumstances should be legislatively specified. Id.

After another quarter century, the Supreme Court reaffirmed the exemption in its third baseball decision, Flood v. Kuhn, 407 U.S. 258 (1972). The Court noted that Congress had acquiesced in the exemption, id. at 283-84, emphasized “the confusion and the retroactivity problems that inevitably would result with a judicial overturning of Federal Baseball,” and reiterated its “preference that if any change is to be made, it come by legislative action . . . .” Id. at 283.

With the above background in mind, we can return to the saga of San Jose. San Jose planned to welcome the Oakland A’s to a new stadium within the geographic territory allocated by MLB to the San Francisco Giants’ franchise. That fact required, under league rules, approval of the relocation by three-quarters of MLB’s members. After MLB – in San Jose’s view – delayed a vote on the relocation, San Jose sued MLB, arguing, among other things, that the delay was an attempt to stymie the relocation and preserve the Giants’ local monopoly. MLB argued that the baseball exemption barred San Jose’s suit.

The Ninth Circuit agreed with MLB. Although it acknowledged that the baseball exemption originated in the 1922 Federal Baseball Club case, which was erroneously decided on the basis that baseball is not in interstate commerce, the Ninth Circuit refused to set aside what it described as an anomalous exemption, noting that MLB has built its business in reliance on the decision, and that the Congress has not acted to change the law in light of the Supreme Court’s precedents. In the court’s view, the congressional acquiescence rationale was particularly applicable to the issue of franchise relocation, because the 1988 Curt Flood Act (codified at 15 U.S.C. § 26b(b)(3)) withdrew baseball’s antitrust exemption with respect to certain labor issues but explicitly maintained it for franchise relocation.   “[W]hen Congress specifically legislates in a field and explicitly exempts an issue from that legislation, our ability to infer congressional intent to leave that issue undisturbed is at its apex.”

The court also rejected San Jose’s argument that the court-made exemption should be limited to the subject matter of some of the prior cases (e.g., limits on movements of players between teams), reasoning that “[t]he designation of franchises to particular geographic territories is the league’s basic organizing principle” and that “[i]nterfering with franchise relocation rules . . . indisputably interferes with the public exhibition of professional baseball.” The baseball exemption extends to the entire “business of providing public baseball games for profit between clubs of professional baseball players . . . .” Toolson, 346 U.S. at 357.

“Like Casey [at the Bat], San Jose has struck out here,” concluded the Ninth Circuit. “Only Congress and the Supreme Court are empowered to question [prior Supreme Court decisions’] continued vitality, and with it, the fate of baseball’s singular and historic exemption from the antitrust laws.”

It is expected that San Jose will attempt to seek review in the U.S. Supreme Court, although on a statistical basis, of course, the Court accepts only a small percentage of cases for review. In January, the San Jose Mercury News reported that a bill to repeal the baseball exemption is pending in Congress, sponsored by Sens. John McCain, R-Ariz., and Richard Blumenthal, D-Conn., among others, but political experts do not expect it to pass.

If there were a clean slate upon which to write, few would predict that the courts would grant baseball an antitrust exemption. City of San Jose is a testament to the power of stare decisis.

Can the State Seek Restitution After a Class Action Settlement?

In The People of the State of California v. IntelliGender, LLC, 771 F.3d 1169 (9th Cir. Nov. 7, 2014) (Wardlaw, J.), the Ninth Circuit said the answer is “no.”  A federal court had approved a class action settlement involving false advertising and unfair competition claims that, among other things, awarded $10 per approved claim.  Subsequently, the California Attorney General’s Office San Diego City Attorney(*) brought its own Section 17200 suit challenging the same practices and seeking civil penalties and injunctive relief as well as restitution under its parens patriae authority.

The Ninth Circuit held that the State could maintain its action for penalties and injunctive relief.  However, its claim for restitution was barred under the doctrine of res judicata, because as to the sought-after restitution, the State stood in privity with the settlement class members.  Res judicata barred the claim for restitution even though the State did not participate in the private class action.

The decision will help simplify the settlement calculus for defendants sued in class actions who otherwise would remain exposed to subsequent similar monetary claims brought by a state enforcer under its parens patriae authority.

(*) The Court repeatedly references the State, but in actuality the suit was brought by San Diego.  Apologies for the confusion — and thanks to a reader in government who noticed.

Motorola’s FTAIA Quest Ends With a Whimper in the Seventh Circuit

Deutsch: Motorola M3888 ca. 2000

Deutsch: Motorola M3888 ca. 2000 (Photo credit: Wikipedia)

On November 26, 2014, the Seventh Circuit (Posner, J.) issued its order upon rehearing of Motorola Mobility LLC v. AU Optronics Corp. (Case No. 14-8003). Motorola still effectively lost the appeal, but the Court’s more circumspect reasoning means that the decision doesn’t have nearly the same significance as Judge Posner’s initial decision.

 
In a nutshell, Motorola’s foreign subsidiaries bought LCD panels overseas, which were allegedly subject to a price-fixing cartel. The subsidiaries assembled mobile phones and sold and shipped the phones to Motorola in the U.S. Motorola sued in federal court in the U.S. for overcharges from the alleged conspiracy.

On rehearing, the Seventh Circuit applied the Foreign Trade Antitrust Improvements Act (“FTAIA”), and assumed that the FTAIA’s first requirement – that the alleged cartel had a direct, substantial, and reasonably foreseeable effect on domestic (U.S.) commerce – was met.

But, the Court held, Motorola’s claims foundered on the FTAIA’s other requirement, namely that the domestic effect give rise to Motorola’s Sherman Act claims. The Court refused to view Motorola as a single entity, insisting that “[h]aving submitted to foreign law, the subsidiaries must seek relief for restraints of trade under the law either of the countries in which they are incorporated or do business or the countries in which their victimizers are incorporated or do business. The parent has no right to seek relief on their behalf in the United States.”  Motorola’s foreign subsidiaries, the direct purchasers from the makers of the LCD panels, “are legally distinct foreign entities and Motorola cannot impute to itself the harm suffered by them.”
Even if Motorola and its subsidiaries were viewed as a single entity, the Court continued, that entity “would have been injured abroad when ‘it’ purchased the price-fixed components,” and thus would not have been injured in U.S. commerce.

The Court went out of its way – at the request of the Justice Department and the FTC – to hold that a ruling against Motorola would not interfere with criminal and injunctive remedies sought by the government against antitrust violations of foreign companies.

So Motorola still lost, but it lost because it decided to do business through subsidiaries abroad, and in the Court’s view, was forced to live with that choice for all purposes. Had Motorola decided to buy parts directly from Asian manufacturers, the result of the case may have been very different. While it is true that there are strong reasons why multinational corporations decide to do business through often complex chains of subsidiaries, that is a choice they make, and does not relate to or reflect any fundamental principle of antitrust law. And it is for that reason the recent decision ends not with a bang, but with a whimper – it merely follows principles of corporate law to what many might argue is a plausible if not obvious endpoint.

Three Billy Goats Gruff

(You know . . .  the fairy tale about trolls.)

This summer, PwC published its 2014 Patent Litigation Study.  The tagline of the study is “[a]s case volume leaps, damages continue general decline.”

Some of they key findings — which are quite fascinating — are:

  • Median damages awards continue to trend down—to $4.3 million in recent years.
  • Damages awards for NPEs averaged more than triple those for practicing entities over the last four years.
  • The median jury award amounted to nearly 37.5 times the median bench award between 2010 and 2013.
  • NPEs have been successful 25% of the time overall, versus 35% for practicing entities, due to the relative lack of success for NPEs at summary judgment. However, both types of entities win about two-thirds of their trials.

You can read the whole thing at the link above.

Is the NCAA a Cartel?

English: National Collegiate Athletic Associat...

The usually good Planet Money program has an excellent recent podcast setting forth the arguments for and against the NCAA [National Collegiate Athletic Association] being an unlawful cartel.

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.

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