Distribution, Competition, and Antitrust / IP Law

Are Mutual Index Funds Anti-Competitive?

They may be, according to a thought-provoking article by Harvard Law School Professor Einer Elhauge entitled “Horizontal Shareholding as an Antitrust Violation” (July 21, 2015), available here.

In a nutshell, Professor Elhauge’s argument is:

  • Large institutional investors (mutual funds and, presumably, ETFs) own fairly large shareholdings in horizontal competitors throughout the economy – for example, from 2013-15, seven shareholders controlled 60% of United Airlines, 27.5% of Delta airlines, 22.3% of Southwest Airlines, and 20.7% of JetBlue Airlines. The problem is particularly acute for index funds, which routinely invest in horizontal competitors in an industry;
  • Basic economic theory suggests that this sort of “horizontal shareholding” may result in diminished incentives to compete – because if firm A gains profit/market share by lowering prices, shareholders who own stock in both firm A and competitor B (or competitors B and C, or B and C and D, etc.) will see at least some loss in profitability in their other holdings;
  • Recent econometric studies suggest that in markets where shareholdings are concentrated in this manner, higher prices are not only observed, but are also attributable to the “excess” concentration;
  • These horizontal shareholdings explain some persistent economic puzzles, including (a) executive compensation being based on industry performance, rather than corporate performance, (b) the failure of high corporate profits to lead to high growth, and (c) the recent rise in economic inequality; (*)
  • Antitrust law – as it is currently formulated – can reach these horizontal shareholdings under Clayton Act Section 7, and the passive investor exception is not a bar to legal action, because (a) funds actively insert themselves into management discussions and so are not purely “passive” and (b) even if they are, the passive exception does not apply if the acquired stock is actually used (by voting or otherwise) to lessen competition substantially or to attempt to do so; and
  • Regardless of the Section 7 passive investor exception, Sherman Act Section 1 and FTC Act Section 5 apply to horizontal shareholding acquisitions.

As I said, provocative and intriguing stuff. But I have some questions.

  • Mutual fundsandETFs are owned (I assume predominantly) by individuals. Many (most?) of those individuals are also employees in the labor markets. Why would those owners want to see unduly high executive compensation, lower growth, or higher income inequality? If the answer is there is an information gap or asymmetry, why does it persist? If firms subject to fund ownership can figure out (even without communication) that they shouldn’t vigorously compete due to their common owners, why can’t mutual/ETF fund managers figure out that fund owners don’t want fund managers tocontribute to anticompetitive behavior?
    • Perhaps most stock is ultimately held by investors who benefit more in their role as investors than they do as workers.  Additionally, perhaps there is a collective action problem at the fund investor level – even though we would all be better off with a stronger economy, when choosing to invest money, we each have incentives to pick the fund with the highest rate of return.
  • All things being equal, the higher level of horizontal holdings, the moremonopoly-level profits one would expect to be extracted. Yet we apparently see horizontal shareholdings by funds in the 4-6% range (and in any event usually under 10% for any particular fund). If the horizontal ownership strategy were so successful, wouldn’t we expect to see even higher ownership levels? What does it mean that we don’t?
    • Perhaps regulatory obligations kick in at 5% and 10%, and over 15% may require a Hart-Scott-Rodino filing. If there’s no current appetite to bring enforcement actions in this space, however, I wouldn’t think these modest expansion barriers (filing requirements) would be much of an impediment to larger holdings.
    • Perhaps it would be just as profitable to have 5% stakes in four anticompetitive marketsrather than a 20% stake in one anticompetitive market. But:
      • If 4×5% is just as profitable as one 20% holding, doesn’t that suggest that 20×1% is also just as profitable? But we apparently don’t typically see 20×1%, and if we did, it’s not clear to me it would be objectionable. It seems to me that, if the horizontal shareholdings theory is generally correct, one would expect to see higher rates of return (and more anticompetitive effects) with higher levels of shareholding (though the effect may not be linear). So I still wonder about the relatively low levels here.
      • Also, it may be more difficult and expensive to amass and manage a portfolio of many small holdings as opposed to one larger one. Again, if that’s true, how do we explain the absence of larger horizontal shareholdings?
    • Is there anything in securities law and regulation that allows for horizontal ownership and/or communication with management and that would otherwise preempt the application of antitrust law?
    • Would antitrust enforcement lessen fund diversification? And if so, can the pro-competitive effects of antitrust enforcement be balanced against the reduction in diversification in a quantitative manner?
    • To the extent there is an issue, can it be solved by giving funds a choice – either limit their holdings, or agree not to become actively involved in firm management or governance? The article suggests the answer may be yes – “if index funds alone would create a problem of anticompetitive horizontal shareholding in a concentrated market, and those index funds feel the benefits of diversification across all firms in that market exceed the benefits of influencing corporate governance, they could commit not to communicate with management or vote their shares.”

In short – it’s a very interesting theory. But it’s early days, and I think we need some more consideration – and evidence – to evaluate it.

P.S. – The paper also argues that increased antitrust enforcement in the 1930s under Thurman Arnold was a substantial reason for the United States’ emergence from the Great Depression. Certainly the timing of AAG Arnold’s appointment lines up neatly with the decrease in the unemployment rate. As they say, correlation is not causation – but again it’s a very interesting point.

(*) The basic arguments are that (a) the use of industry performance measures is not a bug but a feature for institutional investors who are invested across the industry, because managers who increase individual corporate performance by competing with rivals decrease institutional investor profits across the industry by decreasing industry profits; (b) with horizontal shareholdings, firms acting in the interests of their shareholders have incentives to constrain output rather than expand; and (c) anticompetitive markets raise returns on capital (which is invested in firms whose product prices are inflated) but also lower the effective returns to labor through (i) higher product prices that lower the purchasing power of wages and (ii) the exercise of monopsony power over labor rates.

Milk expiration dates and clever cartels

A glass of milk Français : Un verre de lait

(Photo credit: Wikipedia)

The Planet Money podcast this week has a story about the Greek economy.  According to the podcast, there is a Greek milk producer “cartel.”  Of course cartels are unlawful in Europe, just as they are in the U.S.  So it seems that Greek milk producers have engineered a clever “cartel” — they have lobbied the Greek government to require that bottled milk have an expiration date no more than 7 days after the milk is obtained from the cow.  As a result, milk produced elsewhere in Europe either isn’t available in Greece or is (I assume) more difficult and more expensive to obtain.

The story is an interesting one, and caused me to pause for a moment about the use of the word “cartel.”  In the U.S., this sort of lobbying would almost certainly be protected by the Noerr-Pennington petitioning immunity.  But what if the milk producers got together and agreed on expiration date rules without obtaining a regulation?

Such an agreement might be a form of a “cartel.”  But it wouldn’t be focused on price — at least not directly.  So it probably wouldn’t be subject to the per se rule.  But I think there’s not much reason to worry about such “cartels,” because they wouldn’t work.  Such a milk “cartel” wouldn’t stop manufacturers outside of Greece from exporting milk to Greece (indeed, it might make longer-shelf-life milk produced outside Greece more attractive to Greek consumers), so Greek manufacturers have little or no incentive to form one.  Only the force of government regulation interferes with distribution of non-Greek milk in Greece.

Is Antitrust Relevant for Startups, Emerging, and Non-Dominant Firms?

The answer is (surprise!) “yes.”

There are a number of ways in which antitrust law is relevant to emerging and non-dominant companies. Those firms may:

  • Need to deal with the dominant firms in their markets, including by (i) responding to threats or actions by dominant firms to foreclose access to products, services or markets, or (ii) negotiating to acquire or maintain access to needed IP;
  • Need access to standard-essential patents (“SEPs”) and to understand their rights to and under FRAND licenses;
  • Want to exploit and license their own IP and put restrictions on its use without triggering antitrust issues;
  • Want to collaborate with other firms – including (dominant) competitors – in producing products or delivering services (i.e., entering into joint ventures);
  • Want to merge with, acquire, or be acquired by another firm, including a dominant one;
  • Want to impose vertical price or non-price restraints, or offer different customers, dealers or distributors different prices; or
  • Need to respond to a government merger or conduct investigation as a third party.

All of the above issues (and more) require the consideration of antitrust law. This is not to say that, for example, every complaint by an emerging firm against a dominant firm is the nucleus of a valid antitrust claim. There are many considerations – including whether there is harm to competition, whether a party has antitrust standing, and the like – and often there is no claim, just the rough-and-tumble of normal business competition. But it’s always helpful to understand the legal landscape, and to consider whether Congress and the courts have struck the appropriate balance between robust competition and truly exclusionary conduct. And on the defensive end, it’s always a good idea to understand how far you can push restraints.

Wholesale Grocery Products Case Raises Questions About How and When to Apply Per Se Rule and Rule of Reason

SHOPPING FOR GROCERIES IN A WASHINGTON, DISTRI...

(Photo credit: Wikipedia)

The Supreme Court today denied review in In re: Wholesale Grocery Products Antitrust Litigation, an action that came up from the District of Minnesota and the Eighth Circuit. Substantively, the case is a useful reminder about the potential dangers of non-compete agreements; procedurally, it raises some troubling questions for future Sherman Act cases.

In brief, two large grocery wholesalers entered into an asset purchase agreement. The New England wholesaler (which did some limited business in the Midwest) acquired the Midwest’s wholesaler’s New England assets. The New England wholesaler – which had acquired the assets of a bankrupt wholesaler’s nationwide assets – also agreed to designate the Midwestern wholesaler as the receiver of the bankrupt firm’s Midwestern assets. As part of the agreement, each wholesaler agreed not to supply the customers of the business it sold for two years and not to solicit those customers for five years. The written terms did not include any express restrictions as to the solicitation or supply of other customers or any geographic market division.

The plaintiff – a small “mom and pop” grocery store – alleged that the non-compete agreement was unlawful, and that it went beyond the written terms of the contract to include not only former customers, but also new and existing customers. The district court granted summary judgment to the wholesalers, but the Eighth Circuit reversed.

On the substance of the issue, the outcome may not be terribly surprising: if there were evidence of a non-compete as to new and existing customers, that evidence might support a judgment that the agreement was an anti-competitive and unlawful market or customer division – at least under the Rule of Reason – although many ancillary non-competes have been found to be perfectly lawful.(*)

The procedural issue is perhaps the more interesting one. The Eighth Circuit held that because there were material issues of fact as to what the wholesalers actually agreed to do, the district court could not resolve on summary judgment the question of whether to apply the per se rule or the Rule of Reason. (Other circuits have concluded that where there are fact issues regarding the exact nature or effects of the restraint, per se treatment is inappropriate.) And so, as the wholesalers told the Supreme Court in their cert. brief, “[t]he holding below creates a twilight zone in which litigants ‘d[o]n’t know what kind of trial to prepare for . . . . A per se trial looks vastly different than a rule-of-reason trial.” “Equally troubling,” the wholesalers wrote, “plaintiffs can easily avoid facing rule-of-reason review at summary judgment by concocting fact issues about a restraint’s ‘terms’: Even if the written agreement triggers the rule of reason . . . plaintiffs need only allege a ‘knowing nod and wink’ . . . that signaled different terms to force defendants into a costly trial or coerced settlement.”

Presumably there are evidentiary and Rule 11 requirements that preclude plaintiffs from “concocting” fact issues about a given restraint’s terms. And if the question were simply whether factual issues about whether the defendants entered into a naked market-allocation agreement precluded summary judgment, the opinion would not be remarkable. But the bigger problem with the Eighth Circuit’s decision is its broad language – e.g., “The district court erred by assuming that because the record did not establish an undisputed per se violation, then the rule of reason necessarily applied.” But if there is no per se violation, then what’s left is the Rule of Reason. By not allowing the district courts to resolve the standard of review question before trial, the Eighth Circuit leaves defendants wondering how they can prepare for a trial without knowing whether the per se rule or the Rule of Reason applies. Wholesale Grocery Products offers no guidance as to how defendants (and plaintiffs) should handle this dilemma.

(*) The Eighth Circuit seemed to think that a geographic market division – even one ancillary to a legitimate sale of assets – would be subject to the per se rule. This blanket conclusion seems questionable. Had the Eighth Circuit rejected the argument that an ancillary geographic division could be per se unlawful, its holding would have avoided the problems caused by deferring resolution of the question whether to apply the per se rule or the Rule of Reason.

Do State Bar Associations Have Antitrust Risk?

It was only a matter of time after the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015) (*), that a state bar association would face an antitrust suit.  But the suit happened quickly: on June 3, LegalZoom sued the North Carolina State Bar for violations of Sherman Act Sections 1 and 2 in the U.S. District Court for the Middle District of North Carolina.  LegalZoom.Com, Inc. v. North Carolina State Bar, Case No. 1:15-CV-439 (M.D.N.C.).

In a nutshell, LegalZoom alleges that the Bar does not enjoy antitrust immunity because it is controlled by lawyers (market participants) and its activities are not actively supervised by the state.  LegalZoom challenges the Bar’s refusal to register its prepaid legal plans, which it sells in 42 states and the District of Columbia.  LegalZoom seeks not only injunctive relief, but also $3.5 million in damages (before statutory trebling).

This may be the leading edge of a wave of lawsuits challenging activities of state boards staffed by industry participants.

(*) I covered the Fourth Circuit’s decision in Dental Examiners here.

Pay-for-delay and the Rule of Reason

Last week, I co-authored an article in the Los Angeles/San Francisco Daily Journal on the California Supreme Court’s recent decision in the Cipro Cases.  There, the Court held that so-called “reverse payment” patent settlements are evaluated under a specific “structured” Rule of Reason analysis, and rejected plaintiffs’ arguments that settlement payments exceeding the costs of litigation or the value of services provided by a generic manufacturer are per se unlawful.

The article is behind a pay wall.  When I get clearance to republish it, I will do so here.

* Updated 06/08/2015: The article is attached. * FNL-Orrick (DJ-5.14.15)

“Anti-Patent Troll” Fails to Secure Dismissal of Amended Antitrust Complaint

 

No-Troll

No-Troll (Photo credit: Wikipedia)

Back in January, I covered the case of Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), where Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung. On December 3, 2013, Judge Rogers refused to dismiss Cascades’ amended complaint. See 2013 U.S. Dist. LEXIS 170517.

Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.

Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.

In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.

In granting defendants’ motions to dismiss the original complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition. In its amended complaint,(*) Cascades provided much greater detail about the negotiation history with RPX. Those alleged facts were sufficient for the Court to conclude that Cascades had adequately alleged both a horizontal conspiracy – an agreement among manufacturers not to deal with Cascades except through RPX – and a vertical conspiracy, i.e., an agreement between each manufacturing defendant and RPX. “[W]hile the [amended complaint] alleges a written agreement between RPX and each Manufacturing Defendant which permits individual negotiation, it also suggests that in this instance each Manufacturing Defendant understood that it should refrain from exercising its right to negotiate individually with Cascades and instead deal with Cascades either through RPX or not at all.”

The Court also rejected various other arguments advanced by the defendants, including the argument that defendants did not want to deal with Cascades individually because Cascades had overpriced its patents. While that theory was “plausib[le],” the Court did “not find it so fully and convincingly explanatory as to render Cascades’ revised allegations implausible by comparison.” The Court also determined that the conspiracy alleged by Cascades “makes economic sense because it would permit potential licensees . . . to realize RPX’s publically stated promise of ‘wholesale’ pricing, provided they refrained from competitively bidding against each other and sent RPX to the market in their stead, where it would be the sole viable purchaser.”

Cascades raises novel issues involving the application of antitrust law to the activities of defensive patent aggregators. It will be interesting to see how the case develops after discovery is completed.

(*) Cascades voluntarily dismissed its claims against LG and did not name Dell as a defendant in its amended complaint.

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Can An “Anti-Patent Troll” Be a Monopsonist or a Section 1 Conspirator?

The official online color is: #A4C639 . 한국어: 공...

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A recent interesting case suggests that “anti-patent trolls” may in theory face antitrust liability. In Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung.

Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.

Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.

In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.

In granting defendants’ motions to dismiss the complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition.

The court also agreed that Cascades had not adequately pled a conspiracy that made economic sense. According to RPX, a more plausible explanation for the manufacturing defendants’ decision to decline a $5 million licensing offer was that the offer price was too high. RPX had been negotiating a $10 million deal for all of its 110 members, which made a $5 million offer to each of LG, Motorola, Samsung and HTC too high (collectively $20 million). Although the court did not endorse this and several other “economic sense” arguments, it concluded that Cascades

ha[d] fastidiously avoided providing specific facts with respect to the timing of the alleged negotiations and the interplay with the filing of [actions] for patent infringement. Cascades also will need to provide specific facts to clarify why, absent a conspiracy, it is economically irrational for the Manufacturing Defendants—who are being sued by Cascades for infringement of one patent, the ‘750 Patent—to decline an offer to license Cascades’ entire portfolio of 38 patents. Without clarification and specificity, the Court will not presume economic [ir]rationality where the circumstances giving rise to the lawsuit plausibly suggest nothing more than a tactical ploy to regain economic leverage that Plaintiff lost in the licensing negotiations.

However, the court also refused to hold that the alleged group boycott activity could not constitute a per se Section 1 violation. And the court rejected defendants’ argument that Cascades failed to allege antitrust injury because of the lack of allegations regarding possible consumer injury. “Anticompetitive conduct need not harm consumers specifically in order to cause antitrust injury.”

Although Cascades now has an uphill battle, given leave to amend the complaint, only time will tell whether it can allege sufficient facts to establish its conspiracy, competitive harm, and relevant market allegations.

As Professor Hovenkamp cogently wrote in a comment to the article below — a comment which still applies to the likely amended complaint:

As a matter of antitrust law, a great deal will depend on whether this is a naked agreement to refuse to license (or to suppress the price), or whether it is an ancillary agreement setting standards so as to exclude the plaintiff. A naked agreement among a group of competing manufacturers not to purchase a license or to pay only a low fee would be illegal per se under the antitrust laws. On the other hand, joint licensees who are actively engaged in standard setting do set standards that exclude some technologies. Standard setting is addressed under the rule of reason and generally upheld if there is an objectively reasonable basis for the exclusion. An objectively reasonable basis could include a decision that a patent offered by an outsider is not valid or that the manufactures already have suitable alternatives to the offered patent or are not infringing it.

Another possibility is that the defendant device manufacturers are not acting in concert at all, but are individually deciding not to purchase a license from the plaintiff. The firms are not monopolists, and in any event there is no law in the United States that requires even a monopolist (acting unilaterally) to purchase a license from an outside patentee.

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Under Agency Law, Standard Setting Organizations May Be Liable for Antitrust Violations of Their Members

As noted in this recent blog post, in TruePosition, Inc. v. LM Ericsson Telephone Co., No. 11-4574 (E.D. Pa. Oct. 4, 2012), the court held that a Standard Setting Organization (SSO) known as 3GPP may be liable for alleged Sherman Act Section 1 antitrust claims involving the wrongful actions of persons who acted on behalf of the SSO, even when those persons are representatives of the SSO’s corporate members.  (Hat tip to this LinkedIn posting which informed me about the blog post.)

The case involves allegations that defendants conspired to exclude plaintiff’s technology from industry standards (for Long Term Evolution, or LTE, telephone technology).  The SSO argued that the plaintiff’s claims were insufficient because the plaintiff’s theory of liability was one of “acquiescence.”  The SSO characterized the plaintiff’s claims as alleging that the SSO was on notice of the corporate defendants’ alleged misconduct but that the SSO failed to remedy it.  This “inaction,” according to the SSO, did not show the requisite agreement necessary to support a Sherman Act Section 1 claim.

Applying American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982), the district court rejected the SSO’s acquiescence argument. 

“As Chairmen of the pertinent 3GPP subcommittees, the Corporate Defendants were agents of 3GPP acting on behalf of 3GPP, even when their actions violated 3GPP’s rules and regulations . . . .  As the facts are set forth in the Amended Complaint, and granting all reasonable inferences to TruePosition, 3GPP is charged with acting through agents whom it has imbued with apparent authority.  Such alleged action involved concerted action.  This is not a case involving mere membership in a standard-setting organiztion . . . .  It is the Corporate Defendants’ alleged unlawful conspiratorial conduct taken with 3GPP’s apparent authority as Chairmen of the relevant committees that makes 3GPP potentially liable for their actions. Under the facts presented in the Amended Complaint, 3GPP cannot consider itself as separate and distinct from the actions of the Corporate Defendants when they were acting with 3GPP’s apparent authority.”

The court also determined that the complaint adequately alleged minimally sufficient facts to plausibly suggest that 3GPP assented to the alleged conspiracy through the corporate defendants’ actions taken with the apparent authority of 3GPP holding leadership positions within its committees.  “This is not a case where most of the alleged unlawful activities were conducted by the Corporate Defendants outside the confines of 3GPP but, rather, the majority of the allegations specifically involve the actions of the Corporate Defendants as Chairmen of 3GPP’s committees thwarting and using its standardization process to disadvantage a competitor.”

The case is a useful reminder that an SSO has potential antitrust exposure for the activities of its members when the members act under color of authority of the SSO.

Court Approves DOJ Antitrust Settlement with Three E-Book Publishers

Last week the Southern District of New York approved the DOJ’s settlement with Hachette Book Group Inc., HarperCollins Publishers LLC, and Simon & Schuster, Inc. (I previously covered the Apple e-book case here and here.)

Under the Tunney Act, consent settlements with the DOJ are subject to court review and public comment. The three e-book publishers reached a settlement with the DOJ before the Department filed its antitrust suit.

Under the settlement agreements, the publishers must end their e-book agency agreements with Apple within seven days of final judgment. They must also end any contracts with other e-book retailers that prevent them from setting their own prices or include most-favored nation (“MFN”) clauses that guarantee that retail competitors are not receiving better terms. Additionally, under the settlements, distribution provisions limiting retailers’ ability to set e-book pricing are banned for several years.

The DOJ has received hundreds of Tunney Act comments about the settlements. Additionally, Apple, Penguin, and others have filed amicus briefs with the court criticizing one or more aspects of the settlements. Bob Kohn, the founder of eMusic, has been a particularly vocal critic. You may have read about his creative five-page cartoon or graphic novel format brief (which he filed due to the court’s page constraints).

Kohn (and perhaps others) have argued that DOJ essentially accused Amazon of price predation, and that the Apple e-book deals were a lawful and appropriate response to such predation.

Apple, Macmillan, and Penguin remain in the DOJ suit.

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