Restraint Of Trade

Successes (and Risks) of Private Enforcement

  Too much attention is paid these days to the supposed dangers of over-zealous private enforcement of the antitrust laws, which can supposedly lead to innocent companies having to pay large settlements out of fear of large class action lawsuits. 

  Corporations, of course, have an incentive to promote this storyline and, though it lacks any meaningful empirical support, it has led to dramatic changes in pleading standards - changes which are designed to make it harder for aggrieved small businesses and consumers to get a hearing on their claims in federal court.

  In this context, it is helpful to be reminded of the real need for private enforcement, as well as the risks faced by private litigants.  Too often it is assumed that only corporate defendants face risks in complex litigation.

  Leave it to Page 6 of the Post to cover a story ignored by most media outlets:

Lloyd Constantine, in whose office young law school grad Eliot Spitzer interned and who became mentor/ adviser/consigliere throughout the man's historic leap into and out of New York's governorship, has a book party tonight. His vivisection of Spitzer's downfall comes out shortly. The one he's partying tonight, also about a downfall, is "Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel." It's also the landmark class action suit his law firm won, which made him personally such a bunch of millions that he need never never ever work again.

"This seminal Visa/Mastercard case was a David and Goliath battle, and this country's largest antitrust case ever," he told me. "Competition is the heart of America, and our win protected America's economic system by ending a giant anti-consumer conspiracy.

"In 2003 dollars, the settlement was $3.4 billion. The court estimated in 10 years alone this would save stores and shoppers $87 billion."

...

And the government's role in this?

"None. No help. Private enforcement can beat big case litigation, but that's providing dedicated counsel is willing to bet their careers."

The article is here

Advance for Collective Redress in Europe

  Big things are brewing in the move toward collective redress mechanisms in the European Union.  The growing support for such mechanism is in part a result of the growing understanding that businesses and consumers are deprived of billions of euros in compensation for competition wrongs because of the absence of effective mechanisms for seeking redress.  

In April 2008, the European Commission provided a White Paper on the issue, and on March 26, 2009 the European Parliament issued a resolution supporting the White Paper, and recognizing the need for collective redress mechanisms in the European Union.

Parliament's resolution is here, and the Commission's comment is here.

The Future of a Legislative Response to Leegin?

As reported by the National Journal: At a conference about the intersection of the high-tech industry and antitrust law on Friday, eBay deputy general counsel Tod Cohen weighed in in favor of a legislative response to Leegin, which would presumably return vertical price-fixing restraints such as agreements to charge fixed minimum prices to per se illegality. 

It's no surprise eBay feels this way - as we've pointed out several times, the Leegin decision is being used most aggressively to put internet discounters out of business.

A bill was introduced in the Senate to overturn Leegin last year.  The bill would add a new second sentence to the famously terse Sherman Act:  "Any contract, combination, conspiracy, or agreement setting a minimum price below which a product or service cannot be sold to a retailer, wholesaler, or distributor, shall violate this Act." 

Will the outcome of Tuesday's presidential contest have any effect on the future of vertical price fixing?  Well, consider that the co-sponsor of the Senate bill, along with Senators Kohl and Clinton, was a fellow named Joseph Biden.  Consider also that, no matter who wins, consumers are in need of relief from high prices, and that politicians will be under pressure to show that they are aggressively fighting for consumers.  A ban on vertical price-fixing could fit this narrative. 

FTC Probes Music-Instrument Industry

As reported by the WSJ today, the FTC is probing whether instrument and audio gear makers have hampered competition by forcing retailers to charge minimum advertised prices (MAP).

Fender Musical Instruments Corp., Yamaha Corp., Gibson Musical Instruments Corp, the Tascam unit of TEAC Corp, as well as retailer Guitar Center Inc. have all received subpoenas.  The industry does about $7.5 billion annually.

After the Supreme Court's 2007 Leegin decision, agreements to charge MAPs are no longer per se illegal.  It is an open question what will need to be proven to show illegality, and any action by the FTC will be watched with great interest.

What is clear is that the Leegin decision has led manufacturers in numerous industries to go to war against internet discount retailers, with the effect of boosting prices to consumers in the short run at least.  As discussed previously (see September 16, 2008 post below), MAP agreements appear to be driving up prices in the flooring industry.

Today's WSJ article also sugggests this is happening in the furniture industry.  Retailer Design Furnishings Inc alleges that manufacturer Tropitone Furniture cut off its supplies after its web site advertised and sold Tropitone products below the MAP.  The WSJ obtained a Tropitone distributor list that shows Tropitone set the MAP for a patio set at $5,884 on the internet and $4,464 in stores.  

The purpose, it seems, is to drive internet retailers out of business.  

This supports my thesis - that, whether or not Leegin was really the result of a maturation of economic thinking, it is having a concrete impact on contemporary business models.  Consideration of its wisdom cannot be divorced from consideration of the desirability of that impact.

AAI Releases Antitrust Recommendations

The American Antitrust Institute has published a comprehensive report outlining its policy recommendations for the next administration.

Chapter One of the report - on Cartels - is particularly deserving of attention.  AAI questions, for example, whether the Antitrust Division of the US Department of Justice has been unduly "indifferent or even hostile to private litigation." 

"While it is not uncommon for the FTC to join with the state attorneys general in antitrust prosecutions, we are not aware of a single instance of such an alliance involving the Division and the 'private attorneys general.'  On the contrary, we have heard many informal reports that when private suits are initiated, plaintiffs experience unnecessary delays and blockages initiated by the Division.  Legal impediments are particularly severe in international cartel actions.  We note that some courts have overriden concerns about comity and required foreign antitrust authorities to produce documents held abroad to plaintiffs in private suits.  Yet, the Division typically resists turning over amnesty application documents."  (48.)

We applaud the AAI's focus on the importance of constructive cooperation between the Antitrust Division and private actions, and echo the hope that the next administration will take steps to improve this working relationship - which will benefit consumers in this country and, in an era of increasingly international cartels, other countries as well.

Twombly's "Suspect Circumstances" Standard

Truth on the Market has posted a link to a new working paper from Professors Martin H. Redish and Lee Epstein, which attempts to provide some (much needed) clarity to the post-Twombly pleading standard.

Professors Redish & Epstein argue that Twombly should be read to have instituted a new "suspect circumstances" pleading standard that would apply not just to antitrust cases:

"Under this construction of Rule 8(a), before a pleading may get to the discovery stage it must allege facts sufficient to make a reasonable observer suspicious that unlawful behavior took place, thereby rendering it appropriate to resort to discovery to allow the parties to investigate further."

There is some promise to this "suspect circumstances" formulation, but it is unclear how much clarity it actually provides. 

For example: How suspicious must a reasonable observer be?  Many cases of parallel or near-parallel pricing conduct may raise some suspicion on their face that unlawful collusion has occured, but is "some suspicion" enough or must the pled circumstances be "very suspicious"?

Some have argued that the level of suspicion required to proceed to discovery should be considered in light of the level of burden and expense discovery will require - but this only introduces another level of guesswork and subjectivity into the analysis. 

"Bloody Marvellous" - Progress in UK on collective redress for price-fixing

The financial times is reporting (here) that the UK Department for Business, Enterprise & Regulatory Reform is close to publishing its proposals to facilitate actions for collective redress for price-fixing violations in the UK, with a view to changing the law next year. 

The proposals are expected to mirror those the Civil Justice Council made last month, including an automatic opt-in to lawsuits for consumers.

As the article notes, while US consumers and purchasers have received on several occasions significant payouts as a result of illegal price-fixing conspiracies, those in the UK have trouble getting any redress at all, because of legal impediments. 

   "Deborah Prince, head of legal affairs for Which?, the consumer group, said it would be 'bloody marvellous' if the government followed the thrust of the CJC recommendations, which were 'absolutely spot on.'"

Report on today's DDAVP argument in Second Circuit

The Second Circuit finally heard argument today in the long-running In re DDAVP Antitrust Litigation, 5-cv-2237 (SDNY).

The case was brought by purchasers of the pharmaceutical drug desmopressin acetate ("DDAVP") back in early 2005, alleging that Defendants Ferring and Aventis took certain steps, including wielding a patent obtained by fraud on the Patent Office, to keep generic competition to DDAVP off of the market, thereby causing purchasers of DDAVP to pay higher prices than they should have. 

In November 2006, Judge Charles Brieant -- who sadly passed away earlier this year -- dismissed Plaintiffs' claims  holding, among other things, that purchasers of a patented product do not have standing to bring a claim under the antitrust laws to recover damages in the form of overcharges, even if the patent covering the product was procured through outright, intentional fraud on the Patent Office and even if it clearly led to purchasers being economically harmed.  The decision is here:

Download ddavp_mtd_order.pdf

It's a long story why the case took so long to be heard - suffice it to say that hopefully today's argument will spell the issue's impending resolution, in the Second Circuit at least.

I don't profess to have any knowledge about the merits of the case itself under its facts, but I am not alone in believing the standing issue to be quite significant:   it goes to the heart of the antitrust law's ability to deter corporate misconduct and to provide a remedy for those directly harmed by anticompetitive conduct. 

[full disclosure - I worked on the case for a short time awhile ago, but do not work on it anymore.]

If antitrust law cannot do these things, what can it do?

As Judge Livingston (who presided today, despite being the Court' s most recent appointee) suggested while quizzing Ferring's counsel, if harmed purchasers simply can't recover as a matter of law, the deterrent effect of the Clayton Act will be substantially undercut.  It was nice to hear a jurist specifically focusing on the issue of deterrence - which is often woefully neglected.

Nor is this issue just a concern to the private bar.  In the DDAVP case, the DOJ and FTC took the unusual step of submitting a powerful joint amicus brief  favoring the plaintiffs on the standing issue.

James Fredericks argued today for the DOJ and did a nice job, as did David Sorensen for the plaintiffs. 

Kohl asks dominant wireless phone companies to "justify" text messaging rates

On Tuesday, Senator Herb Kohl (D-WI) sent a letter to the CEOs of Verizon Wireless, AT&T, Sprint, and T-Mobile asking them to explain their recent lockstep price increase in the rates for sending text messages.

As Kohl - Chairman of the Antitrust Subcommittee - points out, in 2005 sending text messages cost about 10 cents.  Last Fall, Sprint announced a 100% increase to 20 cents, and all 3 of Sprint's main competitors have now announced the same increase. 

This increase made a splash on the tech-blogosphere, where some calculated that it amounts to charging $13,000 for sending 10mb of data.  See Techinnoventure ;  Richard Koman at ZDNet Government ; CrunchGear; GThing.

Kohl points out that "it appears that each of [the] companies has changed the price of text messaging at nearly the same time, with identical price increases.  This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace."  He notes that the level of industry consolidation has increased in recent years.

His request is quite interesting:

Therefore, I specifically ask each of your companies to explain why text messaging rates have dramatically increased in recent years.  Please explain the cost, technical, or any other factors that justify a 100% increase in the cost of text messaging from 2005 to 2008.  Please also provide data on the utilization of text messaging during this time period.  Please provide a comparison of prices charged for text messaging as compared to other services offered by your companies....  Finally, please state whether your text messaging pricing structure differs in any significant respect from the pricing of your three main competitors.  Please provide this information not later than Monday, October 6, 2008.

This request places the companies in a tight spot.  It is, we can speculate, very unlikely that the costs of these 4 companies similarly increased in a way that justified an identical 100% increase.  So this raises the question whether the companies will dare say they increased their prices to 20 cents because their competitors were enacting similar increases.  Will they say, in other words, that they were engaged in price-matching behavior?

Such behavior might not be illegal, if for example it was not accompanied by any improper signalling or communications, but it is also not a competitive way of setting prices and Senator Kohl will not be happy to hear it.  But how else can it be explained?

At first blush, it may seem odd that companies would be asked to "justify" a price increase on the basis of "cost, technical, or other factors."  Some companies are able to increase prices without regard to cost.  But this typically only occurs when those companies have market power.  Kohl seems interested in exposing that these companies have market power which they are using to impose inflated prices on consumers. 

AAI Report: Obama / McCain Positions on Competition Policy

The American Antitrust Institute has just posted a very useful report by AAI Research Fellow B.K. Lee comparing the presidential candidates' positions on competition policy.

Are the VP candidates next?  We suspect we'd see a few "N/A"'s in Gov. Sarah Palin's column.