December 3, 2004
John Kay on competition
"Predatory action is prohibited in Europe, the US and most other countries. So company B sues. Before the judge dons his robes, company A agrees to make a substantial payment to company B, which then withdraws from the case and the market. Company A's comfortable and profitable monopoly is restored.
"Everyone is happy - except, of course, consumers, whose interests the law exists to defend. If company A were simply to pay company B not to compete, that would be illegal, as it should be. But if the same effect is achieved through the settlement of an antitrust action, no rules are breached if the agreement is appropriately drafted, as it certainly will be. Could this happen? Does this happen? Yes."
For a complete version of the essay, follow this link to Dr. Kay's website.
Plea bargain in criminal antitrust case against Infineon
Today's Wall Street Journal reports on a plea bargain between the DoJ and four Infineon executives in a criminal antitrust case involving a world wide conspiracy to fix the price of memory chips:
"In a further sign that the U.S. is taking a hard line on criminal antitrust cases, four senior Infineon Technologies AG executives agreed to serve prison terms and pay hefty fines for their role in a scheme to fix prices in the computer-memory-chip market, the Department of Justice said. Under their plea agreement, the four agreed to pay $250,000 each and serve prison times between four and six months. The four, all vice presidents, include three Germans, Heinrich Florian, Peter Schaefer and Gunter Hefner, and one American, T. Rudd Corwin.
"The plea agreement is the latest twist in a Justice Department investigation into what officials say was a global conspiracy to fix prices in the $16 billion market for random-access memory chips, which are used in a wide range of products, including personal computers, digital cameras and game consoles. Officials said the probe would continue."
Here's a link to the DoJ press release on the plea bargain deal.
Article on Oligopoly and Antitrust
Worth looking at is Thomas A. Piraino, Jr., Regulating Oligopoly Conduct Under the Antitrust Laws, 89 Minn. L. Rev. 9 (2004). The author argues
"In oligopoly cases, the courts should concentrate on whether defendants have acted in a manner consistent with their independent self-interest, or whether their conduct only makes sense as a means of furthering a tacit agreement to raise prices. It should not be difficult for courts to identify conduct that is contrary to a firm's independent self-interest. Firms act against such self-interest when they disclose confidential pricing information, sacrifice their individual bargaining power to observe standard industry-wide terms of sale, or forego otherwise attainable profits by following their competitors' price increases during periods of overcapacity or declining demand. Under normal circumstances, oligopolists would not be willing to incur the losses associated with such conduct. Courts can assume that firms are only willing to suffer such losses because the firms have received implicit assurances from their rivals that they will be compensated by the higher long-term profits resulting from a price-fixing arrangement. Such tacit collusion should be illegal on its face, because it harms consumers without any offsetting economic benefit."
Shameless self promotion
For those interested, a short version of my paper on the 11th circuit's decision in Morris (the case involving the PGA's obligation to provide access to real time golf scores) has been published by the Erasmus Law and Economics Review and is available on line at http://www.eler.org/. For those interested, a slightly longer piece is available and I am currently working on a piece on business justification in antitrust law, of which the Morris paper is one part.
November 29, 2004
Antitrust Investigation of VISA in Moscow
From Friday's Ria Novosty, a Russian language news service available through Westlaw:
"Next week the Federal Antitrust Service (FAS) will make a decision on preparing a case against Visa International, FAS deputy head Andrei Kashevarov told journalists Friday. According to him, the FAS has reason to believe that Visa International had violated the legislation on financial services market competition. Mr. Kashevarov said Visa's share of the market was definitely over 40%.
"He said the FAS would use the case to more promptly obtain the necessary information on banks that are part of the Visa International network."
Article on Enron and Antitrust
Professor Darren Bush (of the University of Houston Law Center) and Carrie Mayne (of The University of Utah Economics Department) have recently published an article in the Oregon Law Review entitled IN (RELUCTANT) DEFENSE OF ENRON: WHY BAD REGULATION IS TO BLAME FOR CALIFORNIA'S POWER WOES (OR WHY ANTITRUST LAW FAILS TO PROTECT AGAINST MARKET POWER WHEN THE MARKET RULES ENCOURAGE ITS USE) (83 Oregon Law Review 207 (2004)).
The authors' thesis is succinctly stated:
"The primary contention of this Article is that California's failed "deregulation" experiment arose largely from the failure of California to create properly functioning market rules, lack of diligence in market oversight, and the expectation that antitrust law would cure that which it was not designed to cure: market ills cultivated by regulatory rules that legitimized anticompetitive conduct and made that conduct the norm. In the context of the regulatory environment developed in California, this Article examines the merits of allegations that Enron exercised market power in violation of antitrust laws. The key question is whether the exercise of market power was unlawful under sections 1 and 2 of the Sherman Act.
"This Article concludes that while evidence for the most part is lacking thus far as to antitrust violations by Enron, the evidence does point to failures by California's regulators, utilities, and the Federal Energy Regulatory Commission (FERC) to plan for and guard against exercises of market power. Moreover, some evidence points to potential antitrust misconduct by others, although that evidence, to date, is far from conclusive. This Article then suggests methods of regulation that would minimize market abuses, and what roles market regulators and antitrust enforcers would play in such a world."
The authors make a nice point, relevant for IP and telecommunications (topics discussed in previous posts) that anti-competitive concerns should inform many regulatory schemes and not be left orphaned at the antitrust doorsteps.
Conference Opportunity-Athens Institute for Education and Research
Publication opportunities--Engage, a publication of the Federalist Society
CALL FOR ARTICLES:
Engage, The Journal of the Federalist Society's Practice Groups
The Federalist Society is currently accepting submissions for Engage. The following topics are suggested. Please note that this list of topics is meant to be a guide; suggestions for additional submissions are welcome, especially in the areas of Labor and Employment Law, Criminal Law, Environmental Law, and Professional Responsibility/Legal Ethics.
If you have questions or are interested in submitting a piece for possible publication, please contact Katherine Mendis at 202- 822-8138 or email@example.com. Thank you for your kind consideration.
Administrative Law and Regulation:
-The OMB's newly proactive role in issuing prompt letters that suggest regulations to other agencies, coupled with an analysis of the OMB's role in deregulation.
-Precautionary Principle and Risk Management.
-A status report or "report card" on OMB review of proposed regulations under the Bush administration.
Corporations, Securities and Antitrust:
-Regulation of hedge funds, and the corresponding pending proposal under the Investment Advisers act.
-Changes to the regulation of mutual funds.
-Pension/ERISA matters' effect on mergers and other transactions (e.g., the cancellation of several U.K. mergers due to unfunded pension liabilities).
-EU market directives/Financial Services Action Plan (market abuse directive, prospectus directive, etc.).
-Multijurisdictional antitrust enforcement, and whether it effectively allows the most restrictive regime to set the global standard; whether an international, treaty- based antitrust regime is feasible/desirable.
-Corporate "inversions" and offshore reincorporation.
-Comment on effect of changes to dividend taxation.
Environmental Law and Property Rights:
-The Kyoto Protocol. -Issues related to eminent domain.
-Nonprofit Credit Unions (NCUA recently granted California non-profit C.U. power to compete with banks for broad customer base).
-The evolution of the Federal Reserve under Alan Greenspan.
International and National Security Law:
November 28, 2004
Early Christmas Present for Microsoft from the EU?
This from Friday's Seattle Post-Intelligencer:
"Microsoft Corp., which was ruled an illegal monopolist by the European Union in March, will learn next month whether it can wait years before complying with an EU order to sell a stripped-down version of Windows and disclose information on the operating system to competitors.
"Judge Bo Vesterdorf is expected to decide by Dec. 20 whether to suspend the EU order for Microsoft to change business practices and pay a $646 million fine, lawyers said.
"Vesterdorf called a half-hour informal meeting at the European Court of First Instance in the latest twist in the standoff between the executive commission of the 25-nation EU and the software maker.
"The meeting focused on the decision by EU backers Novell Inc. and the Computer and Communications Industry Association to pull out of the case after reaching deals with Microsoft on Nov. 8.
"The judge wanted to know to what extent, if any, the defections changed the ongoing case.
"All sides agreed yesterday that the testimony of the companies would stand. "
More on the constitutionality of on line wine sale restrictions
The Wall Street Journal from Wednesday, Nov. 24, carried an interesting article on the case involving the constitutionality of state restrictions on on-line wine sales before the Supreme Court this term. Robert S. Greenberger writes as follows:
"The case pits a new breed of small winemakers against the old guard, the politically potent Wine & Spirits Wholesalers of America, and has created some odd alliances. Former Whitewater prosecutor Kenneth Starr has filed a brief in support of the wineries (as an advocate of free markets). Ralph Reed, former executive director of the Christian Coalition who now runs a public-relations firm with offices in Washington and Atlanta, was hired by the wholesalers. Even the normally abstemious National Association of Evangelicals is backing the wholesalers, united in their opposition to underage drinking.
"The outcome could affect more than just the wine-and-cheese set, because other state laws restrict all sorts of Internet commerce. For example, the Federal Trade Commission says 15 states require mortgage lenders to maintain a brick-and-mortar presence to do business in those states.
"The case centers on a clash between the constitution's commerce clause, which empowers the federal government to regulate interstate trade, and the Twenty-First Amendment, passed by Congress in 1933 to repeal Prohibition and authorize states to regulate alcohol within their borders. The lifting of Prohibition led to a three-tier system to regulate alcohol. Producers sell only to state-licensed wholesalers, who in turn sold only to licensed retailers, who controlled and monitored sales to consumers.
"The market began to change during the 1990s with expansion of the Internet, the increasing popularity of wine and the explosive growth of new wineries, particularly small ones that benefited most from Internet sales. The number of wineries swelled to 3,726 this year from 1,367 in 1985, according to WineAmerica, a national winery association. Many small vineyards broke from the standard distribution system by using independent freight carriers to send wine to customers in other states. These vineyards technically were breaking the law but in the early years of the Internet, no one paid much attention. "
What is worth watching for in the case is how closely the Court will scrutinize the state's justification for the restriction and what justification, if any, the Court will find constitutionally valid. Most likely, a morality based justification for the restriction will be constitutionally suspect and an economics based justification will be viewed as too protectionist and in conflict with the Commerce Clause. My best guess is that the Court will invalidate the restriction.
Although the antitrust laws are not implicated in this case, the dormant commerce clause analysis is historically and analytically linked to the doctrine of state action immunity in antitrust law. We have not had a good state action case for a long time largely because the battles have been better waged under the dormant commerce clause. When we next have to deal with a state action, it will be interesting to follow the implications of the Swedenburg decision for a state's immunity under antitrust law.