Thursday, December 9, 2004
On November 15, the Sixth Circuit overruled a lower court's invalidation of the NCAA's two-in four rule under the antitrust laws. The "two-in-four" rule limits the number of "exempt" tournaments in which Division I men's basketball teams can participate. Exempt tournaments are those designated by the NCAA as not counting toward the maximum number of games a team can play in a season. The two-in-four rule limits teams to playing in a maximum of two exempt tournaments every four years.
The Sixth Circuit ruled that the lower court should have analyzed the economics of the rule more closely to determine its anti-competitive and pro-competitive effects and balance them. The lower court was wrong in applying what is known as the "quick look" rule of reason, under which anti-competitive effects are presumed shifting the burden to the defendant to explain the pro-competitive effects of its business practice. As the Sixth Circuit panel stated:
"Far from being a case in which 'an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anti-competitive effect on customers and markets,' here the relevant market is not readily apparent and the plaintiffs have failed to adequately define a relevant market, thereby making it impossible to assess the effect of [the rule] on customers rather than merely on competitors."
The decision, Worldwide Basketball and Sports Tour Inc. v. NCAA, can be found at 388 F. 3d 955 (6th Cir. 2004).
Tuesday's Tri-City Herald reported on a Monday ruling by Judge Robert Whaley that dismisses an antitrust suit brought by a public utility district in Benton against the City of Richland. The lawsuit, resulting from failed negotiations between the PUD and the City over the provision of utility service, alleged that the City was engaging in anti-competitive behavior by bundling power services with other water and sewer service and by requiring businesses and howeowners to obtain power from the City as a condition of annexation. The judge ruled that these types of conditions were not anti-competitive as they were a reasonable foreseeable result of annexation. For more details on the argument, follow this link to the Tri-City Herald site.
Wednesday, December 8, 2004
Nice article in today's Wall Street Journal on a plan by technical publishers to provide free, but limited, access to some of their copyrighted publications in order to pre-empt a NIH proposal (to be announced in a few weeks) to permit open access to publications that resulted from federally funded research.
"A consortium of leading technical publishers is expected to announce today a plan to allow three patient-advocacy groups to select hundreds of timely journal articles, and to make the content available through the groups' Internet sites. The organizations are the American Cancer Society, American Diabetes Association, and American Heart Association.
"The publishers include the Elsevier unit of Reed Elsevier PLC, John Wiley & Sons, Blackwell Publishing, and others. The consortium, called patientINFORM is expected to launch the project in the spring.
"Under the plan, the three patient-advocacy groups would have a free hand in selecting articles, making original text available to the public, along with interpretative text supplied by experts at the heart, diabetes and cancer associations. The groups will keep adding fresh content from the publishers over time. The publishers, who aren't charging the associations, say they consider this a pilot project that could be expanded to other organizations. "
The article also makes clear that the "industry plan... would make only a small portion of taxpayer-funded biomedical research available to the public, which is at the crux of the dissemination proposal put forward by the National Institutes of Health in September."
This may not seem directly related to antitrust, but the big issue is competition in the publishing industry and the interplay between intellectual property law and competition policy.
Today's Wall Street Journal reports that members of the Supreme Court expressed skepticism about the constitutionality of state restrictions on out-of-state wine sales in oral arguments yesterday in the Swedenburg case:
"'In this case, you have a very high burden to show why this discrimination is justified,' Justice Anthony Kennedy said, criticizing state regulators and liquor wholesalers over their defense of state liquor laws.
"Michigan Solicitor General Thomas Casey, defending the regulations, said his state can't police out-of-state wineries for compliance with state liquor laws, including underage-drinking restrictions and excise-tax payments. 'The state only has effective enforcement over in-state licensees,' Mr. Casey said.
"But several other justices, including Sandra Day O'Connor, David Souter and Antonin Scalia, noted that states can enforce their liquor laws through licensing requirements for outsiders. And the justices also pointed out that there is little evidence that a winemaker's physical presence in a state is needed for enforcement.
"Clint Bolick, Washington attorney for a Virginia winemaker, said states have 'a panoply of tools available to states to police out-of-state wineries.' "
For those interested in the criminal side of antitrust law, a nice overview is provided by Melissa Pientka in Antitrust Violations, 41 American Criminal Law Review 267 (Spring 2004). Here's a sample:
"In October 2001, the Antitrust Division and FTC launched the International Competition Network ("ICN"). Established largely in response to the new challenges in antitrust enforcement created by increased globalization, the ICN is a global network of authorities focused exclusively on competition. The twin goals of the ICN are to provide support for new competition agencies in enforcing their laws and building a strong culture of competition within their countries, and to work together and with interested parties in the private sector to develop guiding principles and best practices. The ICN presently includes seventy jurisdictions on six continents, representing seventy percent of the world's GDP.
"The ICN exists as a "virtual" network through which agency heads commission and guide the efforts of smaller working groups focused on specific areas of competition law. Government personnel direct the working groups themselves, receiving input from a wide range of sources. These sources include international organizations, academics, and industry groups. The working groups then present their recommendations to the members, and the members implement the recommendations through separate legislation.
"The ICN undertook two major projects during its first year of existence. The first addressed multi-jurisdictional mergers, and the second examined competition advocacy, an issue of particular importance to developing countries. Both projects were unprecedented efforts in the international antitrust arena. Although the ICN is not meant to be a forum for reaching binding international agreements, the reports produced in connection with these two projects evince a willingness by the United States and the world community for cooperation in the antitrust arena."
Tuesday, December 7, 2004
Today's Wall Street Journal reports of a settlement between Computer and Communications Industry Association and Microsoft to abandon antitrust claims brought by the trade group against the company. The article reports the settlement to be in the range of $ 25 milllion. Alan Murray, the author commenting on the settlement, offers the following insight:
"THE MICROSOFT SAGA serves as a reminder of an important truth: Capitalists, for the most part, don't care much for capitalism. Their goal is to make money. And if they can do it without messy competition, so much the better. As long as it keeps its monopoly, Microsoft can afford to share the wealth with its onetime rivals. For Microsoft, those fines and payments add up to less than a year's profit from the operating system. For the others, it's easier to take Microsoft's money than fight. "
The Supreme Court will hear oral arguments today in the wine distributor case, Swedenburg. Here are two links to NPR coverage of the case from today and yesterday. At issue in the case is the reconciliation of the 21st Amendment which repealed Prohibition and relegated regulation of alcohol to the states with the Commerce Clause, which gives Congress the exclusive power to regulate commerce between the states. The case has important implications for the market for wine, not only for the small distributors who brought the challenge but also for Internet distribution.
For what it's worth here's my prognostication about how the case should (and probably will come out): The 21st Amendment was not enacted to give states blanket license to regulate the interstate sale of alcohol. Instead, the Amendment was meant to overrule the 18th Amendment which prohibited the sale of all alcohol throughout the states. The language in the 21st Amendment that prohibits the "transportation or importation" into a state in violation of the state's laws is a statement about the police power of the state to regulate alcohol and was not meant to limit the Commerce Clause. Consequently, states can regulate alcohol as long as the state regulation does not come into conflict with the Commerce Clause.
I am not sure if the Court will address the conflict of the state regulation with the Commerce Clause (the so-called Dormant Commerce Clause doctrine). If the Court does address the dormant commerce clause, my sense is that the regulation would be unconstitutional either because it is facially discriminatory against other states or because of a disparate effect on interstate commerce.
Whatever the result, the case will be useful to follow in order to gauge how this Court draws the line between permissable state regulation of the marketplace and impermissable state restriction on competition. The dispute has created and will continue a spirited debate.
Monday, December 6, 2004
On Friday Dec 3, the Supreme Court decided to review National Cable and Telecommunications Ass'n v. Brand X Internet Services. The case is an appeal from the Ninth Circuit's decision in Brand X Internet Services v. FCC, 345 F.3d 1120 (9th Cir. 2003). The Court will decide whether cable broadband service is a "telecommunication service" or a "information service" under the Telecommunications Act. If the Court rules that broadband is a telecommunication service, then cable modem will be subject to the open access provisions of the Act, requiring telephony and cable to comply with must carry provisions. The Ninth Circuit ruled that broadband was a hybrid of telecommunication and information service and was subject to the open access provisions.
From today's Financial Times, the following comments by Frances B. Smith, Executive Director, Consumer Alert in Washington D.C.:
"In markets where companies are operating at the "economic frontier" regulators are not very good at understanding novel practices - creative ways of restructuring traditional activities and distribution systems. Those innovations, both technological and institutional, can benefit consumers by lowering prices and increasing choices and convenience.
"Instead, antitrust enforcers assume that the future will be static rather than dynamic. In fact, government antitrust action may hold back innovation.
"It is useful to recall that 1936 anti-chain store legislation was directed toward the Great Atlantic & Pacific Tea Company (A&P) and its potential to take over the retail food market. The Federal Trade Commission in 1977, fearing that Sears, Roebuck would dominate the retail world of the future, issued a consent agreement that restricted Sears' ability to locate its stores in shopping malls.
"Antitrust regulators usually narrowly redefine markets rather than considering the larger field in which the sector is operating. Computers and operating systems are one such example. US antitrust regulators also redefined markets involving "mega-office products discount stores" without considering catalogues and e-commerce sites offering those same products. "