Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Saturday, August 3, 2013

The Future of FTC Section V

Posted by D. Daniel Sokol

Our friends at Truth on the Market have a symposium on FTC Section V.  Participants include:

  • David Balto, Law Offices of David Balto [1] [2]
  • Terry Calvani, Freshfields [1]
  • James Cooper, GMU Law & Economics Center [1] [2]
  • Dan Crane, Michigan Law [1]
  • Paul Denis, Dechert [1]
  • Angela Diveley, Freshfields [1]
  • Gus Hurwitz, Nebraska Law [1] [2]
  • Thom Lambert, Missouri Law [1]
  • Marina Lao, Seton Hall Law [1]
  • Tad Lipsky, Latham & Watkins [1]
  • Geoffrey Manne, Lewis & Clark Law/ICLE [1]
  • Joe Sims, Jones Day [1]
  • Josh Wright, FTC [1]
  • Tim Wu, Columbia Law [1]

August 3, 2013 | Permalink | Comments (0) | TrackBack (0)

Sixth Annual Searle Center Conference on Antitrust Economics and Competition Policy Friday, September 20—Saturday, 21, 2013

Posted by D. Daniel Sokol

AGENDA
Sixth Annual Searle Center Conference on
Antitrust Economics and Competition Policy
Friday, September 20—Saturday, 21, 2013

Northwestern University School of Law
Wieboldt Hall #147
340 E. Superior St. Chicago, IL

Friday September 20

7:45-8:15                              Registration and Continental Breakfast (WB 150)

8:15-8:30                              Welcome and Introduction (WB 147)
Matthew L. Spitzer, Director, Searle Center on Law, Regulation, and Economic Growth and Howard and Elizabeth Chapman Professor, Northwestern University School of Law
                                                William P. Rogerson, Department of Economics, Northwestern University

8:30-9:30                              Staggered Contracts, Market Power, and Welfare
                                                Luis Cabral, New York University
                                                Discussant: Michael H. Riordan, Columbia University, Economics Department

9:30-10:00                           Break (WB 150)

10:00-11:00                         Collusive Vertical Restraints
                                                Joseph Farrell, University of California, Berkeley, Department of Economics
                                                Discussant: Louis Kaplow, Harvard Law School

11:00-11:30                         Break (WB 150)

11:30-12:30                         Mergers When Prices Are Negotiated: Evidence From the Hospital Industry (joint with Gautam Gowrisankaran and Aviv Nevo)
                                                Robert Town, The Wharton School, University of Pennsylvania
                                                Discussant: Michael Whinston, MIT

12:30-2:00                           Lunch (WB 540)
                                                Keynote Address: Antitrust and IP
Aviv Nevo, DAAG, U.S. Department of Justice and Department of Economics, Northwestern University

2:00-3:00                              Cooperation vs. Collusion: How Essentiality Shapes Co-opetition
(joint with Jean Tirole)
                                                Patrick Rey, Toulouse School of Economics
                                                Discussant: E. Glen Weyl, The University of Chicago, Department of Economics

3:00- 3:30                             Break (WB 150)

3:30-4:30                              Strategic Patent Acquisitions (joint with Fiona Scott Morton)
                                                Carl Shapiro University of California, Berkeley, Department of Economics
Discussant: Richard J. Gilbert, University of California, Berkeley, Department of Economics

4:30- 5:00                             Break (WB 150)

5:00-6:30                              Panel on Competition Policy and Intellectual Property
Dennis Carlton, The University of Chicago Booth School of Business
                                                Fiona Scott Morton, Yale School of Management
                                                Timothy Simcoe, Boston University School of Management
                                                Jeffrey Wilder, U.S. Department of Justice

6:30-7:30                              Reception (WB 440)

7:30- 9:00                             Dinner (WB 540)
                                                Keynote Address: Competition Policy and Health Care
                                                Michael L. Katz, Haas School of Business, University of California, Berkeley

Saturday September
21

8:00-8:30                              Continental
Breakfast
(WB 150)

 

8:30-9:30                              On the First Order Approximation of Counterfactual Price Effects in Oligopoly Models (joint with Marc Remer, Conor Ryan and Gloria Sheu)

                                                Nathan H. Miller, Georgetown University McDonough School of Business

                                                Discussant:
Liran Einav, Department of Economics, Stanford University

 

9:30-10:00                           Break (WB 150)

 

10:00-11:00                         All Units Discounts
and Double Moral Hazard

                                               
Daniel P. O’Brien, Federal Trade Commission

                                                Discussant:
Volker Nocke, University of Mannheim, Department of Economics

 

11:00-11:30                         Break (WB 150)

 

11:30-12:30                        
Channel 5 or 500: Vertical Integration, Favoritism, and Discrimination in
Multichannel Television
 (joint with Gregory Crawford, Robin Lee, Bruno
Vieira and Michael Whinston)

                                                Ali Yurukoglu, Stanford Graduate School of Business

                                                Discussant:
Gregory L. Rosston, Stanford University

 

12:30                                     Adjourn (Box Lunches Available) (WB 150)

August 3, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, August 2, 2013

Monopolistic Competition: A Dual Approach with an Application to Trade

Posted by D. Daniel Sokol

Paolo Bertoletti (Department of Economics and Management, University Of Pavia) and Federico Etro (Department of Economics, University Of Venice Ca Foscari) discuss Monopolistic Competition: A Dual Approach with an Application to Trade.

ABSTRACT: We study monopolistic competition under indirect additivity of preferences. This is dual to the Dixit-Stiglitz model, where direct additivity is assumed, with the CES case as the only common ground. Other examples include (perceived) demand functions that are exponential or linear. Our equilibrium results are generally in contrast with those received by the literature. An increase of the number of consumers never affects prices and firms' size, but increases proportionally the number of firms, creating pure gains from variety. An increase in individual income increases prices (and more than proportionally the number of varieties) and reduces firms' size if and only if the price elasticity of demand is increasing. We also study the endogenous market structure with Bertrand competition (in which a pro-competitive effect of market size arises) and the case for inefficient entry. Finally, we provide an application to trade.

August 2, 2013 | Permalink | Comments (0) | TrackBack (0)

Competitive Targeted Advertising with Price Discrimination

Posted by D. Daniel Sokol

Rosa Branca Esteves (Universidade do Minho - NIPE) and Joana Resende (Universidade do Porto - FEP) discuss Competitive Targeted Advertising with Price Discrimination.

ABSTRACT: This paper investigates the effects of price discrimination by means of targeted advertising in a duopolistic market in which advertising plays two major roles. It transmits relevant information to otherwise uninformed consumers and it acts as a price discrimination device. We look at the firms' optimal advertising and pricing decisions in two settings, namely mass advertising/non-discrimination strategies and targeted advertising/price discrimination strategies. In the case of targeted advertising, we show that firms advertise more in its weak market than in its strong market. The analysis highlights that targeted advertising might constitute a tool to dampen price competition. We show that average prices with mass advertising/non-discrimination can be below those with targeted advertising/price discrimination (regardless of the market segment). We also find that, when advertising costs are not too high, price discrimination by means of targeted advertising can boost industry profits at the expense of consumer and overall welfare. Finally, we show that overall welfare and consumer surplus falls when firms use targeted advertising instead of mass advertising.

August 2, 2013 | Permalink | Comments (0) | TrackBack (0)

Strategic Clustering and Competition by Alcohol Retailers: An Emperical Anlysis of Entry and Location Decisions

Posted by D. Daniel Sokol

Yi Deng (Department of Economics, University of South Florida) and Gabriel Picone (Department of Economics, University of South Florida) discuss Strategic Clustering and Competition by Alcohol Retailers: An Emperical Anlysis of Entry and Location Decisions.

ABSTRACT: We develop and estimate a spatial game-theoretic model of entry and location choices to examine firms’ strategic clustering decisions. The model identifies two contradictory effects that determine firms’ geographical location choices: a competition effect and a clustering effect. We also separate firms’ strategic clustering incentives from the observed clustering behavior due to exogenous factors such as population and topographic desirability or constraints. In particular, we examine two closely related industries that share similar location limitations but have different strategic incentives to cluster, jointly estimate the Bayesian Nash equilibrium of a two-industry entry and location game, and quantify the strategic clustering incentives.

August 2, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 1, 2013

Bank competition, concentration, and credit reporting

Posted by D. Daniel Sokol

Miriam Bruhn, Subika Farazi and Martin Kanz (World Bank) explore Bank competition, concentration, and credit reporting.

ABSTRACT: This paper explores the empirical relationship between bank competition, bank concentration, and the emergence of credit reporting institutions. The authors find that countries with lower entry barriers into the banking market (that is, a greater threat of competition) are less likely to have a credit bureau, presumably because banks are less willing to share proprietary information when the threat of market entry is high. In addition, a credit bureau is significantly less likely to emerge in economies characterized by a high degree of bank concentration. The authors argue that the reason for this finding is that large banks stand to lose more monopoly rents from sharing their extensive information with smaller players. In contrast, the data show no significant relationship between bank competition or concentration and the emergence of a public credit registry, where banks'participation is mandatory. The results highligh! t that policies designed to promote the voluntary creation of a credit bureau need to take into account banks'incentives to extract monopoly rents from proprietary credit information.

August 1, 2013 | Permalink | Comments (0) | TrackBack (0)

The Impact of a Public Option in the Health Insurance Market

Posted by D. Daniel Sokol

Andrei Barbos (Department of Economics, University of South Florida) and Yi Deng (Department of Economics, University of South Florida) analyze The Impact of a Public Option in the Health Insurance Market.

ABSTRACT: We develop a framework where to examine the implications of the introduction of a non- profit "public option" in the U.S. health insurance market. In this model, a continuum of heterogeneous consumers, each facing unknown medical expenditures, and differing in their expectations of such expenditures, have to choose between two competing plans. One plan is offered by a profit-maximizing private insurer; the other by social-welfare-maximizing public option. The model is calibrated based on data of U.S. medical expenditures and estimation of a Bayesian hierarchical model. The Nash Equilibrium of the resulting market structure is solved using a numerical algorithm. In equilibrium, the distinct objectives of the two insurers induce adverse selection in consumer choice: the public option covers the less healthy consumers, yielding the more profitable segment of market to the private insurer. However, our empirical results suggest that both insurers will capture significant parts of the health insurance market.

August 1, 2013 | Permalink | Comments (0) | TrackBack (0)

Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

Posted by D. Daniel Sokol

Avichai Snir, Department of Banking and Finance, Netanya Academic College, Daniel Levy Department of Economics, Bar-Ilan University, Department of Economics, Emory University, Alex Gotler, Department of Education and Psychology, Open University, Haipeng (Allan) Chen, Department of Marketing, Mays Business School, Texas A&M University explain that Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity.

ABSTRACT: There is evidence that 9-ending prices are more common and more rigid than other prices. We use data from three sources: a laboratory experiment, a field study, and a large US supermarket chain, to study the cognitive underpinning and the ensuing asymmetry in rigidity associated with 9-ending prices. We find that consumers use 9-endings as a signal for low prices, and that this signal interferes with price information processing. Consequently, consumers are less likely to notice a bigger price when it ends with 9, or a price increase when the new price ends with 9, in comparison to a situation where the prices end with some other digit. We also find that retailers respond strategically to this consumer bias by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9- ending. Consequently, there is an asymmetry in th! e rigidity of 9-ending prices: they are more rigid than non 9-ending prices upward but not downward.

August 1, 2013 | Permalink | Comments (0) | TrackBack (0)

Stable Commitment in an Intertemporal Collusive Trade

Posted by D. Daniel Sokol

Romeo Balanquit (School of Economics, University of the Philippines Diliman) address Stable Commitment in an Intertemporal Collusive Trade.

ABSTRACT: This study presents a more general collusive mechanism that is sustainable in an oligopolistic repeated game. In this setup, firms can obtain average payoffs beyond the cooperative profits while at the same time improve consumer welfare through a lower market price offer. In particular, we introduce here the notion of intertemporal collusive trade where each oligopolist, apart from regularly producing the normal cooperative output, is also allowed in a systematic way to earn higher than the rest at some stages of the game. This admits subgame- perfection and is shown under some conditions to be Pareto-superior to the typical cooperative outcome.

August 1, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 31, 2013

Dynamic Screening with Limited Commitment

Posted by D. Daniel Sokol

Rahul Deb (University of Toronto) and Maher Said (Washington University) discuss Dynamic Screening with Limited Commitment.

ABSTRACT: We examine a model of dynamic screening and price discrimination in which the seller has limited commitment power. Two cohorts of anonymous, patient, and risk-neutral buyers arrive over two periods. Buyers in the first cohort arrive in period one, are privately informed about the distribution of their values, and then privately learn the value realizations in period two. Buyers in the second cohort are ``last-minute shoppers'' that already know their values upon their arrival in period two. The seller can fully commit to a long-term contract with buyers in the first cohort, but cannot commit to the future contractual terms that will be offered to second-cohort buyers. The expected second-cohort contract serves as an endogenous type-dependent outside option for first-cohort buyers, reducing the seller's ability to extract rents via sequential contracts. We derive the seller-optimal equilibrium and show that the seller mit! igates this effect by inducing some first-cohort buyers to strategically delay their time of contracting---the seller manipulates the timing of contracting in order to endogenously generate a commitment to maintaining high future prices. The seller's optimal contract pools low types, separates high types, and induces intermediate types to delay contracting.

July 31, 2013 | Permalink | Comments (0) | TrackBack (0)

Shrinking Goods

Posted by D. Daniel Sokol

Daniel Levy (Emory University, USA; Bar-Ilan University, Israel; RCEA, Italy) and Avichai Snir (Department of Banking and Finance, Netanya Academic College, Israel) discuss Shrinking Goods.

ABSTRACT: If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices don't change. We study a situation where producers adjust the quantity per package rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information.

July 31, 2013 | Permalink | Comments (0) | TrackBack (0)

Monopolistic Competition and Optimum Product Selection: Why and How Heterogeneity Matters

Posted by D. Daniel Sokol

Antonella Nocco (Salerno), Gianmarco I. P. Ottaviano (Bocconi) and Matteo Salto (European Commission) discuss Monopolistic Competition and Optimum Product Selection: Why and How Heterogeneity Matters.

ABSTRACT: After some decades of relative oblivion, the interest in the optimality properties of monopolistic competition has recently re-emerged due to the availability of an appropriate and parsimonious framework to deal with firm heterogeneity. Within this framework we show that non-separable utility, variable demand elasticity and endogenous firm heterogeneity cause the market equilibrium to err in many ways, concerning the number of products, the size and the choice of producers, the overall size of the monopolistically competitive sector. More crucially with respect to the existing literature, we also show that the extent of the errors depends on the degree of firm heterogeneity. In particular, the inefficiency of the market equilibrium seems to be largest when selection among heterogeneous firms is needed most, that is, when there are relatively many firms with low productivity and relatively few firms with high productivity.

July 31, 2013 | Permalink | Comments (0) | TrackBack (0)

Cournot is more competitive than Bertrand Upstream Monopoly with Two-part Tariffs

Posted by D. Daniel Sokol

Maria Alipranti (University of Crete) and Emmanuel Petrakis (Department of Economics, University of Crete, Greece) argue that Cournot is more competitive than Bertrand Upstream Monopoly with Two-part Tariffs.

ABSTRACT: The present paper compares the Cournot and Bertrand equilibrium outcomes and social welfare in vertically related markets with upstream monopolistic market structure, where the trade between the upstream monopolist and the downstream firms is conducted via two-part tariffs contracts. We show that the equilibrium quantities, the profits of the downstream firms, the consumers' surplus and the social welfare are always higher under Cournot final market competition than under Bertrand final market competition. On the contrary the equilibrium profits of the upstream monopolist under Bertrand market competition always exceed those obtained under Cournot market competition.

July 31, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 30, 2013

Strategic Patent Acquisitions

Posted by D. Daniel Sokol

Fiona Scott Morton, Yale School of Management and Carl Shapiro, University of California, Berkeley - Haas School of Business explain Strategic Patent Acquisitions.

ABSTRACT: We report data on patent litigation activity initiated by patent assertion entities and discuss the tactics used by these entities to monetize the patents they acquire. We develop a simple economic model to evaluate the effect of enhanced patent monetization on innovation and on consumers. We then study the economic effects of several different categories of patent acquisitions based on the type of seller, the type of buyer, and the patent portfolio involved.

July 30, 2013 | Permalink | Comments (0) | TrackBack (0)

The Role of Quality in Competition Analysis

Posted by D. Daniel Sokol

Jeremy K. West, OECD Competition Division and Anna R. Pisarkiewicz, Organization for Economic Co-Operation and Development (OECD) discuss The Role of Quality in Competition Analysis.

ABSTRACT: Nominally, competition policy is just as concerned with quality as it is with prices. But in practice, courts and competition authorities rarely analyze quality effects as rigorously as they analyze price effects. We begin this paper by examining some of the reasons why that is so. We then delve into some definitional questions associated with quality, including whether choice is an aspect of quality, and whether quality can be used to define markets. Then we turn to the question of how changes in the level of competition affect quality, examining that issue from the perspectives of both microeconomic theory and empirical studies. Finally, we look at how quality concerns have been analyzed by courts and competition authorities in a variety of competition law enforcement contexts.

July 30, 2013 | Permalink | Comments (0) | TrackBack (0)

Merger Externalities in Oligopolistic Markets

Posted by D. Daniel Sokol

Klaus Peter Gugler, Vienna University of Economics and Business Administration; European Corporate Governance Institute (ECGI) and Florian Szucs, DIW Berlin Merger Externalities in Oligopolistic Markets explore Merger Externalities in Oligopolistic Markets.

ABSTRACT: We quantify externalities on profitability and market shares of competing firms in oligopolistic markets through the transition from an n to an n-1 player oligopoly after a merger. Competitors are identified via the European Commission’s market investigations and our methodology allows us to distinguish the externality due to the change in market structure from the merger e ffect. We obtain results consistent with the predictions of standard oligopoly models: rivals expand their output and increase their profits, whereas merging firms are negatively aff ected. This indicates that on average the market power e ffects of large mergers outweigh the efficiencies.

July 30, 2013 | Permalink | Comments (0) | TrackBack (0)

Do Retroactive Rebates Imply Lower Prices for Consumers?

Posted by D. Daniel Sokol

Frank P. Maier-Rigaud, IESEG School of Management, Department of Economics and Quantitative Methods; Lille - Economics & Management (LEM) - Centre National de la Recherche Scientifique; Organisation for Economic Co-operation and Development (OECD) - Competition Division; European Commission, DG Competition; Laboratory for Experimental Economics, University of Bonn; Max Planck Institute for Research on Collective Goods and Ulrich Schwalbe, University of Hohenheim ask Do Retroactive Rebates Imply Lower Prices for Consumers?

ABSTRACT: Despite a host of recent cases on both sides of the Atlantic, the antitrust implications of retroactive rebates or loyalty discounts are among the most controversial topics in competition law. One of the key beliefs found in the literature is that such schemes lead to lower prices for consumers and that competition authorities therefore need to be particularly prudent in balancing these "obvious" pro-competitive effects against potential foreclosure concerns. Based on a simple model it is shown that retroactive rebates do not necessarily imply lower prices for consumers and that, on the contrary, even total welfare may decline as a result of the introduction of a rebate scheme. In addition to leading to higher prices, rebate schemes may hurt consumers by inducing them to buy a higher quantity than they otherwise would. The belief that rebates increase consumer welfare as they imply lower prices is shown to be based on the fundamentally flawed reliance on the non-rebated base price as appropriate counterfactual.

July 30, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, July 29, 2013

Antitrust Courts: Specialists Versus Generalists

Posted by D. Daniel Sokol

Douglas H. Ginsburg, George Mason University School of Law and Joshua D. Wright, George Mason University School of Law describe Antitrust Courts: Specialists Versus Generalists.

ABSTRACT: In the last several decades, scores of new competition laws have been adopted and National Competition Authorities ("NCAs") established around the world. No matter what the arrangement for initial review of the NCA decision or review of a trial court in a private action, there is always an upper level reviewing court of general jurisdiction, whether mandatory or discretionary. These tribunals vary significantly on a number of dimensions, including the degree of specialization as measured by the percentage of the court’s cases arising under the antitrust laws and the degree to which judges of a court have skills or training specific to antitrust. The proliferation of tribunals reviewing NCA decisions invites inquiry as to whether one degree or another of specialization provides more satisfactory results, however measured. In the absence of data sufficient to identify a relationship between specialization and performance, we evaluate the case for specialist versus generalist tribunals by reference to criteria that have been widely accepted in the legal and political science literature evaluating actual or proposed specialized courts, and applying those criteria — efficiency, expertise, and uniformly — to the particular context of antitrust cases. We make no recommendation for or against the use of specialist courts for antitrust cases where they do not already exist. Our point is the more modest one that the objections commonly raised against specialist tribunals, at least as applied to antitrust cases, are not daunting, much less insurmountable. Whether all antitrust cases — or perhaps only cases seeking review of a decision of an NCA — should be singled out for resolution by a specialist court depends, therefore, entirely upon the claim that the economic evidence in such cases would be better understood and analyzed by judges who deal repeatedly with cases of the same ilk.

July 29, 2013 | Permalink | Comments (0) | TrackBack (0)

Anticompetitive Patent Settlements and the Supreme Court's Actavis Decision

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa) discusses Anticompetitive Patent Settlements and the Supreme Court's Actavis Decision.

ABSTRACT: In FTC v. Actavis the Supreme Court held that settlement of a patent infringement suit in which the patentee of a branded pharmaceutical drug pays a generic infringer to stay out of the market could be illegal under the antitrust laws. Justice Breyer's majority opinion was surprisingly broad, in two critical senses. First, he spoke with a generality that reached far beyond the pharmaceutical generic drug disputes that have provoked numerous pay-for-delay settlements.

Second was the aggressive approach that the Court chose. The obvious alternatives were the rule that prevailed in most Circuits, that any settlement is immune from antitrust attack if it is facially "within the scope of the patent." Under this approach the court may not second guess the settlement by inquiring into the validity of the patent; the settlement itself shields this query from the court. A second alternative concludes that a very large settlement payment is a sign that something is wrong with the patent, inviting the court to look more closely at the underlying patent to determine whether the settlement is really a good faith attempt to manage litigation and business risk. A third approach is that a large settlement exclusion payment disproportionate to litigation risk can be unlawful under antitrust's rule of reason, without inquiry into whether the patent is actually invalid, and even if the settlement agreement does not go "beyond the scope" of the patent's nominal coverage. Finally, the court might apply a "quick look," or truncated, antitrust analysis in which the plaintiff can enjoy presumptions about market power or anticompetitive effect. The Supreme Court chose the third, or rule of reason, option, but it made clear that the plaintiff need not make a long form rule of reason showing and suggested important shortcuts. Payments whose size correlates with risk are essential to entrepreneurial decision making, but entrepreneurial risk is usually private in the sense that the firm risks the resources of its own shareholders. In the pharmaceutical pay-for-delay setting, however, what is being placed at risk is both the investment of the pioneer and the welfare of consumers, interests that pull in opposite directions. Consumers represent an important externality. They are not participants in this dispute, but they stand to lose the benefits of competition that would otherwise have occurred. While the Court did not discuss private consumer challenges, its substantial revision of the law applies equally to private actions and it is reasonable to expect that several will emerge. Purchasers seeking antitrust overcharge damages from an anticompetitive pay-for-delay settlement should be able to proceed without proving patent invalidity, although they would be subject to the same rule-of-reason constraints that the Court created for the FTC. Finally, the breadth of the Activis opinion makes it relevant for many situations outside of the Hatch-Waxman context. For example, the Court's dicta severely limited its 1926 GE decision permitting price fixing among a patent and its licensees, and implicitly overruled decisions such as Bement, which permitted product price fixing among the members of a patent pool. A central question was whether the Patent Act, either explicitly or by reasonable implication, authorized the challenged conduct. If the answer is no, ordinary antitrust analysis can proceed.

July 29, 2013 | Permalink | Comments (0) | TrackBack (0)

FTC v Actavis, Inc: When is the Rule of Reason Not the Rule of Reason?

Posted by D. Daniel Sokol

Thomas F. Cotter, University of Minnesota Law School asks FTC v Actavis, Inc: When is the Rule of Reason Not the Rule of Reason?

ABSTRACT: The U.S. Supreme Court’s recent decision in FTC v. Actavis, Inc. brings some resolution to the decade-long dispute over the level of antitrust scrutiny that is appropriate for evaluating the legality of "reverse-payment" or "pay-for-delay" agreements settling pharmaceutical patent infringement litigation between brand-name and generic drug companies. Writing for a 5-3 majority in Actavis, Justice Breyer rejected both the scope-of-the-patent test and the presumptive illegality approach, and held instead that courts should review reverse-payment settlements under the rule of reason. Or say the opinion states. In reality, the Court appears to have all but in name adopted the presumptive illegality approach it purported to reject. One might speculate about the political or prudential considerations that went into the majority’s characterization of what it was actually doing, but as I read the opinion reverse-payment settlements of the type at issue in Actavis are now subject to a de facto regime of presumptive illegality. In my view, this is a welcome result.

July 29, 2013 | Permalink | Comments (0) | TrackBack (0)