Antitrust & Competition Policy Blog

Competition in exit polling

Robert Lande of the University of Baltimore Law School and the American Antitrust Institute published a press release on October 29, 2004, to call attention to lack of competition in exit polling by media. Of particular concern is the National Election Pool, a consortium of media outlets that collaborate on taking and reporting exit polls. The Pool is an updated version of the Voter News Service (VNS), an organization formed in 1990 by ABC, NBC, CBS, and CNN, to conduct exit polls. According to the release, the VNS was in part responsible for the spectacular failure of news reporting on Election Night 2000, with the reporting flip flop between Gore and Bush as the winner of the election. Just a reminder that we have less than 48 hours to see what awaits us in Election 2004. Please get out and vote!

Oracle in the EU and the US

With regards to previous posts on the difference between antitrust in the US and EU, it is interesting to note that Oracle overcame antitrust hurdles in the EU Tuesday October 26 when the European Commission announced it would not block Oracle's attempt to acquire PeopleSoft. The US DoJ's attempt to block the acquisition was given a setback in September of this year when a federal district court judge dismissed the US suit against Oracle. Meanwhile, the PeopleSoft litigation, challenging the acquisition, continues in the courts. Business Week Online reports on the hostile takeover.

Mandating Antitrust Education for Law School Administrators?

Professors Barondes and Lambert ask the provocative question, Should Antitrust Education Be Mandatory (For Law School Administrators? in a recent working paper available at SSRN.
They make the argument that the American Association of Law School's recently adopted Statement of Good Practices on faculty lateral recruitment violates the antitrust laws.

Link to proposed Cingular-AT&T Order

The proposed final judgment in the Cingular-AT&T merger, discussed in Tuesday's post, can be found here.

The following links may also be of interest:

The government's explanation of consent decree procedure

Preservation of Assets Stipulation and Order

Complaint

EU Settlement in PayTV Dispute

The Wall Street Journal reported this morning on a settlement between six motion picture studios and the European Commission on the use of most favored nation clauses in contracts with pay-television providers. These clauses, which required the providers to offer the same terms to all studios for rights to broadcast films in the pay-TV market, were allegedly price fixing. The six studios (Walt Disney Co.'s Buena Vista International, Time Warner Inc.'s Warner Brothers, News Corp.'s 20th Century Fox, Sony Corp., Metro-Goldwyn-Mayer Inc. and DreamWorks SKG) agreed to drop the clauses from their contracts. General Electric Co.'s NBC Universal and Viacom Inc.'s Paramount Pictures Corp. were holdouts from the settlement.

The European version of the Wall Street Journal reports that the settlement demonstrates the aggressive use of settlement rather than litigation by the European Commission. The terms of the settlement, according to the report, also demonstrate the shift in power from studios to pay-television providers in the market for film distribution.

Cingular - AT&T Merger

Details about Cingular's acquisition of AT&T can be found at the DoJ Antitrust divison website.

The following is a description of the divestiture plan:

"Cingular Wireless and AT&T Wireless are two of six mobile wireless services providers with a national presence, offering mobile wireless telecommunications services, which include both voice and data services provided over a mobile wireless network, in areas throughout the United States. The proposed transaction would reduce competition for mobile wireless telecommunications services in 10 markets, and for mobile wireless broadband services in three additional markets. In nine of the 10 wireless telecommunications services markets, Cingular and AT&T Wireless are, or hold interests in, the two largest incumbent wireless providers, and in all ten markets the merged firm would be the largest. The merging companies are also two of a limited number of mobile wireless services providers who have launched or are likely to launch mobile wireless broadband services, which offer data speeds four to six times faster than existing service.

"Under the terms of the settlement, the merged firm must divest AT&T Wireless's mobile wireless services business, including spectrum and customer contracts, in parts of Connecticut (Litchfield), Kentucky (Fulton), Oklahoma (Oklahoma City and Ponca City), and Texas (Lufkin/Nacogdoches). In Connecticut, Kentucky, and Texas the merged firm may retain some of AT&T Wireless's wireless spectrum. The merged firm must also divest minority equity interests in mobile wireless services providers in FCC licensing areas in Georgia (Athens), Kansas (Topeka), Louisiana (Shreveport, Monroe), Massachusetts (Pittsfield), and Missouri (St. Joseph), although it may retain its minority interests in Kansas, Louisiana, and Missouri if those interests are made irrevocably and entirely passive to the satisfaction of the Department.

"To resolve the Department's competitive concerns related to mobile wireless broadband services, the merged firm must divest 10 MHz of contiguous PCS wireless spectrum in parts of Michigan (Detroit), Tennessee (Knoxville), and Texas (Dallas-Fort Worth). In Knoxville, the merged firm can alternatively restructure AT&T Wireless's existing relationship with another spectrum licensee in the market to the satisfaction of the Department so that the merged firm has no equity, managerial, or other interest in the licensee and the Department's competitive concerns are resolved."

I will post a link to the settlement when published in the Federal Register.

A Mini Colloquy on Competition Law in the US and EU

An unidentifiable contributor posted the following comment to my post on Trinko from last week:

"In Europe, we tend to protect potential competition, competitors and consumers, at the risk of creating a competitive disadvantage for the dominant company. The Microsoft and Coca Cola cases are typical of this.

"In both cases, what was at stake was not the protection of consumers interests (I mean, you are free of downloading a free-linux from the net if you really don't want Win XP), but rather of the competitors.

"The EU approach, in my opinion, in wrong and against the rationale of antitrust law."

Let me suggest two explanations for the difference, one institutional, the other methodological/ideological.

In the US, competition policy consists of antitrust law, rooted in the Sherman Act, and the Federal Trade Commission Act (enacted 24 years after the Sherman Act). The first deals with regulation of competition, rather than protection of competitors. The second deals with unfair and deceptive business practices, and is in part, more consumer oriented. Under EU competition law, what is separate in the US are unified, though far from harmonized. One example of the difference is that the type of shelving policies at issue in the Coca Cola case have been addressed as an unfair business practice in the snack food and cereal industries.

The question, as an institutional matter, is whether it is desirable to separate regulation of competition from protection of competitors and consumers. In the US, this institutional divide may just be an artifact of history. The passage of the Sherman Act was largely motivated by trust busting with some of the consumer protection dimensions of the law being developed later. The FTCA was aimed at regulating particular business practices that directly affected consumers and competitors. The divide in the US reflects the influence of different interest groups on the formation of two very different pieces of legislation that fall under the umbrella of competition policy. The argument could be made that the EU provides a more integrated approach to regulating the marketplace that is more pro-consumer and pro-oompetitor oriented.

Another explanation for the difference that the commentator identifies may be methodological/ideological. Economics has perhaps played a greated role in competition policy in the US, both under the Sherman Act and the FTCA. In the neo-classical form, economics lends support to competition law that is more deferential to private orderings, presumably made on the rational pursuit of self-interest. As Justice Scalia's comment in Trinko demonstrates, there is skepticism about judges being given carte blanche to second guess the decisions of private actors, even monopolists.

The problem is that no one seriously is arguing for a "carte blanche." Instead, the counterargument to Justice Scalia is that judges should intervene when the exercise of private orderings lead to third party harms. The challenge is identifying what constitutes harms. Under the antitrust law branch of US competition policy, the relevant harm is that to competition. The problem is that in the case of governmentally established or "natural" monopolies, there is no competition by definition. Justice Scalia's rejection of carte blanche resolves this dilemma by deference to monopolist or, perhaps more accurately, to Congress, which created the monopoly.

Of course, there is another position that does not lead to carte blanche (and also can be understood int erms of economic analysis). If the purpose of competition law is to benefit consumers, then judges may intervene under competition law to strike down business decisions by monopolists that do hurt consumers. That seems to be the approach adopted by the EU, as the original commentator indicates. The approach, however, is not consistent with the pro-competition, rather than pro-consumer, approach of US antitrust law.

Kodak/Xerox Revisited?

Independent servicers of ATM's filed an antitrust suit against Diebold in San Francisco last week. The complaint alleges that Diebold denied access to Diebold parts necessary to repair and upgrade machines. Diebold has about a 62 % share of the US financial institution ATM market and 90 % of the market for servicing Diebold ATM machines.

The litigation arrives as the deadline for upgrading machines to the Triple Data Encryption Standard approahces. Diebold had a policy of access for third party servicers to spare parts under a hold harmless agreement. The policy was unilaterally changed last year, according to the complaint.

An article from American Banker has more details.

New Policy Guide to Merger Remedies from the DoJ Antitrust Division

The Antitrust Division of the Department of Justice released a Policy Guide to Antitrust Remedies on Thursday, October 21. The guide is a policy document designed to help attorneys and economists to fashion remedies short of "full-stop injunction in merger cases."

A number of points are worth emphasizing about the policy guide. The Division expresses a preference for structural remedies over conduct remedies because the former are "clean and certain" and minimize government entanglement in the marketplace. Conduct remedies should be used only in situations where structural remedies would result in loss of efficiencies or when significant government oversight of the marketplace already exists. Structural remedies should ensure that the purchaser in a divestiture obtain all assets necessary to be an effective competitor, including intangible assets like intellectual property. In the case of patents, the guide speaks to the transfer of the rights in the patent to one of the entities and the possible use of compulsory or other types of licensing arrangements to protect competition in the marketplace.

Consolation for Yankees fans...

...well, not really. But if you want to take your mind off your troubles and also read a great scholarly treatment of labor law, antitrust, and baseball, take a look at William B. Gould IV, LABOR ISSUES IN PROFESSIONAL SPORTS: REFLECTIONS ON BASEBALL, LABOR, AND ANTITRUST LAW, 15 Stanford Law and Policy Review 61 (2004).

Here's a small sample:

"[A]fter Brown v. Pro Football, unions in all sports were deprived of the tactic of antitrust liability unless they were willing to decertify themselves or could produce evidence that would establish a moribund bargaining process. As a result, arena football owners ironically found themselves in a situation opposite to that in which most employers find themselves--fearing antitrust liability, they threatened a lockout unless their employees joined a union!

"Because Brown had substantially diminished the impact of antitrust law in other sports, the baseball owners were willing to negotiate a promise to seek partial repeal of their antitrust exemption. The result of baseball's lobbying efforts was the Curt Flood Act of 1998, which reversed Federal Baseball insofar as that decision had provided baseball owners with immunity from major league player litigation arising from their employment relationship. The consequence of the 1998 Act was that such actions could be maintained, but only where the union was decertified or defunct."

Professor Gould also points out that for minor league baseball teams, which are not unionized, the antitrust exemption still applies.

Article on Flamingo Industries v. USPS

An article by Timothy Sandefur on Flamingo Industries, the recent Supreme Court case extending antitrust immunity for the post office to a private entity acting under the auspices of the federal government, has been posted on SSRN and is available through the following link

http://sandefur.typepad.com/freespace/2004/10/new_article.html

Shameless plug: For those interested in the issues of privatization more broadly, especially as it applies to intellectual property, see my article Deprivatizing Copyright at 54 Case Western Reserve Law Review 387-501 (2003).

Hovenkamp on regulation and antitrust

Anyone interested in the intersection of antitrust and regulation (whether telecommunications, IP, or environmental) should read Herbert Hovenkamp's article "Antitrust and the Regulatory Enterprise," published at 2004 Columbia Business Law Review 335 (2004). Professor Hovenkamp addresses several issues I would like to touch on through my posts here and is directly on point to Monday's post on Trinko.

First of all, Professor Hovenkamp makes the often ignored point that intellectual property is a form of regulation:

"[W]hile extreme free marketers might rail at the excesses of regulation or antitrust, they tend to accept the system of intellectual property ("IP") rights as if it were handed from a mountaintop. In fact, however, the existing IP system is a very elaborate effort to correct a market failure, in this case free riding that occurs when innovations are too freely copied, and the corresponding decrease in the incentive to innovate. Anyone who does not believe that the IP laws are a form of regulation has not read the Patent, Lanham, or Copyright Acts and the maze of technical rules promulgated under them. To be sure, IP laws create property rights. But so do state created exclusive franchises and filed tariffs. In fact, the detailed regulatory regimes that we call the IP laws are filled with very rough guesses about the optimal scope of protection-- ranging from the duration of patents and copyrights to the scope of patent claims and fair use of copyrighted material."

Second, the article, after presenting a thorough and engaging discussion of the history of regulation in the US, presented with wide-ranging examples, discusses Trinko. Professor Hovenkamp, as I read him, agrees with the opinion as deferring to Congressional regulation (or deregulation, perhaps more appropriately) of the telecommunications market. He writes, "Trinko illustrates why some kind of immunity doctrine can be helpful, even in a partially deregulated industry. Here, a government agency was intended by Congress to resolve interconnection disputes and it was actually doing that job far more expeditiously than any court could do it through jury trials." But he also cautions against finding a blanket immunity from antitrust within telecommunications law:

"Considered in this light, the most sensible reading of the 1996 Act's Saving Clause is that it preserves intact the system of regulatory rules that existed prior to the consent decree and that continues to govern most regulated industries. Under these rules there is no blanket immunity from the antitrust laws. Further, behavior that is never disclosed to the agency, perhaps because it is surreptitious, is not immune. However, immunity is given for conduct that is within the jurisdiction of a regulatory agency and where the agency has acted or is actively considering whether to act."

Professor Hovenkamp's article makes sensible and insightful points about antitrust in the regulatory state. The open question is how do we implement the complementary visions of the marketplace that are at the heart of antitrust and specific regulatory schemes (whether telecommunciations, IP, or environmental law). In practice, it seems that what is in theory complementary, may in practice require reconciling contradictory visions, espcially when Congress had been slow in implementing its vision of the marketplace or has been subject to capture (as has been the case with intellectual property law).

Coca-Cola settlement in EU

The Wall Street Journal, the LA Times, and the Washington Post each reported today on EU Commissioner Mario Monti's announcement of a settlement with Coca-Cola, putting an end to the five year investigation into the company's marketing practices in the European Union. The Washington Post desribed the terms of the settlement as follows:

"Under the five-year deal, Coca-Cola will scrap all rebates that require retailers to buy the same amount of its products or more each time. It also will no longer require that a customer who wants to buy best-selling regular Coke or Fanta Orange also take less-popular brands, or offer rebates if they do or reserve shelf space for them.

"It will also allow rivals to occupy 20 percent of the space inside its coolers, if its coolers are the only ones in the store."

Rumors of a settlement have been reported over the past six months or so. It will be interesting to see how the settlement will be enforced, especially after Mr. Monti leaves his post at the end of the month. Those who travel in the EU may have noticed the ubiquity of Coke products. Pepsi, which initially brought the complaint to the commission in 1999, is reported to have only about 10 % of the market.

Conference Announcement

This looks like a terrific event. I wish I could attend. Perhaps the Society can make available a tape or transcript of the proceedings to those interested.

THE FEDERALIST SOCIETY AND ITS CORPORATIONS, SECURITIES & ANTITRUST PRACTICE GROUP INVITE YOU TO ATTEND AN IMPORTANT PANEL DISCUSSION CONCERNING:

Antitrust Modernization and Public Choice
The Federalist Society concludes its antitrust panel series with a panel focusing on public choice and institutional issues. Since its inception, substantive antitrust law has been largely crafted by judges applying the broad provisions of the Sherman Act on a case-by-case basis. Issues addressed will include the "modernization" of antitrust that has already occurred under the court's common law approach, the need for changes in the balance between judicial, statutory, and regulatory approaches to antitrust, the effects of having two federal and fifty state enforcement agencies with largely overlapping authority, the costs and benefits of antitrust for consumer welfare, and ultimately, whether the Modernization Commission and any subsequent legislative action are likely to do more harm than good.

The Honorable Frank H. Easterbrook, United States Court of Appeals for the 7th Circuit
William E. Kovacic, General Counsel, Federal Trade Commission
A. Douglas Melamed, Partner, Wilmer Culter Pickering Hale and Dorr

DATE: Wednesday, October 27, 2004
TIME: 12:00 noon to 2:00 p.m. (Lunch will be served.)
LOCATION: Law Offices of Jones Day
51 Louisiana Avenue, N.W.
Washington, D.C.
There is no charge for this event.
Seating is limited.

The Federalist Society for Law and Public Policy Studies

email: [email protected]
voice: 202-822-8138
web: http://www.fed-soc.org

Recycling, Coca-Cola and the EU

Two interesting developments from the EU in the news today.

The BBC reports that the European Competition Commission may enter into a settlement with Coca-Cola, putting an end to five year investigation into the company's marketing practices. At issue are inducements given to retailers to link sales of more popular brands to lesser brands through monopolization of shelf space. Similar allegations were brought in the US by a former Coca-Cola employee. The dispute with the employee was settled last Summer.

Today's Wall Street Journal reports that the Commission may file a suit against Germany challenging its bottling law, which requires the use of reusable bottles and deposits. The law allegedly limits competition by making it more difficult for foreign competitors to market their bottled beverages in Germany. Part of the problem seems to be lack of harmonization on recycling laws. For example, the article reports that France prohibits the use of reusable bottles for water. Another source of the problem is the practice of some discount retailers to cut back on branded beverages and instead sell their own discount labels, which are easier to return to the discount retailers for reuse. The article states that Nestle has lost about $ 60 million in sales since the law took effect in 1992. The case offers a nice example of the intersection between regulation and competition policy. Although I have not looked at this issue in depth, my sense from the article is that the law is not anti-competitive and the costs described represent the adjustment to new pro-environmental regulation.

Trinko and Carte Blanche

Even though Verizon v. Trinko narrowly focuses on telecommunications law, the Supreme Court decision has implications for antitrust more broadly and for the intersection between antitrust and intellectual property specifically. Since the decision was handed down in January 2004, it has been cited almost 40 times by courts and administrative bodies. I am writing an article on one of these decisions, Morris v. PGA, decided by the 11th Circuit in April 2004.

At issue in the case is access to real time golf scores at PGA golf tournaments. The Eleventh Circuit dismissed the Section 2 claim, finding a valid business justification in the PGA's need to protect its investment in the creation of a real time scoring system. In its analysis, the court cited the following sentence from Justice Scalia's decision in Trinko:

“the Sherman Act...does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition.”

I comment as follows:

"What this statement means has been a source of controversy among commentators. On its face, the Court seems to be saying that the Sherman Act requires judges to defer to a monopolist's decision on how to structure a market, an interpretation at odds with the pro-competition purpose of the Act. A more limited reading of Trinko, one consistent with the antitrust laws, would deny judges carte blanche to second guess Congress’ decision on how to structure certain industries, such as telecommunications, as monopolies. The problem is that the Eleventh Circuit does second guess Congress’ judgments on the scope of the monopoly protection granted under intellectual property laws. By allowing PGA to protect real-time scores using a business justification analogous to that used for intellectual property, the Eleventh Circuit expands the scope of the intellectual property grant to include what Congress exempted: data."

In other words, the Eleventh Circuit's reliance on Trinko is inapposite. In Trinko, the Court was deferring to how Congress defined a monopoly market. In Morris, however, the court is expanding the boundaries of the IP monopoly in the name of deference.

Any thoughts?

Welcome Message

Welcome to the AntitrustProf blog! This resource is meant for professors teaching antitrust, students learning antitrust, and practitioners seeking information on recent developments in the law. I hope that you find the posts informative and stimulating. I look forward to your comments and suggestions.

A bit about myself: I am a Professor of Law at The University at Buffalo, SUNY, where I teach intellectual property and antitrust. For the AY 2004-2005, I am a Visiting Professor at SMU Dedman School of Law, where I am teaching torts and patent law.

Although my primary focus has been on intellectual property, I am working on contributions to the areas of antitrust and business tort law. Given my background, I am particularly interested in the intersection of IP and antitrust, specifically the way in which norms of competition inform IP doctrine and how IP affects competition policy. My posts will comment on these topics as well as notable recent developments in antitrust. Where appropriate, I will also discuss the relevance and use of economics for antitrust analysis.

Once again welcome to the blog and I look forward to hearing from you. My posting will begin Monday October 18.