Antitrust & Competition Policy Blog

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

http://www.atiner.gr/docs/2005AAACALL_IOLAW.htm

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 protected]. Thank you for your kind consideration.

Suggested Topics:

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.

Financial Services:

-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:

-Arms Control

---

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

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. 

Antitrust and K-Mart-Sears merger

Senator DeWine (R-Ohio) and Senator Kohl (D-Wisc) last week urged the DoJ to scrutinize the K-Mart Sears merger for potential antitrust violations.  This article from Money magazine reports on the story.    The merger raises some interesting issues about the role of the failing firm defense against anti-competitive mergers. 

Unexpected meeting in EU Microsoft case

The following is from yesterday's E-week"Judge in Microsoft Appeal Calls Meeting; The judge deciding whether to suspend the European Union's antitrust order against software giant Microsoft pending appeal has called an unexpected meeting, two weeks after two longtime backers of the EU's case abruptly pulled out.

"BRUSSELS, Belgium (AP)-The judge deciding whether to suspend the European Union's antitrust order against software giant Microsoft Corp. pending appeal has called an unexpected meeting, two weeks after two longtime backers of the EU's case abruptly pulled out. Judge Bo Vesterdorf, president of the European Court of First Instance in Luxembourg, called a closed-door session for Thursday to discuss "procedural matters," the court said Tuesday. Court officials declined to elaborate. EU and Microsoft spokesmen had no immediate comment.

"A person familiar with the matter, speaking on condition of anonymity, said the judge apparently wanted to "figure out what the significance is" of the Nov. 8 defection from the EU side of Microsoft rival Novell Inc. and a Washington-based trade group, the Computer and Communications Industry Association.

"Microsoft Corp. paid Novell $536 million and an undisclosed smaller amount to the CCIA to pull out of the EU case.

"Both supported the European Commission in its investigation, which ended in March with a decision ordering far-reaching changes in Microsoft's business practices as well as a fine of 497 million euros ($646 million).

"Vesterdorf is expected to rule within weeks on Microsoft's request to suspend the order, pending its appeal of the decision.

"The EU has insisted the defections would not affect its defense of its decision.

"Microsoft, based in Redmond, Wash., has settled with four of the five major intervenors in the EU's case, having previously spent $2.4 billion settling claims by Time Warner Inc. and Sun Microsystems Inc.

"The last big opponent, RealNetworks Inc., maker of a rival to Microsoft's digital Media Player application, denied Tuesday that it and the EU were becoming isolated.

"David Stewart, a senior lawyer with RealNetworks, told Dow Jones Newswires that it and other companies 'remain resolved to support the decision and protect consumers.'

"In announcing its settlement, Novell said the agreement resolved its claims involving the Netware operating system for connecting computers across networks, which competes with Microsoft's dominant Windows software.

"Novell said then it would go ahead with an antitrust lawsuit in the United States against Microsoft over damage a decade ago to its once-popular WordPerfect business software.

"The CCIA, which has fought Microsoft vigorously on legal fronts for more than a decade, did not disclose the size of its payment, but said Microsoft would spend $65,000 to become a member.

"Ed Black, the group's head, declined to comment Tuesday. "

Mylan sues Proctor&Gamble and Watson for antitrust violations in the generic drug market

From today's FDA Week:

"Generic drug company Mylan has again filed suit against Procter & Gamble and fellow generic company Watson Pharmaceuticals, this time citing antitrust violations. The new suit alleges that P&G and Watson conspired to keep Mylan from using its 180-day market exclusivity for the generic drug Macrobid. The lawsuit filed in the U.S. District Court for the Northern District of West Virginia also blames FDA for stifling generic competition by nullifying the benefits of a 180-day exclusivity award granted to the first generic on the market.

"Mylan is asking the judge to find that the agency violated the Federal Food, Drug and Cosmetic Act and the Administrative Procedure Act. Mylan also wants the judge to stop P&G from marketing its drug and pay treble damages for losses."

A copy of the complaint is available y searching on the website insidehealthpolicy.com

New Working Paper From American Antitrust Institute

The following submitted by David Giacalone:

AAI WORKING PAPER #04-05, John M. Connor, Price-Fixing
  Overcharges: Legal and Economic Evidence
This 104-page paper by Professor Connor, an
  economist at Purdue and an AAI Advisory Board member, surveys hundreds of
  published social-science studies of private, hard-core cartels that contained
  674 observations of long-run overcharges.The primary finding is that the
  median cartel overcharge for all types of cartels over all time periods is
  25%: 18% for domestic cartels, 32% for international cartels, and 28% for all
  successful cartels. These findings suggest that U.S. and non-U.S. cartel
  penalties ought to be increased.

California Proposition 64

By a vote of 59% to 41%, the citizens of California approved a proposition that would limit the ability to bring claims under the state's unfair competition law.  The proposition went into effect November 3, the day after it was approved.  The state AG summarizes the proposal as follows:

• Limits individual's right to sue by allowing private enforcement of unfair business competition laws only if that individual was actually injured by, and suffered financial/property loss because of, an unfair business practice.
• Requires private representative claims to comply with procedural requirements applicable to class action lawsuits.
• Authorizes only the California Attorney General or local government prosecutors to sue on behalf of general public to enforce unfair business competition laws.
• Limits use of monetary penalties recovered by Attorney General or local government prosecutors to enforcement of consumer protection laws

For more details, follow this link to this website from the League of Women Voters. 

Two Interesting Presentations on the IP-Antitrust Interface

Ian Feinberg of Mayer, Brown, Rowe & Maw LLP published a useful overview of the IP-Antitrust interface that reviews the historical background to and the current treatment of tying arrangements and licensing.  The overview is available at 806 PLI/Pat 1141 (October 2004). 

Another valuable presentation, by Richard J. Hoskins of Schiff Hardin LLP and Zubin P. Khambatta (a 2L at University of Chicago Law School), provides an overview of antitrust and IP licensing.  This overview is available at 806 PLI/Pat 449 .

Spitzer Insurance Probe Possibly Broadens

Today's Chicago Tribune reports that two senior underwriters at Zurich American Insurance Company pleaded guilty to criminal antitrust charges in New York Supreme Court.   While testifying before a Senate subcommittee yesterday, Spitzer indicated that he might widen the probe to include consumer insurance transactions. As summarized in The Tribune:   "Corruption in the insurance industry, Spitzer told the Senate Governmental Affairs subcommittee, extends beyond the practices of brokers and large corporate clients into areas of personal insurance for health, property casualty and workmen's compensation. "

Text and Pretext in Antitrust Law

If conservative jurists advocate strict constructionism, then why are they so willing to inject contemporary economic thinking into statutory antitrust laws? This is the provocative question raised by Professor Daniel Farber (of Boalt Hall) and Professor Brett McDonnell (of The University of Minnesota Law School)  in an article recently posted onto the SSRN web site.  The authors point out that some justices seem to toss their principles of statutory construction aside when interpreting the antitrust laws,  favoring the application of economic principles of efficiency over an originalist reading of the statutes based on the common law. 

While the authors, I think, are correct in arguing that wholesale endorsement of economic efficiency as the normative lynchpin for antitrust laws ignores the original concerns with "bigness" and inequitable distribution of wealth that informed the drafters of the antitrust laws,  the drafters of the Sherman Act as well as common law judge-making in the area of unfair competition were informed by economic analysis.  It should not be surprising that as the methods of economic analysis evolved so did the methods of reading the texts of the antitrust laws.  That point aside, the authors do an excellent job of challenging the thought process of the strict constructionists among us.   

The Continuing Credit Card Wars

Both The Wall Street Journal and The Globe and Mail  reported today on Amex's suit against Visa and Mastercard, filed in Manhattan this week.  Discover filed a similar suit against the two companies last month. Both suits follow upon the Supreme Court's decision in October to uphold a lower court ruling that struck down, under the antitrust laws, Visa and Mastercard's policy of prohibiting member banks from issuing competitor's credit cards.  The ruling from the Second Circuit required Visa and Mastercard to allow banks to offer other credit cards.  David Boies, counsel for American Express, described the credit card companies as operating a cartel designed to reduce AmEx's profitability.

Company fined $2M for Hart-Scott-Rodino violations

For more details on the judgment against Smithfield for failing to file pre-merger notifications, follow this link to the DoJ press release from last Wednesday. 

IP Stifling Competition

Technology Daily reported on Friday, Nov. 12, on an announcement by officials at the Department of Justice and the FTC of continued study of the anti-competitive effects of intellectual property.  Referring to an October DoJ report dealing with copyright piracy, the article mentions efforts by both agencies to collaborate on further study of the effects of copyright that builds on the FTC report of November 2003 that deal largely with the anti-competitive effects of patents.  John Delacourt, chief antitrust counsel for the FTC's office of policy planning, is quoted in the article as follows:   "At its most basic level, an intellectual property right is a specialized restraint of trade. It will confer a significant competitive advantage."

Antitrust law in China

The  Xinhua News Agency reports today:

"China's long-awaited anti-trust law is expected to come into being in the near future, revealed Ning Wanglu, a senior fair-trade official with the State Administration for Industry and Commerce (SAIC), at an international seminar held here on November 10 on fair competition and the market economy. In 1993, China promulgated a law against unfair competition, which has served as a basic package of rules for the nation to maintain the normal order of market competition. Though there are clauses and articles in other existing laws, which concern policies for competition, no exclusive law against monopolistic competition has yet been hammered out.

"Ning said that a great quantity of unfair trade activities on the Chinese mainland are closely related to monopoly, particularly administrative monopoly with the characteristics of localism. As China is opening itself wider to the outside world, competition has been introduced into areas that had been state monopolies, to which access has also been given to private and foreign capital. To effectively maintain fairness in competition, it is imperative for China to promulgate its own anti-trust law.

"Legislators said that existing laws and regulations fail to meet requirements of the fast changing economy and society in China. The corresponding regulatory vacuum has led directly to the absence of law enforcement means, making it hard to stop new unfair trade activities on the Chinese market.

"Official statistics from SAIC show that China annually detected more than 600 cases of competition restriction in monopolized sectors on average, involving water and power supply, railroad transport, insurance, post and telecommunications, commercial banking and tobacco processing.

"Among the 500,000-workforce in law enforcement for the Administration nationwide, nearly 70,000 are devoted to fair trade."

Antitrust for wine connoisseurs

Douglas Glen Whitman, a research fellow at the Independent Institute, has just published Strange Brew, a study of state and federal regulations that restrict competition in the wine industry.  The constitutionality of state restrictions on mail-order sales is the subject of  Granholm v. Heald, a Supreme Court case this term examining whether such state restrictions violates the Commerce Clause. 

Fordham Law School's 31st Annual Conference on International Antitrust Law and Policy

Held on October 7 and 8, the 31st annual meeting brought together leaders from over 100 economic regions.  The theme this year was the need for international cooperation in the enforcement and harmonization of laws.