Antitrust & Competition Policy Blog

More Xerox Woes

On November 15, federal district court judge Stefan Underhill denied a motion to dimiss a suit brought by a Middletown, Conn. independent service provider against Xerox, alleging that the photocopier company's unilateral refusal to provide parts violated the Sherman Act.   While the Federal Circuit upheld the company's refusal to deal in order to protect its intellectual property rights in 2000, the district court in Connecticut found an adequate basis for a complaint based on the allegations that "Xerox suddenly stopped making parts available, and "for no apparent reason," delayed shipping, raised prices on other parts and allegedly refused to sell copiers to customers who wished to use CCS for servicing." More from this article in the Texas Lawyer.

Buspar Drug Settlement in Antrust suits Against Bristol Myers Squib By States

Kansas, Idaho, Rhode Island, and Michigan are just four out of thirty-four states that have recently obtained settlements from Bristol Meyer Squib and Danville Pharmacal for violating the antitrust act in preventing the entry of generic alternatives to Buspar, an anti-anxiety drug.   In addition to a cash payment, the drug companies agree not to list in the FDA Orange Book Buspar or other patented drugs that may delay the entry of generics onto the market.

Microsoft Ruling Upheld

The International Herald Tribune reports this morning that the European Court of First Instance has rejected Microsofot's argument that EC's order to change its business practices woud cause irreparable harm to the company (particularly its patents, copyrights, and trade secrets) and  to its operations in Europe.  This ruling sets the stage for a likely settlement.

Becker-Posner on pharmaceutical patents

Good discussion at the Becker-Posner blog on pharmaceutical patents and reimportation.   Two points worth delving into some more:

(1) Reimportation policies will result in lower quantity and higher prices in the long run as patented pharmaceutical manufacturers in the US can control the flow of imports by simply reducing the quantity exported into Canada and other source nations.  But gray markets are a workable solution where the imports are manufactured in a third nation (such as India in the South Africa situation).   In such a situation, the patent owner loses the ability to control the flow of imports through its manufacturing decisions, but still retains some incentive to supply to the countries that are receiving the gray market drugs so as not to give up the market to the importer.   I do not think that this limitation on the patent owner's rights to import constitute a takings, and in fact would be consistent with competition policies, particularly the competition objectives of intellectual property law.  (Yes there are some; IP law is not only about property rights).  Of course this is all assuming adequate safety and efficacy.  Politics and social attitudes limit this type of gray market policy, as tried in South Africa, from being adopted in the US.

(2) On trademarks and patents:  Fellow bloggers are correct in separating trademark policy from patent policy in general, but there is one area where they do overlap and this is in the area of trade dress and patents protecting design.  In the Traffix Devices case from 2001,  the Supreme Court stated that trade dress protection under trademark cannot extend to useful features of a product that were  previously protected under an expired patent.   This decision might have some application to pharmaceuticals if a drug manufacturer attempts to extend the life of a patent through trademark law.  The problem is that the useful features protected by patent, such as chemical composition, may not be the basis for the trademark claim.  But if color, shape, smell, or taste (all elements of trade dress potentially) can be shown to be connected to the useful elements that were patented, then trademark protection would be limited.

Canada revisits pharmaceutical regulation

On December 11, the Canadian government proposed amendements to its Patented Medicines (Notice of Compliance) Regulation and its Food and Drug Regulations.  The first is similar to the US' Hatch-Waxman Act; the second to the US' FDA regulations. 

The amendments to the Patented Medicines Regulation make it easier to bring generic drugs to market by limiting when patent infringement claims can be brought by potential generic drug manufacturers.  Under current law, the generic drug maker has the burden to challenge the patent or wait for the patent to expire.  Under the proposed amendments, only patents that have claims for the medicines or its use and patents that have application filing dates before the generic submission can be listed in Canada's equivalent of the Orange Book. For more details, follow this link.

The proposed amendments to its Food and Drug Regulations provide protection against unfair commercial use of undisclosed test data or other materials submitted for approval.  The amendments are designed to bring Canada in compliance with obligations under NAFTA and TRIPS regarding new chemical entities.  For more details, follow this link.

Minnesota AG has evidence against Glaxo

See http://www.startribune.com/stories/535/5135578.html

11th Circuit Dismisses Antitrust Suit Against State Farm

On November 18, 2004, the United States Court of Appeal for the 11 th Circuit in Atlanta dismissed an antitrust law suit brought against State Farm Insurance challenging their premium and licensing practices. The 11th Circuit found that the insurance company was immunized from the suit by the 1945 McCarren-Ferguson Act, which exempts claims involving the "business of insurance" from the antitrust laws.  The 11th Circuit distinguished two Supreme Court cases (Group Life[1979] and Union Labor [1982]), on which the plaintiff relied, in which the Court had ruled the exemption did not apply.  These two cases dealt with business relationships between insurance companies and pharmacies and review boards within insurance companies respectively. Neither of these cases, the 11th Circuit reasonoed, implicated the "business of insurance," which is defined to mean the business relationship between the insurer and the insured.  The case against State Farm, however, challenged premiums and payouts, the heart of the business of insurance. For more information, see the article from law.com.

6th Circuit Recommends Not So Quick a Look

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).

Federal Judge Dismisses Antitrust Suit Against City of Richland

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.

Data sharing and medical publications

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.

Post-game Commentary on Swedenburg Oral Argument

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.' "

Criminal Antitrust Law

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."

Report on trade group settlement with Microsoft

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. "

Supreme Court oral argument in Swedenburg case

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. 

Supreme Court grants review of case testing competition in telecommunications

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. 

Response to John Kay's antitrust comment (posted Friday)

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. "

John Kay on competition

John Kay, a  British economist and contributor to the Financial Times, published an interesting commentary on competition policy, particularly relevant to the Microsoft case.  He writes:

"Predatory action is prohibited in Europe, the US and most other countries. So company B sues. Before the judge dons his robes, company A agrees to make a substantial payment to company B, which then withdraws from the case and the market. Company A's comfortable and profitable monopoly is restored.

"Everyone is happy - except, of course, consumers, whose interests the law exists to defend. If company A were simply to pay company B not to compete, that would be illegal, as it should be. But if the same effect is achieved through the settlement of an antitrust action, no rules are breached if the agreement is appropriately drafted, as it certainly will be. Could this happen? Does this happen? Yes."

For a complete version of the essay, follow this link to Dr. Kay's website. 

Plea bargain in criminal antitrust case against Infineon

Today's Wall Street Journal reports on a plea bargain between the DoJ and four Infineon executives in a criminal antitrust case involving a world wide conspiracy to fix the price of memory chips:

"In a further sign that the U.S. is taking a hard line on criminal antitrust cases, four senior Infineon Technologies AG executives agreed to serve prison terms and pay hefty fines for their role in a scheme to fix prices in the computer-memory-chip market, the Department of Justice said. Under their plea agreement, the four agreed to pay $250,000 each and serve prison times between four and six months. The four, all vice presidents, include three Germans, Heinrich Florian, Peter Schaefer and Gunter Hefner, and one American, T. Rudd Corwin.

"The plea agreement is the latest twist in a Justice Department investigation into what officials say was a global conspiracy to fix prices in the $16 billion market for random-access memory chips, which are used in a wide range of products, including personal computers, digital cameras and game consoles. Officials said the probe would continue."

Here's a link to the DoJ press release on the plea bargain deal. 

Article on Oligopoly and Antitrust

Worth looking at is Thomas A. Piraino, Jr., Regulating Oligopoly Conduct Under the Antitrust Laws, 89 Minn. L. Rev. 9 (2004). The author argues

"In oligopoly cases, the courts should concentrate on whether defendants have acted in a manner consistent with their independent self-interest, or whether their conduct only makes sense as a means of furthering a tacit agreement to raise prices. It should not be difficult for courts to identify conduct that is contrary to a firm's independent self-interest. Firms act against such self-interest when they disclose confidential pricing information, sacrifice their individual bargaining power to observe standard industry-wide terms of sale, or forego otherwise attainable profits by following their competitors' price increases during periods of overcapacity or declining demand. Under normal circumstances, oligopolists would not be willing to incur the losses associated with such conduct. Courts can assume that firms are only willing to suffer such losses because the firms have received implicit assurances from their rivals that they will be compensated by the higher long-term profits resulting from a price-fixing arrangement. Such tacit collusion should be illegal on its face, because it harms consumers without any offsetting economic benefit."

Shameless self promotion

For those interested, a short version of my paper on the 11th circuit's decision in Morris (the case involving the PGA's obligation to provide access to real time golf scores) has been published by the Erasmus Law and Economics Review and is available on line at http://www.eler.org/.  For those interested, a slightly longer piece is available and I am currently working on a piece on business justification in antitrust law, of which the Morris paper is one part.