Antitrust & Competition Policy Blog

Nonobviousness Debated

I am trying to expand the focus of this blog to include discussion of broader competition issues as they arise in intellectual property and other regulatory fields.  As a result I am including here the oral arguments in KSR v Teleflex, argued today in the Supreme Court.  The case deals with the viability of the teach, suggest, motivate test as the approach to deal with the nonobviousness standard under Section 103 of the Patent Act.

A transcript of the oral arguments is attached here: Download KSR.pdf
My two favorite parts:

(1) Justice Souter asking petitioner about reliance interests in TSM:

"Well, I realize there'e been comment on it, but I guess I'm--I'm raising the question that comes up in the old motto. I mean, if the error is common enough and long enough, the error becomes the law.  And in effect is that what we are confronted with here?" Transcript at 20.

(2)  Justice Scalia and The Chief Justice grill the respondent on the meaning of TSM:

Justice Scalia:  It is--I agree with the Chief Justice.  It is misleading to say that the whole world is embraced within these three nouns, teaching, suggestion, or motivation, and then you define teaching, suggestion, or motivation to mean anything that renders it nonobvious. That is gobbledygook.  It is really is, it's irrational.

Mr. Goldstein:  Justice Scalia, I this is it would be surprising for this experienced Court and all of the patent bar--remember, every single major patent bar association has filed on our side---

Chief Justice Roberts: Weel, which way does that cut?  That just indicates that this is profitable for the patent bar.

(Laughter)

Transcript at 41.

In any case, I thought petitioner's side went more smoothly FWIW.  It is still not clear what the Court is going to do with this, other than say TSM is part of the analysis but cannot create a presumption of nonobviousness.

Weyerhaeuser Oral Arguments

Find attached the transcript of the oral argument in the Weyerhaeuser case: Download Weyerhaeuser.pdf

As with Twombly, the argument was lively.  However, the discussion did become a bit more esoteric as it explored the economics of the pricing scheme.  There is a good chance that Justice Breyer will write the opinion, and the following exchange from Transcript at pages 31-33, with Mr. Haglund, arguing for the respondent Ross-Simmons, is revealing:

"Justice Breyer:  So where we are is at the problem.  The problem is the same as at the buying side.  What we have is possibly a very bad motive and very bad effects.  On the other hand, low prices are good for the consumer.

"Mr. Haglund: But you're not--

"Justice Breyer:  Here we have bad effects, bad possibilitied. On the other hand, higher prices are good for the woodsmen.  So we need rules to separate the shep from the goats.  And the other side is proposing a rule, and the rule simply is don't count this as bad conduct, unless the person who pays the money for the goods is in fact buying so many goods that later on when he tries to sell them he will incur a loss.

"Now I would have thought for 40 years that was a traditional idea.  If you're trying to decide whether people are hogging goods unnecessarily for bad purposes, or rather storing up nuts for winter for good purposes, then a very good key to that is to do these people expect in the long run to make money out of this without driving those victims out?   If the answer is yes; they can make money on the market, they are storing up nuts for the winter.  It's good.  And if the answer is no it's bad.  That's called the recoupment test. I don't think that's new.  I think it's old." 

It will be interesting to see if the Court devices a one part test to assess both predatory bidding and predatory selling based on recoupment.   I feel confident in predicting that the Court will not simply affirm the Ninth Circuit and a remand with jury instructions reflecting the new standard articulated by the Court will be the final result.

Twombly Oral Arguments

A transcript of the oral arguments in Bell Atlantic v. Twombly,  obtained from the Supreme Court web site, is attached here:  Download twomblyoralargs.pdf

There were some very lively exchanges during the argument.  Bell Atlantic was represented by Mr. Michael Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C..  Thomas Barnett, AAG for the Antitrust Division of the Department of Justice, also argued on behalf of Bell Atlantic.    J. Douglas Richards of Milberg Weiss Bershad & Schulman LLP represented Twombly. 

Mr. Kellogg's argument focused largely on the sufficiency of Twombly's complaint, making the point that while the complaint stated legal conclusions and failed to state an antitrust claim. His argument
framed the case as a matter of substantive antitrust law.  The following exchange, on page 14-15, is representative:

Mr. Kellogg: Our problem with the current complaint is not a lack of specificity, it's quite specific.  It provides color maps and such.  The problem is that the facts specifically alleged simply don't amount to an antitrust violation because they don't support the inference that the plaintiffs ask the Court to draw.

Justice Breyer: Oh, but they'r--they're using the fact that there was parallel behavior as a basis for thinking there was more than parallel behavior.  They are using it as a basis for thinking that once, on some occassion that's relevant, there were people meeting in a room and saying things to each other.  So they are not just that it's sufficient.  They are saying it's evidence that something else occurred. 

Mr. Kellogg:  That's correct. That's exactly what they are saying and what Matsushita and the other courses, cases of this Court dealing with parallel conduct indicate, is that tht's not a fair inference from parallel conduct.

Mr. Barnett's argument on behalf of Bell Atlantic focused on the Second Circuit's opinion which, he stated. provided a liberal pleading requirement that would allow the mere allegation of parallel action or inaction would  state a  claim under Section 1 of the Sherman Act.  "Such a result," Mr. Barnett stated, "fails to appreciate that parallel action or inaction is ubiquitous in our ecomy and often reflects beneficial competitive forces."  Chief Justice Roberts and Justice Breyer engaged Mr Barnett on this issue.

Mr. Richards, on behalf of Twombly,  emphasized that the requirements for 12(b)(6) are different from those for a summary judgment motion, distinguishing Matsushita.   Justices Breyer, Stevens, Scalia, and Souter each engaged Mr. Richards on whether the pleading standard proposed by Mr. Richards, that relied on parallel conduct, would not make all industry liable in the US liable under the antitrust laws.  The Court seemed to be looking for some limiting principle.  The following exchange between Mr. Richards and Justice Ginsburg (at pages 39-40 of the transcript) was particularly interesting:

Mr. Richards:  If we had proof that they actually acted against what would have been theiry self-interest in the absence of a conspiracy, we would satisfy then the Masushita standard for summary judgment.

Justice Ginsburg: I don't understand acting in self-interest.  I mean, they might just decide apart from, you know, if they go ino their territory they'll come into mine, they investing in this wired business isn't the best, the best bet for them. Maybe they want to get into the wireless business and think that's a bettery way to spend their money.

Mr. Richards [incorrectly identified as Mr.  Barnett in the transcript]: Surely, it is possible to conceive of facts under which they would not have not have conspired [sic] and they would have had a different motive, but that's not the legal standard under Conley versus Gibson.

Justice Ginsburg: But I'm questioning you. You say you meet the plus factors because they were acting agains their self-interest, that a self-interested player in this league would have gone into the other's territory, and I'm questioning that by saying that they might have seen this whole area as not the best plact to invest their money. 

Mr. Richards: I understand that. But we have alleged that as fact, Justice Ginsburg, and that fact and that allegation has to be treated as true under conventional pleading standards for purposes of a motion to dismiss.  If we are unable to prove that fact when we get to summary judgment--

Judging from the transcript, the oral arguments seemd to have been quite lively.  But I am not sure that I would change my prediction that the Court will affirm the Second Circuit.  I did not get a sense that the Court wants to apply the Matsushita standard to the 12(b)(6) context or to apply tests for economic rationality to gauge the adequacy of the pleadings.  If the Court does raise the pleading requirements for antitrust cases, I would be surprised and also concerned.

Antitrust Week at the Supreme Court

This week the Court hears oral arguments in Twombly (Monday, Nov 27) and in Weyerhaeuser (Tuesday, Nov. 28).  Please find below two articles that address the cases, authored by me and recently published in the ABA Supreme Court Preview.

Download ABA_Preview3_pp134-137.pdf on Twombly

Download ABA_Preview3_pp138-142.pdf  on Weyerhaeuser

University of Wisconsin Legal Studies Research Paper on Technical Assistance

This was passed on to me by D. Daniel Sokol, a Hastie Fellow at The University of Wisconsin and a very innovative scholar in the area of comparative institutional analysis and antitrust:  Technical Assistance for Law & Economics: An Empirical Analysis in Antitrust/Competition Policy   The working paper provides a useful empirical assessment of what types of technical assistance benefit competition agencies in about thirty transitional and developing world countries.   The empirical work details the human, economic, political, and social factors that contribute to the effectiveness of competition policy.