The European Commission has opened a probe to investigate whether marine-insurance agreements among ship owners in the International Group of P&I Clubs (“IG”) restrict competition by blocking rivals from the market. 

The IG is comprised of 13 worldwide “protection and indemnity” clubs of ship owners, which together provide insurance to approximately 93 percent of ocean ships.

The Commission is concerned that certain provisions in the IG’s marine-insurance agreements may restrict competition by blocking commercial insurers or other mutual P&I insurers from the relevant market by restricting access to ship owners.  The Commission stated that it “fears that the provisions at stake in the agreements … may harm ship owners and the insurers that are not members of the IG.”

The provisions at issue involve claim-sharing and joint-reinsurance agreements as well as rules which govern the contractual relationships between the clubs and their members. 

The probe follows the recent expiration of a 10-year antitrust exemption enjoyed by the P&I agreements under European Union regulations.  Although the EU in April again created certain antitrust exceptions for the insurance industry, the P&I agreements were not included among them because their market share rises far above the 20-25 percent maximum provided for by EU competition regulations.

In response to the investigation, the IG stated that “there have been no relevant or material changes to the arrangements or in the market for P&I cover” since regulators last reviewed the agreements in 1999. 

The Commission launched the investigation on its own initiative, even though there have been no complaints regarding these agreements.  There is currently no deadline for completing the investigation.

On August 19, 2010 – after 18 years, including a year-long revision process – the DOJ and FTC finally released a new – and kinder, gentler – version of the Horizontal Merger Guidelines.

The Guidelines, originally adopted in 1968 and previously revised in 1992, “outline the principal analytical techniques, practices and the enforcement policy of the [DOJ and FTC] with respect to mergers . . . involving actual or potential competitors . . . under the antitrust laws.”  

The revision process, started in September 2009, involved a series of workshops, public comment and proposed refinements.  The result is a set of revamped Guidelines that differ from the 1992 version in several ways.  In general, they reflect a more tolerant approach to mergers, stressing the need to “avoid unnecessary interference with . . . competitively beneficial” mergers; raising the concentration thresholds (HHI’s) that warrant further scrutiny of a merger; and explicitly clarifying that coordinated effects can, in fact, be legal.    

The revised guidelines also include several new features.   One, “Evidence of Adverse Competitive Effects,” identifies evidence helpful in evaluating mergers.  It includes effects of consummated mergers; direct comparisons to events such as mergers, exit, expansion or entry that have occurred in the relevant market; competition between the merging firms; and a merger’s impact on “disruptive” firms that benefit consumers, e.g., through price cutting or innovation.  Other additions include discussions of how the agencies evaluate monopsony power, mergers of competing buyers, and partial acquisitions. 

The 2010 Merger Guidelines replace the 1992 Guidelines.  They do not, however, replace the agencies’ Commentary on the Guidelines issued in 2006.  Nor do they replace the Bank Merger Competitive Review guidelines developed in 1995.

Thanks to a Nevada federal judge that dismissed its antitrust suit, casino payment company Sightline Payments, LLC, might be experiencing some fear and loathing in Las Vegas. 

In March, Sightline sued its larger competitor, Global Cash Access Holdings, Inc., under Sections 1 and 2 of the Sherman Act, and under Section 7 of the Clayton Act.  Both companies offer services to provide cash access at casinos.  According to Sightline’s complaint, “[i]n 2008 alone [Global Cash] processed over 80 million transactions and put more than $21 billion into the hands of gaming patrons.”  Sightline’s complaint continues that Global Cash violated antitrust laws through a series of actions, including acquisitions, restrictive agreements with casinos in Las Vegas and Atlantic City, patent abuse, and disparagement of Sightline.  It sued for $300 million, plus costs and fees.  Interestingly, the head of Sightline previously served as Global Cash’s chief executive, and also was one of its founders.

In dismissing Sightline’s suit on August 9, Judge Philip Pro held that Sightline did not allege that Global Cash used its market share to engage in monopoly pricing or that Global Cash’s alleged disparagement of Sightline contained any falsehoods.  Regarding Global Cash’s restrictive agreements, Judge Pro wrote that “[a]n agreement between a manufacturer and a distributor to establish an exclusive distributorship does not, standing alone, violate antitrust law unless the agreement is intended to, or actually does harm competition in the relevant market.”   Sightline’s complaint, he continued, did not allege facts to meet that standard.

According to press reports, Sightline plans to roll the dice again by appealing the dismissal.  It looks like the company hopes its lawsuit won’t be leaving Las Vegas’ courts anytime soon.

Judge Paul Crotty of the U.S. District Court for the Southern District of New York dismissed with prejudice an antitrust suit brought by bankrupt magazine wholesaler Anderson News LLC against a host of single-issue magazine publishers. 

Crotty ruled that Anderson’s allegations of a broad industry-wide conspiracy did not meet the plausibility standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), saying that it was implausible that magazine publishers would conspire to deny retailers access to their own products. 

Anderson had proposed a small surcharge on magazines in January 2009 with the goal of improving efficiency by giving suppliers a financial incentive to not ship extra copies, but Anderson claimed that in response the suppliers collectively pulled out of deals with Anderson, eliminating 80 percent of its business and its most popular titles, including People, Time and Sports Illustrated. 

Anderson ceased business operations in February 2009, and sued in March 2009 accusing the publishers of conspiring to monopolize the U.S. wholesale single-copy magazine distribution market.  The defendants included American Media Inc., Bauer Publishing, Curtis Circulation, Distribution Services, Hachette Filipacchi, Kable News, Rodale Publishing, Time Inc. and Time Warner Retail. 

This is yet another antitrust case felled by the new plausibility standard set forth in Twombly which requires plaintiffs to state a plausible (not merely possible or conceivable) claim for relief in order to survive a motion to dismiss. 

Update: On August 17, 2010, Anderson News asked Judge Crotty to reconsider his decision dismissing the lawsuit.

Anderson argues that Judge Crotty erred in concluding that the publishing companies had an economic self-interest in more wholesalers, not less.  Anderson claims that, to the contrary, the publishers had a powerful incentive to engage in their conspiracy, namely, to control the single-copy magazine distribution system so as to shift the increasing costs in the distribution system to retailers and consumers, and away from the defendant publishers and their national distributors.

The case is Anderson News LLC et al. v. American Media Inc. et al., case number 1:09-cv-02227 (S.D.N.Y.).

A bill introduced in the House this spring to allow states greater authority to regulate the interstate shipment of alcohol is facing growing opposition.

In the latest declaration against the bill, the California Assembly last week unanimously passed Senate Joint Resolution 34, urging Congress to defeat H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010.

The CARE Act is a short measure – no more than 450 words, titles included – which would “reaffirm and protect the primary authority of States to regulate alcoholic beverages.”  The Act gives lip service to the bar against states discriminating against out-of-state producers – but only “without justification.”  The Act would eliminate existing law which requires that regulation of out-of-state shipments be only “to the same extent and in the same manner” as in-state production.  The law would also impose a “presumption of validity” upon state law, restricting legal challenges to state laws governing the interstate shipment of alcohol.

The bill would allow states greater leeway to impose protectionist regulations and to block alcohol e-commerce while protecting traditional distributors.  The bill is supported by wholesalers of beer, wine and spirits who seek to protect the “three-tier system” in which wholesalers serve as middlemen between breweries, wineries, and distilleries and retailers. click here for more »

Big Blue is under scrutiny again by antitrust authorities – this time in the European Union.

On July 26, 2010, the European Commission opened two formal investigations of International Business Machines Corp. (IBM) to probe allegations of IBM’s anticompetitive behavior in the mainframe computer market.  These investigations come on the heels of the investigation launched in October 2009 by the U.S. Department of Justice regarding IBM’s mainframe business.

The EC opened one of the investigations to determine whether IBM has engaged in practices designed to shut out competition for supplying maintenance services for mainframes.  In particular, the EC suspects that IBM may have been “restricting or delaying access to spare parts for which IBM is the only source” in order to stamp out competitors.

The second investigation is looking into whether IBM is improperly tying its mainframe operating system to its mainframe hardware.  Before the investigation had commenced, software emulator providers T3 and TurboHercules had filed complaints alleging that IBM’s tying practices are unfairly preventing customers from using IBM’s mainframe operating system on non-IBM hardware.

According to the EC, approximately 8.5 billion euros ($11 billion) worldwide and roughly 3 billion euros ($4 billion) in Europe were spent in 2009 on new mainframe hardware and operating systems.

New antitrust immunity for old media is one of the options discussed by the FTC staff in its recently released Discussion Draft on proposals to support “reinventing” journalism.  The Draft is part of a project begun in May 2009 to consider the challenges faced by journalism in the digital age.

After reciting well-known statistics about the broad decline of print media (revenue declines, staffing cuts, the proliferation of competing new media), the Draft discussed proposals for two antitrust exemptions aimed at supporting the newspaper industry.

One proposal would allow news organizations to collaborate in erecting “pay walls” that would require consumers to pay for online content.  This proposal is based on the notion that pay walls simply won’t be effective unless they are erected “industry-wide.”  Similarly, the second proposal would allow news organizations to jointly agree on ways to get news aggregators – i.e., Google and other search engines and news services – to pay for the use of online content.

While the Draft reviews both the pros and cons of each proposal, the tone is lukewarm.  Despite some calls for legislation to allow news organizations to experiment with “innovative content distribution and cost saving arrangements,” the Draft acknowledges that these calls have largely dissipated.

Similarly, Congress’s previous experiment with antitrust immunity in the newspaper business, the 1970 Newspaper Preservation Act aimed at allowing coordination between competing newspapers in certain markets, was widely criticized as unsuccessful.

The Draft also acknowledges some compelling comments in opposition to the proposals.  These include the observation that easing the antitrust laws would put small, emerging media companies at a disadvantage.  Barriers to entry into media have never been lower, and the likely beneficiaries of the proposals might just turn out to be the already highly-consolidated, old-media news publishers.  Perhaps most powerful in opposition to the proposals is the report that at least two existing collaborations have been reviewed by the DOJ (one concerning tracking online content, the other platforms for monetizing news content) and deemed to pass muster under the antitrust laws.

Last week Google recently released its own comments on the workshop and the Draft, arguing that the problems of the news industry are “business problems, not legal problems.”  Google insists that it sends 4 billion clicks per month to news publishers, and it is up to the publishers to decide how to interact with (and monetize) those visitors.  Google called on news organizations to work within the antitrust laws to create payment schemes to benefit from their online content without price-fixing, “rather than seeking immunity for anticompetitive behavior.”

More than a decade after British Airlines and American Airlines first sought antitrust immunity for their global alliance, the U.S. Department of Transportation last week granted their request.

The immunity allows the members of the so-called Oneworld Alliance – including British Airlines, American Airlines, and Iberia of Spain – to coordinate on prices, capacity, and service.  The U.S. approval follows on the heels of a similar grant from the European Commission the week before.

Both the U.S. and the E.U. have conditioned immunity on the Oneworld Alliance members’ giving up coveted takeoff and landing positions at Heathrow airport for flights departing to the United States.  But the airlines seem to believe that this sacrifice will be worth the advantage they will gain from partnering with one another.  The Oneworld Alliance will compete against two other global competitors that already have antitrust immunity – Star Alliance (made up of Lufthansa and United/Continental, who have announced a merger) and SkyTeam (made up of Delta Air Lines and Air France-KLM.)

These global partnerships are changing the face of airline competition.  Rather than one airline competing against the others serving the same region, these global alliances will compete against one another.  This will particularly impact corporate travel buyers, who tend to negotiate with the alliances.  Proponents of these ventures argue that forging an alliance, and gaining global reach, keeps the airlines competitive with what business travelers need.

Of course, this means that airlines left without global partners may be at a distinct disadvantage, as critics of the U.S. and E.U.’s actions would be quick to point out.  Virgin Atlantic’s Richard Branson, for example, has been an outspoken critic of the Oneworld Alliance.  Virgin Atlantic has no global partners.

The U.S. Court of Appeals for the Third Circuit has ruled that state antitrust laws’ treatment of indirect purchaser claims are too disparate to meet the predominance and commonality requirements of Rule 23. 

In Sullivan v. DB Investments Inc., plaintiffs alleged anticompetitive conduct in the diamond industry by the De Beers group of companies, the South African conglomerate synonymous with diamond production and distribution. Settlement discussions led to separate agreements for two plaintiff classes, one class for direct purchasers with federal law claims and one class for indirect purchasers with state law claims, for a total of $295 million.  De Beers agreed not to contest certification of the settlement classes and sought to dispose of claims in all 50 states and the District of Columbia.  The U.S. District Court for the District of New Jersey approved the settlements under Rule 23.

And that’s where things got interesting. 

The settlement process allowed class members to object to the proposed agreement, and 36 members of the indirect purchaser class filed objections.  The objecting indirect purchasers argued that many jurisdictions limit or deny the right of indirect purchasers to antitrust damages. For example, New York State provides a cause of action for indirect purchasers while New Jersey does not.  Nevertheless, the district court overruled the objection because the facts were similar for all indirect purchasers and De Beers itself had requested release from claims in all jurisdictions. 

On appeal, the Third Circuit rejected the lower court’s reasoning and emphasized the diverse landscape of state antitrust law.  The 50 states are split over whether indirect purchasers can pursue antitrust claims for damages.  Roughly half of the states have enacted laws contrary to the spirit of the Supreme Court’s 1977 decision in Illinois Brick v. Illinois, which foreclosed indirect purchasers from suing for damages under federal antitrust law.  According to the Third Circuit, the district court exceeded its discretion “to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.”  click here for more »