The U.S. Department of Transportation (“DOT”) has issued a show-cause order that tentatively approves the antitrust immunity application for the joint venture between members of the oneworld airline alliance, including American Airlines, British Airways, and Iberia.  The tentative approval applies to transatlantic traffic, which American Airlines and British Airways dominate for routes between the U.S. and the U.K.

For approval, the DOT required the oneworld alliance to give up four daily landing slots at Heathrow Airport near London.  This requirement represents a much less demanding concession from American Airlines and British Airways than requested for previous immunity applications.  For example, in 2002, the DOT requested that the alliance give up 14 daily landing slots and remove certain routes from the ambit of the antitrust immunity application, i.e., “carve outs,” so that antitrust liability would still apply to those city pairs.

American Airlines and Japan Airlines, which is also a oneworld member, have also applied for antitrust immunity for transpacific routes.  That application is still pending before the DOT.

The fate of the massive digital library that Google hopes to create now lies in the hands of U.S. District Judge Denny Chin, who heard nearly a full day of oral argument on Thursday from supporters and opponents of the proposed settlement agreement that would settle the class action brought on behalf of authors and publishers against Google Book Search.

The parties in The Authors’ Guild, et al. v. Google Inc. are moving for court approval of a class action settlement that would allow Google to provide varying degrees of access to a vast body of information, including subscriptions to its 12-million book library and displaying snippets of out-of-print books that are still covered by copyright.

After informing the parties and two courtrooms full of supporters and objectors that he would not rule on the motion that day, Judge Chin heard a veritable great debate over whether proposed settlement would benefit or harm consumers, authors and publishers.

Supporters of the settlement argued the benefits include public access to books including out-of print books and orphan works, locating rights holders for unclaimed works, and access for the digitally disenfranchised and visually impaired.

Opponents argued the settlement raised a plethora of issues, including raising antitrust concerns, violations of copyright law, and even jurisdictional and notice issues.

The hearing began with arguments from non-party supporters of the settlement.  click here for more »

Sticks and stones may break your bones, but disparagement will hardly ever monopolize your market, is the message of Broadcom Corporation’s motion to dismiss a “monopolization-by-disparagement” case brought by its competitor Emulex Corporation.

The case, Emulex Corp. et al. v. Broadcom Corp. et al., No. SACV 09-1310 JVS (ANx), centers on statements Broadcom allegedly made during a 2009 attempt at a hostile takeover of Emulex, a competing communications technology company. Broadcom allegedly accused Emulex of “underperformance” and “unsatisfactory results” (among other shortcomings), and advised customers not to buy Emulex products.

This antitrust complaint, which Emulex filed in the Central District of California in November 2009, is Emulex’s third effort to recover for Broadcom’s statements. Its first effort was a complaint in California Superior Court alleging common law fraud and interference with contractual relations. Its second effort was a previous complaint in the Central District of California, alleging violations of the Securities Act. Emulex dismissed those cases when Broadcom withdrew its tender offer. click here for more »

Can antitrust law protect big companies as well as small companies and consumers?

An increasing number of large companies are discovering – as plaintiffs – that the answer is yes.

Many practitioners ascribe to the following paradigm: Antitrust enforcement is an anathema to large companies.  They point to the fact that big companies, like Microsoft, AT&T and Verizon, have repeatedly fought private plaintiffs and antitrust enforcers as defendants/respondents in civil antitrust proceedings.  But if antitrust enforcement represents inefficient, costly and intrusive forays into nullifying acts taken in an otherwise “free market,” why are these same large companies now seeking the assistance of antitrust enforcement?

Microsoft bitterly complains about Google’s dominance in Internet search, and phone companies balk at the market power of cable providers when they challenge them in video-programming and broadband markets.  One can imagine that these big company complainants, who formerly argued that plaintiffs had to satisfy high evidentiary thresholds to succeed in a monopoly maintenance or attempted monopoly case, are now revisiting that position.

Is this ironic?  Should any complaints by these large companies be given any credence in light of these companies’ former hostility to enforcement?  One would think that they should be given the same consideration as any other antitrust complaint.  If these complaints raise facts and economic theories that are consistent with the pro-consumer rationale at the heart of the Sherman Act, enforcers should act upon them.

Practitioners that specialize in antitrust enforcement may find large companies to be unlikely allies, yet still welcome their efforts to act as private attorneys general in the arena of antitrust enforcement, particularly as government enforcement efforts may be constrained in the future by our nation’s large deficit.

Plaintiffs in The Apple iPod iTunes Anti-Trust Litigation – a putative class action accusing Apple of anti-competitive conduct in the portable MP3 player market – are hoping the third time’s the charm as they again seek to convince the court they have a viable claim.

The plaintiffs have filed an amended complaint after the U.S. District Court for the Northern District of California twice rejected claims that the relationship between iTunes and iPod products constituted illegal tying.

The amended complaint argues that the relationship between Apple’s iTunes and iPod products constitutes unlawful maintenance of monopoly power and attempted monopolization under the Sherman Act, and also violates various California statutes.

According to the plaintiffs, consumers paid a higher price for iPods than they would have if competing devices had the capability to play songs from the iTunes store.  However, while the plaintiffs claim iPods are the only portable player on which songs purchased from iTunes can be played, such songs can still be played on a non-portable basis (such as directly through a computer, or through a computer linked to a receiver).  This ability of consumers to purchase and play iTunes songs without ever purchasing an iPod is the primary reason the court previously rejected plaintiffs’ tying claims.

It will be interesting to watch whether the plaintiffs’ reformed complaint survives court scrutiny.  This is especially true in light of the plaintiffs’ attempt to pursue monopolization claims against two products that the court has already ruled are not illegally tied.

St. Vincent’s Hospital in Manhattan may have survived its recent brush with possible monopolization, but its financial health leaves it susceptible to relapse.  That’s the diagnosis of some antitrust practitioners, who are bracing for another outbreak.

The weak financial health of St. Vincent’s Hospital has been in the news lately.  News reports indicate that St. Vincent’s, located on Manhattan’s West 12th Street, is again having difficultly meeting its financial obligations.  (St. Vincent’s is no stranger to the bankruptcy process, having gone through a Chapter 11 proceeding in 2005.)

One proposal would have shored up St. Vincent’s financial position by reducing health services and competition.  Continuum Health Care Partners – a health care consortium that operates three Manhattan hospitals, including Roosevelt Hospital (at W. 55th Street), St. Luke’s Hospital (at W. 114th Street) and Beth Israel Medical Center (at E. 16th Street) – proposed acquiring St. Vincent’s and turning it into a strictly outpatient facility.  In other words, Continuum stated that it would shut down St. Vincent’s inpatient, emergency services facility if it were to operate St. Vincent’s. click here for more »

The U.S. Department of Justice is weighing whether to pursue an investigation into the legality of the National Collegiate Athletic Association (“NCAA”) Bowl Championship Series (“BCS”), which critics contend unfairly excludes smaller universities from the national football title.

Senator Orrin Hatch raised the issue in a letter to the Justice Department in October 2009 in which he complained that the BCS system is an artificial market barrier against smaller schools. Assistant Attorney General Ronald Weich has now responded to Senator Hatch in a letter that the DOJ is considering such a probe into “the current lack of a college football national championship playoff” because it “raises important questions affecting millions of fans, colleges and universities, players and other interested parties.”

Microsoft is battling its latest antitrust challenger – Datel – by taking a page out of the antitrust playbook of its archrival, Apple.

Microsoft is being sued by Datel, a manufacturer of “video game enhancement products,” for allegedly monopolizing an aftermarket for accessories to Microsoft’s popular Xbox 360 video game system in Datel Holdings Ltd. et al. v. Microsoft Corp., Case No. CV 09-5535 EDL.  The case was filed in the Northern District of California on November 20, 2009. 

Datel manufactures the “MAX Memory” card which, at two gigabytes, allegedly has quadruple the memory of Microsoft’s largest memory card.  Datel claims it is the only source of memory cards for the Xbox 360 other than Microsoft.  

Datel alleges that Microsoft requires Xbox 360 users to download its “dashboard” software update in order to access online gaming, and that the update is “intended to, and does in fact, disable Datel’s memory cards.”  Datel claims that the dashboard update therefore enables Microsoft to monopolize an aftermarket for “Xbox 360 Accessories and Add-ons” in violation of the antitrust laws. click here for more »

Federal antitrust enforcers are signaling that they don’t want merger enforcement to be the butt of the classic joke about the shipwrecked economist who solves the problem of how to open a can of soup by assuming a can opener.  Merger justifications that assume hypothetical competitors would block anticompetitive effects may not pass the laugh test under new Merger Guidelines.

Antitrust enforcers are likely to give greater weight to real-world competitive harm than to theoretical assumptions, according to Christine Varney, Assistant Attorney General for Antitrust, who made concluding remarks last week on the completion of two months of workshops on revising the Department of Justice and Federal Trade Commission’s Horizontal Merger Guidelines.

It is likely that this effort will lead to a significant revision of the Merger Guidelines. Due to the Guidelines’ persuasive influence on jurists, the courts’ approach to mergers is also likely to change.

AAG Varney cited the following “gaps” between the Guidelines and actual agency practice:

• “[D]efining markets and measuring market shares may not always be the most effective starting point for many types of merger reviews. . . . When it is clear, for instance, that either certain vulnerable customers are likely to be harmed by a merger . . . the need to define a market to assess likely competitive effects is diminished.”

• “[T]he Guidelines overstate the importance of HHIs in merger analysis . . . Revising the HHI thresholds to express accurately how the Agencies use HHIs seems not just appropriate but also necessary to correct what has become an affirmative misstatement at this point.”

• The Guidelines do not explain fully the agencies’ tools of economic analysis, such as sales diversion ratios, price-cost margins, customer win-loss reports, and the views of competitors, customers, and other industry observers.

AAG Varney’s comments echoed lessons learned from the financial markets’ collapse in 2008.  She noted that:  “Theoretical assumptions that market forces naturally and inevitably correct for market failures clearly need to be reconsidered.  In the context of the Horizontal Merger Guidelines, the most relevant aspect of this reassessment involves explicit or implicit assumptions that entry will erode market power otherwise enhanced by a merger.”

The prospects for repeal of the McCarren-Ferguson Act’s antitrust exemption for health insurers may have gotten a bit dicier with the Supreme Court’s landmark decision giving the green light to corporate spending in political elections. 

The Court in Citizens United v. Federal Election Commission held that the government may not ban “independent expenditures” for “political speech” by corporations in elections.  The essence of the 5-4 opinion is that the government can no longer suppress political speech on the basis of the speaker’s corporate identity.

Prior to the opinion, corporations were banned from taking money out of their general funds to pay for the broadcast of commercials advocating the election or defeat of a political candidate shortly before a federal election.  The opinion overruled the two precedents – Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), and McConnell v. Federal Election Commission, 540 U.S. 93 (2003), which upheld restrictions on corporate political spending. 

The decision could have a significant impact on the current healthcare reform movement.  The repeal of the McCarran-Ferguson Act, which exempts health and medical malpractice insurers from the federal antitrust laws, as reported in earlier posts, could be in jeopardy.  Health insurance companies are no longer restricted from paying for political advertisements which could persuade voters to elect candidates who are unlikely to support the repeal.

President Obama criticized the decision calling it “a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans.”