The U.S. Department of Justice and the Federal Trade Commission have released for public comment proposed revisions to the Horizontal Merger Guidelines that would reflect antitrust enforcers’ ever decreasing reliance on the bright-line tests that once dominated merger analysis.

The proposed revisions would continue the long term trend of antitrust authorities exercising more flexibility and discretion in analyzing individual mergers.  The revised Guidelines signal a willingness by antitrust enforcers to be expansive in considering evidence of competitive effects, and a disinclination to rigidly apply traditional tests such as market definition.

Interested parties have until May 20, 2010, to provide comments on the proposed revised Guidelines.

The Guidelines, which were issued in 1992 and revised in 1997, outline the two agencies’ antitrust enforcement policy in reviewing horizontal mergers.  The proposed revisions to the Guidelines are intended to reflect the agencies’ experience and their current approach to merger review.  The revisions are also informed by a series of public workshops the two agencies have held

The proposed revised Guidelines include a new Section 2 on “Evidence of Adverse Competitive Effects,” which discusses types of evidence and sources of evidence the agencies will turn to in assessing the likely competitive effects of mergers. For instance, evidence of post-merger price increase or other changes adverse to customers is given substantial weight by the agencies – if these changes are anticompetitive effects resulting from the merger they can be dispositive for the agencies.  A consummated merger can be anticompetitive even if price increases or other changes adverse to customers are not felt – the merged firm may be aware of the possibility of post-merger antitrust review and purposefully moderating its conduct. click here for more »

The European Commission has enacted highly anticipated antitrust rules regulating online sales.

The rules clamp down on what the EC considers to be permissive distribution agreements that have arisen on occasion between goods manufacturers and resellers, and update regulations adopted prior to the massive growth in the last 10 years in commerce over the Internet.

The new rules are primarily aimed at facilitating online sales, which play a critical role in generating economic growth and integration across borders.  The rules allow manufacturers a relatively free hand in deciding their methods of selling goods in the European market as long as they have less than a 30 percent market share.  However, fixing resale prices remains restricted as harmful to competition. 

The revised rules are a result of several influences, according to press reports, that included heavy lobbying from luxury and online goods companies.

Luxury goods manufacturers in particular have been concerned with the cost of maintaining their brand image, and the EC took into account some of their arguments in fashioning the updated regulations.  For instance, some luxury goods manufacturers will be allowed to insist that their goods be sold online only by retailers that also have “bricks and mortar” stores.  Thus, purely online retailers such as Amazon and eBay would be unable to sell these goods directly.

Some industry observers have commented that this lobbying led to a more “watered down” version of the antitrust sales regulations that would have resulted otherwise.  Also, the new EU-wide rules will open up online sales by ensuring that manufacturers cannot discriminate against online shops when setting up their distribution networks.

Sirius XM Radio, the holding company for the two satellite radio services operating in the U.S., is asking a federal court in Manhattan to dismiss state claims being asserted by class action representatives who reside in other states.

Sirius XM is asking Judge Harold Baer to rule that the class representatives do not have standing to assert claims based on the laws of states in which they do not reside in Blessing et al.  v. Sirius XM Radio, Inc., No. 1:09-cv-10035-HB (S.D.N.Y. filed Dec. 7, 2009).  The named plaintiffs in the class action are 13 consumers from 10 states who subscribe to Sirius XM’s satellite radio services.  Sirius XM was formed in 2008 when Sirius Satellite Radio and XM Radio merged, reducing the number of satellite radio providers in the United States from two to one. 

Plaintiffs allege, on behalf of themselves and a nationwide class, that since the merger, Sirius XM has increased prices and decreased services in violation of the federal antitrust laws, 44 states’ consumer protection laws, and New York contract law. 

Sirius XM is now moving to dismiss the bulk of the state statutory claims for lack of standing.  Its primary argument is that the named plaintiffs – who hail from only nine of the 44 states under whose laws they complain – lack standing to assert claims under “laws of States where they do not reside” – i.e., the other 35 states.  The Sirius XM motion notes that plaintiffs’ assertion of those claims on behalf of a nationwide class does not cure their standing problem, because of “two related principles” – “First, a plaintiff must show standing for each claim that he asserts ….  Second, a plaintiff may not acquire standing by asserting a claim on behalf of other putative class members who allegedly would have standing to assert it.”  Therefore, says Sirius XM, those “other 35” state law claims must be dismissed.   

These cited principles also provide the basis for Sirius XM’s broader beef against the plaintiffs’ antitrust bar.  Sirius XM points to Blessing as an example of “a recent trend where plaintiffs’ counsel have been attempting to assert – on behalf of putative classes comprised of residents of multiple States – violations of consumer protection laws in States where the named plaintiffs do not reside.”  It posits, however, that “[c]ourts have regularly dismissed such claims for lack of Article III standing,” and urges Judge Baer to do the same.

Sirius XM also seeks dismissal of certain state statutory claims for failure to state causes of action, and warns that it will move to dismiss the antitrust and common law claims on their merits at a later time.

If you’ve ever wondered why Dilbert is still working for his insufferable pointy-haired boss, the answer could be collusive hiring practices at high tech companies.

Recent news reports indicate the U.S. Department of Justice is ramping up its investigation into hiring practices at large U.S. tech companies.  The probe is looking into whether the companies’ hiring practices are costing skilled computer engineers and other workers opportunities to change jobs for higher pay or better benefits.

According to news reports, the DOJ investigation, which began more than a year ago, is focusing on whether the tech companies – including IBM, Google, Apple, Intel Corp., and IAC/InterActiveCorp – have agreed to restrict hiring of employees away from each other.  The Wall Street Journal reported recently that the Justice Department has “concluded that such agreements do raise significant competitive concerns.”

The Department of Justice is concerned that such agreements could decrease competition for workers, leading to artificially lower pay and fewer opportunities for movement within the tech job market.  On one hand, maintaining a lower labor cost through these agreements could be viewed as tantamount to fixing costs, similar to the more familiar antitrust violation of price fixing.

On the other hand, companies say that their hiring practices do not violate competition laws, and in fact, may be necessary in order to encourage new partnerships since prospective partners may fear the loss of key employees otherwise. 

Although the Department of Justice has not verified publicly its investigation, companies have reported being contacted about their hiring practices.  In the coming weeks, more than 10 companies will meet with the Department of Justice to discuss the issue.

The U.S. Court of Appeals for the District of Columbia decision in Comcast v. FCC – striking down the FCC’s Order prohibiting Comcast from discriminating against customers that download large video files – may seem like a significant defeat for the FCC, but it might turn out to be just the first skirmish in an escalating war.

The Court’s decision dealt a decisive blow to an argument used (once too often) by the FCC under Chairman Martin, attempting to ground the FCC’s jurisdiction on “ancillary authority.”  The Commission contended that it had the power to regulate ISPs from limiting consumer access to certain types of Internet content on a discriminatory basis (known as “net neutrality”), even though Congress has never given the FCC specific statutory authority to do so.  Rather, the Commission constructed a series of arguments that its regulatory power over the Internet – classified for the last decade by the FCC as an “information service” – derived from other statutory powers and congressional policy statements as to the FCC’s responsibilities. 

Conceding that Congress intended the FCC to have jurisdiction to keep pace with technological change, and that the Internet is the most important communications innovation of this generation, the D.C. Circuit nonetheless repeated its warning from prior cases:  “the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer . . . Commission authority.”

Questions immediately turned to the fate of FCC’s recently-announced, broadly acclaimed, National Broadband Plan.   Some elements of the Plan are founded more squarely in statutory jurisdictional grants and confirmations of authority – such as reclaiming broadcast spectrum for broadband uses, enhancing use of broadband for public safety, improving use of broadband in schools, and ensuring better competition for consumer electronics devices to access multichannel video programming (such as cable, satellite, and telco television content) – and will not be hindered by the decision.

So, for example, the Commission’s agenda to spur new competition for set-top boxes and to require a neutral “gateway” device to network together television and Internet content in the home, will remain on the fast-track this year.  Other elements, however, such as accelerating the rollout of broadband service to rural areas and low-income citizens, consumer protection, and net neutrality, will need to find an alternative source of Commission authority. 

click here for more »

Google’s informal motto is “Don’t be evil.”  Whether or not it has breached that principle, the internet search and advertising giant may be about to run afoul of antitrust law, according to the Senate’s head antitrust watchdog.

On Tuesday, Senator Herb Kohl, chair of the antitrust subcommittee of the Senate Judiciary Committee, asked the Federal Trade Commission to take a closer look at Google’s proposed acquisition of AdMob, which provides advertisements on mobile phones.

According to Senator Kohl’s letter, “[c]ritics of this transaction worry that this deal will allow Google to merge with one of its biggest rival mobile advertising competitors.”  While Senator Kohl states that he has not concluded that the merger will create “dominance or would cause substantial harm to competition,” he nonetheless asks the FTC to “scrutinize this deal very closely,” and to ensure that any approval of the merger “will have sufficient safeguards to protect consumers’ privacy.” 

Google and AdMob, on the other hand, have stated that “experts have called mobile advertising a ‘very fragmented’ space, in which ‘no ad network is dominant’ and ‘no one really knows what ad network is biggest.’”  For instance, Apple has launched its own advertising platform – iAd – which will serve its omnipresent iPhone and its new iPad.

Given Apple’s prominence in the market and proven ability to exploit its consumer friendly hardware to gain advantages in complementary industries, the FTC will have to consider this development in its analysis of the Google/AdMob.  Whether that will change the ultimate analysis is hard to tell at this point. In other words, as even Senator Kohl’s letter acknowledges, the market may be too “nascent” to justify blocking the merger.

The FTC has apparently already assembled a team to investigate Google’s acquisition of AdMob.  Senator Kohl’s letter at the very least adds pressure on those lawyers to take a hard look at the merger.

Travel agents whose antitrust case against major airlines was grounded by a Court of Appeals’ application of the Supreme Court’s Twombly decision are hoping the Supreme Court will clear their complaint for takeoff.

On March 22, 2010, 49 travel agencies accusing several major airlines of conspiring to fix base commission rates petitioned the United States Supreme Court to reverse the Sixth Circuit’s decision affirming the Northern District of Ohio’s dismissal of their complaint, In re: Travel Agent Commission Antitrust Litigation, 583 F.3d 896 (6^th Cir. 2009). 

The complaint, filed in 2003, alleges that the defendant airlines conspired to reduce, cap and eventually eliminate the agents’ base commission rates in an attempt to drive the agents out of business.  The base commissions, paid until 2002, were a percentage of purchased ticket prices.  Plaintiffs assert that the conspiracy began in 1995, when several airlines contemporaneously announced that they were placing the same cap on the commissions.  Plaintiffs allege a pattern stretching over seven years in which one airline would announce a cap or a reduction in the commission and then other airlines would follow.  In 2002, Delta Airlines announced it would stop paying base commissions altogether, and other carriers quickly did the same. 

Plaintiffs allege that this game of “follow the leader” resulted not from airlines’ independent decisions but from an illegal agreement to eliminate the commissions.  Plaintiffs point to several industry-wide meetings at which the airlines had the opportunity to conspire, and to the testimony of a former airline executive that he had to match the commission cuts or else “undercut the movement.” 

The airlines respond that reducing commission rates advanced each airline’s independent self-interest by yielding net revenue greater than any potential loss from disgruntled agents redirecting their business.  The airlines also contend that new methods of purchasing tickets, including through the Internet, provide an economic incentive to cut commissions and then wait and see if competitors emulate.  click here for more »

Despite a recent federal law that clamps down on class actions, the Supreme Court on Wednesday breathed new life into the viability of some such cases – and in their 70-some pages of opinions, scrambled the Court’s usual ideological lines. 

In the case, Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., No. 08-1008, a group of doctors sued an insurance company when it paid an insurance claim late, but refused to pay a $500 penalty for its delay.  The doctors sued in federal court, and they styled their suit as a class action.  New York state law prohibits class actions for penalties unless statutes explicitly allow class actions.  The district court and the Second Circuit held that the New York state law governs, even in federal court.

The Supreme Court, in a 5-4 majority opinion written by Justice Scalia, disagreed.  According to the Court, Federal Rule of Civil Procedure 23 governs all class actions in federal court.  And that rule establishes only four criteria for class actions (numerousity, commonality, typicality, and representation).  According to Justice Scalia, the federal rule therefore trumps the state law, which effectively established a new criteria.  Even if the New York Legislature might have written the law differently, Justice Scalia wrote, “what matters is the law the Legislature did enact.” Joining Justice Scalia were two traditional allies, Chief Justice Roberts and Justice Thomas, and two interesting allies, Justice Stevens and Justice Sotomayor.  (Justice Stevens separately concurred with those other four justices’ second holding that Congress acted within its power when it passed Rule 23.)

The dissent had an equally novel lineup: Justice Ginsburg, writing for the left-leaning Justice Breyer, along with right-leaning Justices Alito and Kennedy.  According to Justice Ginsburg, the majority opinion serves to “transform a $500 case into a $5,000,000 case.”  She reasoned that courts have an obligation to read the federal rules in a way that is sensitive to state substantive law.  Here, she wrote, such a reading is possible, if the New York law is viewed as a limit on remedies.  And if there is no conflict, then under the Supreme Court’s opinion in Erie R. Co. v. Tompkins (1938), the New York law acts as a substantive legal doctrine that federal courts must apply.  The majority’s conclusion, she held, contradicts Congress’s intent in passing the Class Action Fairness Act of 2005, which made it more difficult for plaintiffs to bring class actions.

This decision may or may not make it easier for plaintiffs to bring more class action cases – the opinions don’t discuss how many states have laws prohibiting class actions that, now, could still be brought in federal court.  But the case definitely does not make it easier to predict how the justices will decide cases.  When Justice Scalia tamps down state rights, and Justice Ginsburg protects them, who knows what’s possible?