Although the Hamptons may be renowned as an exclusive vacation spot on New York’s Long Island, its real estate brokers may be getting some unwanted attention from the U.S. Department of Justice for expanding that exclusivity into the way they do business.

Apparently, the real estate industry has attracted the attention of antitrust investigators because of an online listing service – OpenRealNet Exchange, run by Hamptons Real Estate Online Inc. – that charges an annual fee of $50,000.  Brokers in the Hamptons use this service instead of Long Island’s Multiple Listing Service – which is open to all – or an East End service run by the Hamptons and North Fork Realtors Association. 

In recent years, East End real estate agents have complained about, and even sued, OpenRealNet Exchange.  Such brokers have complained that the exclusive listing service is designed to keep commissions within a limited pool of brokers, rather than having to split them with additional brokers.

According to some real estate brokers, investigators have been contacting brokers in the area to question them about the online listing service.

While the antitrust division of the DOJ has declined to comment on whether they have started an investigation, it would not be surprising if the federal enforcers take action.  Certainly the immense fees charged by OpenRealNet Exchange could be considered a barrier to entry, effectively denying smaller real estate companies access to listings, and shutting them out of the Hamptons real estate business.

Merchants in the United States are on the verge of a significant victory in their long struggle to limit credit and debit card fees. 

The Senate has approved an amendment to its financial reform bill that curtails the power of the card issuers in significant ways, including requiring that the “interchange fees” charged by banks on fees on debit card transactions be “reasonable and proportional to the actual” costs of processing those transactions, and permitting merchants to offer discounts for cash payments.  Whether those limits are enacted into law, however, remains to be seen since the Senate bill must still be reconciled with the House financial reform bill – which does not contain the amendment.

Interchange fees are set by the credit card networks (Visa, MasterCard, Discover and American Express) to banks that issue those networks’ branded cards.  When a merchant accepts a credit or debit card, it loses a small percentage of each purchase price to the issuer through this fee.  For Visa and MasterCard transactions, which dominate the credit and debit markets, the fees vary from 1.5 to 2 percent of the price for credit card purchases and are approximately 0.75 percent for an average debit card purchase.  These little fees add up to big money: they totaled an estimated $48 billion in 2008.

Merchants have lobbied Congress to limit or eliminate interchange fees for years.  And a federal merchants’ putative class action in New York claims that Visa’s and MasterCard’s interchange fees result from price-fixing in violation of Section One of the Sherman Act.  According to the plaintiffs, Visa and MasterCard set their interchange rates through collusion with their member banks, which compete with each other: that is, price-fixing by competitors with the networks as facilitators.

The Senate has now given the merchants a major win by adopting an amendment by Senator Richard Durbin (D – Ill.) to the financial reform bill.  That amendment passed by a solid bipartisan vote of 64-33 despite fierce lobbying by Visa and MasterCard.

Durbin’s amendment would reform the debit card interchange system in two ways.  First, it would require debit card interchange fees to be “reasonable and proportional” to the issuers’ actual costs.  This provision addresses complaints that interchange fees, while purportedly compensating card-issuing banks for their transaction costs, in fact has steadily climbed out of proportion to such actual costs.  And the networks have continued to raise those rates in the United States at the same time as they have lowered them abroad in the face of foreign regulatory pressure, further fueling complaints that they are higher here than necessary.

Second, the amendment would direct the Federal Reserve System’s Board of Governors to establish standards for assessing whether interchange rates meet the “reasonable and proportional” standard described above. click here for more »

The U.S. Supreme Court ruled in favor of plaintiff American Needle and a more expansive view of the scope of antitrust law today with what may well turn out to be a landmark opinion in the much anticipated case of American Needle, Inc. v. National Football League.

The decision rejects the lower courts’ broad grant of immunity to joint ventures from the conspiracy prohibition of § 1 of the Sherman Antitrust Act.

American Needle, the plaintiff-petitioner and a manufacturer of NFL-licensed headwear, claimed that the NFL acted anticompetitively by granting Reebok the exclusive license for certain NFL paraphernalia.  The trial court granted summary judgment to the NFL, and the U.S. Court of Appeals for the Seventh Circuit affirmed.  Both lower courts held that, in licensing individual team and NFL trademarks, the NFL was operating as a single entity under antitrust law – as opposed to multiple, collectively acting ball clubs – and thus was immune from the conspiracy prohibition of § 1 of the Sherman Act. 

The Supreme Court held unanimously that the NFL clubs are not immune from the conspiracy prohibition of the Sherman Act – at the very least with respect to licensing their intellectual property.  The Court’s language also indicates that the Court likely would hold the NFL clubs subject to the conspiracy prohibition with respect to the full panoply of the NFL’s operations.

The Court rejected the NFL’s position that, because everything the NFL does promotes NFL professional football, the NFL is really an integrated single entity immune from the conspiracy prohibition.  The Court also rejected the middle-of-the-road rule suggested by the Department of Justice’s Antitrust Division, which would not apply the conspiracy prohibition if “the teams and the league . . . have effectively merged the relevant aspects of their operations.” 

Most importantly, the Court took the opportunity to restate and clarify the principles governing when to apply the Sherman Act’s conspiracy prohibition.  Thus, American Needle will govern the application of antitrust law in all industries, not just professional sports, as evidenced by the submission of an amicus brief by Visa and MasterCard in the payments industry.  (Visa and MasterCard are public corporations owned by separate legal entities, including banks that were members of Visa and MasterCard when Visa and MasterCard were organized as joint ventures.) click here for more »

Antitrust enforcement is not going mobile, at least as of today.

On Friday, the Federal Trade Commission decided not to challenge to Google’s $750 million purchase of AdMob, which places electronic advertisements on cell phones and other mobile devices.

According to the FTC, the decision was “a difficult one because the parties currently are the two leading mobile advertising networks, and the Commission was concerned about the lost of head-to-head competition between them.”  What turned the FTC around was Apple’s December purchase of Quattro, a company that competes with AdMob, along with Apple’s subsequent launching of its own mobile advertising program.  That program, called iAd, will focus on placing ads on Apple’s rabidly successful iPhone, iPod, and iPad mobile devices. 

This is not a surprising decision, given how new and fluid the mobile market place is, and how many competitors already exist.  Aside from AdMob (founded only four years ago) and Apple, other companies in the space include Apploop, Bango, Smaato, Approlix, Adfonic, Millenial Media, JumpTag, PurpleTalk, Greystripe, Medialets, InMobi, MobGold, uLocate, 4INFO. 

Despite the Commission’s decision not to block the Google-AdMob merger, the FTC did state that the mobile advertising space does constitute a market – albeit an emerging one.  And the FTC also indicated that it will keep a close eye on both Google and Apple.  Neither company should be surprised if they hear from the FTC again.

The FTC is suing Dun & Bradstreet to challenge its February 2009 acquisition of QED, a division of Scholastic that provides kindergarten through twelfth-grade educational marketing databases.

The combination of MDR, Dun & Bradstreet’s subsidiary, and QED was a merger-to-monopoly, giving the combined entity more than 90 percent of the market for K-12 educational marketing data.  The deal glided under the radar given it’s valuation of $29 million which falls below the HSR reporting thresholds.  But the FTC is now seeking to unravel the merger given its apparent anticompetitive effects. 

Despite its relatively low dollar value, this transaction dramatically decreased competition in the marketplace,” according to Richard Feinstein, Director of the FTC’s Bureau of Competition.  “When Dun & Bradstreet acquired QED, it bought its closest competitor and created a monopoly.  That’s going to get the FTC’s attention every time.”

So buyer beware.  Just because a transaction doesn’t trigger an HSR filing doesn’t mean the parties can go on their merry way.  A merger analysis should be performed even for smaller, non-reportable transactions to assess whether the post-transaction market share, barriers to entry and other indicators will set off alarm bells for regulators.

The Antitrust Division of the U.S. Department of Justice is asking the National Collegiate Athletic Association to explain its scholarship policy in an exam that could lead to a failing grade for the NCAA’s ban on multi-year athletic scholarships.

The NCAA’s rule requires schools to review students’ eligibility for athletic scholarships every year, up to a maximum of five years of eligibility – automatic multi-year scholarships are not allowed.  The NCAA’s ban on multi-year athletic scholarships arguably restrains competition among NCAA colleges and universities for the best players.  The concern is that given the with millions in ticket and television revenues at stake – the ban on multi-year scholarships could be a significant restraint of trade in violation of Section 1 of the Sherman Act.

The NCAA has responded that scholarships are a “merit” award and annual review helps to guarantee that scholarships in each year go to the students who most deserve them.  The five-year maximum, they said, corresponds to a student’s maximum eligibility to participate in college sports under NCAA’s ambit.  The Justice Department has not commented publicly on the investigation.

NCAA is no stranger to investigations and suits under Section 1.  It has contended with many antitrust challenges to its detailed rules about scholarships, coaching salaries, and other areas from the mid-1980s to today.  In 2008, NCAA settled an antitrust class action brought by a class of about 13,000 college football and basketball players.  The players argued that the organization’s cap on scholarship amounts – which forced many players on full scholarships to pay about $2,500 a year in out of pocket costs – amounted to a maximum price-fixing agreement among NCAA member schools.  The organization agreed to pay students back for the expenses they incurred and raise the maximum scholarship going forward.

Section 1 suits against NCAA highlight the conflict between the group’s mission to maintain the amateur status of student athletes and the enormous commercial pressure placed on colleges and universities to field the best teams possible.  As in other Section 1 suits where “rule of reason” analysis is used, NCAA’s rules tend to be upheld when they relate most closely to legitimate goals apart from restricting competition – in the NCAA’s case, preserving amateurism and differentiating college from professional sports as an entertainment product.  By this rationale, scholarship rules for students are often upheld, while caps on coaches’ salaries have been struck down as unlawful restraints on trade.

A federal court has denied Microsoft’s request to dismiss a claim of monopolizing a single-brand aftermarket, rejecting Microsoft’s attempt to use an argument that Apple used to dismiss a similar aftermarket claim.  We examined Microsoft’s motion in a previous post.

Judge Elizabeth D. Laporte of the Northern District of California has denied in part and granted in part Microsoft’s motion to dismiss the complaint in Datel Holdings Ltd. et al. v. Microsoft Corp., Case No. CV 09-5535 EDL (N.D. Cal.). The court distinguished Apple’s successful defense of an aftermarket claim based on Apple’s more explicit disclosure to its customers that they were being restricted to Apple products. 

Plaintiff Datel Holdings Ltd., alleges it is Microsoft’s sole competitor for Xbox 360 memory cards and other accessories.  Datel charges that Microsoft is monopolizing an aftermarket for Xbox 360 memory cards by requiring Xbox users who want to access online gaming to download Microsoft’s “dashboard” software – which “disables Datel’s memory cards,” thereby forcing Xboxers to buy Microsoft’s memory cards.      

Microsoft moved to dismiss Datel’s claim with an argument that was successful for Apple in Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D. Cal. 2008) – that the single-brand aftermarket (here, Xbox memory cards) could not support an antitrust violation because Xbox users had agreed to use only Microsoft’s memory cards, making the Kodak exception for undisclosed aftermarket restrictions inapplicable.  Judge Laporte was not convinced, holding that the scope of Microsoft’s restriction was ambiguous, such that “customers may not have understood” it, which “counsels against granting a motion to dismiss.” 

Judge Laporte also denied Microsoft’s motion to dismiss Datel’s tying and unfair competition claims.  While she dismissed Datel’s second antitrust claim (concerning a Multiplayer Online Dedicated Gaming Systems Market), leave to replead was granted. 

For manufacturers, the moral of the story is this:  If you want customers of your primary products – Harley-Davidson motorcycles, for example, or Canon cameras – to buy only your brand of accessories – Harley-brand engine components, or Canon-brand zoom lenses, for instance – and not your competitors’, you should draft your customer restrictions very carefully and clearly in order to withstand antitrust challenges.

A small economics and software company is charging the Financial Accounting Standards Board (FASB) – the organization that sets accounting standards for every public company in the country – with attempting to misappropriate its intellectual property in the standard setting process.

Silicon Economics, Inc. (SEI) has filed a complaint in federal court in the Northern District of California that charges that FASB illegally claimed possession of SEI’s accounting patents, in violation of Sections 1 and 2 of the Sherman Act, as well as California contract and competition law.

SEI’s complaint states that in 2006, it offered advice to FASB on how to enhance its accounting methods.  SEI claims that FASB’s current methods fail to properly account for one-off spikes and losses in companies’ income, and therefore FASB’s method “has served as a significant contributor to the current economic crisis.”  SEI asserts that it discovered only after offering up its thoughts that FASB’s web site asserts that FASB has ownership rights to any of thoughts it received, which in this case include SEI’s patent.  SEI asserts that it did not know of the terms when it disclosed its ideas, and that FASB’s attempts to enforce them violate antitrust law.

Specifically, SEI claims that FASB controls over 90 percent of the market for “financial accounting standards in the United States,” and, as a result, that FASB is a “government-backed monopoly.”  By insisting on its right to appropriate the information given to it, according to SEI, FASB has abused its market power in violation of Section 2 of the Sherman Act.  FASB’s action also violates Section 1 of the Sherman Act, according to SEI, because the disclosure terms of FASB’s web site constitute an agreement in restraint of trade.  SEI has filed for a preliminary injunction against FASB, and additionally seeks a permanent injunction, treble-economic damages, punitive damages, and costs and attorneys fees.

FASB’s spokesperson declined to offer any substantive comment, stating that “It’s a legal matter, and our policy is not to comment on it.”

Health care giants Group Health Inc. (“GHI”) and HIP Foundation Inc. (“HIP”) have cleared the latest legal obstacle to their merger.

On May 12, 2010, U.S. Judge Richard J. Sullivan of the Southern District of New York dismissed the City of New York’s antitrust suit attempting to unravel the merger of GHI and HIP.  Judge Sullivan’s decision added a decisive, albeit not final, nail to the coffin of the City’s efforts to derail the health care companies’ merger since the merger was originally announced almost five years ago.

On September 25, 2005, GHI and HIP first disclosed their intention to merge, creating in their own words the “Largest Health Insurer in New York State.”  About 1.2 million current and former New York City government and city-related agency employees are covered under the City’s health plan. 

Federal and state antitrust authorities expressed concern over GHI and HIP’s merger before the City filed suit in November 2006.  Both the U.S. Department of Justice and New York’s Attorney General reviewed the merger.  Yet neither determined that the merged company, now operating as EmblemHealth, would violate U.S. or New York antitrust statutes.

The City’s action to undo the GHI/HIP died in summary judgment because Judge Sullivan rejected the City’s alleged market definition. click here for more »

The Federal Trade Commission will extend by up to two weeks its decision on whether to formally investigate Google for its acquisition of mobile web-advertising startup AdMob.

According to the New York Times, the federal antitrust enforcer initially planned to make a decision on Monday, but has requested the extra time in part to consider whether Apple’s own entry into mobile advertising affects antitrust concerns.  According to the Times, many in the FTC favor action against Google, and a decision may come as soon as this Friday.

The concern stems from whether Google, already the largest seller of advertisements on the traditional internet, will use its acquisition of AdMob to try to dominate the market for advertisements on cell phones and other mobile devices.  That area of advertising is young and has many competitors, but is growing at a potentially explosive rate.

Google announced its acquisition of AdMob last November, but is still waiting for the green light from the FTC.  At the same time, Apple has also entered the market.  First, it announced in January that it was buying Quattro, a competitor to AdMob.  Second, Apple recently announced its creation of its iAd program, which will be the exclusive means of placing advertisements in applications that run on its wildly popular iPhones, iPods, and iPads.  To give a sense of Apple’s own popularity, the company has sold approximately one million iPads in just one month.  The FTC seems to be looking at the possibility that Apple’s own success, or potential success, in the mobile advertising space will counteract any advantage that Google might otherwise have.

Ultimately, whether the FTC investigates may hinge on whether the FTC decides to recognize a specialized market for advertising on mobile devices.  Google argues that the mobile advertising space is “fragmented,” and that the area is too new to recognize as a separate market from standard web advertising.  The FTC, on the other hand, is likely concerned that Google can use its large scale in traditional web advertising to convince advertisers to place mobile ads with Google and AdMob.  The FTC may also be concerned that Google can use network effects to its advantage, since having more advertisers allows it to fine-tune its formulas for selling and placing ads, which then lets it sell still more ads.