The United States Court of Appeals for the Third Circuit has upheld an 18-month prison sentence in U.S. v. Norris for former Morgan Crucible Co. PLC CEO Ian Norris, who was found guilty last December of conspiring to obstruct justice in a price-fixing investigation of the carbon products industry.

Norris was sentenced to 18 months in prison, three years of probation, and a $25,000 fine after a federal jury in Pennsylvania found him guilty of conspiring to obstruct justice during a grand jury investigation into Morgan’s alleged anti-competitive conduct.  According to prosecutors, Norris drafted false scripts for Morgan employees to follow if questioned and instructed executives to destroy incriminating documents and lie about alleged price-fixing meetings with competitors.

Currently in prison, Norris argued on appeal that there was no evidence he conspired to interfere with the grand jury investigation, that the jury was improperly instructed on the meaning of “corruptly persuades,” and that the district court’s decision to allow Sutton Keany, Morgan’s defense counsel, to testify for the government violated attorney-client privilege because Keany also represented Norris in his personal capacity.  But the Third Circuit pointed to evidence that Norris discussed the grand jury subpoena with other Morgan employees and agreed to draft false scripts for them to use if questioned.  The court also dismissed Norris’ arguments that the jury received improper instructions, and found “no clear error” in the trial court’s ruling allowing Keany to testify.

Packers v. Steelers may have been the official “Big Game” this year, but Brady v. NFL is turning out to be the real contest to watch.

New England Patriots quarterback Tom Brady and eight of his fellow professional football stars (plus a potential one) kicked off the game on March 11, 2011, by suing the National Football League and its 32 member teams under the federal antitrust laws.

The NFL sought to block the players’ drive yesterday by filing a brief opposing their request for an injunction ending the owners’ “lockout” of the players and their restraints on the players’ earning ability.   

The case, filed in the U.S. District Court for the District of Minnesota (No. 11-cv-639), follows months of unsuccessful negotiation between the players’ union (the NFLPA) and the NFL to reach a new collective bargaining agreement (CBA).  The old CBA expired the day the complaint was filed. 

Plaintiffs include superstars Drew Brees of the New Orleans Saints, Peyton Manning of the Indianapolis Colts, and Osi Umenyiora of the New York Giants.  They also include Texas A&M’s Von Miller, “one of the top defensive players available in the 2011 NFL draft.”  The players filed their class action complaint on behalf of all “current and future professional football players who are employed by or seeking employment by an NFL club.” 

The players allege that the NFL and its teams have illegally conspired to prevent them from “provid[ing] and/or market[ing] their services in the major league market for professional football players” through four main “anticompetitive restrictions.”

First and foremost of these restrictions is the “lockout,” described in the complaint as “threatened” but which was implemented a few hours after filing.  As its name indicates, the lockout allegedly prevents any contact between NFL teams and players – thus it prevents any negotiation of new employment contracts, any work or payment under current contracts, and any access to team facilities or personnel.

The other challenged restrictions include (a) the salary cap; (b) the “entering player pool” of the college draft, which is an alleged limit on the total salary that all teams collectively can pay to sign drafted rookies; and (c) the “Franchise Player” and “Transition Player” designations, which allegedly “prohibit” or “severely limit” free agents “from receiving a contract from any NFL team other than [his] immediately prior team.” 

The players allege that these restrictions violate Section 1 of the Sherman Act under both the per se and rule of reason standards.  They also assert claims of breach of contract and tortious interference with contract for those players under contract for the 2011 season.  They demand treble damages, which they hope will give them significant leverage over the defendants.  They also seek declarations that the defendants’ conduct is illegal, and permanent injunctions against the conduct.  

The complaint chronicles the NFL’s alleged “long history of violating federal antitrust law” and resulting “multiple antitrust lawsuits” by players. click here for more »

Concert fans claim they are being cheated by Live Nation’s practice of charging fans without cars fees for parking spaces that don’t exist.

In the latest challenge, Chicago concertgoer James Batson has filed, on behalf of himself and event attendees nationwide, a class action antitrust complaint against Live Nation, the alleged “largest live entertainment company in the world.”  Batson accuses Live Nation of illegally imposing on event goers mandatory parking fees that they “did not need, use, want, or voluntarily contract for.”

Batson v. Live Nation Entertainment, Inc. et al., No. 11-cv-01226, in the U.S. District Court for the Northern District of Illinois, names as defendants Live Nation Entertainment, Inc., Live Nation Worldwide, Inc., and Live Nation Chicago, Inc.

Live Nation’s business includes concert promotion, venue operations, and management of such artists as Madonna, U2, the Rolling Stones and Jay-Z.  Live Nation is now also the leading direct seller of tickets to events, thanks to its heavily publicized (and heavily challenged) 2010 merger with Ticketmaster.

According to Batson, Live Nation incorporates into the price of each venue ticket a mandatory parking fee ($9 in his case).  Fans are therefore required to pay for parking in order to gain admission to the venue, whether or not they need, want or use the parking.  According to Batson, the fee is thus nothing but “a contrivance for Defendants to arbitrarily inflate ticket prices.”

Batson claims that Live Nation adds insult to injury by failing to give ticket buyers what they pay for.  Even if they want to use the parking spaces they purchase, they may not be able to:  The garage at Live Nation’s Charter One Pavilion in Chicago, for example, has only 2,500 parking spaces for its 8,000 potential patrons.  The parking fee also fails to provide any benefits to fans such as alleviating traffic or expediting entry to the venue.    

Batson asserts two causes of action regarding the fees.  First, that they illegally restrain trade and tie parking to concert tickets, in violation of the federal antitrust laws.  Second, they are an unfair, unlawful, and unconscionable commercial practice in violation of California’s Unfair Competition Law. 

A similar case, Katz v. Live Nation, Inc., is pending in the federal court for the District of New Jersey (No. 09-cv-3740-MLC-DEA).  In June 2010, Judge Mary L. Cooper denied Live Nation’s motion to dismiss that case for failure to state a claim, finding that allegations like Batson’s “indicate a capacity to mislead consumers and evince a lack of fair dealing.”  That case currently is in discovery.

In a surprising and important decision, a two-judge panel of the Second Circuit has refused to enforce a mandatory class action waiver found in the standard small-merchant American Express contract.

The decision in the In re American Express Merchants’ Litigation clears the way for a class action (as well as a related action which was partially stayed) challenging American Express’s Honor All Cards rule as an illegal tying arrangement.  The provision obliges merchants who accept American Express charge cards to also accept American Express credit and debit cards – along with the hefty discount fees those cards impose.

The case was surprising first because the Supreme Court had issued a GVR Order – summarily granting certiorari, vacating and remanding the case.  This generally means the Court believed that “intervening developments . . . reveal a reasonable probability that the decision below rests upon a premise that the lower court would reject if given the opportunity for further consideration.”  Lawrence v. Chater, 516 U.S. 163, 167 (1996).

Here that development was the Court’s Stolt-Nielsen decision.  Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775 (2010).  That case held that when an arbitration agreement is “silent” as to class actions, parties cannot be forced into class-wide arbitration.  The Stolt-Nielsen plaintiffs were limited to arbitrating their price fixing claims individually.

The Second Circuit – finding oral argument unnecessary – declined to alter its ruling.  In what may be prove to be a minority position, the Second Circuit held that it did not follow from Stolt-Nielsen that all class action waivers were automatically enforceable – rather, enforceability must be determined on a case by case basis.

On the facts, the Second Circuit reiterated its conclusion before remand that plaintiffs demonstrated they would incur prohibitive costs if compelled to arbitrate their antitrust claims – the class action device was the “only economically rational alternative.”  The court cited undisputed evidence that even the very largest merchant claims might only amount to some $40,000 after trebling, whereas the cost of an expert economist alone would be several hundred thousand dollars or more.

As it did before remand, the court agreed with plaintiffs that the class action waiver “flatly ensures that no small merchant may challenge American Express’s tying arrangements under the federal antitrust laws” in violation of the “firm principle” that “a waiver of future liability under the federal antitrust statutes is void as a matter of public policy.”

Although the court did not say so expressly, plaintiffs may now proceed with their class action claims in court.  The court declined to reform the provision and order class-wide arbitration, as Stolt-Nielsen plainly held that “a party may not be compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775 (2010) (emphasis in original).  As the Second Circuit noted in a prior case, clearly the “conclusion that a given agreement is invalid and unenforceable does not mean that the parties in fact reached the opposite agreement.”  Fensterstock v. Educ. Fin. Partners, 611 F.3d 124, 141 (2d Cir. 2010).

Most courts – outside of the antitrust context – have upheld class action waivers, and it remains to be seen whether others will now strike down such waivers when faced with antitrust claims.  There is more to come on this recurring issue – rehearing en banc and further Supreme Court review are likely.

Human Genome Sciences Inc. (“HGS”) is asking a federal court in Delaware to find that rival drug developer Genentech Inc. has violated U.S. antitrust laws by colluding with Celltech R&D Ltd. to fraudulently extend the life of a disputed patent.

The complaint in Human Genome Sciences Inc. v. Genentech Inc. alleges that Genentech and Celltech conspired in 2001 to fraudulently extend the life of the Cabilly patent, which protects a technology that uses recombinant DNA, which is critical to the manufacture of many biotech drugs.  HGS seeks damages as well as an injunction preventing the enforcement of the patent.

HGS alleges that under a 2001 agreement settling Celltech’s challenge to Genentech’s patent, Genentech made more than $1 billion in royalties due to the improperly extended patent term.  HGS claims that Genentech used the allegedly fraudulent patent to block the introduction of new drugs, including Benlysta, a new monoclonal antibody drug developed by HGS and GlaxoSmithKline to treat Lupus – an often-debilitating immune system disease. 

HGS brings this action just as it is making news with Benlysta.  The U.S. Food and Drug Administration approved Benlysta as a treatment for Lupus on March 9, 2011.  Benlysta is the first new drug approved to treat Lupus in 50 years.

Genentech has indicated that it intends to bring claims of infringement for the manufacture of Benlysta.

The U.S. Supreme Court has told manufacturers engaged in resale price maintenance that they can continue to rely on its controversial 2007 opinion in PSKS Inc. v. Leegin Creative Leather Products, which struck down the Court’s long-standing precedent that such vertical price restraints are per se illegal.

After nearly four years of additional proceedings, the Supreme Court’s original Leegin decision has now proved fatal to the plaintiff’s antitrust complaint, which challenged a manufacturer’s resale price maintenance policy.  The Supreme Court has denied certiorari to the decision of the Fifth Circuit Court of Appeals affirming the dismissal of the Leegin complaint, which underwent a lingering death as the Supreme Court remanded the case to the lower courts, which dismissed the plaintiff’s claim under the more lenient rule of reason standard endorsed by the high court.

In its initial 2007 opinion, a fractured Supreme Court held that the practice of vertical resale price maintenance was not per se illegal under antitrust laws.  That decision overturned the nearly century-old precedent set by Dr. Miles Medical Co. v. John D. Park & Sons, which held that the practice automatically violated Section 1 of the Sherman Act.  Now, such activity must be examined under the rule of reason, a more lengthy and costly inquiry that examines procompetitive benefits of a specific policy and the context surrounding it. 

Both the Dr. Miles precedent – which had been heavily criticized by some antitrust commentators – and the 5-4 decision overturning it, over a vigorous dissent, were controversial.  Some antitrust commentators, economists, and judges had argued that there are valid justifications for resale price maintenance, such as maintaining the image of a particular brand.  The majority concluded in 2007 that “respected authorities in the economics literature suggest that the per se rule is inappropriate, and there is now widespread agreement that resale price maintenance can have procompetitive effects.”  However, the dissent authored by Justice Stephen Breyer, which was joined by Justice Ruth Bader Ginsburg and then-Justices John Paul Stevens and David Souter, emphasized the pro-consumer, low price effects of such a rule and argued for the importance of respecting precedent under the doctrine of stare decisis.  But the Court overturned the lower court ruling adhering to the Dr. Miles precedent and remanded the case to where it originated in the Fifth Circuit.

After the Supreme Court rejected the per se standard for vertical price fixing in its 2007 decision, the case returned to the lower courts, which considered the plaintiff’s antitrust claims under the more defendant-friendly rule of reason.  A Texas retailer, Kay’s Kloset, which was operated by PSKS, had attempted to price the goods of Brighton, Inc., which makes handbags and other goods, at a price lower than the manufacturer demanded.  The manufacturer argued that a higher price for its good at the retail level would enable the retailer to spend more money on promoting the brand in the store and educating the customers about its products.  The Fifth Circuit Court of Appeals affirmed the dismissal of the Kay’s Kloset’s case against Leegin in 2010, and the Supreme Court has now declined to grant certiorari.

Patent holders seeking to settle patent infringement cases are breathing a little easier today as a result of yesterday’s decision by the Supreme Court not to review the ruling of the Second Circuit Court of Appeals in Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 05-2851-cv(L) (2d Cir. 2010) (“Cipro”).

The Supreme Court thereby leaves undisturbed the Second Circuit’s rule that payments by brand name pharmaceutical companies to generics in settlement of patent infringement litigation – pursuant to which the allegedly infringing generic agrees not to market its drug product prior to patent expiration – do not violate the antitrust laws unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit.

Notwithstanding a three-way split on this issue among federal courts of appeals, the Supreme Court was unpersuaded by petitioners’ argument to hear the case because such settlements allegedly cost government agencies and consumers billions of dollars per year in the form of higher drug prices.

The Cipro defendants argued that the issue was one of patent law, not antitrust law, and therefore the Supreme Court should not disturb the Second Circuit’s ruling on antitrust grounds.  The Supreme Court apparently accepted the defendants’ argument, although it gave no reasons for denying review.

Apple has piqued the interest of antitrust enforcers – again.

The U.S. Department of Justice and Federal Trade Commission are both interested in exploring whether Apple is now running afoul of antitrust laws by funneling media companies’ customers into the payment system for its iTunes store.

In the past year, the cutting edge computer maker has triggered government scrutiny for how it hires employees, negotiates with music companies, sets requirements for the applications that run on its iPhones, iPods, and iPads, and limits access of advertisers to its devices.  Steve Jobs’ company has now riled the publishing community – and once again attracted the interest of antitrust enforcers – with a business plan that may force publishers to pay 30 percent cut of revenue from all subscriptions they sell on Apple’s mobile devices.

Apple’s new program will change how publishers of “magazines, newspapers, video, music, etc.” sell their online publications.  Publishers will now pay Apple nearly a third of the revenue earned from subscriptions that publishers sell through Apple’s application store (or “app store”).  Apple will continue to allow companies to keep all the money from subscriptions publishers sell outside of Apple’s app store.  But at the same time, if a company wants to sell subscriptions to an Apple device, the publisher must guarantee that it is offering its lowest price to consumers who use the app store.  Also, Apple will share only minimal information about subscribers, while publishers often insist that they need detailed data about the people who buy their content to market more efficiently.  According to Steve Jobs, “Our philosophy is simple – When Apple brings a new subscriber to the app, Apple earns a 30 percent share: when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.”

Or maybe it’s not so simple.  According to Rhapsody, a music company that sells subscriptions to its iPhone app through Apple’s store, “The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple’s 30 percent monthly fee vs. a typical 2.5 percent credit card fee.”  Not content to merely complain, Rhapsody is also “collaborating with our market peers in determining an appropriate legal and business response.”

According to The Wall Street Journal, federal antitrust enforcers are also considering their options.  It is not yet clear whether the government will pursue a formal investigation, or which agency will take the lead.  Last year, the mere threat of government action prompted Apple to back down on two controversial rules.  One would have restricted which computer languages app developers can use to write computer code, and the other would have limited which mobile advertising networks could place ads on Apple’s mobile devices. 

While Apple’s iPhone has only a 16 percent share of the smartphone market, its users tend to buy more applications than users of other phones.  And, at least for the moment, Apple’s iPad dominates sales of tablet computers.  But whether or not antitrust enforcers act, Apple’s announcement has already triggered at least on market response:  Google has announced that it will start its own program to sell subscriptions, for just a 10 percent cut.

Rejecting claims of a horizontal price-fixing conspiracy, the U.S. Court of Appeals for the First Circuit has affirmed summary judgment against a class of Martha’s Vineyard residents suing gas station owners on the picturesque, emphatically low-key island that is best known as a summer colony.

The appeals court held that the plaintiffs in White v. R.M. Packer Co., Inc., failed to raise any fact question as to whether this was a case of an “agreement,” tacit or otherwise, to raise prices, or just permissible conscious parallelism.

The straightforward facts of the case could be lifted from a primer on antitrust law.   Like many other things, gas prices are high on the Vineyard – more than 56 cents per gallon higher than on Cape Cod, of which only 21 cents is attributable to higher transport costs.

Competition is also sharply limited.  There are only nine gas stations on the island, which has some 75,000 residents in the summer.  This is plenty, according to the Martha’s Vineyard Commission:  the commission hasn’t approved a permit for a new station in decades.  Gas is highly fungible, and stations post their prices for all – customers and rivals alike – to see.

Did the owners ever need to reach an “agreement” to raise prices?  While the case was “not economically implausible,” the court found the Vineyard market was “particularly conducive” to the maintenance of consciously parallel prices.  Plaintiffs failed to muster evidence that, in the words of the Supreme Court’s Monsanto decision, “tends to exclude the possibility of independent action.”  And the evidence plaintiffs did have – such as one owner, also a wholesaler, saying that if another station started “mucking around with prices one or two delivery trucks a week might not make it on the boat and they’ll get the idea real quick” – was dismissed as mere pressure from the wholesaler to his retail customer, not evidence of collusion. 

Plaintiffs’ other evidence of “plus factors” simply tended to confirm what most Vineyard residents know but put up with along with the other charms of island living:  the island’s gasoline market is oligopolistic and highly conducive to parallel pricing.  Plaintiffs failed, the court found, to explain how this pricing was a function of agreement rather than independent (or interdependent) decisions by station owners.