The United States Department of Justice (“DOJ”) is seeking to revive competition in the market for point-of-sale terminals by blocking VeriFone Systems Inc.’s proposed $485 million acquisition of Hypercom Corp.

Both companies operate in the electronic payments industry, and the DOJ claims that the deal would harm competition in the market for point-of-sale terminals in the United States.

The DOJ has commenced an antitrust lawsuit alleging that the merger of VeriFone and Hypercom would result in a dominant point-of-sale terminal manufacturer that would be likely to raise prices and reduce innovation, quality, product variety and service.   The complaint also alleges that a divestiture to French competitor Ingenico that had been proposed would not resolve the competitive concerns raised by the VeriFone/Hypercom transaction.

Last month, Hypercom announced that it had entered into an agreement to sell its U.S. point-of-sale terminal business to Ingenico in an effort to allay such antitrust concerns.  The DOJ, however, opined that the sale would not resolve antitrust concerns raised by the VeriFone deal because the Hypercom assets would be sold to another significant competitor in the market in a manner that does not create a new, independent, long-term competitor.

However, Hypercom has now abandoned its plans to divest its point-of-sale business to Ingenico after U.S. regulators stated that the divestiture would not satisfy the DOJ’s antitrust concerns.  The DOJ’s lawsuit to block the overall deal between VeriFone and Hypercom is still pending, and the DOJ is in discussions with them to identify an alternative buyer, presumably one the DOJ would consider to have the potential to be a long-term competitor of the companies.

MasterCard is discovering that Dutch competition authorities may be serious in their goal to increase competition in the payments market by encouraging banks not to go “steady” with MasterCard.

MasterCard is reporting in its 10-Q report that the Netherlands Competition Authority is challenging its co-branding and co-residency rules, which restrain banks from expanding their relationships with other payment systems.

According to MasterCard, the co-branding rules at issue can prohibit “financial institutions licensed by MasterCard from placing other payment systems’ brands on MasterCard cards.”  The challenged co-residency rules can prohibit “financial institutions from encoding other payment systems’ applications on the electronic ‘chip’ in MasterCard cards.”  A hearing on the matter was held on April 14, 2011.

This challenge comes after the Netherlands Competition Authority released its Vision Document on the Payments Market in December 2010.  In that statement, the Dutch authorities expressed the view that they would “like to see banks conclude contracts with payment systems other than MasterCard.”

Skyrocketing gas prices may be getting an extra boost from anticompetitive conduct according to some Democratic legislators that are urging the Federal Trade Commission to investigate possible anticompetitive conduct by gasoline refineries.

Last week, Democratic senators, including Senators Claire McCaskill, Charles Schumer, Patty Murray and Senate Majority Leader Harry Reid, asked the FTC to investigate whether gasoline refiners have restrained supply of gasoline in order to increase prices.  In a letter to Jon Leibowitz, the Chairman of the FTC, they questioned whether U.S. inventories may have been kept artificially low in order to maintain high gas prices, citing evidence that “refineries are using only 81.7 percent of their capacity, a decline of 7 percent from the same time last year.” 

D.C. and Maryland attorneys general also recently announced investigations.

D.C.’s Attorney General is investigating Capitol Petroleum Group (“CPG”), D.C.’s largest owner of gas stations, for potential anticompetitive practices.  CPG owns/operates a large number of gasoline stations in D.C.  The investigation will center on whether CPG’s gas station holdings represent an illegal monopoly under D.C.’s antitrust law, and might also look into CPG’s primary owner’s dual role as a gas station owner and gas wholesaler through another company called DAG Petroleum.  Four years ago, the D.C. Council repealed a law prohibiting wholesalers from owning individual service stations based on competition concerns.  It might be revisiting that decision.  CPG’s owner in a statement argued that the gas stations he owns are managed by individual franchisees which independently set the price of gas at the pump.

Maryland’s Attorney General is investigating “sudden and dramatic” increases in gas prices at a number of Maryland stations supplied by Empire Petroleum Holdings.  Empire, a distributor, apparently told its retailers that prices had to be raised about 25 cents a gallon because of the Mississippi River flooding.

Both target companies are contesting allegations of anticompetitive conduct.

Plaintiff Race Tires America Inc. is racing to appeal an order of Judge Terrence F. McVerry of the United States District Court for the Western District of Pennsylvania ordering it to pay $367,369 in e-discovery costs to Hoosier Racing Tire Corp. and Dirt Motor Sports, Inc., the winning defendants in Race Tires America Inc. v. Hoosier Racing Tire Corp.   

Race Tires, a division of Speciality Tires of America, initiated the litigation in 2007 claiming that its competitor, Hoosier Racing Tire Corp., violated the Sherman Act by entering into exclusive supply contracts with Dirt Motor Sports, a motorsports racing sanctioning body.

Dirt Motor Sports sanctions at least 5,000 races in 21 states each year and adopted a “single tire rule” which exclusively required Hoosier tires for its sanctioned events.  Race Tires America alleged that the exclusive contracts shut it out of the dirt oval race track market. 

Judge McVerry granted summary judgment in favor of defendants finding that Race Tires failed to show it sustained an antitrust injury.  He held that exclusive contracts are permissible when a sports entity freely decides it wants exclusivity and has procompetitive, good faith or business motives for entering into the agreements.  The United States Court of Appeals for the Third Circuit affirmed the ruling in 2010. 

After the ruling by the Third Circuit, each defendant filed a Bill of Costs with the District Court – mostly for the costs of e-discovery.  The Clerk of Court slightly reduced the costs owed to defendants and Race Tires then moved for review claiming that costs of e-discovery are not allowed under 28 U.S.C. § 1920(4).  The statute allows recovery of “(f)ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” 

Judge McVerry acknowledged that the terms “exemplification” and “copying” originated and were developed in the world of paper, and that courts need to figure out how to apply these terms to the world of electronically stored information.  The court noted that the Third Circuit has yet to address the issue of whether e-discovery costs are taxable but pointed to the Sixth Circuit which has held that electronic scanning and imaging could be interpreted as “exemplification” and “copies” of paper.

Judge McVerry also discussed how Congress, in 2008, changed the wording of § 1920(4) from “fees for exemplifications and copies of paper” to “fees for exemplification and the costs of making copies of any materials.”  No court has categorically excluded e-discovery costs from allowable costs since the amendment’s passage.

The court found that that the requirements and expertise to retrieve and prepare the e-discovery documents for production were an “indispensable” part of the discovery process and denied Race Tires’ objection to the taxation of e-discovery costs.  Judge McVerry reasoned that the parties had agreed that responsive documents would be produced in an electronic format.  Race Tires also aggressively pursued e-discovery under the Case Management Plan.  Defendant Hoosier hired experts to collect and image hard drives, to scan documents, to create electronic images, to process and index electronic data, to allow documents to be OCR-searchable and to convert documents to the required .tif format. 

Race Tires is appealing the decision to the Third Circuit.

Plaintiffs in the case of In re Packaged Ice Antitrust Litigation have convinced the court that tape recordings of conversations from a criminal investigation into alleged price fixing of packaged ice sold in retail stores and gas stations should not remain on ice.

Judge Paul Borman of the U.S. District Court for the Eastern District of Michigan has ordered the Department of Justice (“DOJ”) to produce tape recordings and transcripts in response to the direct purchaser plaintiffs’ motion to compel.  The production will be reviewed in camera by the judge to see whether there is any need for protection. 

The plaintiffs are purchasers of packaged ice from defendants, including Reddy Ice, Arctic Glacier, and Home City Ice, three major players in the packaged ice industry.

The tape recordings and transcripts at issue allegedly involve former employees of the defendant ice manufacturers and allegedly incriminate a number of potential witnesses in the direct purchaser plaintiffs’ civil antitrust case.

The tapes and transcripts were collected during the DOJ’s criminal antitrust investigation of the defendants.  As part of its investigation, the DOJ collected the tapes and documents at issue by recruiting individuals to record conversations with people integral to the alleged conspiracy – a common practice to investigate conspiratorial activities.  The criminal investigation ultimately led to guilty pleas from Arctic Glacier and Home City, as well as three former Arctic Glacier employees.

Two of the three original defendants to the civil action, Arctic Glacier and Home City, have already settled with the direct purchaser plaintiffs or are seeking settlement confirmation.  Reddy Ice remains an active defendant. 

The direct purchaser plaintiffs subpoenaed the DOJ and asked for the tapes and transcripts.  The DOJ objected to the subpoena on the grounds of sovereign immunity and lack of jurisdiction, investigatory files privilege, law enforcement privilege, and work product protection. 

Judge Borman found that the court had proper jurisdiction and that sovereign immunity did not bar the court’s review of the dispute.  On the substance, the court held that the privileges and work product protection invoked by the DOJ did not justify shielding discovery by the direct purchaser plaintiffs.  The judge seemed particularly persuaded by the argument that since the defendants’ counsel had access to the tapes and transcripts during the prior criminal investigation, denying the direct purchaser plaintiffs access would “significantly prejudice” plaintiffs’ discovery efforts.

Several anonymous commodities traders are being accused of manipulating trades for futures contracts in a multi-million dollar conspiracy to keep commodities trading firm Arctos Capital from participating in the market

In Arctos Capital LLC v. John Does 1-5, Arctos Capital is seeking $60 million in damages from several anonymous traders of continuous commodities index (“CCI”) futures contracts for allegedly colluding to exclude it from the ICE Futures U.S. trading market.  Arctos Capital’s complaint in the U.S. District Court for the Southern District of New York claims the anonymous traders violated several laws, including the Sherman Act and the Commodities Exchange Act.

The ICE Futures U.S. trading market is a private, electronic exchange in which traders buy and sell CCI futures and options contracts.  Such markets are regulated by the Commodity Futures Trading Commission.  The CCI includes 17 commodity futures, including coffee, cotton, crude oil, cattle, gold, and soybeans.  Arctos Capital alleges that the market is very concentrated with few traders.  For example, fewer than 10 trades are completed in some months.  

CCI futures contracts are standardized contracts between a buyer and seller to buy or sell a specific asset on a specific future date.  Under this arrangement, the buyer takes a “long” position, and the seller assumes the “short” position.  CCI future contracts are cash-settled upon expiration, meaning that cash is transferred on the settlement date from the party who sustains a loss to the party who realizes a profit. 

According to Arctos Capital’s complaint, there are two ways to maintain a long-term “long” position in the ICE Futures U.S. market.

The first way to maintain a long position is for the holder of a contract to purchase another CCI futures contract with a date further in the future, and then allow the current contract to expire.  This is known as trading on the “outright” market.

The second way to maintain a long position is for a participant to trade the “spread,” which means simultaneously selling the current contract and buying a contract with date further in the future.

Arctos Capital alleges that one participant in the ICE Futures U.S. trading market holds a large “long” position, and as a result, a large number of CCI futures contracts trade over the course of a few days prior to the expiration of each contract.  According to its complaint, Arctos Capital saw a business opportunity in this trading pattern and entered the market as a CCI futures seller in 2009.

However, as soon as Arctos Capital began to trade on the ICE Futures U.S. market, it allegedly noticed a pattern of illogical trades in reaction to its entrance into the market.  For example, Artcos Capital offered CCI futures contracts for sale and received a bid, but the anonymous bidder immediately and “inexplicably” reduced its number of bids.  At the same time, an anonymous seller suddenly reduced its contract price so that buyers began to purchase CCI future contracts from it instead of Arctos Capital.  Arctos Capital alleges that these actions serve as evidence of communication between the anonymous bidders and sellers, and those actions prevented it from meaningful participation in the market.

Arctos Capital alleges that collusive activity continued into 2010 that continued to prevent its participation in the market, including traders moving to the “outright” market (a riskier and less efficient form of trading), trades occurring almost simultaneously for which no other party could compete, and selling CCI futures contracts below historical prices. 

Taken together, Arctos Capital believes these actions demonstrate that participants in the ICE Futures U.S. market are communicating with each other to prevent competition.

Britain’s Office of Fair Trading (“OFT”) will announce this month whether it is investigating market dominance of the “Big Four” accounting firms – Deloitte LLP, Ernst & Young LLP, PricewaterhouseCoopers LLP and KPMG LLP.

The investigation would follow a House of Lords Economic Affairs Committee report entitled “Auditors: Market concentration and their role,” released in late March criticizing the big four auditors for their lack of oversight and their failure to warn regulators before the financial crash.

In that report, the Committee calls for a competition probe of the large auditors and dominance in the market.  According to the Committee, 99 out of the FTSE 100 companies (and 240 of the FTSE 250 companies) were audited by the Big Four.  The Committee noted concerns about “competition, choice, quality and conflict of interest.”

The OFT previously made submissions to the Committee and to the European Commission regarding competition in the audit market.  An OFT probe would likely include bank loan covenants that require borrowers to use the big four auditors.

Bob Marley may have been the first Reggae superstar and the writer of such hits as I Shot The Sheriff, but he is not a product market, according to a California federal judge.

The U.S. District Court for the Central District of California has dismissed the antitrust claims in Rock River Communications Inc. v. Universal Music Group Inc., rejecting Rock River’s theory that reggae music – and Bob Marley in particular – is a relevant product market that Universal was monopolizing. 

The litigation stems from Rock River’s 2006 release of remixed Bob Marley and the Wailers recordings titled “Roots, Rock, Remixed.”  Universal, which claimed to have the exclusive right to these recordings, sent “cease and desist” letters to several major music distributors, including Apple Inc.’s iTunes, Amazon and Virgin, who promptly pulled the album from their shelves. 

In response, Rock River sued Universal alleging that it violated Sections 2 and 7 of the Sherman Act by (1) attempting to monopolize the reggae genre of sound records in the United States; and (2) restraining trade and threatening to create a monopoly.  Rock River also sued Universal for allegedly interfering with its prospective economic advantage by sending the cease and desist letters.

Despite nearly three years of litigating the case, Rock River offered paltry evidence as to product market definition, market power and barriers to entry.  In particular, Rock River argued that Universal had monopoly power based on the percentage of Bob Marley albums it has sold.  Rock River alleged that Universal “accounted for 81 percent of the reggae sound recordings sold, and Bob Marley recordings accounted for 76 percent of the total reggae recordings sold.”  In formulating these market share numbers, Rock River simply presented a declaration from a lay witness.  Moreover, Rock River essentially agreed with defendants that there were no barriers to entry in the market for reggae music.

Based on Rock River’s failure to show that there were any genuine issues of material fact, the court granted Universal’s motion for summary judgment on the antitrust claims.  The court held that plaintiff’’s proposed product market was “too narrow to be relevant for antirust purposes” as it focused on Bob Marley sound recordings, rather than reggae music as a whole.  The court noted, however, that even if the product market were a single genre of music, Rock River failed to offer evidence regarding either price-sensitivity of the market or that other genres of music are not a reasonable substitute for reggae music.

Finally, the court found that Rock River presented “no cognizable evidence” with respect to market share or any evidence showing that there are barriers to entry in the alleged market. 

The court allowed Rock River’s claim for interference with prospective economic advantage to go forward, finding that there is a question of fact regarding whether Universal indeed had the exclusive right to sell the recordings at issue.

Although Microsoft’s epic antitrust battle with the U.S. Department of Justice officially comes to an end tomorrow, with the expiration of the government’s decade-long oversight of the software giant, Microsoft has learned that another antitrust challenge has just received a new lease on life.

The United States Court of Appeals for the Fourth Circuit has revived the antitrust action Novell filed against Microsoft involving Novell’s office software applications WordPerfect and Quattro Pro.  Last year, the U.S. District Court in Maryland dismissed Novell’s antitrust claims.

The Fourth Circuit has now held that Novell is free to pursue an antitrust claim even though Microsoft settled a related suit with another company, Caldera, Inc., for $280 million.  The Fourth Circuit ruled that Novell’s sale in 1996 of its desktop operating system business to Caldera did not prevent it from seeking damages from Microsoft for allegedly using its monopoly power in the operating systems market to squash Novell’s office applications.

In 1996, Novell made a deal assigning certain rights to sue Microsoft to Caldera.  Caldera sued Microsoft over competition in the operating system market, receiving a $280 million settlement four years later, of which Novell received a $35 million share.  Then in 2004, Novell sued Microsoft in its own right, claiming WordPerfect was the victim of unfair competition by Microsoft, and last year Microsoft won summary judgment against Novell in that case on the grounds that Novell’s claims were subject to the 1996 agreement with Caldera.

But whereas the district court held that Novell signed away its software application claims to Caldera along with the operating system claims, the appeals court refused to abandon distinctions between the products harmed by Microsoft’s allegedly anticompetitive practices and will allow Novell to proceed with its one remaining antitrust claim.

Novell, which was purchased by Seattle-based Attachmate, Inc. last month, is seeking several billion dollars in treble damages under the antitrust laws.

The European Commission (“EC”) is commencing two antitrust investigations of the market for credit default swaps (“CDS”).

The EC investigations follow a similar investigation by the United States two years ago.  CDS, often vilified as a prime catalyst of the global financial crisis, are financial instruments that provide investors with protection in the event the subject entity defaults on payments.  For this reason, CDS are often seen as insurance against default – buyers pay money in exchange for a payoff if the reference entity (a third party) defaults on an independent credit instrument.  The CDS market is a multi-trillion-dollar industry.

The two EC investigations are described by the Commission in a press release as follows: (1) “whether 16 investment banks and Markit, the leading provider of financial information in the CDS market, have colluded and/or may hold and abuse a dominant position in order to control the financial information on CDS”; and (2) “whether preferential tariffs granted by ICE [Clear Europe, the leading clearing house for CDS,] to [nine] banks have the effect of locking them in the ICE system to the detriment of competitors.”

At its core, the EC’s first investigation concerns the fact that Markit maintains exclusive possession of invaluable daily market information, including information on prices and indices.  An emphasis is placed on probing Markit’s agreements with the entities that provide the market information and possible concerted conduct to determine whether competition in the financial information market is stifled.

The second investigation centers on certain preferential-treatment provisions in contracts between nine CDS dealers and ICE Clear Europe.  The principal concerns are (1) whether these preferential provisions make entry into the clearing-house market unreasonably challenging, thereby limiting competition and choice; and (2) whether the agreements contain fee arrangements that unfairly advantage these nine CDS dealers to the detriment of other CDS dealers.

Although some critics find this move unnecessarily duplicative given the recent regulatory efforts to improve transparency in the CDS market, the EC appears steadfast in its investigation.  As stated in its press release, “[t]he Commission’s antitrust tools are complementary to these regulatory measures . . . .”  The common purpose of both efforts is to improve fairness in this particularly opaque market setting.