Will a federal court of appeals send modern antitrust analysis diving into the deep end of a patent pool case to determine whether a jointly-developed standard should be considered patent misuse?

On March 3, the U.S. Court of Appeals for the Federal Circuit sat en banc to consider how to apply the patent misuse doctrine to patent pooling arrangements for standardized technologies, including the significance of evidence of anticompetitive effects such as the blocking the development of new technologies.

At issue in Princo v. U.S. International Trade Commission is whether it was patent misuse for a patent pool established by Philips, Sony and others to both include a potentially blocking patent that was not actually used in the standard and preclude that patent from being licensed outside the pool. 

Philips and Sony agreed to jointly develop a standard for recordable and rewritable compact discs (known as the “Orange Book”).  In developing the standard, they did not jointly develop any technology.  Rather, they used technologies each independently had developed.  In one instance, they chose one of two competing methods.  The Sony patent not chosen was, by some accounts, not commercially feasible.  However, an independent patent analyst believed one claim of the Sony patent could read more generally on the standard and, thus, block Orange Book adopters from practicing the standard.  Therefore, Philips determined to include the Sony patent in the pool, and subjected Sony to the pool’s requirement not to license the patent for use outside the Orange Book standard. click here for more »

The U.S. Department of Justice is pulling hard on the reins to slow down a proposed merger between Churchill Downs, the famous racetrack home to the Kentucky Derby, and Youbet.com, an online horseracing gambling website.

The DOJ has issued the companies a “second request” under the Hart-Scott-Rodino Act for additional information on the proposed merger. 

Second requests are rare, and dramatically increase the transaction costs associated with a merger.  Some merger agreements even contain provisions that terminate the merger in the event of a second request.

That doesn’t appear to be the case in the Churchill Downs-Youbet.com merger, however.  Churchill Downs’s CEO recently stated he expects the deal to finish the second quarter of 2010.  Youbet.com has scheduled a special meeting of stockholders on April 6 to vote on the planned merger.

Procrastination may be the thief not only of all time, but also of $3.5 billion from the pockets of health care consumers, according to the FTC.

Citing a cost of billions of dollars to consumers, the FTC is challenging “pay-for-delay” reverse settlements in which pharmaceutical companies pay generic drug companies to not make a generic version of a drug.

There are two fronts in this effort.  The FTC is attempting to convince Congress to ban the practice outright, and in the meantime it is litigating two lawsuits opposing the practice on antitrust grounds. 

One lawsuit was filed in February 2008 in the Eastern District of Pennsylvania against Cephalon, Inc., which paid four generic drug companies to stay out of the market of the drug Provigil.  Another case was filed in January 2009 against AndroGel in the U.S. District Court for the Northern District of Georgia.  The AndroGel case has the added element of joint promotional efforts between the defendants and backup supply deals, in addition to a pay-for-delay reverse settlement.

The FTC has already been unsuccessful once in a case involving reverse payments against Schering-Plough Corporation in the Eleventh Circuit, but it hopes that additional factors in the two new cases will bring success.  The Cephalon case has an added claim of attempted monopolization of the market, while the AndroGel case involves co-promotion agreements between competitors.  Neither element was present in the Schering-Plough case. click here for more »

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.

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.

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.”

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.”

Although Ticketmaster’s got a ticket to ride with its merger target, Live Nation, the ticket vendor is finding that the price of a ticket for a merger has gone up in the Obama Administration.

The Antitrust Division of the U.S. Department of Justice forced Ticketmaster this week to take actions to achieve antitrust clearance of its merger with Live Nation.  Among other things, Ticketmaster was compelled to license its intellectual property to a competitor for five years as a condition for deal approval.

Ticketmaster, the largest vendor in primary ticketing, sought to merge with Live Nation, a small competitor in primary ticket vending and the largest concert promoter in the U.S.  The Division determined that the merger would have substantially lessened competition in primary ticket sales by resulting in higher ticket prices for events.

To remedy this likely competitive harm, the Division caused Ticketmaster to divest one of its subsidiaries and to provide that subsidiary (as an independent competitor) with the ability to utilize Ticketmaster’s “host” primary ticketing electronic platform.  As a result, this new competitor will be able to offer consumers the same sophisticated e-ticket technology offered by the dominant, merged entity on a substantial scale. click here for more »

Italian consumer rights group Codacons has filed class action lawsuits against Italy’s two largest banks – Intesa Sanpaolo SpA (ISP.MI) and UniCredit SpA (UCG.MI) – for banking fees paid by more than 25 million customers.

The cases are the first to be brought under a new law permitting class action suits in Italian courts, and could force the two banks to pay up to 6.25 billion Euros (approximately nine billion dollars) to their customers.

In December 2009, an antitrust regulator ruled that the Italian banks charged higher fees on loans and credit lines to recover part of the overdraft fees canceled by the government in July.  In some cases the bank overdraft fees were 15 times higher than under the old system which was abolished with the aim of lowering charges.

The 25 million customers of Intesa and UniCredit who paid the banking fees can file a request for reimbursement of 250 Euros each, resulting in an overall total of 6.25 billion Euros.

The new law, effective as of January 1, 2010, allows collective lawsuits against any unfair commercial practice from August 16, 2009 onward.  However, unlike in the United States, the Italian law only allows for compensation to victims, not punitive damages against companies. click here for more »