In a major victory for consumer groups and a substantial blow to deregulation proponents, the U.S. Court of Appeals for the Third Circuit has reined in the Federal Communications Commission (“FCC”) and struck down its revised rules designed to deregulate media ownership.

The Third Circuit’s second major decision in Prometheus Radio Project v. Federal Communications Commission (“Prometheus II”) rejects rules adopted by the FCC in 2007 that would have paved the way to further corporate consolidation of media ownership.  Among other things, Prometheus II blocks the FCC’s attempt to end the 35-year-old ban on ownership by the same entity of a newspaper and a radio station in the same media market.

Rather than a substantive assessment of the FCC’s proposed deregulation of media ownership rules, however, the Third Circuit’s decision was a stinging rebuke of the FCC’s disregard for public notice and comment requirements under the FCC’s then-chairman Kevin J. Martin.

The Third Circuit’s ruling in Prometheus II was not first time the court foiled the FCC’s efforts to lift the cross-ownership ban.  In adopting new rules in 2003, the FCC made its first stab at lifting the cross-ownership ban.

Consumer groups quickly challenged the changes adopted by the FCC in 2003.  In the first round of Prometheus Radio Project v. Federal Communications Commission (“Prometheus I”), the Third Circuit considered consumers’ objections to those revised rules.  The court agreed with the FCC that a complete ban on newspaper/broadcast cross-ownership was no longer necessary to protect media diversity, but held that the regulation of cross-ownership was still in the public’s interest.  Finding that the regulatory mechanism proposed by the FCC in place of the cross-ownership ban suffered a dearth of reasoned analysis, the Third Circuit rejected and remanded the FCC’s 2003 rule changes.

In rejecting and remanding the FCC’s 2003 rule changes, the Third Circuit advised the FCC that “any new ‘metric for measuring diversity and competition in a market be made subject to public notice and comment before it is incorporated into a final rule.”

Despite the Third Circuit’s admonition, the FCC’s July 2006 public notice inviting comment on issues remanded by the court in Prometheus I regarding cross-ownership was vague.  The notice asked only whether limits should vary depending on the characteristics of local markets, and if so, how should they be factored into any limits.  Two Commissioners dissented from the order calling for public notice and comment, complaining that the notice was unclear and open-ended.  Commissioner Michael J. Copps wrote, “I do not see how we can be transparent and comply with the dictates of the Third Circuit [in Promethseus I] without letting the American people know about and comment on any new standards of measurement that we are adopting in developing our ultimate decision.”

On November 13, 2007, The New York Times published an Op-Ed by then-FCC Chairman Martin disclosing the details of his proposal for a new newspaper/broadcast cross-ownership rule.  The same day, Chairman Martin issued a press release setting a 28-day deadline, not the usual 90-day period, for the public to comment on his proposal.

On November 28, 2007, with more than two weeks before the truncated public comment period was to close, Chairman Martin circulated an internal draft of the rulemaking Order to the other Commissioners.  In an effort to slow down the FCC’s rule-making process to provide for a meaningful notice and comment period, on December 17, 2007, a bi-partisan group of 25 U.S. Senators sent the FCC a letter urging it to delay its vote.  The FCC was unmoved by the Senators’ letter and adopted the new rules by a three to two vote on December 18, 2007. 

In Prometheus II, the Third Circuit vacated and remanded the FCC’s new rule governing newspaper/broadcasting cross-ownership with almost no substantive consideration of the rule.  Rather, the court’s ruling was grounded in what it deemed as the FCC’s failure to comply with the Administrative Procedures Act (“APA”).

The FCC conceded that Chairman’s Martin’s Op-Ed/Press-Release did not satisfy the APA’s notice requirements.  It argued, however, that the two sentences contained in its July 2006 notice requesting general comment regarding whether limits should vary depending local market characteristics, and if so, how, satisfied the APA’s notice requirements.

The Third Circuit disagreed, noting that until Chairman’s Martin’s November 2007 Op-Ed/Press Release, “the public did not know even what options he was considering, let alone the Commission.”  The court found the 28 days Chairman Martin provided for responses to his proposed rule in direct contravention with the APA which requires that the public have a meaningful opportunity to submit data and written analysis regarding a proposed rulemaking.

The Third Circuit issued a clear warning that the FCC comply with the APA’s notice and comment requirements in any future attempt to modify its rules.

As part of an effort to streamline their regulatory review of mergers, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) have made “substantive and ministerial” revisions to the form required for proposed mergers under the Hart-Scott-Rodino Act. 

The Hart-Scott-Rodino Act requires companies to seek prior approval for acquisitions exceeding $65 million.  The DOJ and FTC say the changes will make the form easier to complete and make the review process more effective.

Applicants for merger approval will no longer need to provide documents filed with the Securities and Exchange Commission, “base year” data, or a breakdown of voting securities to be acquired.  The updated form includes new categories such as certain revenue information that will assist the antitrust enforcers in making a ruling. 

The DOJ and FTC developed these modifications after seeking public comment.  Bank of America, JPMorgan Chase & Co., and the Sections of Antitrust Law and International Law of the American Bar Association were among the 11 entities that provided recommendations.

Two major players in the automotive manufacturing industry, Sweden’s Autoliv and Michigan’s TRW, are under investigation by the antitrust divisions of both the U.S. Department of Justice (“DOJ”) and the European Commission (“EU”). 

Both companies are multi-billion dollar corporations that supply safety systems, such as seatbelts, airbags and steering wheels, to automakers.  Autoliv and TRW each operate on a global scale, employing thousands of people worldwide. 

The EU recently conducted surprise visits to Autoliv and TRW manufacturing facilities in Germany.  A spokesman for the Commission said that there “is reason to believe that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices.” 

In the U.S., the DOJ is overseeing a similar investigation and has subpoenaed documents from both TRW and Autoliv. 

In keeping with their policies, neither agency has provided details of these ongoing investigations.

The U.S. Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) plan to sign a memorandum of understanding with China’s three antitrust enforcement agencies, signaling the first formal pact of cooperation between U.S. and Chinese regulators. 

This deal comes on the heels of China’s sweeping antitrust reform, a policy it developed with advice from foreign agencies like the FTC.  The growing number of countries with antitrust laws and agencies, combined with the increasingly global profile of corporations, has made international cooperation extremely important.  Moreover, multi-jurisdiction, transnational antitrust investigations are now common, meaning that different agencies often have overlapping authority. 

A formal memorandum of understanding facilitates agencies’ ability to share information, especially confidential documents.  The FTC hopes this deal will bring international antitrust policy one step closer to a convergent set of global standards with consistent enforcement. 

The U.S. shares similar agreements with a handful of other countries (Russia, Japan, Israel, and the E.U.) and intends to actively pursue new deals, especially with developing countries like India.

The Antitrust Division of the U.S. Department of Justice has updated its Policy Guide to Merger Remedies.

In a press release, the Antitrust Division stated that the updated Policy Guide takes into account new merger dynamics that have surfaced since the issuance of the original guide in 2004, particularly the rise of transnational mergers and complex vertical transactions.

The Antitrust Division uses the policy guide in analyzing proposed remedies for potentially anticompetitive mergers reviewed by its staff.

The update highlights the role of the Antitrust Division’s new Office of the General Counsel, which is responsible for enforcing consent decrees.  One of the main goals of the update is to more accurately reflect the division’s actual merger remedy practices.

The revised policy guide also maintains the original goal of providing effective merger remedies when necessary to preserve competition in the relevant market and promote innovation and consumer welfare.

The end of the decade-long federal court supervision of Microsoft’s licensing practices last month provides an opportunity to reflect on the impact that case has had.  A lasting legacy of the U.S. v. Microsoft case is that monopolists in dynamic and rapidly changing high-tech industries do not receive special treatment under the Sherman Act.  There is no presumption that high market shares will be counteracted by the possibility of innovation by competitors, without convincing proof.

In an article for Law360, Constantine Cannon’s Mitch Stoltz reflects on the long-term impact on antitrust in the software industry of the Justice Department’s 1999 monopolization suit against the software giant.

The historic case was resolved in 2001 with a settlement that provided for a decade of government oversight of Microsoft, which ended in May 2011.

The DOJ and state attorneys general had claimed that Microsoft’s use of contracts with PC manufacturers to control which programs could appear on the Windows “desktop” violated Section 2 of the Sherman Act as a form of monopolization or attempted monopolization.  They also claimed that Microsoft’s commingling of the computer code for the Windows operating system and the Internet Explorer browser was a form of tying that illegally excluded other browsers, such as Netscape Communicator, from the market. 

Microsoft and its supporters claimed that its restrictive contracts were not anticompetitive because, despite its very high market share in the PC operating system market, the possibility of rapid innovation by competitors like Netscape effectively checked any Microsoft attempt to wield market power.  They also argued that combining the browser with the operating system was innovative and that to punish it as tying would bring the courts into the business of judging technological merit.

After a bench trial and appeal, the Court of Appeals for the D.C. Circuit ruled that Microsoft possessed and abused monopoly power in violation of Section 2 through its manufacturer contracts.  The court also ruled that the “tying” of two software programs technologically must be evaluated under the rule of reason, taking into account procompetitive and anticompetitive effects, rather than being declared per se illegal.

In other words, the court held that lower courts can and should look into the technological merit of combining two software programs to see if the combination truly benefits consumers rather than simply locking out competitors.

The Federal Trade Commission (“FTC”) has approved Microsoft’s $8.5 billion purchase of Internet telephone giant Skype. 

Opponents of the deal have pointed to several aspects of Microsoft’s purchase of Skype that they claimed would negatively impact competition.  They expressed concern about greater horizontal integration because Microsoft already offers a similar service through its Windows Live product.  Industry experts and Skype users alike also worried that the deal would mean Microsoft limiting Skype support to its own platform.

While the FTC does not publish the reasoning for these decisions, its swift approval of the deal indicates that it did not find these concerns compelling. 

Microsoft had a number of factors working in its favor, most importantly the robust competition in the Internet telephone market.  Industry heavyweights Google and Apple both have services that directly compete with Skype.  Google and Apple rival Microsoft in resources and market power, making it less likely that Microsoft’s control of Skype would enable it to dominate the market.  Microsoft’s plan to keep Skype as a separate division and its promise not to limit support to its own operating system were also important in allaying fears of anticompetitive practices.  

Microsoft says that it hopes to complete all further regulatory procedures by the end of the calendar year.

The FTC reviewed the acquisition under the Hart-Scott-Rodino Act of 1976, which requires the FTC and the Department of Justice (“DOJ”) to investigate mergers valued at more than $65.2 million to avoid anticompetitive outcomes.  Because it is often exceedingly costly or even impossible to restore a market to a healthy, competitive condition, the FTC and DOJ are tasked with preventing anticompetitive effects through the merger approval procedure.  The agencies examine more than 1,000 such cases each year, the vast majority of which are approved.

Antitrust concerns are causing the U.S. Department of Justice to eye an unprecedented auction of a mother lode of digital-communication technology warily.

Bankrupt telecom equipment maker Nortel Networks plans to auction off a treasure trove of more than 6,000 high-tech patents next week.  The patents cover vital parts of the new 4G LTE wireless protocol, wireless video, Wi-Fi, and many other wired and wireless communications technologies.

The Justice Department has expressed concern that the new owner of these patents could use them to create barriers to entry in digital communications.

The first company to announce a bid was Google, which began the public positioning for the auction with an $800 million “stalking horse” bid that others are expected to top.  The winning bid may easily exceed $1 billion.

While the Justice Department has approved Google’s bid, it is also reported to be investigating some others.  Apple, Intel, RIM, and Ericsson are expected to bid before the auction concludes next week.

According to the Justice Department’s guidelines on antitrust issues with intellectual property, a patent owner can generally license or refuse to license its patents to anyone, if it acts unilaterally.  Refusing to license a patent is considered an exercise of the rights inherent in a patent, to exclude others from using or selling an invention.  This rewards innovation and creates an incentive to disclose new inventions instead of keeping them secret.

On the other hand, licensing patents with conditions can harm competition outside the rights granted by the patent itself, and can violate the Sherman Act, according to the Justice Department’s guidelines.  While not per se illegal, patent licenses that require the licensee to license its own, unrelated patents to the original licensor, or to transfer any follow-on patents to the licensor, may diminish other companies’ potential to profit from their own inventions, which could suppress innovation in general.  Licenses that dictate the pricing of goods that use the patent are more likely to be found illegal.

One worry that some technology companies have expressed about the Nortel auction is that the winner could change the terms of their licenses to the patents going forward.  Where a patented technology is vital to a company’s business, demanding new terms when renewing a longstanding license in a way that would significantly raise their costs of doing business could possibly violate Section 2 of the Sherman Act, based on the Supreme Court’s decision in Aspen Skiing Co. v. Aspen Highlands Skiing Corp.

However, the Supreme Court has since said that Aspen Skiing represents the “high-water mark” of liability for refusing to deal with a competitor.  It may well be that no liability would arise for a licensing change, even with a long-term relationship between owner and licensee.

Given that the Justice Department has already cleared a major bid in the Nortel auction, the auction is likely to proceed without any formal antitrust challenges.  But the Justice Department’s positions on patent licensing – not to mention the courts’ – have certainly had an impact on the content of the bids and the conduct of the auction itself.

The Antitrust Division of the U.S. Department of Justice is investigating whether third-party sellers of airline tickets have violated antitrust law

The federal investigation opens a new front in the legal battles involving several U.S. airlines and the companies that aggregate and distribute flight and booking – the practices known as global distribution systems (“GDSs”).  GDSs serve as intermediaries between airlines, online ticket sellers, and travel agents by providing airlines’ flight information to the ticket sellers and booking information to the airlines.

Several airlines, including American Airlines, Delta, and U.S. Airways, and the major GDSs, including Sabre, Travelport, and Amadeus, have confirmed that they have received civil investigative demands from the Antitrust Division.  According to several reports, the Justice Department is investigating “the possibility of anti-competitive practices in the global distributions industry.” 

In April, American Airlines sued Orbitz Worldwide Inc. and air fare data provider Travelport, one of the leading GDSs, for allegedly making American’s fares wrongfully appear more expensive than the fares of other airlines.  Also in April, U.S. Airways filed an antitrust suit against Sabre, another major GDS.

American claims that Travelport was retaliating against American’s Direct Connect network, which directly connects online ticket sellers and travel agents to the airline’s reservation system.  Such a system circumvents GDSs and their associated fees.

GDSs typically charge about two percent of total tickets costs.  In 2008, GDSs sold 64 percent, or $81 billion, of U.S. airline tickets.

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.