Judge Paul Crotty of the U.S. District Court for the Southern District of New York dismissed with prejudice an antitrust suit brought by bankrupt magazine wholesaler Anderson News LLC against a host of single-issue magazine publishers. 

Crotty ruled that Anderson’s allegations of a broad industry-wide conspiracy did not meet the plausibility standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), saying that it was implausible that magazine publishers would conspire to deny retailers access to their own products. 

Anderson had proposed a small surcharge on magazines in January 2009 with the goal of improving efficiency by giving suppliers a financial incentive to not ship extra copies, but Anderson claimed that in response the suppliers collectively pulled out of deals with Anderson, eliminating 80 percent of its business and its most popular titles, including People, Time and Sports Illustrated. 

Anderson ceased business operations in February 2009, and sued in March 2009 accusing the publishers of conspiring to monopolize the U.S. wholesale single-copy magazine distribution market.  The defendants included American Media Inc., Bauer Publishing, Curtis Circulation, Distribution Services, Hachette Filipacchi, Kable News, Rodale Publishing, Time Inc. and Time Warner Retail. 

This is yet another antitrust case felled by the new plausibility standard set forth in Twombly which requires plaintiffs to state a plausible (not merely possible or conceivable) claim for relief in order to survive a motion to dismiss. 

Update: On August 17, 2010, Anderson News asked Judge Crotty to reconsider his decision dismissing the lawsuit.

Anderson argues that Judge Crotty erred in concluding that the publishing companies had an economic self-interest in more wholesalers, not less.  Anderson claims that, to the contrary, the publishers had a powerful incentive to engage in their conspiracy, namely, to control the single-copy magazine distribution system so as to shift the increasing costs in the distribution system to retailers and consumers, and away from the defendant publishers and their national distributors.

The case is Anderson News LLC et al. v. American Media Inc. et al., case number 1:09-cv-02227 (S.D.N.Y.).

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 »

Aerotec International Inc. is alleging Honeywell International Inc. is using its market power to eliminate competition for jet airplane auxiliary power unit repairs in an antirust complaint filed in the U.S. District Court for the District of Arizona.

The dispute involves small gas turbine engines called auxiliary power units, or “APUs,” that provide power for auxiliary functions on jet airplanes including power to start the engines and power for the flight and environmental control systems. 

Honeywell is a manufacturer of APU original equipment and parts.  Aerotec is a provider of repair services for APUs. 

Aerotec claims that Honeywell has denied it access to APU parts, repair data and technical information.  Aerotec also alleges that Honeywell has an 80 percent share of the market for the manufacture and sale of APUs and uses exclusive multi-year APU service agreements with customers who buy aircraft containing Honeywell equipment.  The agreements allegedly prohibit customers from using non-Honeywell replacement parts or obtaining repairs from anyone other than Honeywell.  Aerotec claims that these actions violate federal and state antitrust laws and is seeking treble damages and an injunction to prevent Honeywell from continuing the practices.

Sticks and stones may break your bones, but disparagement will hardly ever monopolize your market, is the message of Broadcom Corporation’s motion to dismiss a “monopolization-by-disparagement” case brought by its competitor Emulex Corporation.

The case, Emulex Corp. et al. v. Broadcom Corp. et al., No. SACV 09-1310 JVS (ANx), centers on statements Broadcom allegedly made during a 2009 attempt at a hostile takeover of Emulex, a competing communications technology company. Broadcom allegedly accused Emulex of “underperformance” and “unsatisfactory results” (among other shortcomings), and advised customers not to buy Emulex products.

This antitrust complaint, which Emulex filed in the Central District of California in November 2009, is Emulex’s third effort to recover for Broadcom’s statements. Its first effort was a complaint in California Superior Court alleging common law fraud and interference with contractual relations. Its second effort was a previous complaint in the Central District of California, alleging violations of the Securities Act. Emulex dismissed those cases when Broadcom withdrew its tender offer. click here for more »

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.

Plaintiffs in The Apple iPod iTunes Anti-Trust Litigation – a putative class action accusing Apple of anti-competitive conduct in the portable MP3 player market – are hoping the third time’s the charm as they again seek to convince the court they have a viable claim.

The plaintiffs have filed an amended complaint after the U.S. District Court for the Northern District of California twice rejected claims that the relationship between iTunes and iPod products constituted illegal tying.

The amended complaint argues that the relationship between Apple’s iTunes and iPod products constitutes unlawful maintenance of monopoly power and attempted monopolization under the Sherman Act, and also violates various California statutes.

According to the plaintiffs, consumers paid a higher price for iPods than they would have if competing devices had the capability to play songs from the iTunes store.  However, while the plaintiffs claim iPods are the only portable player on which songs purchased from iTunes can be played, such songs can still be played on a non-portable basis (such as directly through a computer, or through a computer linked to a receiver).  This ability of consumers to purchase and play iTunes songs without ever purchasing an iPod is the primary reason the court previously rejected plaintiffs’ tying claims.

It will be interesting to watch whether the plaintiffs’ reformed complaint survives court scrutiny.  This is especially true in light of the plaintiffs’ attempt to pursue monopolization claims against two products that the court has already ruled are not illegally tied.

It is well known in the antitrust community that the Justice Department is searching for cases to bring against dominant firms that have violated the antitrust laws.  One such firm may be Monsanto.  In fact, the prices of patented seeds sold by agribusiness giant Monsanto, which make up a majority of the seed market for some staple crops, have roughly doubled in the past decade, leading to new scrutiny by the Justice Department’s Antitrust Division.  Given the importance of those crops to the food supply, government antitrust proceedings against Monsanto could potentially have a huge impact.  Most immediately, farmers, biotech firms, and agribusiness competitors of Monsanto such as the Dow Chemical Company, DuPont, BASF or Syngenta AG, may be impacted by any decision made by the Justice Department. 

The specific issue of concern is that Monsanto’s “Roundup Ready” soybean and corn seeds, which produce plants that can survive treatment with the company’s popular weed-killer Roundup, comprise 93% and 80% of their respective markets.  Prices for these seeds have reportedly increased faster than the crop yields that the seed technology enables.  Monsanto confirmed that the Antitrust Division has recently asked the company for information, mostly relating to an antitrust claim leveled at Monsanto by its competitor DuPont in a patent infringement suit. click here for more »

 JPMorgan Chase bank, one of the world’s largest issuers of credit cards, has announced that it will abandon the controversial practice of mandatory arbitration of cardholder disputes.  The move is part of a settlement reached between Chase and consumers in an antitrust class action challenging the use of such clauses.

Like many card issuers, Chase includes language in its cardholders’ contracts that requires the parties to use private arbitration, not the courts, to resolve disputes.  That has meant that cardholders with grievances lose benefits that courts offer, including the class action mechanism.  Consumer advocates argue that the inability to bring class actions effectively meant that most cardholders could bring no action at all.  The legal fees for bringing a complaint via arbitration often exceed the total amount that may be at stake.

Chase and other issuers defend the use of arbitration clauses by arguing that they keep the issuers’ legal fees down.  Arbitration is far cheaper than litigation in court, and the less issuers spend on litigation in court, the less they must subsidize those costs by increasing fees or interest rates to cardholders. click here for more »