While it may not really be always sunny in Philadelphia, it’s certainly a bright day for plaintiffs in the In re Processed Eggs Antitrust Litigation, who have announced that Land O’Lakes Inc. and two of its subsidiaries, Moark and Norco Ranch Inc., have agreed to settle the egg price-fixing case in the Eastern District of Pennsylvania for $25 million and a promise to cooperate in litigation against the remaining defendants.

Direct purchasers of shell eggs and egg products filed this class action in 2008 against several egg producers alleging that they participated in an industry wide price-fixing conspiracy.  They also allege that several egg trade associations, including United Egg Producers and United States Egg Marketers, coordinated the conspiracy.  The plaintiffs claim that the defendants conspired to restrict the egg supply through hen reductions, cage space requirements and exporting eggs at a loss which allegedly raised the price of eggs and egg products.

The plaintiffs previously settled with Sparboe Farms.  Remaining defendants include other egg producers such as Cal-Maine Foods Inc., Michael Foods Inc., and Rose Acre Farms.

The current settlement covers all direct purchasers of eggs and egg products since 2000 and is awaiting approval by the court.

The U.S. Supreme Court ruled in favor of plaintiff American Needle and a more expansive view of the scope of antitrust law today with what may well turn out to be a landmark opinion in the much anticipated case of American Needle, Inc. v. National Football League.

The decision rejects the lower courts’ broad grant of immunity to joint ventures from the conspiracy prohibition of § 1 of the Sherman Antitrust Act.

American Needle, the plaintiff-petitioner and a manufacturer of NFL-licensed headwear, claimed that the NFL acted anticompetitively by granting Reebok the exclusive license for certain NFL paraphernalia.  The trial court granted summary judgment to the NFL, and the U.S. Court of Appeals for the Seventh Circuit affirmed.  Both lower courts held that, in licensing individual team and NFL trademarks, the NFL was operating as a single entity under antitrust law – as opposed to multiple, collectively acting ball clubs – and thus was immune from the conspiracy prohibition of § 1 of the Sherman Act. 

The Supreme Court held unanimously that the NFL clubs are not immune from the conspiracy prohibition of the Sherman Act – at the very least with respect to licensing their intellectual property.  The Court’s language also indicates that the Court likely would hold the NFL clubs subject to the conspiracy prohibition with respect to the full panoply of the NFL’s operations.

The Court rejected the NFL’s position that, because everything the NFL does promotes NFL professional football, the NFL is really an integrated single entity immune from the conspiracy prohibition.  The Court also rejected the middle-of-the-road rule suggested by the Department of Justice’s Antitrust Division, which would not apply the conspiracy prohibition if “the teams and the league . . . have effectively merged the relevant aspects of their operations.” 

Most importantly, the Court took the opportunity to restate and clarify the principles governing when to apply the Sherman Act’s conspiracy prohibition.  Thus, American Needle will govern the application of antitrust law in all industries, not just professional sports, as evidenced by the submission of an amicus brief by Visa and MasterCard in the payments industry.  (Visa and MasterCard are public corporations owned by separate legal entities, including banks that were members of Visa and MasterCard when Visa and MasterCard were organized as joint ventures.) click here for more »

The FTC is suing Dun & Bradstreet to challenge its February 2009 acquisition of QED, a division of Scholastic that provides kindergarten through twelfth-grade educational marketing databases.

The combination of MDR, Dun & Bradstreet’s subsidiary, and QED was a merger-to-monopoly, giving the combined entity more than 90 percent of the market for K-12 educational marketing data.  The deal glided under the radar given it’s valuation of $29 million which falls below the HSR reporting thresholds.  But the FTC is now seeking to unravel the merger given its apparent anticompetitive effects. 

Despite its relatively low dollar value, this transaction dramatically decreased competition in the marketplace,” according to Richard Feinstein, Director of the FTC’s Bureau of Competition.  “When Dun & Bradstreet acquired QED, it bought its closest competitor and created a monopoly.  That’s going to get the FTC’s attention every time.”

So buyer beware.  Just because a transaction doesn’t trigger an HSR filing doesn’t mean the parties can go on their merry way.  A merger analysis should be performed even for smaller, non-reportable transactions to assess whether the post-transaction market share, barriers to entry and other indicators will set off alarm bells for regulators.

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 »

Class action arbitrations are not likely to survive the U.S. Supreme Court’s 5-3 decision, in a closely watched antitrust case, that imposing class arbitration on parties that haven’t agreed to it conflicts with the Federal Arbitration Act.

The decision in Stolt-Nielsen S.A. et al. v. Animalfeeds Int’l Corp., No. 08-1198 (April 27, 2010), delivered by Justice Alito, reversed a panel decision by the U.S. Court of Appeals for the Second Circuit, which had confirmed an arbitration panel’s ruling which allowed Animalfeeds to pursue class arbitration against several shipping companies over alleged price-fixing.  The Supreme Court called the panel’s ruling “fundamentally at war” with the principle that arbitration is a matter of consent.

Justice Ruth Bader Ginsburg dissented from the majority opinion, joined by Justices John Paul Stevens and Stephen Breyer, writing that she would have dismissed the petition as improvidently granted, and if she had to reach the merits, she would have adhered to the Federal Arbitration Act’s strict limitations on judicial review of arbitral awards and affirmed the Second Circuit.

As it is highly unlikely – especially after this decision – that any arbitration agreement would explicitly permit class arbitration, the ruling may well be a death blow for class action arbitrations.

While in recent years the conservative-leaning high court has been favorable toward arbitration, it has also been notably hostile toward class actions as a procedural mechanism.  In this case, its hostility toward class actions appears to have trumped its general approval of arbitration as an acceptable means of resolving disputes.

Furthermore, the decision largely validated the enforceability of class action waivers, rejecting the view of some courts that have found such waivers unconscionable because they effectively preclude consumers from vindicating small-dollar claims.

Only time will tell how far-reaching the impact of this decision will be, including what will happen to the hundreds of pending class arbitration proceedings as defending parties begin using this decision to challenge claims.  However, it seems likely that class actions will continue to fare poorly in cases that reach the high court.

Class actions may become a scarcer commodity if Wal-Mart can convince the Supreme Court that a recent decision of the United States Court of Appeals for the Ninth Circuit applies too lenient a standard for certifying class actions.

The Ninth Circuit’s decision in Dukes v. Wal-Mart Stores, Inc., 2010 WL 1644259 (9th Cir. April 26, 2010), an employment discrimination class action under Title VII of the 1964 Civil Rights Act, may be destined for review by the Supreme Court, setting the stage for the resolution of class-action certification issues that have divided appellate courts.

In particular, the case raises the issue of the extent to which a district court should consider the merits in deciding whether to certify a proposed class.  This issue will be of particular importance in antitrust class actions, in which evidence of the violation is often in the exclusive hands of the defendants and thus unavailable to plaintiffs at the class certification stage.

The plaintiffs allege that Wal-Mart, the world’s largest private employer, discriminates against women in payment and promotion.  The district court had certified most of the claims for class action treatment.  Wal-Mart appealed, and a majority of a three-judge panel of the Ninth Circuit affirmed the district court.  Wal-Mart sought a rehearing en banc.

On April 26, 2010, in a six-to-five opinion, the en banc Ninth Circuit affirmed the district court’s order.  The majority held that a district court’s analysis under Federal Rule of Civil Procedure 23 generally must include a review of a case’s merits – but only to the extent that they overlap with the Rule 23 inquiry.  If they do not implicate Rule 23 issues, the majority held, a district court may not consider merits.  The dissent argued that even at the certification stage, a plaintiff in a putative class action must show “significant proof” that it would prevail on the merits.  Wal-Mart, arguing that serious flaws pervade the plaintiffs’ case, seeks more robust analysis of merits issues at the certification stage.

click here for more »

Reverse payment settlements, which have inhibited the use of generic drugs, may be alive and well for now, but the United States Court of Appeals for the Second Circuit is recommending that unsuccessful plaintiffs challenging such a settlement seek a second opinion.

On Thursday, a panel for the Second Circuit reluctantly upheld a so-called reverse payment settlement in In re Ciprofloxacin Hydrochloride Antitrust Litigation, but took the extraordinary step of recommending the unsuccessful challengers petition for rehearing in banc.

In the settlement, Bayer, the patent holder for ciprofoxacin hydrocloride (“Cipro”) – the most prescribed antibiotic in the world – agreed to pay Barr Laboratories to drop its validity challenge to the Bayer patent and not enter the Cipro market.  Barr had filed an abbreviated new drug application (“ANDA”), with the FDA to supply a generic form of Cipro.  Under the the Hatch-Waxman Act, ANDA filers do not have to prove to the FDA that their generic drugs are safe and effective, inasmuch as these drugs are bioequivalents of previously approved drugs.

Stating that it was bound by the Second Circuit’s 2005 ruling in In re Tamoxifen Citrate Antitrust Litigation, the panel held per curium that it is presumed that such reverse payment settlements do not offend antitrust norms, as “the right to enter into reverse exclusionary payment agreements fall within the terms of the exclusionary grant conferred by the branded manufacturer’s patent.”  As a result, it found the Cipro reverse payment settlement to be legal. 

However, the Court also noted that such reverse payment settlements have been criticized by the FTC (and virulently criticized by the FTC Chairman, Jonathan Leibowitz), the Antitrust Division, scholars and a number of courts.  Indeed, while noting that it did not have the authority to overrule Tamoxifen, the panel noted that there were “compelling reasons to revisit Tamoxifen.”  The panel thus “invited” the plaintiffs to file a petition for an en banc rehearing so that Tamoxifen could be thoroughly examined by the full Second Circuit.

If the Second Circuit reverses Tamoxifen and sets a more liberal standard for finding reverse payment settlements anticompetitive, such as a standard that would invalidate such settlements when patent challengers are paid amounts that have no relation to the risk that they face or the attendant costs of continuing with litigation, there would be a “split in the Circuits” that would make Supreme Court review of this issue ripe for Supreme Court review.

As the issue of reverse payments was recently debated as part of the federal health care reform overall, but was not ultimately dealt with in that legislation, there is a very good chance that this issue will ultimately be headed for Supreme Court.

Sirius XM Radio, the holding company for the two satellite radio services operating in the U.S., is asking a federal court in Manhattan to dismiss state claims being asserted by class action representatives who reside in other states.

Sirius XM is asking Judge Harold Baer to rule that the class representatives do not have standing to assert claims based on the laws of states in which they do not reside in Blessing et al.  v. Sirius XM Radio, Inc., No. 1:09-cv-10035-HB (S.D.N.Y. filed Dec. 7, 2009).  The named plaintiffs in the class action are 13 consumers from 10 states who subscribe to Sirius XM’s satellite radio services.  Sirius XM was formed in 2008 when Sirius Satellite Radio and XM Radio merged, reducing the number of satellite radio providers in the United States from two to one. 

Plaintiffs allege, on behalf of themselves and a nationwide class, that since the merger, Sirius XM has increased prices and decreased services in violation of the federal antitrust laws, 44 states’ consumer protection laws, and New York contract law. 

Sirius XM is now moving to dismiss the bulk of the state statutory claims for lack of standing.  Its primary argument is that the named plaintiffs – who hail from only nine of the 44 states under whose laws they complain – lack standing to assert claims under “laws of States where they do not reside” – i.e., the other 35 states.  The Sirius XM motion notes that plaintiffs’ assertion of those claims on behalf of a nationwide class does not cure their standing problem, because of “two related principles” – “First, a plaintiff must show standing for each claim that he asserts ….  Second, a plaintiff may not acquire standing by asserting a claim on behalf of other putative class members who allegedly would have standing to assert it.”  Therefore, says Sirius XM, those “other 35” state law claims must be dismissed.   

These cited principles also provide the basis for Sirius XM’s broader beef against the plaintiffs’ antitrust bar.  Sirius XM points to Blessing as an example of “a recent trend where plaintiffs’ counsel have been attempting to assert – on behalf of putative classes comprised of residents of multiple States – violations of consumer protection laws in States where the named plaintiffs do not reside.”  It posits, however, that “[c]ourts have regularly dismissed such claims for lack of Article III standing,” and urges Judge Baer to do the same.

Sirius XM also seeks dismissal of certain state statutory claims for failure to state causes of action, and warns that it will move to dismiss the antitrust and common law claims on their merits at a later time.