Microsoft is battling its latest antitrust challenger – Datel – by taking a page out of the antitrust playbook of its archrival, Apple.

Microsoft is being sued by Datel, a manufacturer of “video game enhancement products,” for allegedly monopolizing an aftermarket for accessories to Microsoft’s popular Xbox 360 video game system in Datel Holdings Ltd. et al. v. Microsoft Corp., Case No. CV 09-5535 EDL.  The case was filed in the Northern District of California on November 20, 2009. 

Datel manufactures the “MAX Memory” card which, at two gigabytes, allegedly has quadruple the memory of Microsoft’s largest memory card.  Datel claims it is the only source of memory cards for the Xbox 360 other than Microsoft.  

Datel alleges that Microsoft requires Xbox 360 users to download its “dashboard” software update in order to access online gaming, and that the update is “intended to, and does in fact, disable Datel’s memory cards.”  Datel claims that the dashboard update therefore enables Microsoft to monopolize an aftermarket for “Xbox 360 Accessories and Add-ons” in violation of the antitrust laws. click here for more »

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.”

The prospects for repeal of the McCarren-Ferguson Act’s antitrust exemption for health insurers may have gotten a bit dicier with the Supreme Court’s landmark decision giving the green light to corporate spending in political elections. 

The Court in Citizens United v. Federal Election Commission held that the government may not ban “independent expenditures” for “political speech” by corporations in elections.  The essence of the 5-4 opinion is that the government can no longer suppress political speech on the basis of the speaker’s corporate identity.

Prior to the opinion, corporations were banned from taking money out of their general funds to pay for the broadcast of commercials advocating the election or defeat of a political candidate shortly before a federal election.  The opinion overruled the two precedents – Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), and McConnell v. Federal Election Commission, 540 U.S. 93 (2003), which upheld restrictions on corporate political spending. 

The decision could have a significant impact on the current healthcare reform movement.  The repeal of the McCarran-Ferguson Act, which exempts health and medical malpractice insurers from the federal antitrust laws, as reported in earlier posts, could be in jeopardy.  Health insurance companies are no longer restricted from paying for political advertisements which could persuade voters to elect candidates who are unlikely to support the repeal.

President Obama criticized the decision calling it “a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans.”

If the recent oral argument in American Needle, Inc. v. National Football League is any guide, the U.S. Supreme Court might just thread the needle and decide that case on a narrower, more middle-ground, basis than the Seventh Circuit decision, which raised the specter of freeing all professional sports leagues from antitrust scrutiny.

The Supreme Court heard oral argument on January 13, 2010, in the much anticipated case, which may well result in a watershed opinion in antitrust law as applied to sports leagues and joint ventures generally.

American Needle, the plaintiff-petitioner and a manufacturer of NFL-licensed headwear, claims 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 is a single entity under antitrust law – as opposed to multiple, collectively acting teams – and thus not subject to the anticonspiracy prohibition of § 1 of the Sherman Act.  For more detail about the case, click here for this blog’s prior discussion.

The Supreme Court’s treatment of the NFL’s claim to be a single entity will determine the extent to which the NFL’s actions are immunized from § 1 of the Sherman Act.  (While the NFL would remain subject to the antimonopoly provisions of § 2, § 1 claims are typically easier to prove.)

At one extreme, the Court could hold that, because everything the NFL does promotes NFL professional football, the NFL is really an integrated single entity immune from the anticonspiracy prohibition.  In this scenario, the NFL could fix prices for everything:  players’ and coaches’ salaries; tickets; hats; jerseys; T-shirts; etc.  At the other extreme, the Court could hold that, because the NFL is comprised of multiple ball clubs, everything it does is subject to the anticonspiracy prohibition.  For example—in a hypothetical posed by Justice Kennedy, the likely swing vote—the antitrust laws could be used to challenge game rules providing greater protection to quarterbacks because the rules would disfavor teams with better running games.

The justices’ questioning of the lawyers indicated that the Court will likely reject both extremes. click here for more »

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 »

The aphorism that the “plural of anecdote is data” is being put to the test in federal courts as judges grapple with the question of whether emails and other anecdotal evidence can form the basis of reliable expert economic opinion.

Recent federal court decisions concerning the type of evidence that may be relied upon by economic experts in formulating opinions indicate that the plural of email might just be “economic evidence.”

For example, in denying a motion to exclude plaintiff’s economist expert in Discover Financial Services v. Visa USA, Inc., 582 F. Supp.2d 501, 507 (SDNY 2008), United States District Judge Barbara Jones held that “qualitative” evidence, i.e., evidence that is not numerical or mathematical in nature, can be considered by an expert in rendering his or her opinion on market definition and power.  Anecdotal statements made in corporate documents – including e-mail – or deposition testimony are quintessential forms of qualitative evidence.

According to recent cases that followed Discover Financial, such evidence can support expert opinions as long as those opinions will “assist the trier of fact” under Fed. R. Evid. 702.  The best way to test whether the inferences that an expert draws from qualitative evidence are appropriate, according to these decisions, is through cross-examination at trial. 

Accordingly, parties to antitrust litigation should expect that party and non-party statements will be deemed evidence that can form the basis of reliable economic opinion.  Parties should not expect that an economic expert’s opinion must rely solely on quantitative or mathematical analysis.

The chairman of the House Judiciary Committee, Rep. John Conyers (D.-Mich.), has announced that on January 20, the Committee’s Subcommittee on Courts and Competition Policy will hold a hearing on the Supreme Court’s pending decision in American Needle, Inc. v. National Football League. 

The notice of the hearing can be found here:

http://judiciary.house.gov/hearings/hear_100120.html

In the case below, the Seventh Circuit held that the NFL was a single entity for antitrust purposes – not a group of 32 separate companies that could conspire together. 

            That decision can be found here: 

http://www.ca7.uscourts.gov/tmp/T40LC5H9.pdf

            The Court granted certiorari last June and heard arguments on January 13.  The Subcommittee has not as yet released a witness list for the hearing.

Antitrust defendants got a reminder yesterday that while the United States Supreme Court may have stiffened pleading requirements in recent years, its Twombly decision is not always a silver bullet.

Applying Twombly (which often means the dismissal of an antitrust case), the Court of Appeals for the Second Circuit yesterday restored a complaint alleging price fixing of internet music by major record labels – including EMI, Sony BMG, Universal, Warner, and others – controlling over 80% of digital music in the U.S.

Judge Preska had dismissed the complaint under Twombly.  The appeals court reversed Judge Preska, holding that “[t]he present complaint succeeds where Twombly’s failed because the complaint alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the result of an agreement among the defendants.” 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 »