Herbert Hovenkamp has posted a paper on SSRN regarding the FTC’s case against Intel (via the Antitrust & Competition Policy Blog).  From the abstract:

One important concern that arises when the FTC reaches beyond the Sherman Act is that the remedy itself not be contrary to the consumer welfare goals of the antitrust laws. Pricing is particularly complex in a market with high fixed costs and short product cycles, as is the case for Intel’s processor chips. …

In this case the FTC requests that Intel be required to keep prices at an irrationally high level. Limitations on “below cost” pricing would require Intel to include a mandated multiple of fixed costs into its bids, even though any firm in Intel’s situation could profitably bid prices down to its incremental costs. Some market share discounts would apparently be forbidden without any proven relationship to cost. Relief such as this will serve the goal of giving Intel’s rivals a price umbrella under which they can profit, but it is not calculated to produce competitive solutions that will benefit consumers.

In the article he writes that four of the possible reasons the FTC chose to bring a section 5 case are:

a. The FTC has procedural advantages as fact finder or expertise advantages as law maker;

b. The FTC might wish to condemn conduct without inviting tagalong private lawsuits;

c. The FTC may use §5’s “unfair methods of competition” language to reach conduct that falls outside the prohibitory language of the Sherman Act; [and]

d. The FTC would like to address the same practices that the Sherman Act addresses, but under more aggressive standards than the courts’ current interpretations of §2 permit.

Hovenkamp’s support for the second possibility is a quote Chairman Leibowitz and Commissioner Rosch’s statement that concern over class actions and treble damages available in private actions has caused the courts to limit the reach of antitrust law.  This statement, however, concerns Hovenkamp’s fourth possibility (unless he too believes that class actions and treble damages have resulted in bad law; but the remainder of the article leads me to believe that is not the case).  In any event, the article is a good read.

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• D.O.J. “is considering whether to investigate the BCS under the antitrust laws.”
• The Wall Street Journal reports that even though the FTC and DOJ may want to bring more antitrust cases they are hindered from doing so becuase case law is against them.
• Congratulations to David Evans who moved from Arent Fox to Chadbourne & Parke.

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DOJ approved the merger with some conditions.  The Wall Street Journal reports:

Under the concessions demanded by the DOJ, Ticketmaster’s Paciolan division, which sells tickets to college sporting events, is to be sold to a unit of Comcast. The merged company also is barred from retaliating against venue operators that want to use ticketing services from competitors. For instance, the merged company would be prevented from blocking artists it represents from playing in those venues.

The companies also will be required to offer ticketing and concert-promotion services separately, rather than as a bundle. And divisions of the company won’t be allowed to share certain kinds of data so as to reduce the competitive edge afforded by its vast scope.

Many antitrust lawyers believed the deal was about the best the Justice Department could have hoped for, given the circumstances. It is far more difficult for prosecutors to develop a compelling case that competition would be harmed as a result of such a vertical merger—in which the companies involved operate at different stages in the supply chain—than in a horizontal merger involving direct competitors. Had the Justice Department brought a tricky vertical case and lost, these lawyers said, they would have ended up with nothing.

DOJ’s documents on the case can be found online.

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You can read the transcript here.  From Lyle Denniston’s report on the always excellent SCOTUSBlog:

The Court heard 70 minutes of oral argument in American Needle v. NFL (08-661), a case that supposedly was to focus on a single, simple question: is the NFL, along with its 32 teams, a “single entity” and therefore immune to the Sherman Antitrust Act when they act jointly in a business effort? But Justice after Justice insisted strenuously that that is not really the issue, and that the case probably needs to go back to the lower courts for a potentially penetrating inquiry into what kinds of commerce are closely enough related to pro football itself that they escape antitrust liability.

The specific kind of activity under legal attack in the case is the joint effort of the NFL and its teams to sell, through only one dealer, hats, jerseys, and other fan gear displaying the teams’ trademarked logos.  While the NFL insists that that is crucial to promoting the popularity of the games on the field, it did not appear that any Justice was firmly convinced — right now — of that.  From the bench, for example, came the question of whether the NFL could escape antitrust liability if it decided, jointly, to build houses.  While the NFL’s lawyer said that would not promote the game, Chief Justice John G. Roberts, Jr., shot back, reciting the other side’s contention that selling trademarked goods was closer to selling houses than it was to promoting football games.  And that, it seems, is precisely the issue that would dominate a subsequent trial on the legality of joint selling of fan goods.

The whole post is worth reading.

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New Orleans Saints quarterback Drew Brees has used his bye-week to write an op-ed in Sunday’s Washington Post about the potential affects of the American Needle case on free agency in the NFL.  It is already available online.  He writes:

I could choose to sign a contract with the Saints because of a crucial player-led antitrust lawsuit in 1993 that secured players’ rights to sell our services as free agents. Until that case, team owners had acted together to control players and keep salaries low, while the popularity of the game and teams’ revenues grew exponentially. Today, if the Supreme Court agrees with the NFL’s argument that the teams act as a single entity rather than as 32 separate, vigorously competitive and extremely profitable entities, the absence of antitrust scrutiny would enable the owners to exert total control over this multibillion-dollar business.

What might the owners do? They could agree to end or severely restrict free agency, continue to enter into exclusive agreements that will further raise prices on merchandise, lock coaches into salary scales that don’t reward them when they’re promoted and set higher ticket prices (including preventing teams from competing through ticket discounts).

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•  The 9th Circuit recently upheld the district court’s opinion in Allied Orthopedic Appliances Inc. et al. v. Tyco Health Care Group LP.  The plaintiffs had alleged that “they overpaid for the sensors because Tyco used two kinds of marketing agreements to foreclose competition from generic sensor manufacturers … [and] that by introducing OxiMax, a patented pulse oximetry system that is incompatible with generic sensors, Tyco unlawfully maintained its monopoly over the sensor market …”
• The Supreme Court will hear oral arguments in American Needle v. National Football League next week.  And this is generating some news coverage.  The New York Times has an article about the potential consequences of the decision upon sports leagues as well as a short profile of the American Needle company.
• DOJ “more than $1 billion in criminal antitrust penalties in the last fiscal year, and around $229 million in the first quarter of this one ….”
• Credit card interchange fees remain in the news as the New York Times has a lengthy article about allegations that VISA uses them to maintain market power and the Wall Street Journal published an op-ed arguing that capping interchange fees would result in consumers paying more.
• DOJ urged the FCC to free up more spectrum and had some thoughts about its auctions; the entire DOJ comment is here.

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In what certainly cannot be considered a surprise, the FTC filed suit against Intel this morning.  The FTC press release states:

According to the FTC complaint, Intel’s anticompetitive tactics were designed to put the brakes on superior competitive products that threatened its monopoly in the CPU microchip market. Over the last decade, this strategy has succeeded in maintaining the Intel monopoly at the expense of consumers, who have been denied access to potentially superior, non-Intel CPU chips and lower prices, the complaint states.

…

The FTC’s administrative complaint charges that Intel carried out its anticompetitive campaign using threats and rewards aimed at the world’s largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer CPU chips. Intel also used this practice, known as exclusive or restrictive dealing, to prevent computer makers from marketing any machines with non-Intel computer chips.

In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips. Intel told its customers and the public that software performed better on Intel CPUs than on competitors’ CPUs, but the company deceived them by failing to disclose that these differences were due largely or entirely to Intel’s compiler design.

Having succeeded in slowing adoption of competing CPU chips over the past decade until it could catch up to competitors like Advanced Micro Devices, Intel allegedly once again finds itself falling behind the competition – this time in the critical market for graphics processing units, commonly known as GPUs, as well as some other related markets. These products have lessened the need for CPUs, and therefore pose a threat to Intel’s monopoly power.

Intel has responded to this competitive challenge by embarking on a similar anticompetitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia, the FTC complaint charges. As part of this latest campaign, Intel misled and deceived potential competitors in order to protect its monopoly. The complaint alleges that there also is a dangerous probability that Intel’s unfair methods of competition could allow it to extend its monopoly into the GPU chip markets.

According to the FTC’s complaint, Intel’s anticompetitive tactics violate Section 5 of the FTC Act, which is broader than the antitrust laws and prohibits unfair methods of competition, and deceptive acts and practices in commerce. Critically, unlike an antitrust violation, a violation of Section 5 cannot be used to establish liability for plaintiffs to seek triple damages in private litigation against the same defendant. The complaint also alleges that Intel engaged in illegal monopolization, attempted monopolization and monopoly maintenance, also in violation of Section 5 of the FTC Act.

The complaint is here.

Update: Intel has issued a press release:

Intel has competed fairly and lawfully. Its actions have benefitted consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC’s case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices.”

Intel senior vice president and general counsel Doug Melamed added, “This case could have, and should have, been settled. Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies – including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint — that would make it impossible for Intel to conduct business.”

“The FTC’s rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated. It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The Commission did not do that in this case,” said Melamed.

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The AP reports:

The European Union has dropped long-standing antitrust charges against Microsoft Corp. after the company agreed to give users of the Windows operating system a choice of up to 12 other Web browsers.

Under the terms of the deal with regulators announced Wednesday, Microsoft will avoid further EU fines if it provides a pop-up screen that lets European users – from March – replace Microsoft’s Internet Explorer or add another browser such as Mozilla’s Firefox or Google’s Chrome. Internet Explorer is used by a majority of global internet users.

The deal will also allow computer manufacturers to ship PCs without Internet Explorer in Europe.

The EC press release is here and Microsoft’s statement – and links to several relevant documents – is here.

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Some news and notes:

• The Antitrust Hotch Potch reports on a recent EC Article 9 decision involving the French gas market.
• Congratulations to Joe Bial who has been promoted to special counsel at Cadwalader, Wickersham & Taft.
• Earlier this week, Truth on the Market had a lengthy symposium on credit cards and interchange fees.

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Once again the EU has performed some dawn “raids” on the offices of pharmaceutical firms.  Bloomberg reports:

Teva Pharmaceutical Industries Ltd., the world’s biggest generic-drug maker, Denmark’s H. Lundbeck A/S and other pharmaceutical companies were raided Wednesday by the European Union as part of an antitrust investigation.

…

The inspections mark the fourth time drugmakers’ offices have been visited since the EU started a probe of the pharmaceutical industry in January 2008. The EU has focused on whether manufacturers misuse patents and lawsuit settlements to keep less-expensive generic medicines off the market.

Commission officials conducted a surprise inspection at Teva’s office in London on Wednesday, according to Yossi Koren, a spokesman for the company. The raid followed an EU inspection of Teva’s Paris office in October.

Lundbeck, the Nordic region’s second-largest drugmaker, said in a statement its Milan office had been inspected. It said it expects the raid was a follow-up on a 2005 visit and that it didn’t address any new issues.

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A little behind the news but:

• A Spanish Socialist, Joaquín Almunia, will replace the Netherlands’ Neelie Kroes to the the EU’s competition commissioner.
• Article 81 is now Article 101.
• D.O.J. has hired Rachel Brandenburger from Freshfields Bruckhaus Deringer.  She worked in its London and Brussels offices.  According to Main Justice “Brandenburger will  join the Division in January, and will report directly to Assistant Attorney General Christine Varney, according to Justice spokeswoman Gina Talmona. Brandenburger also will work closely with Philip Weiser, the Deputy Assistant Attorney General for International, Policy and Appellate Matters.”

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Among the stock arguments in the debate whether IP rights can be essential facilities and if so whether and under what conditions mandatory RAND licenses can be pursued under Section 2 is the claim that a duty to license (e.g., API specifications) is fundamentally at odds with the grant of the IP right itself. That is because patents and copyrights explicitly involve the power to exclude others from infringing those rights. A consequence of this argument has been the call for stronger protection against antitrust duties to share for IP rights than is afforded to tangible property. The CSU v. Xerox case is an illustration of this line of reasoning. Irrespective of one’s policy position with respect to essential facilities claims, the argument that duties to license are fundamentally at odds with the IP grand is unconvincing, because both IP rights and essential facilities are expressions of very similar tradeoffs between losses in short term static efficiency in order to promote long term dynamic efficiencies. Copyrights and patents are granted to promote the progress of science and useful arts in the long run. The right to exclude, and the costs that come with it, is a means to that end. Essential facilities recalibrate the exclusion/incentive tradeoff where the expected gains from maintaining the upstream incentives to innovate and invest are outweighed by the expected gains from increased downstream competition. Given the structural similarity of the tradreoffs involved, essential facility tweaks to the IP exclusion default are not “fundamentally at odds” with the IP grant. Rather, both are expressions of the same policy concerns. That doesn’t mean, of course, that such tweaks — or exceptions to the IP rules — are always appropriate, as some facilities are far more likely to induce significant downstream welfare gains from being opened than others. It does mean, however, that one cannot simply avoid the issue by pointing to an existing IP right.

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Here is an interesting complaint, in which Datel alleges that MSFT retroactively disabled Datel’s memory cards for the XBOX 360 to protect MSFT’s own aftermarket sales. The primary claims are monopolization of the aftermarket for XBOX accessories and tying, based on (i) total manufacturer control of the aftermarket and (ii) a > 50% share of the equipment market (which excludes the Wii). Among the most notable allegations is the ex post modification of the XBOX by way of a required, downloadable “dashboard upgrade,” which could make the traditional ex ante lifecycle pricing counter argument somewhat challenging. More generally, this is a case addressing the “tethered appliances” problem that Jonathan Zittrain develops in The Future of the Internet in the context of antitrust/consumer protection.

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Here are the slides for an upcoming talk on standard setting after Rambus, Broadcom (3rd. Cir.), Qualcomm (Fed. Cir.), and N-Data at the Advanced Patent Law Institute Conference in Palo Alto. Drop me a note if you are attending and would like me to address any other topics (offline, probably, the slot is only for 30 minutes).

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Reuters reports:

U.S. President Barack Obama has chosen Julie Brill, North Carolina’s top consumer watchdog, and attorney Edith Ramirez to fill two vacant spots on the Federal Trade Commission, the White House said on Monday.

…

Brill became the senior deputy attorney general and chief of consumer protection and antitrust for the North Carolina Department of Justice in February 2009.  Ramirez has represented corporations like Mattel Inc and Northrop Grumman Corp. …

They would replace Republican Deborah Majoras, who stepped down in March 2008, and independent Pamela Jones Harbor, whose term ended in September.

Ms. Ramirez is a partner at Quinn Emanuel and Ms. Brill is the Senior Deputy Attorney General and Chief of Consumer Protection for the State of North Carolina; previously she was an Assistant Attorney General of the Consumer Protection Division of the Vermont Attorney General’s Office.  Ms. Brill is also a Lecturer-in-Law at Columbia Law School.

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