Here are the slides from my talk at the PLI seminar Understanding the IP License 2009 in Chicago. This was a fun event with a great crowd. Thanks to everyone for making this such a rewarding trip!
Earlier today it was announced that Intel and AMD settled their long running antitrust dispute(s). Reuters reports:
Intel Corp will pay rival chipmaker Advanced Micro Devices Inc $1.25 billion to settle all outstanding legal disputes ….…
AMD said it will withdraw all its regulatory complaints against Intel. The two companies also sealed a five-year cross-licensing deal and said they would give up any claims of breach from their previous license agreement.
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AMD said it will drop all pending litigation against Intel, including a case in the U.S. District Court in Delaware and two cases pending in Japan.
A few notes from the last few weeks:
We are always happy to welcome a new antitrust blog to the blogosphere (even if we are a bit late in our welcome). Check out Chilling Competition which focuses on competition issues in Europe.
The House Judiciary Committee voted Wednesday to strip federal antitrust protections shielding health insurers from investigations into price fixing and other business practices, the first step in a legislative bid to clamp down on the much-maligned industry. Although Democrats have led the repeal push in recent weeks, the committee’s 20-9 vote came with the support of three Republicans. The legislation would repeal portions of the 1945 McCarran-Ferguson Act that allows states to regulate health insurance providers without federal intervention.
Here are some slides from a recent, high-level discussion of the Robinson-Patman Act, geared towards a technology firm audience.
AAG Christine Varney appeared today before the Judiciary Committee to speak about the McCarran-Ferguson exemption to the antitrust laws. The exemption benefits the insurance industry and permits anticompetitive conduct short of boycott, coercion, or intimidation, such as price fixing and market allocations, within the “business of insurance” if it is regulated (however imperfectly) by state law. Varney’s prepared remarks are up on the DOJ webpage. Here are some quotes:
The Department is generally opposed to exemptions from the antitrust laws, whether they be industry-specific or general, in the absence of a strong showing of a compelling need. The antitrust laws reflect our society’s belief that competition enhances consumer welfare and promotes our economic and political freedoms. Exceptions from that policy should be–and fortunately are–relatively rare. Those who advocate the creation of a new antitrust exemption, or the preservation of a longstanding exemption such as that contained in the McCarran-Ferguson Act, rightfully bear a heavy burden in justifying the exemption.
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There are strong indications that possible justifications for the broad insurance antitrust exemption in the McCarran-Ferguson Act when it was enacted in 1945 are no longer valid today. To the extent that the exemption was designed to enable the states to continue to regulate the business of insurance, it is no longer necessary. The “state action” defense, which had been announced by the Supreme Court in Parker v. Brown in 1943, but was undeveloped in 1945 when the McCarran-Ferguson Act was enacted, has now been the subject of many Supreme Court opinions. This defense allows a state effectively to immunize what the antitrust laws otherwise may proscribe by clearly articulating and affirmatively expressing a policy to displace competition, and by actively supervising any private conduct that might be involved.
Moreover, the application of the antitrust laws to potentially procompetitive collective activity has become far more sophisticated during the 62 years since the McCarran-Ferguson Act was enacted. Some forms of joint activity that might have been prohibited under earlier, more restrictive doctrines are now clearly permissible, or at very least analyzed under a rule of reason that takes appropriate account of the circumstances and efficient operation of a particular industry. Thus, there is far less reason for concern that overly restrictive antitrust rulings would impair the insurance industry’s efficiency.
In sum, the Department of Justice generally supports the idea of repealing antitrust exemptions. However, we take no position as to how and when Congress should address this issue. In conjunction with the Administration’s efforts to strengthen insurance regulation and states’ role in setting and enforcing policies, the Department supports efforts to bring more competition to the health insurance marketplace that lower costs, expand choice, and improve quality for families, businesses, and government. …
Those points are all well-taken but one wishes the Department could have brought itself to not only “generally” support the repeal of antitrust exemptions, but to specifically recommend the repeal of McCarran-Ferguson, which is one of the broadest exemptions to federal antitrust laws on the books.
Congratulations to James O’Connell who joined Covington & Burling from DOJ where he was Deputy Assistant Attorney General in charge of International, Policy, and Appellate matters in the Justice Department’s Antitrust Division. He is the third DOJ Antitrust official to join Covington this year along with Thomas Barnett and Deborah Garza.
Last week, American Needle filed its brief in American Needle, Inc. v. National Football League, the antitrust case that involves joint venture issues.
UPDATE: the Solicitor General filed her brief on Friday.
Update 2: Additional amicus briefs:
Today at the Georgetown Law Global Antitrust Enforcement Symposium, the Chair of the Federal Trade Commission, Jon Leibowitz, announced that DOJ’s Antitrust Division and the FTC will undertake a revision of the 1992 Merger Guidelines. A series of workshops is scheduled to determine whether the Guidelines need revision, and what the revisions should be. The joint press release is here and here. Leibowitz, in his remarks introducing Philip Low of the EU Commission’s DG Comp, listed who at DOJ and FTC will spearhead the initiative:
From the FTC side we have Rich Feinstein, Director of the Bureau of Competition, Joe Farrell, Director of the Bureau of Economics, and Howard Shelanski, Deputy Director for Antitrust in the Bureau of Economics. … From the Antitrust Division we have Deputy Assistant Attorneys General Molly Boast, Carl Shapiro, and Phil Weiser.
Also at the Symposium, AAG Christine Varney delivered remarks during lunch. She said that efforts will be focused on three areas: market definition (including, for example, the issue whether the Guidelines need to be revised to make clear that the location of customers is the relevant consideration for determining geographic market), market concentration, and competitive effect. On market concentration, Varney pointed out that the disparity between the Guidelines’ HHI thresholds and agency practice leads to confusion, a lack of predictability, and vitiates the agencies broader goal of transparency. (Varney’s speech at the International Bar Association’s meeting on transparency and procedural fairness is here.) Varney also said that, unless the workshops and public comments tell the agencies otherwise, the plan is to leave the basic structure of the Guidelines in place, for instance the hypothetical-monopolist test or the three-part test for market entry. The text of the Varney’s speech has already been posted on the DOJ webpage.
In response to a question by Jim Rill (under whose leadership the 1992 Guidelines were issued), Varney said that “market definition is here to stay.” The question is pertinent since both Carl Shapiro and Joseph Farrell appeared as panelists at the Symposium. Shapiro in particular spoke to the “upward price pressure” test he and Farrel have developed to permit a direct inquiry into competitive effects without (upfront) market definition in unilateral effects cases in differentiated products markets. Bob Willig, always a treat to listen to at events, described UPP as a “beautiful idea” that may be the next big thing, and even suggested considering it in coordinated effects cases (which surprised me). He also voiced the concern that if UPP were to be used by the agencies to assess mergers, the parties would need to be prepared to conduct analyses early on, such as diversion analysis, natural experiments, and economic regressions, before a Second Request would issue. But given Varney’s comment and the fact that the FTC got chided by Judge Brown in Whole Foods for not treating market definition as the central and foremost issue (when the FTC finally made unilateral effects arguments on appeal), I doubt UPP will be more than a wrinkle in merger analysis even during Shapiro’s tenure at the DOJ.
But there is definitely movement. The question of the market definition’s centrality also came up in Varney’s remarks on the upcoming Guidelines workshops. Varney said that three areas of competitive effects would be of particular interest: unilateral effects in differentiated-products markets (not surprising, since unilateral effects are given a bare-bones treatment in the Guidelines), price discrimination to vulnerable customers, and finally “more direct types of evidence” to consider. On the last point, Varney said:
Third, we are interested in your views on the use of more direct evidence that is not strictly based on inferences drawn from increases in market concentration. There are several categories of such evidence worth exploring: (1) evidence of the actual, post-merger competitive effects of consummated mergers, (2) evidence of “natural experiments” obtained by looking across different geographic markets, time periods, customer categories, or similar product markets; (3) evidence of the firms’ post-merger plans; (4) evidence of customer views of post-merger competition; (5) historical evidence of actual head-to-head competition between the merging firms; and (6) historical evidence of actual or attempted coordination in the industry. Although the Agencies routinely rely heavily on these kinds of evidence to assess competitive effects, the Guidelines address their relevance only in passing and only secondarily, after the relevant market is defined and concentration in that market is measured. Courts also regularly rely on this type of evidence in assessing competitive effects. We are interested in views on whether we should adjust the Guidelines to address explicitly what kinds of direct evidence are pertinent and how they should be weighed.
Notice that UPP is absent from the list.
Two quick links.
First, Randy Picker has some very detailed analysis of the DOJ filing in the Google-Book Search case.
Second, the EC has posted a non-confidential version of its decision in the Intel matter. Also, there is a press release.
In a recent Antitrust Magazine article (login required), Thomas Leary explores the implications of Commissioner Rosch’s concurring statement in the Ovation matter, in which Rosch explained why he would have challenged not only Ovation’s acquisition of Neoprofen but also its prior acquisition of Indocin from Merck. Leary sees Rosch’s opinion as an extension of the analysis of post merger incentives.
[M]erger law today focuses on changed incentives that flow from changes in industry structure; the Rosch opinion suggests that adverse incentive effects can also flow from changes in the structure of the surviving competitor. … Changes in industry structure are often a useful tool when predicting the likelihood of a price effect, but sound economics does not necessarily require that this structural change be an element of the offense.
The problem with this argument is the implication that higher post-transaction prices as such are of concern under Section 7. That, however, is not correct. Section 7 is concerned with acquisitions the effect of which “may be substantially to lessen competition, or tend to create a monopoly.” In other words, if we focus on price, then only those price effects are relevant to Section 7 that are the result of a lessening of competition. Price effects that are not the result of a lessening of competition are not actionable under Section 7. And that is why there is a more meaningful difference between a change in the industry structure and a change in the firm structure as a result of the acquisition than Leary suggests. There is ample evidence that higher industry concentration permits some inference as to diminished market performance — with all the important and customary caveats. But a change in firm structure does not permit an inference of diminished competition. Put simply, Section 7 is focused on competition, not price, whereas Rosch’s concurrence is focused on price, not competition.
Here is a chart with the Section13(b) preliminary injunction standard after FTC v. WholeFoods and FTC v. CCC Holdings. It is troubling that the statutory “likelihood of ultimate success” standard has been watered down to a mere raising of “serious, substantial” questions. Not only because that standard is almost pointlessly low (it is), but also because it gives the arbitrary, evolving, and in many cases ex ante unpredictable clearance to FTC or DOJ an outcome-determinative significance. That is not a rational process.
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