Here is a Sunday afternoon conjecture about a common divide between Americans and Europeans when it comes to the emotional appeal of free markets. The Continental enlightenment was very much driven by philosophical rationalism, which in the administrative realm found its expression in the belief that only that which is planned is rational (Prussia, France). The English enlightenment, in contrast, had a more empirical bent from the get-go with an emphasis not merely on rational outcomes but also on rational processes (e.g., what would later become the scientific method). A culture shaped by the English enlightenment may thus be instinctively more comfortable with the idea of a rational yet unplanned market economy than more strictly rationalist traditions.

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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.

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Here is a useful article by John Koenig and a nicely done presentation by FaberNovel, discussing the main strategies for making money with open source, namely (1) licensing of complementary products (e.g., a proprietary downstream products or add-ons); (2) the sale of complementary services; and (3) the use of OSS for hosted services (e.g., Google, Salesforce).

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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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I just came across this awesome chart. Thanks for saving my Sunday, Mike.

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On Wednesday, Sen. Spector (PA) introduced a bill , S.1504, to legislatively overturn Twombly (and Iqbal).  The bill mandates a return to the Conley v. Gibson standard.  There are currently no-cosponsors.

h/t: Drug & Device Law; law.com.

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While researching an article regarding the search and seizure of computer hardware and electronic data in criminal antitrust investigations, I noticed a distinct lack of case law.  There is a lot of case law regarding the search and seizure of computer hardware and electronic data in other types of criminal cases.  But I did not find any significant cases involving antitrust investigations.  Putting aside for the moment any speculation as to the reasons for this (whether due to my poor legal research skills or the “low” number of criminal antitrust investigations in the last 10 years), if you are feeling generous and are aware of any such cases, feel free to mention them in the comments or email them to us.

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Update (7/09): The website is back up today.

Update (7/08): Day three and still down.  At some point this becomes embarrassing.  (Even if, as some have speculated, there was a DDoS attack. Another Update: The Washington Post reports that it is a DDoS attack and that 26 websites (including the Post) were targeted.  The FTC, however, seems to be the only website that has been down the entire time and is still down).

The FTC website is again down today.  PC World reports that “agency representatives said they don’t know what caused the problem.”

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In the “not surprising at all” category, yesterday the United States Department of Justice filed its amicus brief in the United States Court of Appeals for the Second Circuit in the “Cipro” case (a.k.a. Arkansas Carpenters v. Bayer).  In its brief, DOJ states:

Private agreements that include reverse payments are properly evaluated under the antitrust rule of reason, which takes into account efficiency-related justifications as well as anticompetitive potential.  The anticompetitive potential of reverse payments in the Hatch-Waxman context in exchange for the alleged infringer’s agreement not to compete and to eschew any challenge to the patent is sufficiently clear that such agreements should be treated as presumptively unlawful under Section 1 of the Sherman Act.  Defendants may rebut that presumption by providing a reasonable explanation of the payment, so that there is no reason to find that the settlement does not provide a degree of competition reasonably consistent with the parties’ contemporaneous evaluations of their prospects of litigation success.

If/when I figure out how to upload a pdf file I will attach the brief (or link to it if/when DOJ posts the brief on its website).

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Yesterday, the Supreme Court granted cert in American Needle, Inc. v. National Football League, et al.  The issue in the case is whether or not the NFL, its teams and the Players Association functioned as a single entity.  In short, if they did function as a single entity, then there cannot be Section 1 liability.

Both the district court and the seventh circuit found that the defendants (i.e., the NFL entities) were a single entity.  AR coverage of the seventh circuit decision is here.

An interesting aspect of this case is that the Supreme Court asked the Solicitor General for her opinion and the Solicitor General recommended the Court deny cert.  Granting cert after the SG has weighed in to the contrary is extremely rare.

The Sports Law Blog has noted that the “NFL—and other professional sports leagues in the U.S.—have a tremendous amount to gain from the Supreme Court’s decision, but not much to lose.”  At the Antitrust & Competition Policy Blog, Chris Sagers has a lengthy (and passionate) post in which he speculates that “in short, there are probably four pretty solid votes for affirmance, one more (Kennedy) that seems only marginally less solid for defendants, and either of two (Breyer and Sotomayor) that might also sign on for affirmance.”

American Needle’s Cert Petition.

The NFL’s brief.

American Needle’s supplemental brief.

The Solicitor General’s brief.

Seventh Circuit opinion.

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Yesterday, the FTC issued “Authorized Generics: An Interim Report,” which contains the “first set of results from a study conducted to examine the short-term and long-term effects of ‘authorized generics’ on competition in the prescription drug marketplace.”  The press release also notes that:

The Interim Report finds that drug prices are lower when authorized generics are marketed against a single generic drug than when they are not. With authorized generic competition during the 180-day marketing exclusivity period, retail drug prices are on average 4.2 percent lower than the pre-generic branded price, and wholesale drug prices are on average 6.5 percent lower than the pre-generic branded price.

Authorized generic entry during this time also substantially reduces the revenues of a first-filer generic firm, with declines ranging from 47 to 51 percent. As a result, because a generic can earn greater revenues if an authorized generic does not enter the market, a generic firm may be willing to agree to defer its market entry in return for a brand’s promise not to launch a competing authorized generic during the 180-day marketing exclusivity period. A review of patent settlement agreements, the Interim Report states, reveals that such agreements appear to be more common now than in the past.

(I personally wonder if a 4% decline can be accurately be termed “substantial”).

The report itself is available here.

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It must be “reverse payment” week as FTC Chairman Leibowitz gave a speech this morning on the topic.  The FTC press release states that:

an internal FTC analysis projects that stopping collusive “pay-for-delay” settlements between brand and generic pharmaceutical firms would save consumers $3.5 billion a year and also reap significant savings for the federal government, which pays approximately one-third of all prescription drug costs.  Chairman Leibowitz urged Congress to pass pending legislation to ban or restrict such anticompetitive patent settlements, in which manufacturers of brand-name drugs pay potential generic competitors to stay out of the market, as a way to control prescription drug costs, restore the benefits of generic competition, and help pay for health care reform.

The full text of the speech is here.

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Yesterday, the Supreme Court denied cert in Arkansas Carpenters Health and Welfare Fund v. Bayer AG, again refusing to consider a “reverse payment” case.  From Dow Jones:

The U.S. Supreme Court rejected a lawsuit challenging Bayer AG’s (BAYRY) deal with Barr Pharmaceuticals Inc. (BRL) to delay producing a generic version of Cipro, an antibiotic drug.

…

Separate litigation on the Cipro agreements brought by drug wholesalers and retailers is still pending in a lower court. The Obama administration intends to file a brief in that case, which is in the 2nd U.S. Circuit Court of Appeals in New York.

Bayer paid $398 millionto Barr and other generic drug makers in return for an agreement that they would not market a generic version of Cipro until Bayer’s patent on the drug expired. Drug purchasers and advocacy groups challenged the agreement as anticompetitive, saying it violated federal and state antitrust laws as well as state consumer protection laws.

The lawsuit was thrown out by a U.S. trial judge in New York in 2005. Last year the U.S. Court of Appeals for the Federal Circuit affirmed the rejection, agreeing that Bayer’s patent rights gave it the ability to enter into agreements limiting generic alternatives to its antibiotic.

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The Washington Post is reporting that DOJ:

has launched an investigation into whether some of the nation’s largest technology companies violated antitrust laws by negotiating the recruiting and hiring of one another’s employees, according to two sources with knowledge of the review.

The review, which is said to be in its preliminary stages, is focused on the search engine giant Google; its competitor Yahoo; Apple, maker of the popular iPhone; and the biotech firm Genentech, among others, according to the sources, who spoke on condition of anonymity because the investigation is ongoing.

…

The sources said the review includes other tech companies and is “industry-wide.” By agreeing not to hire away top talent, the companies could be stifling competition and trying to maintain their market power unfairly, antitrust experts said.

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During her tenure on the United States Court of Appeals for the Second Circuit, Judge Sotomayor has been involved in a several antitrust decisions.

Her most famous antitrust case is certainly Clarett v. Nat’l Football League, 369 F.3d 124 (2d Cir. 2004) in which she upheld the NFL’s eligibility rules that require a prospective player to wait at least three full football seasons after his high school graduation to be eligible for the player draft.  She so ruled because the rules are immune from antitrust scrutiny under the non-statutory labor exemption.

She wrote the decision affirming the district court’s certification of a class challenging credit card associations’ rules requiring acceptance of their debit cards if any merchant accepts their credit cards.  In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124 (2d Cir. 2001).

She wrote a decision reversing the district’s court’s dismissal of a class action alleging that a company and its competitors allegedly shared information on compensation to nonunion managerial, professional, and technical employees and used this information in setting salaries at an artificially low level.  Todd v. Exxon Corp., 275 F.3d 191 (2nd Cir. 2001).

She wrote the opinion in Information Resources, Inc. v. Dun and Bradstreet Corp., 294 F.3d 447 (2d Cir. 2002).  While the case might appear to concern just standing, it touches upon antitrust issues as the question involved, in part, whether the plaintiff lacked standing to sue for injuries suffered in foreign markets if the alleged injury was actually suffered by its subsidiaries and joint ventures.

She wrote an opinion in a Robinson-Patman Act price discrimination case.  Innomed Labs, LLC v. ALZA Corp., 368 F.3d 148 (2d Cir. 2004).  She found that the trial court was wrong to instruct the jury that RPA “would not apply to the Distribution Agreement if the jury determined that the agreement was primarily a contract for the right to distribute a patented product” but that such an error did not warrant a new trial.

These are the only antitrust opinions authored by Judge Sotomayor that I could find.  If you know of any others, email us or leave it in the comments.

Update (6/3): Judge Sotomayor wrote a concuring opinion in Major Leauge Baseball Properities, Inc. v. Salvino, Inc., 542 F.3d 290 (2d Cir. 2008).  The case involved licensing, or lack thereof, to a manufacturer of “stuffed plush animals” by MLB Properties which is the exclusive marketing agent for Major League Baseball Clubs.  The core of her opinion is that she “believe[s] the ancillary restraints framework is a superior method for analyzing the challenged restraints here because it effectively isolates when an exclusive arrangement should be reviewed under the rule of reason, as a reasonably necessary part of a joint venture, and when it should be reviewed as a naked restraint.”  Thanks to reader A.G. for bringing this case to our attention.

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