Blawgletter®

DOJ Antitrust Division Sues to Stop AT&T from Gobbling T-Mobile (Update)

Dang. The Antitrust Division has teeth after all.

(Blawgletter called it in March, by the way.)

Per the WSJ, the AD sued to enjoin the deal for AT&T to acquire T-Mobile.

The pact would create the biggest, baddest, anticompetitivest wireless firm in the U.S.

The Division's press release said:

The department’s lawsuit, filed in U.S. District Court for the District of Columbia, seeks to prevent AT&T from acquiring T-Mobile from Deutsche Telekom AG. 

“The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services,” said Deputy Attorney General James M. Cole.  “Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers.  This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.” 

Mobile wireless telecommunications services play a critical role in the way Americans live and work, with more than 300 million feature phones, smart phones, data cards, tablets and other mobile wireless devices in service today.  Four nationwide providers of these services – AT&T, T-Mobile, Sprint and Verizon – account for more than 90 percent of mobile wireless connections.  The proposed acquisition would combine two of those four, eliminating from the market T-Mobile, a firm that historically has been a value provider, offering particularly aggressive pricing. 

According to the complaint, AT&T and T-Mobile compete head to head nationwide, including in 97 of the nation’s largest 100 cellular marketing areas.  They also compete nationwide to attract business and government customers.  AT&T’s acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace. 

The NYT quoted AT&T as saying it will “vigorously contest this matter in court.”

AT&T's press release says:

We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated.

We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.

At the end of the day, we believe facts will guide any final decision and the facts are clear. This merger will:

• Help solve our nation’s spectrum exhaust situation and improve wireless service for millions.
• Allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population;
• Result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most. 

We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.

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Dallas Paper Slams Patent Trolls

Blawgletter doesn't often give high marks to newspaper editors on the quality of the facts they offer in support of their opinions. The lead editorial in today's issue of The Dallas Morning News -- on "patent trolls" -- should thus not have come as a surprise.

Yet it stuns.

Start with the title. "Patent trolls get rich by killing jobs and robbing consumers" makes you wonder if the act of job-killing really earns a profit. How does that work, exactly? Does the dead job itself fork over the money? Or does the person whose job became one with the infinite do it?

We can see how "robbing consumers" could pay, but we don't get the mechanism. The theft must take an indirect route, we guess.

And it does. "Ultimately," the editorial says, "the billions spent on patent purchases are passed on to consumers in the form of higher prices."

The evidence?

The News cites Google's $12.5 billion buy of Motorola Mobility for its portfolio of "17,000 active and pending patents that Google needs to protect its products from death-by-a-thousand-patent lawsuits." Also Nortel's sale of its patents to Apple and Microsoft for $4.5 billion.

So, let's get this straight. We need patent reform because Google, Apple, and Microsoft didn't actually need the patents to gain a competitive advantage -- they bought them mainly to fend off patent trolls? Really?

The tech community doesn't appear to share that view. They seem to believe Google will use the Motorola patents to protect its products not against marauding by patent trolls but against real head-to-head competition by the likes of -- you guessed it -- Apple and Microsoft. And we think we know why Apple and Microsoft acquired the Nortel stuff. They, too, want to bolster their market power.

What else? Ah. The editorial starts by making fun of a patent that tells you how to "refreshen[] a bread product by heating the bread product". Pretty goofy, right? Almost keeps you from wincing when the News ends by saying "you're . . . toast" if you don't get ready to fight the patent trolls.

Except the editorial leaves off the next part of the sentence -- "to a temperature between 2500.degree. F. and 4500.degree. F". Steel melts at about 2,500 degrees Fahrenheit. Don't try to "refreshen" your biscuits in a steel furnace at home!

But what really gets us shows up in the editors' tale of how a patent troll "shell company" in Marshall, Texas, "killed" the "entrepreneurial dream" of a Dallas-area "entrepreneur". (The News notes it borrowed the story from a July 22 broadcast of This American Life.) "Everything collapsed" for the co-founder of FotoTime, an online photo-sharing service, when he got a menacing letter from the troll.

Very sad, yes? And yet the killing of the entrepreneurial dream might surprise FotoTime, which seems to have survived the blow pretty well.

Nor do we find in the editorial much beyond bluster on what to do to solve the problems the editors suppose. The obvious solution -- banning ownership of a patent by firms that don't "practice" the invention -- strikes us nutty. Also a bit weird for a newspaper that puts a high value on property rights.

Making patent suits less costly to defend seems a far better idea. Let's do that.

One way to head in that direction would take a page from firms that handle plaintiffs' cases -- a fee contingent on the outcome. The defense firm charges no fee unless the client gets out of the case for less than $X. The firm then receives a percentage of the savings. That better aligns the firm's interests with the client's and protects the client against the threat of ruinous cost.

See "How to Negotiate a Reverse Contingent Fee".

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Nonsuit as Loss on Merits in 19-Opinion Day for Texas Supreme Court

Talk about cutting a backlog.

The Supreme Court of Texas issued rulings in 19 cases this week, setting a record for the year if not for all time. The oldest case, City of Dallas v. Albert, No. 07-0824 (Tex. Aug. 26, 2011), started its Supreme Court journey in April 2007 -- four years and four months ago.

The one that most caught Blawgletter's eye dealt with a quirk of Texas procedure -- the nonsuit. The right to nonsuit means a party can dismiss his/her/its claims whether the other side or the judge wants him/her/it to or not.

The case involved a contract that entitled the "prevailing party" in a lawsuit to "reasonable attorney's fees". Plaintiffs nonsuited, without prejudice, on the same day they filed a response to the defendants' motion for summary judgment. The trial court awarded defendants almost $30,000 in attorneys' fees.

The Court held that "a defendant may be a prevailing party when a plaintiff nonsuits without prejudice if the trial court determines, on the defendant’s motion, that the nonsuit was taken to avoid an unfavorable ruling on the merits." Epps v. Fowler, No. 10-0283, slip op. at 11-12 (Tex. Aug. 26, 2011).

The theory? That barring a fee award in all instances of nonsuits without prejudice "would enhance the possibility that plaintiffs who pursue frivolous claims suffer no consequences and fail to reward defendants whose efforts cause their opponents to yield the playing field." Id. at 12.

The dissent urges that the rule reflects the majority's policy judgment instead of the parties' intent.

Blawgletter concurs. Failing to get a good ruling on the merits because the other side nonsuits at the last minute doesn't feel like "prevailing" to us. And even if it did we think the Court should change the nonsuit rule by, well, changing it instead of saying it reads "prevailing" to mean something that few Texas lawyers would have thought it means in light of the long-standing tradition of viewing the right to nonsuit as just about absolute.

Cable Antitrust Class Okay, Third Circuit Rules

The Third Circuit today affirmed a class certification order in an antitrust case.

The case, Behrend v. Comcast Corp., No. 10-2865 (3d Cir. Aug. 23, 2011), involves claims that Comcast violated sections 1 and 2 of the Sherman Act and that the antitrust violations allowed Comcast to overcharge Philadelphia cable subscribers.

The court's 2-1 majority opinion rejects Comcast's attacks on the district court's order recertifying the Philadelphia class under the rigorous standards the Third Circuit articulated in In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008). The panel rules that plaintiffs carried their burden of showing they can prove "common impact" of the antitrust violations on class members and class members' damages with class-wide evidence. The dissenting judge disagreed with the conclusion on damages but concurred on common impact.

The decision will return the case to U.S. District Judge John R. Padova.

[Note: We argued the case for the plaintiff class in January of this year.]

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$800,000 Fee on $100,000 Class Award Fails Smell Test, Ninth Circuit Holds

Some people think most class actions exist to reward the lawyers, not the members of the class. Blawgletter doesn't think that, but some people do.

And then a case like In re Bluetooth Headset Products Liability Litig., No. 09-56683 (9th Cir. Aug. 19, 2011), comes along. It likely didn't start as a platform for class counsel to earn a fee out of whack with benefits to the class as a whole, but it does seem to have turned out that way.

The plaintiffs in Bluetooth Headset claimed loss of hearing as a result of using the defendants' products at loud settings. The parties settled. The deal called for defendants to disclose hearing safety facts, to pay $100,000 to hearing-loss nonprofits, to cover as much as $1.2 million in costs to provide notice of the settlement to class members, and to remit up to $800,000 in fees plus $50,000 in expenses to class counsel. The district court okayed the pact and awarded the full $850,000 to the lawyers.

The Ninth Circuit vacated the district court's orders. The panel held that the fee award so dwarfed the (indirect) relief for the class that it called for closer study by the district court. That the defendants agreed not to challenge the fee award unless it exceeded $800,000 and that the award amounted to far more than the Ninth Circuit's "benchmark" of 25 percent of total benefits to the class made the settlement and the award at least suspect. The court remanded the case so that the district court could do a more searching review of class counsel's fee request in light of the (modest) results they achieved and a harder look at the terms of the settlement.

We suspect that on remand the district court will solve the problems by cutting the fee to around 25 percent of the total cost of the deal to the defendants. That would include the $1.2 million in notice costs, $850,000 in fees and expenses, the $100,000 cy pres award, the $12,000 awards to class representatives, and the value (if any) of the safety disclosures. Call it $550,000. We'll see.

"Drilling Operations" -- Not "Drilling" -- Lets Hess Hold Oil and Gas Lease, Eighth Circuit Rules

Mark Twain said the difference between the right word and almost the right word means the difference between "lightning" and "lightning bug".

Tell that to the Andersons of Mountrial County, North Dakota. The family lost a case because "drilling" doesn't mean the same thing as "drilling operations".

On May 3, 2004 and May 10, 2004, they granted mineral leases for five-year terms to what became Hess Corporation. Hess won a fight with the Andersons because the courts held that, under North Dakota law, Hess's "drilling operations" just before the five years expired kept the leases alive until Hess's actual "drilling" struck paydirt.

The leases all said that they wouldn't end so long as Hess conducted "drilling or reworking operations" on the Andersons' lands, which had become subject to a "pooling" unit. The Andersons urged that "drilling" didn't go with "operations" -- that the "drilling or reworking operations" covered actual "drilling" or "reworking operations" but not "drilling operations". The Eighth Circuit disagreed. It affirmed summary judgment for Hess because the record showed, without dispute, that Hess had started getting ready to drill before May 10, 2009, although it began the actual drilling after May 10. Anderson v. Hess Corp., No. 10-3116 (8th Cir. Aug. 15, 2011).

Because the leases contained a "Pugh clause", production from the Hess well on one of the leases kept all the leases in the pooling unit alive.

Quote of the Day: Joel Fredrick Dubina

We . . . refuse to abdicate our constitutional duty when Congress has acted beyond its enumerated Commerce Clause power in mandating that Americans, from cradle to grave, purchase an insurance product from a private company.

Florida v. United States Dept. of Health & Human Services, No. 11-11021 (11th Cir. Aug. 12, 2011) (Dubina, C.J.) (striking down key section of healthcare reform law on grounds it did more than commerce clause allowed and that tax power didn't permit section because Congress didn't invoke it).

Quote of the Day: Dennis Jacobs

The whole purpose of fee-shifting statutes is to generate attorneys' fees that are disproportionate to the plaintiff's recovery.

Millea v. Metro-North Railroad Co., No. 10-409-cv (2d Cir. Aug. 8, 2011) (Jacobs, C.J.) (reversing award of $204 in fees on $612.50 in damages under Family Medical Leave Act).

 

Extinct Class Action May Toll Time to Sue Under Virginia Law

With the U.S. Supreme Court making the test for class actions tougher, you may see a short-term increase in denials of class treatment. You may as a result also witness a surge in class members' filing cases where they assert the now-dead class claims on an individual basis.

But what if -- as often happens -- the statute of limitations has run while the class action case lived? Can the class members' lawsuits proceed anyway?

Since American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), federal courts have answered yes -- so long as the class and individual claims arose under federal law. Does the same rule apply to state law claims?

The Second Circuit last week joined the Fifth and Ninth Circuits in holding that state law, and not American Pipe, governs the question of whether a class action stops a state statute of limitations from running. Casey v. Merck & Co., Inc., No. 10-1137-cv (2d Cir. Aug. 5, 2011). The panel also ruled that the state whose law applied to the plaintiffs' claims hadn't spoken clearly on whether it would permit American Pipe-style tolling. The court therefore certified questions to the Supreme Court of Virginia.

Firm Can Sue for Email Barrage, Sixth Circuit Holds

Do you wonder what you could do if someone targets your company with a torrent of calls and emails? Wonder no more. You can sue under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, which creates both criminal penalties and a civil cause of action.

So held the Sixth Circuit in Pulte Homes, Inc. v. Laborers' Int'l Union of N. Am., No. 09-2245 (6th Cir. Aug. 2, 2011).

Due to a dispute over firings by Pulte, a home-builder, a union complained to the National Labor Relations Board. It also got members to make lots of calls to Pulte and send a great many emails to some of its execs:

LIUNA . . . bombarded Pulte's sales offices and three of its executives with thousands of phone calls and e-mails. To generate a high volume of calls, LIUNA both hired an auto-dialing service and requested its members to call Pulte. It also encouraged its members, through postings on its website, to "fight back" by using LIUNA's server to send e-mails to specific Pulte executives. Most of the calls and e-mails concerned Pulte's purported unfair labor practices, though some communications included threats and obscene language.

Yet it was the volume of the communications, and not their content, that injured Pulte. The calls clogged access to Pulte's voicemail system, prevented its customers from reaching its sales offices and representatives, and even forced one Pulte employee to turn off her business cell phone. The e-mails wreaked more havoc: they overloaded Pulte's system, which limits the number of e-mails in an inbox; and this, in turn, stalled normal business operations because Pulte's employees could not access business-related e-mails of send e-mails to customers and vendors.

Pulte Homes, slip op. at 2-3.

The district court tossed Pulte's "transmission" claim under section 1030(a)(5)(A) of CFAA on the ground that the union didn't "intentionally cause damage" to a "protected computer". The Sixth Circuit begged to differ, ruling that "a transmission that weakens a sound computer system -- or, similarly, one that diminishes a plaintiff's ability to use data or a system -- causes damage." Id. at 7.

You may not think of tying up phone lines or a computer network as "damage", but CFAA defines it that way. See 18 U.S.C. § 1030(e)(8) (providing that "any impairment to the integrity or availability of data, a program, a system, or information" counts as "damage").