Blawgletter®

Behrend v. Comcast Talk with New York State Bar's Antitrust Section, Class Action Committee

Blawgletter's friend Sam Simon asked us to visit this morning with the Class Action Committee of the New York State Bar's Antitrust Section, and the chair -- whom we also count as a friend -- Hollis Salzman gave her okay.

You can see below the remarks we wrote out (plus a Q&A at the end to reflect some of the things that happened during the back-and-forth with CAC members):.

Good morning. You are very kind to let me talk with you about the Behrend v. Comcast case. And I thank my friends Sam Simon and your chair Hollis Salzman for granting me this privilege.

Sam asked me to cover a couple of things with you and at the same time urged me to urge all of you to make comments and ask questions any time you want. We'll get the most out of our time if we make it a back and forth, not just with me but also with your colleagues on the Class Action Committee.

I'll start with a sketch of the dynamics of the Comcast case, which we call Cable Antitrust, and of the proceedings before Judge Padova in Philadelphia and then give an overview of the Third Circuit's ruling. Again, please chime in if you have a point you'd like to make or a question you want to ask.

The dynamics of a case that is now almost eight years old have of course changed since the day in December 2003 when we filed it.

The case has always alleged that Comcast violated sections 1 and 2 of the Sherman Act by pursuing a strategy of "clustering" its cable assets in certain metropolitan areas. It executed the strategy largely by gobbling up other cable providers and systems that furnished cable service in the metropolitan areas that Comcast wanted to dominate.

The result of the decade-long process was that Comcast dominated some areas while its erstwhile competitors dominated others and that the fortresses they thus created enabled them to fend off head-to-head competition from overbuilders.

An overbuilder, as you may know, builds a cable system on top of or beside an existing system, enabling the overbuilder to compete for the incumbent's existing cable subscribers.

The Behrend lawsuit challenged Comcast's conduct in three areas -- Boston, Chicago, and Philadelphia.I'll talk only about Philadelphia today. The Boston and Chicago parts of the case have been stayed pending the result of the Philadelphia piece.

The first several years involved dealing with preliminary matters, starting with a motion to compel arbitration, which led to two trips to two different courts of appeals; we ultimately won [see Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006)], and Comcast agreed to withdraw its demand for individual, case-by-case arbitration.

We also responded to a pre-Twombly motion to dismiss and then a post-Twombly motion for judgment on the pleadings. Judge Padova wrote strong opinions rejecting the motions.

We moved for class certification, and Judge Padova granted the motion in 2007. After Hydrogen Peroxide came out at the end of 2008, he partly decertified the class because he concluded he had not made express findings on two issues, both relating to predominance under Rule 23(b)(3) -- antitrust impact and methodology of damages -- specifically, whether the class could prove those elements using evidence common to the class.

We felt the court didn't need to conduct an evidentiary hearing, but Comcast said the opposite. As a result, Judge Padova heard live testimony over four days in the fall of 2009, culminating in a half-day of final argument.

If that isn't a mini-trial, I don't know what is. But I believe Judge Padova wanted to make sure he fully and scrupulously satisfied the Hydrogen Peroxide standard. He issued his opinion in January 2010.

Comcast asked the Third Circuit to take an appeal under Rule 23(f), and the court granted the petition in June 2010. The parties briefed the appeal and argued it in January of this year.

We had a total of five judges who for awhile at least were on our panel. Judge Rendell, who signed the order granting the 23(f) appeal, recused herself a week or two before the hearing. Judge Jordan replaced her. Judge Ambro presided at the oral argument. He recused himself a week after the argument; Senior Judge Aldisert took his spot.

The reconstituted panel did not request further oral argument. Their opinion came out on August 23, 2011, with Judge Aldisert writing the majority opinion for himself and Judge Fisher and Judge Jordan concurring in part and dissenting in part. [Behrend v. Comcast Corp., --- F.3d ---, 2011 WL 3678803 (3d Cir. Aug. 23, 2011)]. The court declined rehearing en banc on September 14.

In brief, the majority held that Judge Padova did not abuse his discretion or clearly err in finding and concluding that we met our burden of showing a plausible theory of antitrust injury and a plausible damages methodology and citing evidence common to the class in support of the plausible theory and plausible methodology.

On antitrust impact, the majority ruled that expert reports, government and academic studies, and Comcast's own documents and testimony supported a finding that the clustering strategy in Philadelphia enabled Comcast to stop an overbuilder, RCN, from building a system in the Philadelphia area and that the deterrence of overbuilding competition allowed Comcast to charge supra-competitive prices for cable service throughout the area, not just in the five counties where RCN announced plans to overbuild.

A lot of the discussion dealt with whether we'd shown a plausible basis for defining the relevant geographic market as the Philadelphia Designated Market Area, which roughly corresponds to the Philadelphia metropolitan area. The panel said we had made the necessary showing because the evidence indicated that cable subscribers in the DMA faced similar competitive choices -- meaning that they overpaid for cable because Comcast quashed overbuilding and jacked up prices throughout the DMA.

Judge Jordan concurred with the conclusion that Judge Padova didn't err in dealing with the question of class-wide antitrust impact, but he got there by a different route. He wrote that the geographic market doesn't really matter so long as there's evidence that the members of the class all sustained antitrust impact. And he agreed with the majority that we'd presented evidence of common impact of the anticompetitive conduct across the class.

On the damages methodology, the majority rejected Comcast's criticisms of our expert's analysis. Dr. McClave used screens to create an econometric analysis of the difference between the prices that Comcast actually charged and the prices it would have charged in the absence of its anticompetitive behavior. Comcast's critique was wide-ranging but to some extent focused on the fact that Judge Padova rejected three of four theories we presented of anticompetitive conduct.

The surviving theory alleged that clustering deterred overbuilding and that the deterrence of overbuilding allowed Comcast to charge supra-competitive prices. Comcast argued that it just couldn't be so that Dr. McClave's analysis could withstand the loss of the other three grounds of liability. Judge Jordan agreed in dissent. But the majority did not. They instead ruled that Judge Padova acted within his discretion and did not clearly err in accepting Dr. McClave's explanation that his methodology isolated truly anti-competitive conduct and therefore provided an accurate estimate of what prices would have been in the more competitive but-for world.

The main significance of Behrend v. Comcast is in saying that class certification in a large antitrust case can be done, that perfection isn't the standard, that plausibility is the key. That "plausibility" thing seems to echo Twombly's plausibility test for pleading but doesn't expressly adopt it.

The panel shunned the idea of having mini-trials on class certification, and that may be true in some cases. But it's hard to imagine that in a complex antitrust case you will not have live testimony at least of experts. In the Chocolate case just yesterday, in fact, Judge Connor set a three-day evidentiary hearing in November. That, I suspect, will be the norm in antitrust cases, at least until we see the courts of appeals allow less elaborate proceedings before certification.

That is what I had prepared to say. Please let me know if you have any questions.

Qs and As:

• Do you now have to have evidentiary hearings before class certification? It depends. In some cases, maybe not. In complex cases, including most antitrust actions that involve heavy expert work, you may not be able to avoid presenting live testimony.
• What happens next in Behrend v. Comcast? Today the Third Circuit issued its mandate, which will have the effect of sending the case back to Judge Padova. Comcast may ask for Supreme Court review, but that won't stay the case in the trial court. We expect supplemental briefing on narrower summary judgment issues and a trial setting, we hope in the next six to 12 months.
• Didn't all those proceedings cost class counsel a lot? Yes. On the other hand, the process, and especially the result of the appeal, reduced the uncertainty that plaintiffs have and has gotten us ready to try the case without a great deal of additional expenditure of time and money.
• How can you manage the amount of effort you have to put into class certification? Behrend v. Comcast will likely represent the gold standard of class certification proceedings. Judge Padova prudently and scrupulously followed, met, and exceeded the requirements the Third Circuit set in Hydrogen Peroxide. The question now is, how much less can a district court do while still meeting the Hydrogen Peroxide standard? We'll need to litigate some more to get more guidance on what steps short of what we did in Behrend v. Comcast will suffice.
• Where did you get your phrase "I'm not telling the cow how to eat the cabbage" from the oral argument? The court tells you in advance who will sit on the panel, and I saw that two of the three members of the Hydrogen Peroxide panel were going to serve also on the Behrend v. Comcast panel. So I tried to think of a way to say what I thought Hydrogen Peroxide required without sounding presumptuous. And that's what occurred to me. [You can get an idea of why the phrase would bloom in the mind of a lawyer who grew up in the piney woods of East Texas here.]

Law Firm Can't Accept $7.5MM to Screw Clients, Second Circuit Rules

Did you really not know that selling out your clients could get you in trouble?

A law firm that agreed to take many millions -- up to $7.5 millions -- from a defendant in return for getting plaintiff-clients to settle cheap seems not to have thought that far ahead.

The firm hired on to represent 587 people who claimed that Nextel discriminated against them in the terms or conditions of employment. But it also agreed with Nextel to get its clients to accept a Dispute Resolution and Settlement Agreement (DRSA), which forced them to mediate and then arbitrate but also promised the firm a big pay day.

Some of the clients sued the firm. The district court granted a motion to dismiss for failure to state a claim. But the Second Circuit reversed. It said:

On the face of the DRSA, its inevitable purpose was to create an irresistible incentive -- millions of dollars in payments having no relation to services performed for, or recovery by, the claimants -- for LMB to engage in an en masse solicitation of agreement to, and performance of, the DRSA's terms from approximately 587 claimant clients. The effectiveness of the DRSA, and therefore the payments to LMB, depended on Nextel's conclusion that a sufficient number or clients had agreed to it. . . . By entering the DRSA, agreeing to be bound by its terms and accepting the financial incentives available therein, LMB violated its duty to advise and represent each client individually, giving due consideration to differing claims, differing strengths of those claims, and differing interests in one or more proper tribunals in which to assert those claims.

Johnson v. Nextel Communications, Inc., No. 09-1892-CV (2d Cir. Sept. 26, 2011) (footnotes omitted). The panel thus upheld the complaint and sent the case back to the district court to deal further with the claims that the law firm breached fiduciary duties to its clients.

Blawgletter offers no view on whether the law firm in fact did wrong. Ahem.

Waiver in Joint Defense Pact Dooms DQ of Law Firm, Federal Circuit Says

The joint defense agreement between Nintendo and Advanced Micro Devices made their talks about litigation private but also said the JDA and actions under its veil would not provide either Nintendo or AMD grounds to disqualify counsel for the other company.

An in-house lawyer for AMD left the company for a job as partner at a law firm, which in due course sued Nintendo for patent infringement. Nintendo moved to DQ the law firm. The district court granted the motion.

Who wins the firm's petition for writ of mandamus?

The law firm, of course -- on the strength of the waiver of the right to DQ in the JDA. In re Shared Memory Graphics LLC, Misc. No. 978 (Fed. Cir. Sept. 22, 2011).

Quote of the Day: Grover Brown

Another quirk of his at the time was that in general he refused to look at any memo submitted to him in writing if it exceeded one page. He required memos from his employees and advisors to be reduced to one page and he preferred that each memo deal only with one subject matter.

Oberly v. Howard Hughes Medical Institute, 472 A.2d 366, 374 (Del. Ch. 1984) (Brown, C.) (describing one habit of late billionaire, magnate, and crazy person Howard Hughes).

No En Banc in Cable Antitrust Case

Today the Third Circuit denied Comcast's request for the whole court to rehear its appeal in Behrend v. Comcast Corp., No. 10-2865 (3d Cir. Sept. 20, 2011).

Blawgletter noted the panel's 2-1 ruling on August 23 that the district court did not err in granting class treatment of the antitrust claims against Comcast.

See reports here, here, and here. Also here.

Frac, Frack, or Hydrofrack?

You know that word choice matters. Twain's lightning versus lightning bug comes to mind.

What about spelling? Well, the tumult over a key part of a way to complete a sideways oil and gas well shows that spelling matters too.

The Supreme Court of Texas explains the process thus:

As in other shale formations, wells in the Barnett Shale [area of northern Texas] require fracture stimulation in order to produce. Fracing a well entails pumping large volumes of water and sand into reservoir rock, which then mixes with saline formation water and must be flowed back out of the well before production can begin. A company fracing a well must dispose of the resulting waste.

Railroad Com'n of Texas v. Citizens for a Safe Future, 336 S.W.3d 619 (Tex. 2011).*

Note the "fracing". Sounds like fray sing? Nay. Frack-ing. Fracking.

Why does the Court use "fracing" instead of "fracking"? Most other writers about the technique go with the "frack" method. See, e.g., www.frackinginsider.com; Wikipedia; Gasland; WSJ.

People who question or oppose hydraulic fracturing tend to include the "k". NYT items do. Indeed, they often add "hydro" as well -- as in "hydrofrack" or "hydrofracking".

Without the "k", the word seems almost benign. With it, it sounds less so. And with the "hydro" prefix? Pretty darn bad.

Bonus:    Arrrrgh, me hearties -- Happy Talk Like a Pirate Day!

____________________
* The Court in an older case noted that someone "[f]irst used" "[f]racing" "commercially in 1949". Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 7 (Tex. 2008) (holding that rule of capture barred claim for trespass). 

 

Epic Fail: Copying Does Not Equal Infringing

Raise your hand if this has ever happened to you: 

The other side thinks your client so plainly -- and evilly -- copied software source code that their lawyers can't imagine losing. They have such clear proof, they believe, they almost sneer at you. And the smugness infects all that they do in the case.

If you put your arm up just now, you may see the train coming. Yes, the folks who have your client dead to rights and can't lose will in short order manage to destroy their copyright infringement case in epic fashion.

How, you ask? Simple: They forget to compare the software code they registered copyright in with the code they claim your client copied.

That very thing snatched defeat from the jaws of victory in Airframe Systems, Inc. v. L-3 Communications Corp., No. 10-2001 (1st Cir. Sept. 14, 2011). Airframe accused a software customer, L-3, of infringing Airframe's copyright in software that Airframe had at one time licensed to L-3. (The software seems to have helped high-flying L-3 track maintenance of its aircraft.) Airframe registered copyright in old versions of the source code (from the 1980s) but not the 2009 one. And yet Airframe's sole evidence of copying by L-3 compared not the versions Airframe had registered but one from many years later. The district court granted L-3's motion for summary judgment on the ground that Airframe had failed to raise a fact issue on the "copying" element of its infringement claim.

The First Circuit affirmed:

Here, the only evidence of copying Airframe presented was [Airframe president Gordon] Rosen’s declaration. Rosen made no direct comparison between the allegedly infringing M3 program [that L-3 used] and the ARMS source code versions covered by Airframe’s copyright registrations, as would normally be done. Rather, he compared the M3 program to the updated 2009 version of the ARMS source code. While this would support a finding of substantial similarity between the M3 program and Airframe’s “current” source code (i.e., the 2009 ARMS source code), there is no claim that the 2009 source code was itself registered or that the 2009 version is the same as one of Airframe’s earlier registered versions--the 1981 “IBM version,” 1984 “PC version,” or 1988 “UNIX version.” Rosen’s declaration said nothing about similarities between the 2009 ARMS version and Airframe’s earlier registered ARMS versions. Indeed, Airframe admits that they are in fact not the same, because the 2009 source code is a version “that had been updated by Airframe in the ordinary course of business.” Appellant’s Br. 15. Having presented no evidence sufficient to prove the content of its registered source code versions, Airframe cannot show that any of its registered works is substantially similar to the allegedly infringing M3 program, and Airframe has failed to create a genuine issue of material fact as to its claim of copyright infringement.

Id. at 10-11 (footnote omitted).

Louis Vuitton Tags U.S. Firm for China Fakes

The chain works like this:

The online hawkers of handbags bearing the label of a famous high-end maker get their website services from a firm that "hosts" the websites (running the servers, granting "bandwidth", and giving IP ("Internet protocol") addresses) -- all for a fee. The hosting firm in turn obtains the servers, bandwidth, and IP addresses under leases from an outfit that owns them.

Hawker-hoster-owner.

The problem comes because the handbag sellers use fake copies of the maker's label to make their goods more buy-worthy. But the maker had has registered the label/mark with the United States Patent and Trademark office. And the maker very much wants to protect his good name.

Who can Louis Vuitton sue for trademark infringement?

LV has a no-doubt-about-it claim for "direct" infringement against the online handbag hawkers. But good luck chasing them down. They reside in China and have no U.S. presence or assets.

What about the third link in the chain -- the people who own and lease the servers, bandwidth, and IP addresses from their offices in San Jose, CA? Can LV tag them for label larceny?

And what of the middle link -- the American firm that hosts the websites?

The Ninth Circuit held that Monsieur Vuitton has a shot at showing "contributory" infringement of his trademarks by both the hoster/lessee and the owner/lessor. But, the panel ruled, he had to show that each supplied its services to the direct infringers with knowledge of their infringing conduct while having the ability to stop the direct infringers from using their services to infringe.

LV failed to prove at trial that owner/lessor Managed Solutions Group had any means to stop the Chinese firms' infringing acts, the Ninth Circuit ruled. But Akanoc Solutions, the hoster, could have shut down the infringement after getting Vuitton's demands that it do so. The court thus affirmed the district court's axing of the claims against MSG and entry of judgment against Akanoc for contributory infringement. Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., No. 10-15909 (9th Cir. Sept. 12, 2011).

9/11 and the Law, Ten Years After

Four years ago, Blawgletter wrote about a Second Circuit ruling that rejected claims by workers at Ground Zero for the harm that resulted from breathing toxic air in the aftermath of the 9/11 attacks. We said:

The Second Circuit yesterday affirmed dismissal of claims that the federal government deliberately misrepresented the safety of working at Ground Zero without respiratory equipment.  The five plaintiffs performed search and rescue operations after the 911 attacks.  They alleged that exposure to asbestos and other hazardous substances injured them or put them in reasonable fear of harm.  The government's false statements exhibited deliberate indifference to their health and safety, they asserted, and constituted violation of their substantive due process rights under the Constitution.  Lombardi v. Whitman, [485 F.3d 73] (2d Cir. 2007).

The court of appeals applied a "shock the conscience" standard to the complaint.  The government's conduct didn't shock the "contemporary conscience" because, the court ruled, the Environmental Protection Agency director and other officials sought to "avoid panic, keep order, restore services, repair infrastructure, and preserve the economy" during a time of profound uncertainty and upheaval.  That the officials could have protected these selfless people by providing them with respiratory equipment (or even telling them they needed it) didn't alter the court's conclusion.

Does the government's behavior shock you?  It does Blawgletter.  Instead of knowingly and falsely assuring brave men and women that the air at Ground Zero wouldn't harm them, the EPA director could easily have told them the truth.  Blawgletter cannot imagine that knowledge of the truth would have diminished one whit the responders' devotion to their patriotic duty.  The needless heaping of tragedy upon tragedy goes beyond stupidity.  It indeed shocks the conscience.

Let us hope the government finds another way to take care of these intrepid souls.

[We don't know if the workers got any help with their injuries. Do you?]

Our April 2007 post included a Ground Zero photo from September 23, 2001. See it just below.

In May of this year, we visited a friend who works in an office near the foot of Manhattan. He took us up to the top floor of his building, and from there we took a photo of the rising One World Trade Center.

The area looked so different we hardly recognized it. We didn't realize until today, when we compared the photos for the first time, that you can see the same building on the right-hand side of both photos. And in the one below, just to the right of One World Trade Center, you can find the square footprint of one of the Twin Towers.

 

[To see photos, animations, and other information about the 9/11 Memorial, go here.]

What effect has 9/11 had on the law in America? How has the law improved? How has it gone the other way? And do we like the result?

What do you think, gentle reader?

Congress Passes America Invents Act

Yesterday, the U.S. Senate okayed the patent reform bill that passed the House on June 23, 2011. The now almost-law goes by the "short title" name "Leahy-Smith America Invents Act". The Senate voted 89-9 in favor.

The White House hasn't issued a statement about the Senate action, but on the eve of the vote President Obama's Office of Science and Technology Policy put out a blog post that hailed the L-S AIA:

I am hopeful that the President will have the opportunity to sign this historic legislation in the coming days in support of his Strategy for American Innovation — which, above all, aims to create jobs of the future in 21^st century industries.  Unlocking the potential of U.S. inventors will help America out-innovate, out-educate, and out-build the rest of the world.

Note the mention of "jobs".

To Blawgletter's eye, section 19 (of the 37-section bill) looks the most likely to affect how patent holders approach cases claiming infringement. The section deals with "jurisdiction and procedural matters", which in brief concern removing cases that involve patent issues from state to federal court and joining more than one defendant in a single case. The changes in section 19 will make removal easier and better for defendants and reduce the number of patent cases that involve a great many defendants that have nothing in common other than a claim that they infringed the same patent.