Blawgletter®

Eleventh Circuit Goes En Banc on Pack of Hedge Funds

May a pack of hedge funds gang up on a borrower to stop pack members from cutting deals with the borrower to lighten its debt burden?

Of course they can (and would), you say. But would they thus run afoul of the Sherman Act? Did you think of that? Heard of section 1? Which bars contracts, combinations, and conspiracies to restrain trade? Huh?

If that notion failed to flit across the great swirling maelstrom of your ever-churning mind, don't feel lonesome. The Eleventh Circuit ruled that section 1 Did Not Apply to a boycott by a group of hedge funds, which owned debt of subprime lender CompuCredit. At least the panel felt that way last November.

But now the Whole Court will give it further thought. The order sets a briefing schedule and oral argument some time in the week of October 15, 2012.

Please do not confuse this CompuCredit case with this one in the U.S. Supreme Court from January 2012 or this other one in the Eleventh Circuit from April 2012.

E-Books Case Draws WSJ Wrath

Talk about goofy.

Today's WSJ -- The Wall Street Journal -- includes a column that gets antitrust law so wrong you wonder why the paper's pundits, who include those who write the official editorials, bother.

The column in question takes aim at the U.S. Department of Justice's case that calls Apple and five book publishers price-fixers for, well, fixing prices.

As the WSJ so often does when dealing with antitrust law, this item reflects a breed of magical thinking.

It first claims that the e-book cartel couldn't have conspired because they simply applied Apple's standard "agency model" to e-books. That model lets the makers of a good or service -- here, the book-publishers -- set Apple's price. Apple keeps 30 percent of that price.

The writer doesn't seem to have picked up on the fact that the book people didn't use the agency model until they jointly chose to change their model. Adoption of the model resulted not from independent decisions but from a string of secret meetings where the book-makers' top execs agreed on a common plan to keep book prices high. Prices for their books shot back up and have stayed there. Buyers paid more. And Apple got 30 percent of the bigger take.

Can you say price-fixing?

The writer claims that the DOJ lawsuit has HURT competition by giving Amazon cover to . . . lower prices. You read that right. Paying less for e-books hurts competition.

Who does the author cite for that idea? The head of a group that lobbies for people who write books. They of course want high prices for their products, pretty much for the same reason Apple does -- they get a cut, too.

But, wait, there's more.

The writer ends by quoting antitrust guru and prophet Richard Posner, who for many years has taught antitrust law both as a judge on the Seventh Circuit Court of Appeals in Chicago and as a prof at the University of Chicago. The quote has Judge Posner saying that courts may often do a bad job of weighing "efficiency against monopoly". But the e-book case doesn't deal with "monopoly" -- which by its terms ("mono") involves a single firm. No, this case concerns a price-fixing cartel. And the balance in cases like that falls almost always on the side of condemnation.

The irony? The same paper talked with a bunch of antitrust experts and put what they said about United States v. Apple Corporation in an article. The title?

"Critics of E-Books Lawsuit Miss the Mark, Experts Say".

Court Orders Trial in Cable Antitrust Case

U.S. Senior District Judge John Padova today granted in part and denied in part the motion of Comcast for summary judgment on claims that it violated sections 1 and 2 of the Sherman Act by entering into market-allocation agreements with competitors and monopolizing the market for cable services in the Philadelphia area.

Judge Padova's 72-page Memorandum dismisses the section 1 per se claim and parts of the section 2 claims but finds triable issues of fact on the section 1 rule of reason claim and the balance of the section 2 claims.

[Blawgletter has the honor to serve as co-lead counsel for the class.]

U.S. E-Book Complaint Lays Out "Agency" Pact with Apple

You've likely heard by now that the Antitrust Division of the U.S. Department of Justice sued Apple and a bunch of e-book publishers for fixing prices on, well, e-books.

You can see the complaint here.

The key part comes in paragraph 7, which explains Apple's "agency" plan for thwarting Amazon's effort to cut all e-book prices to $9.99 thus:

The plan -- what Apple proudly described as an "aikido move" -- worked. Over three days in January 2010, each Publisher Defendant [and Apple] entered into a functionally identical agency contract . . . that would go into effect simultaneously in April 2010 and "chang[e] the industry permanently." These "Apple Agency Agreements" conferred on the Publisher Defendants the power to set Apple's retail prices for e-books, while granting Apple the assurance that the Publisher Defendants would raise retail e-book prices at all other e-book outlets, too. Instead of $9.99, electronic versions of bestsellers and newly released titles would be priced according to a set of price tiers contained in each of the Apple Agency Agreements that determined de facto retail e-book prices as a function of the title's hardcover list price. All bestselling and newly released titles bearing a hardcover list price between $25.01 and $35.00, for example, would be priced at $12.99, $14.99, or $16.99, with the retail e-book price increaasing in relation to the hardcover list price.

The tying of the e-book price to the hardcover list price had the effect of letting the publishers leverage their power over list prices in the hardcover realm into the e-book space. So the theory goes.

The DOJ doesn't ask for damages, just declaratory and equitable relief that would get rid of the Apple Agency Agreements.

The move comes months after private parties filed a slew of cases alleging the same section 1 violation of the Sherman Act. And they for sure DO seek damages. Lots of them. Three times lots of them even.

Second Circuit Roundup

Blawgletter hasn't hidden our liking for the cut of the Second Circuit's jib. We admire lots of things about the court. This week, three panels confirmed our High Opinion.

Let's see . . . one involved whether an antitrust complaint met the Twombly/Iqbal standard for pleading a "plausible" conspiracy, the second dealt with the use of video that belongs to others on YouTube, and the third concerned Texas lawyers who used hardball tactics to pre-empt a New York arbitration.

In Anderson News, L.L.C. v. Am. Media, Inc., No. 10-4591-cv (2d Cir. Apr. 3, 2012), Their Honors ruled that the district court erred in holding that the complaint failed to allege a "plausible" conspiracy among magazine publishers to punish a wholesaler for asking them to pay a "surcharge" for handling the magazines that didn't sell. "The question at the pleading stage is not whether there is a plausible alternative to the plaintiff's theory; the question is whether there are suficient factual allegations to make the complaint's claim plausible." Id. at 37.

The panel in Viacom Int'l, Inc. v. YouTube, Inc., No. 10-3270-cv (2d Cir. Apr. 5, 2012), revived a class action complaint against YouTube under the Digital Millennium Copyright Act. Unlike the district court, the appeals court held that YouTube didn't prove its right to a "safe harbor" under section 512(c) of the DMCA. It sent the case back for more attention to, among other things, evidence of (a) actual awareness by YouTube's founders of infringing clips and (b) YouTube's "willful blindness" to the posting of such clips on YouTube.

And Enmon v. Prospect Capital Corp., No. 10-2811-cv (2d Cir. Apr. 6, 2012), upheld sanctions (including more than $350,000 in fees) against a law firm in Houston, Arnold & Itkin, for over-the-top efforts to thwart an arbitration in New York by means of a temporary restraining order from a Texas state court and what the court deemed meritless challenges to the arbitral award against the firm's client.

Enemy of the Good: Class Cert Doesn't Require Perfect Proof, Seventh Circuit Says

The Seventh Circuit held last week that a district court set too high a standard for class certification in an antitrust case.

"In essence," the panel ruled, it is important not to let a quest for perfect evidence become the enemy of good evidence." Messner v. Northshore University HealthSystem, No. 10-2514, slip op. 3 (7th Cir. Jan. 13, 2012).

The district court had refused to certify a class of suburban Chicago hospital patients who claimed that a merger hurt competition for their healthcare dollars and raised prices. The court thought that common issues didn't "predominate" under Rule 23(b)(3) unless the class could prove uniform increases in hospital prices for all services after the merger. But not all prices went up at the same rate.

The Seventh Circuit vacated the order denying certification. The panel concluded:

[T]he evidence shows that [plaintiffs' economics expert] Dranove can use common evidence and his difference-in-differences methodology to estimate the antitrust impact, if any, of Northshore’s merger on the members of that class. Together with the common questions and evidence on other liability issues, this was sufficient to show predominance under Rule 23(b)(3).

Id. at 45.

The defendants, by the way, had lost at trial before an administrative law judge on the Federal Trade Commission's claim that the merger created an unlawful monopoly under section 2 of the Sherman Act.

Third Circuit Restores Global Diamond Class

Remember the antitrust settlement class that a Third Circuit panel struck down last year? The one that went en banc a few weeks later? The one whose oral argument Blawgletter saw and wrote a post about?

Today, the en banc Third Circuit ruled 7-2 in favor of class certification. Judge Rendell, who wrote the dissent from the panel ruling, authored the full court's majority opinion. As she summarized:

At issue on appeal in this class action litigation is the propriety of the District Court's certification of two nationwide settlement classes comprising purchasers of diamonds from De Beers S.A. and related entities ("De Beers").  The settlement provided for a fund of $295 million to be distributed to both the direct and indirect purchasers:  the direct purchasers were to receive $22.5 million of the fund, while the indirect purchasers would receive $272.5 million.  A panel of our Court held that the District Court‘s ruling was inconsistent with the predominance inquiry mandated by Federal Rule of Civil Procedure 23(b)(3), and remanded the matter for further proceedings.  See Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010), reh’g en banc granted and vacated by Sullivan v. DB Investments, Inc., 619 F.3d 287 (3d Cir. 2010).  We then granted the plaintiffs‘ petition for rehearing en banc and vacated the prior order. Accordingly, we address anew the propriety of the District Court‘s certification of the direct and indirect purchaser classes pursuant to Federal Rule of Civil Procedure 23(b)(2) and 23(b)(3), and also consider for the first time the objections raised to the fairness of the class settlement.2 

We believe that the predominance inquiry should be easily resolved here based on De Beers‘s conduct and the injury it caused to each and every class member, and that the straightforward application of Rule 23 and our precedent should result in affirming the District Court‘s order certifying the class.  But the objectors to the class certification and our dissenting colleagues insist that, when deciding whether to certify a class, a district court must ensure that each class member possesses a viable claim or "some colorable legal claim," (Dissenting Op. at 10).  We disagree, and accordingly, we will reason through our analysis in a more deliberate manner in order to explain why the addition of this new requirement into the Rule 23 certification process is unwarranted.

Sullivan v. DB Invesments, Inc., No. 08-2784, slip op. at 10-11 (3d Cir. Dec. 20, 2011) (en banc) (foonotes omitted).

The court went on to okay the district court's plan for doling out the money to members of the two subclasses of direct and indirect buyers and its award of about $73 million in fees and expenses to class counsel. The panel hadn't reached either issue because it ruled that the case didn't qualify for class treatment.

[Hat tip to the ever-alert William Hoese, whose membership in Phi Beta Kappa will come as no surprise to those who know him.]

AT&T Quits Quest for T-Mobile

AT&T just told the world that it and Deutsche Telekom would halt the purchase and sale of T-Mobile USA. The press release stated: 

AT&T Inc. (NYSE: T) said today that after a thorough review of options it has agreed with Deutsche Telekom AG to end its bid to acquire T-Mobile USA, which began in March of this year.

The actions by the Federal Communications Commission and the Department of Justice to block this transaction do not change the realities of the U.S. wireless industry. It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage.  In the absence of such steps, customers will be harmed and needed investment will be stifled.

“AT&T will continue to be aggressive in leading the mobile Internet revolution,” said Randall Stephenson, AT&T chairman and CEO.  “Over the past four years we have invested more in our networks than any other U.S. company. As a result, today we deliver best-in-class mobile broadband speeds – connecting smartphones, tablets and emerging devices at a record pace – and we are well under way with our nationwide 4G LTE deployment.

“To meet the needs of our customers, we will continue to invest,” Stephenson said. “However, adding capacity to meet these needs will require policymakers to do two things. First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the U.S. wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC.  Second, policymakers should enact legislation to meet our nation’s longer-term spectrum needs.

“The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces,” Stephenson said.

To reflect the break-up considerations due Deutsche Telekom, AT&T will recognize a pretax accounting charge of $4 billion in the 4th quarter of 2011.  Additionally, AT&T will enter a mutually beneficial roaming agreement with Deutsche Telekom.

 WSJ article here. Post with links to older posts here.

Stiff FTC Subpoena Beats Condom-Maker's Challenges

Church & Dwight bills itself as "one of the fastest growing Consumer Packaged Goods companies" and as "a leader in the Household Consumer Products and Personal Care industry, with such brands as ARM & HAMMER, Trojan, First Response, Nair, Spinbrush, Oxi Clean, Orajel and more."

Note the "Trojan" bit.

In June 2009, the Federal Trade Commission resolved to check Church & Dwight out on whether it "has attempted to acquire, acquired, or maintained a monopoly in the distribution or sale of condoms in the United States, or in any part of that commerce, through potentially exclusionary practices including, but not limited to, conditioning discounts or rebates to retailers on the percentage of shelf or display space dedicated to Trojan brand condoms and other products distributed or sold by Church & Dwight, in violation of Section 5 of the Federal Trade Commission Act." Federal Trade Comm'n v. Church & Dwight, Inc., No. 10-5383, slip op. at 3 (D.C. Cir. Dec.13, 2011).

Church & Dwight, the FTC pointed out, held more than 70 percent of the U.S. market for latex condoms.

True to its Resolution, FTC staff subpoenaed the firm to turn over documents relating to "Trojan brand condoms and other products distributed or sold by Church & Dwight". The company objected that "and other products" must mean other condom products and that therefore it could redact from documents that did concern condom products any statements about non-condom products. The FTC and district court deemed to gripe overly rigid and said no to quashing the subpoena. This week, the D.C. Circuit affirmed.

Church & Dwight seems to have thought it could win by asking the D.C. Circuit to reject what it (C&D) deemed an extreme reading of Sherman Act section 2 -- the Third Circuit's en banc decision in LePage's Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en banc). The LePage's court ruled that the jury could have properly found, as it did, that 3M violated section 2 by bundling of products even if the bundling didn't involve predatory (below-cost) pricing.

People had "roundly criticized" the ruling in LePage's, the panel noted, but then it held: 

Because LePage’s is the law in the Third Circuit, and because Church & Dwight sells both condoms and other consumer products within the Third Circuit, the Commission may lawfully investigate whether the Company’s practices would constitute a violation of the law in that circuit.  Although this court might someday reach a different resolution of the issue presented in LePage’s, “a subpoena enforcement action is [generally] not the proper forum in which to litigate disagreements over an agency’s authority to pursue an investigation.  Unless it is patently clear that an agency lacks the jurisdiction that it seeks to assert, an investigative subpoena will be enforced.”  [FTC v. ]Ken Roberts[ Co.], 276 F.3d [583,] 584[ D.C. Cir. 2001)].  We hold, therefore, the Resolution lawfully encompasses an investigation into whether Church & Dwight has bundled discounts for condoms and other products in order to acquire or maintain a monopoly in the market for condoms in the United States.

Church & Dwight, slip op. at 8 & 9-10.

Wireless Goes Haywire

AT&T Wireless tried for T-Mobile in what looks like an attempt at building a bridge too far. Which Blawgletter thought from the get-go.

[Let's ignore for now the thing the editors of our -- and AT&T's -- hometown paper wrote about the FCC's failure to shoo the AT&T/T-Mobile deal through. Let's just say they'd have done better if they'd said we want one of our biggest companies to get even larger because we hope that'll help the local economy. But they instead wrote that the deal would produce more jobs, better service, lower taxes, longer daylight hours, fewer murders, and slower global warming.]

Now we hear that the very most gigantic wireless company, Verizon, just inked a deal with two of the very most titanic cable firms, Comcast, Time Warner, and Bright House, to -- get this -- stop trying to compete for wireless customers!

The cable guys will cede to Verizon the spectrum that belongs to their wireless joint venture, SpectrumCo. In return, Verizon agrees to pay $3.6 billion and to sell subscriptions to Comcast, Time Warner, and Bright House cable.

Can you say "market allocation"?

The fact that these deals happen out in the open doesn't, by the way, make them legal. AT&T's with T-Mobile made front pages, but that didn't stop the Federal Communications Commission from moving to block it.

The WSJ takes the view that the FCC has no business using "antitrust theory from the industrial era" to block the AT&T/T-Mobile deal because, even though the merger would "enhance" AT&T's "market power", giving AT&T more market power "[is] not the same as harming competition."

Alrighty then.

We can trust AT&T to do nothing but good. 

Forgive us for thinking not.