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Author: Jarod Bona

On April 10, 2018—the eve of my panel on state action immunity issues at the ABA Antitrust Spring Meeting in DC, the FTC granted, in essence, partial summary judgment against the Louisiana Real Estate Appraisers Board on state action immunity. You can read the FTC decision—hot off the press—right here.

I won’t go into a lot of detail here as you can read the decision, but here is short summary:

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Author: Jarod Bona

We are all connected. When something happens anywhere, we know about it everywhere. If someone has a great idea, they can tell everyone about it, right away.

These connections create incredible value. We as a society can take the best ideas and build upon them. Information as a resource is incredibly cheap and easily available. Filtering is the real problem now, but more on that later.

So, this is all great, but I worry. There is a downside to this over-connectedness. But more on that later.

There was once a time when people were worried that government would suppress speech, ideas, and innovation. The government still does this, of course. But it seems like there is less worry about it. In many ways, the government doesn’t have as much power as it used to have. That is, in part, because of our connectedness.

Society can speak swiftly and harshly toward government action that is excessive, unfair, or wrong (in society’s judgment). This creates a check on government conduct, in the same way that many people used to consider the press the fourth branch of government. Indeed, the collective voice of the people on social media has all but replaced the press, who now, like everyone else, tend to mostly pick sides.

Society, of course, doesn’t speak in one voice, but a conventional wisdom often develops and if you don’t follow it, you are criticized, harshly. This isn’t the case for every issue, obviously, but for many.

Back in the old days, speech took place in public forums—maybe a park, a conventional hall, or even a mall. That still happens, but you can only reach so many people at one place (unless you video it and post it on YouTube, for example). So the government’s role in this type of speech is much less.

Some influential speech still takes place on television. But people seem to be watching that less and less. Now, the most influential speech takes place online, mostly filtered through technology and social media companies like Google, Twitter, Facebook, etc.

I’ve mentioned the term “filter” several times now. There is so much content on these platforms that if you don’t filter it, the amount is so overwhelming, it just isn’t useful. Most people don’t have time to go through everything everyone says. So a filter is necessary.

If the government were to “filter” the speech at a public park, the ACLU and a bunch of other organizations would file a First Amendment Lawsuit, and that is a good thing.

But now, the most influential forums for speech must be filtered. But how? I am not sure any one person really knows. The technology and social media companies use something called an algorithm to do the work. That seems like it could be a good idea, assuming the algorithm is a good one. But how do we know?

Should the algorithm vary depending upon the recipient information stream? Again, that seems like a good idea. Having something completely customized for you is sort of fancy and certainly helpful. We all have different interests, needs, etc. But we all have “views” on certain issues too. As we develop wisdom, experience, and knowledge, those ideas should evolve and, in some cases, change dramatically. My views are not the same as they were twenty years ago. Yours probably weren’t either.

The idea that each of us has plastic unchanging views on everything from the origins of the universe to how to run a business to the most controversial political topics of the day is foolish.

But an algorithm that sends you a customized information stream is likely to send you a disproportionate amount of information that matches your present views and interests. In a way, that locks you into where you are—inhibiting your own growth. What if we aggregate that to, well, everyone on the planet that is on the internet. Uh oh!

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Author: Jarod Bona

It isn’t easy to be an indirect purchaser antitrust class action plaintiff.

Not only do you have to satisfy the difficult standards for class certification (discussed here), but you also have to prove that the direct purchasers passed on an overcharge from defendants’ alleged anticompetitive conduct.

Before we go further, let’s talk about how direct purchasers and indirect purchasers fit into antitrust class action cases.

Direct Purchasers, Indirect Purchasers, Class Actions, and Overcharges

The most common type of antitrust class actions involve allegations of price-fixing or some other per se antitrust violation that leads to higher prices than the but-for world without the anticompetitive conduct. The increase in prices from the antitrust violation is called the overcharge.

The “overcharge,” of course, isn’t real—it is a number that one or more economists create after combining equations with lots of data and a bunch of assumptions that may or may not be accurate. Everyone does their best and a judge or jury has to sort through it and try to figure out what is right.

Anyway, a “direct purchaser” is a person or entity that purchased products or services from one or more defendants that were accused of violating the antitrust laws. They usually have standing to sue under the federal antitrust laws because, if the allegations are true, they paid higher amounts than they should have for their purchase.

But sometimes these direct purchasers are not end users of the product. Instead, they may be, for example, distributors or retailers that purchaser the product from defendants and resell it to someone else. That someone else is what is called an “indirect purchaser.”

For reasons I won’t get into now, indirect purchasers usually don’t have standing to sue for damages under the federal antitrust laws (Illinois Brick). But many states allow indirect purchasers to obtain antitrust damages under their state antitrust laws.

So when something happens and there is an antitrust blizzard of antitrust complaints filed throughout the country, direct purchasers will sue under the federal antitrust laws and indirect purchasers will sue—also in federal court—under state antitrust laws for damages. (They may also sue for injunctive relief under federal antitrust law).

In addition to winning the antitrust lawsuit, class action plaintiffs must also achieve class certification. And if indirect purchasers want any damages, they have to show that the direct purchasers paid an overcharge resulting from defendants’ anticompetitive conduct and passed some or all of that overcharge to the indirect purchasers.

One final point, I have spent my career on the defendant side of antitrust class actions and, as of the date of this article, Bona Law is representing a defendant in the In re Capacitors Antitrust Litigation. So please note any potential biases.

Court Denies Renewed Class Action Certification Motion for In re Lithium Ion Batteries Antitrust Litigation

The background and introduction was to tell you about the Court’s recent decision in the Lithium Ion Batteries antitrust class action case. In April 2017, we wrote about the Court’s initial class certification denial without prejudice, which meant that plaintiffs could renew their class certification motion once they fixed the identified problems in the motions and expert reports.

Well, the indirect purchasers renewed their motion for class certification and the Court again rejected it. The Court also granted defendants’ motion to strike plaintiffs’ supplemental expert report. You can read the Court’s order here.

To support plaintiffs’ renewed motion for class certification, indirect purchasers submitted a supplemental expert report that attempted to address issues that led to the Court’s last class-certification rejection: updated analysis to address packer pass-through issue, added new data from third parties and new documentary evidence about pricing coordination, and attempted to address the effects of rebates, bundles, discounts, and focal point pricing on pass-through and damages.

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Do you want to learn about antitrust? If so, now is a great time to do so. Concurrences, an international antitrust website with an outstanding reputation, is accepting votes for their 2018 Antitrust Writing Awards, which will be announced at the Awards Gala Dinner on April 10, 2018 (right before the ABA Antitrust Spring Meeting, where you may find me on a panel).

I haven’t been to the Awards Gala Dinner, but I can only assume it is similar to the Oscars, if the Oscars were run by antitrust lawyers. We can pause for a moment while you try to picture what that might entail.

Back to the Antitrust Writing Awards: A jury of distinguished antitrust experts selected articles from 2017 in several categories: Best Academic Articles, Best Business Articles, Best Soft Law, and Best Newsletters. Within each category are articles in several substantive antitrust and competition areas.

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Author: Saurabh Vishnubhakat, Associate Professor of Law and Associate Professor of Engineering, Texas A&M University. 

This guest post is based upon Professor Vishnubhakat’s innovative new paper applying antitrust concepts to patent law, which is now published in the Seton Hall Law Review: “The Antitrusting of Patentability”

Courts facing difficult questions of patent validity are increasingly turning to a form of decision-making that has long been familiar to antitrust lawyers: using per se analysis rather than the rule of reason.  In this post, I will discuss the analytical origins of this trend, fresh empirical data on how it is emerging, and some thoughts for improvement.

The Patent-Antitrust Interface

To begin, it is worth noting the very fact that antitrust law and patent law are intersecting so directly.  The complexity and specialization of these fields can often stand in the way of dialogue between them, though the need for such dialogue is plain.  One of antitrust law’s main concerns is fostering competition and promoting economic efficiency.  Meanwhile, patent rights by design restrict competition and efficiency in the short run.  A patent owner can exclude others from quintessentially economic activities: making, using, selling, offering, and importing the patented invention.

This is meant to produce gains for inventor and society alike, but on different timelines.  Market power and the ability to charge higher prices are today’s reward for the patent owner in return for developing the invention in the first place.  Society’s reward comes tomorrow, when the patent expires and the technical know-how becomes freely available to make and sell, to use in follow-on innovation, and so on.  Another important reward to society is the credible incentive to future would-be innovators that their efforts, too, will enjoy a similar benefit.

Theoretically, this tradeoff between static current losses to competition and efficiency in favor of dynamic future gains could be made entirely within patent law itself.  However, antitrust has much to say on these systemic choices, too, and the proper treatment of so-called “patent monopolies” has been a source of perennial debate and even tension in the law since the 19th century.

The Origins of Per Se Analysis in Patent Law

In this longstanding debate, the use of per se-style analysis in patent law is a recent development aimed at solving a specific problem.  Inventions are evaluated, and patents are granted, by Patent Office examiners with expertise in the relevant technology.  Federal judges and juries who later confront these patents in litigation generally have no such expertise, but they must frequently decide whether a patent is valid.  In doing so, they must pass judgment on whether an expert agency—one that deals every day with the law and the science of patents—got it wrong.

Under the best of circumstances, this is intimidating.  Making this decision accurately is costly and time-consuming, even with compelling stories from attorneys and authoritative opinions from expert witnesses.  If one could dispense with the thorny question of patent validity early in litigation, things would be simpler.

One straightforward way to front-loading an issue, of course, is to decide it as a matter of law without delving much into idiosyncratic facts.  This is where per se analysis of patent validity begins.  Of the major requirements for a patent to be granted—and for a granted patent to be found valid—most require a good deal of factual detail about the state of the art and what people trained in that art knew at the time of the invention.  But one does not: the threshold question of the invention is even patent-eligible subject matter.  This is primarily a legal question, and so the subject matter eligibility doctrine is a good candidate for reducing the decision costs associated with determining patent validity.

How the Per Se Analysis of Patent Validity Actually Works

The way it works, in essence, is that a court applies the subject matter eligibility doctrine to find a patent invalid rather than reaching the same conclusion through other, more fact-intensive doctrines.  Patent lawyers tend to think of the different patentability requirements as separate hurdles to be cleared, but it turns out that these requirements reflect similar, overlapping concerns.

To be patentable, an invention must be useful and new as compared to the prior state of knowledge.  It must be nonobvious, which means it must embody more than trivial combinations or extensions of existing inventions or pieces of knowledge.  These requirements are intended to ensure that an invention is innovative enough to merit a patent.

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Author: Jarod Bona

If you are looking for controversy, you came to the right place. Today, we discuss resale price maintenance, one of the most contentious issues in all of antitrust. If you look around and see a bunch of antitrust economists, hide your screen so they don’t start arguing with each other. Trust me; that is the last thing you want to experience.

Let’s start with some background: A resale price maintenance agreement is a deal between, for example, a supplier and a retailer that the retailer will not sell the supplier’s product to an end user (or anyone, for that matter) for less than a certain amount. It is a vertical price-fixing agreement.

That type of agreement has a storied—and controversial—past. Over a hundred years ago, the Supreme Court in a case called Dr. Miles declared that this type of vertical price fixing is per se illegal under the federal antitrust laws. This is a designation that is now almost exclusively limited to horizontal agreements.

During the ensuing hundred years or so, economists and lawyers debated whether resale price maintenance (RPM) really should be a per se antitrust violation. After all, there are procompetitive reasons for certain RPM agreements and the per se label is only supposed to apply to activity that is universally anticompetitive.

After a trail of similar issues over the years, the question again landed in the Supreme Court’s lap in a case called Leegin in 2007. In a highly controversial decision that led to backlash by certain states, the Supreme Court lifted the per se veil from these controversial vertical agreements and declared that, at least as far as federal antitrust law is concerned, courts should analyze resale price maintenance under the rule of reason.

You can read more about Leegin and how courts analyze these agreements in our prior article. And if you want to learn more about how certain states, like California, handle resale price maintenance agreements, you can read this article. Finally, if you are looking for a loophole to resale price maintenance agreements, read our article about Colgate policies and related issues.

Minimum advertised pricing policies (MAP) are related to resale price maintenance: you can read our article on MAP pricing and antitrust here.

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Author: Aaron Gott

Last month, the U.S. Supreme Court granted a writ of certiorari to decide a circuit split on an important procedural question concerning the state-action immunity to the federal antitrust laws: whether a decision denying the state-action immunity is immediately appealable or must await a final decision just like most issues raised on a motion to dismiss.

The case, SolarCity Corporation v. Salt River Project Agricultural Improvement and Power District, is about a power company that changed its rate structure to make it less appealing for consumers to switch to solar power. Power companies are typically quasi-natural monopolies because of the way power is delivered—through a massive infrastructure of physical lines.

Update: The parties reached a settlement and filed a stipulated dismissal dated March 20, 2018. So the US Supreme Court will not hear this case.

But new technology is changing that: people can generate electricity straight from the sun by installing panels on their roofs, and soon it will be more cost effective to install batteries to hold that power for when it is needed than to continue paying the power company. In places like Southern California, where the price of peak electricity is more than four times the national average, solar power is a no-brainer.

It comes as no surprise that some power companies are using their incumbency to slow the disruption of this innovative technology. SolarCity (now Tesla, Inc.) sued an Arizona power district for attempting to maintain its monopoly over the supply of electrical power in its territory, alleging that the power district created new fees that penalize solar customers, which ultimately had its intended effect: solar retailers received 96% fewer applications for new solar systems among customers in the power district after the new rates took effect.

The power district moved to dismiss, arguing that it is immune from the federal antitrust laws under the state-action immunity. The district court denied the motion because the power district had not met its burden of showing that it acted pursuant to a clearly articulated state policy to displace competition. The power district sought an order certifying the denial for interlocutory appeal, which was also denied. Nevertheless, the power district immediately appealed to the Ninth Circuit, arguing that a denial of the state-action immunity should be immediately appealable under the collateral order doctrine.

Before we dive into the Ninth Circuit decision, let’s discuss some of these terms.

The Collateral Order Doctrine

The collateral order doctrine is an exception to the general rule that the federal courts of appeal have jurisdiction to hear only appeals of “final orders” from the district courts.  The exception is narrow and must be strictly applied.

A collateral order is appealable immediately if it meets three requirements: first, the order being appealed must be conclusive. Second, it must address a question that is separate from the merits of the case. Third, it must raise “some particular value of a high order” and evade effective review if not considered immediately.

With these requirements, there are only a few categories of decisions that meet the collateral order doctrine, and they are all “immunities”: Eleventh Amendment immunity, absolute immunity, qualified immunity, foreign and tribal sovereign immunity. Given this, it might seem that the state-action “immunity” also fits. But it isn’t quite that simple because the state-action immunity isn’t actually an immunity, but a judicially recognized exemption.

What Is An Immunity?

Read broadly, an immunity could mean many different things. It could mean immunity from suit, immunity from liability, or even just immunity from money damages.

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For the third time in recent years, the US Supreme Court decided to review an antitrust case involving state-action immunity.

Unlike the first two cases, however, the primary issue in this case is procedural: The petition requesting review fairly described the issue as “Whether orders denying state-action immunity to public entities are immediately appealable under the collateral-order doctrine.”

The case at issue is a Ninth Circuit case called SolarCity Corporation v. Salt River Project Agricultural Improvement and Power District. SolarCity, of course, is now a unit of Elon Musk’s Tesla.

You can read our more complete analysis of the upcoming SolarCity case here.

Update: The parties reached a settlement and jointly dismissed the case from the US Supreme Court.

The substantive case underneath the procedural issue involves a monopolization lawsuit by SolarCity against a public entity power company in Arizona, which is the only supplier in that area of traditional electrical power.

Here is what they did: SolarCity, like other solar-energy-panel companies, was having success in selling and leasing rooftop solar panels to customers, especially in sunshine places like Arizona (and Southern California, of course). Instead of viewing the move toward solar power as good for the environment and peoples’ pocketbooks, the power company—a public entity—viewed it as a threat. And, like many government entities that view private enterprise as a threat to their budgets and influence, the power district changed the rules.

That is, the power company changed the pricing structure so customers that acquire power from their own system—a solar-panel system, for example—must pay a prohibitively large penalty. The government entity’s rule change had its intended effect: SolarCity received ninety-six percent fewer applications for new solar-panel systems in that territory.

This is, of course, one of the grossest forms of government abuse and a disgrace to competition. It is also one of the reasons why Luke Wake of the NFIB Small Business Legal Center and I argued both as an amicus in Phoebe Putney and in a law review article that the Supreme Court should adopt a market-participant exception to state-action immunity. If a government entity is a commercial participant in a market, it shouldn’t be immunized from cheating in that market.

Bona Law currently has another case pending in the Ninth Circuit in which government entities that compete in the market violated antitrust laws and are using the shield of state-action immunity to try to get away with it.

The Collateral Order Doctrine

In the SolarCity case, the trial court rejected state-action immunity at the motion-to-dismiss stage. Typically, a defendant that loses a motion to dismiss cannot appeal the issues until later in the case, sometimes after trial. The plaintiff gets to take a shot at proving its case.

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Author: Jarod Bona

We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from both internet and brick-and-mortar stores.

The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP.

Today, we will talk about MAP Policies and how they relate to the antitrust laws.

What is a Minimum Advertised Price Policy (more commonly known as a MAP policy)?

A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not stop a retailer from actually selling below any minimum price.

In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.

As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds for the retailer.

The typical targets of a MAP policy are online retailers. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies are usually the ones that emphasize branding in their corporate strategy or have luxury products and fear that low listed prices for those products will make them seem less luxurious. But these policies exist in many different industries.

In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies.

Do MAP Policies Violate the Antitrust Laws?

MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer is the unsatisfying maybe.

But we can add further context to better understand the level of risk for particular MAP policies.

There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility.  The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.

In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues and understand if you are moving in the right direction.

If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.

A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.

Resale Price Maintenance

Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.

Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California and New York, may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.

Under federal law, courts usually analyze resale-price-maintenance agreements under the antitrust rule of reason.

Colgate Policies

Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.

The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer.

Back to MAP Policies and Antitrust

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Antitrust News is a new feature at The Antitrust Attorney Blog. We will periodically report on and address new developments in the antitrust world, from FTC or DOJ guidance to important court decisions to relevant legislative developments to worldwide antitrust issues.

Although some of our prior articles involve antitrust developments, most of these posts consist of content that is less timely and more evergreen. Our intent is to help our readers by describing Antitrust News through the filter of our antitrust expertise.

On November 16, 2017 in Washington, DC, Deputy Assistant Attorney General Donald G. Kempf, Jr. made news about antitrust merger review at the American Bar Association’s Antitrust Fall Forum.

Kempf said—simply—that the DOJ will try to shorten the time it takes it to review mergers for antitrust and competition issues. In 2011, the average merger took just over 7 months to review. In 2016, the review time increased to 11.6 months on average.

That is unacceptable. Companies that want to merge should not have to wait almost full year to do so. A lot can happen in a year, particularly now where technology and low entry barriers mean that entire markets often change in a short period of time.

How did the excess delays happen?

To explain, let’s back up and explain—briefly—how an antitrust merger review works:

The merging parties begin by completing what is called a Hart-Scott-Rodino (HSR) filing. Either the DOJ or FTC has 30 days to decide whether to issue what is called a second request. If one of the antitrust agencies thinks that there could be genuine competition issues for the merger, they may issue this second request, which opens up a heavy set of fact-finding, including document production.

At some point, the antitrust agencies may either approve the merger, reach an agreement with the parties to approve the merger with certain requirements (like selling assets) or (in the case of the DOJ) to seek a preliminary injunction stopping the merger.

According to Kempf, over time the second request period increased in scope and complexity and the preliminary injunction hearings became mini-trials. Indeed, they often have the same effect as a trial on the merger because if the DOJ wins, the parties often abandon the merger. If the DOJ loses, it often halts the challenge.

Kempf went on to articulate why shortening merger review time is so important. His best line was that “delaying competitive mergers is anticompetitive, and that’s not the business the Antitrust Division wants to be in. Just the opposite.”

He offered five suggestions to shorten antitrust merger reviews: Continue reading →