Articles Posted in Financial and Insurance Industry

 

Bitcoin-and-Antitrust-1-300x300

Author: Jarod Bona

I believe that Bitcoin is the enemy of tyranny and the greatest invention of the 21st century. Its detractors tend to either not understand Bitcoin or believe that the people are best when they are controlled and manipulated.

Maybe that was a little hyperbolic? I don’t care.

The truth is that I am still learning. I am still crawling through the rabbit hole (a cliché, but one often used in this area) and I recommend that you do the same. The more I learn, the more excited I get about Bitcoin and what it means for our future.

As someone who has made the study of and interaction with competition his career, it is fun to watch a superior competitor to government fiat currency develop.

We had (and still have) gold, but that has its limitations: Mostly, dividing and carrying it.

Blockchain v. Bitcoin

First, an important clarification: The incredible blockchain technology developed from Bitcoin, but many cryptocurrencies now utilize this technology for themselves. And NFTs (non-fungible tokens) are becoming a big deal in certain circles; they utilize blockchains like Ethereum. Bitcoin is on a blockchain, but there are other blockchains out there and other currencies and applications that utilize these blockchains.

To really get it, you must understand the distinction between Bitcoin and everything else that might appear on a blockchain. The blockchain technology is exciting and there are use cases that people are testing all over the world. And others that we can’t even contemplate yet. But there is only one Bitcoin and it is different in kind from everything else. You should read the original Bitcoin white paper by Satashi Nakamoto here to learn more.

The Limited Supply of Bitcoin

Among other more complex reasons, Bitcoin is different because it is programmed such that the number of Bitcoin will never exceed 21 million (and it won’t even reach 21 million for a long time). As far as money is concerned, it is harder than gold (even though it isn’t physical). And there isn’t a central authority (i.e. a Central Bank or any other entity) that can add inflation or otherwise screw around with it.

Go ahead, read that last paragraph again. And try to comprehend how big of a deal this is.

Currencies (even government fiat) work by supply and demand and you would be shocked if you discovered how many new dollars are introduced into the world each year, especially the last couple years. Go ahead and look it up. And it is much more than just the actual cash-money printer. It is Congress and the President adding more debt and the Federal Reserve “stimulating” the economy. Even simple bank loans increase the money supply. Anyway, poke around the internet about this to add a new anxiety to your life.

You don’t have to have a Ph.D. in Economics to understand that dramatically increasing the supply of something can negatively affect its value. And that’s just as true with dollars and other fiat currencies.

Did you know that “Mo Money Mo Problems” by The Notorious B.I.G. is really a ballad about the ravages of increases in the money supply?

Well, I made that up. But it would be a great title for what’s happened with fiat currency.

Network Effects

If you follow antitrust issues, you are now undoubtedly familiar with network effects. There are certain products, services, or platforms (even currencies) that become more valuable to each user, the more users participate. So, for example, if you are building a platform business, the more sellers on your platform, the more useful your platform will be to buyers, and vice-versa. This is one reason why you see so many new platform tech companies burning through money, charging customers as little as possible, sometimes nothing. The game is to win the market, at whatever cost. Then you can start to really monetize. Social media, of course, works the same way. People want to be where others are.

Anyway, Bitcoin also benefits from network effects. As more people use it as a store of value, the more valuable it becomes as a store of value. And while Bitcoin is also a medium of exchange, I think that its current role is much more of a store of value because it is still quite volatile and, frankly, those that understand it don’t really want to spend it as the value has consistently increased—sometimes dramatically—during this current adoption phase (which may continue for years).

Bitcoin as a Censorship-Resistant Medium of Exchange

As a medium of exchange, however, there is a second layer on top of the Bitcoin blockchain called the Lightening Network that makes it even easier for users to exchange bitcoin. And if you go to El Salvador (which has adopted Bitcoin as legal tender), you can utilize the lightening network, through an app, to purchase a McDonald’s Cheeseburger with bitcoin.

In addition, we are beginning to see people take all or parts of their salaries in bitcoin including the mayors of New York City and Miami. A company called Strike allows you to set up a direct deposit of your paycheck in part or in full in bitcoin. And as the government money printing starts to show up even in the official government inflation numbers, more and more people are looking for protection from the currency devaluation, which seems to have no end in sight. Bitcoin offers one possible solution, with its inherently limited supply that no person or entity can change.

Bitcoin (and Ethereum) have also literally saved lives by providing money for people in Ukraine when banks and ATMs weren’t available. And the government of Ukraine has taken in millions of dollars of donations in these cryptocurrencies. This isn’t a surprise as The Human Rights Foundation has long utilized Bitcoin to help those facing tyranny throughout the world.

The reason that Bitcoin is the solution to those under oppression is that it is decentralized such that no government, entity, or person can cancel it or remove people from its network. In that sense, it is censorship resistant. For the antitrust fans out there, not even a group boycott can keep you from using it. This censorship-resistant feature will likely become increasingly important, including in developed countries as banishment, oddly, seems to be in fashion as a method of punishment.

Bitcoin Competes with Government-Backed Currencies like the Dollar

Like any market, there is a market for currency. And the dollar, particularly in the United States, has market power. It is, at least for now, the world’s reserve currency. The dollar still competes well against currencies from other nation-states, despite its dramatic increase in supply, in part because other countries are doing the same thing, often to a much greater extent.

But now that there is an emerging non-government-backed currency, it will be interesting to see what happens. Bitcoin is vastly superior to government currency in many ways, but it has been around for a relatively short time, so many are still skeptical (I personally am not skeptical).

Besides Bitcoin, there are other currencies that will compete with the dollar, including China’s digital currency (which comes—at no extra charge—with high-tech surveillance tools). Bitcoin may not displace the dollar, but it wouldn’t surprise me if it has a major role alongside it, as it is better than the dollar in certain ways. This includes the programmed fixed supply, alongside the fact that people can move Bitcoin across time and space more quickly and cheaply than government-backed currencies. And, of course, its censorship-resistant qualities are becoming more apparent and important on the world stage.

You might begin to see countries, including the United States, adopt their own digital currencies. But don’t be fooled: These currencies will not be censorship resistant and will always be subject to increases in their supply. They are not worthy competitors to Bitcoin and their dystopian qualities could be frightening for those that cherish freedom.

The Environmental Benefits of Bitcoin

The Bitcoin network runs on a proof-of-work system that changes energy to value that can be stored and transferred across time and space. So—like just about everything else human-created in this world—it requires energy. Those that don’t fully understand Bitcoin sometimes target the proof-of-work energy use as a reason to criticize this positive world-changing technology. You can tell what I think by the way I framed that sentence.

But what you don’t hear in these shallow articles by those that don’t truly understand Bitcoin (see, I did it again) is that Bitcoin utilizes energy in such a unique way that the environmental impact is likely to end up as a net positive. Of course, even that is unfair to Bitcoin as we don’t routinely criticize other technologies that use energy. But if you don’t understand something, you tend to fear it and look for flaws. So, I’m not surprised that the Bitcoin luddites get stuck on the energy usage.

Bitcoin mining can be done anywhere and anytime and allows those that mine to convert energy to value in the most flexible of circumstances. These features create positive consequences for energy markets and the environment.

Continue reading →

antitrust-exemptions-300x196

Author: Jarod Bona

Congress and the federal courts have—over time—created several exemptions or immunities to antitrust liability.

The US Supreme Court in National Society of Professional Engineers v. United States explained that “The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services.” 435 U.S. 679, 695 (1978). And “[t]he heart of our national economy long has been faith in the value of competition.” Id.

National Society of Professional Engineers holds, effectively, that those that think that they should not be subject to competition—for whatever reason—don’t get a free pass.

But there are several situations that do create limited exemptions to federal antitrust liability. Importantly, however, the US Supreme Court has repeatedly emphasized that courts should narrowly interpret these exemptions.

Here are the primary antitrust exemptions created by Congress and the federal courts:

State-Action Immunity. State-action immunity comes up a lot at Bona law, as we work hard to enforce the federal antitrust laws against anticompetitive state and local conduct. This exemption allows certain state and local government activity to avoid antitrust scrutiny. Lately, the US Supreme Court has narrowed the doctrine, including for state licensing boards that seek its protection when sued under the antitrust laws (North Carolina State Board of Dental Examiners v. Federal Trade Commission). Bona Law also advocates a market-participant exception to state-action immunity, but the courts are split on that issue. We expect that this exemption will continue to narrow over time.

Filed-Rate Doctrine. The filed-rate doctrine is a defense to an antitrust action that is premised on the regulatory rates filed with a federal administrative agency. In many regulated industries (like insurance, energy, shipping, etc.), businesses must, generally, file the rates that they offer to customers with federal agencies. The filed-rate doctrine eliminates antitrust liability for instances in which, to satisfy the antitrust elements, a judge or judge must question or second guess the level of these filed rates (i.e. that they included overcharges resulting from anticompetitive conduct). So a business filing rates with a regulator is not, by itself, sufficient to create an exemption from antitrust liability. There are nuances.

Business of Insurance. The McCarran-Ferguson Act exempts certain acts that are the business of insurance and regulated by one or more states from antitrust scrutiny. You can read more about the McCarran-Ferguson Act and its requirements here.

Baseball. That’s right—there is a baseball exemption to antitrust liability. This is a judge-made doctrine developed long ago. The other sports don’t have an antitrust exemption and the question of whether baseball should have one comes up periodically. If you want to learn more, you should read the five-part series on baseball and antitrust that Luke Hasskamp authored.

Agricultural Cooperatives. The Capper-Volstead Act provides a limited antitrust exemption to farm cooperatives. Under certain circumstances, this Congressional Act allows farmers to pool their output together and increase their bargaining power against buyers of agricultural products. You can read more about this in Aaron Gott’s article on the Capper-Volstead Act. And you can read about production restraints here.

The Noerr-Pennington doctrine. The Noerr-Pennington immunity—named after two US Supreme Court cases—is a limited antitrust exemption for certain actions by groups or individuals when the intent of that activity is to influence government actions. The Noerr-Pennington doctrine can apply to actions that seek to influence legislative, executive, or judicial conduct. There is, however, an important sham exception to Noerr-Pennington immunity that often comes up in litigation.

You can learn more about the Noerr-Pennington doctrine and antitrust liability here.

Statutory and Non-Statutory Labor Exemptions. The statutory labor exemption allows labor unions to organize and bargain collectively in limited circumstances, including requirements that the union act in its legitimate self-interest and that it not combine with non-labor groups. The non-statutory labor exemption arrives from court decisions that further exempt certain activities that make collective bargaining possible, like joint action by employers that is ancillary to the collective bargaining process.

You can read more about both the statutory and non-statutory labor antitrust exemptions here.

Implied Immunity. Implied immunity occurs in the rare instances in which there is no express antitrust exemption, but the anticompetitive conduct falls into an area of such intense federal regulatory scrutiny that antitrust enforcement must yield to the pervasive federal regulatory scheme.

The typical area where this comes up is with the federal securities laws, which is a good example of pervasive federal regulation. The US Supreme Court case to read for this antitrust exemption is Credit Suisse Securities (USA) LLC v. Billing, from 2007.

Keep in mind that courts do not easily find implied immunity of the antitrust laws—there must be a “clear repugnancy” or “clear incompatibility” between the antitrust laws and the federal regulatory regime. A broad interpretation of this immunity could create massive antitrust loopholes because even a regulator with a heavy hand on an industry may not consider anticompetitive conduct as part of its command and control. And regulation itself creates barriers to entry in a market that is more likely to lead to less competition.

Export Trade Exemptions. A little-known exemption involves export trade by associations of competitors. This antitrust exemption arises primarily from the Webb-Pomerene Act and the Export Trading Company Act. These FTC and DOJ guidelines provide more information about this antitrust exemption.

Continue reading →

Downtown Hartford

Author: Jarod Bona

In many instances, conduct involving the business of insurance is, indeed, exempt from antitrust liability.

So why does insurance sometimes get a free pass?

In 1945, Congress passed a law called The McCarran-Ferguson Act. Insurance, of course, has traditionally been regulated by the States. Territorial and jurisdictional disputes between the States and the Federal government are a grand tradition in this country. We call it Federalism. In 1945, it appears that the states won a battle over the feds.

As a result, in certain instances, business-of-insurance conduct can escape federal antitrust scrutiny.

The business of insurance isn’t the only type of exemption from the antitrust laws. There are a few. At The Antitrust Attorney Blog, we have discussed state-action immunity quite a bit (as suing state and local governments under the antitrust laws is a favorite topic of mine).

An exemption that is similar to the McCarran-Ferguson Act is the filed-rate doctrine, which we discuss here. There are, of course, several others, including–believe it or not–an antitrust exemption for baseball. The courts, however, disfavor these exemptions and interpret them narrowly.

But back to the insurance-business exemption and The McCarran-Ferguson Act. Do you notice that I keep calling it the “business of insurance” exemption and not the insurance-company exemption? That is because the courts don’t just exempt insurance companies from antitrust scrutiny. No, the exemption only applies to the business of insurance and in certain circumstances.

Below are the basic elements a defendant must satisfy to invoke the McCarran-Ferguson Act:

  1. The conduct in question must be regulated by the state or states.
  2. The conduct must qualify as the business of insurance—the business of insurers is not sufficient.
  3. The conduct must not consist of a group boycott or related form of coercion.

Each of these elements, in turn, has its own requirements, case law, and doctrinal development. The most interesting of the three elements is how to define the business of insurance.

Continue reading →

Filed-Rate-Doctrine-Antitrust-300x200

Author: Jarod Bona

The doctrine of federal antitrust law includes several immunities and exemptions—entire areas that are off limits to certain antitrust actions. This can be confusing, especially because these “exceptions” arise, grow, and shrink over time, at the seeming whim of federal courts.

As a matter of interpretation, the Supreme Court demands that courts view such exemptions and immunities narrowly, but they are still an important part of the antitrust landscape. This includes, prominently, the Filed Rate Doctrine, which is the topic of this article.

Here at The Antitrust Attorney Blog, we write about these antitrust exceptions periodically. In particular, we spend a lot of time on state-action immunity, but have also published articles on, for example, the baseball antitrust exemption, the farm cooperative exemption, and the business of insurance exception (which, unlike many others, arose from statute: The McCarran-Ferguson Act).

What is the Filed Rate Doctrine?

The filed rate doctrine is simply a judicially created exception to a civil antitrust action for damages in which plaintiffs challenge the validity of rates or tariff terms that have been filed with and approved by a federal regulatory agency.

But what does that mean?

In some industries, notably insurance, energy, and shipping (or other common carriers), the participants must file the rates that they offer to all or most customers with a government agency. This regulatory agency must then, in some manner, approve those rates. This approach is an exception to a typical market and was more common in certain industries pre-deregulation.

The idea of filing these rates is that the benevolent and all-knowing government agency, rather than the market, will best look after customers. It arises from the same seed as socialism and was particularly popular in the early to mid-20th century when the view that educated people could perform better than markets was in vogue.

Anyway, these “filed rates” are still with us and are a defense, through the filed rate doctrine, to certain antitrust actions.

The filed rate doctrine itself arose in a 1922 US Supreme Court case called Keogh v. Chicago & Northwest Railway Co., 260 U.S. 156 (1922). In that case, the plaintiffs sought antitrust damages by arguing that defendants violated the Sherman Act and the rates charged by certain common-carrier shippers were higher than they would have been in a competitive market.

The defendants, however, had filed these rates with the Interstate Commerce Commission (ICC), a federal agency that had approved them. The Supreme Court responded by precluding plaintiffs’ antitrust lawsuit on that basis, as the rates, once filed, “cannot be varied or enlarged by either contract or tort of the carrier.” It is the legal rate.

The Supreme Court has since reaffirmed this holding, most prominently in a case called Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409 in 1986, which you can read at the link if you want to dig deeper.

When Does the Filed Rate Doctrine Preclude Antitrust Liability?

The filed rate doctrine is a defense to an antitrust lawsuit, premised on damages, so long as the claim requires the Court to examine or second guess the rates filed with a federal agency.

So if you are a plaintiff that wants to bring an antitrust action against a defendant that filed rates, you could (1) seek certain types of injunctive relief; and (2) develop your action in a way that doesn’t require the Court to determine liability or calculate damages by comparing current filed rates to a hypothetical rate in a but-for world. This can get complicated, so if you are not an antitrust attorney, you might want to find one.

If you are or represent a defendant that has been sued under the antitrust laws and the defendant company files rates with some agency, you should also seek antitrust-specific guidance. You might have a strong defense.

Continue reading →

Visa-Mastercard-Antitrust-Litigation-300x169

Author: Jarod Bona

Even if you aren’t an antitrust lawyer, you have certainly seen notices of class actions, perhaps with a solicitation from an attorney stating in legalese that you may be entitled to money or something to that effect. You probably ignored them—and for good reason—perhaps the amount you could receive was small, or the subject didn’t really have anything to do with you or your business or you just didn’t want to suffer through the poor lawyer-drafted prose.

Did it surprise you to learn that while you were just minding your own business you were apparently a part of what looks like pretty major litigation?

In this article, I’ll offer some background about how antitrust class action settlements work and do it by describing a big one: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. This is the antitrust litigation against Visa, MasterCard, and their member banks.

As of early May 2019, this case is between second settlement (more about that below) and final approval. The settlement amount will range from $5.54 billion to $6.24 billion. The class members are merchants that have accepted Visa and/or MasterCard between January 1, 2004 and January 25, 2019.

Is that you or your company?

But before we begin, a disclaimer: Bona Law doesn’t typically represent classes in antitrust class action cases. We do represent defendants. But there is one exception: We will represent members of an existing class or opt-out plaintiff members, typically businesses. This, of course, follows our practice—which is common among large international firms as well, to represent both plaintiff and defendant companies in antitrust litigation (but not plaintiff-side classes).

If you are a defendant facing a class action, you might want to read our articles on an antitrust blizzard and defending an antitrust MDL.

Here is the disclaimer: In the Interchange Fee litigation, Bona Law (along with Cahen Law P.A.) represents multiple merchant members of the class that are seeking relief from either the existing settlement (if approved) or as an opt-out.

And here is a good life lesson: Whenever someone has an interest (including attorneys representing clients with an interest), consider their bias, which may be unintentional but present. So assume that we are biased here in favor of the merchants that are seeking relief from the evil antitrust violations.

With that out of the way, let’s jump into the substance.

How Do Class Action Settlements Work?

I won’t go too deeply into the basics of class actions or how class certification works. We’ve written about it elsewhere. You can read our blog post about defending against class certification here. You can read about the requirements of class certification here. And if you want to appeal a class certification decision, read this article.

Here is the gist of class actions: There are some cases in which many people are damaged only a little bit—maybe even just a few dollars. It doesn’t make sense for those people to hire an attorney and file a lawsuit to recover a few dollars. So—absent another method of relief—there won’t be lawsuits if a legal violation results in widespread but minimal harm to each. Some people may say “good” to that. But our legal system has adopted a private-attorney general model in antitrust and elsewhere that places some of the enforcement of law in the hands of private individuals and companies that have been harmed, and their attorneys.

If you want to learn more about the private attorney general model, you can read a law review article that I wrote many years ago with Carl Hittinger.

Even if each individual has sufficient incentive to file a lawsuit (i.e. enough money is at stake), the law has determined that there may be overall efficiencies for the individuals to handle their claims as part of a class if, for example, the common issues in the case predominate over any individual issues.

The class action approach, codified under federal law into Federal Rules of Civil Procedure, Rule 23, allows courts to hear and decide actions on behalf of an entire class of people that have been injured. Class actions, not surprisingly, happen a lot in antitrust, especially when plaintiffs allege that price-fixing, bid rigging, or market allocation, for example, led to an overcharge of some minimal amount, resulting in widespread, but often minimal individual damages.

There is a certification requirement, but other than that much of the litigation is just like any other case, except settlement.

If you want to settle with a class, it is a big to-do. That is because the class action can, in fact, eliminate the right to seek relief by people that may have no idea about the litigation. In addition, the attorneys that brought the action on behalf of the class typically receive their fees (which are usually contingency) out of the settlement proceeds (or judgment proceeds if the case gets that far).

So, to deal with all of these issues, a class-action settlement requires a preliminary approval by the court, a notice to the class, an opportunity for class members to opt-out or challenge the settlement, and, eventually, a final approval. And the court’s final approval is subject to appeal by class members that may disagree with the settlement. Then, if the settlement survives all of that, there is a process for paying the class members from the settlement funds through a claims administrator.

The paragraph above listed a lot of steps, each with its own nuances and details. So please just take that as the “gist” of it.

It will be easier to understand with a concrete example.

In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

If we are going to talk about a particular class-action settlement, I can’t think of a better current one to discuss than the In re Payment Card Interchange and Merchant Discount Antitrust Litigation, which some people just call the “Visa-MasterCard case.” The settlement is valued at between $5.54 billion and $6.24 billion. That’s a lot of money, even for a big antitrust case.

Continue reading →

Rotten WoodThe defendants in Halliburton Co. v. Erica P. John Fund, Inc. failed to show the US Supreme Court the “special justification” necessary to overturn settled precedent.

As we explained in a previous post, the Supreme Court in this case agreed to reconsider its 1988 decision in Basic v. Levinson, which allowed a shareholder class in a securities fraud lawsuit to satisfy statutory “reliance” requirements by invoking a presumption that stock prices traded in “efficient” markets incorporate all material information, including alleged misrepresentations.

But between then and now, academics, economists, and commentators chipped away at the economic theory underlying this presumption, which is based upon “the efficient capital markets hypothesis.”

So if a legal precedent depends upon an economic theory that now appears less valid than it did before, do you overrule it or keep it in place because it has ingrained itself into a larger legal structure?

Here is a similar question from real estate: If part of the wood in a load-bearing wall has started to rot, do you replace it? The Supreme Court held that you do, if you can show a “special justification.”

Continue reading →

Supreme Court BuildingOn March 5, the Supreme Court will hear arguments on whether the fraud-on-the-market presumption in securities class actions should survive. The case is Halliburton v. Erica P. John Fund and it could be groundbreaking. If the Supreme Court jettisons the presumption, it will close a major avenue for securities class-action lawsuits.

Update: The US Supreme Court issued its decision on June 23, 2014.

But what does this mean for antitrust lawsuits? We’ll get to that in a moment.

First, some background: In 1988, the Supreme Court held in Basic v. Levinson that when a shareholder class sues a company under Rule 10b-5 (for misrepresentation, etc.), it need not show that the individual class members relied on the misrepresentations because the stock market is “efficient” and such statements are quickly incorporated into the stock price.

So if you purchased a share of stock after a management official said that the company increased revenue twenty-percent year-over-year even though the manager knew that the revenue numbers were not accurate, you purchased stock that was already inflated from the statements because the market incorporated those statements immediately into the stock price.

Remember the classic book, A Random Walk Down Wall Street? It is all about efficient-market theory. Great book, by the way.

Continue reading →

Contact Information