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The Supreme Court's Renewed Interest in Antitrust and Intellectual Property

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The Supreme Court's Renewed Interest in Antitrust and Intellectual Property THE SUPREME COURT ’S RENEWED INTEREST IN ANTITRUST AND INTELLECTUAL PROPERTY LAW BY: JAMES C. HO* y first observation is that this Even Justice O’Connor never enjoyed Fall 2007 Vol. 7 No. 1 such a perfect record during her 24 years is not just a new court – it is on the Court. And of 67 signed opinions also a newly polarized court. M It’s often said that a new justice means a this Term, Justice Kennedy was on the new court. That is doubly true here. But winning side in all but 2. although our new Chief enjoyed NSIDE HIS SSUE I T I … The second observation I would like to somewhat of a honeymoon period during October Term 2005, that appears to have make is about our two new justices and Message from the Co-Chairs ______ 2 ended this Term. More than a third of how they are relating to their new colleagues. In particular, I want to note the 67 signed decisions issued this Term their approach to precedent. were decided by a 5-4 vote – a greater Litigation Culture Versus Enforcement rate of division than in any recent term. Culture: A Comparison of US And EU On the one hand, the two new justices Plaintiff Recovery Actions in Antitrust Moreover, the battle lines on the Court are generally voting on the same side as Cases _______________________ 3 Justices Scalia and Thomas. That itself is, have hardened. Of the 23 cases decided by a 5-4 vote, 19 of them fell along of course, a noteworthy development. In traditional coalition lines. Remarkably, particular, the replacement of Justice DEPARTMENTS O’Connor with Justice Alito has already Justice Kennedy enjoyed a perfect 23 for (cont’d on p. 25) 23 record in cases decided on a 5-4 vote. Nuts & Bolts Establishing Reasonable Damage Estimates in Price-Fixing Settlements _________________ 8 HE ASS N EFENSE N NDIRECT URCHASER T “P -O ” D I I P Judicially Noticed ______________ 12 ACTIONS UNDER STATE ANTITRUST LAWS BY: DAVID G. MEYER* Antitrust News and Views Whole Foods: Has the District Court Set a New Standard for the 1. The Background: The United FTC?________________________ 14 States Supreme Court Decisions In But what about the manufacturer’s Hanover Shoe and Illinois Brick customer? If the manufacturer paid more for the materials it purchased from Antitrust 101 For Young Lawyers ection 4 of the Clayton Act permits the conspirator/supplier as a result of the Section 7 of the Clayton Act ______ 17 conspiracy, the manufacturer may have treble-damages actions by any S plaintiff who has been “injured in included those costs in its own pricing [their] business or property by reason of and passed on some or all of the anything forbidden in the antitrust conspirator’s price increase to its own laws….” 15 U.S.C. §15(a). One typical customers. Depending upon the nature of the industry in which the price-fixing category of potential plaintiffs consists of those who claim to have paid higher prices occurred, numerous levels of distribution as a result of a defendant’s violation. For might be affected by the example, a manufacturer who has paid a supracompetitive prices of the antitrust higher price for materials purchased from violator, culminating with the ultimate a supplier because of the supplier’s consumer who buys a finished product participation in a price fixing conspiracy is from a retail store. How many of these an injured consumer and a classic antitrust potentially injured parties may sue? plaintiff. (cont’d on p. 29) Antitrust 101 For Young Lawyers SECTION 7 OF THE CLAYTON ACT BY: BRADLEY C. WEBER * n the past two issues of The Antitrust Division”), state attorneys general, and Over the years, the courts and regulatory Litigator we discussed two of the private plaintiffs.3 In addition, when the agencies have developed and refined I four main pillars of the antitrust FTC challenges a merger or acquisition, certain tests and criteria for analyzing the laws: Section 1 of the Sherman Act it usually asserts an additional violation competitive impact of a given prohibiting agreements in restraint of of Section 5 of the Federal Trade transaction. This process involves trade, and Section 2 of the Sherman Act Commission Act, which prohibits defining the relevant market, identifying prohibiting unilateral attempts to create “unfair methods of competition in or the market participants, determining or maintain a monopoly. In this issue we affecting commerce.”4 These types of market concentration resulting from the continue our examination of the transactions may likewise be challenged merger, and predicting the likely fundamental antitrust laws by focusing as unreasonable restraints of trade or as competitive effects of the increase in on the third major pillar – Section 7 of monopolization or attempted market concentration resulting from the the Clayton Act. monopolization under Sections 1 or 2 of merger. This article also examines some the Sherman Act.5 of these tests and criteria for enforcing 1. Overview Section 7’s prohibition of transactions that may substantially lessen Business transactions involving competition. acquisitions of stock, assets, or partnership interests can have potentially Over the years Section 2. Scope of Chapter 7 harmful effects on consumers by creating or enhancing market power – 7 has been extended by When it was originally enacted in 1914, i.e., the power to restrain output and Section 7 applied only to stock raise prices above competitive levels for amendments to cover acquisitions by corporations, where both a significant time, thereby harming asset acquisitions, corporations were engaged in interstate consumer welfare.1 A merger or commerce. Over the years Section 7 has acquisition can create or enhance market acquisitions by or from been extended by amendments to cover power by increasing concentration in the (a) asset acquisitions, (b) acquisitions by relevant product and geographic market. individuals and or from individuals and partnerships, This increase in concentration may and (c) firms engaged “in any activity permit a firm to unilaterally maintain a partnerships, and firms affecting commerce.” Courts have also selling price above the level (or in the engaged “in any activity applied Section 7 to transactions case of a purchaser, a buying price below involving non-profit entities.7 the level) that would prevail in a more affecting commerce.” competitive market. Consequently, the Section 7 applies not only to acquisitions primary focus in analyzing mergers and of all voting stock in a corporation, but acquisitions under the antitrust laws is also to partial stock acquisitions. As a The vast majority of mergers and practical matter, however, partial stock the creation or enhancement of market acquisitions reviewed by the Antitrust acquisitions have generally been found to power. Division and FTC are subject to the violate Section 7 only where the reporting requirements of the Hart-Scott- The competitive effects of mergers and acquiring company would have a Rodino Antitrust Improvements Act of acquisitions are principally governed by 6 sufficient percentage of stock to obtain Section 7 of the Clayton Act (“Section 1976 (“H-S-R Act”). As discussed in representation on the board of directors 7”), which prohibits such transactions more detail below, the of the acquired company,8 or where it “where in any line of commerce or in H-S-R Act requires certain waiting periods was determined that the purpose of the any activity affecting commerce in any to expire before the parties involved in the acquisition was to eventually gain transaction may consummate the deal so section of the country, the effect of such control.9 Courts have not developed a that the government agencies may examine acquisition may be substantially to lessen bright line test regarding the percentage the implications of those mergers that pose competition, or to tend to create a of stock that must be acquired to create a competitive concerns. In addition, the monopoly.”2 Section 7 may be enforced presumption of intent to influence or through actions brought by the Federal federal agencies are permitted to review gain control. Generally, however, partial Trade Commission (“FTC”), the transactions outside the H-S-R context and acquisitions that were found to violate Antitrust Division of the United States after the transaction has been Section 7 have involved acquisitions of Department of Justice (“Antitrust consummated. at least 15 percent of the stock in the 17 AMERICAN BAR ASSOCIATION SECTION OF LITIGATION THE ANTITRUST LITIGATOR VOL. 7 NO. 1 FALL 2007 acquired company.10 According to Northwest, its investment selling parties. would not carry with it any right to Stock acquisitions made “solely for participate in the management or control 3. Enforcement Mechanisms investment” are excluded from the scope of Midwest. That alone, however, may of Section 7.11 Courts that have not exempt the transaction from the The United States government enforces construed this exception generally look scope of Section 7. Northwest and Section 7 through two federal agencies – at whether the acquisition was part of an Midwest compete against each other at a the Antitrust Division and the FTC. effort to obtain control. This issue is number of airports. For example, at These agencies’ enforcement powers are typically determined by focusing on the Milwaukee’s Mitchell International aided by the H-S-R Act,22 which sets intent or capacity of the “passive Airport, Midwest is the dominant carrier forth the rules for reportable investor” to obtain control. Evidence of with a 57 percent market share, while transactions (i.e., those rules for which a the investor’s intent can include the Northwest is the second-largest carrier pre-merger notification must be filed commercial circumstances surrounding with a 13 percent market share.
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