Falling book prices doom antitrust lawsuit against Amazon and Borders

A customer can't sue two retailers for illegal collusion unless he can show that he suffered actual damages, according an opinion issued this week by the Ninth Circuit.  In Gerlinger v. Amazon.com, Inc., plaintiff challenged an agreement under which the book retailer Borders Group, Inc.'s web site directed shoppers to a site hosted by Amazon.  The books purchased on that site were sold and shipped by Amazon, and Borders received a commission for each sale. 

Plaintiff, a customer of Amazon, claimed that Borders' commitment not to sell books directly on the internet during the term of the agreement amounted to a per se market allocation in violation of federal antitrust law.  The Ninth Circuit never addressed the legality of the agreement, instead affirming summary judgment in favor of defendants on the ground that plaintiff could not show that the prices he paid for books increased as a result of the agreement.  In fact, Amazon offered evidence that book prices declined after the agreement became effective.  Without proof of an "injury-in-fact," the customer could not challenge Borders' agreement to stay out of the on-line market.

Coincidentally, on the same day as the Ninth Circuit's ruling, Borders announced that it was ending its seven-year relationship with Amazon and launching its own e-commerce web site.

Another antitrust verdict hits forest-products firm

A year after the U.S. Supreme Court tossed out a $79 million antitrust verdict against it, Weyerhaeuser has this week been hit with another antitrust judgment by a jury in Portland - this time in the amount of $28 million, which will be trebeled to $84 million.  While the earlier case involved a claim by Weyerhaeuser's competitors in the alder mill business, this time the plaintiffs are a group of customers who purchased finished alder lumber.  Those plaintiffs contend that Weyerhaeuser monopolized the market for finished alder logs, illegally raising prices charged to plaintiffs.

See news coverage of this week's verdict here and here.  And see our coverage of last year's Supreme Court ruling here. 

Court dismisses antitrust complaint, then allows discovery

In 2007 the US Supreme Court raised the standards for pleading a federal antitrust claim, holding in Bell Atlantic v. Twombly that plaintiff must plead sufficient facts to suggest an illegal agreement in restraint of trade.  The Ninth Circuit last week agreed to dismiss an antitrust complaint for failing to meet that pleading standard.  What's interesting about the case, Kendall v. Visa USA, Inc., is what happened in the trial court:  the plaintiffs had been allowed to take depositions of defense witnesses after their complaint had been dismissed. 

According to the Ninth Circuit opinion, the district court judge dismissed the initial complaint for failure to plead adequate facts, but agreed that plaintiffs could conduct discovery before filing an amended complaint.  Because the amended complaint continued to be deficient, the court dismissed it without leave to amend.  This case turns the usual litigation process on its head:  a complaint must typically be in place before discovery can begin.  If discovery after dismissal becomes the norm in antitrust cases, expect many disputes over how much discovery defendants must make available to plaintiffs.

See our earlier coverage of the Supreme Court's Twombly opinion here.

Looking to Europe for antitrust enforcement

With the U.S. Supreme Court consistently ruling against antitrust plaintiffs, and with the Justice Department scaling back its antitrust enforcement efforts, it appears the European Union has taken the lead in regulating trade and competition.  Monday's ruling by the EU's Court of First Instance against Microsoft, including imposition of a $613 million fine, confirms that European law takes a hard line against dominant firms.  That tough stance will have repercussions outside of Europe.  The court's order that Microsoft must, for example, share communications code with its rivals will affect how the company conducts operations throughout the world. 

Antitrust law and an activist court

The August/September issue of the Oregon State Bar Bulletin has a commentary on the recent landmark antitrust case from the U.S. Supreme Court, Leegin Creative Leather Products v. PSKS.  It's by Lori Irish Bauman, a contributor to the Oregon Business Litigation Blog.  See our other coverage of the case here and here. 

Ninth Circuit reverses jury verdict in hospital antitrust case

The Ninth Circuit yesterday reversed a $16.2 million jury award in an antitrust dispute between two Eugene hospitals.  One of the key issues in Cascade Health Solutions v. PeaceHealth was whether PeaceHealth, the largest provider of hospital services in the market, engaged in illegal attempted monopolization when it offered bundled discounts to insurers -- meaning that it offered a bundle of services for a lower price than it charged for the services individually. 

Companies from across the country weighed in as amicus curiae, and the Ninth Circuit held that the district court's jury instructions on the bundled discount issue were erroneous.  According to the court,  offering a bundled discount that a competitor cannot match is not by itself an antitrust violation.  The Ninth Circuit adopted the test for illegal bundled discounts recommended earlier this year by the Antitrust Modernization Commission.  See further discussion of the case here and here.

Antitrust commentary in the Portland Business Journal

This week's Portland Business Journal has a commentary by blog contributor Lori Irish Bauman on the recent US Supreme Court opinion that overturned a 96-year-old antitrust precedent.  Here's a link to an on-line excerpt (subscription required for the complete article).

See our earlier coverage of the case, Leegin Creative Leather Products, Inc. v. PSKS, Inc., here.

Supreme Court tosses out century-old antitrust rule, remaking the law of resale price maintenance

In an extraordinary repudiation of 96-year-old precedent, the Supreme Court today swept away the per se prohibition on resale price maintenance.  Since the 1911 case of Dr. Miles Medical Co. v. John D. Park & Sons Co.,  it has been illegal under the Sherman Act for manufacturers to dictate the prices at which distributors and retailers re-sell products.  In the decades since, that case has played a major role in how the retail segment of the economy has been organized.  The court's 5-4 opinion in Leegin Creative Leather Products, Inc. v. PSKS, Inc., now firmly rejects the rule of Dr. Miles, and allows manufacturers and distributors/retailers to agree on resale prices, subject only to the rule of reason that applies to all other vertical restraints of trade.

The case presents an interesting study in how courts employ economics in modern antitrust analysis.  According to the majority opinion written by Justice Anthony Kennedy, (1) Dr. Miles was based on flawed reasoning, including that resale price maintenance (RPM) violated the antiquated common-law rule against restraints on alienation, (2) many economists have criticized the prohibition against RPM as dampening pro-competitive activity, and (3) the Sherman Act is a "common law statute," which means that courts interpreting it are less constrained by the doctrine of stare decisis.

The dissent by Justice Stephen Breyer responds that (1) economists are not wholly in agreement that barring RPM is harmful to competition, and in any event the job of the court is not to count noses among economists, (2) Congress has had nearly 100 years to overturn Dr. Miles and has chosen not to do so, and (3) the prohibition against RPM is so firmly entrenched in our economy that, even if it the Sherman Act is a common law statute, stare decisis dictates that the court not undo the rule.

See our earlier coverage of the case here.

Securities regulation trumps antitrust law, the Supreme Court holds

On Monday the U.S. Supreme Court held that joint activity in the underwriting of an initial public stock offering is immune from scrutiny under the antitrust laws.  In Credit Suisse Securities v. Billing, plaintiffs claimed that the underwriters of hundreds of IPOs acted together to drive up the fees they earned, in violation of federal antitrust law.  Justice Stephen Breyer, writing for the court, held that extensive regulation by the Securities and Exchange Commission of the underwriters' activities precluded the application of antitrust law. 

Justice Clarence Thomas was the sole dissenter.  He wrote that the claims must proceed because, according to the Securities Act of 1933, securities law remedies do not preempt other existing remedies, including those under the antitrust law.

See our earlier coverage of the case here.

Supreme Court addresses antitrust pleading rules in Twombly

Monday's antitrust ruling from the U.S. Supreme Court makes it easier for courts to toss out cases at the pleading stage.  Litigators know that, under federal "notice pleading" standards, a complaint need not include an extensive recital of facts; a pleading that simply puts defendant on notice of the nature of the claims is sufficient.  Bell Atlantic Corp. v. Twombly appears to impose a different standard for pleading a Sherman Act Section 1 combination in restraint of trade.  It states that plaintiff must plead enough facts to plausibly suggest an actual unlawful agreement between the defendants.  Such a standard is necessary, according to Justice Souter, to avoid expensive discovery on a claim that lacks merit.

Like the Weyerhaeuser case decided earlier this term, Twombly makes the road that much rougher for antitrust plaintiffs.   

See other law blog coverage of the case here and here.

Update: Splenda lawsuit settlement

At the end of a month-long trial, the manufacturer of Splenda artificial sweetener settled the false advertising claim brought by the manufacturer of rival product Equal.  As earlier noted here in the Oregon Business Litigation blog, the trial in Philadelphia addressed whether the advertising slogan "made from sugar, so it tastes like sugar" is false, in violation of the Lanham Act and state law.

The terms of the settlement were undisclosed -- it's unknown whether the ad slogan will change, for example.  But defendant evidently saw the handwriting on the wall:  settlement talks started in earnest when the jury, during its deliberations, asked the judge for a calculator and copies of expert reports on damages.  The parties announced the settlement just before the verdict was to be read. 

See coverage of the settlement at How Appealing, Law.com, MSN, and the Wall Street Journal Law Blog.

Battle of the artificial sweeteners

Starting on Monday, a jury is set to consider whether the Splenda advertising slogan "made from sugar, so it tastes like sugar" is false advertising.  Merisant, the manufacturer of artificial sweetener Equal, has sued McNeil Nutritionals, the maker of market-leader Splenda, in federal court in Philadelphia, claiming violations of the federal Lanham Act and Pennsylvania state law.  Whether the slogan is false will involve issues of both marketing and chemistry:  Is Splenda really made from sugar?  And does the slogan falsely imply that the product is "natural"?

See the New York Times description of the case here, and law blog coverage here and here.

Securities regulation and antitrust law slug it out before the U.S. Supreme Court

On Tuesday the U.S. Supreme Court will hear this week's second high-profile business law case.  In Credit Suisse First Boston Ltd. v. Billing, the issue is whether the highly-regulated securities industry is exempt from antitrust liability.  Plaintiffs allege that, in the 1990s, investment banks and institutional investors manipulated the aftermarket prices of a large number of IPOs in violation of antitrust law.  The court will decide whether antitrust principles must bow out, given the extensive regulation of the securities market by the SEC.

See detailed coverage of the case here, here, and here.

U.S. Supreme Court re-thinks the rule on setting resale prices

This week the U.S. Supreme Court will hear oral arguments in a group of significant business law cases.  First up on Monday will be a case that could, for the first time in nearly 100 years, allow manufacturers to dictate the prices at which distributors and retailers re-sell their products.  Since the 1911 case of Dr. Miles Medical Co. v. John D. Park & Sons Co., resale price maintenance has been illegal under the antitrust laws.  While manufacturers have been allowed to "suggest" retail prices (hence the common term "manufacturer's suggested retail price," or MSRP), toeing the line between suggesting a price and setting a price has been a struggle for manufacturers.

The case the court will hear on Monday is Leegin Creative Leather Products, Inc. v. PSKS, Inc.   A number of parties have weighed in with briefs to the court, some pointing out that economists have long criticized the rule of the Dr. Miles case, and others contending that the rule has been beneficial in allowing discounters to thrive.

For other law blog coverage of the case, see here and here.

Supreme Court answers the $79 million questions: No and no

Two cases making legal news have a few things in common:  they were both tried in Portland, the juries in each case punished the defendants by assessing $79 million in damages (give or take half a million), and today both cases were overturned by the U.S. Supreme Court.

In Philip Morris v. Williams, the products liability plaintiff obtained a $79.5 million punitive damages verdict against the cigarette manufacturer.  The Supreme Court voted 5-4 that the Due Process clause of the Constitution prohibits punitive damages awards that punish defendant for harm inflicted on any party other than plaintiff.  In a bit of constitutional hair-splitting, the Court stated that a plaintiff can offer evidence of harm to non-parties to show that the wrongful conduct was reprehensible, but the jury can't use that evidence to punish defendant for the harm caused to others.  How to ensure that juries don't cross the line?  It's up to the states to figure that out, according to the court, beginning with the Oregon Supreme Court as it will again take up the Williams case.  See the Oregon Business Litigation Blog's earlier coverage of the case here and here.

In Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., the Supreme Court threw out a novel antitrust theory that had resulted in a verdict of $ 26 million, trebled by law to $79 million.  Plaintiffs claimed that Weyerhaeuser had engaged in an unlawful monopsony -- or buyer-side monopoly -- by bidding up the price of alder logs (as input for its mills) to levels higher than other mills could afford to pay, thereby putting those mills out of business.  This theory is called predatory bidding.  The unanimous court held that to prove predatory bidding, plaintiff must show that (1) bidding up the price of the input caused the price of the resulting output to exceed the revenues generated by the sale of that output, and (2) defendant has a dangerous probability of recouping the resulting losses  by exercising its monopsony power once competitors are run out of business. 

At trial, Judge Owen Panner did not require plaintiff to make such a stringent showing, instructing the jury that plaintiff was required to show only that Weyerhaeuser had bid the cost of logs above a "fair price."  The Supreme Court reversed the verdict resulting from that instruction.  See the Oregon Business Litigation Blog's earlier coverage of the case here, here,  and here.

Find other law blog coverage of today's rulings here and here.

Antitrust Modernization Commission's tentative recommendations endorse the status quo

In 2002 Congress authorized the creation of an Antitrust Modernization Commission to examine whether the need exists to "modernize" the antitrust laws.  This month the Commission issued its tentative recommendations, and by and large the Commission concludes that our existing laws are plenty modern.

Some have argued that antitrust law should be changed to address the "network effects" in markets such as that for computer operating systems, and to otherwise govern technologies not contemplated when the laws were written decades ago.  But the Commission's tentative conclusion is that "there is no need to revise the antitrust laws to apply different rules to industries where innovation, intellectual property, and technological change are central features."

The Commission similarly suggests no legislative changes to Sherman Act Section 2, which prohibits exclusionary conduct by single firms.  Instead the recommendations suggest that the courts continue to shape the law on what constitutes anticompetitive behavior. 

The Commission does recommend the repeal of the much-reviled Robinson-Patman Act, an arcane law that prohibits price discrimination.

U.S. Supreme Court hears argument in Oregon antitrust case

SCOTUSblog has this recap of last week's Supreme Court argument in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co.  The case, tried in federal district court in Portland, addresses "predatory bidding" as a violation of antitrust law.  This commentator predicts that the court will reverse the case due to a defect in a key jury instruction, and remand for a new trial.  See earlier coverage in the Oregon Business Litigation blog here and here.

An antitrust challenge to open-source software fails in the Seventh Circuit

Oregon's many adherents to the open-source movement can rest easy:  the antitrust laws are no threat to the distribution of software under the GNU General Public License (GPL).    At least that was the conclusion of the Seventh Circuit Court of Appeals in an opinion issued today.  Authors who distribute software under the GPL authorize copying and the creation of derivative works, but prohibit charging for the copies and derivatives.  The license ensures that all open-source software, such as the Linux operating system, is disseminated free of charge. 
In Wallace v. IBM, plaintiff claimed that the GPL made it impossible for him to compete with Linux, either by offering a derivative work or by writing his own operating system, because no one would buy his product as long as Linux is free.   Plaintiff claimed predatory pricing by IBM and others.  Judge Frank Easterbrook, writing for the majority, concluded that the free distribution of software does not fit the test for unlawful predatory pricing under the Brooke Group case, that nothing in the law requires copyright owners to charge for their intellectual property, and that the widespread use of Linux does not threaten consumer welfare.  The court affirmed the judgment dismissing the complaint.

Attorneys general weigh in on Oregon antitrust case

The attorneys general from eight states, including Oregon, submitted a joint brief to the U. S.  Supreme Court in an antitrust case that originated in Oregon and is set to be heard by the high court next month.  In that case, Weyerhaeuser Corp. was found liable for engaging in an illegal buyer-side monopoly in the purchase of alder logs.  The Oregonian reported that the states' brief opposes the argument by both Weyerhaeuser Corp. and the U.S. Department of Justice that the trial court's test for predatory bidding was too subjective and vague.  The Oregon Business Litigation blog's previous coverage of the case can be found here.

Exclusive dealing contracts invite antitrust risk

Exclusive dealing contracts are a great tool for manufacturers, but a recent case from the Sixth Circuit shows that they create a risk of antitrust liability when they shut competitors out of the market.  In NicSand, Inc. v. 3M Co., NicSand was 3M's only competitor in the market for "DIY retail automotive coated abrasives".  NicSand claimed that 3M used its superior market power to enter into multi-year exclusive dealing contracts with four of the six largest retailers of those products, effectively shutting NicSand off from potential customers and sending it into bankruptcy.  3M was able to achieve that result in part by offering substantial discounts to the large retailers - and the court said those discounts "served no business purpose other than to exclude NicSand's products from the market."  While a dissenting judge argued that the discounts represented vigorous competition rather than illegal monopolization, the majority held that NicSand stated a valid antitrust claim and ordered the case to proceed to trial.  The lesson is that, when a manufacturer has a large presence in a product market, it must take care not to eliminate rivals' access to customers.

Supreme Court to review Oregon antitrust case

Last week the U.S. Supreme Court agreed to review two antitrust cases -- one from the Second Circuit and the other from right here in Oregon. 

The Oregon case, Ross-Simmons Hardwood Lumber Co., Inc. v. Weyerhaeuser Co., will join Northwest Stationers v. Pacific Stationery in the pantheon of Supreme Court antitrust cases originating in our corner of the world. 

Ross-Simmons addresses the rarely-litigated issue of an illegal monopsony -- also called a buyer-side monopoly, where a single buyer purchases most or all of the output of many suppliers.  Plaintiff in that case, owner of a small saw mill, prevailed on a claim that Weyerhaeuser illegally used its monopsony power to bid up the purchase price of alder logs to supply its sawmills, driving out competing sawmills that could not afford to pay the high input prices.  The challenged activity has been called "predatory bidding" -- the flip side of predatory pricing, which the Supreme Court has most recently addressed in Brooke Group Ltd v. Brown & Williamson Tobacco Co.

One element of the case is noteworthy:  District Judge Panner and the Ninth Circuit concluded that the supply market for alder sawlogs is inelastic, meaning that when Weyerhaeuser bid up the price for logs, there was no source of additional supply.  As a consequence, new suppliers could not enter the market, add to the supply, and bring down the price to levels that competing sawmills could afford.  It was the limited supply of sawlogs that enabled Weyerhaeuser to carry out its scheme to eliminate competing sawmills.

The holding in Ross-Simmons suggests that large purchasers must now monitor the elasticity of the input market when increasing their purchases, so as to determine the potential effect of a rise in input prices.  The Solicitor General, in urging the Supreme Court to accept review, said such an inquiry is fraught with ambiguity and uncertainty, and fails to advance the need for easy-to-administer rules on pricing behavior. 

Hart-Scott-Rodino: Feds adopt electronic filing

The Hart-Scott-Rodino Act requires that parties to certain mergers and acquisitions notify the FTC and DOJ and then wait for a designated period before completing the transaction.  Last week the feds adopted rules allowing merging parties to submit premerger notification filings electronically via the Internet.  The  new rules should speed processing and will allow parties to avoid costly and cumbersome duplication of documents.  Details are at the HSR web site,  https://www.hsr.gov/