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April In-House Counsel Antitrust Update
Brown Bag Program Sponsored bythe Corporate Counseling Committee of the ABA Section of Antitrust Law
Brian BrosnahanMary AzcuenagaTed HenneberryJoe Angland
Developments in Antitrust Issues Regarding Standard-Setting
Brian P. Brosnahan
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FTC’s Rambus Ruling Is Reversed
FTC had found Rambus monopolized market for certain computer memory
technologies, while participating in an SDO, by deceptively failing to disclose
issued patents pending patent applications plans to amend applications to add new claims
SDO’s patent disclosure rules were “not a model of clarity” but members expected disclosure
Non-disclosure allowed Ramus either to get its technology adopted as the standard, or to avoid a RAND commitment
Royalties should be limited by RAND
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D.C. Circuit Reversed (3-0) inRambus, Inc. v. FTC, No. 70-1086, 4/22/08
Declined to decide if there would have been a violation if deception caused SDO to adopt Rambus’s technology when it otherwise would not have done so.
Held that merely avoiding RAND commitment is not anticompetitive because it does not impair rivals; simply raising prices is not enough.
Distinguished Broadcom v. Qualcomm, 501 F. 3d 297 (3d Cir. 2007) because there court had to assume that absent deception, Qualcomm’s technology would not have been adopted.
Expressed concern over imposing liability given vagueness of SDO rules, especially re disclosure of work in progress on potential amendments to applications.
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Lessons
SDOs need to have clear disclosure policies to avoid deception without chilling participation
Companies on the receiving end of technology in standards should push for rules or statements clarifying causation, e.g., any technology is disqualified from consideration if it is
1. subject to an undisclosed patent or patent application; or
2. not subject to a RAND commitment
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In the Matter of Negotiated Data Solutions (FTC File No. 051-0094), 1/23/08
Consent Decree under FTC Act §5
Complaint alleged breach of a licensing commitment made in context of standard setting as both
Unfair Method of Competition
Unfair Act or Practice
No monopolization claim asserted, unlike Rambus
3-2 Decision of Commission (Majoras and Kovacic dissenting)
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N-Data Facts
National Semiconductor held patent applications essential to proposed IEEE Fast Ethernet Standard
During meetings on whether to include National’s technology in the standard, National agreed, orally and in writing to the IEEE, to license for a one-time fee of $1000.
After Standard was adopted and patents issued, patents were assigned to Vertical, which knew of the $1,000 commitment.
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N-Data Facts (continued)
Vertical wrote to IEEE and purported to withdraw National’s letter. IEEE acquiesced.
Vertical and further assignee N-Data filed infringement suits and entered several licensing agreements for fees “far in excess of $1,000.”
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N-Data Remedy
1. Prohibits N-Data from enforcing patents unless it first offers to license for $1,000.
2. If offer is ignored and N-Data sues, it must then make a second offer to license for $35,000.
3. 20-year term.
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Rembrandt: The Next Frontier?
On March 26, 2008 the American Antitrust Institute requested that the FTC open an investigation into whether Rembrandt IP Management had violated Sherman Act §2 and FTC Act §5.
Alleges refusal to honor commitment by predecessor to license on RAND terms.
No action yet by FTC.
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Lessons
FTC may get involved if there is a breach of a commitment to license at a specific rate.
Unclear whether FTC will entertain invitation to become RAND rate court. If so, be very careful about making RAND commitments.
How useful is RAND approach? RAND rates can be subject to substantial dispute RAND ≠ small
licensor can still capture ex ante market power of technology
Ex ante royalty negotiations may supplant RAND (e.g., recent VITA and IEEE policies)
Mergers and FTC Developments
Mary Azcuenaga
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Recent Changes at the FTC
Former Chairman Deborah Platt Majoras departed last month.
Commissioner William Kovacic (term expires 09/2011) replaces Majoras as Chairman.
Remaining Commissioners:
Pamela Jones Harbour (term expires 09/2009)
Jon Leibowitz (term expires 09/2010)
J. Thomas Rosch (term expires 09/2012)
One vacancy.
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29th Annual HSR Report (FY 2006)
DOJ and FTC analysis of the 12 month period ended 09/2006:
Total # of transactions filed: 1,768.
Early termination granted 83% of the time.
FTC was the agency granting ET 75% of the time.
Only 2.6% of the 1,768 transactions filed received Second Requests (46 transactions).
Transactions challenged as anticompetitive: 32.
In 17 instances the agencies obtained some form of relief; 9 transactions were never consummated.
One prosecution for an HSR Act violation.
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HSR Transactions Reported (FY 1997 – 2006)
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Rate of Second Requests (FY 1997 – 2006)
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FTC Chairman’s Annual Report (2008)
FTC-only HSR data (FY 2005 - 2008):
FTC has faced a 30% increase in pre-merger filings and a comparable increase in second requests issued in recent years.
Fiscal Year# HSR
Transactions# 2d Requests
IssuedMerger Enforcement
ActionsHSR Premerger
Violations
2005 1,610 25 14 1
2006 1,755 28 16 0
2007 2,108 31 22 1
2008* 767 8 5 1
* FY 2008 is thru 2/29/2008
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XM / Sirius Merger
DOJ recently closed its investigation of the XM / Sirius Satellite Radio merger, finding no harm to competition.
Several factors limited competition between Sirius and XM:
Exclusive contracts with car manufacturers;
Incompatible receiver hardware.
Direct competition with other forms of in-car audio entertainment also limited the ability of the parties to raise prices:
MP3 players;
Terrestrial radio.
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XM / Sirius Merger
Numerous critics characterize the deal as a “merger to monopoly,” combining the only two providers of satellite radio, and have decried DOJ’s decision.
Opposition from several members of Congress, State AGs, and consumer groups.
Parties still await FCC approval of the merger.
AGs from 11 states have asked the FCC for closer scrutiny of antitrust concerns.
Divestiture of a portion of the satellite radio spectrum to allow for new competitor entry has been suggested as a potential relief.
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In the Matter of Negotiated Data Solutions
FTC obtained a consent order from N-Data for an alleged violation of Section 5.
The Complaint alleged N-Data’s actions were an “unfair method of competition” and also “an unfair act or practice.”
The “penumbra” of Section 5.
Bad faith or deceptive behavior may undermine competition. (Complaint)
“[A]n unfair act or practice … [is] conduct that victimizes business [as well as individuals] who are consumers.” (Complaint)
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In the Matter of Negotiated Data Solutions
Chairman Majoras and Commissioner Kovacic dissented.
“[T]he majority has not identified a meaningful limiting principle [for] an ‘unfair method of competition.’” (Majoras)
“[T]he novel use of our consumer protection authority to protect large [corporations] is insupportable.” (Majoras)
Consider the implications for state enforcement. (Kovacic)
What does “unfair acts or practices” add to “unfair methods of competition”? (Kovacic)
Some Key Issues in EU Competition Enforcement
Ted Henneberry
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Three Topics Of Interest To U.S. Firms And Clients
Post-Microsoft Application Of Abuse of “Dominance” Test
White Paper On Damages
Akzo Nobel Ruling on Attorney Client Privilege For Corporate Counsel
24
Post-Microsoft
“All jurisdictions agree that unilateral conduct laws address specific conduct and anti-competitive effects rather than the mere possession of dominance/substantial market power or its creation through competition on the merits” (ICN Unilateral Conduct Working Group).
EU law may penalise firms for being dominant:
A dominant firm has a “special responsibility not to allow its conduct to impair genuine undistorted competition on the common market.” (Michelin v Commission)
Market shares >50% provide a presumption of dominance- thresholds for finding dominance are lower than in the US
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Divergenge With the US
US: No special responsibility in the US
U.S. jurisprudence does not recognise ‘dominance’; rather, focuses on market power, ie, the power to raise prices or reduce output, or to exclude competition
Market share a starting point, but not determinative
Other economic factors such as barriers to entry critical
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This is particularly acute in high-tech/ innovation markets.
Neither in the EU nor in the US does mere ownership of an IP right confer dominance on a company. However in the EU undertakings are often ‘deemed’ dominant by their IP rights.
There is then a high burden on a dominant undertaking
not to restrict competition- The result of EU model is
the fact that it may lessen successful companies
incentives to innovate and can require competition
authorities to actively regulate price, quality or quantity.
Compare Microsoft cases
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New Cases
Quaalcom
Rambus
Intel
IBM
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White Paper On Damages
Clear policy to push Member States to provide for consumer redress for infringements of EU competition law
Much more limited and targeted than Green Paper
Consistent with UK Proposals
“…any individual can claim compensation for the harm suffered where there is a causal relationship between the harm and an agreement or practice prohibited under Article 81 EC”
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Key Features
Effort to design ’European’ system,ie, not import ‘evils’ of US private actions
Purely compensatory
Allows indirect purchaser claims but also ‘pass-on’ defense
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Key Features(2)
Will require ‘opt-in” collective actions, albeit by court or agency ombudsman or consumer group
Provides for easing discovery rules, though leniency applications and documents will remain exempt
Retains ‘loser pays’ rule, though calls for courts to balance
31
Akzo Nobel
Issued same day as Microsoft-defines scope of Legal Professional Privilege (LPP) for corporate counsel and for materials prepared by company officials for communicating with outside counsel
Unlike U.S privilege, however, CFI ruled LPP not applicable to communications by corporate counsel with company officials, even where counsel is a member of a national bar
On appeal to ECJ
32
Lessons
Counsel of U.S. firms in EU cannot avail of LPP for matters subject to EU jurisdiction (privilege may be available under national law, eg, UK and Ireland)
Documents prepared by company officials specifically and exclusively to be passed on to outside counsel can be protected (even if not transmitted)-should maintain separate file
CFI did find EC violated rights of defense by not segregating materials seized in ‘dawn raid’ for later review by court-provide legal staff with procedures in the event of a dawn raid
Antitrust Developments
Joe Angland
34
Extending Patent Protection
How far can patent holders go to extend their patent monopoly?
Answer is unclear.
Compare Walgreen v. Aztrazeneca with Abbott Labs. v. Teva.
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Extending Patent Protection
Walgreen Co. v. Astrazeneca Pharms., 534 F. Supp. 2d 146 (D.D.C. 2008).
Patent on Prilosec was about to expire, and generic competition loomed.
Complaint alleged that Astrazeneca improperly switched the market to an essentially identical new drug, Nexium, on which it had patent protection, and thus for which no generic alternative was available.
“Courts … are not tasked with determining which product is superior.”
The conduct was held to have increased choice.
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Extending Patent Protection
Abbott Labs. v. Teva Pharms., 432 F. Supp. 2d 408 (D. Del. 2006).
Antitrust plaintiffs alleged that as patent on TriCor was about to expire, Abbott prevented generic competition by, inter alia, switching from capsules to tablets.
On a motion to dismiss, the court held that the product improvement must be balanced against the anticompetitive effect.
Motion to dismiss was denied.
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Extending Patent Protection
Walgreen court attempted to distinguish Abbott, but not very successfully.
18 states recently filed a similar case against Abbott.
The jury is still out on this one.
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In re Lorazepam & Clorazepate Antitrust Litig., 531 F. Supp. 2d 82 (D.D.C. 2008).
A horror story:
Mylan and 2 others found to have violated Massachusetts antitrust law by entering exclusive licenses for the API for Lorazepam
doubling or trebling allowed if conduct “willful”
court held that determination must be made separately for each defendant
it found that each defendant acted willfully
so . . .
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In re Lorazepam
Actual Damages $8 million
“Extra” for Mylan $16 million
“Extra” for Defendant 2 $16 million
“Extra” for Defendant 3 $16 million
Total $56 million
So, septuple damages!
40
In re Lorazepam
Mylan was contractually bound to indemnify the others!
The FTC had already obtained a $100 million settlement!
Silver lining?
Mylan was lucky it had only two co-defendants
with 10 co-defendants, it would be 21 times actual damages!
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Brian P. BrosnahanHeller Ehrman LLP333 Bush StreetSan Francisco, CA 94104Telephone: (415) 772-6302E-mail: [email protected]
Brian Brosnahan is a shareholder of Heller Ehrman LLP based in San Francisco. He joined the firm in 1984 and practices primarily in the areas of antitrust and unfair business practices. He has handled antitrust litigation and counseling engagements for clients in numerous fields, including the credit and debit card industries, pharmaceuticals, medical devices, imagers and printers, and digital television.
Mr. Brosnahan has provided advice and litigation representation to companies facing extremely serious or “crisis” litigation threats. Such representation has included antitrust or unfair business practices, class actions (such as his representation of Visa in tying and monopolization litigation involving debit and credit cards and his representation of Providian Financial Corporation in various federal and state unfair business practices class actions). He has extensive experience not only with federal antitrust laws but also with the unique antitrust and unfair business practices laws applicable in California.
Mr. Brosnahan has written and lectured frequently on various antitrust topics. He is the former co-chair of the Financial Markets and Institutions Committee of the American Bar Association’s Section of Antitrust. Mr. Brosnahan has been named a Northern California Superlawyer by San Francisco Magazine on numerous occasions, including 2007.
Education: Swarthmore College (B.A. Economics, Phi Beta Kappa with high honors, 1979); Harvard Law School (J.D. cum laude, 1983) Mr. Brosnahan served as a law clerk to the Honorable Eugene F. Lynch of the United States District Court for the Northern District of California in 1983-84. He is a member of Bar of California and numerous federal courts.
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Mary L. AzcuenagaHeller Ehrman LLP1717 Rhode Island Avenue, N.W.Washington, DC 20036Telephone: (202) 912-2000E-mail: [email protected]
Mary Azcuenaga joined the firm in 1998 and has served two terms as Co-Chair of the Antitrust & Trade Regulation Practice Group. She practices in the areas of antitrust, particularly mergers and acquisitions, antitrust and intellectual property, including antitrust counterclaims in patent litigation, FTC and other federal regulatory matters.
Ms. Azcuenaga served as a Commissioner of the Federal Trade Commission for nearly 14 years. As a Commissioner, she reviewed matters in a full range of industries. Her practice at the FTC included mergers and acquisitions, the antitrust/intellectual property linkage, advertising, administrative law and the law and economics of regulatory advocacy. Before her appointment as a Commissioner, she spent more than eleven years at the Commission in various litigating and supervisory positions. She has litigated at the trial and appellate level and has experience in every area of antitrust and consumer protection.
Ms. Azcuenaga represents clients in managing the Hart-Scott-Rodino process and the antitrust review of mergers and acquisitions before both the Department of Justice and the FTC. She also serves as a special consultant to other law firms and their clients in the HSR process and the antitrust review of mergers and acquisitions. She has represented merger and acquisition clients in the pharmaceutical, medical devices, biotechnology, bio-engineered products, biometrics, software, internet infrastructure, wireless infrastructure, data storage, data and e-mail security, high-quality radio frequency and microwave components, defense, information technology applications and consulting, construction materials, consumer and industrial tools, large industrial equipment, electric utility, natural gas, retail and cruise line industries.
Ms. Azcuenaga has defended antitrust counterclaims in patent litigation for both biotechnology and information technology clients. She also represents clients in the full range of government antitrust and consumer protection investigations and in other federal government matters.
Ms. Azcuenaga was named to Woodward/White Inc.’s “The Best Lawyers in America”® in the field of antitrust law; is a “ recommended” lawyer in the antitrust field by Practical Law Company’s “PLCWhich Lawyer;” is listed in “Who’s Who in American Law;” and peer-review rated “AV” in ”Martindale-Hubbell®.” Ms. Azcuenaga has authored numerous Federal Trade Commission opinions and statements and several articles. She is a frequent speaker at legal seminars, international conferences and meetings of business, professional and consumer groups.
Ms. Azcuenaga earned her J.D. in 1973 from the University of Chicago School of Law and her B.A. in 1967 from Stanford University. She is a member of the bars of California, and the District of Columbia and numerous federal courts.
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Edward (“Ted”) P. HenneberryHeller Ehrman LLP
1717 Rhode Island Avenue, N.W. Condor HouseWashington, D.C. 10 St. Paul's Churchyard Telephone: (202) 912-2000 London EC4M [email protected] United Kingdom
Telephone: +44 (0)20 7665 5222
Edward Henneberry joined Heller Ehrman in 2006 and is the Co-Chair of the European Practice Group. Mr. Henneberry’s practice focuses on antitrust and international competition law, particularly on cross-border merger transactions and multi-jurisdictional cartel investigations.
Prior to joining Heller Ehrman, Mr. Henneberry was a Member of the Irish Competition Authority where he also acted as Director of the Mergers and Cartel Enforcement Divisions. As a member of the Authority, he participated directly on the Advisory Committee of the European Commission in major merger policy and competition enforcement matters, including the drafting of the EC’s Merger Guidelines. He also served on the Experts’ Committee advising the EC in the drafting of its Green Paper on Private Damage Remedies.
Mr. Henneberry represented Ireland in the Competition Committee of the Organization for Economic and Community Development (“OECD”) in Paris. He has also played a significant role in the International Competition Network (”ICN”), an organisation representing competition enforcement authorities worldwide, where he acted as co-chair of the Mergers Working Group and was responsible for the drafting of the ICN’s Merger Remedies Study and the Merger Guidelines Workbook. He also participated in several ICN cartel enforcement workshops in Europe and Asia. He continues to serve as a Non-Governmental Adviser to the ICN for the U.S. Department of Justice and the Federal Trade Commission. He is currently serving as a member of the International Task Force of the ABA's Antitrust Section as well as on the Task Force on Extraterritorial Antitrust Jurisdiction for the International Bar Association.
Before being appointed to the Irish Competition Authority, Mr. Henneberry was a senior partner at a prominent law firm in Washington D.C. He has substantial experience representing major international companies and counseling senior management in private antitrust litigation, mergers and joint ventures, and government civil and grand jury investigations. He has extensive trial and appellate experience as lead counsel in both federal and state courts in the United States as well as in administrative proceedings and investigations in Europe.
Mr. Henneberrry earned his J.D. in 1970 from Boston College Law School and his B.W. in 1967 from Boston College. He is a member of the bars of the District of Columbia and Massachusetts.
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Joseph AnglandHeller Ehrman LLPTimes Square Tower7 Times SquareNew York, NY 10036-6524Telephone: (212) 832-8300E-mail: [email protected]
Joe Angland is a shareholder in Heller Ehrman LLP, where he heads the New York office antitrust practice. His practice focuses on antitrust litigation and counseling, as well as other complex litigation. He also handles the antitrust clearance of mergers.
During 2006-2007, Mr. Angland served as Chair of the ABA Section of Antitrust Law, which with over 8,000 members is the world’s largest association of competition lawyers. At the request of the Federal Trade Commission and U.S. Department of Justice, he has served as a non-governmental advisor to the International Competition Network, the association of competition enforcement agencies.
Mr. Angland has edited and authored dozens of publications relating to antitrust law, including serving as the Editor in Chief of the Fourth Edition of Antitrust Law Developments, a two-volume treatise on U.S. antitrust law. He is a frequent lecturer on antitrust topics.
In 2006, Mr. Angland was one of only two specialists in civil antitrust litigation to be named to the list of the top 100 lawyers in New York, and one of only about ten to be included in a listing of the top 500 litigators in the United States. He is ranked among the leading antitrust specialists in virtually all peer review rankings, including those sponsored by Global Competition Review, Who’s Who Legal, Chambers, Practical Law Company, Best Lawyers in America, and Superlawyers.
Mr. Angland earned his J.D. in 1975 from the Harvard Law School and his B.S. in economics in 1972 from M.I.T. He is a member of the bars of New York, the District of Columbia, and numerous federal courts.
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