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Skip Oliva

See You Some Other Time!

by Skip Oliva on July 29, 2007

It’s time to end my week of guest-blogging here. Thanks again to Walter Olson and Ted Frank for indulging my ramblings. Since I’ve used most of my posts to dwell on the evils of antitrust regulation, I’d like to try and go out on a more positive note.

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It’s difficult to reconcile the American concept of “equal justice under law” with the Federal Trade Commission’s motto, “Protecting America’s Consumers.” The implication is that there is one set of laws for consumers and another set—affording lesser protection—for producers and sellers. This conflict presents itself in all “consumer protection” laws, and it stems from an awkward premise: That in any given economic exchange, the party trading cash holds the legal and moral high ground over the party trading a good or service.

Put another way, try to fashion a consumer protection or antitrust law in a purely barter economy. If A trades two pounds of flour to B in exchange for a bushel of apples, which party is the “consumer” entitled to government protection? It’s easy to apply common law principles regarding fraud to such a transaction, but virtually impossible to employ contemporary consumer protection standards, which require a presumption that one trader is good and the other is bad.

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Jailbird, Away!

by Skip Oliva on July 28, 2007

Regarding the story Walter mentioned below on a fugitive’s possible liability for a news copter crash, Dave Hughes of the media watchdog site dcrtv.com suggests a different chain of causation than the Phoenix police chief:

While I’m very sorry that the two Phoenix TV copters collided and crashed, killing four, I am very much against TV stations (and cable “news” networks) televising live police chases. There isn’t much news value there and the the very presence of TV coverage of such events encourages people – particularly the drunk and drugged – to break the law and lead the police in high-speed chases thereby endangering countless thousands of responsible drivers, their passengers, and pedestrians. …

I’m reminded of a recent “Simpsons” episode where the Channel 6 news copter follows the Jailbird (aka Snake) on a police chase, which takes an unexpected turn when the fugitive leaves his car, steals a helicopter of his own, and pulls alongside the news copter, where he turns to the camera and offers a succinct traffic report before flying off.

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Last week the Federal Trade Commission and the Justice Department’s Antitrust Division issued their annual report on the Hart-Scott-Rodino Act (HSR Act), which requires companies to pre-report mergers over a certain value to antitrust regulators so they can preemptively determine if a deal is “likely to have an anticompetitive impact.” (It’s amazing that people with such amazing economic forecasting abilities are employed as mere government lawyers.)

Despite the occasional high-profile merger challenge, like the FTC’s recent lawsuit to stop Whole Foods from acquiring Wild Oats, very few deals face antitrust roadblocks. In the fiscal year 2006, the FTC and DOJ issued second requests for information—the first step towards a formal challenge—in only 2.6% of reported mergers. This is slightly below the ten-year average of 3.01%.

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Last week a Connecticut jury acquitted Stora Enso North America Corp. of criminal “price fixing” charges. The Justice Department indicted Stoa Enso last December for allegedly selling coated magazine paper at “anticompetitive” prices. It’s rare for any company to go to trial on criminal (or even civil) antitrust charges, and an outright not-guilty verdict is even rarer: In the last ten years, the Antitrust Division’s criminal won-loss record is a robust 454-11.

The Antitrust Division’s success in convicting price fixing defendants can be attributed to the Corporate Leniency Policy, an invention of Division lawyers that allows one company in a purported “cartel” to escape all criminal prosecution in exchange for providing evidence against other firms. It’s a terrific bargain. A company can inflict maximum damage on its competitors—who face large criminal fines and treble damages in subsequent civil lawsuits—while prosecutors are generally ensured of quick plea bargains from their remaining targets.

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Common journalistic practice says that a court decision is pro-business when it favors a corporate defendant over a plaintiff. Conservatives are also said to be pro-business while liberals are pro-plaintiff or pro-consumer. This is how the press frames most discussions of tort and regulatory litigation.

In the last Supreme Court term, a 5-4 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. was hailed and condemned (depending on who you ask) as a pro-business decision. The conservative majority, led by Justice Kennedy, overruled a 1911 precedent that condemned “resale price maintenance” (RPM)—contracts where a manufacturer conditions sales to distributors on setting a specific retail price—as an automatic violation of the Sherman Act. Most antitrust challenges are subject to the rule of reason, and after years of complaints from mainstream economists, the Leegin majority acquiesced in ending RPM’s special status under the “per se” rule.

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A few years ago, I was drafting some public comment letters to the FTC and DOJ in a series of cases where the regulators accused physician groups of “price fixing” during contract talks with third-party insurers. While reviewing three separate cases involving physician groups in different markets, I noticed that the defendants all retained the same defense lawyer. Further research revealed that said lawyer previously worked at the FTC, where he developed the very theory of antitrust liability now being used against his clients. Indeed, this lawyer authored a book on the policy.

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A Conspiracy of One

by Skip Oliva on July 23, 2007

It’s good to be back at Overlawyered. For those of you not scarred by my prior guest-blogging stint, this is Skip Oliva, director of the anti-antitrust Voluntary Trade Council, regular co-blogger for the Mises Institute, and freelance paralegal-for-hire.

Since antitrust is my bread and butter, I’ll spend some time this week examining the impact of the four antitrust cases decided in the last Supreme Court term. I’ll also discuss some lesser-known antitrust cases that I’ve been following (and in some cases, directly participating in); and maybe I’ll even address some purely non-antitrust legal topics as well.

But let’s start with—you guessed it—an antitrust case. Last week the U.S. Third Circuit Court of Appeals decided Cosmetic Gallery, Inc. v. Schoeheman Corporation (download PDF), one of the first appellate decisions that relies on the Supreme Court’s May decision in Bell Atlantic v. Twombly. In Twombly, a 7-2 court held that a complaint alleging a conspiracy to restrain trade under Section 1 of the Sherman Act required more than “an allegation of parallel conduct and a bare assertion of conspiracy”; there must be “enough factual matter (taken as true) to suggest that an agreement was made.”

In the Third Circuit case, a New Jersey company that operates hair salons and retails related hair care products (Cosmetic Gallery) sued a Pennsylvania distributor of said products (Schoeneman). Specifically, the issue is “salon-only” products that are normally sold, as the name suggests, only through salons. Distributors like Schoeneman agree to manufacturers’ restrictions on the sale of these products to, according to the Third Circuit, “increase the cachet and prestige” of the products.

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Five more for the road

by Skip Oliva on January 1, 2007

I’d like to thank Walter and Ted for letting my play in their sandbox this past week. Before I go, I’d like to highlight a few more antitrust cases and stories to watch in 2007:

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In the next few weeks, the FTC is expected to issue a final order in its five-year case against Rambus Inc., a California-based developer of memory technology. Rambus has proven to be the longest and possibly costliest litigation in FTC history. The FTC’s trial costs alone approached $3 million, with over $1 million going to “expert” witnesses and consultants.

The Rambus case started as a patent infringement dispute between the company and several memory manufacturers. Rambus doesn’t produce any memory itself; it develops and patents technologies and licenses them to manufacturers. During the mid-1990s, Rambus participated in a memory standard-setting group, JEDEC, and this is where the trouble began. The manufacturers claim Rambus misled JEDEC into incorporating Rambus patents into certain memory standards. Rambus said it was denied permission to present its technologies for standardization and that JEDEC members simply infringed Rambus’s patents.

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The Federal Trade Commission ended its year by prosecuting a 1,900-member physician group in Chicago for price-fixing. Since 2001, the FTC and DOJ have coerced 29 physician groups—some with as few as six members—into signing consent orders that restrict the right of doctors to negotiate contracts.

The FTC and DOJ apply a double standard to doctors and third-party payers. Payers may represent thousands of individual consumers and present doctors with a “take it or leave it” contract offer. But if even a handful of doctors get together to present a counter-offer, it’s a “per se” antitrust violation.

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Hussein executed

by Skip Oliva on December 29, 2006

Saddam Hussein has been executed, according to numerous media reports. A few hours ago, U.S. District Judge Colleen Kollar-Kotelly of Washington denied a last-minute application for a stay of execution filed by Hussein’s lawyers.

The application was filed at 1 p.m. this afternoon by the law firm of Gilman & Associates, who argued that a stay was justified because Hussein was a named defendant in a civil lawsuit before the D.C. district court, “but his incarceration has prevented him from receiving proper due process notice of his rights to defend himself and his estate.” Military officials said Hussein could not meet with his lawyers to discuss the civil suit until January 4, which obviously is a moot point now.

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Next week the Justice Department will file its response to a motion to dismiss made by Stolt-Nielsen Transportation Group and its two co-defendants in a criminal antitrust case now pending in Philadelphia. Four years ago, Stolt-Nielsen received amnesty from the DOJ in exchange for cooperating with the Antitrust Division’s price-fixing investigation of the parcel tanker industry. The amnesty was revoked less than three months later, however, after the Division accused Stolt-Nielsen of misrepresenting the timeline of the alleged conspiracy.

The Division had never revoked an amnesty granted under its 1993 Corporate Leniency Policy, and the unprecedented action against Stolt-Nielsen prompted the company to file a lawsuit to enjoin prosecutors from indicting the company. In January 2005, a judge granted the injunction, holding that Stolt-Nielsen did not breach the amnesty agreement. Specifically, the court said the terms of the amnesty agreement—which was drafted by the DOJ—made no reference to any specific timeline.

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For the past three years, Stan Cramer has been fighting to save his parking garage near the Harrisburg International Airport from eminent domain seizure by the airport’s municipal operating authority. The airport wants to eliminate competition with its own parking lots, and when Cramer refused to sell voluntarily, the authority used its powers under Pennsylvania law to take the property by force. Recently, a Pennsylvania judge allowed Cramer’s lawsuit to stop the seizure to proceed to trial.

In a related case, Pennsylvania AG Tom Corbett filed a federal lawsuit last year to stop the airport authority’s seizure on the grounds that it violates federal antitrust law. It’s a strange setup: The Commonwealth of Pennsylvania suing one of its own subdivisions in federal court over the use of power granted by state law. In March, U.S. District Judge Christopher Conner dismissed the AG’s complaint, citing the airport authority’s immunity from federal antitrust lawsuit as a state actor. Conner said the airport’s anti-competitive motives were irrelevant; its actions were clearly authorized by the Pennsylvania legislature.

Corbett appealed the judge’s dismissal to the Third Circuit Court of Appeals. Briefs were filed in October, and a decision on the appeal is expected next year. Meanwhile, new management has taken over at the airport, and they are trying to negotiate a settlement with Cramer.

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Last week, the Justice Department’s Antitrust Division issued a triumphant press release touting that 2006 recorded “the second highest level of criminal fines” in Division history. The Division is actually measuring the government’s 2006 fiscal year: From October 2005 through September 2006, the Division obtained criminal fines totaling $472,445,600, a 40% increase over the previous fiscal year. The Division also said that criminal prosecutions of individuals yielded a combined 5,383 days of jail time; and during the first three months of the current fiscal year, an additional 9,135 days of jail time have been imposed.

Thomas Barnett, the head of the Antitrust Division, said more fines for “cartels” and prison sentences for “price fixing” executives created substantial economic benefits:

“Sound enforcement of the antitrust laws ensures that illegal conduct is stopped, procompetitive transactions can proceed, and businesses are able to engage in vigorous competition resulting in lower prices, better quality and more choices for consumers.”

There’s no empirical evidence that any of this is true. Indeed, the DOJ is not legally required to demonstrate the economic effects of antitrust policy. Since price fixing is treated as a “per se” antitrust violation by the courts, it’s legally unnecessary to address such matters. Nevertheless, the Division insists that criminal enforcement improves consumer welfare. That doesn’t make sense if you think about it.

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More Guestblogging

by Skip Oliva on December 26, 2006

Greetings, Overlawyered readers. I’m your other post-Christmas guestblogger, Skip Oliva. I’m not a lawyer, but I do write about legal subjects. For the past four years, I’ve run the Voluntary Trade Council, a public policy group that focuses on antitrust regulation. I maintain VTC’s weblog as well as write for the Mises Economics Blog. During my stint here I’ll be discussing some of the more interesting antitrust cases from the past year.