Alert: The Supreme Court clarified the principles of international comity this week in a ruling pertaining to the long-running vitamin C antitrust class action litigation. International comity is the recognition a nation shows to the legislative, executive or judicial acts of another nation. Principles of comity state that US courts should defer to the laws of other nations when actions are taken pursuant to those laws. In this week’s ruling, Justice Ginsberg wrote that federal courts should accord respectful consideration to foreign government submissions when analyzing comity issues, but are not bound by them. This ruling vacates the Second Circuit’s decision in the case overturning the jury verdict for the class, and is a win for the class of US purchasers of vitamin C. (more…)
In the course of one week, two top level DOJ Antitrust officials in the Trump Administration separately spoke at panels and suggested the possibility of a sea change in federal antitrust law with respect to indirect purchaser lawsuits. The comments further reinforce the Administration’s active focus on antitrust issues.
WHAT HAPPENED:
Makan Delrahim, DOJ’s Assistant Attorney General in charge of the Antitrust Division (the Division), spoke at a conference organized by the Antitrust Research Foundation on January 19, 2018, and is reported to have stated that the Division was looking into the possibility of pursuing civil damages on behalf of taxpayers in antitrust price-fixing suits.
A few days later, on January 23, 2018, Andrew Finch, DOJ’s Principal Deputy Assistant Attorney General for Antitrust, spoke at a Heritage Foundation conference and reportedly stated that the Division was “looking at whether or not it might be worthwhile to revisit those rules and suggest the same to the Supreme Court,” referencing the landmark decision Illinois Brick Co. v. Illinois, which prohibits indirect purchasers from recovering antitrust damages under federal antitrust law.
On January 31, 2017, President Trump nominated Neil Gorsuch to fill the vacant seat at the Supreme Court of the United States left by the late Justice Antonin Scalia. As a federal judge for the US Court of Appeals for the Tenth Circuit, a former private practitioner, and an adjunct professor of antitrust law at the University of Colorado, Gorsuch has an extensive background in antitrust.
In 1996, Gorsuch joined the law firm Kellogg Huber Hansen Todd Evans & Figel, where his practice included both plaintiff and defense litigation in antitrust matters. Gorsuch and his co-counsel helped secure a judgment of $1.05 billion in trebled damages for tobacco company Conwood Co. after a jury found that defendant United States Tobacco Co. engaged in anticompetitive marketing practices. Gorsuch also defended telecommunications company SBC Communications, Inc. during his tenure at Kellogg when a rival company alleged that SBC set forth an illegal tying arrangement. The US District Court for the Eastern District of Texas dismissed the tying count in 2004.
President George W. Bush appointed Gorsuch to the US Court of Appeals for the Tenth Circuit in 2006. In this role, Gorsuch authored several antitrust decisions. In 2009, Gorsuch wrote Four Corners Nephrology Associates, P.C. v. Mercy Medical Center of Durango, 582 F.3d 1216 (10th Cir. 2009), where he held that a hospital’s refusal to allow a physician to use its inpatient nephrology facilities did not violate the Sherman Act or Colorado law. In 2011, Gorsuch reversed a district court’s ruling in Kay Electric Cooperative v. City of Newkirk, Okla., 647 F.3d 1039 (10th Cir. 2011) after finding that a municipality’s electricity provider was not immune from antitrust liability under the state action immunity doctrine.
In 2013, Gorsuch authored his most well-known antitrust opinion, Novell v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013). In this case, plaintiff Novell accused Microsoft of maintaining monopoly power over its operating systems by withholding intellectual property from rival software developers. Gorsuch determined that Microsoft’s purely unilateral conduct did not violate the Sherman Act and that “[f]orcing monopolists to hold an umbrella over inefficient competitors might make rivals happy but it usually leaves consumers paying more for less.” Id. at 1072 (internal citations omitted).
With background in representing plaintiffs and defendants and deciding cases in favor of both sides, Gorsuch’s policies about antitrust laws are not entirely clear. However, in his most recent and well-known case, Novell v. Microsoft, Gorsuch stated “[t]he antitrust laws don’t turn private parties into bounty hunters entitled to a windfall anytime they can ferret out anticompetitive conduct lurking somewhere in the marketplace.” Id. at 1080. This language may indicate a preference for a less interventionist approach to competitor conduct relating to its intellectual property.
With an extensive antitrust background, it will be interesting to see whether the Senate ultimately confirms Gorsuch (they did so eleven years ago unanimously) and, if so, whether antitrust issues reach our nation’s highest court.
Since President Obama announced Judge Merrick Garland’s nomination to the Supreme Court of the United States last Wednesday, March 16, 2016, many have opined on his qualifications as well as the political fight about his confirmation this election year. A few articles have noted Judge Garland’s academic background—that he taught Advanced Antitrust at his alma mater, Harvard Law School, while working in private practice in the 1980s. During that time, Judge Garland also published articles in the Yale Law Journal and Harvard Law Review on antitrust issues.
Although his time as an antitrust academic ended nearly 30 years ago, Judge Garland’s articles remain relevant and continue to be cited by the courts and legal academics. For example, his article, Antitrust and State Action: Economic Efficiency and the Political Process, 96 Yale L.J. 486 (1986), was cited by Justice Kennedy in North Carolina State Board of Dental Examiners v. FTC, 135 S. Ct. 1101 (2015), in February 2015. In Antitrust and State Action, Judge Garland argued that courts and legal theorists should not rely on antitrust principles of economic efficiency to justify interference with state regulations and should not permit preemption of state regulations except where state governments delegate market regulation to private parties. 96 Yale L.J. at 487-88. The Supreme Court cited Judge Garland’s article in recognizing this limited exception to state immunity. N.C. State Bd. of Dental Examiners, 135 S. Ct. at 1111.
Since his appointment to the U.S. Court of Appeals for the District of Columbia Circuit in 1997, Judge Garland has been on several panels deciding antitrust cases, but has not authored any opinions. The panel decisions, however, can give us some insight as to how he may decide antitrust issues if his nomination is successful:
In In re Rail Freight Fuel Surcharge Antitrust Litigation, 725 F.3d 244 (D.C. Cir. 2013), the court vacated class certification in a price-fixing case and remanded to the district court for consideration under Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). In particular, the D.C. Circuit was concerned that Plaintiff’s damages model yielded false positive results, which, “if accurate, [] would shred the plaintiffs’ case for certification” because “[c]ommon questions of fact cannot predominate where there exists no reliable means of proving classwide injury in fact.” In re Rail Freight, 725 F.3d at 252-53.
The court held interlocutory review under Rule 23(f) was not appropriate where defendant’s challenges to class certification—that plaintiffs lacked antitrust standing—was a merits question unrelated to the Rule 23 factors. In re Lorazepam & Clorazepate Antitrust Litig., 289 F.3d 98, 107-09 (D.C. Cir. 2002).
In Andrix Phamaceuticals, Inc. v. Biovail Corp. Int’l, 256 F.3d 799 (D.C. Cir. 2001), the court held that the district court erred in dismissing with prejudice defendant’s counterclaim based on lack of antitrust injury or standing where the defendant could have amended its counterclaim to allege a cause of action. In that case, plaintiff had an agreement with a third-party that contained “allegedly anticompetitive provisions, including [plaintiff’s] pledge to continue to [...]
The Supreme Court of the United States, in a 6-3 decision, left undisturbed the rule from its 51-year-old decision in Brulotte v. Thys Co. (1964), invoking stare decisis and rejecting arguments seeking to overturn the rule barring patent royalty agreements that obligate payment of post-patent expiration royalties. Kimble v. Marvel Entertainment, LLC, Case No. 13-720 (Supr. Ct., June 22, 2015) (Kagan, Justice) (Alito, Justice dissenting). In Kimble, the Court addressed the question of whether parties to a patent license may agree that a licensee must continue paying royalties based on sales of products after the licensed patent(s) expire, and answered the question “No,” continuing the rule that such agreements are unlawful per se.
Since Brulotte was decided 51 years ago, many courts and commentators have criticized the rule it laid down as wrongly decided as a matter of economic policy. While the Kimble decision, based essentially on stare decisis, preserves the Brulotte status quo in patent licensing, Justice Kagan has now raised the profile of this judge-made rule and related economic arguments to the branch of government that the Supreme Court concluded had the exclusive power to change it: Congress.
Brulotte
When the Supreme Court decided Brulotte, it prohibited the extension of the “patent monopoly” beyond the term of the patent. The Court held that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” In other words, once the patent expires, the invention is dedicated to the public, and the patent owner cannot continue to demand royalties for use of the patented invention after expirations of the patent term. In dicta, however, the Court distinguished impermissible payments due for use of an invention during the post-expiration period from “deferred payments for use during the pre-expiration period,” which remained permissible.
Kimble
In this case, an inventor (Kimble) licensed a patent on a novelty Spider Man web-slinging toy to Marvel Entertainment. The parties, unaware of Brulotte at the time of licensing, agreed to a license whereby Marvel would pay Kimble an upfront sum plus a 3 percent royalty for all sales going forward. The license agreement included no fixed term. However, after Marvel learned of the Brulotte rule, it filed a declaratory judgment action, seeking a ruling that it could cease paying Kimble royalties as of the expiration of Kimble’s patent term in 2010. The district court agreed with Marvel, and the U.S. Court of Appeals for the Ninth Circuit affirmed. (IP Update, Vol. 16, No. 8).
Stare Decisis
In affirming the Ninth Circuit, the Supreme Court rejected Kimble’s arguments seeking to overturn the Brulotte rule. Kimble argued that the economic rationale underlying Brulotte was no longer correct, and that prohibiting post-expiration royalties made it inefficient and difficult to allocate risks and rewards, especially for patented technology that may take a significant amount of time to commercialize (such as pharmaceuticals). Marvel responded simply that [...]
Last week, the NCAA asked the Northern District of California to throw out a suit initiated in 2009 on behalf of former and current NCAA athletes. NCAA Student-Athlete Names & Likeness Licensing Litigation, case number 4:09-cv-01967. The athletes claim that the NCAA, its member schools, video game creator Electronic Arts (“EA”), and the Collegiate Licensing Company (“CLC”) conspired not to compensate athletes for the use of their names, images, and likenesses in video games and television broadcasts. Specifically, the third amended complaint alleges that the NCAA and its member schools agreed not to offer athletes licensing revenues and that EA and CLC agreed to follow the NCAA’s no compensation rule so as not to undermine the scheme. As a result of this conspiracy, the athletes were deprived of compensation for defendants’ use of their names and likenesses and were excluded from entering the market for the licensing, use, and sale of their names and images.
In response, the NCAA moved to dismiss the action. It told the court that in light of the Supreme Court’s opinion in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984), the athletes cannot allege any facts that can allow the action to survive. In that case, the Supreme Court upheld the prohibition on paying student-athletes as procompetitive because the ban preserved amateurism in collegiate sports. Id. at 117. In addition, the NCAA argued that its rules did not deny any rights the athletes had to license their names and likenesses in broadcast games because the law does not recognize these rights in sporting events. The NCAA further pointed out that it did not provide any licenses to EA for use in EA’s video games. Lastly, the NCAA disputed the former athletes’ claims that the compensation ban prevented these individual’s ability to license their names and likenesses because the amateurism rules only apply to current student-athletes.
Last week, a group of hotels and online travel companies moved to dismiss an amended class action complaint alleging that they engaged in a price-fixing conspiracy to control hotel room prices. Online Travel Company Hotel Booking Antitrust Litigation, case number 3:12-cv-03515. The companies, which include Travelocity and Hilton Worldwide, argued that the plaintiffs abandoned the principle elements of the conspiracy alleged in the initial complaint. First, plaintiffs no longer allege that individual agreements between a hotel and online travel companies violated antitrust laws. Second, plaintiffs admit that they have no basis to prove a horizontal conspiracy among the hotel defendants. According to the defendants, the plaintiffs’ case only relies on purported collusion between the online travel companies and hotels to implement similar distribution programs. These factual allegations, however, are not sufficient to bring an antitrust claim under the Supreme Court’s decision of Bell Atlantic Corp. v. Twombly, 550 U.S.544, 557 (2007), which requires “allegations plausibly suggesting (not merely consistent with) agreement.” The defendants contend that the plaintiffs’ allegations do not plausibly suggest that they entered individual distribution arrangements pursuant to a horizontal conspiracy at either the hotel or online travel company level. Rather, the defendants argue that the facts demonstrate each company’s independent interest in implementing these individual hotel-online travel company arrangements in response to the development of the internet as a distribution channel for travel purchases.
The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles. While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.
In a unanimous decision issued on May 24, 2010, the Supreme Court of the United States clarified when participants in a joint venture may face antitrust liability for their joint activities. In American Needle, Inc. v. National Football League, Inc., et al, the Supreme Court ruled that the National Football League (NFL) and its member teams are not immune from the antitrust laws when licensing the teams’ intellectual property rights jointly through a single entity. Instead, the antitrust laws do apply and the teams’/League’s conduct must be analyzed to determine whether it can be an agreement in restraint of trade violating the antitrust laws.
The American Needle decision has broad application to joint ventures and other collaborations involving competitors across all industries. This is because the Supreme Court held that participants to a joint venture are not categorically immune from the antitrust laws even if they form one entity to conduct their joint activities. Rather, the antitrust laws will still apply and courts must apply the “rule of reason,” which requires weighing the pro- and anticompetitive effects of the joint venture’s activities to analyze whether they violate the antitrust laws.
The Supreme Court stated that the test for whether antitrust laws relating to agreements in restraint of trade applies to a joint venture’s conduct focuses on whether the conduct at issue involves separate decision makers whose joint activities would rob the marketplace of “independent centers of decision making” and, thus, actual or potential competition. To make that determination, the Supreme Court stated that courts should focus on “competitive realities” and whether the participants to the joint venture still have separate competing economic interests that are not necessarily aligned. Courts should do this even if participants have formed one entity through which they act and even if participation by competitors in the joint venture is necessary to produce a product or service. The Supreme Court stated the fact that a joint venture that undertakes some conduct for which participation by competitors is required to offer a new product or service enables it to receive rule of reason, rather than per se, analysis, but does not render it immune. The case was remanded for that rule of reason analysis.
The Supreme Court’s decision, the first decision it has granted in favor of a private antitrust plaintiff since the early 1990s, provides a timely opportunity to remind businesses to reexamine their joint ventures and other collaborations involving competitors that may subject them to risk under the antitrust laws. Companies should take a fresh look at their participation in these activities and determine whether certain modifications would reduce their risk of liability under the antitrust laws.
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