School Administrator’s Sentence in E-Rate Antitrust Probe Not Disturbed

Thu, 22 Mar 2012 04:32:37 GMT

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Cincinnati has refused to set aside or correct a sentence imposed on an administrator in a Michigan public school district who pleaded guilty to charges arising from the Justice Department's antitrust investigation into fraud and anticompetitive conduct in the federal "E-Rate" program.

The E-Rate program provides funding to schools to improve Internet connectivity. The defendant was charged with using his position as an assistant school superintendant to steer contracts for E-Rate projects to a business under his control.

After pleading guilty to one count each of mail fraud and bank fraud, the defendant was sentenced to concurrent prison terms of 46 months and ordered to pay $1,342,702 in restitution.

The defendant argued that he would not have accepted the plea agreement, which included a 16-level increase under the U.S. Sentencing Guidelines, if his attorney had not given him incorrect advice concerning the proper legal standards for determining restitution and for calculating the amount of loss for purposes of the sentencing guidelines. However, the 16-level increase was appropriate because the amount of loss to the victims was between $1 million and $2.5 million. Thus, the defendant could not establish that his attorney gave him deficient advice concerning the calculation of loss or that rejecting the plea agreement was likely to result in a lesser sentence, according to the court.

Also rejected was the defendant’s argument that his attorney failed to properly advise him concerning the method of calculating the amount of loss for purposes of determining restitution.

The decision is Benit v. United States, 2012-1 Trade Cases ¶77,830.

Night Clubs Allege Antitrust Claims Against Online Music Marketplace, Competing Club

Wed, 21 Mar 2012 05:38:29 GMT

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Antitrust claims against “Beatport”—an online marketplace that catered to consumers and producers of “Electronic Dance Music”—and a related “Beta” nightclub were adequately alleged, the federal district court in Denver has ruled. Thus, a motion to dismiss claims brought by a group of commonly-owned night clubs comprising Denver’s South of Colfax Nightlife district (SOCO) was denied. The claims of the owner of the complaining clubs were, however, dismissed because the owner lacked standing to pursue the claims individually.

Two of the SOCO night clubs were nationally recognized in the Electronic Dance Music scene. They emphasized Electronic Dance Music and live performance by DJs. The clubs alleged that the defendants engaged in anticompetitve conduct to coerce DJs to boycott the SOCO venues and only perform at Beta.

The court refused to dismiss the SOCO clubs’ claim that Beatport and Beta coerced DJs into performing only at Beta by threatening to remove artists on a DJ’s label from Beatport if they performed at the SOCO clubs. Because access and promotion on Beatport were critical to both a DJ’s and a label’s success, many DJs and agents were allegedly compelled to agree to the defendants’ demands. The complaining clubs alleged that the defendants had sufficient market power in the market for Electronic Dance Music downloads to adversely effect competition for live performances of "A-list" DJs.

Standing

The complaining clubs asserted that they possessed standing to bring antitrust claims by virtue of their status as competitors who were foreclosed from the market for live performance of A-list DJs. The two SOCO clubs that emphasized Electronic Dance Music and live DJ performance alleged antitrust injuries of lost past and future profits, decreased ability to compete, and decreased value of real property.

Additional evidence and facts would be needed to prove harm to the other SOCO nightclubs as the case proceeded, the court noted. However, there were sufficient facts to support the clubs’ antitrust standing for purposes of a motion to dismiss. The owner of the SOCO clubs failed to support a claim that he suffered an injury separate from the injury sustained by the SOCO clubs based on an injury to his reputation or devaluation of real property of the clubs, the court ruled.

Attempted Monopolization

The clubs adequately alleged an attempted monopolization claim against Beta, which controlled more than half the market for live performance by A-list DJs in the Denver metropolitan area. There was a dangerous probability that Beta could achieve monopoly power in the market for A-list DJ performances.

The complaining clubs pled a specific intent to monopolize by stating that Beta and its owner engaged in predatory and anticompetitive conduct, including illegal tying, exclusive dealing, reciprocal dealing, monopoly leveraging, market allocation, group boycott and the concerted combination of these actions.

Conspiracy

Conspiracy claims were not dismissed, despite the defendants’ assertions that, as related entities, they were incapable of conspiring. Although some common ownership existed between Beta and Beatport, it was not sufficient to warrant dismissal under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 1984-2 Trade Cases ¶66,065, which held that wholly owned subsidiaries were incapable of conspiring. Further, a defending part-owner of Beta had an “independent personal stake” in restraint of trade of the club’s competitors.

The March 14 opinion is Christou v. Beatport, LLC, 2012-1 Trade Cases ¶77,829.

China’s Ministry of Commerce Passes Measures on Unreported Transactions

Tue, 20 Mar 2012 22:51:07 GMT

On December 30, 2011, China’s Ministry of Commerce (“MOFCOM”), the government agency tasked with merger review, formally promulgated new rules providing MOFCOM with clear procedural rules (and powers) to investigate and deal with reportable transactions that were not notified. These Provisional Measures on the Investigation and Treatment of Failure to Report Concentration of Undertakings (“Provisional Measures”) went into effect on February 1, 2012.

What Deals Should Be Reported

In a 2008 Order, China’s State Council required that a transaction that is a merger, acquisition or even a joint venture where one entity has the ability to exert decisive influence over another must be notified and cleared by MOFCOM if it meets certain threshold elements:

(i) the combined annual global turnover of all businesses exceeds RMB 10 billion and the annual domestic (China) turnover of at least two businesses involved each exceeds RMB 400 million; or

(ii) the combined annual domestic turnover of all businesses involved exceeds RMB 2 billion and the annual domestic turnover of at least two businesses involved each exceeds RMB 400 million.

Discovery of Unreported Deals

Once MOFCOM acquires information about a “suspicious transaction,” it will start an initial investigation. This information can be reported by any channel, whether from the public or from an entity, opening the door for whistleblowers to report information. MOFCOM is required to keep the identity of the whistleblower secret. In the case that the whistleblower provides a written complaint complete with facts and evidence, MOFCOM is obligated to initiate an investigation. However, allowing whistleblower action carries the potential for abuse among competitors.

Generally, once the decision is made to initiate an investigation based on preliminary facts indicating that the transaction should have been reported, MOFCOM will open a file and notify the parties. Then, the parties must report back within thirty days, submitting information establishing that (i) it is a concentration which (ii) meets the reporting thresholds and (iii) that the transaction has been implemented and has not been reported. MOFCOM then determines that either the transaction should have been notified and initiate an in-depth investigation, or decide not to further investigate. Once a determination is made that the transaction should have been reported, the parties under investigation must suspend the transaction. The in-depth investigation basically consists of the ordinary MOFCOM merger review procedures. Once the parties have submitted all required information, the clock begins to run and the investigation can last up to 180 days.

Sanctions

The penalties in the Provisional Measures mirror those stated in the Anti-Monopoly Law of the People’s Republic of China (“AML”). The maximum fine that can be imposed for failing to file a reportable transaction is RMB 500,000 (around USD 80,000). Non-monetary penalties include an order to cease the transaction, divestiture of the shares or assets involved, transfer of the business, and any other measure necessary to restore parties back to their positions before the transaction. The Provisional Measures add that the level of sanctions will depend on the duration and extent of the violation, suggesting that a competitive effects assessment would factor into the investigation. However, it is unclear what level of violation would warrant a complete unwinding of the transaction. This (apparently intentional) lack of clarity is noteworthy because it provides a significant deterrence for businesses that used to get by without reporting deals. Importantly, MOFCOM also has the discretion to publish its findings at the close of an investigation, threatening a company’s public image, another strong deterrence measure.

Conclusion

The Provisional Measures add potency to MOFCOM’s enforcement of the AML which has been in force for over three years. They provide more clear and specific procedural rules for investigations. In contrast with the past where foreign investors and domestic companies considered not filing a reportable deal an acceptable risk, they now face a real danger of public embarrassment, fines, divestiture, or even unwinding.

Melody Cheung
(202) 589-1834
mcheung@dbmlawgroup.com

Council of Europe Adopts Internet Governance Strategic Plan

Tue, 20 Mar 2012 04:27:23 GMT

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

The 47-member Council of Europe (COE) announced on March 15 the adoption of a four-year Internet Governance Strategy to promote the universality, integrity, and openness of the Internet while protecting users’ rights.

The COE indicated that the Internet Governance Strategy will complement existing laws protecting free online expression and combating cybercrime. The COE will partner with member and nonmember state governments, the private sector, technical communities, and other interested parties in developing policies and industry guidelines.

The strategy identifies priorities and sets goals for the next four years (2012-2015) to advance the protection and respect for human rights, the rule of law, and democracy on the Internet. The main objectives of the strategy include:

(1) Protecting the Internet’s universality, integrity, and openness;

(2) Maximizing rights and freedoms for Internet users;

(3) Advancing data protection and privacy;

(4) Enhancing the rule of law and effective co-operation against cybercrime;

(5) Maximizing the Internet’s potential to promote democracy and cultural diversity, and

(6) Protecting and empowering children and young people.

The Strategy builds on and complements the COE Committee of Ministers’ 2011 Declaration on Internet Governance Principle and Recommendation (CM/Rec(2011)8).

Antitrust Measures Excised from Senate Surface Transportation Bill

Fri, 16 Mar 2012 22:00:14 GMT

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Federal legislative proposals that would have repealed the antitrust exemption enjoyed by freight railroads and would have permitted the U.S. Department of Justice to sue Organization of Petroleum Exporting Countries (OPEC) members for price fixing were excised from the Senate Surface Transportation Bill prior to its passage on March 14.

In February, Senator Herb Kohl (D-Wis.) introduced two antitrust amendments to the “Moving Ahead for Progress in the 21st Century America Fast Forward Financing Innovation Act of 2011” or “MAP-21” (S. 1813)—the two-year surface transportation bill. However, a compromise to move the legislation forward excluded the proposals.

One amendment was identical to the proposed “Railroad Antitrust Enforcement Act of 2011” (S. 49). It would have brought railroad mergers and acquisitions under the purview of the Clayton Act and would have eliminate the exemption that prevents FTC scrutiny of railroad common carriers and the antitrust exemption for railroad collective ratemaking.

A second failed amendment tracked the language of S. 394—the proposed “No Oil Producing & Exporting Cartels (NOPEC) Act.” That proposal would have permitted the Justice Department to bring actions against foreign states—such as OPEC members—for collusive practices in setting the price or limiting the production of oil.

Further information on the bill appears here in the March 5, 2012 posting on Trade Regulation Talk.

DOJ Wins AUO Convictions in LCD Price-Fixing Trial, Successfully Defending Its Cartel Program

updates@antitrustlawblog.com (Sheppard Mullin) — Fri, 16 Mar 2012 14:10:01 GMT

By James L. McGinnis

In a widely followed eight-week trial before the Honorable Susan Illston in the Northern District of California, the Antitrust Division of the United States Department of Justice succeeded in obtaining price-fixing convictions against AU Optronics, a Taiwanese company; AUOA, its US subsidiary; and two senior executives. Two more junior executives were acquitted, and the jury hung as to a third executive. The jury also found that the gain from the conspiracy was at least $500 million, thereby triggering the Alternative Fine statute, 18 U.S.C. § 3571(d), and upping the companies' potential exposure to $1 billion. DOJ has trumpeted the convictions and finding of guilt as vindicating its cartel enforcement program.

The Antitrust Division had alleged that the companies and individuals participated in a five-year-long conspiracy to fix the prices of LCD panels over the course of more than 60 meetings, including monthly meetings of LCD suppliers that the participants termed "Crystal Meetings".

This may have been the most important trial ever conducted in connection with the Antitrust Division's crown jewel, the international cartel enforcement and amnesty program. Its investigation was sparked by an amnesty applicant and lead to numerous pleas and multi-hundred million dollar fines before the AUO trial.

AUO argued that it was too new and too small to enter into agreements with larger, more established companies. Also, it used information from competitors to undercut them, according to its defense, and increase its market share. DOJ countered these defenses with scores of minutes from the meetings, internal AUO emails strongly suggestive of agreements, and the testimony of cooperating witnesses, several of whom had served prison time for their role in the alleged offenses. None of the defendants elected to testify.

Testimony from economists also took center stage. AUO's economist testified that AUO's prices consistently were lower than those discussed at Crystal Meetings. DOJ's economist testified that this was the wrong question. The right question, according to DOJ, was whether AUO's prices were higher than they otherwise would have been because of the conspiracy. To this question, DOJ's economist emphatically testified "yes", and supplied further testimony that the gain from the conspiracy far exceeded $500 million.

The jury deliberated for seven days, with their split verdicts arguably indicating they gave careful individual consideration to the evidence against each defendant.

Sentencing likely will take place in mid-June, 2012. This will be the first time a judge has sentenced a corporation after a price-fixing verdict where the Alternate Fine Statute has been triggered. United States District Judge Susan Illston's decision will be closely watched, to say the least.

AUO has vowed appeals, which could include several very important legal issues in addition to more typical trial evidentiary issues:

What sales "count" as commerce that DOJ can reach in its indictments consistent with the Foreign Trade Antitrust Improvement Act ("FTAIA")?
What commerce counts for purposes of an alternative fine calculation?
What, if any, purely foreign conduct can form the basis of a price-fixing charge?

These questions already are critically important, and their significance will continue to grow as DOJ increases cartel enforcement pressure on international companies and foreign conduct.

FTC Commissioners Testify on Fiscal Year 2013 Appropriations Request . . .

Thu, 15 Mar 2012 22:58:41 GMT

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In testimony before the U.S. House Appropriations Subcommittee on Financial Services and General Government on March 5, the FTC summarized the agency's Fiscal Year (FY) 2013 budget request and described its ongoing work to promote competition and protect American consumers.

The testimony, delivered by FTC Chairman Jon Leibowitz and Commissioner J. Thomas Rosch, outlined steps the agency has taken to carry out its mission. It described FTC consumer protection initiatives as well as recent efforts to ensure that American consumers benefit from competition in the health care, technology, and energy sectors.

The testimony requested $300 million to support 1,186 "full-time equivalent" employees (FTEs) to meet the challenges of FY 2013. This is an overall decrease of $11,563,000 below the FTC’s FY 2012 enacted appropriation, according to the testimony. The FTC anticipates a decrease of $25.5 million related to the replacement of satellite space at 601 New Jersey Avenue due to an expiring lease in August 2012. There are increases for mandatory pay adjustments and technology improvements, among other initiatives.

Commissioner Rosch dissented from the appropriations requested for the FTC, noting that “in these austere times we should do more to perform those [consumer protection or competition] missions with fewer resources.”

. . . Express Concern over GSA Study on Relocating Agency

In a March 8 letter to the leaders of the House Transportation and Infrastructure Committee, the four FTC commissioners expressed concerns with a resolution directing the General Services Administrator to prepare a plan to move the agency out of its headquarters building at 600 Pennsylvania Avenue to Constitution Center, a privately-owned building next to the U.S. Department of Housing and Urban Development.

The commissioners stated that the move would impose well over $100 million in wholly unnecessary costs. In addition, “it is completely infeasible for the FTC to shoehorn its entire Washington, DC operation into the available space at Constitution Center,” according to the commissioners.

The resolution is part of an effort led by House Transportation and Infrastructure Committee Chairman John Mica (Florida) to transfer control of the building at 600 Pennsylvania Avenue, called the Apex Building, to the National Gallery of Art. Rep. Mica introduced the proposed “Federal Trade Commission and National Gallery of Art Facility Consolidation, Savings, and Efficiency Act of 2011” (H.R. 690) in February 2011.

In response to that bill, the then-five commissioners sent a letter to members of the House committee expressing their opposition to the efforts and arguing that the move would impose additional costs on the American taxpayer.

Later in 2011, Congressman Mica included provisions calling for the relocation of the FTC and transfer of the 600 Pennsylvania Avenue property to the National Gallery of Art in legislation proposing a “National Women's History Museum” (H.R. 2844). Rep. Mica contends that relocating the FTC will save taxpayer dollars.

Canadian government to loosen foreign ownership restrictions in telecommunications sector

info@stikeman.com (Stikeman Elliott LLP) — Thu, 15 Mar 2012 18:29:38 GMT

Susan M. Hutton, T. Gregory Kane & David Elder -

As part of its plan to auction rights for the 700 MHz spectrum band, the Canadian government announced yesterday that it plans to amend the Telecommunications Act to lift foreign investment restrictions for telecommunications companies holding less than a 10 per-cent share of the total Canadian telecommunications market.

The Honourable Christian Paradis, Minister of Industry, announced the following commitments designed to provide Canadians with greater choice and lower prices in the market for wireless services

The foreign investment restrictions in the Telecommunications Act will be amended in order to allow non-Canadian investors to control 100% of domestic wireless firms that have a market share of 10 per-cent or less;
The government will support an upcoming spectrum auction by applying caps so as to guarantee new wireless competitors as well as incumbents access to the spectrum up for auction;
Specific measures will be introduced in the 700 MHz auction to ensure that rural Canadians have equal access to telecommunications services;
Improvements and extensions for the existing policy on roaming and tower sharing to support competition and limit the proliferation of new cellphone towers;
Reserving a portion of the 700 MHz spectrum for public safety users including police and firefighter services across Canada.

In 2008, the government auctioned Advanced Wireless Services spectrum in order to set aside spectrum for new entrants, while the Canadian Radio and Telecommunications Commission (CRTC) established policies to support the entry of new competitors in the market for wireless services. In the upcoming spectrum auction, which is set to take place in 2013, the government has said it will apply caps enabling four or more service providers in each region to obtain spectrum in both the 700 MHz and the 2500 MHz bands.

Revising Foreign Ownership Restrictions

Under the existing legislative regime, non-Canadian wireless service providers are subject to ownership restrictions found in the Telecommunications Act, the Radiocommunication Act, and the Canadian Telecommunications Common Carrier Ownership and Control Regulations. At present, the rules may be summarized as follows:

at least 80% of the members of the board of directors of the carrier must be Canadian;
non-Canadians may not beneficially own, directly or indirectly, more than 20% of the carrier's voting shares;
non-Canadians may not beneficially own directly or indirectly more than 33 ^1/3 % of the voting shares of the carrier's holding company; and
the carrier or the holding company may not otherwise be controlled by non-Canadians (i.e., "control in fact" – a test set out by the CRTC in the Canadian Airlines decision and discussed in Telecom Decision CRTC 2010-226).

The government has said that the proposed amendments will be apply to the Telecommunications Act and will create a threshold exemption whereby no foreign ownership restrictions will apply to telecommunications providers with revenue representing less than 10% of the total Canadian telecommunications market. In addition, the planned changes are designed to encourage long-term investment in Canada’s telecommunications industry by allowing foreign-controlled companies that are successful in growing their market shares beyond 10 percent - other than by merger or acquisition - to continue to be exempt from the restrictions.

It should be noted, however, that in spite of the government’s commitment to reform ownership restrictions under the Telecommunications Act, restrictions will remain in place under the Broadcasting Act and direct foreign investment will continue to be subject to the controls found in the Investment Canada Act.

For more background on the Canadian governments’ plans to liberalize the telecom sector and the implications for foreign ownership please see our backgrounder and our previous blog post on this topic.

Canadian government to loosen foreign ownership restrictions in telecommunications sector

info@stikeman.com (Stikeman Elliott LLP) — Thu, 15 Mar 2012 18:29:38 GMT

The Honorouble Christian Paradis, Minister of Industry, announced the following commitments designed to provide Canadians with greater choice and lower prices in the market for wireless services:

The foreign investment restrictions in the Telecommunications Act will be amended in order to allow non-Canadian investors to control 100% of domestic wireless firms that have a market share of 10 per-cent or less;
The government will support an upcoming spectrum auction by applying caps so as to guarantee new wireless competitors as well as incumbents access to the spectrum up for auction;
Specific measures will be introduced in the 700 MHz auction to ensure that rural Canadians have equal access to telecommunications services;
Improvements and extensions for the existing policy on roaming and tower sharing to support competition and limit the proliferation of new cellphone towers;
Reserving a portion of the 700 MHz spectrum for public safety users including police and firefighter services across Canada.

Revising Foreign Ownership Restrictions

at least 80% of the members of the board of directors of the carrier must be Canadian;
non-Canadians may not beneficially own, directly or indirectly, more than 20% of the carrier's voting shares;
non-Canadians may not beneficially own directly or indirectly more than 33 ^1/3 % of the voting shares of the carrier's holding company; and
the carrier or the holding company may not otherwise be controlled by non-Canadians (i.e., "control in fact" – a test set out by the CRTC in the Canadian Airlines decision and discussed in Telecom Decision CRTC 2010-226).

Canadian court comes down hard on misleading business directory scam

info@stikeman.com (Stikeman Elliott LLP) — Thu, 15 Mar 2012 14:14:19 GMT

Ashley Weber -

On March 1, 2012, the Ontario Superior Court put an end to a deceptive marketing scam that had resulted in thousands of Canadians falling victim to false and misleading representations, to the tune of an estimated $7 million. In response to an application filed by the Commissioner of Competition, the court held that representations made to the public about a business directory service with a similar name and website to the well-established Yellow Pages business directory were false or misleading in a material respect, contrary to Section 74.01(1)(a) of the Competition Act. The court imposed an administrative monetary penalty (AMP) of $8 million on the related companies, and AMPs of $500,000 on each of the companies’ two principals. The court also ordered that restitution be paid to the individuals that had been victimized by the scam.

Playing on Canadians’ familiarity with the Yellow Pages business directory operated by the real Yellow Pages Group, the respondents had been marketing themselves under a similar name and offering online business directory services to Canadians since January 2010, leading many Canadians to believe that they were receiving communications from the established Yellow Pages Group. Through those communications, recipients were asked to “update” their existing records in order to obtain an additional free Google advertisement. A review of the fine print, however, revealed that it was actually an agreement to sign a new two-year contract for a fee of $2,856. If recipients did not respond and/or pay the requested fee, they were subsequently sent as many as three additional invoices, reminder notices or letters. The communications contained a logo similar to that of the real Yellow Pages Group, and referenced “Yellow Page” (no “s”) in large font. In reality, the communications were coming from companies and individuals that were in no way related to Yellow Pages Group or its business directory service.

In its decision, the court held that the communications had intentionally been designed to mislead recipients to believe that they were updating information on their existing Yellow Page Group listing. This was evidenced by the language in the communication that instructed recipients to “correct and add any additional information”, and also referenced an alleged account number that signalled an existing business relationship. In its decision, the court considered both the materiality of the misrepresentations, as well as the general impression, finding that the communications were clearly designed to appear to have been sent by Yellow Pages Group, and that the majority of recipients would not have paid had they known the entities were not affiliated. The court noted that the reference in the legislation to promoting any “business interest” should be given wider meaning than just reference to sales, such that threats made in relation to collecting fees met the threshold of a “business interest”. The court also found that the fine print, which stated that the recipient would be entering into a two-year contract, did not reduce the false or misleading nature of the representation in the broader communication.

In the court’s order for AMPs, an important aggravating factor was that the companies had engaged in identical conduct in other jurisdictions, including Australia (where the Federal Court imposed a $2.7 million (Australian) AMP, and with which the companies have yet to comply), and continued to engage in offensive conduct in Canada even after an interim injunction was issued in July 2011. The scam also targeted charities and other non-profit organizations, which the court described as vulnerable individuals likely to be adversely affected. These factors, coupled with its scepticism that the responsible persons would self-correct their behaviour in the marketplace, led the court to impose the largest AMPs ordered to date in contested proceedings under the Competition Act.

The international aspect to this case is noteworthy, particularly given the breadth of foreign authorities and consumer organizations that were involved in related investigations. The Competition Bureau acknowledged working with the U.S. Federal Trade Commission, The Australian Competition and Consumer Commission, and the National Fraud Intelligence Bureau of the UK, in addition to the International Consumer Protection and Enforcement Network and consumer protection organizations in almost 40 countries. These investigations were directly referenced in the court decision in Canada as evidence of the extent and severity of the offensive conduct. The case clearly evidences both a willingness of competition and consumer protection authorities to work together when investigating misleading marketing and advertising practices in multiple jurisdictions, and a willingness of courts to consider a company’s conduct and compliance record in other jurisdictions when assessing potential fines under Canadian law.

For more information, see Commissioner of Competition v. Yellow Page Marketing.

Federal Court of Appeal addresses limitation period under the Competition Act

info@stikeman.com (Stikeman Elliott LLP) — Thu, 15 Mar 2012 12:56:10 GMT

Sultana L. Bennett -

The Federal Court of Appeal, in a recent decision under the Competition Act, (the Act), has confirmed that the effects of a conspiracy do not have the effect of extending the limitation period under the Act, but also declined to close the door against the extension of the limitation period by the application of the discoverability principle in future cases.

In August 2008, Garford Pty Ltd. (Garford) sued Dwyidag Systems International, Canada, Ltd. (DSI) and others for patent infringement and alleged breaches of the Act. Garford claimed that DSI, having entered into three purchase agreements to acquire the assets of certain entities in the cablebolt market, breached subsection 45(1) of the Act, which prior to its amendment in 2010 prohibited conspiracies, agreements and arrangements that unduly lessened competition.

DSI defended the suit on the ground that pursuant to the two year limitation period under subsection 36(4) of the Act, which provides that an action must be brought within two years of the date of the conduct complained of, had expired several months before Garford had commenced its claim. The Federal Court agreed and in 2010 granted summary judgment to DSI, rejecting Garford’s argument that the limitation for private actions under the Act was subject to the discoverability rule, effectively delaying the running of a limitation period under until a plaintiff discovers the cause of action.1 That court also rejected Garford’s “continuous offence” argument, holding that ongoing effects of an alleged conspiracy do not extend the limitation period.

The Federal Court of Appeal on February 13, 2012, affirmed the Federal Court’s holding that the effects of a price fixing conspiracy do not form part of the conspiracy offence under section 45, because at the relevant time, “the offence was complete upon the finalization of an agreement that, if carried into effect, would unduly limit competition.” However, the Court did not go so far as to hold that the discoverability principle is not applicable to the section 36 limitation period, but rather decided that the issue of discoverability simply did not arise on the facts of the case. The Court’s ruling, stating that the Federal Court judge’s findings of fact preclude any argument based on discoverability, “assuming without deciding, it is legally available” suggests that future plaintiffs are not necessarily precluded from claiming that the principle could apply.

¹Garford Pty Ltd. v. Dywidag Systems International, Canada, Ltd., 2010 FC 996.

Jury Award for False Advertising, Trademark Infringement, Cybersquatting Upheld

Wed, 14 Mar 2012 19:07:01 GMT

This posting was written by John W. Arden.

An Internet and telephone-based advertising service for skydiving customers (Skyride) was properly held liable for trademark infringement, cybersquatting, and false advertising against a skydiving center (Skydive Arizona, Inc.), justifying a total award of $6.6 million, according to the U.S. Court of Appeals in San Francisco.

The court of appeals upheld jury awards of $2.5 million in actual damages for trademark infringement, $2.5 million in disgorged profits from trademark infringement, $600,000 for cybersquatting, and $1 million in actual damages for false advertising. It overturned the district court’s doubling of actual damages.

Skydive Arizona, Inc. has operated under the SKYDIVE ARIZONA mark sine 1986, becoming one of the most well known skydiving centers in the world. It hosts between more than 145,000 skydives per year, furnishing airplanes and personnel for skydiving events in 30 states outside Arizona. The company has been featured in television programs and advertises on the Internet and in Yellow Pages, magazines, and newspapers.

Skyride essentially acts as a third-party advertising and booking service for skydiving centers, providing national telephone and Internet promotional services to skydiving “drop zones” around the U.S. Customers pay Skyride for certificates that can be redeemed at various drop zones around the country. Upon redemption, Skyride must pay the skydiving facility used by the customer.

Skyride owned and operated numerous websites, describing skydiving opportunities in multiple locations without reference to specific drop zones, in addition to websites referencing Arizona, including PhoenixSkydiving, ScottsdaleSkydiving, TucsonSkydiving, skydivearizona.net, skydivingarizona.com, and skydivingarizona.com.

Skydive Arizona brought an action against Skyride, asserting claims of (1) false designation of origin and unfair competition under Section 43(a) of the Lanham Act; (2) trademark infringement, and (3) cybersquatting. Skydive Arizona alleged that Skyride misrepresented ownership in skydiving facilities in Arizona in order to attract customers and sold skydiving certificates by trading on Skydive Arizona’s goodwill and misleading customers into believing that Skydive Arizona would accept its certificates.

The federal district court in Phoenix entered summary judgment in favor of Skydive Arizona for false advertising. A jury subsequently found in favor of Skydive Arizona on the remaining claims, awarding the $6.6 million in damages. The district court doubled the actual damages for false advertising and trademark infringement, resulting in $5 million for trademark infringement and $2 million for false advertising.

False Advertising

On appeal, Skyride challenged the summary judgment ruling on the false advertising claim, contending that the evidence on materiality was ambiguous. The Ninth Circuit disagreed, finding that a declaration of consumer James Flynn constituted direct evidence that Skyride’s statements were likely to influence consumers’ purchasing decisions. Flynn stated that he purchased Skyride certificates based on false representations that he could redeem them at Skydive Arizona. Skyride’s advertisements were misleading and false and had actually confused a consumer, the court held. Skyride further challenged the award of damages.

Actual Damages

In awarding actual damages for infringement, the jury considered “an array of customer service evidence and three different financial record exhibits.” The district court referred to “voluminous evidence” concerning Skydive Arizona’s stellar business reputation and the hundreds of thousands of dollars it spent in developing and advertising its business. Its failure to provide a specific mathematical formula for the jury to use in calculating actual harm to its goodwill did not undermine the jury’s finding, according to the appeals court..

Disgorgement of Profits

When reviewing an award of lost profits, a court does not ask whether the substance of the evidence was correct or even credible, but only whether the award was based on reasonable inferences and a fair assessment of the evidence. Questions of evidentiary admissibility or credibility must be raised before or during trial, the court held.

In the lost profits analysis, Skydive Arizona’s expert estimated Skyride’s revenues from Arizona by calculating the number of Arizona residents in Skyride’s records, increasing that number to account for files missing residence information, and multiplying that number by an average transaction amount. He added an interest factor of 10 percent as allowed by Arizona law.

On appeal, Skyride alleged that the calculations were clearly erroneous because they did not deduct vendor payments or overhead costs. However, Skyride did not raise these arguments until after trial. The district court held these untimely, and the appellate court agreed.

Damages Enhancement

The Ninth Circuit did reverse the award of double damages for the trademark infringement and false advertising claims. Although the Lanham Act permits a district court to enter damages not exceeding three times the amount, such an enhancement must constitute compensation rather than a penalty.

In this instance, the district court emphasized the purposefully deceitful nature of Skyride’s conduct. “Instead of discussing the appropriate award to compensate Skydive Arizona or to deter SKYRIDE, the district court focused on the need for SKYRIDE to ‘appreciate’ and ‘accept the wrongfulness of their conduct’ ”

Accordingly, the award of twice actual damages was reversed and the jury’s original award was reinstated.

The decision is Skydive Arizona, Inc. v. Quattrocchi, No. 10-16196, March 12, 2012.

FTC Conditionally Approves Acquisition in Disk Drives Market

Mon, 12 Mar 2012 23:39:24 GMT

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC will allow Western Digital Corporation’s proposed acquisition of Viviti Technologies Ltd., formerly known as Hitachi Global Storage Technologies, to proceed, subject to divesture of selected Hitachi Global Storage Technologies assets related to the manufacture and sale of desktop hard disk drives to Toshiba Corporation.

A proposed consent decree would resolve FTC charges that the proposed acquisition would likely have harmed competition in the market for desktop hard disk drives used in personal computers.

According to the agency, the deal as originally proposed would have left only two companies, Western Digital and Seagate Technology LLC, in control of the entire worldwide market for desktop hard disk drives—key inputs into computers and other electronic devices that are used to store and allow fast access to data.

“Protecting competition in the high-tech marketplace is a high priority for the FTC,” said FTC Bureau of Competition Director Richard Feinstein. “This order will ensure that vigorous competition continues in the worldwide market for desktop hard disk drives and that consumers are not faced with higher prices or reduced innovation as a result of this deal.”

Timing of Filings

In a March 5 statement accompanying the complaint and proposed consent order, the FTC explained the relationship of its analysis of the proposed Western Digital/Hitachi acquisition to an acquisition by Seagate Technology LLC of Samsung Electronics Co. Ltd.'s hard disk drive assets. The FTC reviewed the Western Digital/Hitachi transaction at the same time as it reviewed Seagate Technology/Samsung transaction. The two transactions were announced within weeks of each other.

“Commission staff reviewed both matters at the same time in order to understand the effects on competition resulting from each transaction on its own, as well as the cumulative effect on the relevant markets if both transactions were allowed to be consummated,” according to the FTC. The agency earlier closed its investigation
of the Seagate Technology/Samsung transaction without taking action.

European Commission

In reviewing the two transactions, the European Commission (EC), on the other hand, followed a priority rule and gave priority to the transaction that was notified first. As a result, Seagate’s planned acquisition of Samsung’s hard-disk operations, which was notified to the EC prior to the planned Western Digital/Hitachi combination, was assessed assuming that Western Digital and Hitachi were still separate competitors. The implications of the second deal were not considered.

In November 2011, the EC announced that clearance of the Western Digital/Hitachi combination was conditioned upon the divestment of essential production assets for 3.5-inch hard disk drives, including a production plant, and accompanying measures. The Seagate Technology/Samsung transaction was approved by the EC without conditions.

The case is Matter of Western Digital Corporation, FTC File No. 111 0122, Docket No. C-4350, CCH Trade Regulation Reporter ¶16,738. The proposed consent agreement appears here at 77 Federal Register 14523, March 12, 2012.

Internet Predators bill would expand investigative powers in the Competition Act

info@stikeman.com (Stikeman Elliott LLP) — Mon, 12 Mar 2012 13:37:43 GMT

Michael Laskey -

On February 14, 2012, the Minister of Public Safety tabled Bill C-30, the government’s most recent proposal for so-called “lawful access” legislation which would enhance its online surveillance powers. Titled the Protecting Children from Internet Predators Act, the bill has faced considerable criticism from privacy advocates and legal scholars, and the government announced on February 24 that it would delay consideration of the bill while it contemplated changes to address privacy concerns.

Notwithstanding the risks to personal privacy raised by Bill C-30, the bill would also expand the powers of the Commissioner of Competition when investigating companies and individuals suspected of having contravened or engaged in reviewable conduct under the Competition Act. Among other changes, the Protecting Children from Internet Predators Act would:

oblige telecommunications service providers to provide the Commissioner of Competition (or a designee) with identifying information about their users upon written request of the Commissioner in the performance of her duties;
authorize the Commissioner (or a designee) to make demands requiring persons to preserve data in their possession or control in certain circumstances when investigating potential offences under the Deceptive Marketing Practices and Civil Matters provisions of the Act and when investigating potential contraventions of sections 32 to 34 of the Act;
on an ex parte application by the Commissioner (or a designee), authorize a judge to order a financial institution to prepare and produce a document setting out account information about a person being investigated under the Deceptive Marketing Practices or Civil Matters provisions of the Act and when investigating potential contraventions of sections 32 to 34 (certain Special Remedies) of the Act; and
expand the definition of “record” in section 2(2) of the Act to include any medium on which information is registered or marked.

Wiretaps may only be used as investigative tools by the Commissioner and officials at the Competition Bureau after obtaining a court order authorizing what would otherwise violate constitutional rights. Interestingly, some of the proposed reforms, which the government says have the objective, among other things (no-doubt related to the title of the bill), of “ensur[ing] that telecommunications service providers have the capability to enable national security and law enforcement agencies to exercise their authority to intercept communications” require no such judicial authorization. In particular, orders to oblige telecommunications service providers to provide subscriber information and to require persons to preserve data can be made by the Commissioner (or a designee) directly, while other measures (e.g., orders to compel banks to provide account information) require judicial authorization on an ex parte application by the Commissioner.

The debate over lawful access measures – proposed in several bills over the past few years – extends well beyond the Competition Act.

Civil RICO Claims Against Adoption Agency Reinstated on Appeal

Sun, 11 Mar 2012 03:39:57 GMT

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

A federal district court improperly dismissed RICO claims that seven couples brought against an adoption agency and its principals, the U.S. Court of Appeals in Cincinnati has ruled.

The defendants allegedly defrauded the couples while they were trying to adopt children from Guatemala. Although the lower court correctly held that the plaintiffs failed to properly allege extortion, it incorrectly held that four well-pled predicate acts of mail and wire fraud over a two-month period were insufficient to establish a pattern of racketeering.

Pattern of Racketeering

In order to establish a pattern of racketeering, plaintiffs had to show that the alleged racketeering acts were “related.” They also had to show that the acts amounted to, or posed a threat of, “continued criminal activity.” Together, these requirements constituted RICO’s “relationship plus continuity” test.

The relationship prong was met in this case, the court explained, because the predicate acts of mail and wire fraud were committed by the same parties (the principals), using similar methods (email correspondence, telephone conversations, and a website presence), in an attempt to ensnare similar victims (couples seeking to adopt Guatemalan children), for a similar purpose (to defraud the victims out of adoption-related fees).

Continuity

To establish continuity, plaintiffs had to show either a “close ended” pattern of racketeering (a series of related predicate acts extending over a substantial period of time) or an “open-ended” pattern (a set of predicate acts that posed a threat of continuing criminal conduct that extended beyond the period in which the predicate acts were performed).

The plaintiffs in this case could not establish a close-ended pattern because the predicate acts at issue were not spread across a “substantial” period of time, the court explained. Significantly, the Sixth Circuit had previously ruled that seventeen months of racketeering activity was insufficient to establish a close-ended pattern. In this case, the predicate acts of racketeering spanned less than two months.

Nevertheless, the plaintiffs’ established the existence of open-ended continuity, in the court’s view. At the time that the defendants had allegedly committed the predicate acts of mail and wire fraud, “there was no indication that their pattern of behavior would not continue indefinitely into the future.”

The defendants argued that a threat of continued criminal activity was absent because the adoption agency had been shut down as the result of a criminal prosecution. Subsequent events, however, were irrelevant to an analysis of open-ended continuity. According to the court, the threat of continuity must be viewed at the time the racketeering activity occurred. Moreover, the absence of a threat of continued criminal activity could not be asserted merely by showing that a “fortuitous interruption” of that activity had occurred.

Because the plaintiffs adequately alleged an open-ended pattern of racketeering activity, the dismissal of their RICO claims was reversed and the matter was remanded for further proceedings.

Intent

Rule 9(b) of the Federal Rules of Civil Procedure required RICO plaintiffs to plead facts that would establish a basis for inferring fraudulent intent, the court observed. Significantly, courts have “uniformly held” that a plaintiff’s general averment of a defendant's knowledge of a material falsity was inadequate to establish scienter “unless the complaint also sets forth specific facts that make it reasonable to believe that defendant knew that a statement was materially false or misleading.”

The plaintiffs in this case alleged, in a general and conclusory fashion, that the defendants knew they were making materially false statements regarding the availability of adoptive children. More specifically, the plaintiffs alleged that the defendants “frequently advertised children on their website who they knew, or should have known, were unavailable for adoption.”

The plaintiffs failed, however, to set forth specific facts that would support of a reasonable inference that: (1) the children were actually unavailable and (2) the defendants knew they were unavailable. These allegations, which were not part of the “four well-pled predicate acts of mail and wire fraud,” were insufficient to establish a basis for inferring intent, the court concluded.

The decision is Heinrich v. Waiting Angels Adoption Services, Inc., CCH RICO Business Disputes Guide ¶12,165.

Commission Declines to Seek Certiorari to Review Eighth Circuit’s Decision in FTC v. Lundbeck, Inc.

Fri, 09 Mar 2012 20:32:34 GMT

On January 20, 2012, the Federal Trade Commission (“Commission”) issued a statement by Chairman Leibowitz, Commissioner Ramirez, and Commissioner Brill stating the Commission’s intention not to seek review by the U.S. Supreme Court of the Eighth Circuit Court of Appeal’s...

In 2008, the FTC sued Lundbeck, Inc. (then Ovation Pharmaceuticals, Inc.) to enjoin the acquisition of NeoProfen and from forcing hospitals to pay monopoly prices for drugs used to treat a life-threatening heart defect in premature babies. Only two pharmaceutical treatments existed for this congenital disorder: Indocin and NeoProfen. Lundbeck purchased the rights to Indocin in 2005 (which was in the pipeline and had not yet reached the market) and immediately after its 2006 purchase of NeoProfen, prices for the drug increased over 1300%. The district court ruled for Lundbeck based on its opinion that the FTC failed to identify a relevant market that was harmed by Lundbeck’s acquisition of the NeoProfen, and the Court of Appeals upheld the district court’s decision. (For more on the district court’s ruling, see FTC Loses Merger Trial Because Of Market Definition, October 12, 2010) Although the FTC disagrees with both courts, it declined to seek certiorari in order to “…turn [its] energies to other enforcement priorities.”

In a separate statement, Commissioner Rosch listed several reasons for seeking Supreme Court review. He remarked that antitrust law failed to protect the most vulnerable of consumers, premature babies with congenital heart defects, when the courts allowed Lundbeck to charge whatever the market, that is, “desperate, frightened families” can bear. He argued that the district court committed an error of law and ignored basic economic principles by focusing only on cross-price elasticity of demand, to the erroneous exclusion of non-price considerations. He also argued that such an error by the district court allowed an economic expert’s opinion to trump undisputed findings of fact made by the court itself, allowing the court to ignore the parties’ own business documents, which showed that Lundbeck advantaged NeoProfen and disadvantaged Indocin in the marketplace. Moreover, Commissioner Rosch criticized the court’s failure to consider a hypothetical market, a common tool in merger analysis to postulate alternatives in which the merger did not occur.

The Commission took into account a number of factors and reasons for not seeking review in this case. As it stands, there are some negative implications for FTC reviews of pharmaceutical and biotech deals. The Eight Circuit decision now stands and it may result in more aggressive pharmaceutical merger activity. Pharmaceutical and biotech firms may not be so willing to enter into consent agreements requiring divestitures or walk away from the government’s threat of challenge given the Lundbeck decision. The other commissioners, however, must have reasoned that a loss at the Supreme Court would have made it even more difficult for the FTC to challenge pharmaceutical and biotech deals in the future.

Melody Cheung
(202) 589-1834
mcheung@dbmlawgroup.com

DOJ Requires Divestitures Allowing International Paper to Acquire Temple-Inland

Fri, 09 Mar 2012 20:27:41 GMT

On February 10, 2012, the Department of Justice (“Department”) entered into a settlement that allows International Paper to acquire Temple-Inland. The settlement agreement requires International Paper and Temple-Inland Inc. to divest three containerboard mills in order to proceed with their $4.3 billion merger. The Department said that the merger, as originally proposed, would have substantially lessened competition in the production and sale of containerboard, the type of paper used to make corrugated boxes, in the United States. The following mills are to be sold: (1) both the New Johnsonville Mill and the Ontario Mill, AND (2) either the Port Hueneme Mill or the Henderson Mill, but not both mills.

According to the Department’s complaint and competitive impact statement, International Paper and Temple-Inland are, respectively, the largest and third-largest producers of containerboard in North America, the designated relevant geographic market. The merger, as originally proposed, would have produced a single firm in control of approximately 37 percent of North American containerboard capacity. That level of market share combined with the Department’s showing a Herfindahl-Herschman Index (“HHI”) increase of approximately 605 (demonstrating an increased market concentration) exceed the levels that courts have found to create a presumption that the proposed merger would likely substantially lessen competition. The Department also argued that because of the close relationship between market price and industry output in the containerboard industry, the merger if allowed without conditions was likely to cause International Paper to unilaterally decrease output in order to raise the market price of containerboard.

Melody Cheung
(202) 589-1834
mcheung@dbmlawgroup.com

Identity Theft Tops FTC List of Consumer Complaints in 2011

Fri, 09 Mar 2012 05:48:24 GMT

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

For the 12th year in a row, identity theft complaints topped the FTC’s list of top consumer complaints received by the agency. The FTC released the list of complaints entered into its Consumer Sentinel database over the prior year on February 28.

Of more than 1.8 million complaints filed in 2011, 279,156 (15 percent) were identity theft complaints. Nearly 25 percent of the identity theft complaints concerned tax-related or wage-related fraud.

The next nine complaint categories were: debt collection (10 percent); prizes, sweepstakes, and lotteries (6 percent); shop-at-home and catalog sales (5 percent); banks and lenders (5 percent); Internet services (5 percent); auto related complaints (4 percent); imposter scams (4 percent); telephone and mobile services (4 percent); and advance-fee loans and credit protection/repair (3 percent).

The FTC’s Consumer Sentinel Network report appears here.

Software Acquisition Could Have Amounted to Monopolization

Wed, 07 Mar 2012 14:45:01 GMT

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A computer software company, Adobe Systems Inc., could have unlawfully monopolized the market for professional graphic illustration software by acquiring a popular software program (FreeHand), effectively removing it from the market by refusing to update it, significantly raising the price of a rival program it owned (Illustrator), and withholding FreeHand’s source code from the open source community, the federal district court in San Jose, California, has ruled. The alleged conduct would not have violated the California Cartwright Act, however.

Therefore, the company’s motion to dismiss putative class action claims asserted by a non-profit group of graphic design professionals and one of its members was granted in part and denied in part.

While each of the alleged manners of anticompetitive conduct may have been lawful on its own, taken together and in context they supported a monopolization claim when read in the light most favorable to the complaining group and its members. Adobe undisputedly possessed monopoly power in the relevant market, the court noted. The company’s ability to maintain its high market share—despite raising prices and ceasing development of FreeHand—undermined its claim that its decision to discontinue the product was "rational and normal business conduct" that increased competition, the court reasoned.

Professional designers allegedly had no choice other than Illustrator if they wanted to buy professional vector design software that was interoperable with the latest operating systems. Moreover, it was reasonable to infer that Adobe’s discontinuation of FreeHand and channeling of that program’s users to Illustrator made it more difficult for potential competitors who did not have a full array of graphics software to enter the market.

The plaintiffs’ allegations that the conduct allowed Adobe to charge supracompetitive prices for Illustrator, decreased innovation in the relevant market, and rendered the artwork they created on FreeHand obsolete were sufficient to assert antitrust injury, the court added.

California Cartwright Act Claim

The non-profit group and individual member could not maintain a California Cartwright Act claim based on the alleged conduct, the court also ruled. The plaintiffs alleged no agreement, conspiracy, or combination between two or more entities, and the Cartwright Act did not address unilateral conduct.

The law did not contain a provision parallel to the Sherman Act’s prohibition against monopolization. The plaintiffs’ contention that a valid Cartwright Act claim could exist despite unilateral conduct "if a single trader pressure[d] customers or dealers into pricing arrangements" was immaterial because no such coercion was alleged, the court said.

Statute of Limitations

An argument by Adobe that the plaintiffs’ Sherman and Clayton Act claims were time-barred was rejected by the court. The causes of action were tolled under the continuing violation doctrine and the "new use" exception, respectively. Though the plaintiffs’ Sherman Act monopolization claim initially accrued upon the date of the acquisition, more than four years prior to the filing of the suit, their allegations supported a reasonable inference that Adobe perpetuated its monopoly power and caused them new injury after the merger through new and independent acts inside of the limitations period, including the aforementioned cessation of FreeHand’s development, the channeling of existing FreeHand customers to Illustrator, and the bundling of Illustrator with other programs it offered.

These acts were not "mere reaffirmations of the merger such as holding or using assets in the same manner as at the time of acquisition" or "continuing indefinitely to receive some benefit as a result of an illegal act performed in the distant past," in the court’s view. Rather, they were more like an online auction provider’s changes to its electronic payment policy after acquiring an online payment service provider, which had been found to constitute overt acts inflicting new and accumulating harm.

In addition, the plaintiffs’ allegations that Adobe’s conduct with respect to the acquired FreeHand and its Illustrator amounted to a use of FreeHand in a different manner from the way it was used at the time of the merger, and that this new use injured them, were sufficient to allow them to avail themselves of the "new use" exception to the Clayton Act’s statute of limitations, the court concluded.

The decision is Free FreeHand Corp. v. Adobe Systems, Inc., 2012-1 Trade Cases ¶77,811.

Senator Kohl Pushes NOPEC Legislation on Senate Floor

Tue, 06 Mar 2012 02:04:00 GMT

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Speaking on the Senate Floor on February 29, Senator Herb Kohl (D-Wis.) called for support for a measure that would permit the U.S. Department of Justice to bring actions against foreign states—such as members of the Organization of Petroleum Exporting Countries (OPEC)—for collusive practices in settling the price of limiting the production of oil.

Senator Kohl, Chairman of the Judiciary Committee’s Antitrust, Competition, Policy and Consumer Rights Subcommittee, introduced the “No Oil Producing & Exporting Cartels (NOPEC) Act” as an amendment to the Senate Surface Transportation Bill. The full Senate is considering the proposed “Moving Ahead for Progress in the 21st Century America Fast Forward Financing Innovation Act of 2011” or “MAP-21” (S. 1813)—the two-year surface transportation bill.

“[T]his amendment would hold OPEC countries accountable for their actions that contribute to high oil prices,” said Senator Kohl.

The NOPEC amendment has bi-partisan support, according to Kohl. Co-sponsors include Judiciary Committee Chairman Patrick Leahy (D-Ver.) and Senators Chuck Grassley (R-Iowa), Charles Shumer (D-N.Y.), Richard Blumenthal (D-Conn.), Sherrod Brown (D-Ohio), Joe Manchin (D-W.Va.), and Al Franken (D-Minn.).

“Our amendment would allow the Justice Department to crack down on illegal price maintenance by oil cartels,” according to Senator Leahy. “This bill will allow the Federal Government to take legal action against any foreign state, including members of OPEC, for price fixing and artificially limiting the amount of available oil. While OPEC actions remain sheltered from antitrust enforcement, the ability of the governments involved to wreak havoc on the American economy remains unchecked.”

The NOPEC legislation has been considered many times over the last decade. In the current congress, Senator Kohl introduced the bill (S. 394) on February 17, 2011. On April 7, 2011, the Senate Judiciary Committee approved the bill. A similar measure (H.R. 1346) is pending in the House of Representatives.

Railroad Antitrust Exemption

Senator Kohl has introduced another antitrust amendment to MAP-21. Amendment 1591 would repeal the existing antitrust exemptions for freight railroads. This amendment is identical to the proposed “Railroad Antitrust Enforcement Act of 2011” (S. 49), which was introduced in 2011. The measure has passed the Judiciary Committee by overwhelming margins in this Congress as well as in the law two, according to Kohl.

The proposal would bring railroad mergers and acquisitions under the purview of the Clayton Act, allowing the federal government, state attorneys general, and private parties to file suit to enjoin anticompetitive mergers and acquisitions. Railroad mergers and acquisitions are currently reviewed by the Surface Transportation Board (STB). Moreover, the proposal would eliminate the exemption that prevents FTC scrutiny of railroad common carriers and the antitrust exemption for railroad collective ratemaking.

“This bill simply seeks to end the special exemption from antitrust law enjoyed by freight railroads, an exemption which is both wholly unwarranted and raises prices to shippers and consumers every day,” said Senator Kohl. “[B]y clearing out this thicket of outmoded antitrust exemptions, this amendment will cause railroads to be subject to the same laws as the rest of the country.”

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