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AT&T/Time Warner: Rube Goldberg Machines, Bob Dylan Quotes and a Shifting View of Video Programming Competition

My partners Mark Palchick and Marty Stern have written a good article on the District of Columbia's recent antitrust ruling rejecting the U.S. Justice Department's efforts to block AT&T's acquisition of Time Warner.

AT&T/Time Warner DOJ Smack Down: You Don't Need a Weatherman to Know Which Way the Wind Is Blowing.

Interesting stats from their article:

The District Court's opinion is 172 pages long.
There are over 20 exclamation points!
References to Rube Goldberg machines.
And at least one quote from Bob Dylan.

Here is the takeaway from their article:

The evidence adduced at trial also seemed to contradict a central concern of the Open Internet rules -- that broadband distributors will block access to rival video sources. The court found that distributors have a strong incentive to maximize distribution of video programming on their networks, not curtail it.

If you read nothing else in the opinion, and want a plain English description and a clear distillation of the current state of the programming supply and distribution markets, and the cut-throat, highly competitive, knock-down, drag-out negotiations between programmers and distributors, complexity, warts and all, peruse pages one through forty of the opinion.� It is a wonderful distillation of how the sausage is made.� While there are many, one key take-away from that discussion is that there is no more amust havea national programming, which is now a mere marketing term, and the absence of particular channels on an MVPD platform does not preclude the ability of MVPDs to compete in the marketplace.

�Clearly, according to the judge, the market is shifting away from MVPD competition and the traditional cable and broadcast advertising markets based on linear, live programming and gross eyeballs to a market focused on data-driven targeted advertising, driving data usage through subscriber video consumption, and on the competition between wireline and wireless providers to be the broadband delivery method of choice.� a[A]s Nobel laureate Bob Dylan correctly observed,a noted the court, aaYou don't need a weatherman to know which way the wind blows.aa

Mark Palchick�and�Marty Stern�are partners in the�Communications, Technology & Media�practice of law firm Womble Bond Dickinson in Washington, D.C. They are co-authors of the firmas�Communications, Tech & Media Review�blog.

Will Kavanaugh's "Modern Approach" Change The Trajectory of Supreme Court Antitrust Jurisprudence?

Justice Kennedy swearing in Brett Kavanaugh to D.C. Circuit

In my last post, I discussed one of Judge Kavanaugh's antitrust opinions, in which he argued for a "modern approach" to antitrust law.��Others have similarly commented on Kavanaugh's willingness to modernize antitrust law by discarding outdated precedent and creating clear guidelines.� Professor Stephen Calkins notes that "modern" appears six times in Kavanaugh's dissent in Anthem�and four times in Whole Foods.� In the latter case, Kavanaugh critiques older antitrust cases as "relics" with "loose" or "free-wheeling" analysis.� According to Kavanaugh modern approach, antitrust cases that have not "stood the test of time," should be pushed "to the jurisprudence sidelines."

Would this "modern approach" to antitrust law change the direction of the Supreme Court's jurisprudence?� It is hard to say.� After all, Justice Kennedy, whom Kavanaugh is nominated to replace, was himself a modernizer of antitrust law.��

Justice Kennedy authored the majority opinion in�Brooke Group v. Brown & Williamson Tobacco, which heightened the standards for predatory pricing.� Kennedy held that a plaintiff must show that a defendant's price was below cost and that the defendant would be able to raise prices and "recoup" those loses after competitors left the market.� This modern standard is so hard to meet, that there have been virtually no successful predatory price cases after Kennedy's 1993 decision.

In Leegin Creative Leather Products v. PSKS, Justice Kennedy reversed 100-years of antitrust precedent in holding that resale price maintenance would no longer be considered per se illegal.� In so ruling, Justice Kennedy looked to modern "economic analysis," which showed that vertical retail price restraints could be procompetitive.� Rather than continuing to follow outdated precedent, Kennedy explained that the Sherman Act should be treated as a "common-law statute" which can "evolve[] to meet the dynamics of present economic conditions."� Kennedy was willing to overrule established precedent because "subsequent cases [and modern economic analysis] have undermined their doctrinal underpinnings."

Similarly, Kennedy joined the majority in Twombly in changing the pleading standards for antitrust cases.� That decision was based, in part, on the "costs of modern federal antitrust litigation and the increasing caseload of the federal courts."� Two years later, Kennedy himself was the author of the majority opinion in�Iqbal�which confirmed that�Twombly's heightened pleading standards apply to all cases.� �Together, Twombly and Iqbal�represent the most significant change, or modernization, of civil procedure in decades.

Given Justice Kennedy's willingness to discard outdated precedent and modernize antitrust law based on our current understanding of economic principles, Judge Kavanaugh's "modern" approach to antitrust law will likely simply be an extension of Justice Kennedy's jurisprudence, rather than a new approach.� This is not altogether surprising considering that Judge Kavanaugh was a clerk for Justice Kennedy on the Supreme Court in 1993--the same year that Justice Kennedy created the modern standards for predatory pricing in�Brooke Group.

Does Kavanaugh's Dissenting Opinion in an Antitrust Case Portend His Views on Abortion?

Roe v. Wade to be "settled law."

What constitutes precedent and when can it be overruled were at issue in the D.C. Circuit's recent decision to block the Anthem-Cigna merger.� Judge Kavanaugh dissented from the majority's opinion in that case, and he was criticized by the majority for not properly respecting Supreme Court precedent.

Can we learn anything from his dissent about whether and to what extent he considers established Supreme Court precedent to be binding or persuasive authority?

The Anthem-Cigna Antitrust Case

The Obama Department of Justice and multiple states sued to stop the merger of Anthem and Cigna, two of the nation's larges health insurance providers.� The government argued that the merger would substantially lessen competition in the market for employers purchasing insurance.� After a six-week trial, the D.C. District Court agreed and enjoined the merger under Section 7 of the Clayton Act.

There were two main issues on appeal: (1) whether courts can consider efficiencies as a defense to illegality under Section 7; and (2) whether the District Court erred in holding that Anthem's purported efficiencies were sufficient to overcome the anticompetitive effects of the merger.� Anthem argued that the court had overlooked the cost savings that could be generated from the larger combined entity negotiating more favorable rates with healthcare providers.

In a 2-1 decision, the D.C. Circuit affirmed the lower court's ruling.� The majority expressed some skepticism about whether efficiencies could be an ultimate defense to Section 7 illegality because of the Supreme Court's 1967 decision in FTC v. Procter & Gamble, 386 U.S. 568 (1967), that "possible economies cannot be used as a defense to illegality."�

The majority noted that, despite the "clear holding of Procter & Gamble," which has not been explicitly overruled,�some courts of appeals had recognized the use of efficiencies evidence in rebutting a prima facie case.� In the Anthem-Cigna case, however, the D.C. Circuit sidestepped the issue by assuming that, even if efficiencies could be a defense, the District Court did not clearly err in rejecting Anthem's efficiencies defense.� The majority also doubted whether there would be any such efficiencies or that any cost savings would be passed along to the employers.

Judge Kavanaugh's Dissent

Judge Kavanaugh wrote a dissenting opinion in which he determined the District Court erred by not considering that the combined Anthem-Cigna would have been able to negotiate lower provider rates, which he believed would be passed through to employers.

In reaching his dissenting opinion, Kavanaugh first argued that, despite the language from�Procter & Gamble,�efficiencies could be considered in a Section 7 case under a "modern" antitrust analysis.� Describing the history of merger enforcement under antitrust law, Kavanaugh explained that in the 1960s the Supreme Court construed Section 7 to prohibit virtually any horizontal mergers, but subsequently cut those precedents back beginning with its 1974 decision in United States v. General Dynamics Corp., 415 U.S. 486 (1974).� Thus, Kavanaugh argued that the D.C. Circuit is bound by this "modern approach taken by the Supreme Court" rather than the precise language in the outdated decision in Procter & Gamble.

The majority criticized Kavanaugh's "wishful assertion" that the older Procter & Gamble�precedent could be "disregarded ... because it preceded the 'modern approach'" that Kavanaugh preferred.� �"Put differently, our dissenting colleague applies the law as he wishes it were, not as it currently is."� Even if the Supreme Court has not recently opined on the issue, explained Judge Rogers for the majority,"it still is not a lower court's role to ignore on-point precedent so as to adhere to what might someday become Supreme Court precedent."

What Does This Mean?

The majority's critique of Kavanaugh's respect for precedent may foreshadow some of the questions he will be asked during his confirmation hearings, especially with respect to Roe v. Wade.� Of course, if confirmed as a Supreme Court Justice, Kavanaugh would not be in the position of a lower court constrained by binding precedent, as he was in the Anthem-Cigna merger.� Instead, he truly would be in a position to decide "what might someday become Supreme Court precedent."

Is the DOJ's Approval of AT&T's Acquisition of Time Warner Conditioned on the sale of CNN?

Cartoon tweeted by President Trump in August 2017

According to several news outlets, the Department of Justice has called on AT&T and Time Warner to sell DirectTV or Turner Broadcasting, which includes CNN, in order to gain approval of AT&T's $84.5 billion acquisition of Time Warner.

The New York Times reports that executives at AT&T and Time Warner are bewildered at the request because the proposed deal is a vertical merger.� When approving Comcast's similar acquisition of NBC Universal, under the Obama administration, the DOJ and FCC imposed several conditions on Comcast's business practices to prevent Comcast from withholding content from rivals.� The New York Times explains that these "behavioral remedies" are typical in vertical mergers, but "[t]he Justice Department's demands for divestitures would be a major change in antitrust policy..."

Reuters reports: "Trump, who has accused Time Warner's CNN and other media outlets of being unfair to him, criticized the deal on the deal on the campaign trial last year and vowed that as president his Justice Department would block it."

The Financial Times reports: "'Its all about CNN,' said one person with direct knowledge of the talks between the company and the DOJ, adding that the regulator made it clear to AT&T that if it sold CNN the deal would go through."

An unnamed source is quoted by Politico as saying: "The only reason you would divest CNN would be to kowtow to the president because he doesn't like the coverage.� It would send a chilling message to every news organization in the country."

In July, the New York Times reported that White House advisers had discussed using the deal as "a potential point of leverage over their adversary" CNN.� This reporting prompted Democratic Senators to warn against political intervention.� "Any political interference in antitrust enforcement is unacceptable" wrote Senator Amy Klobuchar to Attorney General Jeff Sessions, according to a CBS story.� Her Minnesota colleague Al Franken stated "The Trump Administration's war against the media must not influence the fate of the transaction."

On Sunday, Kellyanne Conway said that the Trump administration is not interfering with the Justice Department's review of the deal.

To make matters more complicated, today DOJ sources apparently told Fox News that it was AT&T who offered to divest CNN, but that the DOJ rejected this offer.� But according to�CNN,�the AT&T CEO denies this, stating: "Throughout this process, I have never offered to sell CNN and have no intention of doing so."

Apart from the "he said, she said" reporting, there are obvious political and First Amendment implications to this story, as well as antitrust concerns.� This will be the first major decision for Makan Delrahim, the newly appointed antitrust chief at DOJ.� Delrahim voiced tentative support for the deal prior to his nomination, but is said to be looking at it more closely now that he is in office.� Even before the news came out today, analysts said that the AT&T/TimeWarner deal "could be an early test of Delrahim's public perception as an independent official."

If Republicans Allow A Hearing on Merrick Garland's Nomination, They Should Ask Him About Teeth Whitening

Before becoming a judge on the D.C. Circuit, Merrick Garland was an attorney at Arnold & Porter and a professor at Harvard Law School, where he taught antitrust law. �He wrote several articles for the Harvard Law Review and Yale Law Journal on the scope of judicial review for administrative regulations and the state action doctrine. �In the articles, Mr. Garland argued for a deferential, non-intrusive role for the judiciary. �Courts should review administrative regulations to ensure fidelity to the intent of Congress and should not preempt the policy decisions of states through antitrust law or by restricting the state action doctrine.

The state action doctrine immunizes state regulations from challenges under the Sherman Act. �In order to receive immunity, the challenged restraint must be "clearly articulated" as state policy and "actively supervised" by the state. �California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980). �At the time Garland wrote his article, some had argued that the state action doctrine should be narrowed to allow for the preemption of "economically inefficient" state regulations, especially when the regulations originated from the political efforts of private parties who stand to benefit from the restraint.

Garland, however, argued against such a revision, explaining:

The judiciary should not interfere under the aegis of the antitrust laws with a state's political decision, however misguided it may be, to substitute regulation for the operation of the market. �Despite protestations, the revisionist proposal is little more than a return to the era the Court left behind when it repudiated Lochner v. New York. �The substitution of 'antitrust' for 'due process' and 'economic efficiency' for 'liberty of contract' does not make the assault on democratic politics any more palatable.

Garland, Antitrust and State Action: Economic Efficiency and the Political Process, 96 Yale L.J. 486, 487-88 (1987).

Thirty years later, this same debate about economic liberty and the state action doctrine has resurfaced in the context of occupational licensing--specifically teeth whitening.

Like many professionals, dentists are licensed and regulated by state dental boards. �Those who are not licensed are prohibited by state law from practicing dentistry. �There is some dispute, however, about whether teeth whitening procedures -- i.e. shining an LED lamp into the mouth of a patient after application of a peroxide-based whitener -- can be performed by non-dentists. �Not surprisingly, dentists say no.

The North Carolina State Board of Dental Examiners, for example, issued cease-and desist letters to non-dentists offering teeth whitening services. �When the Federal Trade Commission brought a lawsuit against the Board claiming that it was improperly seeking to protect its members from competition, the Board argued it was immune under the state action doctrine because it was a government agency.

The case went all the way to the United States Supreme Court, which held in a 6-3 decision that the Board was not immune because it was not "actively supervised" by the state. �North Carolina State board of Dental Examiners v. Federal Trade Commission, __ U.S. __, 135 S.Ct. 1101 (2015). �In clarifying and narrowing the state action doctrine, the Court explained: "When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest."

In another case decided a few months later, teeth whiteners challenged a ruling by the Connecticut State Dental Commission that only a licensed dentist could shine the LED light into the mouths of customers during teeth whitening procedures. �Instead of an antitrust case, this was a constitutional challenge based on the Equal Protection and Due Process Clause. �The Second Circuit Court of Appeals rejected the challenge, however, finding that there was a rational basis to uphold the regulation because, however tenuous, there was at least some�evidence that LED lights may cause some�harm to some consumers. �Sensational Smiles, LLC v. Jewel Mullen, 793 F.3d 281 (2015). �

After noting that this was not an antitrust case, the Second Circuit explained that even if the true purpose of the regulations was naked economic protectionism, that still would be constitutional. �

Much of what states do is to favor certain groups over others on economic grounds. �We call this politics. �Whether the results are wise or terrible is not for us to say, as favoritism of this sort is certainly rational in the constitutional sense...

To hold otherwise would be to interpret the Fourteenth Amendment in a way that is destructive to federalism and to the power of the sovereign states to regulate their internal economic affairs. As Justice Holmes wrote over a century ago, a[t]he 14th Amendment does not enact Mr. Herbert Spencer's Social Statics.a�Lochner v. New York,�198 U.S. 45, 75, 25 S.Ct. 539, 49 L.Ed. 937 (1905)�(Holmes, J., dissenting)

The Second Circuit's Sensational Smiles decision has been criticized, particularly from the right. �A few weeks ago, George Will devoted an entire column attacking the teeth whitening cartel and arguing for more aggressive judicial review of economic regulations. �If the Supreme Court refused to take the appeal, Will argued, government would have "an unlimited licence ... to impede access to professions, reward rent seekers and punish consumers, thereby validating Americans' deepening disdain for government."

While the Supreme Court recently declined the cert petition in Sensational Smiles, this issue is likely to come before the Court in the next few years because there is a clear Circuit split between the Second and Tenth Circuit on one side and the Fifth, Ninth and Sixth Circuits on the other side, who reject economic protectionism as a rational basis for regulation under the Fourteenth Amendment.

While I do not presume to know how Judge Garland would answer these questions today, it is noteworthy that he previously argued that courts should defer to state policy decisions even if the decision was economically inefficient and the product of political pressure from market participants. �Both the Second Circuit's opinion and Garland's law review article argue that scrutinizing these types of economic regulations would lead to a return of the discredited "Lochner era," where a conservative Supreme Court invalidated New Deal legislation based on notions of economic liberty.

This would be an ideal avenue of questioning for Judge Garland as a Supreme Court nominee:

"Do you agree that naked economic protectionism is a legitimate basis for government action?"�
"Have your views on the state action doctrine changed since you wrote that law review article?"
"What role does economic theory have in the judicial review of state or federal regulations?"
"Do you think the current Supreme Court is in danger of returning to the Lochner era?"�
"Where do you get your teeth whitened?"�

But since the Republicans do not appear willing to hold a hearing, all that we can do is read a 30 year-old law review article and speculate as to how Judge Garland would answer these questions.

Law360.com Publishes Jason Hicks Article on Twombly Motion to Dismiss Standard

Law360.com published an article that I wrote about a recent divided Fourth Circuit decision on the pleading standard for a motion to dismiss an antitrust conspiracy. �In the article, I ask whether Twombly's "plausibility" standard is a type of Rorschach test that reveals a judges preconceived notions. �Is there an objective standard that can be consistently applied? �Or is "plausibility," like beauty, in the eye of the beholder. �Lastly I offer some practical advice for antitrust litigators when drafting a complaint or asserting/opposing a motion to dismiss.

Click here to read the Law360.com article.

Click here to read the blog post.

Is "Plausibility" a Rorschach Test? The Fourth Circuit's Divided Opinion on Twombly's Motion to Dismiss Standard

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), requires a district court to look beyond the face value of allegations in a complaint to determine if they are, in fact, "plausible." �The Supreme Court recognized that determining "plausibility" would be a "context-specific task that requires the reviewing court to draw on its own judicial experience and common sense." �The problem, however, is that different judges have different "experiences" and different notions of "common sense."

Those differences are on full display in the Fourth Circuit's opinion in�SD3, LLC v. Black & Decker (U.S.) Inc. et al., 801 F.3d 412 (4th Cir 2015). �The opinion is�worth reading both for its in-depth analysis of the "plausibility" standard and for the pithy back-and-forth attacks between the judges.

In this antitrust case, the plaintiff alleged that all of the major table-saw manufacturers conspired to boycott plaintiff's "SawStop" safety technology to keep it off the market. �The district court granted defendants' motion to dismiss, finding that the complaint did not plausibly allege an "agreement" or "conspiracy," a necessary element under Section 1 of the Sherman Act.

On appeal, a two-judge majority of the Fourth Circuit reversed, finding that the complaint had adequately alleged a conspiracy because plaintiff had alleged parallel conduct among the defendants plus additional factors suggesting an agreement, thus meeting the "parallel plus" standard under Section 1.� The majority criticized the district court for confusing the motion-to-dismiss standard with the standard for summary judgment and, in so doing, applying "a standard much closer to probability" than the "plausibility" standard from Twombly.

In a strongly worded dissenting opinion, Judge Wilkinson attacked the majority for misapplying Twombly. �The vigor of the dissent prompted Judge Wynn, of the majority, to write a separate and equally caustic concurring opinion taking shots back at the dissent.

Apart from the entertaining back-and-forth between the judges, this opinion displays the wide, yet hard to define, difference between something being plausible and implausible. �All three of the judges on the panel read the same complaint, and they all agree as to the elements of an antitrust claim and the standards for analyzing a motion to dismiss. �Although both sides quote the same language from Twombly, the�real difference between the dissent and the majority/concurrence is how they apply Twombly�to the allegations in the complaint. �This appeal did not involve a legal issue or a disputed fact so much as different perspectives or outlooks.

This case shows that "plausibility," like beauty, is in the eye of the beholder. �One judge looks at the allegations and declares them implausible. �Another looks at the same allegations and sees them as plausible. �When legal standards turn on something as amorphous as "plausibility," it is not surprising that there are such widely disparate opinions from very smart and very well-meaning judges.

It is somewhat surprising, however, that the judges engaged in such heated rhetoric when they all agree on the substantive and procedural rules. �This is not a case where the majority believes in X and the dissent believes Y. �Perhaps it is this inability to precisely describe the difference between believing something plausible and believing it implausible that gives rise to the personal attacks in this case. �One side cannot claim that the other side applied the wrong rule, so they attack each other's judgement, character or motives--sometimes in Latin and sometimes IN ALL CAPITAL LETTERS!

Whatever the reason, the dissent and concurrence are littered with caustic, sarcastic, and pithy attacks at each other. �The criticisms are so well written, that they need to be quoted at length to be fully appreciated:

WILKINSON, Circuit Judge, concurring in part and dissenting in part:

The majority's view of modern commerce is unfortunate...

I would suggest, most respectfully, that the majority has committed basic conceptual errors and that the consequences of those errors, which the majority prefers not to face and to dismiss as policy, are regrettable....

Twombly�counsels that we not leap to pejorative explanations when legitimate business considerations are more likely at play....

... we should [not] rush too quickly to drape innocent commercial activity in sinister garb. �

The majority however, adopts the reverse sequence. �It fashions a template for the frustrated market participant: Whenever routine business decisions don't go your way, for whatever reason, simply claim an industry conspiracy under the Sherman Act and the courts will infer malfeasance.... WARNING: HOLDING OR ATTENDING THIS TRADE ASSOCIATION MEETING WILL INCREASE YOUR EXPOSURE TO ANTITRUST SUITS....

The majority's cardinal conceptual error lies in the adoption of an ends-based approach to parallel conduct in a circumstantial antitrust case... The majority thus uses its ends based analysis to reward the least marketable products with the greatest possibility of success. �WARNING: FAILURE TO ADOPT THIS PRODUCT FOR WHATEVER REASON WILL INCREASE YOUR EXPOSURE TO ANTITRUST SUITS....

The majority alights on a minor motif of that Supreme Court decision [Twombly], while leaving its main point wholly unobserved.... �Put simply, the majority proceeds as if Twombly�were at most persuasive authority, and not very persuasive authority at that....

The majority refuses to undertake this second, more analytical step [i.e., looking beyond the face value of the allegations to �determine if they are "plausible"]. �My concurring colleague simply wishes it away. �There is a time warp here, a nostalgia for the old pleading ways and days. �Those earlier standards were easier for us, I admit. �But our nostalgia now flies in the face of a controlling Supreme Court decision....

The majority's assurance that of course district courts can control discovery is the sort of appellate wand-waving that ignores every reality on the ground...

With its its invented version of Twombly, the majority allows plaintiffs to contort normal marketplace behavior into a potential antitrust violation....

The majority's ready acceptance of [plaintiff's] unsupported superiority assumption is part of the fallacy of its ends-based perspective ....

The majority thus sets a nifty trap: if defendants engage in similar means, it's collusion; if they engage in dissimilar means, it's deceit. Given those options, businesses should either keep to themselves or close up shop....

The majority ignores all of this in its rush to flatten pleading standards, make communications perilous, and consign antitrust law to isolationist ends. �It is an odd time for the majority to assume a more isolationist stance. �It raises the risk that antitrust law will render American companies comparatively incommunicative and thus at a competitive disadvantage at the very time global commercial interactions are becoming more commonplace....

If the complaint had spun even a remotely plausible narrative of impermissible collusion, I should have been the first to waive it through the Twombly�gates... �But I cannot conspire [pun intended, one must assume] with my colleagues in the demise of the Twombly�decision.

WYNN, Circuit Judge, concurring:

"Judges ought to remember that their office is jus dicere, and not jus dare--to interpret the law, and not to make law or give law." ... Respectfully, the dissenting opinion strays beyond our limited review here and encroaches on policy issues best left to other branches of government...

First, rather than confront the issues actually in play, the dissenting opinion dresses up points of agreement as dire rifts. �The dissent asserts, for example, ... [listing things asserted by the dissent] ... Nonsense....

Second, rather than address [plaintiff's] complaint as it is written, the dissenting opinion employs verbiage like "commercial interactions" to revise the complaint so as to omit the allegations of a secret agreement to refuse to deal. �Again sounding in policy, the dissenting opinion asserts ... �Thus, the dissenting opinion editorializes ... �Yet, when read with a judicious eye, [plaintiff's] complaint clearly alleges ...

Ignoring such specific allegations to [plaintiff's] detriment is nothing shy of an all-out perversion of the generous lens through which we must view the complaint...

Finally, the dissenting opinion focuses on its own policy preferences, thereby abandoning this Court's limited role--which is simply to assess whether [plaintiff] plausibly alleges the elements of its Section 1 claim....

The dissenting opinion embarks on yet another odyssey into policy, as well as assumptions untethered to reality, must less the complaint at issue here ...

In sum, courts exist to resolve disputes, not to pervert procedural rules into swords with which to fight policy battles... �Accordingly with all due respect for the dissenting view, I joint in the judicious and well-reasoned majority opinion.

This does not sound like two judges who agree on both the procedural and substantive law, yet they do. �The difference is one of perspective, which probably explains the heated rhetoric.

Interestingly, the Fourth Circuit's panel opinion may not be the last word on this case. �A petition for certiorari is currently pending with the the United States Supreme Court. �Will the Supreme Court want to weigh in on the proper way to apply the "plausibility" standard it articulated in Twombly? �If so, will the Supreme Court be able to clarify the standard to assist lower courts? �Or is "plausibility" really just a Rorschach test that reflects back on the subjective beliefs of the judge? �Is there an objective standard here, or is "plausibility" merely in the eye of the beholder? �It will be interesting to watch how this dispute over civil procedure develops...

DISCLAIMER: Womble Carlyle represented one of the defendants in the district court case, prior to the Fourth Circuit appeal discussed in this post.

FTC Issues Guidance on Scope of "Unfair Competition" Under Section 5 of FTC Act

In a short statement issued yesterday, the FTC issued guidance regarding how it will interpret Section 5 of the FTC Act. Section 5 is a little-used antitrust statute for which the FTC has issued no guidance in the Actas 100-year history. It states that a[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commercea are unlawful. When drafting the statute, however, Congress did not define specific acts or practices which would constitute unfair competition, leaving considerable uncertainty in the interpretation of the law.�

While most of the Commissionas enforcement actions have been brought pursuant to the Sherman or Clayton Acts, Section 5 prohibits acts and practices which fall outside the scope of those statutes. In other words, Section 5 is broader than the Sherman and Clayton Acts, but the boundaries of aunfair competitiona under the FTC Act have never been clearly defined.

The FTCas new one-page policy statement describes three principals to which the Commission will adhere when enforcing Section 5 on a astandalonea basis. First, the guidance calls on the FTC to promote aconsumer welfare,a which is the apublic policy underlying the antitrust laws.a Second, the statement provides that any act or practice challenged under Section 5 will be evaluated under a framework asimilar to the rule of reason,a meaning that the practice must acause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.a Finally, the guidance notes that the FTC will be less likely to challenge an act or practice under Section 5 if such practice can be addressed through enforcement under the Sherman Act or Clayton Act.�

The agency has suggested that these short principals will allow it to keep a flexible approach to enforcement of the statute, but some critics argue that the guidance is vague and does not go far enough to address the ambiguities in the law, leaving businesses unsure of what could trigger an investigation. Prior to the announcement of these guidelines, the FTC has used the vague standards of Section 5 to negotiate settlements in several high profile and controversial cases.

The FTC has emphasized that this new guidance does not signal new or increased enforcement priorities. For example, Commissioner Joshua Wright recently stated that the new guidelines would not lead to an aexplosion of litigation.a However, Wrightas fellow Republican-appointed Commissioner, Maureen Ohlhausen, dissented from the FTCas guidelines because of her fears that the FTCas aunbounded interpretationa of Section 5 ais almost certain to encourage more frequent exploration of this authority,a thus leading to more investigations and enforcement activity.

Given the lack of appellate case law interpreting the scope of Section 5, the FTCas new guidance will, at the very least, provide a framework for predicting what behavior may constitute aunfair competition.a Going forward, companies will know that the FTCas analysis of Section 5 will proceed along economic analysis similar to the rule of reason. As Commissioner Wright explained:

aThe promotion of consumer welfare is a cornerstone of the FTCas antitrust enforcement, and these principles reaffirm the agencyas legal framework in carrying out that important mission,a said FTC Chairwoman Edith Ramirez. aThe statement formally aligns Section 5 with the Sherman and Clayton Acts.a

aThe rule of reason has ambiguity too. Complaints about ambiguity in the rule of reason are really complaints about the antitrust laws generally. The fundamental point is that we now with this statement have a way to resolve those types of disputes grounded in modern antitrust instead of based upon the whims of whatever three commissioners happen to believe that day.a

In addition to providing clarity under federal law, it will be interesting to see whether the FTCas guidelines will be used by state courts when interpreting the scope of aunfair competitiona under state law. Most states have their own alittle FTC Act,a which in some cases can be enforced by private parties in civil lawsuits. Some states have existing case law defining the scope of aunfair competitiona under state law, which may be impacted by the FTCas new guidance.

Motorola and the Extraterritorial Application of US Antitrust Laws to Foreign Component Price Fixing Cartels

Last month the Supreme Court declined to accept an appeal for two related antitrust cases involving an international price-fixing cartel. �The cases come from different circuits, one was criminal and the other civil, but they involve the same scheme by a group of Asian manufacturers to rig the prices of liquid-crystal display screens used in computers and cellphones.
The criminal case resulted in convictions, prison time, guilty pleas, settlements and large fines. �The follow-on civil case, brought by Motorola, was dismissed because the court found that US antitrust law did not allow a suit to recover damages from the high prices charged to Motorola's foreign subsidiaries, despite the fact that a large percentage of the phones assembled overseas were subsequently sold in the United States.

Under the Foreign Trade Antitrust Improvements Act of 1982, US antitrust law applies to anticompetitive activities outside the US when (1) the foreign conduct has a direct, substantial and reasonably foreseeable effect on US domestic commerce or import trade and (2) the effect gives rise to a claim under the Sherman Act.

The Seventh Circuit's decision, authored by Judge Richard Posner, held that Motorola Mobility, LLC, a US-based technology company, could not recover damages incurred on behalf of its foreign subsidiaries given that they were independent legal entities for tax purposes and the foreign subsidiaries were the direct purchasers of the LCD screens under Illinois Brick. �See Motorola Mobility, LLC v. AU Optonics, No. 14-8003 (7th Cir. Nov. 26, 2014).

In addition to lack of standing under the indirect purchaser doctrine, Judge Posner's opinion discussed the jurisdictional reach of US antitrust law:

The Supreme Court has warned that rampant extraterritorial application of US law "creates a serious risk of interference with a foreign nation's ability independently to regulate its own commercial affairs." [quoting from the Empagran�case] ...

Motorolaas foreign subsidiaries were injured in foreign commerceain dealings with other foreign companiesaand to give Motorola rights to take the place of its foreign companies and sue on their behalf under U.S. antitrust law would be an unjustified interference with the right of foreign nations to regulate their own economies. The foreign subsidiaries can sue under foreign lawaare we to presume the inadequacy of the antitrust laws of our foreign allies? Would such a presumption be consistent with international comity, or more concretely with good relations with allied nations in a world in turmoil? To quote from the Empagran opinion again, aWhy should American law supplant, for example, Canadaas or Great Britainas or Japanas own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese or other foreign companies?a

After finding that Motorola's private lawsuit for damages had no merit, Judge Posner noted that the Justice Department filed an amicus brief arguing that the Justice Department would have jurisdiction to investigate and criminally prosecute under US antitrust laws conduct that has a direct, substantial and reasonably foreseeable effect on domestic US commerce. �A price-fixing scheme involving component parts that were assembled overseas with the resultant product sold into the United States may satisfy this jurisdictional test, even if Motorola itself did not have standing to pursue its damges claim. �While the Justice Department may be able to prosecute foreign price-fixing cartels, and indeed did so in the related criminal case, that does not mean the same conduct gives rise to antitrust damages remedy for US-based companies, like Motorola, who were only derivatively injured by the price-fixing cartel.

The bottom line seems to be that the Government can bring some antitrust cases when private plaintiffs cannot, and US companies that chose do to business through foreign subsidiaries cannot "pick and chose from the benefits and burdens of United States corporate citizenship."

The Supreme Court denied to accept the appeals from either the criminal case or the civil case, thus leaving these cases (and the lessons from them) intact. �More information can be found in this�New York Times article and Wall Street Journal article.

FTC Seeks to Secure First Disgorgement in Nearly a Decade

The FTC announced yesterday that Cardinal Health, Inc. (aCardinala) has agreed to pay $26.8 million to resolve its investigation into the companyas alleged anticompetitive behavior.� If approved by a federal court, the settlement would mark the FTCas first disgorgement obtained in a competition case in nearly a decade and would stand as the second-highest antitrust disgorgement deal ever.

In a Complaint filed in the Southern District of New York, the FTC outlined a pattern of conduct by Cardinal aimed at monopolizing the market for the sale and distribution of radiopharmaceuticals.� Radiopharmaceuticals -- drugs that are prepared by combining a radioactive isotope with a chemical agent -- are compounded and distributed by radiopharmacies.� These drugs are used in a variety of nuclear imaging procedures, such as cardiac stress tests.� Cardinal became the nationas largest operator of radiopharmacies following its acquisition of Syncor International in 2003 and Geodax Technology in 2004.�

From 2003-08, Bristol-Myers Squibb (aBMSa) and General Electric (aGEa) were the only producers of heart perfusion agents (aHPAa), an essential input into certain radiopharmaceuticals.� According to the FTC, a radiopharmacy cannot profitably compete without obtaining the rights to distribute an HPA manufactured by either BMS or GE.� Cardinal allegedly engaged in a variety of tactics in order to secure de facto exclusive distribution rights to these BMS and GE products.� Such tactics included, for example, punishing BMS when it launched a plan to distribute its HPA product more broadly across the country.� This conduct, the FTC posited, impeded entry by other would-be radiopharmacy operators in 25 separate geographic markets and constituted a violation of Section 5 of the FTC Act.��

The Commission voted 3-to-2 to authorize the filing of the Complaint and pursue disgorgement. �Commissioners Ohlhausen and Wright issued separate dissenting statements noting their disagreement with the Commissionas approach.� In Commissioner Ohlhausenas view, the evidence did not establish that Cardinal committed any antitrust violation, much less a clear one that required disgorgement.� Both Commissioners noted that, in 2012, the FTC withdrew its Policy Statement on Monetary Equitable Remedies in Competition Cases, leaving private parties with little meaningful guidance on when the agency would pursue disgorgement.� ��

Disgorgement has long been viewed as a remedy reserved only for the most egregious antitrust violations, such as price fixing.� In that sense, the Cardinal case could represent a sea change in the remedies sought by antitrust enforcement agencies.� On the other hand, the use of disgorgement here may turn on the unique facts underlying the Cardinal case -- including the fact that the alleged anticompetitive conduct ceased after 2008 -- making other conventional forms of relief impractical.� Time will tell.

�

Discussion of FCC's Effective Competition Rules

Womble Carlyle attorney Mark Palchick along with�American Cable Association President Matt Polka mull over the FCCas proposal to make it substantially easier for cable companies to be found subject to effective competition and and thereby avoid rate regulations and its possible impact on cable television companies in the latest edition of Communications Daily. Palchick, who is a communications attorney and well-respected in the cable television industry, shares his thoughts on why changes to the FCC's effective competition rules could have ramifications beyond just rate regulation.

Palchick points out that a cable system that is found subject to effective competition would also have greater control over whether television broadcast stations must be carried on the Basic level of service.

aSony, CBS, HBO and others are offering programming, including television broadcast programming, on over the top platforms. The proposed rule change will allow cable television operators to better respond to customer needs in this rapidly changing environmenta Palchick said.

March (Appellate) Madness

It has been a few months since we updated on the OaBannon antitrust case, where federal judge Claudia Wilken ruled last summer that the NCAAas amateurism rules violated federal antitrust laws. �(You can read our previous articles here, here, here, and here.) �But this week, as the rest of the country filled out their brackets and geared up for the start of the NCAA tournament, the NCAA was getting ready for another battle a in the Ninth Circuit.� On Tuesday, the appeals court heard oral argument from both the NCAA and plaintiffsa counsel, as the parties debated the lower courtas decision, which allowed limited compensation for the use of athletesa name, image, and likenesses.��

Central to the partiesa argument was the interpretation of NCAA v. Board of Regents of the University of Oklahoma, a 1984 case regarding football television rights.� While the NCAA lost that case, one statement in that case has become central to the NCAAas current aamateurisma defense:� aTo preserve the character and quality of the aproduct,a athletes must not be paid.a �In Tuesday's arguments, some of the judges seemed skeptical of the NCAAas shifting definition of apay,a they were also concerned about opening the door to apay for play.a� (The full arguments can be watched here.)

We can expect a ruling in the upcoming months, though this is unlikely to be the final appeal in the case.�

Jason Hicks, Amanda Norris Ames to Discuss Antitrust Risks in E-Commerce Pricing and Distribution

With online sales now commonplace, counsel for retailers, distributors and manufacturers must be aware of the increased state and federal scrutiny of e-commerce pricing and distribution practices and take steps to ensure their clients are in compliance with all relevant antitrust laws.

Womble Carlyle attorneys Jason Hicks and Amanda Norris Ames will participate in a Webinar discussion on Antitrust Risks in E-Commerce Pricing and Distribution. The event takes place from 1-2:30 p.m. on Tuesday, March 24^th.

The panel will review these and other key questions:

What are the challenges for online sellers in distinguishing between advertised prices and selling prices?
What is the e-commerce impact of the different state law approaches to the issue of whether minimum RPMs are illegal per se?
What steps can companies take to minimize antitrust exposure stemming from Internet distribution?

Click here for more information or to register.

Jason Hicks, a partner in Womble Carlyleas DC office, has experience litigating cases and counseling clients in a wide variety of matters involving contract disputes, business torts, federal and state antitrust laws, franchise laws, and unfair and deceptive trade practices.� In that regard, Hicks has represented clients in the manufacturing, defense, pharmaceutical, real estate and gaming industries.

Amanda Norris Ames focuses her practice on white collar criminal defense, antitrust law, complex civil litigation, and government investigations. Her experience includes litigating complex tax, bankruptcy, commercial and criminal matters at the federal level. Prior to entering private practice, Ames worked as a trial attorney in the Tax Division of the U.S. Department of Justice.

Supreme Court Rules NC Dentist Board Not Immune From Antitrust Scrutiny

Earlier this morning, in a 6-3 decision, the Supreme Court ruled that state professional boards comprised of active market participants are not immune from antitrust laws even though the boards are formally designated as a state agency, unless the state also provides active supervision of the boards' actions.

The case arose out of an FTC action against the North Carolina State Board of Dental Examiners ("Board") for issuing cease-and-desist letters to non-dentists offering teeth whitening services.� The Board claimed that the non-dentists were engaged in the unlicensed practice of dentistry.� The FTC, however, claimed that the Board was seeking to protect its members (licensed dentists who performed teeth whitening services) from competition from non-dentists charging lower prices.

The issue on appeal to the Supreme Court was whether the Board enjoyed state action immunity under Parker v. Brown, 317 U.S. 341 (1943), given that the Board was created by and designated as a "agency of the State" under North Carolina law.

The Court explained that "while the Sherman Act confers immunity on the State's own anticompetitive policies out of respect for federalism, it does not always confer immunity where, as here, the State delegates control over a market to a nonsovereign actor."� Although the Board was designated as a state agency under North Carolin law, "[s]tate agencies are not simply by their governmental character sovereign actors for purposes of state action immunity...� Immunity for state agencies, therefore, requires more than a mere facade of state involvement..."�

In this case, the Court was concerned that the Board was controlled by active market participants with a financial interest in the regulation at issue.� (Indeed, the Court noted that 8 out of the 10 Board members earned substantial fees from teeth whitening services.)

The Court explained:

Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern...� In consequence, active market participants cannot be allowed to regulate their own markets free from antitrust accountability.

Thus, the Court held that state agencies that are controlled by active market participants must meet the two-pronged test set forth in California Retail Liquor Dealers Ass'n v. Midcal Aluminum Inc., 445 U.S. 97 (1980), to be afforded state action immunity.� That test had been created by the Supreme Court to determine whether a private trade association (wine merchants who were delegated price fixing authority under California law) was entitled to state action immunity.� The Midcal test requires that the State (1) articulate a clear policy to allow anticompetitive conduct and (2) provide "active supervision" of the anticompetitive conduct.

Today, the Court held that this "active supervision test is an essential prerequisite of Parker immunity for any nonsovereign entity -- public or private -- controlled by active market participants."� The Court stated:

State agencies controlled by active market participants, who possess singularly strong private interests, pose the very risk of self-dealing Midcal's supervision requirement was created to address...� This conclusion does not question the good faith of state officers but rather is an assessment of the structural risk of market participants' confusing their own interests with the State's policy goals.

In other words, the Court recognized that "specialized boards dominated by active market participants" are "more similar to private trade associations vested by States with regulatory authority," than to the more typical state agencies previously afforded state action immunity.� "When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest."

Since the Board did not contend that its conduct was actively supervised by the State of North Carolina, the Board was therefore not entitled to Parker immunity.

The dissenting opinion (authored by Justice Alito and joined by Justices Scalia and Thomas) argued that the majority's ruling was an "unprecedented step" that would "create practical problems and have far reaching effects on the States' regulation of professions."� The dissent pointed out that state medical and dental boards are typically staffed by practitioners, and that there is nothing new about the suspicion that such boards were acting out of the interests of their members and not the public.� "As a result of today's decision, States may find it necessary to change the composition of medical, dental and other boards, but it is not clear what sort of changes are needed to satisfy the test that the Court now adopts."�

Among the questions raised by the dissent were:

What does it mean that a state agency is controlled by active market participants?��
What is a controlling number?��
Can something less than a majority suffice?�
Who is an active market participant?��
What is the scope of the market being analyzed?��
Must the market be relevant to the particular regulation being challenged?��
How much participation makes a person active?

The answers to these questions may eventually be worked out by lower courts or the FTC.� It will be interesting to see whether and how States change the makeup of professional boards or adopt new procedures to ensure that the actions of such boards are "actively supervised" by a non-market participant.�

In the meantime, I expect there will be an increase in the number of cases challenging alleged protectionist activity by state professional boards.

The Supreme Court's decision is available here:

North Carolina State Board of Dental Examiners v. Federal Trade Commission

Womble Carlyle Antitrust Lawyers Named to 2015 North Carolina Legal Elite

Business North Carolina magazine has named 14 Womble Carlyle attorneys to the 2015 North Carolina Legal Eliteathe magazineas annual listing of the state's top lawyers.
In addition, Press Millen was this yearas top vote-getter in North Carolina in the Antitrust category and as such, was profiled in Business North Carolina magazine.

The 2015 Legal Elite honorees are:

Charlotte
Cy Johnson, Business
Kurt Lindquist, Litigation
Bill Matthews, Real Estate
Tom Waldrep, Bankruptcy

Greensboro
Jack Hicks, Intellectual Property

Raleigh
Liz Arias, Tax/Estate Planning
Liz Riley, Construction
Nellie Shipley, Raleigh

Winston-Salem
Andy Copenhaver, Antitrust
Jim Phillips, Antitrust
John Pueschel, Employment Law
George Ragland, Tax/Estate Planning
Kim Stogner, Tax/Estate Planning

In addition, the following Womble Carlyle attorneys are members of the North Carolina Legal Elite Hall of Fame, meaning they received the most votes in the state in their particular practice area. Hall of Fame members are no longer eligible for the annual rankings. They are:
Alfred Adams, Real Estate (Winston-Salem)
Jim Cooney, Criminal Law (Charlotte)
Mark Horoschak, Antitrust (Charlotte)
Betty Quick, Tax/Trusts & Estates (Winston-Salem)

Millen will move into the North Carolina Legal Elite Hall of Fame category next year.
Statewide, 641 lawyers a less than 3% of the total a were picked by their peers in 14 mostly business-related categories. Notices were sent to more than 22,000 active members of the North Carolina State Bar. Voters could not pick themselves, and they could select partners and associates only if they also selected lawyers outside the firm in the same categories.

Minimizing Antitrust Risk in Mergers and Acquisitions

Check out this white paper on antitrust risks in merger and acquisitions.� The paper discusses the importance of preliminary and careful consideration of antitrust issues and compliance with agency requirements, regardless of the size of an acquisition.� Premerger notification requirements under the Hart-Scott-Rodino Act ("HSR Act") are important, but they are not the only antitrust consideration in M&A transactions.� The article, authored by Amanda Ames and Jason Hicks, summarizes the federal law applicable to mergers, describes the role and jurisdiction of the FTC and DOJ, explains the HSR premerger notification requirements and thresholds, offers considerations for non-reportable transactions, and discusses some of more interesting recent case studies.

2014 Elections May Lead To Changes In Antitrust Merger Review

With the Republicans gaining control of the Senate in yesterday's elections, there is a greater chance that Congress may enact reforms to the merger approval process.� Currently, there is a bill pending in the House that would unify merger preliminary injunction standards at the Department of Justice and Federal Trade Commission.� The bill, known as the Standard Merger and Acquisitions Review Through Equal Rules Act ("SMARTER"), has passed out of committee in the House.� It is widely believed that the bill is more likely to pass the Senate under Republican control.�

Currently, DOJ and FTC have separate standards for blocking a merger.� The DOJ must show irreparable harm in order to obtain a preliminary injunction, but the FTC only has to show that blocking the deal with be in the public interest.� The bill would require both agencies to meet the traditional irreparable harm standard.� An interesting Law360 article was published about the SMARTER bill and other antitrust and consumer protection reforms that may result from the 2014 elections and Republican control of the Senate.

Parties Seek Expedited Answers on Changes to College Sports

As we discussed in more detail in our previous article, the extent to which the OaBannon decision, which found that the NCAA operates as a acartela that restrains college athletics, will impact college sports largely comes down to whether Judge Wilkenas opinion survives the NCAAas appeal to the Ninth Circuit.� Both parties now appear to agree that a quick resolution is necessary to provide the NCAA and college athletes with more clarity before fundamental changes must be made to college football and basketball.� The parties have filed a joint motion to expedite the appeal, which was granted by the Ninth Circuit this week.� The Ninth Circuitas new expedited scheduling order means all briefs will be completed before Valentineas Day, and the case will likely be argued this spring.� This gives the Ninth Circuit time to rule on the matter before the district courtas injunction goes into effect on August 1, 2015, and the NCAA kicks off the 2015 football (and recruiting) seasons. �

OaBannon Decision Could Open the Door to Significant Changes in Collegiate Athletics

Since Judge Claudia Wilkenas recent ruling in�OaBannon�et al.�v. NCAA�et al., Case No. 4:09-cv-03329 (N.D.Ca.), in which the judge called the NCAA a acartela that restrains the college athletics market, many commentators have forecasted the end of the NCAA. �But, despite the broad language of the opinion, the impact of the injunction awarded against the NCAA may be rather limited. �As written, the injunction can be seen as a small victory for the NCAA, temporarily holding off the full impact of the decision and allowing the NCAA to reexamine its policies before any further erosion of the considerable power it has amassed by marketing and promoting the college athletes that now form the class of plaintiffs in the action. As detailed below, the full economic and legal impact may not be ascertained for years, when the Courtas ruling a if it stands a will have been implemented at major college athletic scholarship programs.�

In this class action suit, a group of current and former college menas basketball and football players, led by former UCLA basketball player Ed OaBannon, sued the NCAA, alleging that the NCAAas rules barring athletes from receiving a share of the revenues that the NCAA earns from licensing athletesa names, images, and likenesses violates the Sherman Antitrust Act. �The players originally sought both a permanent injunction, enjoining the NCAA from enforcing the player compensation ban, and damages; however, in May (less than a month before trial), the players decided to forego their damage claims and pursue only the injunction. �Besides removing the individual damages claims, which many thought were weaker and which would have been decided by a jury, the plaintiffsa decision to pursue only injunctive relief also ensured that the claims would only be heard by the judge, who had seemed skeptical of the NCAAas defenses from the outset.

The case went to trial over three weeks in June, where numerous experts, athletes, and school administrators testified regarding the anti-competitive harm alleged by the players and the NCAAas justifications for maintaining aamateurisma in college sports. �In a key moment for the players, the NCAAas own preeminent antitrust expert agreed that he had called the NCAA a acartela in a prior publication. This concession and the Courtas subsequent finding on the cartel issue left the NCAA with defenses that seemed deflated in Judge Wilkenas ruling. �

On August 8, the Court issued a 99-page ruling in the case, finding that the achallenged NCAA rules unreasonably restrain trade in the market for certain educational and athletic opportunities offered by NCAA Division 1 schoolsa and ruling in favor of the plaintiffs. �First, the Court found that the players had properly alleged two relevant national markets, the acollege education marketa and the agroup licensing market,a impacted by the NCAAas athlete compensation ban. �The Court then found that the NCAAas rules restrained trade in these markets, acting as both a asellersa cartela and, alternatively, a abuyersa cartel.a¹� The Court also rejected each of the NCAAas pro-competitive justifications for its rules. The NCAA had argued that the compensation ban was procompetitive because it (1) preserved amateurism in college sports, (2) promoted competitive balance among teams, (3) helped integrate academics and athletics,²�and (4) generated greater output by increasing opportunities for schools and student-athletes to participate in Division 1 sports. The Court analyzed and rejected each of these justifications in striking terms, finding that the NCAAas overly restrictive compensation ban played a limited role in driving consumer demand for Division 1 football and basketball. Instead, the Court agreed with the plaintiffsa argument that the NCAA could adopt less restrictive rules that limited the anticompetitive effects while allowing the NCAA to pursue its stated objectives. Specifically, Judge Wilken found that that the plaintiffs showed athat the NCAA could permit FBS football and Division 1 basketball schools to use the licensing revenue . . . to fund stipends covering the cost of attendancea and could apermit schools to hold limited�and equal shares of that licensing revenue in trust for the student-athletesa (emphasis added). The word alimiteda is important: while the Court held that a complete ban on compensation to football and basketball players was anticompetitive, it recognized that the NCAA still could impose significant limitations on such compensation, essentially setting a floor of $5,000 per year.

After completing its analysis, the Court issued a separate permanent injunction, which by its terms only applies to menas basketball and football players enrolled�after�July 1, 2016. �It enjoins the NCAA from prohibiting adeferred compensation in an amount of $5,000 per year or lessa for the licensing of athletesa names, images, and likenesses through a trust fund payable upon expiration of athletic eligibility or graduation.a �The injunction also prevents the NCAA from prohibiting the inclusion of compensation up to the full cost of attending college. �(The NCAAas rules had previously capped scholarship awards to an amount below the full cost of attendance.) �In response to a motion for clarification filed by the NCAA, the Court clarified that the injunction would apply to aprospective and current student-athletes for the 2016-2017 season and beyond.a The NCAA recently filed its notice that it planned to appeal the decision to the Ninth Circuit.

The broad and lengthy findings in the Courtas opinion are interesting when compared with the limited and somewhat arbitrary relief awarded in the injunction. �While the NCAA is appealing the ruling, the injunction could arguably be seen as a win for the NCAA, creating a minimal asalary cap,a rather than opening up the market for six-figure student athlete salaries. �Yet, that minor victory may be temporary, as the opinion raises a world of new questions as the NCAA and its member schools begin to imagine a drastically different college sports environment.

First, itas possible that the�OaBannon�injunction, as it is currently written, will actually apply to few student athletes. �The injunction itself only applies to menas basketball and football players playing in the 2016-2017 season or later, most of whom were not eligible members of the class of plaintiffs. Future players, currently in high school and likely uncertain of their future in college athletics, cannot conceivably be bound by the Courtas ruling. �If a star quarterback entering college in 2016 wanted to sue the NCAA to receive more than the currently allowed $5,000 yearly trust fund payment or to prevent the money from being placed in a trust at all, he could do so.

Despite the potentially limited injunction, the Courtas sweeping holding a if it survives the NCAAas appeal a could have broad implications for college sports in the future, beyond those contemplated in the opinion. �The Courtas finding that it operates as a acartela could haunt the NCAA in subsequent actions, even if the current suit has little practical import. � If baseball or womenas basketball gain in popularity and begin generating revenues for the NCAA or its member schools, the NCAA would have difficulty arguing that�OaBannon�opinion did not contemplate compensation to those players as well, despite a technically, narrow class in the�OaBannon�case. �In addition, while�OaBannon�class members chose not to pursue their damages claims, it is possible that non-class-member basketball and football players could seek individual damages based on the NCAAas decades-long practice of licensing playersa name, image, and likeness. �The alimiteda restraint allowed by the injunction a such as the somewhat arbitrary $5,000 cap on compensation, the fact that players on the same team must be compensated equally, and the fact that all compensation must be held in a trust until graduation a could also be challenged in future lawsuits. �These limitations, minimally justified in the opinion (if discussed at all), are arguably inconsistent with the Courtas sweeping findings and may be the next to fall.

In many ways, the NCAA is a victim of its own success in turning college athletics into a big business. Many people object to college athletics being viewed as a business, but given the NCAAas tremendous success in marketing itself, its member schools, and their football and basketball teams, it is hard to argue that college athletics is not a business a in fact, a very big business. Antitrust law is specifically designed to ensure competition and therefore, plaintiffs bring cases, they say, to regulate big business, break up cartels, and ensure a competitive free market economy. Antitrust law, with its focus on economic theory, is not particularly well designed to protect amateurism, cherished traditions, or academic integrity. In this case, the NCAA was forced to defend its compensation ban in terms of procompetitive�business�justifications, but the real justification for the compensation ban is not rooted in economic theory but in a self-protective view of amateurism in college athletics. There may be very good policy reasons why college athletics should not be governed by the same competitive free market principles that govern other businesses but, absent some action by Congress, the NCAA, ironically, must play by the rules (of antitrust law). The limitations in Judge Wilkinas injunction a allowing the NCAA to impose a $5,000 salary cap, deferred compensation, and equal pay to athletes a have been criticized as arbitrary. Indeed, these rules are the type of line-drawing and policy decisions that are usually made by legislators a not judges. Despite the NCAAas loss, those limitations likely will mean that college athletics will not change very much as a result of the injunction issued in this case. The question remains, however, whether this case has opened the door to broader challenges and more pervasive changes to college athletics in the future.

[1]�The Courtas finding that the NCAAas practices amounted to a monopsony, or an agreement to fix prices among buyers rather than sellers, is significant, as the outcome of the case may have been predetermined on this finding.

[2]�As an editorial matter, one could quarrel with the Courtas adoption of testimony and the position that the commitment required of scholarship athletes impeded academic achievement. Many students achieve academically while balancing school with other work and family obligations, some of which exceed the athleteas commitment.

NOTE: �This article was authored by Womble Carlyle attorneys David Hamilton, Jason Hicks, and Amanda Norris Ames and first appeared in the Sports Litigation Alert and Legal Issues in College Athletics. �

Antitrust Laws Are Rapidly Changing In Latin America

While antitrust laws in many Latin American countries have similar elements to those in the US, unlike US antitrust laws, passed over a century ago, most countriesa laws are new and rapidly changing and evolving. �This leads to less clarity in the meaning of the law and less predictability as to enforcement. �Because of the newness of the laws and the frequency of change in the law, there are few judicial decisions in many jurisdictions to help define the scope of the antitrust laws. �Moreover, most Latin American countries are civil law, rather than common law, jurisdictions. �Generally, this means that, rather than looking to the body of caselaw which has interpreted a statute over the years as we do in the US under the common law tradition, these countries using civil law focus on the text of the statute and the application of the facts at hand to the statute. �

As the body of antitrust law develops in many Latin American countries, enforcement mechanisms are also developing. �Many have created new agencies to investigate and prosecute antitrust violations and the powers of those agencies have been expanded to conduct raids and cooperate with other jurisdictions. �Some jurisdictions, such as Chile and Peru, have begun to adopt new leniency programs for those cooperating with investigations, and others have begun allowing those harmed by anticompetitive conduct to bring civil suits. �

As Latin American countries work to develop and strengthen their antitrust laws, it will be interesting to continue tracking developments in the region. �

Court Rules NCAA Violated Antitrust Laws: But Did The NCAA Win By Losing?

A federal court has ruled that the NCAA cannot ban schools from giving athletes money based on their name, image and likeness, and cannot impose a salary cap below $5,000.� See O'Bannon v. NCAA (N.D. Calif Aug. 8, 2014).� The newspaper headlines will call this a defeat for the NCAA, but there may be a silver lining.� This interesting SBNation article argues that the biggest winner in the ruling is the NCAA itself since it was likely going to allow schools to offer a stipend anyway, and rather than opening up the market, this ruling appears to allow the NCAA to set limits on such compensation.� We followed this case in previous posts, and will likely discuss it in more detail later.� There is a lot to go through in the Court's 99 page opinion.

EDVA Dismisses "Standards Conspiracy" Suit

Companies and trade associations involved in setting industry standards should take note of a recent decision out of the Eastern District of Virginia this month.�

In SD3, LLC v. Black & Decker, Inc. et al, a federal judge dismissed an antitrust suit alleging a conspiracy in the power tool industry to prevent adoption of table saw safety technology.� The suit, brought by SD3, maker of the SawStop technology which prevents table saw injuries, after unsuccessful licensing negotiations with the defendant power tool companies, alleged a agroup boycotta on the part of the companies, claiming that the tool companies conspired not to license the companyas technology.� SD3 also claimed that the companies attempted to prevent the technology from becoming an industry standard. �

The tool companies filed motions to dismiss, and the judge recently dismissed the suit, finding that SD3 had not alleged sufficient proof of a group boycott or any harm to competition.� First, the judge noted that many of the tool companies had continued to negotiate with SD3 after the alleged boycott began.� In addition, the court found the astandards conspiracya allegations insufficient, noting that aneither mere participation in a standards-setting body nor mere membership in a trade association is sufficient to state an antitrust conspiracy claima and that merely declining to impose the technology on the market adid not exclude aSawStopa technology from the market in any way.a�