Why do we have antitrust laws?

The Supreme Court has called them "the Magna Carta of free enterprise", United States v. Topco Assocs., Inc., 405 U.S. 596, 610 (1972), and the Sherman Act "a comprehensive charter of economic liberty", Northern Pac. R.R. Co. v. United States, 356 U.S. 1, 4 (1958).

Sounds great. But what does it mean?

It doesn't mean, the Ninth Circuit reminded us last week, helping consumers.

The case involved a claim that people who make TV shows and people who put them on your TV harmed consumers by forcing them to buy junky channels along with the "must-have" ones. The complaint didn't allege — on purpose — that the bundling of bad stuff with tip-top material hurt competition for producing content.

The plaintiffs hoped that they "did not have to allege that potential competitors were foreclosed from the market". Brantley v. NBC Universal, Inc., No. 09-56785, slip op. at 7431 (9th Cir. June 3, 2011). But the district court disappointed them, and last Friday the Ninth Circuit affirmed the dismissal. As the panel explained:

[T]he plaintiffs here have not explained how competition (rather than consumers) was injured by the widespread bundling practice. The complaint included no allegations that Programmers' sale of cable channels in bundles has any effect on other programmers' efforts to produce competitive programming channels or on distributors' competition on cost and quality of service. In the absence of any allegation of injury to competition, as opposed to consumers, we conclude that plaintiffs have failed to state a claim for an antitrust violation.

Id. at 7438.

Did you get that? The bundling had to harm competition by stopping programmers from supplying channels. That consumers paid more than they would have in the absence of bundling didn't matter. That they had fewer choices didn't matter. That consumer welfare lost out didn't matter. Competition, although imperfect, didn't suffer — and that alone mattered.

 

Blawgletter has a thing about the passive voice. We don't like it, no sir. Not at all. You might say it is hated by us.

[See, e.g., "They Will Be Killed by Us", "The Voice That Dares Not Call Its Name", "Passive Voice Kills Another Lawsuit", "Contingent Fee Hinges on What 'Recovered" Means", "Fifth Circuit Weighs Passive Voice, Holds Insurers Must Pay for Stanford Defense","The Hated Past Participle".]

Now and then, something will gratify our smugness regarding p.v. In April, the D.C. Circuit did just that.

The case involved an attempt by researchers who study human adult stem cells to stop federal research involving human embryonic stem cells. The district court, in the person of the Honorable Royce Lamberth, issued a preliminary injunction against federal funding of the research on the ground that "an appropriations rider" — the Dickey-Wicker Amendment — "bars federal funding for research in which a human embryo is destroyed." Sherley v. Sebelius, No. 10-5287, slip op. at 2 (D.C. Cir. Apr. 29, 2011).

The key part of the Dickey-Wicker Amendment excludes from eligibility for federal money any "research in which a human embryo or embryos are [sic] destroyed". Pub. L. No. 111-117, § 509(a)(2), 123 Stat. 3034, 3280-81. Note the "are destroyed" bit. Passive voice, baby!

The plaintiffs claimed that D-WA reaches any work on stem cells that came from embryos. That the federal researchers played no role in destroying the embryos and simply received the stem cells after someone else removed them from embryos did not, in their view, matter. The relevant "research" extended back in time to destruction of the embryos by others, they urged.

A 2-1 majority of the court of appeals disagreed, holding "that the text [of D-WA] is ambiguous" and that therefore the National Institute of Health's reasonable reading of the law bound the court. Sherley, slip op. at 12. The ambiguity, the panel ruled, made the plaintiffs unlikely to prevail on the merits. 

The dissenting judge invoked "Rube Goldberg" and alleged "linguistic jujitsu" in opining that the statute clearly bars federal funding for research that doesn't itself involve extra-governmental destruction of embryos. Id. at 22.

Who got it right?

You'll excuse us for taking the side of those who see ambiguity. As we like to point out, the use of passive voice allows the writer to avoid linking a particular actor to action, creating uncertainty about the actor's identity. In the case of "research" in which "human embryos are destroyed", you can't tell who "destroyed" the embryos — the federal researchers or other people.

What will happen now? Barring an en banc rehearing or the granting of review by the Supreme Court, the case will return to Judge Lamberth for rulings on the merits. The majority opinion doesn't appear to allow the district court much room, if any, to re-interpret D-WA.

We suppose the plaintiffs could try to show that NIH induced others to derive embryonic stem cells for the purpose of supplying them to NIH for federal research and that NIH therefore knowingly evaded D-WA. But short of that — and we have no reason to think such evidence exists — Judge Lamberth will likely have little choice but to rule in favor of the government.

When you stay in your room and rage or sneer or shrug your shoulders, as I did for many years, the world and its problems are impossibly daunting. But when you go out and put yourself in real relation to real people, or even just real animals, there’s a very real danger that you might love some of them.

And who knows what might happen to you then?

Jonathan Franzen, "Liking Is for Cowards. Go with What Hurts", The New York Times, May 29, 2011.

You convince the trial judge that your side will likely win on the merits and that in the time between now and trial your client will suffer harm that money can't fix. The judge enjoins the other side — under Rule 65 — from doing the hurtful stuff pending trial. But the court of appeals vacates the preliminary injunction because, it rules, your side waived its right to force arbitration by doing so much litigating before trying the arbitration gambit. Now what?

The Second Circuit held today that your client should in the normal case forfeit the money it posted as a bond. The bond aimed to protect the other side against loss in the event a court ruled the injunction a mistake. The court, as a matter of first impression for it, okayed a rebuttable presumption of harm from the bad bar order. The panel also held that the fees Nokia paid to comply with the injunction could count as damages but that fees for "litigating" the injunction couldn't. Nokia Corp. v. InterDigital, Inc., No. 10-1358-cv (2d Cir. May 23, 2011).

Blawgletter notes, as the court did, that the amount of a bond sets the upper limit on damages for wrongful injunction. Unless you also make out a claim for abuse of process or the like. Which you'll seldom find yourself able to do. Mainly because you have to show something like that the other side had no plausible basis for a claim.

Bonus:  The Seventh Circuit also issued an opinion this week on preliminary injunction issues. Its case involved a dispute over a software license and the licensee's right to prevent the licensor from selling itself to someone the licensee didn't like or trust. The district court chose not to enjoin a merger between the licensor and a competitor of the licensee, citing the "uncertainty" of delaying the union as weighing against an injunction. The Seventh Circuit reversed. It held that the need to wait for an arbitrator's decision on the licensee's right to exercise a right to acquire the licensor hurt neither side more. The panel went on to impose 11 conditions on any merger between the licensor and the licensee's competitors. All of them sought to prevent the merger from becoming a fait accompli. The court deemed the 11 a series of "hold-separate" requirements. Roche Diagnostics Corp. v. Medical Automation Systems, Inc., No. 11-1446 (7th Cir. May 24, 2011).

The panel addressed the bond requirement thus:

Injunctions can injure litigants. MAS’s investors certainly are injured by both the district court’s injunction and our hold-separate order. And preliminary injunctions, which may be issued in haste, are more likely to be erroneous than injunctions issued at the close of the litigation. A party injured by an erroneous preliminary injunction is entitled to be made whole. Established doctrine has it that the damages payable to a person injured by an erroneously issued injunction cannot exceed the amount of the bond. Judges therefore should take care that the bond is set high enough to cover the losses that their handiwork could cause. A limit of zero–the upshot of an injunction without a bond–is bound to be too low.

Id., slip op. 6-7.

People outside of Texas sometimes ask if you own an oil well — or raise cattle or wear boots and a Stetson or really want to secede – right after they learn you live in any of the 254 counties that comprise the Lone Star State. You'd expect that sort of thing from outlanders. We've done such a good job of branding ourselves as Hicks with Hydrocarbons, you can't really blame them for saying things they think might flatter us.

Last Friday, eight judges deemed a subgroup of Texans — owners of oil and gas royalty interests — presumptive experts on the science of drilling wells. Texas judges. Who should know better.

The highest court in Austin threw out a verdict and judgment for the royalty owners on the ground that no reasonable jury could reject — as the actual jury did reject — the defendants' statute of limitations defense. The royalty owners claimed that British Petroleum had hoodwinked them into thinking it wanted to keep trying to make a well produce when in fact BP only pretended to rework the well so that it could keep the lease from ending due to inactivity. BP said the royalty owners could have deciphered the truth about the prospects for the well, which proved a duster, and divined what BP really thought about the well's chances if they'd sent a geological expert to "read together" two separate reports that BP filed at the Texas Railroad Commission's offices in Austin and Corpus Christi, respectively.

The court thus held, as a matter of law, that BP's fraud — in sending the royalty owners a three-page letter misrepresenting its efforts to make the well produce oil and gas — didn't matter:

While the Marshalls are correct in pointing out that the well log did not list BP’s operations in the Upper Wilcox [formation], the plugging report filed with the Commission’s Corpus Christi district office on October 6, 1981, well within the limitations period, did. These public documents, the well log [in the Commission's Austin office] and the plugging report [in Corpus Christi], read together, would have led the Marshalls to discover that BP conducted operations at an interval incapable of production. Moreover, Stanley Marshall testified that he was a sophisticated lessor who subscribed to industry publications, worked as a driller when he was younger, and thus understood the oil and gas industry. Consequently, as a matter of law, the Marshalls would have been able to discover BP’s fraud though the use of reasonable diligence. We therefore hold that the Marshalls’ claims are barred by the statute of limitations, and reverse and render for BP.

BP Am. Production Co. v. Marshall, No. 09-939, slip op. at 13 (Tex. May 13, 2011).

Blawgletter wishes the Court had spent a bit more time saying why royalty owners fail to exercise "reasonable diligence" in detecting fraud, as a matter of law, if someone, having expertise the royalty owners did not possess, could in theory have discovered the fraud by going to two different cities 218 miles apart and read two different reports "together" to determine that the lessee may have lied because the reports "together" show that the well likely couldn't have produced from a formation segment (the "upper Wilcox" instead of the "middle" or "lower") the lessee claimed it wanted to produce from.

Because it seems to us that, after Marshall, we have in Texas a rule that charges royalty owners with expertise in geology AND knowledge of the contents of public records anywhere in the state AND the duty to read the highly technical data in those public records "together" AND the obligation to figure out that the lessee lied in that three-page letter to you.

Yikes.

Blawgletter's friends at Above the Law (and its sister site Dealbreaker) give the scoop on the 14-count guilty verdict against hedge fund master of the universe Raj Rajaratnam.

Make that former master of the universe.

A couple of thoughts came to us as we read the news flash:

  • People on Wall Street seem to think this sort of thing Happens All the Time. (Securities fraud, insider trading, and market manipulation, we mean; not a guilty verdict condemning same.)
  • We couldn't believe that Rajaratnam's counsel called a witness who had just done $25 million of new business with the defendant/defendant's family and, worse, that he either knew that Bad Fact and didn't bring it out on direct (very bad) or didn't know about it because he never asked (extremely bad).

Update:  WSJ editors say "the Galleon case looks more like an exception" than support for "the usual denunciation of rampant greed on Wall Street, yadda, yadda."

What image pops into your head when you think of Seventh Circuit Chief Judge Frank Easterbrook? A man sitting at a dark wood bench, wearing a beard and black robe, hurling harsh questions at a lawyer, possibly you? Nothing?

Blawgletter bets you didn't just say to yourself that you see a guy munching a KFC drumstick or wolfing down a Whopper with cheese and finishing with a frosty Coca-Cola. And yet just today the Seventh Circuit issued an opinion that suggests in His Honor a more than casual acquaintance with fast food.

Also dresses.

The case involved a trademark question. The owner of a shop licensed the shop's name to relatives, including one who agreed to pay $75,000 a year for the right to use the name. But nothing in the license gave the shop owner the right to control quality at the relative's shop. Chief Judge Easterbrook, agreeing with the district court, held that the "naked licensing" killed the licensor's rights in the mark and barred his claim for infringement against the licensee. Eva's Bridal Ltd. v. Halanick Enterprises, Inc., No. 10-2863, slip op. at 4 (7th Cir. May 10, 2011).

As the Chief explained (with ellipses missing):

There is no rule that trademark proprietors must ensure "high quality" goods — or that "high quality" permits unsupervised licensing. "Kentucky Fried Chicken" is a valid mark, though neither that chain nor any other fast-food franchise receives a star (or even a mention) in the Guide Michelin. The sort of supervision required for a trademark license is the sort that produces consistent quality.

A person who visits one Kentucky Fried Chicken outlet finds that it has much the same ambiance and menu as any other. A visitor to any Burger King likewise enjoys a comforting familiarity and knows that the place will not be remotely like a Kentucky Fried Chicken outlet (and is sure to differ from Hardee's, Wendy's, and Applebee's too). The tradmark's function is to tell shoppers what to expect — and whom to blame if a given outlet falls short.

A person who visited Eva's Bridal of Oak Lawn and then Eva's Bridal of Orland Park might not have found a common ambiance of means of doing business. And though the shops may have had many designers in common, this would not distinguish an "Eva's Bridal" shop from any other briadl shop; the trademark would not be doing any work if identical dresses could be purchased at Macy's or Nordstrom, and the "Eva's Bridal" shops were dissimilar except for some products that many retailers carried. Safeway could not license its marks to a corner grocery store, while retaining no control over inventory, appearance, or business methods, just because every grocery store is sure to have Coca-Cola and Wheaties on the shelf.

Id. at 4-5 (emphasis in original, including the italics for Guide Michelin).

[I]t is not clear just what point I am missing.

Montz v. Pilgrim Films & Television, Inc., No. 08-56954, slip op. at 5933 (9th Cir. May 4, 2011) (O'Scannlain, J., dissenting from 7-4 en banc ruling that federal copyright law does not preempt state law claims for breach by film or television producer/director of promise to pay for use of ideas about movies or TV shows).

The inventor from New Jersey, Thomas Sullivan, tried to charm a Tennessee company, Radio Systems, into paying him for a license to make and sell his invention. Radio Systems at length agreed to let Mr. Sullivan drop by to show them his device, which he called "Wedgit" and on which he held a U.S. Patent. But first he had to sign a Confidential Disclosure Agreement.

The CDA included a "Choice of Law" clause, which in fact did more than select the law that would govern. It said:

The Parties agree that this Agreement is to be construed in accordance with the laws of the State of Tennessee in the United States of America and Disclosing Party [the inventor guy] consents to the personal jurisdiction of, and agrees that exclusive jurisdiction shall reside in, all courts of the State of Tennessee and the U.S. District Court for the Eastern District of Tennessee regarding any cause of action under this Agreement or arising out of the subject matter relating to this Agreement.

Radio Systems never followed up on the visit by Mr. Thomas, but in a short while it did apply for a patent covering its SmartDoor pet door. That drew Mr. Sullivan's attention. His lawyer in due course made threats, and the SmartDoor folks responded by suing Mr. Sullivan in Knoxville federal court. Radio Systems asked for a judgment declaring that it didn't infringe Mr. Sullivan's patent. He moved to dismiss on the ground that the district court hadn't the power to bind him to a decision because it lacked personal jurisdiction over him. The district court granted the motion.

The Federal Circuit upheld the dismissal. It first held that, under its tests for the "minimum contacts" necessary to the exercise of personal jurisdiction, the inventor hadn't done enough in Tennessee to try to enforce his patent. Sure, he'd worked to get the Tennessee company to license his invention, but that doesn't count as enforcing the patent, the court ruled.  Radio Systems Corp. v. Accession, Inc., No. 10-1390 (Fed. Cir. Apr. 25, 2011).

Yawn.

The thing that intrigued Blawgletter came near the end of the opinion. The panel there got to the forum selection and consent clause that appeared in the "Choice of Law" paragraph. The court deemed "cause of action . . . arising out of the subject matter relating to this Agreement" as referring only to claims concerning "Confidential Information" that the inventor in fact imparted in Tennessee.

Oh, yeah? While the court conceded that the CDA defined its "stated purpose" as to "facilitate 'discussions'", it didn't regard the "discussions" as the "subject matter" of the CDA and concluded therefore that the declaratory judgment claim didn't arise out of them. Id., slip op. at 13. But plainly the "discussions" did form the subject matter of the CDA — not just the Confidential Information. The outcome thus should have turned on whether a claim of infringement by Mr. Sullivan would have arisen out of the discussions about possible licensing of the patent for Mr. Sullivan's Wedgit device and like products. The court didn't answer that question.

We would guess the panel felt the Volunteer State outfit had played foul by suing the nice Garden State fellow after he'd tried so hard to deal with them in a nice way. Bad facts make bad law?