UNITED STATES
Appeals Court Overturns FTC Ruling Against Rambus
The US Court of Appeals for the DC Circuit has overturned the Federal Trade Commission's (FTC) administrative ruling against technology licensing company Rambus Inc., remanding the case to the FTC for further proceedings. Rambus was originally charged with manipulating industry standard setting procedures in favor of its own proprietary technologies. Specifically, the company was alleged to have deceived the Joint Electron Device Engineering Council (JEDEC) and its members by failing to disclose patents on technologies that the JEDEC adopted into industry standards. The technologies involved are widely used in consumer electronics including personal computers and servers.
The FTC brought antitrust charges against Rambus in 2002. The case was argued before the FTC's Chief Administrative Law Judge, Stephen McGuire, who ruled in favor of Rambus and dismissed the charges. The FTC's Complaint Counsel appealed the ALJ's decision to the full Commission, which, in July 2006, reversed the ALJ's ruling. In a unanimous decision the Commissioners held that Rambus violated Section 2 of the Sherman Act and Section 5 of the FTC Act by monopolizing the markets of four separate dynamic random access memory (DRAM) technologies. (See our August/September 2006 Antitrust Update.) Then, in February 2007, the Commissioners ordered maximum royalty rates for the technologies affected by Rambus' monopolization. (See our March 2007 Antitrust Update.)
Reversing, the Court of Appeals found that the FTC failed to demonstrate that Rambus harmed competition. In its order, the court stated that "the Commission failed to demonstrate that Rambus' conduct was exclusionary and thus to establish its claim that Rambus unlawfully monopolized the relevant markets." First, the court reasoned that Rambus' deception in failing to disclose plans for forthcoming patents might violate Section 2 if it caused the JEDEC to adopt Rambus technologies over other available technologies. The FTC, however, failed to prove such causation. Next, the court found that Rambus' conduct allowed it to avoid making a commitment to license its patented technologies on reasonable and nondiscriminatory royalty terms according to JEDEC policy but that such conduct was not necessarily anticompetitive. Finally, with respect to the FTC's deception claim, the court held that the JEDEC's rules did not clearly require Rambus to disclose plans for patents (before a patent application is filed) and the FTC could not base its claim on ambiguous "expectations" of other JEDEC members.
The FTC has not yet commented on whether it will pursue the matter further on remand. In the meantime it may consider the Court of Appeals' warning that it had "serious concerns about the strength of the evidence relied on to support some of the Commission's crucial findings." Rambus still faces an investigation by the European Commission (EC). In August 2007 the EC initiated proceedings against Rambus by issuing a Statement of Objections alleging that the company engaged in intentional deceptive conduct with respect to industry standard-setting.
Qantas Executive Pleads Guilty to Air Cargo Conspiracy
A former executive of Qantas Airways Ltd., Bruce McCaffrey, has agreed to plead guilty to conspiring to fix rates on international air cargo charged to customers in the United States and elsewhere between January 2000 and February 2006. McCaffrey, Qantas' former vice president of freight for the Americas, has agreed to serve eight months in jail and pay a US$20,000 criminal fine for his role in the conspiracy.
According to charges filed in US District Court for the District of Columbia, McCaffrey participated in meetings, conversations and communications in the United States and elsewhere to fix certain components of cargo rates on routes to and from the United States. The charges further allege that during such meetings, conversations and communications, he agreed with others to fix prices, and then took steps to implement, monitor and enforce such agreements.
McCaffrey is the first individual to be charged in the Department of Justice's (DOJ) ongoing investigation of the international air cargo industry. To date, the investigation has yielded guilty pleas and US$300 million fines from both British Airways Plc and Korean Air Lines Co. Ltd., a guilty plea and US$110 million fine from Japan Airlines International Co. Ltd., and a guilty plea and US$61 million fine from Qantas. The DOJ has indicated that it intends to push forward with investigations and prosecutions of individuals involved in the conspiracy including five additional Quantas executives. McCaffrey, as part of his plea agreement, has pledged to assist the DOJ in any future investigation of the industry.
New Net Neutrality Legislation Includes Antitrust Remedies
House Judiciary Committee Chairman Rep. John Conyers (D-Mich.) and Rep. Zoe Lofgren (D-Calif.) are cosponsors of newly introduced net neutrality legislation. The proposed law, the Internet Freedom and Nondiscrimination Act of 2008 (H.R. 5994), aims to guarantee that Internet broadband providers allocate Internet access to all users on reasonable and nondiscriminatory terms. Unlike previous legislation of its kind, the Act would establish an antitrust remedy for anti-competitive or discriminatory practices by Internet providers.
DOJ Files Action Against South Carolina MLS
On May 2 the DOJ filed an antitrust action against Consolidated Multiple Listing Service (CMLS) of Columbia, South Carolina, alleging that certain policies adopted by the service harm competition for real estate brokerage services in the region. CMLS is a regional joint venture that compiles real estate listings data of its more than 3,100 member agents. Because CMLS is the only multiple listings service in the region, access is critical to area brokers seeking to advertise or locate homes for sale.
The DOJ's lawsuit is the latest action in the agency's continued focus of the real estate industry. Recently, the DOJ prosecuted civil antitrust actions against multiple listing services in Kentucky and Hilton Head Island. The agency also established a website devoted to disseminating information about alternative brokerage options and exposing states that maintain laws that stifle competition from nontraditional and low-cost brokers.
In its complaint, the DOJ alleged that CMLS maintained policies that harmed competition, limited consumer choice and raised prices. Specifically, the DOJ alleged that by limiting membership in CMLS to real estate brokers who perform a required set of services, CMLS excluded alternative brokerage options that could provide services better tailored to consumers' needs and reduced prices. The complaint highlighted rules prohibiting members from allowing home sellers to avoid paying a commission if they find a buyer on their own, and requirements that the broker be involved in price negotiations and closings. Such policies, according to the DOJ, allow Columbia brokers to exclude competition from brokers offering innovative services, such as fee-for-service or flat-fee arrangements, and brokers located outside of Columbia. According to Assistant Attorney General in charge of the DOJ's Antitrust Division, Thomas O. Barnett, "The kinds of rules CMLS imposes stifle competition to the advantage of its members and the disadvantage of home buyers and sellers."
EUROPEAN UNION
Microsoft to Appeal €899 Million Fine
Microsoft Corp. has filed an application to appeal the European Commission's (EC) €899 million fine for failing adequately to comply with the EC's 2004 antitrust ruling. A Microsoft spokesperson indicated that the software company was filing the appeal "as a constructive effort to seek clarity from the court."
In March 2004 the EC ruled that Microsoft had violated EU competition laws in part by leveraging its near monopoly in the market for PC operating systems onto the market for work group server operating systems. The EC ordered the company to pay a €497 million fine and provide at reasonable rates interoperability data that would allow competing work group server operating systems to interact with the Windows platform. In February 2008, however, the EC followed its decision with the groundbreaking €899 million fine imposed on Microsoft for failing to comply with its 2004 order. Specifically, the EC determined that Microsoft had, inter alia, charged unreasonable prices for access to the Windows interoperability information. Microsoft will challenge the EC's determination before the Court of First Instance and, if unsuccessful, can appeal to the European Court of Justice.
EC Releases White Paper on Damages Claims
The EC has published a white paper suggesting options for enhancing private actions for damages arising out of competition law infringements. The paper is aimed at overcoming obstacles in a number of countries that have so far impeded effective redress by consumers or businesses for antitrust violations. The model proposed by the white paper is based on compensation through single damages and a balance of rights and obligations between claimant and defendant. The paper also discusses such key issues as collective redress, disclosure of evidence and the status of decisions of competition authorities in civil proceedings. Private actions for antitrust damages would have to be brought before national courts under national law; the EC cannot itself implement the suggested changes EU-wide.
EC Opens Consultation on Insurance Block Exemptions
On April 17 the EC launched a public consultation on the functioning of the Insurance Block Exemption regulation (IBER). The IBER provides a general exemption from the application of Article 81(1) of the EC Treaty for certain cooperation agreements between insurance companies, such as information sharing or insurance pools. The public consultation, which closes July 17, 2008, is meant to provide the EC with an overview on the use and impact of the IBER on the insurance market. Based on the results of the consultation, the EC will decide whether to renew or discontinue the IBER upon its expiration in 2010.
CFI Upholds Fines to Deutsche Telekom
The Court of First Instance (CFI) has ruled to uphold the EC's finding of abuse of dominance by Deutsche Telekom. In 2003 the EC found that Deutsche Telekom had abused its dominant position in the market for direct access to its fixed telephone network, having charged competitors prices higher than Deutsche Telekom's retail prices. The fines imposed by the EC totaled €12.6 million. The CFI found that the assessment and conclusions made by the EC were correct, rejecting each of Deutsche Telekom's bases for appeal. Moreover, the CFI stated that decisions of national regulatory authorities with regard to EU telecom rules cannot affect the powers of the EC as regards a finding of a breach of competition rules. An appeal against a CFI ruling can be brought within two months of notification of the decision.
AROUND THE WORLD
GLOBAL Regulators Converge in Tokyo for Annual ICN Meeting
The Japan Fair Trade Commission (JFTC) played host to the Seventh Annual Conference of the International Competition Network (ICN) in April in Kyoto, Japan. Attendees included more than 500 representatives of nearly 70 competition agencies, competition experts from various international organizations, and members of industrial, consumer, economic and academic communities. Delegates from the United States included FTC Chairman William E. Kovacic and head of the DOJ antitrust division Thomas O. Barnett.
Principal among the accomplishments of this year's conference was the adoption by ICN members of three new Recommended Practices to improve merger analysis. The Recommended Practices were presented by the ICN's Merger Working Group, which is co-chaired by James J. O'Connell Jr., deputy assistant attorney general for the DOJ's Antitrust Division, and Dr. Paul Gorecki of the Irish Competition Authority. The Recommended Practices include a legal framework for merger analysis, the use of market shares as a starting point for identifying mergers that raise competition concerns, and assessment of entry and expansion in evaluating the threat to competition raised by a proposed merger. The Merger Working Group also presented a detailed report on notification thresholds used in merger review.
The conference also featured work by the Unilateral Conduct Working Group (UCWG), which is co-chaired by the FTC and Germany's Bundeskartellamt. ICN members adopted Recommended Practices presented by the UCWG regarding analyzing markets to identify firms with significant market power.
Copies of the Recommended Practices for merger analysis and unilateral conduct may be viewed, along with other materials from the conference on the ICN's website.
CHINA
Hong Kong Considers Competition Law
The government of Hong Kong has launched a second consultation on the city-state's draft cross-sector competition law. Work on the legislation began in 2006 following a report by a government advisory panel that concluded that the region was rife with monopolies and cartels and that antitrust legislation was needed.
According to the draft legislation, Hong Kong would establish an independent agency to investigate and prosecute cartels and abuse of dominance. The agency would be armed with a full arsenal of enforcement tools including unannounced inspections and a leniency program for offenders who offer assistance to ongoing investigations. It would also be authorized to issue fines of up to HDK$10 million (approximately US$1.3 million). Under the proposed law, the competition agency's decisions would be reviewable by a judicial tribunal composed of economists, lawyers and business experts. The tribunal could increase fines to corporate offenders to 10 percent of their annual turnover and impose penalties on individuals including bans of up to five years from holding corporate director and executive positions. The proposed law also contemplates private enforcement through a class action mechanism that would authorize industry associations to act as class representatives.
Although comprehensive, the proposed competition law contains no provisions regulating anticompetitive mergers and acquisitions. In addition, the legislation is expected to draw criticism for the threshold it proposes for determining dominance, which is 40 percent well below the law's counterparts in Europe and the United States. The draft competition law will be subject to a three-month period for public comment ending August 5, 2008.
JAPAN JFTC Conducts Inspection of JASRAC
On April 23, 2008 the JFTC conducted an onsite inspection of the Japanese Society for Rights of Authors, Composers and Publishers (JASRAC). The JFTC suspects JASRAC of unfairly excluding competition in the market for copyright management services through its contracts with television and radio broadcasting stations.
JASRAC's standard "Comprehensive License Agreements" entitle it to a user fee of 1.5 percent of a broadcasting station's annual broadcasting revenues (totaling about ¥26 billion, annually). In return, broadcasting stations have unlimited access to music under JASRAC's management, but they must make additional payments for using music under the management of other copyright management enterprises. The JFTC believes that such arrangements cause broadcasting stations to be less inclined to use music from JASRAC's competitors, thereby creating a barrier to entry and harming competition.
Until 2001 JASRAC was the sole copyright management company in Japan. Its monopoly was disrupted by the enactment of the 2001 Law on Management Business of Copyright and Neighboring Rights, which was intended to eliminate certain barriers to entry in the market. Nevertheless, the copyright management services market remains highly concentrated with JASRAC maintaining an estimated 95 percent market share.
JAPAN British Investment Fund Rejects Recommendation to Halt Purchase of J-Power Shares
In April Japan's Minister of Finance and Minister of Economy, Trade and Industry issued a formal recommendation to the London-based hedge fund, The Children's Investment Master Fund (TCI), to cease its planned purchase of shares of the Japan-based power company J-POWER. J-POWER was established jointly by Japan's government and electric power companies to assume capital investment for the stable supply of electric power. It became completely privatized in 2004, and is currently the largest wholesale electric power company in Japan.
TCI, already a 9.9 percent shareholder in J-POWER, notified Japan's government in January of its plan to purchase up to 20 percent of the power company's issued stock. The ministers' recommendation was based on restrictions in the Foreign Exchange and Foreign Trade Control Law with regard to investment coming from outside Japan. This was the first cease-and-desist recommendation issued under the law. TCI has since announced that it has rejected the recommendation, and, in response, Japan's government has indicated it will pursue a cease-and-desist order against TCI. Prior to issuance of such an order, TCI will have an opportunity to present its case for allowing the purchase of J-Power shares pursuant to the Administrative Procedure Act.
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