July 29, 2010

Oneworld Airline Alliance Granted Antitrust Immunity By U.S. And E.U.

More than a decade after British Airlines and American Airlines first sought antitrust immunity for their global alliance, the U.S. Department of Transportation last week granted their request.

The immunity allows the members of the so-called Oneworld Alliance – including British Airlines, American Airlines, and Iberia of Spain – to coordinate on prices, capacity, and service.  The U.S. approval follows on the heels of a similar grant from the European Commission the week before.

Both the U.S. and the E.U. have conditioned immunity on the Oneworld Alliance members’ giving up coveted takeoff and landing positions at Heathrow airport for flights departing to the United States.  But the airlines seem to believe that this sacrifice will be worth the advantage they will gain from partnering with one another.  The Oneworld Alliance will compete against two other global competitors that already have antitrust immunity – Star Alliance (made up of Lufthansa and United/Continental, who have announced a merger) and SkyTeam (made up of Delta Air Lines and Air France-KLM.)

These global partnerships are changing the face of airline competition.  Rather than one airline competing against the others serving the same region, these global alliances will compete against one another.  This will particularly impact corporate travel buyers, who tend to negotiate with the alliances.  Proponents of these ventures argue that forging an alliance, and gaining global reach, keeps the airlines competitive with what business travelers need.

Of course, this means that airlines left without global partners may be at a distinct disadvantage, as critics of the U.S. and E.U.’s actions would be quick to point out.  Virgin Atlantic’s Richard Branson, for example, has been an outspoken critic of the Oneworld Alliance.  Virgin Atlantic has no global partners.

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Categories: Antitrust Enforcement, International Competition Issues

    July 26, 2010

    Third Circuit Gives Failing Grade To Indirect Purchasers Seeking National Class For State Antitrust Claims

    The U.S. Court of Appeals for the Third Circuit has ruled that state antitrust laws’ treatment of indirect purchaser claims are too disparate to meet the predominance and commonality requirements of Rule 23. 

    In Sullivan v. DB Investments Inc., plaintiffs alleged anticompetitive conduct in the diamond industry by the De Beers group of companies, the South African conglomerate synonymous with diamond production and distribution. Settlement discussions led to separate agreements for two plaintiff classes, one class for direct purchasers with federal law claims and one class for indirect purchasers with state law claims, for a total of $295 million.  De Beers agreed not to contest certification of the settlement classes and sought to dispose of claims in all 50 states and the District of Columbia.  The U.S. District Court for the District of New Jersey approved the settlements under Rule 23.

    And that’s where things got interesting. 

    The settlement process allowed class members to object to the proposed agreement, and 36 members of the indirect purchaser class filed objections.  The objecting indirect purchasers argued that many jurisdictions limit or deny the right of indirect purchasers to antitrust damages. For example, New York State provides a cause of action for indirect purchasers while New Jersey does not.  Nevertheless, the district court overruled the objection because the facts were similar for all indirect purchasers and De Beers itself had requested release from claims in all jurisdictions. 

    On appeal, the Third Circuit rejected the lower court’s reasoning and emphasized the diverse landscape of state antitrust law.  The 50 states are split over whether indirect purchasers can pursue antitrust claims for damages.  Roughly half of the states have enacted laws contrary to the spirit of the Supreme Court’s 1977 decision in Illinois Brick v. Illinois, which foreclosed indirect purchasers from suing for damages under federal antitrust law.  According to the Third Circuit, the district court exceeded its discretion “to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.”  click here for more »

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    Categories: Antitrust Litigation

      July 21, 2010

      Comcast-NBC Universal Deal Clears European Hurdle

      A proposed joint venture between cable giant Comcast and media titan NBC Universal has cleared a major hurdle as European antitrust regulators have blessed the deal.

      Because of significant differences between the assets involved in the American and European aspects of the deal, however, it seems likely that U.S. regulators will continue to scrutinize the venture more rigorously.

      Comcast is America’s largest cable company and second largest internet service provider.  NBC owns major stakes in television, film, and cable programming as well as a major share in online streaming television service Hulu.  Under the deal, announced December 3, 2009, Comcast would buy a majority stake in NBC from its parent, General Electric.  As a result, Comcast and NBC would form a joint venture owned 51% by Comcast and 49% by NBC; Comcast would also manage the venture.  The deal is valued at $37 billion.

      The European Commission has announced that the deal “would not significantly impede effective competition in the European Economic Area or any substantial part of it.”  But they pointedly noted that in Europe, unlike in the U.S., Comcast owns no cable assets.  Thus in Europe the deal creates no vertical relationship between a Comcast cable distribution platform and NBC’s programming assets.  Such a relationship would, however, result from the U.S. portion of the deal.

      This vertical relationship was one of several concerns raised by opponents of the deal in a public comment period offered by the U.S. Federal Communications Commission, which has jurisdiction to review the deal.  The venture’s opponents believe it will lead to higher cable bills, fewer independent programmers and less public-service programming.  Comcast and NBC will formally respond to the public comments later this month.  But they have already argued that the deal would be a boon to consumers by improving broadcast operations, pressuring cable networks to lower prices and improve quality, and speeding the development of “anytime, anywhere” video service.  And they say the post-venture NBC would still only account for 12% of national cable network advertising and affiliate revenues, hardly enough to dominate cable advertising.

      The FCC and the U.S. Justice Department, which shares jurisdiction over the deal, are expected to decide by year-end whether to approve or deny the deal or approve it with conditions, such as asset divestitures.

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      Categories: International Competition Issues

        July 19, 2010

        SmithKline Beecham Breathes Easier As Class Is Delayed In Nasal Spray Antitrust Suit

        SmithKline Beecham Corp. may be breathing a little easier for now as a result of a temporary denial of class certification in the antitrust litigation that seeks to hold the pharmaceutical company liable for delaying generic versions of the nasal spray Flonase.

        Judge Anita B. Brody of the U.S. District Court for the Eastern District of Pennsylvania ordered the plaintiffs to rebrief their motion by September 30 in light of the U.S. Court of Appeals for the Third Circuit’s ruling a day earlier in a price-fixing class action against diamond company De Beers SA.

        A day before Judge Brody’s ruling, the Third Circuit vacated a $295 million settlement in the De Beers case, Sullivan v. DB Investments Inc.  The Third Circuit held that the district court failed to properly ascertain whether class certification was appropriate.  In vacating the De Beers settlement, the appeals court found that the lower court had not addressed differences among the state laws at issue in the case.

        The De Beers ruling could have significant implications for the plaintiffs in the Flonase antitrust litigation because they are seeking the certification of multiple classes based on various state and federal laws.  Each of the potential classes seeks to represent individuals and entities that purchased Flonase or its generic equivalent from May 19, 2004, until the full effects of generic competition had been felt.

        The court had previously allowed the plaintiffs to proceed with allegations that Glaxo SmithKline (formed by the merger of Glaxo Wellcome and SmithKline Beecham in 2000) caused them to overpay for Flonase by repeatedly filing sham citizen petitions that stalled the entry of generic nasal sprays into the market.  Citizen petitions can be filed with the FDA while approval of a generic drug is pending to express concerns about a product or request that the FDA take administrative action.  Congress passed a law in 2007 permitting the FDA to summarily dismiss citizen petitions to stop drug companies from abusing the process to extend monopolies.

        Judge Brody’s ruling temporarily denying class certification may turn out to be only a hiccup in plaintiffs’ quest for class certification.  That said, in seeking class certification, the plaintiffs will need to fully address the differences among the various state and federal laws at issue or risk certification being denied yet again.  Until they achieve the requested class certification, it is the plaintiffs who cannot breath easy.

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        Categories: Antitrust Enforcement

          July 14, 2010

          iPhone Antitrust Suit Clears Class Certification Hurdle

          Judge James Ware of the Northern District of California has granted a motion for certification of a class of iPhone consumers in an antitrust suit against Apple and AT&T.  An estimated 15 to 20 million U.S. iPhone purchasers are potential members of the class.

          Filed in 2007, the suit alleges that Apple and AT&T secretly agreed to restrict iPhone service for five years.  Although plaintiffs purchased a two-year service agreement which could be terminated at any time by paying a $175 fee, the suit alleges that Apple and AT&T ensured that iPhone users are still locked in to AT&T, as the iPhone won’t work on any other compatible network – such as T-Mobile.

          In 2008, the court held that the plaintiffs adequately alleged the existence of two “iPhone aftermarkets” – one for iPhone voice and data service and one for iPhone applications.  In ruling on class certification, the court rejected the argument that determining market power in the aftermarkets would require “individualized inquiry” into whether each class member “knowingly and voluntarily” gave the defendants this market power because they knew about AT&T exclusivity and Apple’s control over iPhone apps.  The court held that “whether consumers of iPhones ‘knowingly’ entered into de facto commitments to be monopolized can be analyzed on a class-wide basis.” 

          Likewise, defendants argued that plaintiffs’ damages expert failed to raise a common question because he analyzed the broader value of a customer’s ability to switch carriers rather than the impact of defendants’ specific challenged practices – the non-disclosure of the five-year exclusivity agreement.  The court concluded that the broader analysis was plausible.

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          Categories: Antitrust Litigation

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