Select Antitrust Issues for Technology Companies

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Dec. 7, 2007 Presentation to the annual All Hands Meeting of Silicon Valley General Counsel Association

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Select Antitrust Issues for Technology Companies

  1. 1. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Select Antitrust Issues for Technology Companies 2007 All Hands Meeting Chris Compton, WSGR December 4, 2007
  2. 2. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Antitrust Highlights 2007  And Now, the News  Europe: The New Global Antitrust HQ  The Supreme Court Rediscovers Antitrust • Key 2007 Supreme Court Decisions  Resale Price Maintenance after Leegin  Other Issues, Q&A One man’s news is another man’s troubles. Finley Peter Dunn, Observations by Mr. Dooley (1902)
  3. 3. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION And Now, the News  Jan. 17: EC investigators ask Neelie Kroes to formally charge Intel re alleged coercive tactics with customers to foreclose AMD  Jan. 24: FTC Scrutinizing Private Equity Investments: Consent Decree in $ 22 billion Carlyle Group/Riverstone acquisition of interest in Kinder Morgan  Feb. 2: Final FTC Order in Rambus, setting maximum royalty rates on DDR SDRAM and SDRAM due to standard setting abuses.  Feb. 5: Final FTC remedy order in Rambus. Appeal by FTC.  Feb. 9: Investment banks subpoenaed after B of A strikes leniency deal with DOJ, Feb. 9th (bid rigging in municipal derivatives industry).
  4. 4. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION News, 2  April 2: Antitrust Modernization Commission Report  April: EC investigating Apple deals with music labels that restrict commerce across national borders. Not to mention the tying of iPods and iTunes (French challenge)  April: DOJ/FTC Report on IP Rights and Antitrust  May 3: Marine Hoses Cartel arrests by DOJ, European raids  Aug. 30: China enacts Anti-Monopoly Law  Sept. 17: European CFI Decision vs. Microsoft.  Oct. 22: Microsoft Caves
  5. 5. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Europe: New Global HQ for Antitrust Enforcement  Newly emboldened, even re US companies  Focus on Technology, Telecom  Art. 82 Abuse of Dominance  Bias toward protecting competitors  Merger Control, with national agencies  Cartel enforcement, coordinating with US, et al. His chief hate was Washington bureaucracy; second to that, liberals; then cops. Jack Kerouac, On the Road (1957)
  6. 6. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION . . .while the DOJ Fights with Europe & the FTC, and Does Cartels  DOJ’s highest priority • Particular focus on international “cartel” activity • Last decade: Billions in fines, dozens of jail terms  Post-Enron “whistle-blower” hotlines  DRAM (2002-2006)  SRAM Investigation now underway • Expect major criminal activity involving the DOJ and allegations of price-fixing in China  Others: E.g., airline freight, marine hoses  EU active too • In first 4 months of 2007, 2 billion euros in fines
  7. 7. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION The Supreme Court Renews its Affair with Antitrust—but Finds it Unappealing  Predatory buying: Weyerhauser. • Decision Feb. 20, 2007: 9-0, Court reversed 9th Circuit and applied tighter Brooke Group test for liability.  Pleading Sherman Act conspiracy: Twombly v. Bell Atlantic Corp. (5/21/07). • Need to plead more than parallel conduct.  Antitrust immunity in markets regulated by SEC: Credit Suisse First Boston Ltd. v. Billing (6/18/07)  Vertical price fixing: Leegin (6/28/07) • Overturned Dr. Miles per se rule for resale price maintenance.
  8. 8. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Resale Price Maintenance after Leegin May we now abandon MAP and other artificial devices? Without some dissimulation, no business can be carried on at all. Lord Chesterfield (1749)
  9. 9. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Resale Price Maintenance (vertical price fixing) 1911-2007  You cannot agree with a distributor/reseller/licensee on the resale price to be charged customers  Minimum (never) or maximum (sometimes)?  You can: • Set prices unilaterally (Colgate) • Suggest prices • Control pricing by agents/brokers/consignees  Same issues apply to MAP and Co-op Advertising programs  Policing can lead to collusion among resellers  Bigger problem if you compete against your reseller too!
  10. 10. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION The Leegin Decision  5-4 majority overruled 96 year old precedent (by Kennedy, J; Justice Scalia hiding). • Affirmed 5th Circuit and jury verdict for terminated retailer  Agreements to set minimum resale prices now to be tested by Rule of Reason; no longer per se illegal • State Oil v. Khan had blessed maximum RPM in 1997. • Per se rule in decline since Chicago School in 1970s  Factual setting: Failed attempt at MAP under Colgate doctrine
  11. 11. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Leegin Reasoning  Per se rule should apply only where courts have considerable experience with the type of restraint at issue— i.e., where the economic impact “is immediately obvious” and “manifestly anticompetitive.”  Recent cases “have rejected the rationales on which Dr. Miles was based.”  Economic literature full of pro-competitve reasons for vertical price restraints • Can stimulate interbrand competition • Give consumers more choice in price/service tradeoffs • Stop ‘free riding” (internet sales) • Encourage new entry in at manufacturer level
  12. 12. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Leegin Dissent  Even writing on a clean slate, the question is a close one. • Studies suggest consumer prices will go up • At best, economic pros and cons are unclear  Should not overturn 96 years of precedent on uncertain economic basis • Scalia’s factors all argue against reversal • Reliance by business; “turmoil” likely in the courts now One man, two loves. No good ever comes of that. Euripides, Andromache (426 B.C.)
  13. 13. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Leegin’s Limitations  RPM not per se legal, unlike other vertical non-price restraints  Most states, including California, still make RPM per se illegal; legislative reaction coming? • Cartwright Act expressly bars pricing restraints • California hasn’t even yet expressly adopted Khan • 5-4 decision and economic debate makes adoption less likely  Still a “hard core” restraint in EU, other countries • Even MAP programs illegal in Canada
  14. 14. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Questions, Answers?
  15. 15. Wilson Sonsini Goodrich & Rosati PROFESSIONAL CORPORATION Charles T. (Chris) Compton Chris plays a leadership role in the firm’s antitrust practice, focusing on merger regulatory and intellectual property issues. He has overseen the antitrust work in more than 900 mergers, acquisitions, and joint ventures—many of which involved formal investigations by the FTC, DOJ, EC, and other international competition agencies. No Wilson Sonsini Goodrich & Rosati transaction since 1980 has ever been blocked or abandoned due to an antitrust challenge by the DOJ or FTC. Named a Northern California “Super Lawyer” since 2004 , Chris has also been cited in the 2005-07 editions of Chambers USA: America's Top Business Lawyers and in Best Lawyers in America, 2005-07. He also was listed as one of the “Top- Ranking Competition Lawyers in Europe and Northern America” (PLC, 2003-2004). Chris has written extensively and teaches an antitrust/intellectual property course for the Santa Clara University School of Law LL.M. program. Chris can be reached by phone at 650-320-4882, or by email at ccompton@wsgr.com.

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