Antitrust Update

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                                   Antitrust Update

A                     Antitrust litigation is particularly timely, as the Obama administration has said it will rigorously enforce anti-

                      trust laws to maintain competitive markets. Many recent cases, such as In re Hydrogen Peroxide Antitrust
                      Litigation (552 F.3d 305 (3d Cir. 2008)) and Pacific Bell Telephone Co. v. Linkline Communications (129 S.Ct.
                      1109 (2009)) have also kept antitrust issues in the headlines.
                          Our panel of experts discusses this along with other topics such as class certification, price fixing, and
                      patent rights as seen through a variety of antitrust cases including McDonough v. Toys “R” Us Inc. (2009 WL
                      2055168 (E.D. Pa. 2009)); Leegin Creative Leather Products Inc. v PSKS Inc. (551 U.S. 877 (2007)); Quanta
                      Computer v. LG Electronics (128 S.Ct. 2109 (2008)); and Bell Atlantic v. Twombly (550 U.S. 544 (2007)).
                      They are Joseph R. Saveri of Lieff Cabraser Heimann & Bernstein; Robert P. Taylor and Michele Floyd of Mintz,
                      Levin, Cohn, Ferris, Glovsky & Popeo; and Geraldine M. Alexis of Perkins Coie. California Lawyer moderated the
                      roundtable, which was reported by Krishanna DeRita of Barkley Court Reporters.

MODERATOR: Does McDonough v. Toys “R” Us Inc.            Section One cases, while Hydrogen Peroxide may         the case, it puts defendants in a much more dif-
make the test for winning class certification more       indicate a requirement of producing more expert        ficult position than they would be otherwise would
rigorous?                                                testimony on certain issues, these classes are still   be. A decision like Hydrogen Peroxide can carry
                                                         going to be certified. Plaintiffs and the defendants   some mixed blessings.
FLOYD: Since Rule 23 was amended in 2003,                frankly can’t turn the class certification motion
we’ve been seeing the circuits slowly starting to        into a trial on the merits.                            ALEXIS: It will be interesting to see how this all
adopt a more rigorous analysis test. The courts                                                                 affects the judge’s inclination to bifurcate discov-
have been more and more willing to examine               TAYLOR: Your use of the term “trial on the mer-        ery between the class issues and the merits issues
evidence and actually resolve factual disputes on        its” prompts me to wonder about what happens           because it does seem that these are starting to
certification. Toys “R” Us illustrates the pinnacle      as the Toys “R” Us case progresses towards trial.      meld together and the merits issues become rel-
of that trend. The court took Hydrogen Peroxide at       Will these findings be treated as findings on the      evant to class certification.
its word, found facts, resolved disputes, rejected       merits as found by the trial court? The findings
expert testimony, and granted certification.             are probably not going to be binding on a jury, but    FLOYD: I think Toys makes bifurcation more dif-
                                                         they may well control the way in which the trial       ficult because it’s harder to separate the substan-
SAVERI: From a plaintiff’s perspective Hydrogen          court looks at dispositive motions such as sum-        tive procedural issues now that we have a more
Peroxide was a decision that many people thought         mary judgment motions. I am also curious as to         rigorous standard. With this new trend the court
would represent a real sea change in how the             what happens now to the experts whose testimony        is going to find a way to balance the procedural
class certification motions are briefed and how          was rejected by the trial court in connection with     and substantive issues, so we don’t end up with
they are resolved on the merits. In Hydrogen Per-        the class certification. I have certainly seen cases   a quick look on the merits and a game-over situa-
oxide, the Third Circuit overturned class certifica-     where the court allowed some testimony as to           tion at the class certification stage.
tion by the trial court. In Toys “R” Us, a trial court   prior proceedings as admissions of the party offer-
in the Third Circuit certified the class. Toys “R” Us    ing testimony.                                         SAVERI: If the burden is one that requires an exten-
was not just a horizontal Section One case. It was                                                              sive factual showing, what that really means is it’s
a decision where, despite Hydrogen Peroxide and          SAVERI: What had once been considered to be            going to be difficult to bifurcate discovery. It means
any suggestions in the decision about a higher           procedural motions are turning into a very early       substantial merits discovery will have to be taken.
standard that might apply, the judge certified the       litigation of the merits of the claims. That’s kind    You will get very close to essentially completing all
class. From a plaintiff’s perspective, Toys “R” Us       of a mixed bag. If the plaintiffs prevail on these     the discovery in the case and it seems to me in
is a very positive decision. In more straightforward     issues on a less-developed record fairly early in      terms of litigation expenses and efficiencies, that’s

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                                                                  not necessarily a recipe to reduce litigation or litiga-
                                                                  tion costs with respect to class certification.
                                                                                                                                 “What had once been
                                                                  TAYLOR: Defendants have usually tried to get as
                                                                  much of the merits of a case as possible into their              considered to be
                                                                  opposition to a class-certification motion, because
                                                                  the differences between various members of the
                                                                                                                                   procedural motions are
                                                                  class relative to the merits of the case provide the             turning into a very early
                                                                  best argument for the absence of the dominance of
                  JOSEPH R. SAVERI is a partner at Lieff          common issues of law and fact. From a defendant’s                litigation of the merits of
                  Cabraser Heimann & Bernstein. He has            perspective, class certification is enormously impor-
                  antitrust experience in numerous indus-         tant, because as soon as a defendant is facing                   the claims. That’s kind of
                  tries, including commercial explosives,         both a large class and the multiplication-of-dam-
                  computer software, energy, x-ray film,           age claims that goes with the opt-out procedure,                 a mixed bag.”
                  baby food, transportation, dairy, retailing,    combined with the inability to procure summary
                  entertainment, glass, packaging, cosmet-        judgment, that case needs to be settled as quickly
                  ics, vitamins, and agricultural products.       as possible. So I see this Toys “R” Us case as more        very adaptable and they will just adapt and will
                  His jury trial experience includes cases        a defense-favorable trend in the law than plaintiff-       come forward with the evidence that they need.
                  of price-fixing brand-name prescription          favorable, despite the findings that the judge made        They’ll meet the standard and we will just move
                  drugs, carpets, and travel agent commis-        in this particular case.                                   to another level.
                  sions. Mr. Saveri is co-author of California
                  Antitrust Law published by the State Bar’s      MODERATOR: The Hydrogen Peroxide ruling was                SAVERI: The plaintiffs bar may have done itself a
                  Antitrust and Unfair Competition Section        in December. Have we seen its impact already on            disservice in that it hasn’t really stressed what was
                  and a contributor to the California Class       timing tactics, evidentiary record, and all that?          a historic rationale behind class actions. There’s
                  Action treatise.                                                                                           a strong tradition in the line of antitrust cases in
                                        SAVERI: In virtually every case I work on, it is           particular, and in class actions more generally
                                                                  raised as an issue. In terms of results, we haven’t        emphasizing the real value that private enforce-
                                                                  seen much difference yet. It’s too early to tell,          ment of antitrust laws can bring not only to the
                                                                  but certainly from a plaintiff’s perspective, we           litigants, but to the economy as a whole. Even
                                                                  feel like we have to continue to develop fairly            with increased enforcement by the DOJ or the
                                                                  extensive records on these issues, and to have             FTC, there’s generally under-enforcement of the
                                                                  very well-developed expert reports. It has meant           antitrust law and the class-action device has pre-
                                                                  that the plaintiffs are doing their homework and           sented an opportunity over time to remedy that.
                                                                  really developing a stronger and more voluminous
                                                                  case on class certification. Now, again, in antitrust      MODERATOR: Looking at Pacific Bell Telephone
                                                                  cases, which are ordinarily certified, I don’t know        Co. v. Linkline Communications, what are the
                                                                  that that really changes the results very much or          ramifications of the Supreme Court’s finding that
                  MICHELE FLOYD is a member in Mintz              will change them very much.                                price-squeezing claims cannot be considered
                  Levin’s Litigation Section in the Palo Alto                                                                under the Sherman Act?
                  office. Her practice focuses on complex          FLOYD: There are a few district court cases
                  business litigation and regulatory matters.     including those in the Ninth Circuit district courts       ALEXIS: It was established jurisprudence that a
                  She routinely tackles cases involving           that followed a Hydrogen Peroxide-like test before         price squeeze could be a violation of Section Two
                  difficult procedural issues, and represents      Hydrogen Peroxide was decided. But in those                of the Sherman Act. Linkline has now said “No.” The
                  clients before the FCC, the Department          cases, the outcome was predominately certifica-            most significant thing about Linkline is its reliance
                  of Justice, state Attorneys General, and        tion. So Toys just adds to my curiosity as to how          on Trinko (Law Offices of Curtis V. Trinko v. Bell
                  other agencies. Before joining Mintz Levin,     the courts are going to deal with this standard. I         Atlantic Corp., 305 F.3d 89 (2d Cir. 2002)). The
                  Ms. Floyd served as Yahoo! Inc.’s senior        think it is fairly uncertain now as to how the stan-       Ninth Circuit subsequently held “We can’t follow
                  legal director, commercial litigation, where    dard is going to apply. But at the end of day, I’m         Cascade Health Solutions v. PeaceHealth (515
                  she managed commercial litigation and           not sure that it’s going to have a huge impact on          F.3d 883 (9th Cir. 2008)) anymore. We have to fol-
                  provided general business counsel. She          whether or not the class gets certified.                   low Linkline,” and now the question is whether the
                  received her J.D. from Fordham University                                                                  pricing is predatory. If it’s not, there’s really noth-
                  School of Law.                                  ALEXIS: Even if it might change the rules of the           ing you can do about it. (See John Doe 1 v. Abbot
                                         game, my experience is that the plaintiffs bar is          Laboratories, 2009 WL 1926322 (9th Cir. 2009).)

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SAVERI: There’s a part of the Cascade test that            FLOYD: Applying Leegin to this type of conduct, if
talks about how you measure costs in a monopoly            it’s a retailer doing the coercion, it’s going to be
leveraging case. That was one of the issues that           a more difficult battle than if it were the manu-
was part of the appeal and part of the case. The           facturer.
court didn’t have to address that because under
Linkline it was pretty clear that the defendant            TAYLOR: If you think back to the decision of the
should prevail. So I don’t think that part of Cas-         Supreme Court in the early 1980s in the Monsanto
cade has been addressed.                                   case, which made it much tougher for plaintiffs to
                                                           take advantage of the per se rule in vertical price
FLOYD: The most interesting thing about Linkline           fixing cases—initially you saw a lot of distributors   ROBERT P. TAYLOR is the managing
is how it is going to apply to other conduct. It           trying to bring rule-of-reason cases, but that fell    member for Mintz Levin’s Palo Alto office
addresses a unique type of conduct, but I don’t            by the wayside after a year or so. We haven’t seen     and practices in the Intellectual Property
think that Linkline is going to be restricted to a         those cases for 15 years or so. My guess is the        Section. He specializes in antitrust,
price squeeze.                                             same thing is going to happen with Leegin if the       intellectual property, and related fields of
                                                           decision holds.                                        law. Mr. Taylor has served as lead counsel
MODERATOR: How about the Leegin Creative                                                                          in antitrust and patent disputes involving
Products Inc. v PSKS Inc. case? I know it was              MODERATOR: Does using the per se rule in verti-        numerous technologies and industries,
decided in 2007, but are we still feeling the rami-        cal-price maintenance deny manufacturers control       and has written and lectured on patent
fications of the fact that they overturned the per         over distribution of their product?                    law problems and intellectual property
se rule prohibiting vertical-price fixing?                                                                        rights. He received his J.D. from George-
                                                           ALEXIS: You don’t want [a retailer] offering your      town University, is a Fellow of the American
ALEXIS: One of the key issues with Leegin is that          product in a dingy, crummy place. You want to          College of Trial Lawyers, and a former chair
it’s no longer per se illegal to have vertical price       make sure that you can maintain the image that         of the ABA’s Antitrust Section.
fixing. But it’s not per se legal as you said. Then        you are trying to create around your product. And
the question is how do you prove that it has an            sometimes that even means having a high price
anticompetitive effect? And here is where I’ve             just because that gives a certain allure to your
seen the government and the plaintiffs bar again           product. So to that extent, it’s important that the
come to the realization of “If we can’t just show          manufacturer be able to perhaps control the price
something is per se illegal, we are going to show          of the ultimate product.
it has an anticompetitive effect.” You can see that
in some of the allegations in Toys “R” Us on class         TAYLOR: Since Continental T.V. Inc. v. GTE Syl-
certification.                                             vania Inc. (433 U.S. 36 (1977)), manufacturers
                                                           have had the right to control major aspects of
SAVERI: What Leegin is really about is the classi-         distribution and I don’t think Leegin changes that.
fication of the restraint. Is it a per se restraint that   All Leegin really does is to eliminate what in the
is judged under the rule-of-reason or something            vast majority of cases were spurious claims by a
else? From a plaintiff’s perspective, we handle a lot      terminated distributor and allows manufacturers        GERALDINE M. ALEXIS is a partner at
of rule-of-reason cases. They may be more difficult        to have rational policies related to their business    Perkins Coie. She focuses her practice
and impose more cost on the plaintiffs, but they are       needs. Leegin was the perfect case to take this        on antitrust and trade regulation. She
nonetheless cases that can be proved. You can get          issue to the Supreme Court, because it was a           has conducted several bench and jury
past summary judgment. You can get classes cer-            couple of young people that created a business         trials and handled high-profile merger
tified and you can get to a jury. So maybe Leegin          where the only way that they could manage to get       cases. Ms. Alexis represents clients before
changed the landscape, but a number of cases are           their product into the marketplace was to make         the Department of Justice, the FTC and
proceeding as rule-of-reason cases.                        sure that they controlled the way in which it was      state antitrust enforcement agencies in
                                                           distributed.                                           mergers, acquisitions, joint ventures, and
TAYLOR: It is easier to see the anticompetitive                                                                   other government antitrust investigations,
impact on consumer welfare where you have a                FLOYD: All that Leegin did was take a type of verti-   with emphasis on obtaining accelerated
manufacturer coercing a group of distributors all          cal conduct that had been historically per se legal    clearances. She also counsels numerous
to maintain a price than it is where you have a            and moved it into the rule-of-reason analysis. It’s    companies on the antitrust aspects
distributor who is trying to coerce the lowest price       not per se legal or illegal, but subject to the rule   of joint ventures, mergers, distribution
possible. If that is the form of coercion you are          of reason and manufacturers can and still do           contracts, and IP licenses.
talking about, it is less anticompetitive than the         exercise the control that they feel is appropriate
other way around.                                          and within the restraints of rule of reason.

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        MODERATOR: In Bell Atlantic v. Twombly, the Court                                                               invention in this country. That’s the way our pat-
        stated that a pleading must present enough facts                                                                ent system works. I don’t read Quanta as limiting
        to state a claim for relief that is plausible on its        “Even if it might change                            that right.
        face. This seems to reject the former standard
        that a claim needed to be merely conceivable. In              the rules of the game,                            SAVERI: And it strikes me as a narrow decision
        the wake of this ruling are we now avoiding costs                                                               that was written in a way to get all nine votes.
        associated with groundless claims in which defen-             my experience is that                             There probably could have been a more broad
        dants can settle early just to avoid litigation?                                                                decision of the type you discussed that could have
                                                                      the plaintiffs bar is very                        been written. Perhaps that might have been in
        SAVERI: Twombly is about pleading standards, and              adaptable and they will                           the mind of some of the justices of the Court that
        it certainly is a change from the previous cases.                                                               granted cert, but that’s not what happened.
        But at some level the litigants have adapted.                 just adapt and will come
        Complaints have gotten a lot longer. More facts                                                                 ALEXIS: But do you think that the Quanta opinion
        are alleged. Generally, in the antitrust context,             forward with the evidence                         will result in more antitrust actions under Section
        Twombly has not resulted in wholesale dismiss-                                                                  Two of the Sherman Act, in response to a party’s
        als of antitrust cases. My experience is that it’s            that they need.”                                  efforts to expand the scope of its power under its
        made it more burdensome at the pleading stage                                                                   patent?
        but hasn’t affected the ultimate results in many
        cases that are filed.                                   be a recipe for financial disaster. Even in so-called   TAYLOR: It might. One of the concerns that I have
                                                                “big document” antitrust cases, judges, magistrate      thought about is whether or not this exhaustion
        TAYLOR: Even before Twombly we were see-                judges, special masters, and lawyers have become        issue will be picked up for the basis for misuse
        ing these lengthy complaints in antitrust cases,        fairly sophisticated about managing the cost of         claims and at least one district court has already
        describing the industry and identifying all the         discovery. The fact that the pleading standards         said no. The whole area of patent misuse was ram-
        players. The whole idea of notice pleading harkens      were arguably low does not necessarily mean that        pant starting in 1948 when the Supreme Court
        back to a judicial philosophy in this country that      there was discovery abuse. The biggest single effect    decided the Morton Salt case (F.T.C. v. Morton
        started in the post-war era that once you told          of Twombly is that it has delayed the proceedings       Salt, 334 U.S. 37 (1948)) until Congress in ’88 put
        the other side what the case is about, the details      from progressing, because we now spend significant      into place the provision in 35 U.S.C. section 271
        would all come out in discovery. Then we went           amounts of time fighting about the pleadings.           (d), that basically said that unless the patent owner
        through a period when the costs associated with                                                                 has market power, a tying arrangement will not be
        discovery became prohibitive and judges began to        TAYLOR: I have a strong bias against 12(b)(6)           held to be patent misuse. Between those two dates,
        see that, “If I just open up the defendant’s entire     motions, just in general, because they are rarely       there was rampant use of the misuse doctrine to
        files to the plaintiff, that is going to be one enor-   successful for very long. The plaintiff almost always   make patents unenforceable, and we haven’t seen
        mously expensive case.” If all you’ve alleged is        gets a chance to amend and it gives the plaintiff       much of that since the late ’80s or early ’90s. But
        that the parties are competitors, the defendant is      a chance to think a lot more about the case. From       this exhaustion issue will certainly lead some defen-
        a monopolist and the plaintiff is injured, if that’s    a defense point of view, a 12(b)(6) motion has          dants in patent cases to give it a try.
        the only thing on the table, that’s not a very good     always struck me, except in the rare case, as a
        roadmap for the judge.                                  waste of time and actually counterproductive.           ALEXIS: Joe [Saveri], Robert [Taylor] has just
                                                                                                                        given you a whole new area of antitrust cases you
        FLOYD: Twombly noted specifically that part of          MODERATOR: Does Quanta Computer v. LG Elec-             can pursue. ■
        the rationale underlying the decision was the cost      tronics indicate that the Court is favoring a free
        of discovery—particularly in antitrust conspiracy       market philosophy over patent holders’ rights?
        cases. The Supreme Court recently [made] it clear                                                                 BARKLEY COURT REPORTERS is affiliated with
        that that standard applies across the board to all      TAYLOR: Patent holders get the right to exclude           over 100 Realtime Certified Shorthand Reporters
        pleadings in federal court.                             others from making, using, and selling the pat-           and has eight locations throughout California,
                                                                ent invention. Going back to the early part of the        offering worldwide scheduling 24 hours a
        ALEXIS: But I ask you, Joe [Saveri], do you think       20th century, the court has said that the patent          day/7days a week. The company takes pride in
        that Twombly has affected the scope and the             owner can slice that patent however it wants. It          being the first deposition agency to use and offer
        amount of pre-filing investigation that a plaintiffs    can say to someone “You can make and not do               state-of-the-art technology and in setting the
        lawyer would do before filing a complaint?              anything else, or you can use and not do anything         standards of professionalism, quality, and out-
                                                                else.” So there has always been a relative degree         standing service for the industry. Large multistate
        SAVERI: In antitrust cases where lawyers are paid       of freedom for the patent owner to slice and dice         case management is its specialty.
        on a contingent basis, they have to choose their        the exclusive right anyway that it chose to do. We             800.222.1231
        cases very carefully. Going into a meritless case may   have a market-based system for compensating