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Whither Antitrust?

A new administration often means a new approach to federal agency enforcement of the antitrust laws.  And, a shift from Republican to Democrat often means more aggressive enforcement by the DOJ and FTC.  The business and legal communities want to know, what can we expect?

James W. Lowe and Thomas Mueller of Wilmer Hale attempt to answer some of these questions in their article Whither US Antitrust?, published in the March 2009 issue of the Global Competition Review.

Is It Safe? Cloud Computing, That Is

The Electronic Privacy Information Center (“EPIC”) doesn’t think so, at least when it comes to Google’s so-called “Cloud Computing Services” (e.g., gmail, picassa, google calender). Here is a link to the complaint (pdf) EPIC has filed with the Federal Trade Commission. Quoting from the Complaint:

Google routinely represents to consumers that documents stored on Google servers are secure. For example, the homepage for Google Docs states “Files are stored securely online” (emphasis in the original) and the accompanying video provides further assurances of the security of the Google Cloud Computing Service. . . .

Google encourages users to “add personal information to their documents and spreadsheets,” and represents to consumers that “this information is safely stored on Google’s secure servers.” Google states that “your data is private, unless you grant access to others and/or publish your information.” . . .

On March 7, 2009, Google disclosed user‐generated documents saved on its Google Docs Cloud Computing Service to users of the service who lacked permission to view the files (the “Google Docs Data Breach”). This is just one of many example of known flaws with Google’s Cloud Computing Services. . . .

Investigate Google, EPIC asked the FTC, and stop Google from misrepresenting the effectiveness of its security practices in connection with cloud computing. Compel Google to enhance its security precautions, and stop Google from offering cloud computing until it does so. And, order Google to contribute $5 million to a public fund to research and enhance technology-related privacy.

The FTC’s response to this request (whether it pays lip service or really pressures Google to firm-up its security) will be an interesting and early indicator of the Obama-FTC’s views on Internet privacy. Stay tuned.

FTC v. Rambus: the Issues in a Nutshell

I’d been planning to post a short summary of the legal issues in the FTC’s petition to the Supreme Court in the Rambus case, but I’ve noticed that Professor Michael A. Carrier of Rutgers University School of Law has done this, and done it brilliantly in a post published on the Patently-O Blog, so I stand down and defer to him:

In December 2008, the Federal Trade Commission (FTC) filed a petition for certiorari in the Rambus case. There are two central issues in the petition. First, what is the standard of causation needed to connect deceptive conduct with the acquisition of monopoly power? And second, do higher prices in standard-setting organizations (SSOs) present competitive harm? . . . [continue reading]

Amici Briefs Supporting Supreme Court Review in FTC v. Rambus

Amici Briefs Supporting Supreme Court Review in FTC v. Rambus

When old engineers (and old lawyers) sit around decades from now reminiscing about patent and antitrust law in the late 1990s and early 2000s, the name of Rambus is sure to come up.  The topic will not be the Rambus DRAM (or RDRAM) chip technologies, but rather the massive volume of litigation that Rambus set off as result of its alleged “patent hold-up” actions and its patent enforcement efforts.

Rambus, the lawyers on either side of its many cases, the courts, antitrust experts and economists, and of course investors in Rambus’ stock (a particularly loyal and attentive group), have debated the pros and cons and nuances of these lawsuits for years, and during this season (late 2008) an important and timely Rambus case is taking a run at the Supreme Court.

The FTC adminstrative action against Rambus, which bothAndy Updegrove and Ihave written about at length in the past, involves somewhat arcane issues of single-firm conduct under Section 2 of the Sherman Act. However, the case also exists at a level that doesn’t require a degree in law and economics to understand – Rambus is accused of of withholding from an important standards-setting organization (SSO)  the fact that it had pending patent applications, resulting in adoption of the Rambus technology as a standard, following which Rambus used it patents to “hold up” the industry for unreasonable royalties.

What a wonderful blend of issues for lawyers and economists to dive into: patent law, antitrust law, conspiracies to deceive, very large sums of money (in the form of royalties potentially owed to Rambus by industry players), and all of this during the technology and stock market vortex of the 1990s and 2000s. Is it any wonder that Rambus’ litigation has attracted so much attention?

In context, the Federal Trade Commission case has been just one of many fronts on which Rambus has been forced to battle.  As discussed here, the Federal Trade Commission found that Rambus’ actions toward the SSO was deceptive and violated the antitrust laws by enabling Rambus to gain monopoly power. The Court of Appeals for the D.C. Circuit reversed the FTC early this year on highly technical legal grounds that involved what some observers thought was a misapplication of the antitrust laws. However, no matter which side you’re on, it’s difficult to deny that the case raises legal issues that could benefit from clarification by the Supreme Court.  Now, the FTC has asked the Supreme Court to review the case.

Persuading the Supreme Court to review a case is harder than getting into Harvard.  In its most recent term the Court decided about 70 cases, out of over 7,000 appealed. However, like admissions at Harvard, the odds aren’t quite so bad once you eliminate the cases that had no chance of review and shouldn’t have been appealed in the first place – in effect “Hail Mary” appeals.

Many people are hopeful that the FTC/Rambus case will be accepted by the Court.  The FTC/Rambus case certainly falls within the “first in class, perfect SAT scores” category, to stretch the analogy.  This is a rare opportunity, these advocates believe, for the Court to clarify the law of “single firm” monopoly conduct. And, the standards setting industry believes that the case presents critical issues necessary to the health of standards setting, an area of domestic and international cooperation whose importance is hard to overstate.  On the opposite side of the case, Rambus advocates argue that Rambus is the victim of a government witch hunt that lacks any merit, and conclude that the D.C. Circuit was correct to reverse the FTC and set matters straight.

I’ve set up an FTC v. Rambus certiorari petition group page on to collect filings on this appeal. The first step for the FTC, of course, is to persuade the USSC to take the case. At present, the  Rambus group pageholds the D.C. Circuit decision, the FTC’s cert petition, and the amici briefs that have been filed to date.

In addition to the petition of various companies urging the Court to take the case (Hewlett Packard, Cisco, Sun and Oracle), the Rambus group page holds the petition filed by our firm last week, which was written by Andy Updegrove. The SSO petition was written on behalf of 19 standards setting organizations representing over 13,000 members, and it emphasizes the practical importance of this appeal – its importance to the “law of SSOs”, for lack of a better term.

A pdf copy of the SSO petition is here, and a copy on is embedded below.

Will the Court take this case?  We should know soon. I’ll continue to add amici petitions and, of course, Rambus’s opposition to the request for Supreme Court review, which will be forthcoming soon, to the Rambus group page, as they appear.

Advanced Media, et al., Amicus Brief in FTC v. Rambus

The FTC and DOJ – "So Sorry, but When it Comes to Sherman Action Section 2 Conduct, We Can’t Agree on What the Law Is, or What it Should Be"

The Federal government has two antitrust enforcement authorities – the Antitrust Division of the Department of Justice and the Federal Trade Commission. These two agencies have partially overlapping enforcement authority over civil cases, and they often collaborate in setting antitrust policy. Although the federal courts are the final arbiters of the federal antitrust laws (which are statutory, and therefore originate with Congress), the business community relies heavily on the Justice Department and the FTC to provide their views on the law. Accordingly, from time-to-time the Justice Department and FTC issue detailed joint guidelines. (Examples include: Collaborations Among Competitors, 2000; Antitrust and IP Rights, 2007; and Antitrust Licensing Guidelines, 1995).

The DOJ/FTC joint reports are a big deal – they often include lengthy hearings, prepared testimony and position papers from interested parties, proposed guidelines, revised guidelines, and so on, until (drum role ….) the big day when the final report is issued. And, as a result, these reports are given great weight by the antitrust community – and by that I mean the vast army of antitrust lawyers and economists who endeavor to understand this stuff, harmonize it with court decisions (where possible), and advise their clients on how to behave.

So, it’s no understatement to say that it is an unwelcome surprise when the federal antitrust enforcement agencies can’t agree on the law. Yet, this is what occurred when the Justice Department issued a report entitled “Competition and Monopoly: Single Firm Conduct Under Section 2 of the Sherman Act“. This mammoth, 200-plus page document followed public hearings that took 19 days stretched over a year, and included the the testimony of over 100 witnesses. The Report was finally issued in September 2008, 27 months after this process began. Broadly speaking, the Report addresses the topics of monopolization, predatory pricing, tying arrangements, refusals to deal and exclusive dealing. This is referred to as “single firm conduct” as distinguished from joint action (contracts, combinations or conspiracies) under Section 1 of the Sherman Act.

Needless to say, a Report of this magnitude and gravitas is of great interest; it provides a summary of the law to date on each topic area, discusses the hearing testimony, and then describes the federal enforcers’ views on the topic. Since the law isn’t static, these reports tell the public in which direction the enforcement authorities see the law moving and therefore where to expect enforcement activity However, although the DOJ and the FTC began this project together in June 2006, the DOJ finished alone. Why would this be?

As you may have guessed by now, the FTC disagreed with Justice, and therefore refused to join in the Report. In addition, the FTC Commissioners (those are the top folks at the FTC) issued dissenting “Statements” the same day that DOJ issued its report.

Of course, antitrust enforcement can be highly political. The Executive Branch appoints the Attorney General, who in turn implements the wishes of the President, at least most of the time. Some administrations are tough on antitrust enforcement, and others are better referred to a “anti-antitrust.” The President also appoints the five FTC commissioners, but the appointments are for seven year staggered terms, and no more than three of the commissioners may be from the same party. Traditionally, perhaps in part for these reasons, the FTC has tended to be more politically independent than DOJ. Very few Commissioners serve more than one term, and they typically fade back into academic or consulting practices when their term is up.

With Alberto Gonzalez as Attorney General, and knowing what we know now about how politicized DOJ was during the period that this report was being prepared, one can only wonder what went on behind the scenes during this process. However, law enforcement agencies don’t present their public disagreements in political terms, and here the public debate was conducted on the higher planes of economics and competition law. All four current FTC Commissioners (one seat is vacant) issued dissenting statements. Three of the Commissioners (but not the Chairman, who was more tactful than the others) argued that the DOJ had misstated the law on Section 2 conduct and had proposed legal standards that would, in their words “be a blueprint for radically weakened enforcement of Section 2 of the Sherman Act.” They disagreed on what the law is and what the law should be.

Quoting further from the Statement of the three dissenting Commissioners:

In short the Department’s Report erects a multi-layered protective screen for firms with monopoly or near-monopoly power. As an inevitable consequence, dominant firms would be able to engage in these practices with impunity, regardless of potential foreclosure effects and impact on consumers. Indeed, it appears that the Department intends for this screen to apply even when a firm uses two or more of these practices collectively, instead of just one practice individually.

Strong words from two agencies that the public expects to work out their differences behind closed doors and present a common front to the world.

This post is being published on the eve of the Presidential election. If we have a Democratic President in 2009, the law of Section 2 of the Sherman Act, as described in this Report, could soon become a footnote in American antitrust jurisprudence. However, the authors of the DOJ report, recognizing that acceptance of their views may be short-lived, might not look at the product of their labors so hopelessly. In their view, the Report may lie dormant during a Democratic administration, only to be revived at some unknown future date (perhaps as soon as four years), when its approach to antitrust enforcement returns to favor.