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December 8, 2006, Alert No. 1,501.
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Supreme Court Grants Certiorari in Antitrust Cases

12/7. The Supreme Court (SCUS) granted certiorari in Leegin Creative Leather Products v. PSKS, an antitrust case regarding minimum resale price maintenance by manufacturers and intermediate distributors. The case could impact the way some consumer electronics products are marketed. The SCUS also granted certiorari in Credit Suisse First Boston v. Billing, an antitrust immunity case.

Leegin Creative Leather Products. The Supreme Court wrote in its Order List [2 pages in PDF] that "The motion of CTIA -The Wireless Association for leave to file a brief as amicus curiae is granted. The motion of Economists for leave to file a brief as amici curiae is granted. The motion of National Association of Manufacturers for leave to file a brief as amicus curiae is granted. The petition for a writ of certiorari is granted."

Section 1 of the Sherman Act, which is codified at 15 U.S.C. 1, provides that "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Section 1 also contains a criminal prohibition. The rest of the law exists in judicial interpretation and agency enforcement.

The SCUS held in 1911 that intrabrand vertical price fixing by manufacturers or intermediate distributors is a per se violation of the Sherman Act. That is, a manufacturer cannot fix the minimum price at which retailers sell its product. See, opinion in Dr. Miles Medical Co. v. John D. Park & Sons Co., which is reported at 220 U.S. 373.

However, more recently the SCUS has rendered opinions that have eroded the Dr. Miles rule. For example, it has held that vertical nonprice restraints and maximum resale price maintenance are not per se unlawful under the antitrust laws. Yet, the basic rule remains that minimum resale price fixing is a per se violation.

The Dr. Miles holding may be problematic in certain retail markets that involve rapidly evolving, complex, multi-featured products and services, such as communications handsets. Manufacturers and distributors seek not only to sell lots of the product or service at issue. They also seek to inform prospective customers of their news products, educate them regarding features, and train them in using the new products and services. And, they want to sell associated products or services. This means incenting resellers to do far more than merely sell the product or service at issue. In the absence of vertical integration, this entails contracts with resellers that impose terms and conditions regarding resale, including prices. For example, in the wireless context, carriers want resellers to sell lots of handsets. But, they also have an interest in reseller advertising and education of prospective customers. And, they want to sell the communications services that the handsets enable.

The satellite radio industry and some other tech sectors may also have an interest in how the Supreme Court decides this case.

Restraints are contractually imposed today on such things as minimum training of sales staff, and minimum retail space. These restraints are subject to (and would likely stand up under) rule of reason analysis. Moreover, with enough antitrust legal advice, and expertise in drafting contracts, manufacturers and distributors can often indirectly maintain minimum prices, without actually contracting to maintain minimum prices. What the SCUS might do is remove the final item, minimum resale price maintenance (RPM), from per se violation, to rule of reason analysis, and make the process of marketing simpler and more efficient.

PSKS, the plaintiff below, runs a women's clothing and accessories store. It filed a complaint in the U.S. District Court (EDTex) against Leegin Creative Leather Products (LCLP), which makes women's accessories, alleging violation of Section 1 of the Sherman Act, in connection with LCLP's suggested resale price policies. The District Court awarded $3.6 Million in treble damages to PSKS.

The U.S. Court of Appeals (5thCir) affirmed in a non-precedential opinion [PDF]. The District Court and Court of Appeals both applied the antitrust per se violation rule to LCLP's imposing of a minimum price fixing agreement on its retailer, PSKS. And now, the Supreme Court has decided to hear the case.

The CTIA -- Wireless Association submitted an amicus brief [31 pages in PDF] urging the Supreme Court to grant certiorari, reverse the Court of Appeals, and overturn the final vestiges of Dr. Miles.

The CTIA argued that "There is a consensus among lower courts, antitrust scholars, and economists that vertical restrictions on intrabrand competition are usually procompetitive and beneficial to consumers. There is no serious intellectual support for the proposition that such restrictions are always anticompetitive (or nearly so) and deserving of per se condemnation. Minimum resale price maintenance is one such vertical restriction." (Parentheses and italics in original.)

The CTIA wrote that its members "limit intrabrand retail price competition for legitimate and procompetitive reasons".

For example, "By guaranteeing a minimum gross margin between wholesale and retail prices, a manufacturer or intermediate distributor can enlarge the number of retailers that are willing to sell the product and create and preserve retailers' incentives to invest in valuable non-price competitive behavior, such as advertising and promoting the product. Retailers' incentives to provide such costly services are severely undermined when a competitor offers lower prices without providing them and without incurring the associated costs. Manufacturers and intermediate distributors have legitimate interests in preventing this free-riding behavior, and consumers benefit from receiving the services that vertical price restraints can promote. The current per se treatment of minimum resale price maintenance imposes large costs on businesses and consumers alike."

The CTIA added that "the practice is used to create incentives for retailers to engage in product advertising and promotion, to maintain adequate inventory, and to train sales personnel to explain new or complex products. Manufacturers and intermediate distributors could reasonably believe that resale price maintenance is necessary to prevent some retailers from free riding off the presale services supplied by others, and market forces will provide the necessary discipline if they are wrong, because inefficient practices will result in loss of sales to interbrand competitors."

The CTIA also commented up the affect of antitrust law upon electronic commerce. It wrote that "The dramatic growth of Internet commerce has vastly increased the threat of free-riding; retailers that provide costly point-of-sale services now lose sales to distant Internet sellers, not just local bricks-and-mortar free riders."

"If RPM were permissible, manufacturers or intermediate distributors could use that device to distribute their products through the Internet, while limiting free riding by Internet sellers. Instead, because RPM is now per se illegal, manufacturers and intermediate distributors now face the unattractive alternatives of forgoing Internet distribution entirely, or severely undermining the incentives of their bricks-and-mortar retailers to provide valuable point-of-sale service", the CTIA concluded.

Roy Englert and Donald Russell the law firm of Robbins Russell and Michael Altschul of the CTIA prepared the amicus brief of the CTIA.

TLJ spoke with Altschul, who is pleased with the decision of the Supreme Court to hear the case. He said that "it is appropriate for the last vestige of the Dr. Miles case to be removed." He added that "everyone has become artful" at maintaining uniform intrabrand prices through non-price mechanisms, and that "moving everything into rule of reason analysis will be far more efficient".

He also stated that he knows of no antitrust judgments against communications carriers or handset makers for setting minimum prices for handsets.

See also, amicus brief [PDF] of the National Association of Manufacturers (NAM) urging the SCUS to grant certiorari. It wrote that Dr. Miles, and the cases that limit it, have resulted in "incoherence" that forces manufacturers "to walk a precarious line in their relationship with the dealers that distribute their products, with aggressive procompetitive strategies that serve consumer welfare on one side -- and treble damages on the other."

This case is Leegin Creative Leather Products, Inc. v. PSKS, Inc., Sup. Ct. No. 06-480, a petition for writ of certiorari to the U.S. Court of Appeals for the 5th Circuit, App. Ct. No. 04-41243. See also, Supreme Court docket.

Credit Suisse. The Supreme Court wrote in its Order List [2 pages in PDF] that "The motion of NYSE Group, Inc. for leave to file a brief as amicus curiae is granted. The motion of National Association of Securities Dealers, Inc. for leave to file a brief as amicus curiae is granted. The motion of Securities Industry Association, et al. for leave to file a brief as amici curiae is granted. The petition for a writ of certiorari is granted. The Chief Justice took no part in the consideration or decision of these motions and this petition."

The Office of the Solicitor General (OSG) wrote in an amicus curiae brief that there are two issues. The first issue is "Whether an antitrust complaint predicated on alleged collusive activity in the securities markets must, in order to survive a motion to dismiss on grounds of implied antitrust immunity, set forth allegations sufficient to support a reasonably grounded expectation that the plaintiff's claims do not rest on collaborative activities that are either permitted under the securities laws or inextricably intertwined with such permissible activities."

The OSG wrote that the second issue is "Whether conduct that is prohibited under the regulatory scheme governing public offerings of securities is categorically immune from liability under the federal antitrust laws because of the extensive regulatory authority exercised by the Securities and Exchange Commission over such conduct.

This case is Credit Suisse First Boston Ltd., et al. v. Glen Billing, et al., Sup. Ct. No. 05-1157, a petition for writ of certiorari to the U.S. Court of Appeals for the 2nd Circuit, App. Ct. Nos. 03-9284 and 03-9288. See also, Supreme Court docket.

People and Appointments

12/8. The Senate confirmed Judge Kent Jordan to be a Judge of the U.S. Court of Appeals for the 3rd Circuit. He is currently a Judge of the U.S. District Court for the District of Delaware. He is one of the few judicial appointments of President Bush who has a background in some technology related area of law. He previously litigated patent cases.

12/7. Federal Election Commission (FEC) Commissioner Michael Toner announced his resignation, effective "this winter". His fixed term as a Commissioner would have expired in April of 2007. During his tenure, the FEC considered, but mostly rejected, attempts to regulate online political expression under the rubric of the Federal Election Campaign Act (FECA), as amended by the Bipartisan Campaign Reform Act (BRCA), which is also known as McCain Feingold. Toner stated in a release that "I am particularly pleased that earlier this year the Commission issued regulations protecting on-line political speech from many of the restrictions and prohibitions of the campaign finance laws. In so doing, the Commission ensured that millions of Americans in the future will have the ability to use the Internet to support the candidates of their choice without fear of FEC investigation or restriction." Toner was previously Chief Counsel of the Republican National Committee.

12/7. The Senate Finance Committee favorably reported the nomination of Eric Solomon to be Assistant Secretary of the Treasury.

More News

12/8. The Cato Institute published a short essay titled "Data Mining Can't Improve Our Security". The author is the Cato Institute's Jim Harper. He wrote that data mining for terrorism prediction, such as by the Department of Homeland Security's (DHS) Automated Targeting System (ATS), has two fundamental flaws: "First, terrorist acts and their precursors are too rare in our society for there to be patterns to find. There simply is no nugget of information to mine. Second, the lack of suitable patterns means that any algorithm used to turn up supposedly suspicious behavior or suspicious people will yield so many false positives as to make it useless. A list of potential terror suspects generated from pattern analysis would not be sufficiently targeted to justify investigating people on the list." See also, stories titled "FBI Director Mueller Testifies Before Senate Judiciary Committee" in TLJ Daily E-Mail Alert No. 1,500, December 7, 2006, and "DHS Discloses Some Details of Electronic Database" in TLJ Daily E-Mail Alert No. 1,497, December 1, 2006.

12/8. The Department of Homeland Security (DHS) published a notice in the Federal Register that extends the deadline to submit comments regarding its program titled "Automated Targeting System", or ATS. The deadline was December 4, 2006. The new deadline is December 29, 2006. The notice states that the "DHS has received a number of comments from the public requesting an extension of the comment period". See, Federal Register, December 8, 2006, Vol. 71, No. 236, at Page 71182.

Washington Tech Calendar
New items are highlighted in red.
Friday, December 8

The House will meet at 9:00 AM. See, Republican Whip Notice.

8:30 AM - 5:00 PM. Day two of a two day meeting of the National Institute of Standards and Technology's (NIST) Information Security and Privacy Advisory Board. See, notice in the Federal Register, November 15, 2006, Vol. 71, No. 220, at Page 66504. Location: George Washington University, Cafritz Conference Center, Rooms 101 and 308, 800 21st Street, NW.

Day two of a two day closed meeting of the Library of Congress's (LOC) Section 108 Study Group. This meeting will address "Review of public roundtables", "Clarifications and conclusions", and "Report drafting". This meeting is closed to the public. See also, 17 U.S.C. 108. Location: undisclosed.

Monday, December 11

8:50 AM - 1:30 PM. The American Enterprise Institute (AEI) will host an event titled "Tax Havens and Foreign Direct Investment". The luncheon speaker will be Rep. Bill Thomas (R-CA), the outgoing Chairman of the House Ways and Means Committee. See, notice. Location: AEI,12th floor, 1150 17th St., NW,

9:00 AM - 3:30 PM. Day one of a two day meeting of the National Commission on Libraries and Information Science (NCLIS). The agenda includes discussion of digitization. See, notice in the Federal Register, November 28, 2006, Vol. 71, No. 228, at Pages 68845-68846. Location: Dining Room A, Madison Building, Library of Congress, 101 Independence Ave., SE.

4:00 - 7:00 PM. The Progress and Freedom Foundation (PFF) will host its holiday party. RSVP to Eileen Goulding at EGoulding at pff dot org or 202-289-8928. Location: Suite 500, 1444 Eye St., NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding the intercarrier compensation reform plan known at the Missoula Plan. This proceeding is titled "Developing a Unified Intercarrier Compensation Regime" and numbered CC Docket No. 01-92. See, notice in the Federal Register: September 13, 2006, Vol. 71, No. 177, at Pages 54008-54009.

Tuesday, December 12

9:00 AM - 12:00 NOON. Day two of a two day meeting of the National Commission on Libraries and Information Science (NCLIS). The agenda includes discussion of digitization. See, notice in the Federal Register, November 28, 2006, Vol. 71, No. 228, at Pages 68845-68846. Location: Large Conference Room 642, Madison Building, Library of Congress, 101 Independence Ave., SE.

9:00 AM - 5:00 PM. Day one of a two day meeting of the National Institute of Standards and Technology's (NIST) Visiting Committee on Advanced Technology. See, notice in the Federal Register: November 28, 2006, Vol. 71, No. 228, at Page 68800. Location: Employees Lounge, Administration Building, NIST, Gaithersburg, MD.

10:00 AM. The Federal Communications Commission's (FCC) Commercial Mobile Service Alert Advisory Committee will hold its first meeting. See, FCC release [PDF]. Location: FCC, Commission Meeting Room, TW-C305, 445 12th Street, SW.

6:00 - 9:30 PM. The DC Bar Association will host a continuing legal education (CLE) seminar titled "2006 Intellectual Property Law Series, Part 1: Trademarks, Copyrights and Law of the Internet". The speakers will include Brian Banner (Rothwell Figg Ernst & Manbeck), Beckwith Burr (Wilmer Hale), and Terence Ross (Gibson Dunn & Crutcher). The price to attend ranges from $80 to $115. For more information, call 202-626-3488. See, notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

Deadline to submit nominations to the Federal Communications Commission (FCC) for membership on the newly created Commercial Mobile Service Alert Advisory Committee. This Committee was created by Section 603 of the "Warning, Alert and Response Network Act" or "WARN Act", which was attached to HR 4954, the port security bill that President Bush signed on October 13, 2006. See, FCC's Public Notice [PDF] and story titled "House and Senate Approve Port Security Bill With Tech Provisions" in TLJ Daily E-Mail Alert No. 1,461, October 4, 2006.

Deadline to submit comments to the President's National Security Telecommunications Advisory Committee (NSTAC) in advance of its December 19, 2006, meeting. See, notice in the Federal Register, December 4, 2006, Vol. 71, No. 232, at Pages 70413.

Wednesday, December 13

8:00 AM. The Federal Communications Bar Association (FCBA) will host a breakfast. The speaker will be John Grimes [PDF] Assistant Secretary of Defense for Networks and Information Integration / CIO. See, registration form [PDF]. Registrations and cancellations are due by 5:00 PM on December 7. The price to attend ranges from $30 to $55. Location: Mayflower Hotel, 1127 Connecticut Ave., NW.

9:00 - 11:00 AM. Day two of a two day meeting of the National Institute of Standards and Technology's (NIST) Visiting Committee on Advanced Technology. See, notice in the Federal Register: November 28, 2006, Vol. 71, No. 228, at Page 68800. Location: Employees Lounge, Administration Building, NIST, Gaithersburg, MD.

10:00 AM - 12:00 NOON. The EMC Corporation will host a panel discussion on the changes to the Federal Rules of Civil Procedure (FRCP) that took effect on December 1, 2006. The speakers will include US Magistrate Judge David Waxse (who has written opinions on electronic discovery), Thomas Allman (Mayer Brown Rowe & Maw), and Chris Panagiotopoulos (Director of Information Technology of LifeBridge Health, Inc.). Press contact: Erin Zeitler, EZeitler at outcastpr dot com or 212-905-6047. Location: Grand Hyatt Washington, 1000 H Street, NW.

10:30 AM - 12:30 PM. The National Telecommunications and Information Administration NTIA) Commerce Spectrum Management Advisory Committee will hold its first meeting. The agenda includes "(1) Discussion of Committee organization and future agendas and (2) Briefings on matters related to the President's Spectrum Policy Initiative." See, notice in the Federal Register, November 28, 2006, Vol. 71, No. 228, at Page 68808. Location: Hoover Building, Room 6059, 1401 Constitution Ave., NW.

11:00 AM - 12:00 NOON. The Federal Communications Commission's (FCC) Advisory Committee for the 2007 World Radiocommunication Conference (WRC-07 Advisory Committee) will meet. See, FCC notice [PDF] and notice in the Federal Register, November 1, 2006, Vol. 71, No. 211, at Page 64278. Location: FCC, Commission Meeting Room, Room TW-C305, 445 12th St., SW.

12:00 NOON. The Cato Institute will host a panel discussion on the book [Amazon] titled "Overblown: How Politicians and the Terrorism Industry Inflate National Security Threats, and Why We Believe Them". The speakers will include James Gilmore (former Governor of Virginia) and John Mueller (author). See, notice and registration page. Lunch will be served after the program. Location: Cato, 1000 Massachusetts Ave., NW.

TIME? The National Institute of Standards and Technology (NIST) will host a conference titled "2nd Annual NIST/USMS Telemedicine Workshop". See, notice. Location: National Institutes of Health (NIH), Natcher Center, Building 45, 9000 Rockville Pike, Bethesda, MD.

6:00 - 8:15 PM. The DC Bar Association will host a continuing legal education (CLE) seminar titled "2006 Intellectual Property Law Year in Review: 2-Part Series: Patent Law Update". The speakers will include Bradley Wright (Banner & Witcoff) and Eric Wright (Morgan & Finnegan). The price to attend ranges from $80 to $115. For more information, call 202-626-3488. See, notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

Thursday, December 14

9:00 AM - 5:00 PM. Day one of a two day conference hosted by the Federal Communications Bar Association (FCBA) and the Practicing Law Institute titled "Telecommunications Policy and Regulation". See, agenda [MS Word] and registration form [MS Word]. The price to attend ranges from $1,165.50 to $1,295. The price for FCC employees is $25. Location: Washington Hilton Hotel, 1919 Connecticut Ave., NW.

RESCHEDULED FOR DECEMBER 20. 9:30 AM. The Federal Communications Commission (FCC) will hold a meeting. The event will be webcast by the FCC. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).

Deadline to submit initial comments to the Federal Communications Commission (FCC) regarding the National Aeronautics and Space Administration's (NASA) request for a waiver of the FCC's Calling Party Number rules. This proceeding is CC Docket No. 91-281. See, notice in the Federal Register, November 29, 2006, Vol. 71, No. 229, at Pages 69094-69096.

Friday, December 15

9:00 AM - 12:45 PM. Day two of a two day conference hosted by the Federal Communications Bar Association (FCBA) and the Practicing Law Institute titled "Telecommunications Policy and Regulation". See, agenda [MS Word] and registration form [MS Word]. The price to attend ranges from $1,165.50 to $1,295. The price for FCC employees is $25. Location: Washington Hilton Hotel, 1919 Connecticut Ave., NW.

9:30 AM - 12:30 PM. The National Archives and Records Administration (NARA) Information Security Oversight Office's (ISOO) Public Interest Declassification Board (PIDB) will hold a meeting. See, notice in the Federal Register, December 5, 2006, Vol. 71, No. 233, at Pages 70550-70551. Location: NARA, Rooms 500 and 501, 700 Pennsylvania Ave., NW.

Deadline to submit initial comments to the Federal Communications Commission (FCC) to assist the Wireless Telecommunications Bureau (WTB) in drafting a report on the ability of persons with hearing disabilities to access digital wireless telecommunications. See, FCC Public Notice [4 pages in PDF] (DA 06-2285). This proceeding is WT Docket No. 06-203.

Deadline to submit initial comments to the Office of the US Trade Representative regarding the operation, implementation and effectiveness of all trade agreements regarding telecommunications products and services to assist it in preparing its annual Section 1377 report. See, notice in the Federal Register, November 15, 2006, Vol. 71, No. 220, at Pages 66563-66564.

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