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TMT Perspectives

Insight & Commentary on Business, Legal and Policy Developments Affecting the Telecom, Media, and Technology Sectors

Next Steps for Dollar General – Manipulating Antitrust in High-Stakes Mergers

Posted in Antitrust, Companies, FTC, Legal Developments, Transactions

General said on August 28, 2014 that it is “fully” committed to the Family Dollar deal. Bloomberg is reporting that “people familiar with the matter” said last week that Family Dollar is willing to consider Dollar General’s offer if it agrees to sell as many stores as regulators would require (see our previous blog post on this matter). I also saw somewhere a suggestion that the dialogue with the agencies has already started. If so, there is now timing pressure on Dollar General to get that bid in. If Dollar Tree is able to get substantially down the path with the investigating agency, then the relative timing difference between the two bidders does in fact become an issue. The agency would have to start the process over with Dollar General, delaying consummation by a potentially significant amount. If there is a clear path to a deal with Dollar Tree at the agency, even at significantly less and without hell-or-high-water clause, the Family Tree board could quite legitimately conclude Dollar Tree is still the best mate.

But it’s unclear if/when Family Dollar and Dollar Tree have filed HSR, how much has been done, and how far along the parties are in coming to a consensus on a divestiture package with the agencies. I doubt that either Family Dollar or Dollar Tree has made much progress. Indeed, I suspect that Family Dollar and Dollar Tree are expecting a normal, slow, congenial-ish second request process and haven’t done much at all with the agencies. That could be an advantage for Dollar General.

If Dollar General is serious about pursuing a genuine bid for Family Dollar, Dollar General should consider starting to respond in earnest now to what they anticipate a second request would look like. Continue Reading

American Dumps Orbitz: An Antitrust Investigation to Follow?

Posted in Antitrust, Competition Policy, E-commerce

American Airlines (AA) issued a press release today stating that it and US Airways were withdrawing their fares from Orbitz and Orbitz-affiliated websites effective immediately. Orbitz’s shares were immediately down 5 percent. AA stated that it “ha[s] worked tirelessly with Orbitz to reach a deal with the economics that allow us to keep costs low and compete with low-cost carriers.” AA went on to say that “[w]hile [its] fares are no longer on Orbitz, there are a multitude of other options available for . . . consumers, including brick and mortar agencies, online travel agencies, and [its] own website.”

Unilateral refusals to deal are generally not illegal under the Sherman Act. A company is usually free to deal with whom it wishes. An exception may lie for a company with market power that engages in a profitable, long term course of dealing with a competitor, then abruptly terminates the relationship without reasonable justification. These so-called Aspen Skiing cases are not usually successful. Concerted refusals to deal can be per se illegal: an agreement between competitors not to deal with another competitor can violate the antitrust laws irrespective of the rationale. Parallel behavior, without an agreement, is not a per se violation of the Sherman Act, however. Continue Reading

Family Dollar to Merge with Dollar Tree – Manipulating Antitrust in High-Stakes Mergers

Posted in Antitrust, Companies, FTC, Legal Developments, Transactions

Family Dollar, a troubled discount store, is up for sale. They have entered an agreement to merge with Dollar Tree for US$8.5 billion. Recently, Dollar General, a competitor, offered US$9.7 billion. On August 21, 2014, Family Dollar’s board unanimously rejected Dollar General’s offer and reasserted their desire to go forward with Dollar Tree. The grounds were that Dollar General failed to address Family Dollar’s antitrust concerns. Somewhat ironically, this rationale has likely given Dollar General a roadmap to a bid that Family Dollar’s board couldn’t refuse without breaching their fiduciary duties.

Substantive antitrust issues rarely arise in mergers and acquisitions. When they do, they can have significant ramifications. The government can demand meaningful divestitures or even sue to block a deal. When considering competing bids, all other things being equal, a seller looking at a strategic and financial buyer should always pick the financial buyer. They will have no antitrust issues, and therefore no chance of delay or litigation. Potential strategic buyers must compensate sellers for the additional risk as well as shift some or all of this risk to themselves to produce a superior bid. Continue Reading

*Can* You Monopolize a Coffee Cartridge Market?

Posted in Antitrust, Companies, Competition Policy, Lawsuits, Legal Developments, Patent, Technology

Introduction

If you read our recent article discussing the allegations of monopolization in the replacement k-cup market, you may have detected a certain measure of skepticism about the antitrust claims’ potential for success. And you’d be correct. But does that skepticism extend to all aftermarkets? Do we mean to suggest that all aftermarket manufacturers are inefficient free-riders unworthy of the protection of the antitrust laws?

To some extent, yes, all aftermarket participants are free riding off the efforts of the original equipment manufacturer. After all, in an aftermarket, a third party is making a part for someone else’s device. But this articulation, if taken to its logical conclusion, would imply that an OEM should never face antitrust liability because all they are doing is driving out inefficient free-riders. That is not what we’re saying. OEMs can face antitrust liability for driving out aftermarket competitors. Continue Reading

BitLicense: The Death of Pseudonymity?

Posted in Cybersecurity, Finance, Legal Developments, Privacy

Last week, the New York State Department of Financial Services (NY-DFS) released its highly anticipated proposed BitLicense regulatory framework which addresses many of the problems that have plagued the virtual currency in the media over the last year. In an attempt to engage the grass-roots Bitcoin community directly, Benjamin Lawsky, the Superintendent of the NY-DFS, posted a link to the proposed regulatory framework on reddit last week, a week before it was published in the New York State Register.  While Superintendent Lawsky’s efforts to engage the Bitcoin community on reddit are laudable, they are unlikely to make up for what many will see as the destruction of one of Bitcoin’s fundamental properties – pseudonymity.

Although Bitcoins have never actually been fully anonymous, they are currently pseudonymous. However, the proposed BitLicense regime would require any company transacting in Bitcoins (other than miners or companies who accept Bitcoin as payment), to record the identity and physical address of both parties to all bitcoin transactions. Moreover, BitLicensees will be prohibited from knowingly allowing the transfer of Bitcoins when doing so will obfuscate the identity of a customer or counterparty. While such anti-money laundering measures are almost certainly necessary for Bitcoin to gain wider adoption, particularly on Wall Street, many of the libertarians who provided the initial support for the digital currency will likely be disappointed by this element of the proposed BitLicense framework.

An informative summary of the proposed BitLicense framework and some of its implications can be found here.  Those interested in the potential impact of the proposed regulations on start-up companies can find a nice review here.  For an impartial synopsis, please see our Client Alert

Amazon and Apple Fixing the Price of iPad Covers?

Posted in Antitrust, Apple, Companies, Competition Policy, Intellectual Property, Lawsuits, Legal Developments

Hard 2 Find Accessories, Inc., a third party vendor on Amazon’s marketplace, has sued Amazon and Apple for violating the Sherman Act, among other laws. H2F alleges that Amazon and Apple conspired to drive H2F off Amazon’s marketplace for purposes of stabilizing the price of iPad covers. The complaint makes some interesting allegations that stand a chance of surviving a motion to dismiss. There are problems with the complaint, however. And some of these problems may be sufficient for Amazon and Apple to have the complaint dismissed. Given the heart of the complaint is how Amazon polices its marketplace, I suspect a hard fight.

H2F’s Complaint. H2F makes iPad covers and sells them on Amazon’s marketplace. Amazon allows certain third-party vendors to sell their products on Amazon.com. At some point, Apple identified H2F as an infringer of Apple’s intellectual property and informed Amazon. Amazon subsequently warned H2F. H2F vigorously denied the allegations. Ultimately, Amazon terminated H2F entirely, refusing to allow H2F to sell products on Amazon’s marketplace. According to the complaint, Apple admitted to H2F and Amazon that H2F’s products did not infringe Apple’s intellectual property. Notwithstanding that admission, Amazon refused to reinstate H2F. H2F alleges that Apple targeted H2F because of H2F’s “aggressive price point” on the iPad covers, and that Amazon terminated H2F pursuant to an illegal agreement between Amazon and Apple to stabilize the price of iPad covers. Continue Reading

Aereo: Retransmission Consent Is the Next Intriguing Question

Posted in Companies, Copyright, FCC, Legal Developments

In a recent article, we said that the Supreme Court’s decision in the Aereo case doesn’t answer the most interesting question: Can Aereo now offer a lawful service by paying copyright fees to broadcasters in accordance with the compulsory copyright license for cable television services provided for in the Copyright Act and administered by the U.S. Copyright Office?

Not long after that article, Aereo teed up this very question before Judge Nathan in the U.S. District Court proceeding. But it’s not clear that either Aereo or the broadcasters have thought through the next intriguing question, retransmission consent.

An Update on the Copyright Question

In our last article we provided a quick summary of the Compulsory Copyright License contained in Section 111 of the Copyright Act. The compulsory license allows cable television companies to retransmit broadcast programs, so long as they file a Statement of Account with the Copyright Office and pay the required royalties (which the Copyright Office dutifully doles out to the copyright owners).

In a seismic shift in business and legal strategy, Aereo told Judge Nathan that Aereo is going to file with the Copyright Office as a cable television company and pay copyright royalty fees. Aereo asserts that “After the Supreme Court’s decision, Aereo is a cable system with respect to those transmissions [of television broadcasts].” Broadcasters objected, stating that Aereo has always said it’s not a cable system and can’t use the compulsory copyright license under Section 111.

Is Either Party Thinking Through Retransmission Consent?

Both parties seem to have rushed into the compulsory copyright license arguments without thinking through the next intriguing question. Suppose Aereo is a cable television system for purposes of the Copyright Act. Is it also a cable television system under the Cable Act administered by the FCC? Continue Reading

Meal Planning Patent Invalidated Under Supreme Court’s Alice Corp Decision

Posted in Intellectual Property, Lawsuits, Legal Developments, Patent

In one of the first decisions applying the Supreme Court’s recent ruling in Alice Corp. Pty. Ltd. v. CLS Bank Internt’l, 573 U.S. __ (2014) (which held that basic business methods may not be patented, even if computers are used to apply them), Judge Englemayer of the United States District Court for the Southern District of New York invalidated a patent claiming the abstract idea of meal planning under 35 U.S.C. § 101 on summary judgment. A copy of the decision can be found here: Dietgoal Innovations LLC v. Bravo Media LLC, No. 13 Civ. 8391 (S.D.N.Y. 7/8/2014).

The case involved a process for computerized meal planning: “in essence, it recites a computer program that allows the user to create meals from a database of food objects according to his or her preferences and dietary goals, to change those meals by adding or subtracting food objects, and to view the dietary impact of changes to those meals on a visual display.” The Court held that the patent recites “nothing more than the abstract concept of selecting meals for the day, according to one’s particular dietary goals and food preferences,” which is “surely a ‘long prevalent’ practice” and is “at least as longstanding as the economic practices of risk-hedging (invalidated in Bilski) and intermediated settlement (invalidated in Alice).” Since the patent “does not recite any specialized formula or method for implementing the ‘well known’ process of meal planning” it “is not the kind of ‘discovery’ that § 101 was designed to protect.” Continue Reading

Judge Robinson’s “Limited Prosecution Bar”: The New Normal?

Posted in Legal Developments, Patent

Patent attorneys play many roles in the life of their clients’ patents, from drafting and prosecuting patent applications before the Patent Office, to defending the validity of granted patents before the Patent Office, as well as litigating patent infringement cases in the Federal courts. However, when litigating patent infringement cases, attorneys are often exposed to confidential material of their clients’ adversaries during the discovery process. To prevent attorneys who view such confidential material from using it to exercise competitive decision making on behalf of their clients, courts routinely institute “prosecution bars” which prevent such attorneys from prosecuting their clients’ related patent applications at the Patent Office.

While prosecution bars are nothing new in patent cases, where highly confidential technical material often plays a substantial part of discovery, the scope and severity of such prosecution bars, and protective orders in general, vary a great deal from circuit to circuit and district to district. Prosecution bars also vary in how they address or distinguish between pre-grant and post-grant activities at the Patent Office. Judge Robinson, who earlier this year already made news by changing her form scheduling order to shift discovery burdens towards the initial stages of discovery, has potentially set a benchmark in how prosecution bars may be handled in her court and others around the country.

In a sua sponte motion, Judge Sue Robinson of the District of Delaware established a “limited prosecution bar” for all of a plaintiff’s attorneys who view a defendant’s highly confidential source code, barring those attorneys from participating in any reexamination, inter partes review or any other post-grant review before the Patent Office. Versata Software Inc., et. al. v. Callidus Software Inc., D.I. 106, 1-12-cv-00931 (DED June 19, 2014) (Robinson, J.). Judge Robinson’s order cites to and closely tracks Judge Ron Clark’s similar order in the Eastern District of Texas, issued late last year. Affinity Labs of Texas, LLC v. Samsung Electronics Co., Ltd., et al., D.I. 129, Civ. No. 12-557 (E.D. Tex. Nov. 18, 2013) (Judge Ron Clark).

Judge Robinson’s order comes at a time of incredible change as the patent bar adapts to the new administrative review procedures established by the America Invents Act (AIA). Such procedures provide new avenues to challenge the validity of patents in the Patent Office after they are granted. Data from the Patent Office show that the use of such procedures is increasing rapidly, with over 1500 petitions filed since the procedures’ inception.

Judge Robinson’s prosecution bar is notable for several reasons, both pro-plaintiff and pro-defendant:

Pro-Plaintiff:

  • The bar is specifically not invoked by viewing non-source code material, even if highly confidential.
  • The bar does not apply to all of plaintiff’s attorneys, just those who view source code.

Pro-Defendant:

  • The bar may set a presumption in the District of Delaware and other courts that a post-grant prosecution bar of some sort is necessary.
  • The bar continues for one year after resolution of the litigation.

Whether Judge Robinson’s limited prosecution bar will catch on in other courtrooms remains to be seen, however with the ever more important role the AIA’s new review procedures are playing in patent litigation, it would not come as a surprise if it does.