ANTITRUST BULLETIN NEW DEVELOPMENTS. NFL Labor Dispute Ends After Eighth Circuit Sides with Owners. NBA s Dispute Begins.

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1 ANTITRUST BULLETIN Summer/Fall 2011 Vol. 3, Issue 2 Inside This Issue NEW DEVELOPMENTS New Theory, New Practice? Policing Vertical and Conglomerate Mergers with Conduct Remedies Ryan W. Marth Update: Tobacco II s Impact on Standing Under California s Unfair Competition Law David Martinez Antitrust Practice Group Contacts K. Craig Wildfang 800 LaSalle Avenue 2800 LaSalle Plaza Minneapolis, MN (phone) (fax) kcwildfang@rkmc.com Stacey P. Slaughter 800 LaSalle Avenue 2800 LaSalle Plaza Minneapolis, MN (phone) (fax) spslaughter@rkmc.com NFL Labor Dispute Ends After Eighth Circuit Sides with Owners. NBA s Dispute Begins. On July 25 the National Football League Players Association ratified an agreement previously signed by the league s owners that will end the lockout that threatened the 2011 NFL season. The parties came to an agreement after the Eighth Circuit ruled in the owners favor, overturning a district court s injunction against the lockout based on its conclusion that it was an illegal group boycott. The Eighth Circuit ruled that the Norris-LaGuardia Act s limitations on injunctions in cases involving or growing out of [] labor dispute[s,] precluded the district court s injunction. The court reasoned that the underlying dispute between the players and owners concerned terms of employment, such as salary-cap numbers, franchise player tags, and rookie-compensation limits. According to the court, the terms grew out of a labor dispute. The NFL is expected to begin play without serious disruption to its preseason or regular-season schedules. Shortly after the NFL settled its dispute, the NBA owners initiated their own labor battles by suing the players union in federal court in New York on antitrust claims and before the National Labor Relations Board on unfair labor practice claims. > Continued Atlanta Boston Los Angeles Minneapolis Naples New York rkmc.com 2011 Robins, Kaplan, Miller & Ciresi L.L.P. Printed on recycled paper.

2 ANTITRUST BULLETIN NEW DEVELOPMENTS CONTINUED DOJ Merger Remedy Guidebook May Be Varney Administration s Legacy On June 17, three weeks before Christine Varney announced her resignation from her position as Assistant Attorney General for Antitrust, the Department of Justice updated its Policy Guide to Merger Remedies. The most significant revisions to the policy guide relate to conduct as opposed to structural remedies, which may reflect the Varney administration s increased use of these remedies in the Ticketmaster-Live Nation, Google-ITA, and Comcast-NBC Universal deals. In the 2004 edition of the guidelines, conduct remedies were relegated to a short section of discussion under the headline that conduct relief is appropriate only in limited circumstances. The 2011 guidelines, by contrast, state that conduct remedies can be an effective method for dealing with competition concerns raised by vertical mergers and also are sometimes used to address concerns raised by horizontal mergers. The guidelines then proceed to address firewall provisions, non-discrimination provisions, mandatory-licensing provisions, transparency provisions, anti-retaliation provisions, and prohibitions on exclusionary contracting practices. Many of these remedies were employed in the high-profile merger investigations noted above. Federal Court Rejects Antitrust Settlement Because of Uncertainty Over Standing The United States District Court for the Eastern District of Michigan rejected a proposed settlement in MDL 2042, In re Refrigerant Compressors Antitrust Litigation, because plaintiffs counsel failed to convince it that all of the affected plaintiffs had standing as direct purchasers. Even though the parties stipulated that any plaintiff that purchased from a company that manufactured compressors and finished products would have federal antitrust standing, the court rejected the proposed settlement because the operative complaint made it impossible to determine which, if any, of the named [direct-purchaser plaintiffs] allege that they purchased compressors directly from a defendant. Despite rejecting the settlement, the court granted the plaintiffs leave to file an amended complaint that specified which of the plaintiffs were direct purchasers. Senate Will Hear Pay-for-Delay Pharmaceutical Legislation. No House Bill in Sight. The Senate Judiciary Committee voted 10-8 along party lines to send the Preserve Access to Affordable Generics Act to the Senate floor for debate. The bill establishes a presumption that payments to generic-pharmaceutical companies as part of patent settlements are illegal if the generic manufacturer agrees to forego research and development, sales or marketing of a drug. Under the legislation, the parties to the settlement can overcome the presumption by presenting clear and convincing evidence of the settlement s procompetitive aspects to a federal district court. The bill vests enforcement authority of its provisions with the FTC and allows the FTC or a court to strip a generic company in violation of the act of its 180-day exclusivity period under the Hatch-Waxman Act. The chances for the bill becoming law are small, however, as the current House of Representatives has not introduced companion legislation. This and similar legislation has been pending in Congress without passage since at least 2006.

3 New Theory, New Practice? Policing Vertical and Conglomerate Mergers with Conduct Remedies Ryan W. Marth According to conventional wisdom, the Department with suppliers, customers, and competitors. In the of Justice and the Federal Trade Commission Google/ITA acquisition, Ticketmaster/Live Nation merger, prefer structural merger remedies like divestiture and other high-profile transactions, the involved parties over remedies that require ongoing monitoring agreed to refrain from specific allegedly anticompetitive of post-merger conduct and consented conduct. Structural to ongoing monitoring remedies offer comparative ease of implementation and require less resource allocation for compliance monitoring and, the argument goes, These conduct- and conglomerate-based remedies let the Division begin to police vertical mergers while avoiding the possibility of a loss in court. by the Department of Justice. The agreements reached in these deals may represent the first of a new wave of conductfocused remedies, best allow market forces to take effect in the postmerger world. at least in certain types of mergers. When Christine Varney took over the Antitrust Division, she indicated that she and her staff would explore vertical theories Yet in recent consent decrees entered into by the Antitrust Division under Christine Varney, the Division and other new areas of civil [merger] enforcement, such as those arising in high-tech and internet-based eschewed structural remedies in favor of a set of ongoing markets. 1 Because proving vertical theories of harm restrictions on the merged firms prospective relations in court can be more difficult as they are often > Continued

4 ANTITRUST BULLETIN inherently speculative the agreements reached in Google/ITA and Ticketmaster/Live Nation may reflect a new, pragmatic approach to remedying harm arising from mergers. These conduct- and conglomeratebased remedies let the Division begin to police vertical mergers while avoiding the possibility of a loss in court. If this approach continues, we may see more instances in which the government gains enforcement rights over an important emerging market impacted in a merger by agreeing to watch over the future conduct of those operating within it. The specifics of the Google/ITA and Ticketmaster/Live Nation agreements show just how far the government may be willing to go. Google Acquisition of ITA The Justice Department became concerned with Google s $700 million acquisition of software company ITA because of its potential to impact the comparativeflight-search industry. ITA owned QXP software, which provides comparative-flight-search functionality to online travel intermediaries (OTIs) like Hotwire and Orbitz through a unique pricing-and-shopping system. QXP s system includes the engine that performs the search, seat, and fare-class-availability data, and a proprietary algorithm that analyzes flight possibilities to create a list of available flight options. QXP is the leading provider of pricing-and-shopping-system software in the United States. Google acquired ITA in order to launch its own online travel-search functionality sites. The merger put Google in control of the system at the core of comparative-flightsearch industry. Department of Justice feared that the acquisition would give Google the incentive and ability to either shut off OTI-industry competitors access to ITA or degrade the quality of flight-search functionality available to them. According to the government, the deal would also give Google access to competitively sensitive information about competitors and raise barriers to entry in the comparative-flight-search market because Google would have ITA s software in its hands, beyond the reach of potential entrants. Google agreed to take a number of steps to address the government s concerns. Under the Consent Decree, Google must continue to license and improve QXP for a five-year period. During that time, existing contracts, contract extensions, and new contracts must all be offered on terms that are fair, reasonable, and nondiscriminatory ( FRAND ). At the same time, Google must devote resources to the ongoing research, development, and maintenance of QXP so that customer/competitors will continue to receive a viable product. Google also agreed to: Refrain from giving preferential treatment to airlines in side agreements; Maintain ongoing product development; Protect its competitors competitively sensitive information through the creation of firewalls; and Participate in special fast-track arbitration proceedings to resolve fee disputes with dissatisfied OTI customers. Together, the remedies required by the Consent Decree attempt to eliminate many of the risks typically associated with vertical mergers. The FRAND commitments seek

5 to prevent a monopolistic refusal to deal, while the prohibitions on preferential treatment seek to prevent monopoly leveraging. Ticketmaster/Live Nation Joint Venture Ticketmaster is the largest primary-entertainment-ticketing company in the United States. Live Nation is the United State s largest concert promoter and also owns or operates 70 major concert venues. The Department of Justice became concerned that the merger planned between the two companies would have an anticompetitive effect on the major concert venue market. Until 2008, Live Nation was Ticketmaster s largest primaryticket client. In later 2008, Live Nation obtained its own ticketing software and became its own primary ticket provider. It also began offering primary-ticketing services to other major concert venues. Within two months, Live Nation had gained more than 15% of the primary ticketing market. Shortly thereafter, following Ticketmaster s proposal, the two companies signed a contract dated February 10, 2009 agreeing to merge. The government feared that the merged firm would extinguish the burgeoning competition generated by Live Nation s entry into the market. The government also had concerns that the merger would diminish innovations in primary-ticketing services and that high barriers to entry existing at the time of the merger including ticket platform costs and complications, scale and training issues, and demonstrated reliability would give the merged firm unchecked market power. As a result, the Department of Justice was concerned that the merged firm would also be able to condition access to popular concert content by bundling it with ticketing servicers. The government investigation into the merger revealed that the market was unlikely to produce a viable competitor and that major concert venues would be left without an alternative if the merged company raised prices. To address these concerns and allow the merger to proceed Ticketmaster agreed to steps that created two additional, vertically integrated primary-ticketing services competitors in the major-concert-venue market. Ticketmaster granted a below-market-rate license to its most popular ticketing-technology platform and divested itself of all assets in its second ticketing technology platform to facilitate the creation of the new competitors. In addition, the merged Ticketmaster agreed not to: Retaliate against venue owners who choose competing ticket service; Condition venue access to concert content on the purchase of ticketing services or vice-versa; Use ticketing data in non-ticketing businesses unless the data is shared with competitors; or Deny departing clients access to their own ticketing data. The government believes these remedies and the creation of new viable new competitors will prevent the harm to competition threatened by the merger. > Continued

6 ANTITRUST BULLETIN Conclusion Determining whether or not the Google/ITA and Ticketmaster/Live Nation consent decrees signal a fundamental change in the agency s view of proposed mergers may be premature. Both deals involved mergers where the competitive concerns involved vertical foreclosure with little horizontal overlap. And, at least in the case of Ticketmaster/Live Nation, the Justice Department may have felt pressure to do something in a high profile case of consolidation in the highly visible entertainment sector. So, the conduct remedies reached in them might simply reflect two unique deals that happened to strike at nearly the same time. performance and supervision of the involved parties long after the deal in question gets done. Whether this trend continues is an interesting policy question that will have to be tackled by Ms. Varney s successor. By taking on oversight of post-merger conduct, the government protects innovation in important emerging markets and sets a precedent that it has a right to do so in these types of deals 1 Christine A. Varney, Vigorous Antitrust Enforcement in this Challenging Era: Remarks Prepared for the United States Chamber of Commerce at 16 (May 12, 2009). B u t t h e C o n s e n t Decrees reached in both matters seek to prevent the involved firms from u s i n g t h e i r a c q u i s i t i o n to bottleneck competition in industries where the technological barriers to entry are high. Given former Director Varney s stated desire to explore vertical theories when mergers impact industries involving complex technologies, the conduct remedies could signal something more. By taking on oversight of post-merger conduct, the government protects innovation in emerging markets and sets a precedent that it has a right to do so in these types of deals an ultimate outcome that may result in an increase in consent decrees premised on the ongoing Ryan W. Marth rwmarth@rkmc.com Ryan received his J.D., magna cum laude, and Order of the Coif from the University of Minnesota Law School and his B.A., magna cum laude, from St. Olaf College. He practices in the areas of antitrust and trade regulation, business litigation, and mergers and acquisitions.

7 Update: Tobacco II s Impact on Standing Under California s Unfair Competition Law David Martinez Usually, establishing standing is a threshold requirement in every action. But under California s Unfair Competition Law ( UCL ), lack of standing does not necessarily bar absent-class-member claims. In 2009, the California Supreme Court ruled that absent class members can assert viable UCL claims without the need to establish that they suffered injury in fact as a result of unfair competition. In re Tobacco II Cases, 1 ( Tobacco II ). In Tobacco II s landmark ruling, the Court concluded that Proposition 64 (approved by California voters in the November 2004 General Election) substantively amended the UCL by imposing a standing requirement only on the named plaintiff and not the class at large. 2 A consistent interpretation of Tobacco II has yet to emerge. Some courts have followed Tobacco II in certifying UCL class actions in the absence of classmember standing, while others have distinguished it in denying certification. These opinions illustrate the intersection between the standing doctrine and In 2009, the California Supreme Court ruled that absent class members can assert viable UCL claims without the need to establish that they suffered injury in fact as a result of unfair competition. the class-certification elements of commonality and typicality--and provide abundant ammunition for those bringing and opposing class-action claims under the UCL. Two recent California Courts of Appeal decisions exemplify the impact the varying interpretations of Tobacco II have had. In Cohen v. DirectTV, Inc., 178 Cal. App. 4th 966 (2009), the California Court of Appeals construed Tobacco II as limited to the question of standing. The plaintiffs in Cohen brought a class action alleging that the defendant used false advertising to induce the proposed class to purchase high definition television services. The Cohen court concluded that individual questions of reliance on the alleged misrepresentations precluded class certification. In finding the absence of commonality, the Cohen court explained that [w]e see no language in Tobacco II which suggests to us that the [California] Supreme Court intended our state s trial courts to dispatch with an examination of commonality when addressing a > Continued

8 ANTITRUST BULLETIN motion for class certification. Id. at 981. But in a proposed class action involving the sales of over-the-counter products containing anabolic steroids, another appeals-court panel reached a different conclusion. 3 Relying on Tobacco II, the In re Steroid court reversed the trial court s order denying certification. While agreeing with Cohen s reasoning that Tobacco II did not dispense with the commonality requirement for certification, the In re Steroid court disagreed with Cohen s implicit conclusion that a UCL class plaintiff must show actual reliance by individual absent class members. The court noted that relief under the UCL is available without individualized proof of deception, reliance and injury. Id. at 158. And in recent opinions from the Central District of California, the question of standing for UCL actions has become more complex because of Article III s independent standing requirement. In some of these cases, the federal district courts have held that class representatives and absent class members must meet Article III s standing requirements in UCL actions brought in federal court. 4 But a different California federal district court concluded that Tobacco II made relief available under the UCL without individualized proof of deception, reliance and injury. 5 These decisions exemplify the overlap between standing, reliance and commonality, and demonstrate that despite Tobacco II, the scope of the standing These decisions exemplify the overlap between standing, reliance and commonality, and demonstrate that despite Tobacco II, the scope of the standing requirement under the UCL remain unclear requirement under the UCL remain unclear whether analyzed under Proposition 64, Article III, or in the context of commonality and typicality. Resolution of the conflicts within and between the California Courts of Appeal and federal district court in California may yet appear. Though it denied review of both Cohen and In re Steroid, the California Supreme Court may resolve the apparent conflict between them sometime in the future. The Ninth Circuit may also soon shed light on these questions in federal court actions, as there currently is no controlling authority requiring absent class members, as opposed to the named plaintiffs, to satisfy Until then, the Article III s standing requirements. 6 conflicts that exist because of the different approaches to the question of standing created by these cases considering the issue so far may lead to both forum shopping and uncertainty for UCL litigants Cal. 4th 298, 321, 326 (2009). 2 Prior to Proposition 64, the UCL did not require named plaintiffs to establish actual injury. See Tobacco II, at In re Steroid Hormone Prod. Cases, 181 Cal. App. 4th 145 (2010). 4 See Webb v. Carter s Inc., 2011 U.S. Dist. LEXIS (C.D. Cal. Feb. 3, 2011) and Burdick v. Union Sec. Ins. Co., 2009 U.S. Dist. LEXIS (C.D. Cal. Dec. 9, 2009). 5 Johnson v. General Mills, Inc., 2011 U.S. Dist. LEXIS (C.D.Cal., Apr. 20, 2011). 6 Webb v. Carter s Inc., at * 19. David Martinez dmartinez@rkmc.com David represents businesses and individuals in litigation through trial and appeal, with emphasis in the areas of antitrust and trade regulation, business, class action, and intellectual property. He attended Southwestern University School of Law. This publication is not intended as, and should not be used by you as, legal advice, but rather as a touchstone for reflection and discussion with others about these important issues. Pursuant to requirements related to practice before the U. S. Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the U. S. Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter Robins, Kaplan, Miller & Ciresi L.L.P. Printed on recycled paper.