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Volume 1 December, 2004 THE A ntitrust P A ntitrust P ractitioner ractitioner NOTE FROM THE CHAIR IN THIS ISSUE FROM THE EDITOR N Developments in Standards for W W elcome to the inaugural issue elcome to the fi rst issue of Summary

SLIDE 1

Antitrust P

ractitioner

FROM THE EDITOR

W

elcome to the fi rst issue of the Antitrust Practitioner, the new incarnation of the newsletter of the Civil Practice and Pro- cedure Committee of the ABA Section

f Antitrust Law. The present format of

the newsletter was chosen to allow the editors and authors the greatest fl exibility in addressing current issues in antitrust practice, with a particular focus on the pretrial stage. We hope the membership

f the Committee will fi

nd the newsletter useful, and will participate in its future development by suggesting topics and contributing articles and other items. In this issue, we offer three articles and a report on a recent teleseminar discus-

sion. In the fi

rst, Edwin Fountain and Alicia Hogges-Thomas analyze the Third Circuit’s recent Flat Glass decision, which addresses the standard for summary judgment in price-fi xing cases that rest

n circumstantial evidence. The authors

compare the Third Circuit’s approach with the approaches of the Seventh Cir- cuit in High Fructose Corn Syrup and the Eleventh Circuit in Williamson Oil. Our two other articles consider issues that affect of the jurisdictional reach of the antitrust laws. Edward Cavanagh analyzes the important issues left open by the Supreme Court’s recent decision in Empagran, which held that the Foreign T rade Antitrust Improvements Act bars “subject matter jurisdiction” over the claims of foreign plaintiffs that allege conduct that harms both U.S. and foreign customers, where “the adverse foreign effect is independent of any adverse

IN THIS ISSUE

N Developments in Standards for

Summary Judgment in Oligopoly Price-Fixing Cases . . . . . . . . . . . . . . . 2

N Empagran: A Post Script . . . . . . . . . . 6 N The Confl

ict in the Circuits Over Personal Jurisdiction and Venue in Antitrust Cases . . . . . . . . . . . . . . . . . 8

N Antitrust TeleSeminar Series:

The Oracle/PeopleSoft Decision . . . . . 11

Antitrust P

ractitioner

THE

Volume 1 December, 2004

NOTE FROM THE CHAIR

W

elcome to the inaugural issue

f Antitrust Practitioner. This

is our fi rst issue to be distribut- ed electronically, and I hope you enjoy the convenience and our new, “web-friendly”

look. As Bill Page describes in his note,

this marks an exciting new chapter for the Civil Practice & Procedure Committee

Newsletter. Substantively, we will use the

newsletter to discuss in some depth a few issues of importance to practicing antitrust

lawyers. We hope you will fi

nd this a helpful tool in your daily practice. Our focus in this issue on personal jurisdiction, extra- territorial jurisdiction, proving conspiracy in a circumstantial case, and the implications of the Oracle trial sets the bar at a very high level for Bill, the editorial board and the authors. Once you have read the articles in this issue, I am sure you will share my confi dence in the future success

f this undertaking. Congratulations to all
f them for their hard work and excellent

and thought-provoking material. The Committee has a new leadership team this year. Our job is to make this committee responsive to your needs and to make it easy for you to become involved. We are always looking for membership participation in our publications and programs and, frankly, membership is much more rewarding if you actively participate and develop a network of antitrust lawyers around the country. So, if you have an idea for an article (even if you want to suggest someone else as the author), drop Bill Page an email. And, if you are interested in working on ALD projects, let Doug Ross know. For those

Continued on page 10 Continued on page 10

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The Antritrust Practitioner

Volume 1, December 2004

Page 2

Developments in Standards for Summary Judgment in Oligopoly Price-Fixing Cases: A Comparison of Flat Glass with High Fructose and Williamson Oil

by Edwin L. Fountain and Alicia I. Hogges-Thomas1

broke no new ground. Nevertheless, the court’s analyses of two separate conspiracies involving separate products, granting summary judgment to the defendants as to

ne alleged conspiracy but denying it as to

the other, offer an illuminating application

f traditional standards, and a useful basis

for comparison with recent decisions of the Seventh Circuit in High Fructose Corn Syrup and the Eleventh Circuit in William- son Oil (In re Cigarette Price-Fixing). In Flat Glass, the plaintiffs alleged conspiracies to fi x the prices of fl at glass and automotive replacement glass. The fi ve defendants who manufactured fl at glass — PPG Industries, Libbey-Owens- Ford Company (LOF), AFG Industries, Guardian Industries and Ford Motor Company — accounted for 90% of the fl at glass sold in the United States, making the industry a classic oligopoly. The automotive replacement glass industry was similarly dominated by eight manufacturers, including four of the fi ve major fl at glass producers. The allegations against the fl at glass producers were straightforward, resting on the fact that on several occasions the defendants raised their list prices in the same amounts at about the same times. The claim against the automotive replacement glass producers was more complex, and focused on a catalogue published by an independent company which provided a recommended price for installers to charge car owners for each type of automotive glass product; the defendants allegedly acted in concert to work backward from this price catalogue to set their wholesale prices.

Plaintiffs settled with all defendants except PPG. PPG fi led a motion for summary judgment, which the district court granted. The Third Circuit reversed with respect to the fl at glass conspiracy, but affi rmed with respect to the alleged conspiracy regarding automotive replacement glass. The Third Circuit read Matsushita to say that “the acceptable inferences which can be drawn from circumstantial evidence vary with the plausibility of the plaintiffs’ theory and the dangers associated with such inferences.”

9 The court referred to its

prior decision in Petruzzi’s IGA v. Darling- Delaware,

10 a case involving allegations

f a customer allocation scheme. In that

case, the Third Circuit held that the theory

f conspiracy made “perfect economic

sense,” so “more liberal inferences from the evidence should be permitted than in Matsushita because the attendant dangers from drawing inferences recognized in Matsushita are not present.”

The Third Circuit thus appears to contemplate a sliding scale of standards for summary judgment, in which the strength

f the inferences from the evidence re-

quired to create a jury issue of conspiracy will vary inversely with the plausibility

f the plaintiff’s theory.

12 The Seventh

Circuit made a similar pronouncement in In re High Fructose Corn Syrup Antitrust Litigation, where Judge Posner wrote that “[m]ore evidence is required the less plausible the charge of collusive conduct.”

13 In

fact, Matsushita arguably drew a more rigid distinction between plausible and implausible theories, and focused not so much on the degree of plausibility of the plaintiffs’ theory but rather on the relative plausibility of the “competing inferences” proffered by the defendants. The Matsushita Court considered a claim that Japanese television manufacturers had conspired to fi x artifi cially low prices in the United States in order to drive American manufacturers

I

n the absence of an admission or

ther direct evidence of conspiracy,

a Section 1 plaintiff “must present evidence from which the existence of such an agreement can be inferred.”

2 The

problem with relying on indirect means of proof, however, is that such circumstantial evidence “is by its nature ambiguous, and necessarily requires the drawing of one

r more inferences in order to substanti-

ate claims of illegal conspiracy.”

3 The

Supreme Court held in Matsushita Electric Industrial Co. v. Zenith Radio Corp. that “mistaken inferences” in antitrust conspiracy cases “are especially costly, because they chill the very conduct the antitrust laws are designed to protect.”

In In re Flat Glass Antitrust Litigation,

the Third Circuit addressed the issue

f what inferences are permissible from

circumstantial evidence, or what it called “the recurring question of what quantity and quality of evidence suffi ces to create a genuine issue of material fact” as to the existence of a Section 1 conspiracy.

Quoting its own prior discussions of Matsushita, the court stated that “the acceptable inferences which can be drawn from circumstantial evidence vary with the plausibility of the plaintiffs’ theory and the dangers associated with such inferences.”

This characterization of “varying” inferences suggests a sliding-scale approach to summary judgment, such that the more plausible the alleged conspiracy, the more willing the court should be to permit inferences in the plaintiff’s favor. Although such an approach would arguably be less conducive to summary judgment than

ther readings of Matsushita, the Third

Circuit ultimately applied a conventional “plus factor” analysis in the context of an alleged price-fi xing scheme in an

ligopolistic market, and to that extent

Continued on next page

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The Antritrust Practitioner

Volume 1, December 2004

Page 3 from the market. Noting that “[a] predatory pricing conspiracy is by nature speculative,” the Court cautioned that conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy. To survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for a violation of § 1 must present evidence “that tends to exclude the possibility” that the alleged conspirators acted independently.14 In other words, the Court said, a plaintiff must show “that the inference

f conspiracy is reasonable in light of the

competing inferences of independent action or collusive action that could not have harmed respondents.”15 Where the plaintiff’s theory is not subject to competing inferences but is simply implausible, however, Matsushita indicates that no inferences are permitted: “courts should not permit factfi nders to infer conspiracies when such inferences are implausible.”16 If the defendants “had no rational economic motive to conspire,” the Court said — that is, if the theory of conspiracy was implausible — “and if their conduct is consistent with

ther, equally plausible explanations, the

conduct does not give rise to an inference

f conspiracy.”17 In other words, if the

theory is implausible, the plaintiff needs direct evidence of conspiracy. If the theory is plausible, then the court does not apply a sliding scale, but rather balances the inference of conspiracy against the “competing inferences of independent action or collusive action that could not have harmed the respondents.” To the extent there is any real distinction between the balancing test required by Matsushita in the case of ambiguous evidence, and the sliding scale suggested by Flat Glass and High Fructose, that distinction collapses when a plaintiff alleges price-fi xing in an oligopolistic market, as was the case in Flat Glass. Although price-fi xing “makes perfect economic sense” and “generally does not approximate — and cannot be mistaken as — competitive conduct,” the Third Circuit recognized that “this Court and

thers have been cautious in accepting

inferences from circumstantial evidence in cases involving allegations of horizontal price-fi xing among oligopolists.”18 Thus even in the case of price-fi xing, presumably the most “plausible” theory of conspiracy, additional proof may still be required. The reason for this “circumspect approach,” according to the Flat Glass court, is the “competing inference”

f interdependence. “In a highly

concentrated market . . . any single fi rm’s ‘price and output decisions will have a noticeable impact on the market and on its rivals.’ Thus, when a fi rm in a concentrated market (i.e. an ‘oligopolist’) is deciding on a course of action, any rational decision must take into account the anticipated reaction

f the other [ ] fi

rms.”19 As a result, “fi rms in a concentrated market may maintain their prices at supracompetitive levels, or even raise them to those levels, without engaging in any overt concerted action.”20 The Third Circuit, along with other courts, has held that such “conscious parallelism” is not proscribed by the Sherman Act.21 The Eleventh Circuit followed a similar analysis in its 2003 decision in Williamson Oil Co. v. Philip Morris USA, where it wrote that

ligopolies “often feature coordinated

pricing and related behaviors,” because “‘the profi t-maximizing choice of price and output for one depends on the choices made by others.’”22 Accordingly, the court in Flat Glass applied what has become the conventional “plus factor” analysis, which requires “that plaintiffs basing a claim of collusion

n inferences from consciously parallel

behavior show that certain ‘plus factors’ also exist.”23 Plus factors, the Third Circuit said, “serve as proxies for direct evidence of an agreement,” because their presence “tends to ensure that courts punish ‘concerted action’ — an actual agreement — instead of the ‘unilateral, independent conduct of competitors.’”24 While acknowledging the absence of a fi nite list of plus factors, the Flat Glass court identifi ed three: “(1) evidence that the defendant had a motive to enter into a price fi xing conspiracy; (2) evidence that the defendant acted contrary to its interests; and (3) ‘evidence implying a traditional conspiracy.’”25 The court found that although the fi rst and second plus factors “tend[] to eliminate the possibility of mistaking the workings of a competitive market — where fi rms might increase price when, for example, demand increases — with interdependent supracompetitive pricing,” they can also restate the conditions of interdependence within the context of a horizontal price- fi xing claim, and thus “may not suffi ce — by themselves — to defeat summary judgment on a claim of horizontal price- fi xing among oligopolists.”26 The Third Circuit stated that “the most important evidence will generally be non-economic evidence ‘that there was an actual, manifest agreement not to compete.’”27 Such evidence includes “‘customary indications of traditional conspiracy,’ or ‘proof that the defendants got together and exchanged assurances of common action or otherwise adopted a common plan even though no meetings, conversations, or exchanged documents are shown.’”28 This approach is in accord with that taken by the Seventh Circuit in High Fructose Corn Syrup, where the court held that economic evidence of conspiracy — i.e., evidence that the market structure made price-fi xing feasible, and that defendants were not competing on price — was insuffi cient to establish “an actual, manifest agreement not to compete.” Judge Posner agreed with the defendants that such evidence is “consistent with the hypothesis that they had a merely tacit agreement, which . . . is not actionable

Continued on next page Continued from previous page

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The Antritrust Practitioner

Volume 1, December 2004

Page 4 under section 1 of the Sherman Act.”29 The important question, according to Judge Posner, is “whether there is enough evidence for a reasonable jury to fi nd that there was an explicit agreement, not merely a tacit one.”30 In other words, a plaintiff must also come up with “non-economic evidence suggesting that they were not competing because they had agreed not to compete.”31 The courts in Flat Glass and High Fructose Corn Syrup found evidence suffi cient to raise an inference of conspiracy, while the Eleventh Circuit in Williamson Oil did not. These outcomes refl ect differences in the evidence, not in the legal standard applied. In Flat Glass, the Third Circuit found that plaintiffs had presented evidence permitting an inference that PPG’s competitors agreed to raise the prices of fl at glass, including a letter from PPG’s competitor LOF to the Department of Justice concerning LOF’s effort to qualify for leniency. In that letter LOF stated: “We are surprised that you consider our proffer, which described an agreed upon, across the board price increase for the entire United States . . . to be less than a ‘full and complete disclosure.’” According to the court, “a reasonable factfi nder could infer . . . [a conspiracy involving PPG] from LOF’s reference to an ‘across the board’ price increase.”32 The court also cited a number of industry-wide price increases that occurred soon after meetings among competitors; evidence that the companies knew of their competitors’ price increases before they were announced; and references in the companies’ documents to “hold[ing] the line on pricing,” “signifi cant discipline on the part of all fl

at [glass] producers,” and

“stick[ing] to the rules.”33 In sum, the court held, here the exchanges of information are more tightly linked with concerted behavior and therefore they appear more purposive. Several of the key documents emphasize that the relevant price increases were not economically justifi ed or supportable, but required competitors to hold the line. Others suggest not just foreknowledge of a single competitor’s pricing plans, but

f the plans of multiple competitors.

Predictions of price behavior were followed by actual price changes.34 The court therefore found a strong inference of concerted action. In contrast to its ruling on the fl at glass conspiracy, the Third Circuit found that the plaintiffs had not proffered suffi cient evidence from which to infer a conspiracy to fi x the price of automotive replacement glass. Plaintiffs claimed that PPG and other automotive replacement glass producers agreed to raise prices when they supplied National Auto Glass Specifi cations (NAGS), a company that produces the NAGS Calculator catalogue, with their truckload list prices. After selecting a particular truckload price, NAGS used a multiplier to set recommended retail prices for the

products. Plaintiffs claimed that because

PPG and other producers knew the multiplier used by NAGS, they adjusted their truckload prices to match the price chosen by NAGS. The court emphasized the producers’ lack of infl uence over the NAGS process, and found a lack of evidence of an agreement to adjust prices similar to the evidence of a fl at glass

conspiracy. The court was also cautious

in its approach because it found that the alleged conduct — publication of pricing information — could have pro- competitive effects.35 The evidence in High Fructose Corn Syrup was similar to the evidence of a fl at glass conspiracy. One of the defendants, Archer Daniels Midland (ADM), was conceded to have fi xed prices on related products during the same time frame. Documents referred to “an understanding within the industry not to undercut each

ther’s prices,” to an “understanding

between the companies that . . . causes us not to . . . make irrational decisions,” and to “play[ing] by the rules (discipline).” A director of one defendant said in a memo that “competitors[’] happiness is at least as important as customers[’] happiness,” and the president of ADM similarly stated that “our competitors are our friends. Our customers are the enemy.” The Seventh Circuit stated that the evidence “is not conclusive by any means — there are alternative interpretations of every bit

f it — but it is highly suggestive of the

existence of an explicit though of course covert agreement to fi x prices.”36 In contrast to the evidence discussed above, the evidence produced by plaintiffs in the Williamson Oil case was much more ambiguous, and did not tend to exclude the possibility of independent action. In Williamson Oil, a class of cigarette wholesalers claimed that the major cigarette manufacturers engaged in a conspiracy to fi x cigarette

prices. After analyzing Philip Morris’

dramatic price reduction in 1993, known as “Marlboro Friday,” which sent an “unambiguous message . . . that it would act aggressively to attempt to maintain” its price leadership, the court found that price competition by PM’s competitors “likely would have resulted in little if any market share gain. It simultaneously would have minimized profi ts, given that lower prices generate smaller revenues.”37 In other words, a classic condition of

ligopolistic interdependence prevailed.

The Williamson Oil court thus determined that parallel pricing in the cigarette industry was economically rational and in the companies’ self interest and, as a result, did not tend to establish a price fi xing conspiracy. In contrast to Flat Glass, there was no evidence that the defendants had advance notice of each other’s price increases, and no evidence of meetings among competitors in conjunction with price increases. A comparison of High Fructose Corn Syrup and Williamson Oil also suggests some natural (though not absolute) limits

n the use of expert testimony in price-

fi xing cases. In High Fructose, the court

Continued on next page Continued from previous page

SLIDE 5

The Antritrust Practitioner

Volume 1, December 2004

Page 5 accepted the plaintiffs’ expert opinion that the structure of the market was favorable to price-fi xing, and that during the period of the alleged conspiracy the defendants did not compete on price.38 The court held that this economic evidence was suffi cient to establish an inference of tacit collusion (which is not actionable under section 1), but was not suffi cient by itself to prove an actual agreement. “[T]here is evidence that the defendants were not competing,” the court said, “but the plaintiffs must prove that there was an actual, manifest agreement not to compete.”39 In Williamson Oil, in contrast, the plaintiffs’ expert went beyond providing economic evidence of market conditions and pricing behavior, and opined as to the existence of certain non-economic “plus factors,” i.e., conduct that was allegedly against the self-interest of the defendants. For instance, the expert opined that the defendants’ adoption of customer allocation programs was contrary to their economic interests, that the defendants exchanged price signals, and that the defendants’ exchange of sales volume information through a market research fi rm was part of a price-fi xing conspiracy.40 The problem with expert opinion as to non-price behavior is that it tends toward mere second-guessing of the rationales for defendants’ business decisions, a task for which economic experts are less well

suited. Plaintiffs’ expert in Williamson Oil

was apparently aware of this limitation, for he ultimately “did not differentiate between lawful conscious parallelism and collusive price fi xing.”41 Because the expert could not identify conduct that (in the language of Matsushita) was not also “consistent with permissible competition,” his opinion was properly excluded because it would not have aided the trier of fact to draw the necessary inferences of conspiracy from ambiguous evidence.42 Williamson Oil and High Fructose thus suggest that expert testimony may be more pertinent to the economic indicators of conspiracy than it is with respect to non-economic, “plus factor” evidence. Thus Flat Glass breaks no real new ground in the treatment of antitrust conspiracy claims on summary judgment. Its suggestion of a sliding scale approach, whereby the permissible inferences from ambiguous evidence varies with the plausibility of the conspiracy alleged, may not differ materially from the balancing

f “competing inferences” mandated by
Matsushita. And its treatment of an alleged

price-fi xing conspiracy among oligopolists is consistent with that of other courts. [Endnotes]

1 Edwin Fountain is a partner in the

Washington offi ce of Jones Day. Alicia Hogges-Thomas is an associate in that offi

ce. Mr. Fountain was counsel

for defendant R.J. Reynolds Tobacco Company in the Williamson Oil case.

2 In re High Fructose Corn Syrup Antitrust

Litig., 295 F .3d 651, 654 (7th Cir. 2002).

3 Williamson Oil Co. v. Philip Morris USA,

346 F .3d 1287, 1300 (11th Cir. 2003).

4 475 U.S. 574, 594 (1986). 5 385 F

.3d 350 (3d Cir. 2004).

6 Id. at 352. 7 Id. at 357 (quoting Petruzzi’s IGA v.

Darling-Delaware, 998 F .2d 1224, 1232 (3d Cir. 1993).

8 Id. at 354-55. 9 Id. at 357 (quoting Petruzzi’s, 998 F

.2d at 1232). See also Alvord-Polk, Inc. v. F . Schumacher & Co., 37 F .3d 996, 1001 (3d Cir. 1994) (“[T]he meaning we ascribe to circumstantial evidence will vary depending on the challenged conduct.”).

10 998 F

.2d 1224 (3d Cir. 1993).

11 Flat Glass, 385 F

.3d at 358.

12 Id. at 357. 13 295 F

.3d at 661.

14 475 U.S. at 588 (quoting Monsanto Co.

v. Spray-Rite Service Corp., 465 U.S. 752,

764 (1984)) (internal citations omitted).

15 Id. See also Williamson Oil, 346 F

.3d at 1300 (“Evidence that does not support the existence of a price fi xing conspiracy any more strongly than it supports conscious parallelism is insuffi cient” to defeat summary judgment.).

16 475 U.S. at 593. 17 Id. at 596-97. 18 Flat Glass, 385 F

.3d at 358.

19 Id. at 359 (quoting Phillip E. Areeda

& Herbert Hovenkamp, Antitrust Law ¶ 1429, at 206-07 (2nd ed. 2000).

20 Flat Glass, 385 F

.3d at 359.

21 Id. at 359-60 (citing In re Baby Food

Antitrust Litig., 166 F .3d 112, 121-22 (3rd Cir. 1999).

22 346 F

.3d 1287, 1299 (2003) (citing Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993), and quoting Bailey v. Allgas, Inc., 284 F .3d 1237, 1251 (11th Cir. 2002).

23 Flat Glass, 385 F

.3d at 360.

24 Id. (citing Baby Food, 166 F

.3d at 122). See also Williamson Oil, 346 F .3d at 1301 (“any showing by appellants that ‘tends to exclude the possibility of independent action’ can qualify as a plus factor”).

25 385 F

.3d at 360 (quoting Petruzzi’s, 998 F .2d at 1244).

26 385 F

.3d at 361.

27 Id. (quoting High Fructose Corn Syrup,

295 F .3d at 661).

28 385 F

.3d at 361.

29 295 F

.3d at 661.

30 Id. 31 Id. at 654-55. 32 Flat Glass, 385 F

.3d at 363.

33 Id. at 362-67. 34 Id. at 369. 35 Id. at 369-70. 36 295 F

.3d at 663.

37 346 F

.3d at 1311.

38 295 F

.3d at 656-57, 660-61

39 Id. at 661. 40 346 F

.3d at 1321 & n.21.

41 Id. at 1322. 42 Id. at 1323. N

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The Antritrust Practitioner

Volume 1, December 2004

Page 6

Empagran : A Post Script

Edward D. Cavanagh*

I

n F . Hoffman – LaRoche Ltd. v. Empa- gran S.A.,

1 the Supreme Court, vacat-

ing the ruling of the D.C. Circuit,

held that the Foreign T rade Antitrust Improvements Act (“FTAIA”) precludes exercise of subject matter jurisdiction

ver antitrust claims by foreign plaintiffs

alleging unlawful conduct that “signifi

cantly and adversely affects both customers
utside the United States and customers

within the United States,”

3 where “the

adverse foreign effect is independent of any adverse domestic effect,”

4 that is, “the

conduct’s domestic effect did not help bring about that foreign injury.”

5 The

narrowly crafted decision thus did not address the situation where the alleged unlawful conduct creates domestic anticompetitive effects which help bring about foreign injury, and the Court left the door

pen for the Court of Appeals to consider

that argument on remand.

6 How wide

that opening is remains unclear. The uncertainty regarding the jurisdictional issue was exacerbated by the Court’s refusal to address the issue of a foreign plaintiff’s

standing. In short, the Empagran decision

raised new questions that the Supreme Court will undoubtedly soon have to address.

THE DECISION

In declining jurisdiction, the Court chose not to parse the impenetrable language

f the awkwardly drafted FTAIA. Its

rationale for dismissing the foreign claims at issue was two-pronged. First, the Court acknowledged that the wording of the FTAIA was ambiguous and reasoned that under principles of prescriptive comity, ambiguous statutes should be construed so as to “avoid unreasonable interference with the sovereign authority of other nations.”7 The Court recognized that application of American antitrust laws to foreign conduct could potentially interfere with a foreign nation’s ability to regulate its own commerce but nevertheless concluded that application of American law to foreign conduct would be reasonable to the extent Congress sought to redress domestic antitrust injury caused by foreign conduct.8 At the same time, the Court concluded that it would be unreasonable to apply American antitrust law to foreign conduct, where, as here, the foreign conduct causes foreign injury independent of domestic injury, and that foreign injury alone gives rise to claims by foreign plaintiffs.9 In such cases, American law may not supplant a foreign nation’s determination as to how best to protect its citizens.10 The Court noted that several foreign governments had fi led amicus briefs arguing that to permit foreign plaintiffs to invoke the treble damages remedy “would unjustifi ably permit their citizens to bypass their own less generous remedial schemes, thereby upsetting the balance of competing considerations that their own domestic antitrust laws embody.”11 Alternatively, the Court found that both the language and history of the FTAIA demonstrated the Court’s lack of

jurisdiction. Here, the Court proceeded

by syllogism. First, it concluded that no case decided prior to the adoption of the FTAIA would support the exercise of Sherman Act jurisdiction on the record before it. Second, neither the statute itself nor the legislative history of the FTAIA would support a construction

f the FTAIA that would “expand in

any signifi cant way” the reach of the Sherman Act in cases involving foreign commerce.12 Therefore, Congress would not have intended to bring the conduct in question within the scope of the Sherman Act by enacting the FTAIA. In so holding, the Court specifi cally rejected plaintiffs’ argument that as long as the conduct at issue has domestic effects giving rise to “a claim” on behalf of someone — concededly not these plaintiffs — the FTAIA does not bar Sherman Act jurisdiction over claims by foreign purchasers outside of the United States.13 Without jumping into the thicket of statutory construction, the Court simply acknowledged that plaintiffs’ “reading of the FTAIA is the more natural reading of the statutory language,”14 but concluded that considerations of comity and history make clear that plaintiffs’ expansive reading

f the FTAIA is inconsistent with the basic

intent of the statute.15

NEXT STEPS “Inextricably Intertwined”

In the wake of Empagran, it is likely the foreign antitrust plaintiffs will allege that their antitrust injury is “inextricably intertwined” with the injury suffered by domestic plaintiffs in order to gain entry to an American courthouse through the door left open by the Supreme Court. This is precisely the approach taken by plaintiffs in Empagran on remand. That strategy will make it diffi cult for defendants to utilize the most common vehicle for attacking foreign claims — a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed. R.

Civ. P

. 12(b)(1) — because the question

f whether foreign injury is “inextricably

intertwined” with domestic injury will require a detailed factual inquiry. Defense counsel may press the court for expedited discovery on the issue of subject matter jurisdiction, and a court may be inclined to grant such a request where the case involves foreign claimants alone. On the

ther hand, a court may be less inclined to

adopt expedited discovery procedures in

Continued on next page

Even where a foreign plaintiff can establish that its claims are not barred by the FTAIA, it still faces a formidable hurdle

f establishing standing.

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The Antritrust Practitioner

Volume 1, December 2004

Page 7 the more typical case involving a massive international conspiracy with many diverse plaintiffs where little effi ciency can be gained from expedited discovery of foreign claims. Moreover, there remains a subsidiary question of whether the judge or jury decides the “inextricably intertwined”

issue. Generally, the courts treat antitrust

injury as a question of law and would be unlikely to refer this issue to a jury. The upshot is that even after Empagran it may be as diffi cult for defendants to dismiss foreign claims as it was before that

decision. As long as foreign claims are

unresolved, they have settlement value, and a defendant looking to achieve a universal settlement may have to buy off the foreign claims, however tenuous. Nevertheless, it is still much too early to make defi nitive judgments as to the impact of Empagran. The D.C. Circuit has yet to decide the remand issues in

Empagran. Still, the early returns are not

promising for foreign plaintiffs. In Sniado

v. Bank Austria AG,16 the Second Circuit,

after the Supreme Court’s grant of certiorari and remand with instructions to review its earlier decision upholding jurisdiction in light of Empagran,17 vacated its prior order and affi rmed the district court’s dismissal

f the complaint. Plaintiff in Bank Austria

had alleged that: (1) he had been charged supracompetitive fees to exchange Euro- zone currencies; and (2) the excessive fees at issue, all of which had been paid in Europe, had been caused by an illegal price-fi xing conspiracy among European banks.18 Plaintiff in Bank Austria sought to walk into United States court through the door left open in Empagran by arguing that his injury in Europe was dependent

n the foreign conspiracy’s effect on

domestic commerce.19 Nevertheless, the Second Circuit ruled that “plaintiff’s amended complaint, liberally construed to the outer limits of reasonableness,” failed to support his arguments for exercise of jurisdiction.20 Specifi cally, the complaint failed to allege that currency conversion fees had reached supra-competitive levels in the United States.21 Nor did it allege that the foreign conspiracy’s adverse effect

n domestic commerce was the “but

for” cause of his injury in Europe.22 The Court further found that attempts to allege that the injury suffered in Europe was dependent on the foreign conspiracy’s adverse effect on domestic commerce were “too conclusory to avert dismissal.”23 The Court also pointed out that the district court had been right all along in ruling that under section 6a(2) of the Sherman Act, the foreign conspiracy’s adverse effect

n domestic commerce must give rise to

this particular plaintiff’s claim and not the claim of someone else.24 In BHP New Zealand Ltd. v. UCAR International Inc.,25 involving an alleged worldwide cartel to fi x prices and allocate territories for graphite electrodes, the Third Circuit, following Empagran, vacated a district court order which had dismissed claims based on foreign purchases but had upheld claims based on sales that had been invoiced in the United States. The Court

f Appeals ruled that the “District Court,

should it deem it necessary or helpful, may give the parties the opportunity to present evidence as to whether the alleged anticompetitive conduct’s domestic effects were linked to the alleged foreign harm.”26 On the other hand, the court in MM Global Services, Inc. v. Dow Chemical Company27 upheld Sherman Act jurisdiction in the wake of Empagran. Plaintiffs, distributors of defendant’s chemical products to end-users in India, alleged that defendant imposed resale price maintenance on their sales in India in order to protect against price erosion in the United States and other countries.28 Defendant sought dismissal, arguing that under Empagran, a foreign plaintiff must show that the anticompetitive effects on domestic commerce gave rise to their injuries, whereas in this case plaintiffs were arguing the opposite – that their foreign injuries had an effect on domestic commerce.29 The court, however, agreed with the plaintiffs that nothing in Empagran precluded Sherman Act jurisdiction over “domestic effects ‘fl

wing’

to and from foreign effects” and denied defendant’s motion to dismiss.30

Standing

Even where a foreign plaintiff can establish that its claims are not barred by the FTAIA, it still faces a formidable hurdle of establishing standing. The courts have treated standing separately from the question of whether a plaintiff is outside the FTAIA exclusion.31 The Supreme Court in Empagran declined to reach the standing issue. The decisions in lower courts go both ways on standing. The D.C. Circuit upheld the standing

f foreign purchasers buying outside of

the United States.32 On the other hand, standing of foreign plaintiffs was denied by the court in In re Microsoft Antitrust Litigation.33 Notwithstanding the fact that standing is a threshold issue in antitrust cases, it is a question that has gotten too little attention from courts and litigants, and, after Empagran, the standing question has now been brought into much sharper focus.

DECISION ON REMAND

On November 2, 2004, the D.C. Circuit

n remand from the Supreme Court

issued a per curiam opinion ruling that: (1) plaintiffs had adequately pleaded that their foreign injury was linked to the domestic anticompetitive effects of the conspiracy; i.e., without higher prices in the United States, defendants could not have maintained supracompetitive prices abroad; (2) plaintiffs’ “alternative claim” was properly preserved; and (3) the Court of Appeals, not the district court, would decide in the fi rst instance whether the federal courts had subject matter jurisdiction over plaintiffs’ alternative claim.34

CONCLUSION

The Supreme Court’s decision in Empagran raises as many questions as it

resolves. It is unlikely to provide suffi

cient guidance to lower courts on FTAIA issues; and, consequently, the Supreme Court may be forced to revisit these issues in the near term.

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The Antritrust Practitioner

Volume 1, December 2004

Page 8

The Confl ict in the Circuits Over Personal Jurisdiction and Venue in Antitrust Cases

Jordan Lee*

[Endnotes]

* Professor of Law, St. John’s University,

School of Law, Senior Counsel, Morgan, Lewis & Bockius LLP , New York City

1 124 S. Ct. 2359 (2004). 2 315 F

.3d 338 (D.C. Cir. 2003).

3 124 S.Ct. at 2366. 4 Id. 5 Id. at 2372. 6 Id. at 2370. 7 Id. at 2366. 8 Id. 9 Id. at 2367. 10 Id. 11 Id. at 2368. 12 Id. at 2371(emphasis in original). 13 Id. 14 Id. 15 Id. at 2372. 16 378 F

.3d 210 (2d Cir. 2004).

17 Sniado v. Bank Austria AG, 124 S. Ct.

2870, 2871 (2004).

18 Sniado v. Bank Austria AG, 378 F

. 3d 210 (2d Cir. 2004).

19 Id. 20 Id. at 213. 21 Id. 22 Id. 23 Id. 24 Id. 25 106 Fed. Appx. 143 (3d Cir. Aug. 9,

2004).

26 Id. 27 329 F

. Supp. 2d 337 (D. Conn. 2004).

28 Id. at 339. 29 Id. at 342. 30 Id. 31 E.g., Empagran, 315 F

.3d at 357-59.

32 Id. at 358. 33 127 F

. Supp. 2d 702, 716 (D. Md. 2001) (no standing where “ ‘plaintiff was neither a competitor nor a consumer in the United States domestic market,’” citing Galavan Supplements, Ltd. v. Archer, Daniels, Midland Co., 1997 WL 732498 at *4 (N.D. Cal. 1997).

34 Empagran, S.A. v. Hoffman-LaRoche

Ltd., 388 F .3d 337 (D.C. Cir. 2004). N

A

superfi cially technical disagreement among the federal courts over the interpretation of Section 12 of the Clayton Act1 is having a signifi cant effect

n the jurisdictional reach of the antitrust
laws. Section 12 provides:

Any suit . . . under the antitrust laws against a corporation may be brought . . . in any district wherein it may be found or transacts business; and all process in such cases may be served in the district . . . wherever it may be found.”2 Thus, the fi rst clause of Section 12 is a relatively restrictive venue provision, while the second clause is a sweeping personal jurisdiction provision authorizing worldwide service of process.3 The circuits have divided over whether these clauses operate independently. Some courts read the phrase “in such cases” in the second clause to refer to the preceding venue provision, and thus permit use of worldwide service of process provision

nly when the venue provision is also

satisfi

ed. Others read “in such cases” to

refer to the introductory phrase, “any suit, action or proceeding under the antitrust laws,” and thus allow plaintiffs to use the worldwide service provision independently

f the restrictive venue clause. Under this

broader interpretation corporate antitrust defendants can be subject to personal jurisdiction in any district in which some venue provision is satisfi ed, limited only by the Fifth Amendment’s due process requirement of aggregate minimum contacts with the United States as a whole. The Second4 and District of Columbia5 Circuits have adopted the narrower view, while the Ninth6 and Third7 Circuits have adopted the broader view. In the fi rst case to address the issue, Goldlawr, Inc. v. Heiman,8 the Second Circuit chose the narrower interpretation. The court, in a two-paragraph discussion, relied on what it saw as the plain language

f Section 12. However, because the

issue before the court was transfer of venue and not personal jurisdiction, the court’s discussion has been treated as dicta, even by courts within the Second Circuit.9 Nevertheless, the D.C. Circuit followed Goldlawr in GTE New Media Services v. BellSouth Corp.10 The court found it unreasonable to assume Congress would “intentionally craft a two-pronged provision with a superfl uous fi rst clause,

stensibly link the two provisions with the

‘in such cases’ language, but nonetheless fail to indicate clearly anywhere that it intended the fi rst clause to be disposable.”11 The leading case for the broader view is the Ninth Circuit’s decision in Go- Video, Inc. v. Akai Electric Co.,12 which relied on three main factors to support its interpretation.

The narrow interpretation is initially appealing because it is consistent with the Supreme Court’s expressed concern that personal jurisdiction be extended cautiously, particularly in the international context.

First, congressional intent, legislative history and public policy supported liberal antitrust enforcement powers. Second, jurisprudence interpreting similar provisions in other federal statutes adopted a broad interpretation. Third, courts traditionally treated specifi c venue statutes (like Section 12) as supplementing, not

verriding, the general venue provisions

found in 28 U.S.C. § 1391. Thus, the Ninth Circuit held that a party could invoke Section 12’s worldwide service of process and personal jurisdiction powers

Continued on next page Continued from previous page

SLIDE 9

The Antritrust Practitioner

Volume 1, December 2004

Page 9 even if it was relying on the general venue statute, and not Section 12’s specifi c venue

provision. Go-Video, Inc. involved foreign

corporations and the application of 28 U.S.C. § 1391(d), which allows an alien to be sued in any district. Section 1391(d) combined with Section 12’s worldwide service of process provision allowed suit against a foreign corporation in any district, subject only to national minimum contacts.13 The Ninth Circuit recently reaffi rmed Go-Video in Action Embroidery Corp. v. Atlantic Embroidery, Inc.14 In that case, a district court in California granted a motion to dismiss for lack of personal jurisdiction because the plaintiff did not argue that venue existed under any statute (Section 12 or the general venue statute). Therefore, the court held, the plaintiff could not use Section 12’s worldwide service of process to establish personal

jurisdiction. Reversing, the Ninth Circuit

held that venue and personal jurisdiction are completely independent requirements under Section 12, and failure to satisfy

ne does not preclude use of the other.

The court noted that Congress and the Supreme Court15 had generally treated the questions of venue and service of process

separately. The court also pointed to

similar reasoning in cases interpreting the venue and worldwide service of process statutes under RICO and the Securities Exchange Act.16 The court concluded, “[t]he juxtaposition of the venue and service of process provisions in Section 12, without more, does not convince us that Congress intended to make these concepts analytically interdependent.”17 Action Embroidery reinforces the Ninth Circuit’s precedent that Section 12’s venue and worldwide service of process provisions are separate and independent

clauses. Thus, Action Embroidery

establishes the next logical expansion for the broad interpretation: not only does personal jurisdiction established through Section 12 operate with either Section 12’s venue provision or the general venue statute, but now personal jurisdiction established through Section 12 does not require satisfaction of any venue provision. Action Embroidery does not signifi cantly change any of the fundamental differences between the two interpretations, and the split remains. Plaintiffs and corporate defendants in private antitrust suits still face a range of venue, process, and personal jurisdiction choices that depend solely on the circuit in which the action is eventually

brought. The Action Embroidery Corp.

decision is not likely to infl uence courts that have adopted the narrow interpretation based largely on the asserted plain meaning of Section 12. Also this year, Third Circuit joined the Ninth Circuit in approving the broad interpretation in In re Automotive Refi nishing Paint Antitrust Litigation.18 The court also held that aggregate national minimum contacts, rather than contacts with the forum state, was the standard for personal jurisdiction under Section 12’s worldwide service of process provision.19 Thus, the split will remain until the Supreme Court or Congress resolves

it. The narrow interpretation is initially

appealing because it is consistent with the Supreme Court’s expressed concern that personal jurisdiction be extended cautiously, particularly in the international context.20 It is also true, however, that jurisdiction and venue in antitrust cases present unique issues, because “like the weather, the economy respects no state

r natural borders.”21 Given the trend

toward a globalized economy, this question should be resolved sooner rather than later. [Endnotes] * Student at the University of Florida Levin College of Law Graduate Tax Program; J.D., University of Florida Levin College of Law, B.S. University of Florida.

1 15 U.S.C. § 22 (2000). 2 Id. (emphasis added). 3 FED. R. CIV. P

. 4(k)(1)(D) allows a court to exercise personal jurisdiction over a defendant who has been properly served with process as authorized by a federal statute.

4 See, e.g., Goldlawr, Inc. v. Heiman, 288

F .2d 579 (2d Cir. 1961), rev’d on other grounds, 369 U.S. 463 (1962).

5 See GTE New Media Services, Inc. v.

BellSouth Corp., 199 F .3d 1343 (D.C.

Cir. 2000).

6 See Action Embroidery Corp. v. Atlantic

Embroidery, Inc., 368 F .3d 1174 (9th

Cir. 2004); Go-Video, Inc. v. Akai Electric

Co., 885 F .2d 1406 (9th Cir. 1989).

7 See In re Automotive Refi

nishing Paint Antitrust Litigation, 358 F .3d 288 (3d

Cir. 2004).

8 288 F

.2d at 581 (2d Cir. 1961), rev’d on

ther grounds, 369 U.S. 463 (1962)

9 See, e.g., Daniel v. American Board of

Emergency Medicine, 988 F . Supp. 127, 143-44 (W.D.N.Y. 1999).

10 199 F

.3d at 1351 (D.C. Cir. 2000).

11 Id. But see Daniel, 988 F

. Supp. at 144 (observing that such an argument “overlooks . . . the fact that § 22 was enacted in 1914, decades before Congress expanded the general venue provisions in 1988. Thus, at the time that § 22 was enacted, the special venue provisions contained therin served a defi nite purpose.”). See also In Re Magnetic Audiotape Antitrust Litig., 334 F .3d 204, 207 (2d Cir. 2003) (identifying the disagreement among the circuits and listing cases adopting both narrow and broad interpretations).

12 885 F

.2d at 1408 (9th Cir. 1989)

13 Daniel extended the broad interpretation

to domestic corporations, endorsing Go-Video, and dismissing the contrary language in Goldlawr as dicta. The court noted that domestic corporate defendants that were subject to personal jurisdiction in a district under Section 12, would also reside in that district for venue purposes under 28 U.S.C. § 1391(c). Daniel, 988 F . Supp. at 143- 44

14 368 F

.3d 1174 (9th Cir. 2004).

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SLIDE 10

The Antritrust Practitioner

Volume 1, December 2004

Page 10 who are more interested in programs, such as brown bags or spring meeting programs, please contact Mark McCareins. And, if you have thoughts or suggestions about adding content to our webpage, please touch base with Milton Marquis. Finally, I am the catchall, so if there is something related to our committee and you don’t know who to go to, I am the guy. We have had a busy fall. Doug Ross has led a team that is responsible for up- dating parts of ALD V. The fruits of their handiwork will be available in the next supplement, which will be published early next year. Ned Cavanagh, past co-chair, is leading a team that is already working on ALD VI. Our committee co-sponsored the highly successful teleseminar described in this newsletter on U.S. v. Oracle – we were fortunate to have trial participants from Oracle and the government as well as expert interlocutors lead a provocative and lively debate of the implications of the Court’s decision for future merger investi- gations and challenges. We have an exciting 2005 in store as

well. Our committee will be sponsoring

what promises to be a useful and stimulat- ing program at the Spring Meeting on Thursday, April 1 at 8 a.m. on the pro- posed amendments to the Federal Rules aimed at discovery of electronically stored

information. Our invited speakers include

practitioners from companies and the private bar as well as members of the Rules Advisory Committee. In addition, the new edition of the Civil Jury Instructions is slated to be available this spring. It is not too soon to be thinking about topics for the next issue of the Antitrust Practitioner. And, if you have an idea for a brown bag

r a teleseminar, let one of us know.

Welcome to the Antitrust Practitioner. We look forward to your comments and your involvement. N Paul Friedman

Continued from page 1, Note from the Chair

domestic effect.” Jordan Lee describes the persistent division in the federal circuits

ver the interpretation of the personal

jurisdiction and venue clauses of Section 12 of the Clayton Act. Finally, James Herbison reports the insights that emerged in a teleseminar dis- cussing the recent decision in United States

v. Oracle Corporation.

I would like to thank all of our authors, as well as the editorial board of the newsletter, David Balto of Robins, Kaplan, Miller & Ciresi in Washington; Stacey C. Burton of Morgan, Lewis & Bockius in Washington; Jennifer Cihon of the Anti- trust Division of the DOJ in Washington; Leslie Sara Hyman of Cox & Smith in San Antonio; Stephen Nagin of Nagin, Gallop & Figueredo in Miami; and Edwin Foun- tain of Jones Day in Washington. Please send any comments or suggestions for future issues to Prof. William H. Page, University of Florida Levin College

f Law, P

.O. Box 117625, Gainesville FL 32611, or email me at page@law.ufl .edu. N William H. Page

Continued from page 1, From the Editor

15 Neirbo Co. v. Bethlehem Shipbuilding

Corp., 308 U.S. 165, 168 (1939).

16 See, e.g., Sec. Investor Prot. Corp. v.

Vigman, 764 F .2d 1309, 1315 (9th Cir. 1985); Mariash v. Morrill, 496 F .2d 1138, 1143 (2d. Cir. 1974).

17 Action Embroidery Corp., 368 F

.3d at 1179.

18 358 F

.3d 288 (3d 2004). The court affi rmed the district court’s holding that section 12’s two clauses operated independently, approving Go-Video and rejecting Goldlawr and GTE New Media.

19 Id. at 299. “We hold further that

personal jurisdiction under Section 12

f the Clayton Act is as broad as the

limits of due process under the Fifth Amendment.”

20 See Asahi Metal Indus. v. Superior Court,

480 U.S. 102, 114 (1987).

21 Paper Sys. Inc. v. Mitsubishi Corp., 967 F

Supp. 364, 368 (E.D. Wis. 1997). N

Continued from previous page

SLIDE 11

The Antritrust Practitioner

Volume 1, December 2004

Page 1 1

O

n November 4, 2004, the ABA Center for Continuing Legal Education and several commit- tees of the ABA’s Section of Antitrust Law,1 including the Civil Practice and Procedure Committee, presented a Teleseminar on “The Oracle/PeopleSoft Decision: The Implications for Merger Analysis in High- tech Industries.” The participating panel included: Paul Denis, Paul Friedman, Renata Hesse, Michael Katz, Robert Ma- jure, Tom Rosch and Daniel Wall. This 90-minute teleconference and live audio webcast provided an analysis of the U.S. v. Oracle/PeopleSoft decision, explained what the decision means for merger analysis, and discussed how merger cases should be tried in United States District Courts. This note summarizes the critical issues that the panelists discussed. For clarity, I attribute the comments to the opposing sides rather than to individual speakers.

THE COURT’S DECISION

On September 9, 2004, the United States District Court for the Northern District

f California rejected the Department
f Justice’s (“DOJ”) challenge of

Oracle’s acquisition of PeopleSoft.2 The DOJ and 10 states claimed that the acquisition would be a “3 to 2” merger in a U.S. market for “high-function” software systems. The court held that the government had failed to prove that the combination was likely to harm competition in any product market asserted by the DOJ. Further, the court stated that the premise of a unilateral effects claim, localized competition among the merging fi rms, was not established. Even though it found the government had failed to establish a prima facie case, the court considered and rejected the defendants’ evidence that effi ciencies from the merger would rebut any alleged anticompetitive effects. The DOJ announced on October 1, 2004 that it would not appeal the decision.

DEFINING PRODUCT MARKETS

A key issue in the case was the DOJ’s ability to sustain its product market defi nition, especially for “high-end” enterprise resource planning software. Oracle contended that the market

Oracle felt that the DOJ focused

n the small corners of the market

where SAP was weak and failed to recognize its overall strength as a substitute and competitor.

consisted of the products to which consumers “could” turn, while the DOJ would have limited the market to products to which consumers “likely would” turn, an inquiry that would have focused on the economic rationality of substituting to another product. The parties also disagreed over whether markets defi ned with respect to customers’ special preferences are necessarily “price discrimination markets.” The Merger Guidelines permit narrow markets where sellers can identify and price discriminate against certain buyers. The DOJ, however, suggested that the concept of price discrimination markets is among the most misused in antitrust. In Oracle, the DOJ made the decision not to defi ne the relevant market as a price discrimination market because the industry included groups of customers that received unique and different pricing while other seg- ments of customers all received the same

pricing. In order to avoid confusion, the

DOJ used a traditional market defi nition but with targeted pricing groups based on customer characteristics. Oracle stated that the Guidelines specify that the DOJ must show a product market, and here Oracle felt that the DOJ had a prime case for a price discrimination market as outlined in the Guidelines given that the DOJ’s market defi nition based on customer characteris-

tics. However, the DOJ’s proposed market

was impermissibly ambiguous, and consisted of a market with all sellers having the same products across the board. Further, the allegedly inelastic customers (the largest global companies), however, typically got the best prices in the market due to buyer power and trivial marginal costs.

UNILATERAL EFFECTS ANALYSIS

Another critical issue addressed in this case was the role of the unilateral effects

doctrine. The DOJ was happy to see

unilateral effects analysis specifi cally endorsed by the court, but does not feel that the unilateral effects doctrine is just another form of narrow market defi nition. Oracle believed that unilateral effects analysis should focus on an analytical theory of conduct. However, as Oracle pointed out, the key to Judge Walker’s

pinion was the degree of closeness

between the alternative products. The DOJ stated that customers had different views of which three companies were the closest competitors. Oracle in turn argued that the requirement of dominance consisting of unilateral market power was not evidenced based on Oracle, PeopleSoft and SAP’s competition and substitutability.

CUSTOMER TESTIMONY

Customer testimony played a key role in the case’s outcome. Signifi cant customer testimony was presented on cost/benefi t analyses and customer purchasing decisions in attempting to defi ne the product market. The DOJ felt that such testimony went unnoticed by the court. An important component of software sales was intense, large-scale negotiations with sophisticated companies. Given the amount of testimony, the DOJ felt that

Antitrust TeleSeminar Series: The Oracle/PeopleSoft Decision

James F. Herbison*

SLIDE 12

The Antritrust Practitioner

Volume 1, December 2004

Page 12 a representative customer indicative of the market was established. Moreover, the DOJ believed that the weight of the evidence indicated that Oracle could discriminate on pricing because it could see which customers had purchasing alternatives and which did not, and thus made pricing decisions accordingly. Oracle, however, stated that the court assessed the testimony’s credibility and noted its skepticism of customers already invested with (i.e., having already purchased) software systems. Similarly situated customers were able to meet their needs, and thus impeached other alleged representative customer witnesses. Oracle stressed that the DOJ put too much emphasis on selected customer testimony, which proved to be ineffi cient based on the substantial documentary evidence detailing customers’ purchasing decisions.

REPOSITIONING

Under the Guidelines, a merger is not likely to lead to the unilateral elevation

f differentiated products if rival sellers

likely would replace any localized competition lost as a result of the merger by repositioning their product lines. The DOJ maintained that the evidence of SAP’s inability to reposition itself and penetrate parts of the American market versus the European market proved enough of a void in competition and substitutability, but the court failed to adopt such evidence. On the other hand, Oracle stated that SAP was in fact a strong substitute for Oracle/PeopleSoft and all three competitors were on the same ground in the American market. In fact, SAP was the more successful of the three in the global market. Oracle felt that the DOJ focused on the small corners of the market where SAP was weak and failed to recognize its overall strength as a substitute and competitor. [Endnotes] * James Herbison is an Associate in the Chicago offi ce of Winston & Strawn LLP .

1 The Civil Practice and Procedure

Committee, the Mergers & Acquisitions Committee, the Computer Industry & Internet Committee, the Economics Committee, and the T rial Practice Committee.

2 United States v. Oracle Corp., 331 F

Supp. 2d 1098 (N.D. Cal. 2004). N