Competition Economics Director Dr. Michael A. Williams assists $504.5 million settlement agreement in an antitrust class action over the ISDAfix
Competition Economics Director Dr. Michael A. Williams assisted in a $504.5 million settlement agreement in an antitrust class action over the ISDAfix.
Several pension funds and municipalities had accused 14 large investment banks of conspiring to manipulate the benchmark rate known as ISDAfix to benefit their own trading positions. The ISDAfix is a key interest rate benchmark in the global derivatives market. In addition, the case alleged that the broker ICAP assisted in the manipulation to earn brokerage commissions. The period of alleged misconduct spans from 2006 to 2014.
The case is noteworthy because the amount recovered for the class, over $500 million, is one of the most significant recoveries in an antitrust class action proceeding.
The case is Alaska Electrical Pension Fund et al v. Bank of America NA et al, at the U.S. District Court, Southern District of York, case no. 14-07126.
The Plaintiffs were represented by Scott & Scott Attorneys at Law LLP, Quinn Emanual Urquhart & Sullivan LLP, and Robbins Geller Rudman & Dowd LLP.
CE Consultant Ellen Li, and co-authors Elena Krasnokutskaya and Petra Todd to publish an upcoming article entitled “Product Choice under Government Regulation: The Case of Chile’s Privatized Pension System” in the International Economic Review
Chile’s long-running individual retirement pension accounts system has been a model for many countries in the world. To limit the riskiness of pension investments, Chile introduced a minimum return regulation that required pension fund management firms to deliver returns that are not more than two percent below of the industry average. This paper develops and estimates an equilibrium model of the pension market and uses the model to understand how minimum return regulation affects this industry. We find that the regulation leads to higher consumer demand for riskier investment products and creates incentives for pension managers to offer riskier portfolios. Hence, contrary to the original intent, such regulation results in higher overall riskiness of pension investments. Moreover, the cost imposed on the industry by this regulation leads to higher pension management fees. Nevertheless, we find that the regulation stimulates balance accumulation which, despite higher risk, ultimately reduces reliance upon government pension support.
CE Director Professor Simon J. Wilkie, Professor Melanie Stallings Williams, CE Director Dr. Michael A. Williams, CE Principal Wei Zhao, and Christopher Burke, Stephanie Hackett and David Mitchell to publish an upcoming article entitled “Masters of the Universe: Bid Rigging by Private Equity Firms in Multibillion Dollar LBOs” in the University of Cincinnati Law Review
CE Director Professor Simon J. Wilkie, Professor Melanie Stallings Williams, CE Director Dr. Michael A. Williams, CE Principal Wei Zhao, and Christopher Burke, Stephanie Hackett and David Mitchell to publish an upcoming article entitled “Masters of the Universe: Bid Rigging by Private Equity Firms in Multibillion Dollar LBOs” in the University of Cincinnati Law Review.
The article analyzes aspects of a case involving a shareholder class of investors with antitrust claims against the world’s largest private equity (“PE”) firms. The Dahl v. Bain Capital Partners, LLC case began in 2007 when a proposed class of shareholders alleged that the world’s largest PE firms had violated the Sherman Act, 15 U.S.C. §1, by conspiring to suppress the prices paid to shareholders in several large leveraged buyouts (“LBOs”). After nearly seven years of litigation, in 2014, the shareholder class settled their antitrust claims for an agreed payment of $590.5 million.
The Dahl case extends the use of economic analysis, and specifically auction theory, in antitrust matters, including class action cases. Dahl was not an ordinary case in that it did not involve either a commodity or a sellers’ cartel. Instead, it involved a buyers’ cartel which, plaintiffs alleged, conspired to drive down the price of a number of unique, large LBOs during the mid-2000’s. The case was also notable because of the Plaintiffs’ decision to use auction theory to demonstrate both the existence of antitrust violations and the extent of damages. In particular, the Dahl case extends the use of economic analysis in antitrust by using auction theory to (1) specify and empirically test plus factors used to evaluate the likelihood of collusion; (2) provide a methodology utilizing evidence common to class members to demonstrate that members of a proposed class incurred a common impact as a result of the alleged collusive conduct; and (3) provide a methodology based on generally accepted economics that can be used reliably to quantify class-wide damages.
CE Academic Affiliate Professor Justine Hastings and CE Director Dr. Michael A. Williams to publish an upcoming article entitled “Market Share Liability: Lessons from New Hampshire v. Exxon Mobil” in the Journal of Environmental Law and Litigation
Competition Economics Academic Affiliate Professor Justine Hastings and Competition Economics Director Dr. Michael A. Williams to publish an upcoming article entitled “Market Share Liability: Lessons from New Hampshire v. Exxon Mobil” in the Journal of Environmental Law and Litigation.
Economics teaches that firms causing “negative externalities” should be taxed or fined to “internalize” the costs they cause, thus ensuring market efficiency. For instance, environmental regulation and remediation requirements can mitigate or prevent negative externalities by forcing firms to internalize the costs of their pollution through the use of monetary penalties for environmental damage.
Negative externalities are pervasive in today’s modern economy. Economic efficiency requires, and public policies attempt to ensure, that polluting firms internalize the costs they impose on society. In many instances, however, tracking a pollutant back to its source can be difficult or impossible. In such circumstances, market share liability may serve as a viable method with which to assign damages. In other circumstances, e.g., global warming litigation, the alternative methodology of substantial causation may better serve that purpose.
The article examines the history of market share liability in litigation involving a number of products, as well as the strengths and weaknesses of market share liability in other areas of product liability litigation. The paper also discusses how market shares can be weighted to reflect the relative damages caused by similar but not identical products.
CE Director Professor Simon J. Wilkie, CE Director Dr. Michael A. Williams, and Vlad Radoias publish an article entitled “Rules of Evidence and Liability in Contract Litigation: The Efficiency of the General Dynamics Rule” in the Journal of Public Economic Theory
The General Dynamics v. U.S. case raises several interesting questions. Namely, first, which liability rule is more efficient: (1) forcing the contractors to be strictly liable for their failure to perform or (2) the General Dynamics rule? Second, what are the optimal bidding functions under strict liability (SL) and the General Dynamics rule? Third, how does the game change if the evidentiary rules require a buyer’s private information to be admitted in court and used by the contractor in its defense?
The article analyzes the welfare implications of three different sets of evidentiary and liability rules in contractual disputes with private information. When contracting parties are aware of the presence of private information, they anticipate future conflicts and litigation, and contracting terms are directly influenced by the applicable legal rules. In a contracting auction setting, the article authors studied the effects of a strict liability (SL) rule; an evidentiary rule that allows the contractor to build a case around the withholding of private cost information by the buyer (the Disclosure of Private Information (DPI) rule); and the General Dynamics rule.
The article’s authors find that the rules of evidence and liability strongly affect the incentives of both the contractors and the buyer. The article shows that, as long as there is at least one bid, General Dynamics yields higher efficiency than both the SL and DPI rules.
CE Director’s Co-Authored Case Study of the Hertz-Dollar Thrifty Merger to be Published in The Antitrust Revolution (7th edition)
CE Director Michael Doane co-authored a case study of the Hertz – Dollar Thrifty merger that illustrates both how the U.S. federal enforcement agencies assess likely competitive effects from proposed mergers of competitors, and the procedures that are employed when cases do not go to litigation. This case study also illustrates the practice of “fixing” an otherwise anticompetitive merger, and the potential for a “fix” to fail. See Michael J. Doane, Luke M. Froeb, Gregory J. Werden & David M. Zimmer, “Hertz–Dollar Thrifty: Fixing a Merger to Avoid Litigation,” The Antitrust Revolution: Economics, Competition, and Policy (John E. Kwoka, Jr. & Lawrence J. White, eds., 7th ed., forthcoming 2018).
The Antitrust Revolution is a leading textbook that examines the critical role of economic analysis in recent antitrust case decisions and policy.
CE Director Dr. Michael A. Williams assists class in obtaining a $454 million judgment in Kimberly-Clark / Halyard Health case
CE Director Dr. Michael A. Williams assists class in obtaining a $454 million judgment in the Kimberly-Clark / Halyard Health case.
The case was related to the sale of certain surgical gowns, with the product at issue a gown sold under the name “MicroCool Breathable High Performance Surgical Gown”. The class action lawsuit, filed by the Bahamas Surgery Center in October 2014, alleged that the defendants had falsely represented that their MicroCool surgical gowns provided the highest level of liquid barrier protection. In particular, the suit claimed that while the companies had marketed the gowns as impermeable and provided protection against serious diseases, they put health care workers at substantial risk.
After a two-week trial, in an unanimous verdict the federal jury found that Kimberly-Clark and Halyard Health misled buyers about the impermeability of the gowns, and had carried out their scheme with malice, oppression and/or fraud. The jury awarded the class $454 million in compensatory and punitive damages.
Dr. Williams served as the expert on both class certification and damages. He has served as the damages expert in cases that collectively have resolved for more than $1 billion.
Professor Melanie Stallings Williams, CE Director Dr. Michael A. Williams and CE Principal Wei Zhao to publish an upcoming article entitled “The OPEC of Potatoes: Should Collusive Agricultural Production Restrictions Be Immune From Antitrust Law Enforcement?” in the Virginia Law & Business Review
A pre-Depression era statute, the Capper-Volstead Act, allowed farmers to cooperate in marketing goods and has been interpreted to permit farming cartels to avoid the application of antitrust law. Such cooperatives set production limits designed to reduce quantities so that prices rise. Normally, horizontal output restrictions would constitute per se violations of antitrust law.
This costly collusion has gone almost unexamined and unregulated, partly due to the fact that cases, such as class actions, are likely to settle due to the expense, uncertainty and high stakes of such cases. Thus, there is a lack of judicial opinions on the legality of horizontal production restraints among agricultural products, but also of publicly available economic analysis on the cost of such collusion. The authors of this article examine the potato industry and conclude that coordinated production caps significantly increased the cost to buyers, and thus the social welfare costs are substantial. Therefore, the Capper-Volstead Act should be interpreted to encourage – not thwart – competition, and hence, should not provide antitrust immunity to farmers who collude to restrict output.
CE Director Dr. Michael A. Williams and CE co-authors Grace Baek, Yiyang Li, Leslie Y. Park and Wei Zhao publish an article entitled “Global evidence on the distribution of GDP growth rates” in Physica A: Statistical Mechanics and its Applications
CE Director Dr. Michael A. Williams and CE co-authors Grace Baek, Yiyang Li, Leslie Y. Park and Wei Zhao
The article examines the size distribution of changes in the gross domestic product (GDP) of 167 countries for the period of 1950 through 2011. Physicists and economists have studied the possibility that universal mechanisms exist which give rise to general laws governing the growth dynamics of firms and economics. A consensus developed in the literature that the distribution of GDP growth rates can be approximated by the Laplace distribution in the central part and power-law distributions in the tails. The article finds that the distribution of GDP growth rates can be fitted using the heavy-tailed Cauchy distribution for almost all countries. Importantly, this same finding was recently demonstrated for (1) the distribution of firm growth rates and (2) the distribution of firm economic profit rates. The results of the study invite research on dynamic models of competition in which firms’ growth rates, economic profit rates, and resulting changes in GDP follow a Cauchy distribution.
CE Academic Affiliate Professor Justine Hastings and Director Dr. Michael A. Williams publish an article entitled “What is a ‘but-for world’?” in Antitrust
CE Academic Affiliate Professor Justine Hastings and Director Dr. Michael A. Williams publish an article entitled “What is a ‘but-for world’?” in the Fall 2016 issue of Antitrust.
In many antitrust class action cases, the plaintiff asserts that anticompetitive conduct caused prices to rise above competitive levels. In such cases, economic experts analyze how actual prices compare to prices in a “but-for world” in which the alleged anticompetitive conduct did not occur. The composition of a proper but-for world and how one estimates but-for prices in that world are central points of contention in many antitrust class action cases. This article provides an economic analysis of this issue, including real-world examples from the authors’ experiences as testifying experts in recent cases.
Supreme Court cites an amicus brief co-authored by CE Director Dr. Michael A. Williams and Professor Tilman Klumpp in support of respondents in Tyson Foods, Inc. v. Bouaphakeo, et al.
In support of respondents in Tyson Foods, Inc. v. Bouaphakeo, et al. before the U.S. Supreme Court, CE Director Dr. Michael A. Williams and Professor Tilman Klumpp co-authored an amicus brief of economists and other social scientists in defense of the use of statistical evidence in matters of law. One of the issues before the Court involved the extent to which statistical evidence may be used as common proof of liability in class and representative actions. The brief was submitted to emphasize the extent to which modern empirical methods, including statistics, are reliable and in many cases valuable in class actions and other complex litigation settings.
On March 22, 2016, the U.S. Supreme Court decided the case, and in its issued opinion it cited the previously mentioned amicus brief. In the issued opinion, Justice Anthony M. Kennedy, writing for the six-member majority, refused to bar the use of “representative evidence.” Justice Kennedy wrote that “a representative or statistical sample, like all evidence, is a means to establish or defend against liability.” The opinion went on to state that it “follows that the Court would reach too far were it to establish general rules governing the use of statistical evidence, or so-called representative evidence, in all class-action cases.”
CE Director Dr. Michael A. Williams, CE Senior Consultant Dr. Wei Zhao, and Professor Yonghong An publish article entitled “Counterintuitive signs in reduced form price regressions” in the ABA’s Economics Committee Newsletter
CE Director Dr. Michael A. Williams, CE Senior Consultant Dr. Wei Zhao and Professor Yonghong An published an article in the American Bar Association (“ABA”) Economics Committee Newsletter entitled “Counterintuitive signs in reduced form price regressions.”
Reduced form price regressions are widely used in price-fixing cases and in merger investigations. In some cases, the estimated coefficients of one or more independent variables may have signs inconsistent with economic theory. This article explores how reduced form price regressions are used, potential inconsistent results from such regressions, and several common interpretations and causes of counterintuitive signs. The article concludes with a summary checklist for antitrust practitioners.
CE Academic Affiliate Professor Philip J. Reny and Director Dr. Michael A. Williams publish article entitled “The deterrent effect of cable system clustering on overbuilders: an economic analysis of Behrend v. Comcast,” in Economics Bulletin
Empirical research on cable industry prices demonstrates that, all else equal, cable operators with highly clustered systems generally charge higher prices than unclustered cable companies. One factor that explains this outcome is the deterrent effect that clustering has on overbuilders. All else equal, the presence of overbuilders leads incumbent cable operators to lower their cable prices. We present a model of overbuilding that provides a theoretical basis for the empirical finding that clustered cable companies charge higher prices than unclustered cable companies. The model played an important role in the prominent antitrust case Behrend v. Comcast.
Competition Economics assists State of New Hampshire in obtaining $236 million judgment in MTBE product liability case
In the matter of State of New Hampshire v. Hess Corp. et al., in April 2013 a New Hampshire jury determined that ExxonMobil Corp. should pay $236 million in damages after the jury found the company negligent for adding methyl tertiary butyl ether (“MTBE”) to gasoline which contaminated the state’s drinking water. CE staff, led by Director Michael A. Williams, assisted an Academic Affiliate who provided expert economic testimony on the distribution of gasoline and ExxonMobil’s wholesale gasoline share in New Hampshire, which was central to the jury’s damages calculations.
CE Director Dr. Michael A. Williams, and CE co-authors Brijesh P. Pinto and David Park publish article entitled “Global evidence on the distribution of firm growth rates” in Physica A: Statistical Mechanics and its Applications
CE Director Dr. Michael A. Williams, and CE co-authors Brijesh P. Pinto and David Park published an article in Physica A: Statistical Mechanics and its Applications entitled “Global evidence on the distribution of firm growth rates.”
The article explores the best method to approximate the distribution of firm growth rates. The research builds on prior work on the distribution of firm growth rates, but uses a richer database than prior studies and tests for more theoretical distributions. The authors present empirical distribution function, or EDF, tests for the log of the sales growth rate for eight distributions: Cauchy, exponential, gamma, Laplace, logistic, log-normal, normal, and Weibull, and conclude that while the Laplace distribution does reasonably well, the distribution of firm growth rates is best approximated by the heavier-tailed Cauchy distribution. As there are not, to date, any theoretical models existing in which firm growth rates follow a Cauchy distribution, the authors’ results invite research on dynamic models of competition in which firms’ growth rates follow this type of distribution.
Competition Economics Academic Affiliate Philip Reny elected to the American Academy of Arts and Sciences
Competition Economics’ Academic Affiliate Philip Reny was recently elected to the prestigious American Academy of Art and Sciences. The American Academy is one of the nation’s most esteemed honorary societies, in addition to being a leading center for independent policy research. Philip Reny was elected among 196 other new members, which included winners of the Nobel Prize and the Pulitzer Prize as well as the MacArthur and Guggenheim Fellowships. The new members are recognized for leadership in their fields and as having made a distinct contribution to the nation and the world.
Philip J. Reny is a Professor of Economics at the University of Chicago. His primary research is in game theory and auctions as well as information aggregation and the theory of mechanism design, while his current research interests focus on the existence of Nash equilibrium in discontinuous games. He is the author of numerous articles on these topics, which have been published in leading economics journals, and he is co-author of the book “Advanced Microeconomic Theory” (Addison-Wesley-Longman). Professor Reny is a Fellow of the Econometric Society and a charter member of the Game Theory Society. He serves on the editorial boards of Econometrica and the American Economic Review: Microeconomics.
CE Economists listed in 2015 International Who's Who of Competition Lawyers & Economists
Michael Doane, Luke Froeb, and David Sibley were listed in this year’s International Who’s Who of Competition Lawyers & Economists. Sponsored by Who’s Who Legal and Global Competition Review, nominees were selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.
CE Director Dr. Michael A. Williams, Professor Tilman Klumpp, and Professor Hugo M. Mialon publish an article entitled “Leveling the playing field? The role of public campaign funding in elections” in the American Law and Economics Review
In a series of First Amendment cases, the U.S. Supreme Court established that government may regulate campaign finance, but not if regulation imposes costs on political speech and the purpose of regulation is to “level the political playing field.” The Court has applied this principle to limit the ways in which governments can provide public campaign funding to candidates in elections. A notable example is the Court’s decision to strike down matching funds provisions of public funding programs (Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett, 2011). We present a contest-theoretic model of elections in which we analyze the effects of public campaign funding mechanisms, including a simple public option and a public option with matching funds, on program participation, political speech, and election outcomes.
This article was awarded the 2015 Distinguished Article Prize.
Competition Economics Directors Professor Simon J. Wilkie and Dr. Michael A. Williams assist $590 million class action settlement agreement in multibillion dollar LBO price-fixing case
CE Directors Professor Simon J. Wilkie and Dr. Michael A. Williams assisted Plaintiffs in the class action suit of Kirk Dahl, et al. v. Bain Capital Partners, LLC, et al. In a complaint filed in 2007, Plaintiffs alleged that Defendants violated U.S. federal antitrust laws by participating in an illegal conspiracy to limit competition among themselves and their co-conspirators with the goal of reducing the sale prices of publicly traded target companies sold pursuant to LBOs.
Competition Economics Academic Affiliate Professor Philip J. Reny and Director Dr. Michael A. Williams assist $50 million class action settlement agreement in Comcast antitrust case
CE Academic Affiliate Philip J. Reny and Director Dr. Michael A. Williams assisted Plaintiffs in securing a Class Action Settlement Agreement (see also the 12/12/2014 Order-Memorandum). The class, which includes Comcast customers from 2003 to 2008, accused Comcast of illegal conduct by eliminating and preventing competition in the cable television industry, in violation of Sections 1 and 2 of the Sherman Act.
In October 2014 Comcast agreed to a $50 million settlement, which was approved by a federal judge in September 2015. Of the $50 million settlement, $16.67 million will be paid out in cash, and $33.33 million will be paid out in services.
Plaintiffs were represented by Freedman Boyd Hollander Goldberg & Ives; Heins Mills & Olsen; and Susman Godfrey.
Federal Circuit rules for SSL Services on patent damages
SSL Services, LLC initially brought suit in 2008 against Citrix Systems, Inc. and Citrix Online, LLC for infringement of U.S. Patent No. 6,061,796 and 6,158,011. The patents relate to technology allowing for secure connections over the internet to enable users to remotely access another computer or network, or enhance secure collaboration between computer users.
In 2012 Competition Economics Director Brett Reed testified in the historic courthouse in Marshall, Texas regarding the reasonable royalties due from Citrix for patent infringement. Mr. Reed assessed Georgia-Pacific factors, including information relating to a prior product license agreement between relevant parties referencing the ’011 patent, and explained to the jury how this supported an underlying reasonable royalty rate and contributed to a lump sum reasonable royalty of $10 million for the patent. The jury concluded that the ‘796 patent was not infringed, while it found that Citrix infringed the ’011 patent and agreed with Mr. Reed’s damages analysis, awarding $10 million in reasonable royalties. Subsequently, the district court entered judgment and awarded an additional $5 million in enhanced damages and nearly $5 million in interest.
Upon appeal, the Federal Circuit upheld Mr. Reed’s approach, including the use of non-patent agreements to construct a damages methodology, noting that “SSL’s expert expressly addressed the difference between the license negotiations and any hypothetical negotiations, thereby clarifying for the jury where such differences might exist and the limited value of such evidence.” The Federal Circuit also agreed with the district court’s ruling which allowed Mr. Reed to rely on the product license agreement and that “any issues regarding their fit to the precise facts presented should be addressed by way of cross-examination.”
The Federal Circuit also affirmed the district court’s award of prejudgment interest, which was based on Mr. Reed’s approach of accruing interest on the hypothetical lump sum royalty payment from the time of first infringement in 2004.
CE Director Dr. Michael A. Williams, and co-authors Dr. Theodore Bergstrom, Dr. Paul Courant, and Dr. R. Preston McAfee publish article in the Proceedings of the National Academy of Sciences
CE Director Dr. Michael A. Williams, and co-authors Dr. Theodore Bergstrom, Dr. Paul Courant, and Dr. R. Preston McAfee published an article in the Proceedings of the National Academy of Sciences entitled “Evaluating Big Deal Journal Bundles.”
The article explores the bundle prices of large commercial publisher’s online subscriptions of academic journals. As publishers have insisted that libraries sign confidentiality clauses to keep their prices secret, little is known about the prices that universities pay for bundled access to the journals published by large commercial publishers. Yet, it was possible for the authors to obtain copies of many contracts through Freedom of Information Act requests. The data collected enabled the comparison of bundle prices charged by commercial publishers with those of nonprofit societies and the examination of the types of price discrimination practiced by commercial and nonprofit journal publishers.
CE Economists listed in 2014 International Who's Who of Competition Lawyers & Economists
Michael Doane, Luke Froeb, and David Sibley were listed in this year’s International Who’s Who of Competition Lawyers & Economists. Sponsored by Who’s Who Legal and Global Competition Review, nominees were selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.
Competition Economics assists Community Health Systems, Inc. in its proposed $7.6 billion acquisition of Health Management Associates
Competition Economics was retained to assist Community Health Systems, Inc. (“CHS”) in its proposed $7.6 billion acquisition of Health Management Associates Inc. (“HMA”) to create the nation's largest for-profit hospital network. Professors Luke Froeb and Larry Van Horn of Vanderbilt University, together with professional staff at Competition Economics led by Michael Doane, assisted counsel from Kirkland & Ellis in an assessment of the competitive effects of the proposed transaction. The FTC approved the merger subject to a requirement that CHS divest two acute-care facilities and related outpatient businesses owned by HMA subsidiaries. Through its affiliates, CHS now owns, leases, or operates 206 hospitals in 29 states. The acquisition of HMA added approximately 70 hospitals to CHS’s pre-merger portfolio.
Competition Economics assists the Canadian Competition Bureau in obtaining a consent agreement with Loblaw Companies Limited
CE Academic Affiliate Prof. Guofu Tan and CE staff, led by Director Michael A. Williams, assisted the Canadian Competition Bureau in analyzing Loblaw Companies Limited’s (“Loblaw”) proposed acquisition of Shoppers Drug Mart Corporation (“Shoppers”) for $12.4 billion (Canadian dollars). On March 2014, the Competition Bureau reached a Consent Agreement with Loblaw. The agreement will require Loblaw to sell certain retail stores and pharmacies within a Loblaw store to an independent operator, along with certain other restrictions. In its review of Loblaw’s proposed transaction, the Competition Bureau determined that absent the Consent Agreement, the takeover of Shoppers “would likely have led to increased prices, decreased service, and less product variety and innovation.”
Wall Street Journal publishes article by CE Academic Affiliate Paul Farris on pricing strategies in a sluggish economy
Paul Farris and co-author Kusum L. Ailawadi explore the issue of how to raise price prices in a sluggish economy without alienating customers and making a company vulnerable to competitors. The article considers some things companies shouldn't do — but often do anyway — along with some smarter alternatives for raising prices.
Research on hospital merger evaluation summarized in Hospitals and Health Networks Daily
Luke Froeb and Larry van Horn comment on the use of ‘travel cost’ methods used by the regulators in hospital merger enforcement. The article is based on findings in Doane et al. “How Well Do Travel Cost Models Measure Competition Among Hospitals?” Vanderbilt Owen Graduate School of Management Research Paper No. 2012-06.
CE Director Michael J. Doane, CE Academic Affiliates Prof. Luke M. Froeb and David S. Sibley, and CE Senior Consultant Brijesh Pinto publish a forthcoming article in the Oxford Handbook on International Antitrust Economics entitled "Screening for collusion as a problem of inference"
CE Director Michael J. Doane, CE Academic Affiliates Prof. Luke M. Froeb and David S. Sibley, and CE Senior Consultant Brijesh Pinto publish a forthcoming article in the Oxford Handbook on International Antitrust Economics entitled "Screening for Collusion as a Problem of Inference". The paper reviews the theoretical and empirical efforts to design screens, and finds that screens fail for one of three reasons: (i) the empirical indicator cannot distinguish between H0 and H1; (ii) H0 is not indicative of competition or H1 is not indicative of collusion; or (iii) the world is neither H0 nor H1.
CE Director Dr. Michael A. Williams, CE Academic Affiliate Prof. Ken Hendricks, and co-author Dr. R. Preston McAfee publish a forthcoming article in the Oxford Handbook on International Antitrust Economics entitled "Auctions and bid rigging"
CE Director Dr. Michael A. Williams, CE Academic Affiliate Prof. Ken Hendricks, and co-author Dr. R. Preston McAfee publish a forthcoming article in the Oxford Handbook on International Antitrust Economics entitled "Auctions and Bid Rigging." The paper provides a current survey of how economic theory and empirical research provide insights on bid rigging. In particular, the paper explains how firms engage in bid rigging and how bid rigging can be detected.
U.S. District Court awards injunctive relief and injunctive royalties to Skycam
In 2009 Competition Economics client Skycam, LLC brought suit against Actioncam and Patrick J. Bennett with allegations including trade secret misappropriation and violation of the Oklahoma Deceptive Trade Practices Act.
On September 27, 2012, Skycam was awarded injunctive relief and an injunctive royalty, citing the reasonable royalty rate opinion of Competition Economics Director Brett Reed.
This ruling follows a jury trial from September 2011, in which Skycam was awarded total damages of $594,000 on claims of breach of contract, misappropriation of trade secrets, and unfair competition, in addition to punitive damages against Actioncam.
div>On September 17, 2012, Judge Gilstrap issued a Final Judgment in SSL Services v. Citrix Systems, Inc., awarding SSL $5 million in enhanced damages and $5 million in prejudgment interest, doubling the $10 million verdict from a Marshall, Texas jury. Competition Economics Director Brett Reed testified at trial that a reasonable royalty for the infringement of SSL’s ‘011 patent was a paid up lump sum of $10 million. Mr. Reed also submitted testimony addressing appropriate prejudgment interest consistent with the lump sum royalty, and the Court awarded prejudgment interest at a rate of 5.18% (the average rate at Prime + 1 over the term of the infringement, as calculated by Mr. Reed), compounded quarterly. See also http://www.law360.com/ip/articles/379077.
Competition Economics client wins $64 million in tortious interference case
In the matter of Hope for Families and Community Services, Inc. et al. v. Milton McGregor et al., Competition Economics Director Michael A. Williams submitted testimony on behalf of a group of charitable organizations seeking to open a gaming facility. Plaintiffs alleged that defendants engaged in tortious interference with their contractual and business relations. Dr. Williams submitted testimony on whether the rules and regulations governing the operation of bingo gaming facilities in Macon County, Alabama conferred substantial market or monopoly power on the sole operator of such facilities in Macon County, Defendant VictoryLand. The jury found for the plaintiffs and awarded $64 million in damages.
The Federal Circuit overturned a damage award in a patent infringement case in which Competition Economics and Director Brett Reed have been involved for many years, consulting with counsel for Quanta and providing trial testimony on two occasions. A copy of the opinion is available here, summarizing the history of the case and various rulings negating jury awards on damages.
LaserDynamics, Inc. initially brought suit against Quanta Computer U.S.A., Inc. and Quanta Storage America, Inc. in 2006 for infringement of U.S. Patent No. 5,587,981. The patent is directed to a method of optical disc discrimination that essentially enables an optical disc drive (“ODD”) to automatically identify the type of optical disc that is inserted into the ODD.
Competition Economics provides economic analysis on two of five disputes selected by Global Competition Review as finalists for 2012 Matter of the Year
GCR’s Matter of the Year nominees are those competition matters where the economic and legal teams demonstrate creative, strategic, and innovative work. CE participated in 2 of the 5 disputes selected by GCR as the Matter of the Year for 2012. In Imperial Tobacco vs Office of Fair Trading (“OFT”), Competition Economics' Director Luke Froeb submitted testimony on behalf of Imperial Tobacco Group concerning the anticompetitive conduct alleged in the OFT's 2010 infringement decision. In that matter, the Competition Appeal Tribunal set aside an OFT Decision in which it fined Imperial Tobacco Group a record £112 million for alleged anticompetitive trading agreements with ten retailers. In its investigation of the AT&T-T-Mobile proposed merger, Professor David Sibley and Competition Economics was retained by the DOJ to perform an evaluation of the competitive effects of the proposed merger. A CE case team, led by Director Michael Doane, assisted Professor Sibley in his analysis. The proposed merger would have brought together the second and fourth largest telecommunications carriers in the United States. AT&T announced on December 19, 2011 that it would no longer pursue its $39 billion attempt to purchase T-Mobile.
Professor David Sibley was retained by the DOJ to perform an evaluation of the competitive effects of the proposed merger of AT&T and T-Mobile. A Competition Economics case team, led by Director Michael Doane, assisted Professor Sibley in his analysis. The proposed merger would have brought together the second and fourth largest telecommunications carriers in the United States. AT&T announced on December 19, 2011 that it would no longer pursue its $39 billion attempt to purchase T-Mobile.
Competition Economics client successfully appeals £112 million fine
The Competition Appeal Tribunal set aside an Office of Fair Trading (“OFT”) Decision in which it fined Imperial Tobacco Group a record £112 million for alleged anticompetitive trading agreements with ten retailers. Competition Economics Director Luke Froeb submitted testimony on behalf of Imperial Tobacco Group concerning the anticompetitive conduct alleged in the OFT's 2010 infringement decision. The Competition Appeal Tribunal concluded that the OFT's Decision could no longer stand in light of the detailed factual evidence presented to the tribunal during the six-week hearings.
Ashurst provided legal counsel to Imperial Tobacco Group.
CE Directors Prof. Simon J. Wilkie and Dr. Michael A. Williams assist Cable One, Inc. in receiving favorable rulings in Arizona and Iowa
Competition Economics Directors Prof. Simon J. Wilkie and Dr. Michael A. Williams assisted client Cable One, Inc. in the cases of Cable One, Inc. v. Arizona State Department of Revenue, et al. and Cable One, Inc. v. Iowa Department of Revenue. The cases involved claims by the Arizona and Iowa state tax boards that Cable One should be classified as a telecommunications company for tax purposes because of its provision of VoIP services. We provided economic testimony demonstrating that Cable One’s investments in plant and equipment were made for the provision of video services, and that the company is not a telecommunications company as it does not own communications transmission facilities nor does it provide public telephone or telecommunications exchange or inter-exchange access for compensation to effect two-way communications. On June 24, 2011, the Iowa Department of Inspections and Appeals ruled in Cable One’s favor, and on November 15, 2011, the Superior Court of Arizona, Maricopa County ruled in Cable One’s favor, both courts finding that Cable One is not a telecommunications company.
Counsel from Cahill, Gordon & Reindel LLP represented Cable One, Inc.
CE Directors Prof. Simon J. Wilkie and Dr. Michael A. Williams, CE Academic Affiliate Prof. Guofu Tan, and co-author Dr. Pingping Shan publish a forthcoming article in the Review of Industrial Organization entitled "China's Anti-Monopoly Law: what is the welfare standard?"
CE Directors Prof. Simon J. Wilkie and Dr. Michael A. Williams, CE Academic Affiliate Prof. Guofu Tan, and co-author Dr. Pingping Shan publish a forthcoming article in the Review of Industrial Organization entitled “China’s Anti-Monopoly Law: What is the Welfare Standard?” China’s Anti-Monopoly Law sets forth the country’s antitrust enforcement policies. The article investigates what welfare standard China’s Anti-Monopoly Law seeks to maximize by exploring both its stated language and, via revealed preference, the antitrust actions taken by the Chinese Anti-Monopoly Enforcement Authority.
CE Assists in Perdue's acquisition of Coleman Natural Foods
CE economists David Sibley and Michael Doane provided assistance to Perdue Farms and Coleman Foods in the review of Perdue’s proposed acquisition by the Antitrust Division of the U.S. Department of Justice. The Division's investigation focused on the potential effect of the transaction on competition among chicken processors, also known as integrators, for the purchase of services from chicken growers. After considering the possibility of coordination under several theories, including a "multi-market contact" theory which provides that firms may find it more feasible to coordinate on terms, such as payment for grower services, as they interact in more numerous regions, the agency concluded that the additional point of contact resulting from the merger was not likely to increase the risk of coordination due to a number of conditions particular to this specific investigation.
Counsel from Venable LLP, Winston and Strawn LLP, and Baker and Botts LLP represented the parties.
p>Led by Professor Simon J. Wilkie and Dr. Michael A .Williams, CE was retained by DISH Network and EarthLink to provide comments to the Federal Communications Commission (“FCC”) and the U.S. Department of Justine, Antitrust Division (“DOJ”) regarding the likely competitive effects of Comcast’s acquisition of NBC Universal. Professor Wilkie and Dr. Williams met with FCC and DOJ staff on numerous occasions and presented the results of their research. The FCC and DOJ approved the transaction, subject to restrictions that (1) allow rival Multichannel Video Programming Distributors “(MVPDs”) to obtain access to the content owned by Comcast/NBCU and (2) provide Online Video Distributors (“OVDs”) equal access to content.
p>On November 15, 2010, Universal Health Services, Inc. (“UHS”) completed its previously announced acquisition of Psychiatric Solutions, Inc. (“PSI”). UHS owns or operates 25 acute care hospitals and 102 behavioral healthcare facilities and schools in 32 states, Washington, D.C., and Puerto Rico. PSI is the largest stand-alone operator of free-standing psychiatric inpatient facilities with 94 facilities in 32 states, Puerto Rico, and the U.S. Virgin Islands. The transaction received approval from the U.S. Federal Trade Commission subject to the divestiture of certain facilities in Delaware, Las Vegas, and Puerto Rico. Assistance to the parties was provided by CE academic affiliates Luke Froeb and Larry Van Horn of Vanderbilt University and a CE team led by Director Michael Doane.
Cravath Swaine and Moore LLP and Sherman and Sterling LLP, provided legal counsel to UHS and PSI, respectively.
CE Director Michael Doane and CE Academic Affiliates Luke Froeb and Steven Tschantz publish new article in CPI Antitrust Journal on the new DOJ/FTC Horizontal Merger Guidelines and the use of UPP Analysis
In their new article, the authors compare Upward Pricing Pressure (“UPP”) analysis to Compensating Marginal Cost Reductions (“CMCR”) and show the later provides additional information that can benchmark the “costs” of a merger against its “benefits,” i.e., merger synergies. The authors also present a simple checklist to document significant departures from standard models of price or quantity competition that are important to recognize when performing merger analysis following the new Guidelines.
Jury agrees with CE damages analysis in patent infringement case involving floppy disk controller error detection technology
Competition Economics Director Brett Reed testified in Salt Lake City, Utah regarding reasonable royalties due from MSI for alleged infringement of three patents asserted by Dr. Phillip Adams. Plaintiff asserted that lump sum damages of $30 to $37.5 million were due (for one or many patents), while Mr. Reed testified that his analysis suggested up to $682,000 would be appropriate as a reasonable royalty for MSI. The jury concluded MSI should pay $650,000 in reasonable royalties, and MSI USA should pay $185,000.
CE Academic Affiliate Professor Simon J. Wilkie provides comments to the FCC on the proposed acquisition of NBC Universal by Comcast
In a report for DISH Network and a report and reply report for EarthLink, Professor Simon J. Wilkie, Chairman of the Department of Economics at the University of Southern California, provided comments to the Federal Communications Commission on the proposed acquisition of NBC Universal by Comcast. Professor Wilkie’s economic analysis shows that the proposed acquisition raises serious antitrust concerns.
CE retained by FTC to assist in evaluating Google/AdMob merger
Led by Professor Simon Wilkie and Dr. Michael A .Williams, CE was retained by the U.S. Federal Trade Commission ("FTC") to assist in the FTC’s evaluation of the likely competitive effects of Google’s proposed acquisition of AdMob. The merger raised issues of first impression in the nascent market for mobile advertising networks. After a thorough economic analysis, the FTC approved the merger, based in part on Apple’s acquisition of Quattro Wireless, which Apple used to launch its own iAd service.
CE assists VirnetX in securing $200 million settlement and patent license with Microsoft
Competition Economics Director Brett Reed testified in Tyler, Texas regarding reasonable royalties due from Microsoft for infringement of two VirnetX patents. CE also assisted counsel in pretrial discovery and post trial damages matters. Two months after VirnetX received a favorable verdict for $105.75 million from the jury, Microsoft and VirnetX settled for $200 million.
CE retained by Canadian Competition Bureau to assist in evaluation of entertainment industry merger
Led by Professor Simon Wilkie and Michael Doane, CE recently provided assistance to the Mergers Branch of the Competition Bureau in its assessment of the likely effects of a proposed merger in the entertainment industry. The Mergers Branch is responsible for reviewing merger transactions and seeking remedial actions where necessary to promote competitive markets in Canada.
Research on estimating market power with economic profits
CE Director Michael A. Williams, with co-authors Kevin Kreitzman, Melanie Williams, and William Havens, have prepared a paper entitled "Estimating Monopoly Power with Economic Profits." The paper is forthcoming in the UC Davis Business Law Journal. The paper shows that the degree of a firm’s market power in a given market is embodied in its cash flows and can be measured by its economic profits and economic rate of return. The information required to estimate a firm's economic profits related to its operations in a given market is contained in its transaction records. When a firm’s transaction records are publicly unavailable, they can be estimated by adjusting and re-categorizing the publicly available information contained in its financial accounting records.
CE Academic Affiliate Professor Vivek Ghosal presents lecture on "Implementing competition assessments" at the Taiwan Fair Trade Commission
Professor Ghosal presented lectures on “Implementing Competition Assessments” at the Taiwan Fair Trade Commission (Taipei, December 2009). These lectures were part of a broader series of lectures he presented in 2008 and 2009. The topics of the lectures related to the reform of rules and regulations by using a competition assesements filter. The assessments mechanism is designed to examine the potential harm that may be caused to competition and innovation in various markets by different types of rules and regulations imposed by governments or professions. This is part of OECD’s initiatives in competition assessments and regulatory reform, and Professor Ghosal was the author of the chapter (4) on Competition Assessments: Guidance.
CE assists in landmark antitrust case: AMD v. Intel
Advanced Micro Devices, Inc. (AMD) and Intel, Corp. agreed to a settlement that ended litigation over Intel’s alleged anticompetitive practices in the microprocessor industry. The settlement includes restrictions on certain Intel business practices and a $1.25 billion payment to AMD. The settlement amount is one of the largest in the history of Section 2 litigation.
CE Director Michael A. Williams was retained by O’Melveny & Myers LLP, counsel for AMD, to conduct an analysis of Intel’s economic profits. By distinguishing Intel’s economic profits from its accounting profits, Dr. Williams was able to demonstrate that Intel earned an average annual economic rate of return on its capital investments of 16.1%. That is, Intel earned an average annual return of 16.1% above its competitive rate of return. Since 1996, when AMD introduced its first proprietary microprocessor, Intel has earned economic profits of $88 billion.
CE Academic Affiliate Professor Vivek Ghosal gives a speech in Germany at the International Automobile Association Congress
Professor Ghosal was the featured speaker at the 2009 International Automobile Association Congress in Frankfurt, Germany. He delivered a speech entitled “Competition, Innovation and Market Shares in the Automobile Industry: Lessons Learnt from the U.S. Markets and Potential Implications for Europe?” The presentation was based on his current research on examining the factors behind the long-run dynamics of market shares of the major US and foreign competitors in the US markets, including factors related to changes in product quality and innovation.
Summary judgment granted in equipment monopolization case
Professor David S. Sibley was retained by defendant AT&T and its outside counsel, Kellogg, Huber, Hansen, Todd, Evans & Figel, in the matter of Jensen Enterprises Inc. v. Oldcastle Precast, Inc. et al. Based in large part on Professor Sibley's economic analysis, Judge Susan Illston (U.S.D.C., Northern District of California) granted summary judgement for the defendants. The plaintiff, Jensen Enterprises Inc., a competitor of Oldcastle, had alleged that Oldcastle and AT&T colluded to enable Oldcastle to gain monopoly power in the sale of precast concrete vaults used in AT&T's telecommunications network.
Marshall jury favors defendants on damages in IP case
Competition Economics Director Brett Reed was retained on behalf of co-defendant Dell's counsel, Wilson, Sonsini, Goodrich & Rosati, in the matter of Mass Multiples v. Ergotron, CDW, Tech Data, and Dell Computer. Mr. Reed testified in the patent case in Marshall, Texas and (1) responded to claims of lost profits asserted by Mass Multiples; (2) rebutted the alternative Reasonable Royalty claims that Mass Multiples presented to the jury; and (3) testified as to the reasonable royalties due Dell Computer related to a counterclaim for infringement of a Dell patent. As reported by a well-known blog that follows the Eastern District of Texas, Mass Multiples “asked the jury for $64 million and got $1.5 million from the manufacturer and $500,000 from each of three resellers, and one of the defendant resellers asked for and got $120,000 on their countersuit patent.”