The Antitrust Division of the U.S. Department of Justice is asking the National Collegiate Athletic Association to explain its scholarship policy in an exam that could lead to a failing grade for the NCAA’s ban on multi-year athletic scholarships.

The NCAA’s rule requires schools to review students’ eligibility for athletic scholarships every year, up to a maximum of five years of eligibility – automatic multi-year scholarships are not allowed.  The NCAA’s ban on multi-year athletic scholarships arguably restrains competition among NCAA colleges and universities for the best players.  The concern is that given the with millions in ticket and television revenues at stake – the ban on multi-year scholarships could be a significant restraint of trade in violation of Section 1 of the Sherman Act.

The NCAA has responded that scholarships are a “merit” award and annual review helps to guarantee that scholarships in each year go to the students who most deserve them.  The five-year maximum, they said, corresponds to a student’s maximum eligibility to participate in college sports under NCAA’s ambit.  The Justice Department has not commented publicly on the investigation.

NCAA is no stranger to investigations and suits under Section 1.  It has contended with many antitrust challenges to its detailed rules about scholarships, coaching salaries, and other areas from the mid-1980s to today.  In 2008, NCAA settled an antitrust class action brought by a class of about 13,000 college football and basketball players.  The players argued that the organization’s cap on scholarship amounts – which forced many players on full scholarships to pay about $2,500 a year in out of pocket costs – amounted to a maximum price-fixing agreement among NCAA member schools.  The organization agreed to pay students back for the expenses they incurred and raise the maximum scholarship going forward.

Section 1 suits against NCAA highlight the conflict between the group’s mission to maintain the amateur status of student athletes and the enormous commercial pressure placed on colleges and universities to field the best teams possible.  As in other Section 1 suits where “rule of reason” analysis is used, NCAA’s rules tend to be upheld when they relate most closely to legitimate goals apart from restricting competition – in the NCAA’s case, preserving amateurism and differentiating college from professional sports as an entertainment product.  By this rationale, scholarship rules for students are often upheld, while caps on coaches’ salaries have been struck down as unlawful restraints on trade.

A federal court has denied Microsoft’s request to dismiss a claim of monopolizing a single-brand aftermarket, rejecting Microsoft’s attempt to use an argument that Apple used to dismiss a similar aftermarket claim.  We examined Microsoft’s motion in a previous post.

Judge Elizabeth D. Laporte of the Northern District of California has denied in part and granted in part Microsoft’s motion to dismiss the complaint in Datel Holdings Ltd. et al. v. Microsoft Corp., Case No. CV 09-5535 EDL (N.D. Cal.). The court distinguished Apple’s successful defense of an aftermarket claim based on Apple’s more explicit disclosure to its customers that they were being restricted to Apple products. 

Plaintiff Datel Holdings Ltd., alleges it is Microsoft’s sole competitor for Xbox 360 memory cards and other accessories.  Datel charges that Microsoft is monopolizing an aftermarket for Xbox 360 memory cards by requiring Xbox users who want to access online gaming to download Microsoft’s “dashboard” software – which “disables Datel’s memory cards,” thereby forcing Xboxers to buy Microsoft’s memory cards.      

Microsoft moved to dismiss Datel’s claim with an argument that was successful for Apple in Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D. Cal. 2008) – that the single-brand aftermarket (here, Xbox memory cards) could not support an antitrust violation because Xbox users had agreed to use only Microsoft’s memory cards, making the Kodak exception for undisclosed aftermarket restrictions inapplicable.  Judge Laporte was not convinced, holding that the scope of Microsoft’s restriction was ambiguous, such that “customers may not have understood” it, which “counsels against granting a motion to dismiss.” 

Judge Laporte also denied Microsoft’s motion to dismiss Datel’s tying and unfair competition claims.  While she dismissed Datel’s second antitrust claim (concerning a Multiplayer Online Dedicated Gaming Systems Market), leave to replead was granted. 

For manufacturers, the moral of the story is this:  If you want customers of your primary products – Harley-Davidson motorcycles, for example, or Canon cameras – to buy only your brand of accessories – Harley-brand engine components, or Canon-brand zoom lenses, for instance – and not your competitors’, you should draft your customer restrictions very carefully and clearly in order to withstand antitrust challenges.

A small economics and software company is charging the Financial Accounting Standards Board (FASB) – the organization that sets accounting standards for every public company in the country – with attempting to misappropriate its intellectual property in the standard setting process.

Silicon Economics, Inc. (SEI) has filed a complaint in federal court in the Northern District of California that charges that FASB illegally claimed possession of SEI’s accounting patents, in violation of Sections 1 and 2 of the Sherman Act, as well as California contract and competition law.

SEI’s complaint states that in 2006, it offered advice to FASB on how to enhance its accounting methods.  SEI claims that FASB’s current methods fail to properly account for one-off spikes and losses in companies’ income, and therefore FASB’s method “has served as a significant contributor to the current economic crisis.”  SEI asserts that it discovered only after offering up its thoughts that FASB’s web site asserts that FASB has ownership rights to any of thoughts it received, which in this case include SEI’s patent.  SEI asserts that it did not know of the terms when it disclosed its ideas, and that FASB’s attempts to enforce them violate antitrust law.

Specifically, SEI claims that FASB controls over 90 percent of the market for “financial accounting standards in the United States,” and, as a result, that FASB is a “government-backed monopoly.”  By insisting on its right to appropriate the information given to it, according to SEI, FASB has abused its market power in violation of Section 2 of the Sherman Act.  FASB’s action also violates Section 1 of the Sherman Act, according to SEI, because the disclosure terms of FASB’s web site constitute an agreement in restraint of trade.  SEI has filed for a preliminary injunction against FASB, and additionally seeks a permanent injunction, treble-economic damages, punitive damages, and costs and attorneys fees.

FASB’s spokesperson declined to offer any substantive comment, stating that “It’s a legal matter, and our policy is not to comment on it.”

Health care giants Group Health Inc. (“GHI”) and HIP Foundation Inc. (“HIP”) have cleared the latest legal obstacle to their merger.

On May 12, 2010, U.S. Judge Richard J. Sullivan of the Southern District of New York dismissed the City of New York’s antitrust suit attempting to unravel the merger of GHI and HIP.  Judge Sullivan’s decision added a decisive, albeit not final, nail to the coffin of the City’s efforts to derail the health care companies’ merger since the merger was originally announced almost five years ago.

On September 25, 2005, GHI and HIP first disclosed their intention to merge, creating in their own words the “Largest Health Insurer in New York State.”  About 1.2 million current and former New York City government and city-related agency employees are covered under the City’s health plan. 

Federal and state antitrust authorities expressed concern over GHI and HIP’s merger before the City filed suit in November 2006.  Both the U.S. Department of Justice and New York’s Attorney General reviewed the merger.  Yet neither determined that the merged company, now operating as EmblemHealth, would violate U.S. or New York antitrust statutes.

The City’s action to undo the GHI/HIP died in summary judgment because Judge Sullivan rejected the City’s alleged market definition. click here for more »

The Federal Trade Commission will extend by up to two weeks its decision on whether to formally investigate Google for its acquisition of mobile web-advertising startup AdMob.

According to the New York Times, the federal antitrust enforcer initially planned to make a decision on Monday, but has requested the extra time in part to consider whether Apple’s own entry into mobile advertising affects antitrust concerns.  According to the Times, many in the FTC favor action against Google, and a decision may come as soon as this Friday.

The concern stems from whether Google, already the largest seller of advertisements on the traditional internet, will use its acquisition of AdMob to try to dominate the market for advertisements on cell phones and other mobile devices.  That area of advertising is young and has many competitors, but is growing at a potentially explosive rate.

Google announced its acquisition of AdMob last November, but is still waiting for the green light from the FTC.  At the same time, Apple has also entered the market.  First, it announced in January that it was buying Quattro, a competitor to AdMob.  Second, Apple recently announced its creation of its iAd program, which will be the exclusive means of placing advertisements in applications that run on its wildly popular iPhones, iPods, and iPads.  To give a sense of Apple’s own popularity, the company has sold approximately one million iPads in just one month.  The FTC seems to be looking at the possibility that Apple’s own success, or potential success, in the mobile advertising space will counteract any advantage that Google might otherwise have.

Ultimately, whether the FTC investigates may hinge on whether the FTC decides to recognize a specialized market for advertising on mobile devices.  Google argues that the mobile advertising space is “fragmented,” and that the area is too new to recognize as a separate market from standard web advertising.  The FTC, on the other hand, is likely concerned that Google can use its large scale in traditional web advertising to convince advertisers to place mobile ads with Google and AdMob.  The FTC may also be concerned that Google can use network effects to its advantage, since having more advertisers allows it to fine-tune its formulas for selling and placing ads, which then lets it sell still more ads.