The United States Department of Justice (“DOJ”) is seeking to revive competition in the market for point-of-sale terminals by blocking VeriFone Systems Inc.’s proposed $485 million acquisition of Hypercom Corp.

Both companies operate in the electronic payments industry, and the DOJ claims that the deal would harm competition in the market for point-of-sale terminals in the United States.

The DOJ has commenced an antitrust lawsuit alleging that the merger of VeriFone and Hypercom would result in a dominant point-of-sale terminal manufacturer that would be likely to raise prices and reduce innovation, quality, product variety and service.   The complaint also alleges that a divestiture to French competitor Ingenico that had been proposed would not resolve the competitive concerns raised by the VeriFone/Hypercom transaction.

Last month, Hypercom announced that it had entered into an agreement to sell its U.S. point-of-sale terminal business to Ingenico in an effort to allay such antitrust concerns.  The DOJ, however, opined that the sale would not resolve antitrust concerns raised by the VeriFone deal because the Hypercom assets would be sold to another significant competitor in the market in a manner that does not create a new, independent, long-term competitor.

However, Hypercom has now abandoned its plans to divest its point-of-sale business to Ingenico after U.S. regulators stated that the divestiture would not satisfy the DOJ’s antitrust concerns.  The DOJ’s lawsuit to block the overall deal between VeriFone and Hypercom is still pending, and the DOJ is in discussions with them to identify an alternative buyer, presumably one the DOJ would consider to have the potential to be a long-term competitor of the companies.

MasterCard is discovering that Dutch competition authorities may be serious in their goal to increase competition in the payments market by encouraging banks not to go “steady” with MasterCard.

MasterCard is reporting in its 10-Q report that the Netherlands Competition Authority is challenging its co-branding and co-residency rules, which restrain banks from expanding their relationships with other payment systems.

According to MasterCard, the co-branding rules at issue can prohibit “financial institutions licensed by MasterCard from placing other payment systems’ brands on MasterCard cards.”  The challenged co-residency rules can prohibit “financial institutions from encoding other payment systems’ applications on the electronic ‘chip’ in MasterCard cards.”  A hearing on the matter was held on April 14, 2011.

This challenge comes after the Netherlands Competition Authority released its Vision Document on the Payments Market in December 2010.  In that statement, the Dutch authorities expressed the view that they would “like to see banks conclude contracts with payment systems other than MasterCard.”

Skyrocketing gas prices may be getting an extra boost from anticompetitive conduct according to some Democratic legislators that are urging the Federal Trade Commission to investigate possible anticompetitive conduct by gasoline refineries.

Last week, Democratic senators, including Senators Claire McCaskill, Charles Schumer, Patty Murray and Senate Majority Leader Harry Reid, asked the FTC to investigate whether gasoline refiners have restrained supply of gasoline in order to increase prices.  In a letter to Jon Leibowitz, the Chairman of the FTC, they questioned whether U.S. inventories may have been kept artificially low in order to maintain high gas prices, citing evidence that “refineries are using only 81.7 percent of their capacity, a decline of 7 percent from the same time last year.” 

D.C. and Maryland attorneys general also recently announced investigations.

D.C.’s Attorney General is investigating Capitol Petroleum Group (“CPG”), D.C.’s largest owner of gas stations, for potential anticompetitive practices.  CPG owns/operates a large number of gasoline stations in D.C.  The investigation will center on whether CPG’s gas station holdings represent an illegal monopoly under D.C.’s antitrust law, and might also look into CPG’s primary owner’s dual role as a gas station owner and gas wholesaler through another company called DAG Petroleum.  Four years ago, the D.C. Council repealed a law prohibiting wholesalers from owning individual service stations based on competition concerns.  It might be revisiting that decision.  CPG’s owner in a statement argued that the gas stations he owns are managed by individual franchisees which independently set the price of gas at the pump.

Maryland’s Attorney General is investigating “sudden and dramatic” increases in gas prices at a number of Maryland stations supplied by Empire Petroleum Holdings.  Empire, a distributor, apparently told its retailers that prices had to be raised about 25 cents a gallon because of the Mississippi River flooding.

Both target companies are contesting allegations of anticompetitive conduct.

Plaintiff Race Tires America Inc. is racing to appeal an order of Judge Terrence F. McVerry of the United States District Court for the Western District of Pennsylvania ordering it to pay $367,369 in e-discovery costs to Hoosier Racing Tire Corp. and Dirt Motor Sports, Inc., the winning defendants in Race Tires America Inc. v. Hoosier Racing Tire Corp.   

Race Tires, a division of Speciality Tires of America, initiated the litigation in 2007 claiming that its competitor, Hoosier Racing Tire Corp., violated the Sherman Act by entering into exclusive supply contracts with Dirt Motor Sports, a motorsports racing sanctioning body.

Dirt Motor Sports sanctions at least 5,000 races in 21 states each year and adopted a “single tire rule” which exclusively required Hoosier tires for its sanctioned events.  Race Tires America alleged that the exclusive contracts shut it out of the dirt oval race track market. 

Judge McVerry granted summary judgment in favor of defendants finding that Race Tires failed to show it sustained an antitrust injury.  He held that exclusive contracts are permissible when a sports entity freely decides it wants exclusivity and has procompetitive, good faith or business motives for entering into the agreements.  The United States Court of Appeals for the Third Circuit affirmed the ruling in 2010. 

After the ruling by the Third Circuit, each defendant filed a Bill of Costs with the District Court – mostly for the costs of e-discovery.  The Clerk of Court slightly reduced the costs owed to defendants and Race Tires then moved for review claiming that costs of e-discovery are not allowed under 28 U.S.C. § 1920(4).  The statute allows recovery of “(f)ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” 

Judge McVerry acknowledged that the terms “exemplification” and “copying” originated and were developed in the world of paper, and that courts need to figure out how to apply these terms to the world of electronically stored information.  The court noted that the Third Circuit has yet to address the issue of whether e-discovery costs are taxable but pointed to the Sixth Circuit which has held that electronic scanning and imaging could be interpreted as “exemplification” and “copies” of paper.

Judge McVerry also discussed how Congress, in 2008, changed the wording of § 1920(4) from “fees for exemplifications and copies of paper” to “fees for exemplification and the costs of making copies of any materials.”  No court has categorically excluded e-discovery costs from allowable costs since the amendment’s passage.

The court found that that the requirements and expertise to retrieve and prepare the e-discovery documents for production were an “indispensable” part of the discovery process and denied Race Tires’ objection to the taxation of e-discovery costs.  Judge McVerry reasoned that the parties had agreed that responsive documents would be produced in an electronic format.  Race Tires also aggressively pursued e-discovery under the Case Management Plan.  Defendant Hoosier hired experts to collect and image hard drives, to scan documents, to create electronic images, to process and index electronic data, to allow documents to be OCR-searchable and to convert documents to the required .tif format. 

Race Tires is appealing the decision to the Third Circuit.

Plaintiffs in the case of In re Packaged Ice Antitrust Litigation have convinced the court that tape recordings of conversations from a criminal investigation into alleged price fixing of packaged ice sold in retail stores and gas stations should not remain on ice.

Judge Paul Borman of the U.S. District Court for the Eastern District of Michigan has ordered the Department of Justice (“DOJ”) to produce tape recordings and transcripts in response to the direct purchaser plaintiffs’ motion to compel.  The production will be reviewed in camera by the judge to see whether there is any need for protection. 

The plaintiffs are purchasers of packaged ice from defendants, including Reddy Ice, Arctic Glacier, and Home City Ice, three major players in the packaged ice industry.

The tape recordings and transcripts at issue allegedly involve former employees of the defendant ice manufacturers and allegedly incriminate a number of potential witnesses in the direct purchaser plaintiffs’ civil antitrust case.

The tapes and transcripts were collected during the DOJ’s criminal antitrust investigation of the defendants.  As part of its investigation, the DOJ collected the tapes and documents at issue by recruiting individuals to record conversations with people integral to the alleged conspiracy – a common practice to investigate conspiratorial activities.  The criminal investigation ultimately led to guilty pleas from Arctic Glacier and Home City, as well as three former Arctic Glacier employees.

Two of the three original defendants to the civil action, Arctic Glacier and Home City, have already settled with the direct purchaser plaintiffs or are seeking settlement confirmation.  Reddy Ice remains an active defendant. 

The direct purchaser plaintiffs subpoenaed the DOJ and asked for the tapes and transcripts.  The DOJ objected to the subpoena on the grounds of sovereign immunity and lack of jurisdiction, investigatory files privilege, law enforcement privilege, and work product protection. 

Judge Borman found that the court had proper jurisdiction and that sovereign immunity did not bar the court’s review of the dispute.  On the substance, the court held that the privileges and work product protection invoked by the DOJ did not justify shielding discovery by the direct purchaser plaintiffs.  The judge seemed particularly persuaded by the argument that since the defendants’ counsel had access to the tapes and transcripts during the prior criminal investigation, denying the direct purchaser plaintiffs access would “significantly prejudice” plaintiffs’ discovery efforts.