Several anonymous commodities traders are being accused of manipulating trades for futures contracts in a multi-million dollar conspiracy to keep commodities trading firm Arctos Capital from participating in the market

In Arctos Capital LLC v. John Does 1-5, Arctos Capital is seeking $60 million in damages from several anonymous traders of continuous commodities index (“CCI”) futures contracts for allegedly colluding to exclude it from the ICE Futures U.S. trading market.  Arctos Capital’s complaint in the U.S. District Court for the Southern District of New York claims the anonymous traders violated several laws, including the Sherman Act and the Commodities Exchange Act.

The ICE Futures U.S. trading market is a private, electronic exchange in which traders buy and sell CCI futures and options contracts.  Such markets are regulated by the Commodity Futures Trading Commission.  The CCI includes 17 commodity futures, including coffee, cotton, crude oil, cattle, gold, and soybeans.  Arctos Capital alleges that the market is very concentrated with few traders.  For example, fewer than 10 trades are completed in some months.  

CCI futures contracts are standardized contracts between a buyer and seller to buy or sell a specific asset on a specific future date.  Under this arrangement, the buyer takes a “long” position, and the seller assumes the “short” position.  CCI future contracts are cash-settled upon expiration, meaning that cash is transferred on the settlement date from the party who sustains a loss to the party who realizes a profit. 

According to Arctos Capital’s complaint, there are two ways to maintain a long-term “long” position in the ICE Futures U.S. market.

The first way to maintain a long position is for the holder of a contract to purchase another CCI futures contract with a date further in the future, and then allow the current contract to expire.  This is known as trading on the “outright” market.

The second way to maintain a long position is for a participant to trade the “spread,” which means simultaneously selling the current contract and buying a contract with date further in the future.

Arctos Capital alleges that one participant in the ICE Futures U.S. trading market holds a large “long” position, and as a result, a large number of CCI futures contracts trade over the course of a few days prior to the expiration of each contract.  According to its complaint, Arctos Capital saw a business opportunity in this trading pattern and entered the market as a CCI futures seller in 2009.

However, as soon as Arctos Capital began to trade on the ICE Futures U.S. market, it allegedly noticed a pattern of illogical trades in reaction to its entrance into the market.  For example, Artcos Capital offered CCI futures contracts for sale and received a bid, but the anonymous bidder immediately and “inexplicably” reduced its number of bids.  At the same time, an anonymous seller suddenly reduced its contract price so that buyers began to purchase CCI future contracts from it instead of Arctos Capital.  Arctos Capital alleges that these actions serve as evidence of communication between the anonymous bidders and sellers, and those actions prevented it from meaningful participation in the market.

Arctos Capital alleges that collusive activity continued into 2010 that continued to prevent its participation in the market, including traders moving to the “outright” market (a riskier and less efficient form of trading), trades occurring almost simultaneously for which no other party could compete, and selling CCI futures contracts below historical prices. 

Taken together, Arctos Capital believes these actions demonstrate that participants in the ICE Futures U.S. market are communicating with each other to prevent competition.

Britain’s Office of Fair Trading (“OFT”) will announce this month whether it is investigating market dominance of the “Big Four” accounting firms – Deloitte LLP, Ernst & Young LLP, PricewaterhouseCoopers LLP and KPMG LLP.

The investigation would follow a House of Lords Economic Affairs Committee report entitled “Auditors: Market concentration and their role,” released in late March criticizing the big four auditors for their lack of oversight and their failure to warn regulators before the financial crash.

In that report, the Committee calls for a competition probe of the large auditors and dominance in the market.  According to the Committee, 99 out of the FTSE 100 companies (and 240 of the FTSE 250 companies) were audited by the Big Four.  The Committee noted concerns about “competition, choice, quality and conflict of interest.”

The OFT previously made submissions to the Committee and to the European Commission regarding competition in the audit market.  An OFT probe would likely include bank loan covenants that require borrowers to use the big four auditors.

Bob Marley may have been the first Reggae superstar and the writer of such hits as I Shot The Sheriff, but he is not a product market, according to a California federal judge.

The U.S. District Court for the Central District of California has dismissed the antitrust claims in Rock River Communications Inc. v. Universal Music Group Inc., rejecting Rock River’s theory that reggae music – and Bob Marley in particular – is a relevant product market that Universal was monopolizing. 

The litigation stems from Rock River’s 2006 release of remixed Bob Marley and the Wailers recordings titled “Roots, Rock, Remixed.”  Universal, which claimed to have the exclusive right to these recordings, sent “cease and desist” letters to several major music distributors, including Apple Inc.’s iTunes, Amazon and Virgin, who promptly pulled the album from their shelves. 

In response, Rock River sued Universal alleging that it violated Sections 2 and 7 of the Sherman Act by (1) attempting to monopolize the reggae genre of sound records in the United States; and (2) restraining trade and threatening to create a monopoly.  Rock River also sued Universal for allegedly interfering with its prospective economic advantage by sending the cease and desist letters.

Despite nearly three years of litigating the case, Rock River offered paltry evidence as to product market definition, market power and barriers to entry.  In particular, Rock River argued that Universal had monopoly power based on the percentage of Bob Marley albums it has sold.  Rock River alleged that Universal “accounted for 81 percent of the reggae sound recordings sold, and Bob Marley recordings accounted for 76 percent of the total reggae recordings sold.”  In formulating these market share numbers, Rock River simply presented a declaration from a lay witness.  Moreover, Rock River essentially agreed with defendants that there were no barriers to entry in the market for reggae music.

Based on Rock River’s failure to show that there were any genuine issues of material fact, the court granted Universal’s motion for summary judgment on the antitrust claims.  The court held that plaintiff”s proposed product market was “too narrow to be relevant for antirust purposes” as it focused on Bob Marley sound recordings, rather than reggae music as a whole.  The court noted, however, that even if the product market were a single genre of music, Rock River failed to offer evidence regarding either price-sensitivity of the market or that other genres of music are not a reasonable substitute for reggae music.

Finally, the court found that Rock River presented “no cognizable evidence” with respect to market share or any evidence showing that there are barriers to entry in the alleged market. 

The court allowed Rock River’s claim for interference with prospective economic advantage to go forward, finding that there is a question of fact regarding whether Universal indeed had the exclusive right to sell the recordings at issue.

Although Microsoft’s epic antitrust battle with the U.S. Department of Justice officially comes to an end tomorrow, with the expiration of the government’s decade-long oversight of the software giant, Microsoft has learned that another antitrust challenge has just received a new lease on life.

The United States Court of Appeals for the Fourth Circuit has revived the antitrust action Novell filed against Microsoft involving Novell’s office software applications WordPerfect and Quattro Pro.  Last year, the U.S. District Court in Maryland dismissed Novell’s antitrust claims.

The Fourth Circuit has now held that Novell is free to pursue an antitrust claim even though Microsoft settled a related suit with another company, Caldera, Inc., for $280 million.  The Fourth Circuit ruled that Novell’s sale in 1996 of its desktop operating system business to Caldera did not prevent it from seeking damages from Microsoft for allegedly using its monopoly power in the operating systems market to squash Novell’s office applications.

In 1996, Novell made a deal assigning certain rights to sue Microsoft to Caldera.  Caldera sued Microsoft over competition in the operating system market, receiving a $280 million settlement four years later, of which Novell received a $35 million share.  Then in 2004, Novell sued Microsoft in its own right, claiming WordPerfect was the victim of unfair competition by Microsoft, and last year Microsoft won summary judgment against Novell in that case on the grounds that Novell’s claims were subject to the 1996 agreement with Caldera.

But whereas the district court held that Novell signed away its software application claims to Caldera along with the operating system claims, the appeals court refused to abandon distinctions between the products harmed by Microsoft’s allegedly anticompetitive practices and will allow Novell to proceed with its one remaining antitrust claim.

Novell, which was purchased by Seattle-based Attachmate, Inc. last month, is seeking several billion dollars in treble damages under the antitrust laws.

The European Commission (“EC”) is commencing two antitrust investigations of the market for credit default swaps (“CDS”).

The EC investigations follow a similar investigation by the United States two years ago.  CDS, often vilified as a prime catalyst of the global financial crisis, are financial instruments that provide investors with protection in the event the subject entity defaults on payments.  For this reason, CDS are often seen as insurance against default – buyers pay money in exchange for a payoff if the reference entity (a third party) defaults on an independent credit instrument.  The CDS market is a multi-trillion-dollar industry.

The two EC investigations are described by the Commission in a press release as follows: (1) “whether 16 investment banks and Markit, the leading provider of financial information in the CDS market, have colluded and/or may hold and abuse a dominant position in order to control the financial information on CDS”; and (2) “whether preferential tariffs granted by ICE [Clear Europe, the leading clearing house for CDS,] to [nine] banks have the effect of locking them in the ICE system to the detriment of competitors.”

At its core, the EC’s first investigation concerns the fact that Markit maintains exclusive possession of invaluable daily market information, including information on prices and indices.  An emphasis is placed on probing Markit’s agreements with the entities that provide the market information and possible concerted conduct to determine whether competition in the financial information market is stifled.

The second investigation centers on certain preferential-treatment provisions in contracts between nine CDS dealers and ICE Clear Europe.  The principal concerns are (1) whether these preferential provisions make entry into the clearing-house market unreasonably challenging, thereby limiting competition and choice; and (2) whether the agreements contain fee arrangements that unfairly advantage these nine CDS dealers to the detriment of other CDS dealers.

Although some critics find this move unnecessarily duplicative given the recent regulatory efforts to improve transparency in the CDS market, the EC appears steadfast in its investigation.  As stated in its press release, “[t]he Commission’s antitrust tools are complementary to these regulatory measures . . . .”  The common purpose of both efforts is to improve fairness in this particularly opaque market setting.