Maybe comedian Jon Stewart had a point about Apple.  Last month, he chastised the chic technology company, saying: “You guys were the rebels, man, the underdogs – people believed in you!  But now, are you becoming … The Man?”

It seems that the U.S. Department of Justice might agree.  According to the New York Times, the DOJ is investigating Apple for using its successful iTunes online music store to muscle Amazon out of the way.

According to the Times, Amazon annoyed Apple by offering promotions to music labels in exchange for an exclusive window to sell those labels’ new songs.  In response, Apple withdrew its own marketing support for the songs that Amazon highlighted.  According to Billboard magazine, which broke word of Apple’s practices in March, one music executive described Apple’s response as: “They are . . . diverting their energy from ‘let’s make this machine better’ to ‘let’s protect what we got.’” 

That’s precisely the sort of attitude that attracts antitrust enforcers, especially when it comes from an industry leader.  And in the world of music sales, no other company is even close to Apple.  According to the Times, Apple has 69 percent of the market for online music sales, compared to 8 percent for Amazon, which is the number two in the market.  Indeed, Apple is also the largest music distributer over any platform, surpassing WalMart two years ago.   According to the Times, Apple now has over 25 percent of the entire music sales market.

As Apple has grown, it has triggered an increasing amount of antitrust scrutiny.  Earlier this month, reports emerged that DOJ or the Federal Trade Commission may investigate Apple for prohibiting writers of programs for its iPhone, iPod, and iPad line from using third-party software to create their applications.  It is also possible that DOJ is investigating Apple and other companies (including Google) for agreeing not to poach each others’ employees.  And last year, the FTC criticized Apple for having Google CEO Eric Schmidt serve on its board, which led soon after to Schmidt’s departure from Apple.

This is not the first time that the government has taken a hard look at online music prices.  In 2006, DOJ started a similar probe of record labels, for trying to raise the change the price of music sales on Apple’s iTunes.  Ultimately, Apple last year introduced more flexible pricing for iTunes music than it initially offered.

The timing for the antitrust story about Apple seems right on the money: on May 26, 2010, Apple became the largest technology company in the world, surpassing Microsoft.  And we all know what happened between DOJ and Microsoft.

Merchants in the United States are on the verge of a significant victory in their long struggle to limit credit and debit card fees. 

The Senate has approved an amendment to its financial reform bill that curtails the power of the card issuers in significant ways, including requiring that the “interchange fees” charged by banks on fees on debit card transactions be “reasonable and proportional to the actual” costs of processing those transactions, and permitting merchants to offer discounts for cash payments.  Whether those limits are enacted into law, however, remains to be seen since the Senate bill must still be reconciled with the House financial reform bill – which does not contain the amendment.

Interchange fees are set by the credit card networks (Visa, MasterCard, Discover and American Express) to banks that issue those networks’ branded cards.  When a merchant accepts a credit or debit card, it loses a small percentage of each purchase price to the issuer through this fee.  For Visa and MasterCard transactions, which dominate the credit and debit markets, the fees vary from 1.5 to 2 percent of the price for credit card purchases and are approximately 0.75 percent for an average debit card purchase.  These little fees add up to big money: they totaled an estimated $48 billion in 2008.

Merchants have lobbied Congress to limit or eliminate interchange fees for years.  And a federal merchants’ putative class action in New York claims that Visa’s and MasterCard’s interchange fees result from price-fixing in violation of Section One of the Sherman Act.  According to the plaintiffs, Visa and MasterCard set their interchange rates through collusion with their member banks, which compete with each other: that is, price-fixing by competitors with the networks as facilitators.

The Senate has now given the merchants a major win by adopting an amendment by Senator Richard Durbin (D – Ill.) to the financial reform bill.  That amendment passed by a solid bipartisan vote of 64-33 despite fierce lobbying by Visa and MasterCard.

Durbin’s amendment would reform the debit card interchange system in two ways.  First, it would require debit card interchange fees to be “reasonable and proportional” to the issuers’ actual costs.  This provision addresses complaints that interchange fees, while purportedly compensating card-issuing banks for their transaction costs, in fact has steadily climbed out of proportion to such actual costs.  And the networks have continued to raise those rates in the United States at the same time as they have lowered them abroad in the face of foreign regulatory pressure, further fueling complaints that they are higher here than necessary.

Second, the amendment would direct the Federal Reserve System’s Board of Governors to establish standards for assessing whether interchange rates meet the “reasonable and proportional” standard described above. click here for more »

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.

Class action arbitrations are not likely to survive the U.S. Supreme Court’s 5-3 decision, in a closely watched antitrust case, that imposing class arbitration on parties that haven’t agreed to it conflicts with the Federal Arbitration Act.

The decision in Stolt-Nielsen S.A. et al. v. Animalfeeds Int’l Corp., No. 08-1198 (April 27, 2010), delivered by Justice Alito, reversed a panel decision by the U.S. Court of Appeals for the Second Circuit, which had confirmed an arbitration panel’s ruling which allowed Animalfeeds to pursue class arbitration against several shipping companies over alleged price-fixing.  The Supreme Court called the panel’s ruling “fundamentally at war” with the principle that arbitration is a matter of consent.

Justice Ruth Bader Ginsburg dissented from the majority opinion, joined by Justices John Paul Stevens and Stephen Breyer, writing that she would have dismissed the petition as improvidently granted, and if she had to reach the merits, she would have adhered to the Federal Arbitration Act’s strict limitations on judicial review of arbitral awards and affirmed the Second Circuit.

As it is highly unlikely – especially after this decision – that any arbitration agreement would explicitly permit class arbitration, the ruling may well be a death blow for class action arbitrations.

While in recent years the conservative-leaning high court has been favorable toward arbitration, it has also been notably hostile toward class actions as a procedural mechanism.  In this case, its hostility toward class actions appears to have trumped its general approval of arbitration as an acceptable means of resolving disputes.

Furthermore, the decision largely validated the enforceability of class action waivers, rejecting the view of some courts that have found such waivers unconscionable because they effectively preclude consumers from vindicating small-dollar claims.

Only time will tell how far-reaching the impact of this decision will be, including what will happen to the hundreds of pending class arbitration proceedings as defending parties begin using this decision to challenge claims.  However, it seems likely that class actions will continue to fare poorly in cases that reach the high court.

The U.S. Department of Justice and the Federal Trade Commission have released for public comment proposed revisions to the Horizontal Merger Guidelines that would reflect antitrust enforcers’ ever decreasing reliance on the bright-line tests that once dominated merger analysis.

The proposed revisions would continue the long term trend of antitrust authorities exercising more flexibility and discretion in analyzing individual mergers.  The revised Guidelines signal a willingness by antitrust enforcers to be expansive in considering evidence of competitive effects, and a disinclination to rigidly apply traditional tests such as market definition.

Interested parties have until May 20, 2010, to provide comments on the proposed revised Guidelines.

The Guidelines, which were issued in 1992 and revised in 1997, outline the two agencies’ antitrust enforcement policy in reviewing horizontal mergers.  The proposed revisions to the Guidelines are intended to reflect the agencies’ experience and their current approach to merger review.  The revisions are also informed by a series of public workshops the two agencies have held

The proposed revised Guidelines include a new Section 2 on “Evidence of Adverse Competitive Effects,” which discusses types of evidence and sources of evidence the agencies will turn to in assessing the likely competitive effects of mergers. For instance, evidence of post-merger price increase or other changes adverse to customers is given substantial weight by the agencies – if these changes are anticompetitive effects resulting from the merger they can be dispositive for the agencies.  A consummated merger can be anticompetitive even if price increases or other changes adverse to customers are not felt – the merged firm may be aware of the possibility of post-merger antitrust review and purposefully moderating its conduct. click here for more »