Federal Judge Shira Scheindlin of the Southern District of New York has dismissed a class action alleging that regional power generator KeySpan Corp. overcharged millions of electricity customers.

The complaint in Simon v. Keyspan Corp., 10 CIV. 5437 SAS (S.D.N.Y. 2011), challenged a derivative transaction – the “KeySpan Swap,” arranged by financial advisor Morgan Stanley – relating to New York City’s electric power generation market.  The plaintiffs alleged that the KeySpan Swap was an anticompetitive scheme to keep electricity prices high in violation of federal and state antitrust law.

KeySpan consulted Morgan Stanley on buying one of its two rivals in the highly concentrated New York City power generation market – Astoria Generating Company – but concluded the acquisition of its largest competitor would raise “serious market power issues.”  Instead, Morgan Stanley designed the Swap to allow KeySpan to acquire a financial interest in Astoria’s generating capacity.  Keyspan would pay Astoria a fixed revenue stream in return for the revenues generated from Astoria’s capacity sales in auctions for electric power, part of a short-term bid to avoid lowering KeySpan’s wholesale electricity costs in the face of two new power plants due to come online.

The U.S. Department of Justice commenced an investigation of KeySpan’s conduct with respect to the Swap in late 2006, which was resolved by a $12 million settlement and consent decree filed in the Southern District of New York in February 2010.

But Judge Scheindlin’s broad decision concluded that any private class action was barred on several alternative grounds.  First, the court found that the putative class members – residential power customers – were merely indirect purchasers who lacked antitrust injury and standing.  Second, the court found that the filed rate doctrine barred federal and state law claims for damages.  The Federal Energy Regulatory Commission’s (FERC) exercised full authority over the capacity markets and the relevant tariff rates were approved by the FERC – which had also specifically examined the KeySpan Swap.  The complex regulatory scheme also provided the final blow to the plaintiffs’ state law claims, which the court found were barred by both “field preemption” and “conflict preemption.”

The decision is another example of judicial deference to well-established regulatory authority, especially in a highly-regulated arena such as energy.  In addition to a firm rejection of plaintiffs’ arguments for standing, the court was especially moved by the FERC’s own review of the Swap and the end result – rates below those set by the agency.

Apple has piqued the interest of antitrust enforcers – again.

The U.S. Department of Justice and Federal Trade Commission are both interested in exploring whether Apple is now running afoul of antitrust laws by funneling media companies’ customers into the payment system for its iTunes store.

In the past year, the cutting edge computer maker has triggered government scrutiny for how it hires employees, negotiates with music companies, sets requirements for the applications that run on its iPhones, iPods, and iPads, and limits access of advertisers to its devices.  Steve Jobs’ company has now riled the publishing community – and once again attracted the interest of antitrust enforcers – with a business plan that may force publishers to pay 30 percent cut of revenue from all subscriptions they sell on Apple’s mobile devices.

Apple’s new program will change how publishers of “magazines, newspapers, video, music, etc.” sell their online publications.  Publishers will now pay Apple nearly a third of the revenue earned from subscriptions that publishers sell through Apple’s application store (or “app store”).  Apple will continue to allow companies to keep all the money from subscriptions publishers sell outside of Apple’s app store.  But at the same time, if a company wants to sell subscriptions to an Apple device, the publisher must guarantee that it is offering its lowest price to consumers who use the app store.  Also, Apple will share only minimal information about subscribers, while publishers often insist that they need detailed data about the people who buy their content to market more efficiently.  According to Steve Jobs, “Our philosophy is simple – When Apple brings a new subscriber to the app, Apple earns a 30 percent share: when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.”

Or maybe it’s not so simple.  According to Rhapsody, a music company that sells subscriptions to its iPhone app through Apple’s store, “The bottom line is we would not be able to offer our service through the iTunes store if subjected to Apple’s 30 percent monthly fee vs. a typical 2.5 percent credit card fee.”  Not content to merely complain, Rhapsody is also “collaborating with our market peers in determining an appropriate legal and business response.”

According to The Wall Street Journal, federal antitrust enforcers are also considering their options.  It is not yet clear whether the government will pursue a formal investigation, or which agency will take the lead.  Last year, the mere threat of government action prompted Apple to back down on two controversial rules.  One would have restricted which computer languages app developers can use to write computer code, and the other would have limited which mobile advertising networks could place ads on Apple’s mobile devices. 

While Apple’s iPhone has only a 16 percent share of the smartphone market, its users tend to buy more applications than users of other phones.  And, at least for the moment, Apple’s iPad dominates sales of tablet computers.  But whether or not antitrust enforcers act, Apple’s announcement has already triggered at least on market response:  Google has announced that it will start its own program to sell subscriptions, for just a 10 percent cut.

The Affordable Care Act provides for the creation of Accountable Care Organizations (“ACOs”), organizations of healthcare providers that agree to be held accountable for the cost and quality of care provided to Medicare beneficiaries.  Beginning in January 2012, Medicare will reward ACOs for meeting certain benchmarks set by the Secretary of Health and Human Services.  As a result, many healthcare providers that historically have been competitors are now seeking to join forces as ACOs.

Although the Affordable Care Act promotes the establishment of ACOs, Congress did not carve out an antitrust exemption for them.  Thus, there is a concern in Washington that ACOs, if not properly regulated, could become monopolies that run afoul of the antitrust laws.  J. Thomas Rosch, a member of the Federal Trade Commission, recently expressed such sentiments in letters written to the White House and the federal Medicare agency, according to The New York Times.  Commissioner Rosch notes the concern that ACOs, through their substantial bargaining power, could drive up the price of privately insured healthcare to offset the loss in Medicare revenue.

Commissioner Rosch’s letters also reveal a struggle between the FTC and the Department of Justice over who should regulate ACOs.  The DOJ is generally viewed by healthcare providers as the entity that is more understanding of their efforts to join forces and collectively negotiate with health insurance plans.  Not surprisingly, healthcare providers believe that the DOJ should regulated ACOs and have accused Mr. Rosch and the FTC of attempting to encroach on the DOJ’s territory.

The antitrust concerns inherent in the conduct of ACOs, and the uncertainty over who will regulate the ACOs’ compliance with the antitrust laws, could lead to a delay in the formation of ACOs.  Hopefully these issues will be resolved sooner rather than later, and ACOs will be allowed to operate within a regulatory framework, consistent with the antitrust laws, to allow them to deliver the cost savings and quality improvements as intended.

The parent company of the New York Stock Exchange, NYSE Euronext, has agreed to merge with Deutsche Boerse, the operator of the Frankfurt stock exchange.  In an all-stock deal worth more than $10 billion, Deutsche Boerse will own a majority 60 percent of the new company, and NYSE Euronext shareholders will own 40 percent.  The merger, if approved, would create the world’s largest financial exchange operator and have headquarters in Frankfurt and New York. 

The current president and deputy of NYSE Euronext, Duncan Niederauer, would serve as the new company’s CEO.  Reto Francioni, the current chief executive of Deutsche Boerse, would become chairman. 

A merger of this magnitude will certainly face intense scrutiny by U.S. and European regulators, both because of its sheer size and also for its effect on the world’s financial markets.  The U.S. Department of Justice will review potential antitrust issues, and the Securities and Exchange Commission will also need to give the deal a green light.  In Europe, both the European Commission on antitrust, as well as the German state of Hesse’s Economy, Transport and Development Ministry will have to approve the merger. 

The name of the exchange has yet to be decided, but is already becoming a political issue.  U.S. lawmakers, including New York State Senator Charles Schumer, have expressed concern that the deal may hurt New York’s leadership role in the financial world.  Schumer recently said his approval of the merger depends on whether New York gets top billing in the exchange’s new name. 

The firms hope to complete the merger by the end of the year.

According to media reports, the DOJ Antitrust Division is investigating accusations that UPS and FedEx colluded to freeze third-party shipping consultants out of the their shipping businesses.  The reports indicate that Justice has opened an investigation into possible collusion between FedEx and UPS, the two largest companies in the package shipping world. This investigation would come on the heels of a private antitrust action filed by a shipping consultant.

FedEx and UPS are said to each have complex shipping rates and rules, especially for international shipments.  Comparing their prices, against each other and against other competitors, is said to be difficult.  Some companies use third-party shipping consultants to help find the best shipping rates and to negotiate discounts.  One such consultant, AFSM, has sued FedEx and UPS, claiming collusion, refusal to deal, and group boycott.

The AFSM complaint, filed in the U.S. District Court for the Central District of California, alleges that FedEx and UPS publicly announced that they would no longer deal with shipping consultants, and that the two companies told their customers that their shipping rates would rise if they continued to use consultants.  We will monitor both the civil suit and the DOJ investigation for developments.