Judge Paul Crotty of the U.S. District Court for the Southern District of New York dismissed with prejudice an antitrust suit brought by bankrupt magazine wholesaler Anderson News LLC against a host of single-issue magazine publishers. 

Crotty ruled that Anderson’s allegations of a broad industry-wide conspiracy did not meet the plausibility standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), saying that it was implausible that magazine publishers would conspire to deny retailers access to their own products. 

Anderson had proposed a small surcharge on magazines in January 2009 with the goal of improving efficiency by giving suppliers a financial incentive to not ship extra copies, but Anderson claimed that in response the suppliers collectively pulled out of deals with Anderson, eliminating 80 percent of its business and its most popular titles, including People, Time and Sports Illustrated. 

Anderson ceased business operations in February 2009, and sued in March 2009 accusing the publishers of conspiring to monopolize the U.S. wholesale single-copy magazine distribution market.  The defendants included American Media Inc., Bauer Publishing, Curtis Circulation, Distribution Services, Hachette Filipacchi, Kable News, Rodale Publishing, Time Inc. and Time Warner Retail. 

This is yet another antitrust case felled by the new plausibility standard set forth in Twombly which requires plaintiffs to state a plausible (not merely possible or conceivable) claim for relief in order to survive a motion to dismiss. 

Update: On August 17, 2010, Anderson News asked Judge Crotty to reconsider his decision dismissing the lawsuit.

Anderson argues that Judge Crotty erred in concluding that the publishing companies had an economic self-interest in more wholesalers, not less.  Anderson claims that, to the contrary, the publishers had a powerful incentive to engage in their conspiracy, namely, to control the single-copy magazine distribution system so as to shift the increasing costs in the distribution system to retailers and consumers, and away from the defendant publishers and their national distributors.

The case is Anderson News LLC et al. v. American Media Inc. et al., case number 1:09-cv-02227 (S.D.N.Y.).

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 »

Aerotec International Inc. is alleging Honeywell International Inc. is using its market power to eliminate competition for jet airplane auxiliary power unit repairs in an antirust complaint filed in the U.S. District Court for the District of Arizona.

The dispute involves small gas turbine engines called auxiliary power units, or “APUs,” that provide power for auxiliary functions on jet airplanes including power to start the engines and power for the flight and environmental control systems. 

Honeywell is a manufacturer of APU original equipment and parts.  Aerotec is a provider of repair services for APUs. 

Aerotec claims that Honeywell has denied it access to APU parts, repair data and technical information.  Aerotec also alleges that Honeywell has an 80 percent share of the market for the manufacture and sale of APUs and uses exclusive multi-year APU service agreements with customers who buy aircraft containing Honeywell equipment.  The agreements allegedly prohibit customers from using non-Honeywell replacement parts or obtaining repairs from anyone other than Honeywell.  Aerotec claims that these actions violate federal and state antitrust laws and is seeking treble damages and an injunction to prevent Honeywell from continuing the practices.