Overlawyered: Chronicling The High Cost Of Our Legal System

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Jailbird, Away!

Regarding the story Walter mentioned below on a fugitive’s possible liability for a news copter crash, Dave Hughes of the media watchdog site dcrtv.com suggests a different chain of causation than the Phoenix police chief:

While I’m very sorry that the two Phoenix TV copters collided and crashed, killing four, I am very much against TV stations (and cable “news” networks) televising live police chases. There isn’t much news value there and the the very presence of TV coverage of such events encourages people – particularly the drunk and drugged – to break the law and lead the police in high-speed chases thereby endangering countless thousands of responsible drivers, their passengers, and pedestrians. …

I’m reminded of a recent “Simpsons” episode where the Channel 6 news copter follows the Jailbird (aka Snake) on a police chase, which takes an unexpected turn when the fugitive leaves his car, steals a helicopter of his own, and pulls alongside the news copter, where he turns to the camera and offers a succinct traffic report before flying off.

The High Cost of Doing Little

Last week the Federal Trade Commission and the Justice Department’s Antitrust Division issued their annual report on the Hart-Scott-Rodino Act (HSR Act), which requires companies to pre-report mergers over a certain value to antitrust regulators so they can preemptively determine if a deal is “likely to have an anticompetitive impact.” (It’s amazing that people with such amazing economic forecasting abilities are employed as mere government lawyers.)

Despite the occasional high-profile merger challenge, like the FTC’s recent lawsuit to stop Whole Foods from acquiring Wild Oats, very few deals face antitrust roadblocks. In the fiscal year 2006, the FTC and DOJ issued second requests for information—the first step towards a formal challenge—in only 2.6% of reported mergers. This is slightly below the ten-year average of 3.01%.

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Fighting Collusion with Collusion

Last week a Connecticut jury acquitted Stora Enso North America Corp. of criminal “price fixing” charges. The Justice Department indicted Stoa Enso last December for allegedly selling coated magazine paper at “anticompetitive” prices. It’s rare for any company to go to trial on criminal (or even civil) antitrust charges, and an outright not-guilty verdict is even rarer: In the last ten years, the Antitrust Division’s criminal won-loss record is a robust 454-11.

The Antitrust Division’s success in convicting price fixing defendants can be attributed to the Corporate Leniency Policy, an invention of Division lawyers that allows one company in a purported “cartel” to escape all criminal prosecution in exchange for providing evidence against other firms. It’s a terrific bargain. A company can inflict maximum damage on its competitors—who face large criminal fines and treble damages in subsequent civil lawsuits—while prosecutors are generally ensured of quick plea bargains from their remaining targets.

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When is a court decision “pro-business”?

Common journalistic practice says that a court decision is pro-business when it favors a corporate defendant over a plaintiff. Conservatives are also said to be pro-business while liberals are pro-plaintiff or pro-consumer. This is how the press frames most discussions of tort and regulatory litigation.

In the last Supreme Court term, a 5-4 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. was hailed and condemned (depending on who you ask) as a pro-business decision. The conservative majority, led by Justice Kennedy, overruled a 1911 precedent that condemned “resale price maintenance” (RPM)—contracts where a manufacturer conditions sales to distributors on setting a specific retail price—as an automatic violation of the Sherman Act. Most antitrust challenges are subject to the rule of reason, and after years of complaints from mainstream economists, the Leegin majority acquiesced in ending RPM’s special status under the “per se” rule.

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Corporate Governance and Regulatory Reform

A few years ago, I was drafting some public comment letters to the FTC and DOJ in a series of cases where the regulators accused physician groups of “price fixing” during contract talks with third-party insurers. While reviewing three separate cases involving physician groups in different markets, I noticed that the defendants all retained the same defense lawyer. Further research revealed that said lawyer previously worked at the FTC, where he developed the very theory of antitrust liability now being used against his clients. Indeed, this lawyer authored a book on the policy.

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A Conspiracy of One

It’s good to be back at Overlawyered. For those of you not scarred by my prior guest-blogging stint, this is Skip Oliva, director of the anti-antitrust Voluntary Trade Council, regular co-blogger for the Mises Institute, and freelance paralegal-for-hire.

Since antitrust is my bread and butter, I’ll spend some time this week examining the impact of the four antitrust cases decided in the last Supreme Court term. I’ll also discuss some lesser-known antitrust cases that I’ve been following (and in some cases, directly participating in); and maybe I’ll even address some purely non-antitrust legal topics as well.

But let’s start with—you guessed it—an antitrust case. Last week the U.S. Third Circuit Court of Appeals decided Cosmetic Gallery, Inc. v. Schoeheman Corporation (download PDF), one of the first appellate decisions that relies on the Supreme Court’s May decision in Bell Atlantic v. Twombly. In Twombly, a 7-2 court held that a complaint alleging a conspiracy to restrain trade under Section 1 of the Sherman Act required more than “an allegation of parallel conduct and a bare assertion of conspiracy”; there must be “enough factual matter (taken as true) to suggest that an agreement was made.”

In the Third Circuit case, a New Jersey company that operates hair salons and retails related hair care products (Cosmetic Gallery) sued a Pennsylvania distributor of said products (Schoeneman). Specifically, the issue is “salon-only” products that are normally sold, as the name suggests, only through salons. Distributors like Schoeneman agree to manufacturers’ restrictions on the sale of these products to, according to the Third Circuit, “increase the cachet and prestige” of the products.

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