Download - Practice Procedure Committee’s Lawyers Advisory …/media/hogan-lovells/pdf/...Spotlight on Molly Boast Molly S. Boast is a partner in WilmerHale’s Litigation/Controversy and Regulatory

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TheCivilPractice&ProcedureCommittee’sYoungLawyersAdvisoryPanel:

PerspectivesinAntitrustJULY18,2013 VOLUME1,NUMBER7

SpotlightonMollyBoastMollyS.BoastisapartnerinWilmerHale’sLitigation/ControversyandRegulatoryandGovernmentAffairsDepartments,andisamemberoftheAntitrustandCompetitionandGovernmentandRegulatoryLitigationPracticeGroups.ShejoinedWilmerHalein2011,afterservingastheDeputyAssistantAttorneyGeneralfortheAntitrustDivisionoftheUSDepartmentofJustice.Ms.Boasthasmorethan30yearsofexperienceinbothseniorfederalgovernmentpositionsandprivatepractice.

EricaS.Weisgerber*conductedthisinterviewforPerspectivesinAntitrust.Q:Howdidyougetyourstartpracticingantitrust law? Didyouknowyouwantedtopracticeantitrustlawsincelawschool?

A:Inlawschool,Iactuallydidnothaveaparticularareaofinterest;itseemedthebig decision coming out of law school was whether to practice litigation orsomething else. During my third year of law school, I participated in the BigAppleClinicatColumbia,inwhichlawstudentsworkedonslipandfallcasesfortheNewYorkCityLawDepartment.Workingonthosecases,IrealizedthatIhadtapped into a skill set that I hadn’t previously realized I had. This helpedmedecideIwantedtobealitigator.

Atmyfirst lawfirm,Iworkedonseveralantitrustcases, includingseveralclassactions involving the paper industry. In particular, I worked for Hon. KimbaWood,whowasanexcellentmentorandfosteredmyinterestinantitrustlaw.Soforme,specializinginantitrustwasbothamatteroffindingtherightpeopletoworkwithanddevelopinganexpertiseovermanyyearsofpractice.

Q: How did you end upmaking the transition from private practice toDeputy Director, and then Director of the Bureau of Competition at theFederalTrade Commission? Did you always know youwanted to spendtimeworkinginthegovernment?

* EricaS.WeisgerberisanassociateatDebevoise&PlimptonLLPwhosepracticefocusesonawiderangeofcivillitigation,withanemphasisonbankruptcylitigationandantitrustmatters.

PerspectivesinAntitrustEditors:

TiffanyRiderViceChair,CP&[email protected]

FrankQi

YoungLawyerRepresentative,CP&[email protected]

InthisIssue:

SpotlightonMollyBoast

EricaS.Weisgerber

DecliningtoStateItsEnforcementIntentions:

InsightsfromtheDOJ’sBusinessReviewLetterto

IPXI,Inc.TracyL.Januzzi

NinthCircuit

OpensAdditionalWindowForRemovaltoFederalCourtCindyReichline

SupremeCourttoShapeFutureofPopularAntitrustEnforcementTool

NateAsher

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A:ImademanycontactsintheantitrustcommunitythroughmyworkwiththeAmericanBarAssociationandlargedefensegroups,andIcametoknowseveralpeoplewhoendedupgoingintogovernmentandworkingforantitrustagenciesduringthefirstpartoftheClintonAdministration.So,myworkonantitrustcasesand my bar association participation certainly helped me to develop antitrustcontacts; those contacts came to fruition when I was invited to join the FTC.AlthoughIhadnotbeenseekingagovernmentposition,themomenttheideawasraised,IknewIwantedtodoit.

Mytimeinthegovernmentkick‐startedmyantitrustlearningbecauseitwasthefirsttimeinmycareerthatIwaspracticingantitrustlawexclusively.IstartedattheFTCduringthemergerwave,andaroundthattime,therewereroughly5,000HSR filings a year. So Iwas forced tohit the ground running. Therewas alsoquiteabitoflitigationformetojumpinto.Additionally,workingingovernmentaffords you exposure to amultitude of unique antitrust issues that you do nottypicallycomeacrossinprivatepractice. Thepositionwasacombinationofanantitrust job, a litigation job, and a management position, which made it theperfectfitforme.

Q:CanyoucompareyourexperienceworkingattheFederalTradeCommissiontotheDepartmentofJustice?

A: In my experience, the day‐to‐day work at the two agencies was almostidentical. Myexperiencewith theBureauofCompetitionat theFTChelpedmeeaseintotheDOJ.Onemajordifference,ofcourse,isthattheFTCdoesnothavecriminal jurisdiction. In addition, the Antitrust Division is part of the largerDepartmentofJustice,whichresultsinofficialsattheDOJperhapstakinggreatermeasure of the government‐wide consequences of the actions they take. TheFTC,bycomparison,isanindependentagency,andasawholehasitsownculturethatcomesoutofbeingasmallagencythatdoesalotofimportantwork.

Q: You were one of the three Division authors of the 2010 HorizontalMergerGuidelines.Whatweretheworkinggroup’sgoalswhendraftingtheGuidelines,andnow,severalyearslater,doyouthinkthesegoalshavebeenachieved?

A: Wesetout toupdate theMergerGuidelinesbecausesomebelieved that theGuidelinesdidnotreflectthemostrecenteconomicthinkingonmergers.Whenourprojectgotunderway,wehadthreeprimarygoals.First,wewantedtomakesurethatwedidnotendupconfiningenforcementoptionsasaresultofcreatingtheseGuidelines. Second,wewanted tomake theGuidelines lucidenough thatcourtscouldembracethem.Third,wewantedtofigureoutspecificareasofthemergerlawthatneededtobeupdated.Thisincludedclarifyingthecoordinatedeffectsanalysis,toinclude“parallelcoordinatedconduct.”Thiswasadeliberateeffortonourparttosetforthguidanceonthisissueandflagthedangersoffirmscoordinating without colluding. We particularly wanted to update thecoordinated effects analysis to provide better guidance for the courts, so courtcouldunderstandhoweconomiststhinkabouttheanalysis,butatthesametimenotfeelconfinedtoa“checkthebox”typeofanalysis.

WealsothoughtitwasimportanttodiscussatthebeginningoftheGuidelinesthe


EricaS.Weisgerber(continued)

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typesofevidencethatwillbeexaminedinanypre‐mergerreview—evidenceofadverse competitive effects. These provide a framework for looking at anymerger. The staff typically believes that you don’t know the proper marketdefinitionuntilyouaredonewiththeinvestigation,onceyou’velookedatalltheevidence.

Finally,Iwouldnotethattheconcernsaboutover‐enforcementasaresultofthe2010HorizontalGuidelineshavenotmaterialized.IthinkoveralltheGuidelineshavebeenbeneficial,bothtothegovernmentandprivateparties.

Q: Speaking ofmerger review – if you could give onepiece of advice topartiesgoingthroughthepre‐mergerreviewprocess,whatwoulditbe?

A:ThebestpieceofadvicethatIcangiveanypartiesbeforetheFTCorDOJistomaintain your credibility. It is far better to say “I haven’t reviewed thesedocumentsyet,buthereismy/myclient’sanalysisofthismarket,”thantogoinandsay“you’llneverhaveacasehere.”Donotoverstatethefacts.Acknowledgeambiguity. This will be far better for your client in the long run thanoverreachingandlosingyourcredibilityinthemiddleoftheinvestigation.

Q:Let’stalkaboutKeyspan.YouhelpedobtaintheAntitrustDivision’sfirstjudicial decision recognizing its authority to seek disgorgement as aremedy inacivilShermanActcasebroughtby theDepartmentof Justice.Whydoyouthinktherehadbeenapriorreluctancetoseekdisgorgement,andwhatledtothedecisiontoseekdisgorgementinKeyspan?

A: Keyspanwas sittingonmydeskwhen I arrivedat theAntitrustDivision. Iwouldnotsaythat therehadbeenapriorreluctancetoseekdisgorgement,butratherjustthattherewasaconcernthatthestatutedidnotcontemplateanythingbutinjunctiverelief.ThedecisiontoseekdisgorgementinKeyspanwasreallyaresultofthefactthattherewasnothingtoenjoin. Sothequestionwas,howdoyoucreateadeterrent in this situation? Ultimately, theamountdisgorgedwasconsiderably less than the amount involved, which resulted in significantcriticism, but Judge Pauley’s decision was a significant step forward for theDivision.

Q:Do you thinkwewill see disgorgement used as a remedymore oftengoingforward?

A:Ithinkitisrelativelyunlikelythatwewillseedisgorgementusedfrequentlygoing forward. The DOJ has not articulated the circumstances wheredisgorgementisappropriate.Theconcernisnottocreatemaximumdeterrence,but rather to create effective deterrence. Disgorgement is simply anotheravailabletooltowardthatend.

Q: Because this is a publication primarily prepared by young antitrustlawyers,Ihavetoask–whatadvicedoyouhaveforyoungantitrustlawyerslookingtogrowtheirprofileanddeveloptheirskillsandexpertise?

A:Myadvicetoyoungantitrustlawyersisthattherearemanybenefitstogettinginvolvedinprofessionalassociationsoutsideofyourlawfirm.Involvementwith



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barassociationsforcesyoutostayontopoflegaldevelopmentsinyourpracticeareaandprovidesrichopportunitiesfornetworking.

Itisparticularlyimportanttostayontopofdevelopmentsinthelawbecauseitallowsyoutounderstandwherethecourtsareheadinginenforcement.Iadviseyounglawyerstofigureoutwhatpartofantitrustlawtheyloveandspendtimereadinguponthatareatobetterunderstandit.Forexample,ifyouareinterestedinmergers,understandingtheeconomicsbehindmergersandpre‐mergeranalysisisveryimportant,andyounglawyersshouldbecomeveryfamiliarwiththat;ifyouareinterestedincriminalantitrustactions,thelawislesscomplicated,butfactualdevelopmentisveryimportanttocriminalcases.Youngantitrustlawyersshouldfindtheareaofpracticethattheyloveandjumpintoit.

DecliningtoStateItsEnforcementIntentions:InsightsfromtheDOJ’sBusinessReviewLettertoIPXI,Inc.

ByTracyL.Januzzi†In2012,IntellectualPropertyExchangeInternational,Inc.(“IPXI”)proposedtoprovideafinancialexchangedesignedtofacilitatethelicensingandtradingofintellectualproperty(“IP”)rights.Patentholderswouldprovideexclusivefield‐of‐uselicensestotheexchange,whichwouldsublicensethepatentsinpooledandàlacarteofferingsthroughunitlicenserights(“ULRs”).TheofferedULRsarestandardizedlicensesforpatentsordefinedsetsofpatentswhosetermsandconditionsaresetbytheexchangeandthepatentholder(s).IPXI’sgoalwastosimplifyandstreamlinepatentlicensinginaccordancewith“market‐basedprinciples.”1InNovember2012,IPXIrequestedabusinessreviewofitsproposedexchangepursuanttotheDepartmentofJustice’s(“DOJ”)businessreviewprocedure.SuchareviewenablesindividualsconcernedaboutthelegalityofproposedbusinessconductundertheantitrustlawstoreceiveguidancefromtheDOJregardingapplicationoftheantitrustlawstotheproposedconductandtoascertaintheDOJ’senforcementintentions.OnMarch26,2013,theDOJissuedanegativebusinessreviewletter(“BRL”),decliningtostateitsenforcementintentionswithrespecttoIPXI’sproposedexchange.

NegativeBRLsarehighlyunusualbecausethepartiesrequestingabusinessreviewmaywithdrawtherequestatanytimeandoftendosoiftheyanticipatethattheDOJisnotpreparedtoissueafavorableruling.AlthoughtheDOJdeclinedtotakeafirmpositiononthelegalityofIPXI’sproposedexchange,theIPXIBRLofferscriticalinsightintotheDOJ’spresentviewsonthecompetitive

† TracyL.JanuzziisanassociateintheWashington,DCofficeofHoganLovellsUSLLPwheresheisamemberoftheAntitrust,Competition,andEconomicRegulationpracticegroup.Herpracticefocusesonantitrustlitigation,governmentinvestigations,andantitrustclearanceofmergersandacquisitions.Shealsoprovidescounselingonavarietyofantitrustcomplianceissues.



IPXI,Inc.TracyL.Januzzi



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impactofpatentpoolsandjoint‐licensingarrangements.ThisarticlewillexaminetheDOJ’sanalysisintheIPXIBRLinordertodistilltheDOJ’sevolvingpositiononsimilarbusinessconduct.I. IPXI’sProposedLicensingExchangeIPXI’sproposedexchangedisthebrainchildofcorporate,university,andlaboratoryIPownerswhosoughttocreateaplatformtofacilitatepatentlicensing.InterestedpatentholdersfromvariousindustrieswouldofferexclusivelicensestotheirpatentstoIPXI,whichwouldlicensethepatentsthroughthenewlycreatedexchange.Uponreceiptofanofferforanexclusivelicense,IPXIwouldengageinduediligencetoevaluatethepatent’svalidityandcurrentinfringementandwoulddeterminemarketinterestamongpotentiallicensees.TheexchangewouldoffersublicensesintheformofULRs,whichare

non‐exclusivesublicensestomake,havemade,use,sell,orofferforsaleasingle“unit”ofaproductinaccordancewiththeULR’sfieldofuse.Inotherwords,eachunitofaproductthatpracticespatentsinaULRrequirestheacquisitionofoneULRinorderforittobealicensedproductunderIPXI’ssystem.2

TheseULRswouldbeavailablefordirectpurchaseonIPXI’sprimarymarket.Additionally,IPXIwouldofferasecondarymarketthroughwhichprimary‐marketpurchasersofULRscouldsellunconsumedULRstothirdparties.Anofferingmemorandum—withtermsagreedtobyIPXIandthepatentholder—wouldbecirculatedtopotentiallicenseesinadvanceofthelisting.Revenueswouldbeallocated20%toIPXIand80%tothepatentholder.ListedULRswouldbecomprisedofsingle,àlacarteofferingsfromindividualpatentownersormultiplepatentsrelevanttoaspecifiedfieldofuse.IfaULRbundledpatentsfromtwoormorenon‐affiliatedpatentholders,thosepatentholdersalsowouldberequiredtooffertheirpatentsinàlacarteULRofferingsunlessthebundledULRsfieldofusewascoextensivewithapublishedtechnicalstandard.Patentholderswouldberequiredtoprovideanexpertopinionconfirmingessentiality,whichwouldbereviewedbyIPXIstaff.Additionally,IPXIstaffandattorneyswouldreviewULRstoensurethatcompetingULRofferingswerenotlistedontheexchange.IPXIplannedtoofferULRsinthreetranches.Thefirsttwotrancheswouldprovidediscountedofferingsrelativetothethird.ULRsinthesecondandthirdtrancheswouldbecomeavailableonlyafterofferingsintheprecedingtranchessoldout.AlthoughthepricesandquantitiesofULRsinthethreetrancheswouldbedeterminedinaccordancewithanticipateddemand,IPXIpromisedtomakefollow‐onofferingsavailableasneeded.IPXIalsoestablishedstrictpoliciesbarringpatentholdersfromsharingprice,quantity,andothernon‐publicinformation.



IPXI,Inc.TracyL.Januzzi(continued)

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II.TheDOJ’sBusinessReviewProcedureTheDOJ’sbusinessreviewprocedureprovidesanopportunityforbusinessestodeterminehowtheDOJwillreacttoproposedbusinessconductbeforeundertakingtheeffortandexpensenecessaryforthetransaction.3Toobtainareview,thebusinesssubmitsawrittenrequesttotheAntitrustDivision,whichmayrefusetherequest.IftheDOJagreestoconsidertherequest,thebusinessmustsubmitspecifiedinformationanddocumentsforreview.Staffattorneysalsomayconductanindependentinvestigation.Althoughthelengthofthereviewdependsonthecomplexityofthetransaction,abusinesscanexpectaresponsivereviewletterthirtydaysaftertheDOJreceivesallrelevantinformation,whichcanbeseveralmonthsfromthetimethebusinessrequestedthereview.

AbusinessreviewletteralertsthebusinesstotheDOJ’senforcementintentionswithoneofthreeresponses:(1)theDOJdoesnotpresentlyintendtobringanenforcementactionagainsttheproposedconduct;(2)theDOJdeclinestostateitsenforcementintentions—i.e.,theDOJmayormaynotchallengetheproposedconductwhenitoccurs;(3)theDOJwillsueiftheproposedconducthappens.Uponissuanceofabusinessreviewletter,theDOJalsoissuesapressreleaseregardingtheproposedconductandtheDOJ’sresponse.Typically,theinformationprovidedtoaidthebusinessreviewismadeavailabletothepublicwithinthirtydaysafterissuanceoftheletterresponse,althoughconfidentialityconcernsmaywarrantwithholdingtheinformationfrompublicdisclosure.

Negativeresponses—thoseespousedin(2)and(3)above—arerarebecauseabusinessmaywithdrawitsrequestatanytime,andmostrequestersdosoifitappearstheDOJhasanyconcernsrelatingtotheproposedtransaction.Notwithstanding,IPXIchosenottowithdrawitsrequest.Instead,itwelcomedtheDOJ’srefusaltostateitsenforcementintentions,commentingthatitwas“gratifiedthatthosefewpracticesthattheDepartmentidentifiedaspotential‘risks’arelargelypracticesinwhichIPXIwillnotengage.”4IPXIexpressedconfidencethatitsexchangewill“meetthemoststringentofanytestunderthecompetitionlaws.”5III.PreviousDOJGuidanceRegardingPatentPoolsandJoint‐Licensing

ArrangementsTheDOJandothercompetitionauthoritiesrecognizethatpatentpools,suchasthatproposedbyIPXI,oftenhavemanyprocompetitivebenefits.Theycanbeefficiency‐enhancingbyreducingtransactioncosts,clearingblockingpositions,andacceleratingtheintroductionandadoptionofnewtechnologies.6Nonetheless,theyalsomayraisecompetitiveconcernsandantitrustissuestotheextenttheyenablehorizontalcoordinationamongcompetitorsordiscourageproductdevelopmentandinnovationonaccountofgrantbacks.7Inevaluatingpoolingandlicensingarrangements,theDOJusesthemethodologyappliedtojointventures,balancingprocompetitivebenefits,suchasefficiencies,againsttheriskofharmtocompetition.8Havingexaminedtheseissuestimeandtimeagain,theDOJhasdevelopedabodyofguidanceidentifyingitsconcernsandways




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businessesestablishingpoolingandlicensingarrangementscanavoidrunningafouloftheantitrustlaws.a.The1995IntellectualPropertyGuidelinesInApril1995,theDOJandFederalTradeCommission(“FTC”)issuedAntitrustGuidelinesfortheLicensingofIntellectualProperty.Theseguidelineswereintended“toassistthosewhoneedtopredictwhethertheAgencieswillchallengeapracticeasanticompetitive.”9Threegeneralprinciplesunderlietheguidelines.First,theguidelinesrecognizethatIPlicensingarrangementsgenerallyareprocompetitivebecausetheyenablecompaniestocombinecomplementaryelementsofproduction.Second,theyrejectthepresumptionthatIPnecessarilycreatesmarketpowerintheantitrustcontext.Andthird,theyregardIPascomparabletootherformsofpropertyandthussubjecttothesameantitrustprinciplesandanalyses.10AlthoughtheDOJ’sBRLsandtheFTC’sadvisoryopinionsoffermorespecificguidanceastoapplicationoftheguidelinestoparticularbusinessconduct,theguidelinesrepresentalogicalstartingpointforfirmsconsideringlicensingarrangements.

b.PastBRLs

TwopreviousBRLsprovidethemostinsightintotheDOJ’smainconcernswithrespecttopoolingarrangementslikethatproposedbyIPXI.BothinvolvedpatentpoolsrelatingtoDVD‐VideoandDVD‐ROMstandards.Thefirstpool—the3CDVDpool—wascreatedbythreecompetitorslicensing210patents.11Thethreepoolmembersproposedtograntnonexclusivelicensestoessentialpatentstothepool,whichwouldbeadministeredbyoneofthethreelicensorswhocouldappointanindependentaccountanttoauditroyaltiesowedandpaid.Thepoolalsohiredanindependentpatentexperttoexaminethepatentstoensureessentiality.Non‐essentialpatentswouldbeexcludedfromthepool.InitsBRL,theDOJstatedthatitwasnotpresentlyinclinedtobringanenforcementactionagainsttheproposedpool.TheDOJfocusedonthefactthatthepoolwouldcontainonlycomplementary—notsubstitute—patentssinceonlypatentsdeemedessentialtothespecifiedstandardforthetechnologyatissuewouldbeincludedinthepool.AccordingtotheDOJ,inclusionoftwoormoresubstitutepatentsriskedturningthepoolintoaprice‐fixingdevicetoraisethepricesofproductsthatutilizethepatents.Itfurtherapplaudedtheconceptofessentialityasthecriterionforinclusion,notingthatiteliminatedtheriskthatcompetingpatentswouldbeforeclosedfromuse.Forexample,patentsAandBaresubstitutes.IfpatentAisincludedinthepoolandconveyedtolicenseesalongwiththestandard‐essentialpatents,licenseesmayoptnottolicensepatentBeveniftheyconsideritasuperiorpatent.Thepotentialforsuchforeclosureisvitiatedwhereonlyessentialpatentsareincludedinapool.AlthoughtheDOJrecognizedthatthe“independent”patentexpertwhowouldevaluateessentialitywashiredbythelicensors,itwasassuagedbywrittenassurancesfromthelicensorsthattheexpert’scompensationandfutureretentionwouldnotbebasedonhisessentialitydeterminations.Accordingly,theDOJrespondedfavorablytothelicensors’requestforastatementofitsenforcementintentions.




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Asimilarresultwasobtainedwithrespecttothe6CDVDpoolformedbysixlicensors.12Likethe3CDVDpool,the6CDVDpoolwouldlicenseonlyessentialpatentsandwouldbeadministeredbyoneofthesixlicensors.Essentialitywouldbedeterminedbyanexpertretainedbythepoolmembers.Thispoolcontainedtheadditionalrequirementsthatpoolmembersalsooffertheirlicensesindependentlyofthepool.Concludingthatitwasnotpresentlyinclinedtoinitiateanantitrustenforcementactionagainsttheproposed6CDVDpool,theDOJreliedonthefactthatthepoolwouldcombinecomplementarypatentrights,whichwouldlowercostsformanufacturerswhoneededlicensestoproducevariousproductsinaccordancewithspecifiedformatsandstandards.TheDOJexpressedthesameconcernregardingthe“independence”ofthepatentexpertasitdidinthe3CDVDBRL.Likelyhavinglearnedfromtheguidancesetforthinthe3CDVDBRL,the6CDVDlicensorsputseveralsafeguardsinplacetoallaytheDOJ’sconcerns.First,thelicensorsspecifiedthattheexpert’sopinionsonessentialitywere“conclusiveandnon‐appealable.”13Second,therulesgoverningtheexpert’sretentionprovidedthatthelicensorscoulddismisstheexpertonlyonaccountofmalfeasanceandnonfeasance.Andthird,theexpert’scompensationwastiedsolelytothetimespentevaluatingthepatentsregardlessofwhethertheyweresubsequentlydeemedessential.Withthesesafeguardsinplace,theDOJwasconvincedthattheexpertwouldoperateindependentlyand,consequently,thepoolwouldbecomprisedofcomplementarypatents.Indecidingthatitwasnotpresentlyinclinedtobringanenforcementactionagainstthe3CDVDand6CDVDpatentpools,theDOJalsofocusedonthefactthatthelicensorsgrantednonexclusive,sublicensablelicensestothepool,meaningthelicensorsretainedtherighttolicensetheiressentialpatentsoutsideofthepoolandforfieldsofuseotherthanthosedesignatedbythestandard.Nonexclusivelicensingtothepoolreducespotentialantitrustrisk.First,independentlicensingbytheindividualpatentownershelpsto“ensurethattheproposedprogram[thepool]facilitates,ratherthanforecloses,access.”14Additionally,independentlicensingminimizesthelikelihoodthatapotentiallicenseewillaccusethepoolofimposingatyingarrangement.Finally,licensingoutsidethepool“permitsinnovatorsthatinventaroundoneormorepoolpatentstocompetewiththepool.”15Despitetheserisk‐reducingaspects,theDOJhasrecognizedthat“[e]xclusivelicensesmaybedesirable,andthuspotentiallyprocompetitiveiftheyarenecessarytoprovideasignificantincentiveforthelicenseestoinvestincomplementaryassets(e.g.,whencomplementaryassetswouldbesubjecttofree‐ridingabsenttheexclusivelicense).”16Moreover,theDOJhasviewedtheexclusiveversusnonexclusivelicensingissueaslesstroublingwhenthepooloffersàlacartelicenses,suchasthoseavailableontheIPXIexchange.IV.DOJ’sEvolvedPositionandGuidanceDistilledfromtheIPXIBRLTheDOJ’sIPXIBRLidentifiedfourwaysinwhichtheproposedexchangecreatedthepotentialforcompetitiveharm:(1)thepossibilitythatthepoolwilloffersubstitutepatents,(2)theinabilityoflicensorstooffertheirpatentsoutsidethe




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pool,(3)thepotentialforcompeting patentholderstocollaboratetofixpricesandestablishlicensingterms,(4)theopportunityforcompetitorstosharecompetitivelysensitiveinformation.Unlikethe3CDVDand6CDVDpatentpools,theIPXIexchangewasnotlimitedtoessentialpatents,whichraisedthepossibilitythattheexchangewouldoffersubstitute,notmerelycomplementary,patents.AstheDOJnoted,becausethe“‘combin[ing][of]complementaryfactorsofproduction...isgenerallyprocompetitive,’”itmayhavetheeffectofreducingtheroyaltyratetolicenseesand,therefore,loweringthefinalcostofaproducttoconsumers.17Apoolofferingsubstitutepatents,ontheotherhand,maybeabletoraiseroyaltyrates,limitcompetitionamongcompetingpatents,andenablecoordinationandprice‐fixingamongrivals.Anessentialityrequirementprotectsagainsttheseanticompetitiveharmsbecause,bydefinition,anessentialpatenthasnoviablesubstitutes.18TheIPXIrulesprovidethatULRsarelimitedtopatentsthatare“reasonablyrelevantorbeneficial”totheULR’sfieldofuse.Thebreadthofthislimitation,aswellasthefactthatitwouldnotexcludesubstitutes,didnotsitwellwiththeDOJ.IntheIPXIBRL,theDOJlamentedthatbecause“IPXIcannotpredictinadvancethepatentsormarketsthatmightbesubjecttoapooledULR...theDepartmentisunableto...assessthelikelycompetitiveeffectsofIPXI’spooledULRs,whichmayincludesubstitutepatents.”19TheIPXIexchangealsodifferedfromthe3CDVDand6CDVDpoolsinthatitrequiredlicensorstograntexclusivelicensestotheirpatentstoIPXI.ThismeantthatlicensorswouldnotretaintherighttolicensetheirpatentsindependentlyoutsideoftheIPXIexchange.Historically,theDOJhaslookedfavorablyuponarrangementsthatpermitindependentlicensing,findingthatit“canencouragecompetitionandcreateincentivesforinnovatorstoinventaroundsomeofthepatentsinapool.”20TheIPXIexchangedoesprovideforcertainàlacartepatentlicenses.IfapatentislicensedaspartofapooledULR,theIPXIrulesrequirethatthecontributedpatentscomprisingthepoolalsobelicensedindividuallyinseparateULRsontheexchange.This,however,wouldnotnecessarilyhavethesamepotentialprocompetitivebenefitsasindependentlicensingbythepatentholders.Asdiscussedbelow,IPXI’sstatusasacommonagentforallpatentholderscreatesthepossibilitythatthetermsoftheàlacarteofferingswouldnotmakethemcompetitivewiththepooledULRs,whichmayleadpurchaserstoacquirethepooledULRsregardlessoftheirneeds.Accordingly,theDOJremainedtroubledbytheexclusive‐licensingrequirement.TheDOJalsoexpressedconcernregardingthemannerinwhichIPXIandthepatentholderswouldsettermsfortheULRs.ForanàlacarteULR,IPXIandthecontributingpatentholderwouldagreeonthelicensingterms.ForapooledULR,IPXIandallcontributingpatentholdersjointlywouldsetthelicensingterms.AstheDOJnoted,itwasunclearwhetherthissystemwouldfosterincentivesforthepatentholderstolisttheàlacarteULRsontermscompetitivewiththosesetforthepooledoffering.ItwasalsopossiblethatIPXIcould“ensurethataccommodatingtermsaremaintainedacrosscompetingpatentholdersbecauseit[wouldset]thelicensingtermsandscheduleofeachofferingjointlywitheachpatentholder.”21BecauseIPXIandthepatentholderswouldsharerevenuesfromeachULRsold,theDOJworriedthattheyhadincentivestoreducecompetitionbetweenULRsinordertojointlyprofit.ThisconcernwasnotmitigatedbyIPXI’sassurancethatitsstaffwouldeliminatecompetingULRsfrom




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theexchange.AstheDOJnoted,suchasystemwouldonlyworkifIPXIstaffwereentirelyconsistentinhowtheyidentifiedandeliminatedcompetingpatentsfromtheexchange. Finally,theDOJacknowledgedthepossibilitythattheexchangewouldenablecompetitorstofixpricesandsharecompetitivelysensitiveinformation.IPXIrules,however,weresufficienttoconvincetheDOJthattherewaslittletonoriskthatsuchanticompetitivepracticeswouldoccur.IPXIpersonnelwouldbebarredfromdisclosingmaterialnonpublicinformationobtainedinconnectionwiththeiremployment,andpatentholderswouldbeprohibitedfromdiscussingthepriceorquantityofULRcontracts.Theexchangewouldonlypublishhistorical,aggregateddatathatdidnotenabletheidentificationofspecificpurchasesorcompanies.Nonetheless,coordinationcouldstilloccurbyvirtueofIPXI’sterm‐settingproceduresdiscussedabove.Sowhatdoesthismeanforfuturepatentpoolsandotherjoint‐licensingarrangements?Althoughpatentpoolsandjoint‐licensingarrangementsarebecomingmorecommon,theDOJhasmaintaineditsvigorousscrutiny.AsevidencedbythismostrecentBRL,theDOJ’scoreconcernsremainunchangedfromthoseexpressedfifteenyearsagoinits3CDVDBRL.TheDOJmadeclearthatitstillviewssucharrangementswithskepticismbecausetheyprovidefertilegroundforthetypeofcompetitorcollaborationthatmayresultinanticompetitiveeffects.TheIPXIBRLservesasausefulremindertopartiesproposingsuchplatformsthattheDOJiswaryoftheinclusionofsubstitutepatentsandtherequirementthatpatentholdersforegotheabilitytolicensetheirpatentsindependentofthepool.TheDOJalsoexpresseddoubtastotheeffectivenessofeliminatingcompetingpatentsbysubjectingallofferingstoathoroughstaffreview.Notwithstanding,itdidnotinsistthatbusinesspeopleonlytaketheircuesfromthe3CDVDand6CDVDarrangements,whichensuredthenonexistenceofcompetingpatentsbyofferingsolelystandard‐essentialpatents;rather,theDOJrecognizedtheefficienciesthatmayresultfromtheIPXIexchangeandcautionedthatsuchconstructsmayrequireevaluationonacase‐by‐casebasistoaccuratelyassesstheirpotentialanticompetitiverisk.Accordingly,suchpools,untiloperational,maynotfitwellintotheDOJ’sBRLprocess.Thatmakessomeofthemriskyundertakings,especiallygiventheantitrustagencies’increasedfocusonthecompetitiveeffectsofpatentpoolsandotherjoint‐licensingarrangements.Instructuringsuchplatforms,itisimportanttopayparticularattentiontotheDOJ’sreinforcedconcernsandpublishedguidancetoensurethearrangementdoesnotrunafouloftheantitrustlaws.V.ConclusionOnMarch27,2013,followingtheDOJ’sissuanceoftheIPXIBRL,IPXIstatedthatit“anticipate[d]announcingverysoontheofficiallaunchofthemarketingperiodfor[its]firstofferingsthatwillpavethewayfortradingontheExchange.”22ItwillbeinterestingtoseehowIPXIfashionsitsexchangeinlightoftheguidanceandconcernsarticulatedintheDOJ’sBRL.Moreinteresting,however,willbetheDOJ’sresponsetotheoperationoftheIPXIexchange.AstheDOJrepeatedly




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notedintheIPXIBRL,althoughcertainaspectsoftheexchange—suchastheexclusive‐licensingrequirement—weretroubling,theymay,inpractice,proveprocompetitive.23TheDOJalsohasnotedthatcertainconductismoreaccuratelyevaluatedonacase‐by‐casebasis.Accordingly,businesseswouldbewisetomonitoranysubsequentactionbytheDOJ,particularlyiftheexchangeislaunchedunmodifiedfromthatinitiallyproposed.Suchaction(orinaction)willprovidecriticalinsightintotheDOJ’sfuturetreatmentofpatentpoolsandsimilararrangements.

NinthCircuitOpensAdditionalWindowForRemovaltoFederalCourt

ByCindyReichline‡Adefendantmaygenerallyremoveacivilactionfromstatecourttofederaldistrictcourtifthedistrictcourtwouldhavehadjurisdictionhadtheactionbeenoriginallyfiledinthatcourt.28U.S.C.§1441(a).Foryearsitseemedthatadefendanthadonlytwowindowsoftimeinwhichtoremoveanactiontofederalcourt.Sections1446(b)(1)and(b)(3)oftheUnitedStatesCodespecifythatadefendantmustremoveacasewithinthirtydaysofserviceofthecomplaint,orwithinthirtydaysofreceivingfromplaintiffsome“otherdocument”fromwhichthedefendantcouldascertainthatthecasewasremovabletofederalcourt.28U.S.C.§§1446(b)(1),(b)(3).

InRothv.CHAHollywoodMedicalCenter,L.P.,2013WL3214941(9thCir.June27,2013),however,theNinthCircuitaddressedforthefirsttimewhetherthetwothirty‐dayperiodsdescribedinsections1446(b)(1)and(b)(3)aretheonlyperiodsduringwhichadefendantmayremove,oriftheyaremerelyperiodsduringwhichadefendantmustremoveifoneofthethirty‐daytimelimitsistriggered.

InRoth,plaintiffsfiledastate‐lawwageandhourclassactioninCaliforniastatecourt.Theplaintiffsthereafterfiledanamendedcomplaintnaminganadditionaldefendant,CHAHollywoodMedicalCenter(“CHA”).Afterconductingitsowninvestigation,CHAdiscoveredthatatleastoneoftheputativeclassmemberswasacitizenofNevada,therebycreatingdiversityforremovalundertheClassActionFairnessAct(“CAFA”).CHAalsodeterminedthatitcouldestablishthattheamountincontroversyexceededCAFA’sjurisdictionalminimumof$5million.Basedonthesediscoveries,whichoccurredmorethan100daysafterthefilingoftheamendedcomplaint,CHA,joinedbytheotherdefendants,filedanoticeofremovalinfederaldistrictcourt.

Plaintiffs,assertingthattheremovalwasuntimely,movedtoremandthecasebacktostatecourt,andthedistrictcourtgrantedplaintiffs’motiontoremand.Thedistrictcourtheldthatremovalwasimproper–evenifthejurisdictional

‡ CindyReichlineisanassociateinJonesDay'sLosAngelesoffice.Ms.Reichline'spracticefocusesonabroadrangeofcomplexcommerciallitigationanddisputeresolution,withanemphasisonconsumerclassactionandantitrustandunfaircompetitionlitigation.TheviewsexpressedhereindonotnecessarilyreflecttheviewsofJonesDay,itsattorneysoritsclients.

NinthCircuitOpensAdditionalWindowForRemovaltoFederalCourtCindyReichline

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requirementshadbeensatisfied– becauseneitherofthethirty‐dayperiodsspecifiedinsections1446(b)(1)and(b)(3)hadbeentriggeredbydocumentsreceivedfromplaintiffs.Thus,thedistrictcourtheldthatthedefendantscouldnotremovebasedoninformationdiscoveredbyCHAoutsideofthethirty‐dayperiods.

Onappeal,theNinthCircuitreversed.TheNinthCircuitheldthat“adefendantwhohasnotlosttherighttoremovebecauseofafailuretotimelyfileanoticeofremovalunder§1446(b)(1)or(b)(3)mayremovetofederalcourtwhenitdiscovers,basedonitsowninvestigation,thatacaseisremovable.”Because,here,plaintiffs’amendedcomplaintwas“atbest‘indeterminate’”withrespecttoremovability,CHA,whichconducteditsowninvestigationanddiscoveredthatthecasewasremovable,wasnotbarredfromremovingtheactionoutsidethetwothirty‐dayperiods.

TheNinthCircuitacknowledgedthat,undersections1446(b)(1)and(b)(3),therearevalidreasonsforimposingstricttimelimitsonadefendantwhenadefendantisputonnoticeofremovabilitybyaplaintiff,butthecourtconcludedthataplaintiffshouldnotbeabletopreventordelayremovalbyfailingtorevealinformationshowingremovabilityandthenobjectingtoremovalwhenthedefendantdiscoversgroundsforremovalthroughitsowninvestigation.TheNinthCircuitnoted:“[i]twouldbeodd,evenperverse,topreventremovalinthiscase,andweseenothinginthetextof§§1441and1446torequiresucharesult.”

TheNinthCircuitfurtherdismissedanyconcernsthatadefendantmaydelayremovinganactionbasedoninformationitdiscovereduntilitisstrategicallyadvantageousforthedefendanttodoso.TheNinthCircuitnotedthat,ingeneraldiversityactions,anysuchadvantagesareseverelylimitedbecauseanactionmustberemovedwithinoneyearofthecommencementoftheaction.AlthoughnosimilarlimitationexistsinCAFAcases,theNinthCircuitreasonedthataplaintiffcanpreventpotentialgamesmanshipbyprovidingthedefendantwithadocumentfromwhichremovabilitymaybeascertained,thustriggeringthe30‐dayremovalperiodundersection1446(b)(3).

Thisgroundbreakingrulinghassignificantimplicationsfordefendantsthatprefertobeinfederalcourt.DefendantsnowhavemoreflexibilityandshouldnotbedeterredfromremovinggeneraldiversityorCAFAactionstofederalcourt,providedthattheyhaveotherwisecompliedwithsections1446(b)(1)and(b)(3).AlthoughitremainstobeseenhowlowercourtswillapplytheNinthCircuit’srulinginRoth–whethercourtswillattempttodistinguishRothonitsfactsorotherwiseattempttonarrowthisadditionalwindowforremoval–theruling(iffollowedbyothercircuitcourts)wouldremovethetimeconstraintsthatpreviouslyexistedtodetermineremovability,givingdefendantsadditionaltimetoinvestigateandobtainevidencetosupportremoval.

NinthCircuitOpensAdditionalWindowForRemovaltoFederalCourtCindyReichline(continued)

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ByNateAsher§I.IntroductionTheSupremeCourtispoisednexttermtosettleacircuitsplitaffectingstateenforcementofantitrustandcompetitionlaws.OnMay28,2013,theCourtgrantedthestateofMississippi’spetitionforawritofcertiorariinMississippiexrel.Hoodv.AUOptronicsCorp.24ThatcasestemsfromaFifthCircuitopinionholdingthatparenspatriaeactions,inwhichastatebringsasuittoprotectitscitizens,areremovableunderCAFAasmassactions.25TheHoodallegationscenteredonpurportedviolationsofMississippiantitrustlawintheliquid‐crystaldisplay(“LCD”)market.LikeMississippi,severalotherstatesfiledactionsintheirrespectivecourtsseekingtoenforceantitrustandcompetitionlawsrelatingtotheLCDpanelmarket.Butthosestatessucceededindefeatingremovalattempts,leavingthemattersinstatecourt,whileMississippilostitsbidtoremandHoodcasetostatecourt.DependingonhowtheSupremeCourtrules,parenspatriaefilingsmaydiminishiftheyaredeemedremovableinmostinstancesasmassactions.Orstatesmayfilemoreparenspatriaeactionsiftheyknowthattheycansafelyavoidfederalcourtinthefuture.Asidefromtheseimplications,theHoodcaseraisesquestionsofhowbesttoanalyzeparenspatriaeactionsandhowthoseactionsaffectantitrustenforcementandindividualconsumers.II.ParensPatriaeActions:HistoricalActionswithModern

EndorsementsParenspatriaeactionsinvolvecomplaintsbroughtbystatesonbehalfoftheircitizens.Theactionsare“rootedintheEnglishcommon‐lawconceptofthe‘royalprerogative,”whichallowedthekingtoactonbehalfofpeopleunabletoactforthemselves.26Parenspatriaesuitsallowstatestoprotectquasi‐sovereigninterestsinthehealthandeconomicwell‐beingoftheircitizens.27Typically,statesaretheonlypartiestoparenspatriaeactions,andprivatepersonsmayonlyinterveneorjointheactioniftheyhaveacompellinginterestseparatefromthatoftheclassofstatecitizens.Standingforstatestobringparenspatriaeactionsoriginallyspringsfromcommonlaw,28althoughseveralstatesexplicitlyauthorizetheactionsbystatute.Parenspatriaesuitsmaybeparticularlyappealingwherestatecitizensareunabletolitigateforthemselves,eitherforpracticalreasons,suchasthelikelihoodofanominaldamagesaward,orbecauseindividualsarelegallybarred

§ NateAsherisanassociateinO’Melveny’sNewYorkofficeandamemberoftheWhiteCollarDefenseandCorporateInvestigationsPractice.Nate’sdiversepracticeincludeswhitecollarcriminaldefense,antitrust,complexcivillitigation,masstort,securities,regulatoryinvestigations,andcorporatecounseling.Natealsorepresentsprobonoclientsinavarietyoflegalmatters.TheopinionsexpressedinthisarticledonotnecessarilyreflecttheviewsofO'Melvenyoritsclients,andshouldnotberelieduponaslegaladvice.


NateAsher

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fromseekingrelief.29a.ParensPatriaeSuitsandAntitrustEnforcementEventhoughcourtsrecognizethecommon‐lawvalidityofparenspatriaeactions,moststateshaveexplicitlyauthorizedthemechanismasameansofenforcingstateantitrustorcompetitionlaw.Forinstance,severalstateantitrustandcompetitionlawsexpresslyprovideforparenspatriaesuits.30Othersallowsuchsuitsthroughanalogouslegalactions.31Finally,somestatecourtshaveallowedparenspatriaeactionsevenabsentstatutoryauthorization.32Thus,attorneysgeneralinmoststatescanbringantitrustenforcementactionsonbehalfoftheircitizensforviolationsofstatelaw.Threeofthefourparenspatriaeactionsdiscussedbelowimplicateonlystateantitrustandcompetitionlaw.Butstatescanalsobringparenspatriaeactionsinfederalcourttoremedyallegedviolationsoffederalantitrustlaw.Thiswasnotalwaysthecase,though.BeforeCongresspassedtheHart‐Scott‐RodinoAct(“HSRA”),theSupremeCourtrejectedHawaii’sattemptinaparenspatriaeactiontorecoverdamagesforallegedinjurytoitseconomyduetopurportedantitrustviolations.33Ratherthanallowthestatetorecoverforinjurytoitsgeneraleconomy,theCourtexplainedthatinjuredcitizenscouldpursuetheirownremediesthroughclassactions.34TheCourtstatedthatbetweenparenspatriaeactionsandclassactions,“thelatteraredefinitelypreferableintheantitrustarea.”35Oneyearlater,theNinthCircuitdeclinedtorecognizeCalifornia’sauthoritytoseektrebledamagespursuanttotheClaytonActinaparenspatriaesuitallegingaprice‐fixingconspiracy.36Thecourtexplainedthatitwouldnotallowthedamagesbecause“authority[tobringthesuit]mustcomenotthoughjudicialimprovisationbutbylegislationandrulemaking.”37 ThreeyearsafterFrito‐Lay,CongressexpresslyrespondedtotheNinthCircuit,takingupthe“judicialinvitationextendedbyFrito‐Lay.”38CongressdescribedtheHRSAasaneffort“tooverturnFrito‐LaybyallowingStateattorneysgeneraltoactasconsumeradvocatesintheenforcementprocess,whileatthesametimeavoidingtheproblemsofmanageabilitywhichsomecourtshave”encounteredinfederalclassactions.39FollowingtheHRSA,statescould“protecttheircitizensbysuingfordamageswhentheyareinjuredbyantitrustviolations.”40HSRAauthorizesparenspatriaeclaimsunlessa“stateprovidesbylawforitsnonapplicabilityinsuchstate.”41III.Hood:TheFifthCircuitConsidersParensPatriaeSuitsToBeMass

ActionsBecauseIndividualCitizensAreRealPartiesinInterestTheHoodcaseoriginatedinMississippistatecourtasaparenspatriaeaction.Thestatearguedthatthedefendants—LCDpanelmanufacturesanddistributors—violatedtheMississippiConsumerProtectionActandtheMississippiAntitrustActbyengaginginaprice‐fixingconspiracy.42Thedefendantsremovedtheactiontofederalcourt,arguingthatthecasequalifiedunderCAFAasamassaction,43whichisacivilsuitseekingmorethan$5millioninmonetarydamages,


NateAsher(continued)

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involving100ormorepersons,raisingcommonquestionsoflaworfact,andrequiringonlyminimaldiversity.44CAFAexcludescertaintypesofcasesfromqualifyingasmassactions,including:(1)actionsbroughtpursuanttoastatestatuteassertingaclaimonbehalfofthestate’sgeneralpublic;or(2)actionsarisingentirelyfromaneventthatoccurredinthestatewherethesuitwasfiled.45DespiteanearlierFifthCircuitcaseupholdingremovalofaparenspatriaeactionasamassactionunderCAFA,46theHooddistrictcourtremandedthecasebacktostatecourtbecauseitmetCAFA’s“generalpublicexception.”47ThedefendantsappealedtotheFifthCircuit,whichheldthatthecaseproperlybelongedinfederalcourtbecausethestatewasnotbringingthesuitsolelyonbehalfofthepublicingeneral.Instead,certainstateconsumerswererealpartiesininteresttothesuit.48Initsruling,theFifthCircuitendorsedclaim‐by‐claimsanalysesofparenspatriaeactions,whichinvolvedseparatelyexaminingthepartyininterestforeachparticularclaim.49Takingthatapproach,theFifthCircuitdeterminedthatcertainMississippicitizenswererealpartiesininteresttothestate’sdamagesclaimsgiventhattheclaimshingedontherightsofthosecitizens.50Tosupportthisposition,theCourtnotedthattheMississippistatutesatissuedidnotauthorize“publiccollectionofprivatedamages.”51TheHoodcourtalsonotedthatMississippiwasnotactingonbehalfofcitizenswholackedlegalrecourse.52Rather,MississippistatelawallowsindividualcitizenstobringthetypeofindirectpurchaserclaimsatissueinHood,sotheconsumersostensiblybeingprotectedcouldhavepursuedtheirownremediesinprivatesuits.53ButthecourtdidnotdiscussthefactthatMississippiprohibitsallclassactions,54leavingstateconsumerswiththeloneoptionoffilingindividualactions.IV.CircuitSplit:OtherCircuitsRejecttheMassActionViewTheHoodcomplaintallegedclaimssimilartoparenspatriaeactionsinseveralotherstatesaswell,includingArkansas,California,Florida,Illinois,Michigan,Missouri,NewYork,Oregon,SouthCarolina,Washington,WestVirginia,andWisconsin.55TheseactionscenterontheallegedconductofLCDpanelmanufacturersand/ordistributorsfirstidentifiedbyagovernmentinvestigationintotheindustryin2006.56Illinois’sattorneygeneralinitiatedaparenspatriaeactionagainsteightLCDpanelmanufacturersinAugust2010,allegingpricefixinginviolationoftheIllinoisAntitrustAct.57SimilartotheHooddefendants,theMadigandefendantstriedtoremovetheactiontofederalcourtunderCAFA.ButunliketheFifthCircuitinHood,theSeventhCircuitheldthatthecaseproperlybelongedinIllinoisstatecourt.58LiketheHooddefendants,theMadigandefendantsaskedthecourttoviewthecaseonaclaim‐by‐claimbasistofindthatparticularpurchasersweretherealpartiesininterest.59Tosupporttheapproachtheyadvocated,thedefendantsarguedthatseparatelydeterminingwhichpartywouldbenefitfromeachindividualclaimwouldrevealthatthestatewasnottherealpartyininterestfor



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alltheclaims.60Thedefendantsconcededthatthestatewastherealpartyininterestfortheenforcementclaims,butnotforthedamagesclaims.61AndgiventhatindividualIllinoiscitizensweretheintendedbeneficiariesofdamagesclaims,accordingtothedefendants,thecaseconstitutedamassactionunderCAFA.62Butboththedistrictcourtandcircuitcourtrejectedthisapproach.63Thedistrictcourtviewedtheactionholistically,applyingawhole‐claimapproach.64Thisapproachrequiredexaminingthe“essentialnatureandeffectoftheproceeding”andfoundthatIllinoiswastherealpartyininterest,whichtheSeventhCircuitaffirmed.65Thecircuitcourtalsoraisedconcernsaboutremovinganactionthatastatefiledinitsowncourttofederalcourtabsentacleardirectivetodoso.66Inanotheropiniononthetopic,theNinthCircuitheldthatparenspatriaeactionsarenotmassactionsunderCAFA.InNevadav.BankofAm.Corp.,theNevadaattorneygeneralbroughtanactionagainstBankofAmericaandrelatedentities,allegingviolationsoftheNevadaDeceptiveTradePracticesAct.67Thedistrictcourtdeniedamotiontoremand,findingthatthesuitqualifiedunderCAFAasaclassactionandalsothatthecaseimplicatedfederalquestionjurisdiction.68Afterthedistrictcourt’sruling,theNinthCircuitheldinaseparatematterthatparenspatriaeactionsdonotconstituteclassactionsunderCAFA.69Onappeal,then,theNinthCircuitfocusednotontheclassactionargument,butonwhetherthecasecouldconstituteamassactionunderCAFA.70SidingwiththeSeventhCircuitinMadigan,theNinthCircuitreversedandadoptedthewhole‐caseapproachtoassessthenatureandeffectofthecasefromtheentirerecord.71Fromthisperspective,thecourtfoundthatNevadawastheonlyrealpartyininterestintheaction.72AndtheCourtwasunfazedbyNevada’sclaimforrestitutionthatwouldbenefitparticularstatecitizens.73Thatrestitutionclaimdidnot“negateNevada’ssubstantialinterestinthiscase.”74AlthoughtheNevadacasedidnotinvolveantitrustorcompetitionlaws,thecase(1)reliedinpartonapreviousCaliforniadistrictcourtopinionintheconsolidatedLCDlitigation,75and(2)informedalaterFourthCircuitopinioninyetanotherLCD‐relatedlawsuit.ThatFourthCircuitopinionstemmedfromtwoSouthCarolinaparenspatriaeactionsinitiatedinstatecourt,allegingthatLCDpanelmanufacturersviolatedSouthCarolinaAntitrustActandSouthCarolinaUnfairTradePracticesAct.76ThedefendantsattemptedtoremovethecasestofederalcourtasmassactionsunderCAFA,butthedistrictcourtrejectedeachoftheseremovalattempts,andtheFourthCircuitupheldthatdetermination.77ContinuingthetrendfromMadiganandNevada,theSouthCarolinadefendantsrequestedaclaim‐by‐claimanalysisofthecase,whichwouldindicatewhetherthestatewasthe“beneficiaryofeachbasisofrelief.”78Thedistrictcourtrejectedthisrequest,findinginsteadthatunderawhole‐claimview,SouthCarolinawasmorethananominalpartytotheactionbecauseitwasenforcingitsquasi‐sovereigninterestinprotectingitscitizens.79



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AfterexaminingapproachesadoptedinothercircuitsaswellastheSouthCarolinastatutesatissue,theFourthCircuitaffirmedthedistrictcourt’swhole‐claimanalysisandagreedthatthestatewastheonlyrealpartyininterest.80OfimportancetotheFourthCircuit,SouthCarolinacitizenscouldnotbringindividualenforcementactionsunderthestateAntitrustActortheUnfairTradePracticesAct.81Thecourtalsofoundthatthestatutoryauthorizationofrestitutiontoinjuredcitizenswas“incidentaltotheState’soverridinginterestsandtothesubstanceoftheseproceedings.”82V.TheIndirectPurchaserRuleTwistParenspatriaeactionsmayparticularlyappealtostateswhosecitizenscannotenforcetheirownrightsunderantitrustjurisprudence,suchasindirectpurchasers,whoareoftenprecludedfrombringingantitrustclaims.Anindirectpurchaserisapartythatboughtaproductfromanantitrustconspirator’scustomers,butnotfromtheconspiratoritself.Forexample,apersonwhoboughtanflat‐screenLCDtelevisionfromaretailstorewouldbeconsideredanindirectpurchaserbecausethecustomerdidnottransactdirectlywiththeLCDpanelmanufacturer.AndHood,Madigan,andSouthCarolinaallimplicatedharmtoindirectLCDpanelpurchasers.IndirectpurchasersaregenerallybarredfrombringingindividualfederalactionsunderIllinoisBrickv.Illinois.83InannouncingtheIllinoisBrickstandard,theSupremeCourtexpresseditsconcernsthatseparatingouttheoverchargepassedonfromthedirectpurchasertotheindirectpurchasermaynotbefeasible,andenablingindirectpurchaserrecoverycouldfostermultiplerecoveriesforthesameconduct.84Thedoctrineisnotwithoutexceptions,though.Anindirectpurchasermaystillbringaclaimifitboughttheoverchargedgoodspursuanttoa“cost‐plus”contractwithadirectpurchaser,85orifthedirectpurchaserwascontrolledbytheconspiringentity.86Underthesestandardsandexceptions,indirectpurchasershavelimitedavenuestorecoveryinfederalcourt.ButinpassingtheHSRA,Congressintendedtoofferanenforcementmechanismtoprotectindirectpurchasers.TheCongressionalRecordshowsthatoneoftheAct’ssponsorsexpresslycontemplatedparenspatriaesuitsonbehalfofindirectpurchasers:“[A]ssumingtheStateattorneygeneralprovesaviolation,andprovesthatanoverchargewas‘passedon’totheconsumers...recoveriesareauthorizedbythecompromisebillwhetherornottheconsumerspurchaseddirectlyfromthepricefixer,orindirectly,fromintermediaries,retailers,ormiddlemen.”87NotlongaftertheHSRApassed,though,theSupremeCourtdecidedIllinoisBrick.Soinfederalcourt,indirectpurchasersmusteithermeetoneoftheexceptionsoftheIllinoisBrickdoctrineorrelyonaparenspatriaesuittoenforcetheirrights.Statecourts,ontheotherhand,offeragreateropportunityforindirect‐purchaserrecovery.SeveralstateshavefullyrepealedtheeffectsoftheIllinoisBrickdoctrinetoallowforindividualclaimsbyindirectpurchasers.88Otherstatesauthorizethestateattorneygeneraltobringaparenspatriaeactiononbehalfofindirectpurchasers.89



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AsfortheindirectpurchasersinHood,Madigan,andSouthCarolina,theIllinoisandMississippistatuesatissueauthorizeindirectpurchaserstobringclaimsforviolationsofstateantitrustlaw.90Butbothstatesprohibitclassactionsbroughtbyindirectpurchasers:Illinoisonlyallowsthestateattorneygeneraltobringaclassactiononbehalfofindirectpurchasers,91andMississippiprohibitsallclassactions.92AndalthoughtheSouthCarolinastatutedoesnotauthorizeanyactionsonbehalfofindirectpurchasers,courtshaverecognizedtheattorneygeneral’sauthoritytobringparenspatriaesuitstoenforcestateantitrustlaw.93Soallthreestatesplaceeitherapracticalhurdle(e.g.,noprivateclassactions)oralegalbar(e.g.,noprivatecauseofaction)forindirectpurchaserstobringclaimsbasedonstateantitrustlaws.WhetherornotindirectpurchaserswillbesignificantlyimpactedbytheoutcomeoftheSupremeCourtrulingremainstobeseen.EveniftheCourtrulesthatparenspatriaeactionsmayconstitutemassactionsandqualifyforremovalunderCAFA,theEriedoctrinewouldcompelfederalcourtstorelyonstatelawenablingparenspatriaesuitsasameansofprotectingindirectpurchasers.Sotheimpactonindirectpurchasersmaysimplybethedifferencebetweenamoredefense‐friendlyenvironmentinfederalcourtsandamoreplaintiff‐friendlyenvironmentinstatecourts.VI.ConclusionGiventhescopeoftheHoodcase,theSupremeCourtwilllikelyfocusonthehistoryandpurposeofCAFAandonparenspatriaeactionsingeneral.TheCourtmayreachitsrulingwithoutanalyzinganyparticularantitrustprinciplesorlaws.Evenso,therulingwillundoubtedlyaffectantitrustpracticethroughoutthecountrybecauseparenspatriaeactionsarepopulartoolsforenforcingantitrustlaws.AndtheHoodcasemayhaveaparticularimpactonclaimsforindirectpurchaserswhoseinterestsarefrequentlyatstakeinparenspatriaesuits.Inthefuture,willenforcementofantitrustlawsonbehalfofindirectpurchasersberestrictedtofederalcourt?Orwillstatescontinuetouseparenspatriaeactionstoprotectindirectpurchaserinterestsinstatecourt?TheHoodcaseiswellworthtrackingforanantitrustlawyerinterestedintheseissues.



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DISCLAIMERPerspectivesinAntitrustispublishedeighttimesayearbytheAmericanBarAssociationSectionofAntitrustLawCivilPracticeandProcedureCommittee.TheviewsexpressedinPerspectivesinAntitrustaretheauthors'onlyandnotnecessarilythoseoftheAmericanBarAssociation,theSectionofAntitrustLawortheCivilPracticeandProcedureCommitteeoritssubcommittees.IfyouwishtocommentonthecontentsofPerspectivesinAntitrust,pleasewritetotheAmericanBarAssociation,SectionofAntitrustLaw,321NorthClarkStreet,Chicago,IL60654.COPYRIGHTNOTICE©Copyright2013AmericanBarAssociation.Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,recording,orotherwise,withoutthepriorwrittenpermissionofthepublisher.Torequestpermission,contacttheABA’sDepartmentofCopyrightsandContractsviawww.americanbar.org/utility/reprint.

1LetterfromWilliamJ.Baer,AssistantAttorneyGen.,U.S.Dep’tofJustice,toGarrardR.Beeney,Esq.,at1(Mar.26,2013),availableathttp://www.justice.gov/atr/public/busreview/295151.pdf[hereinafterIPXIBRL](footnoteomitted)(internalquotationmarksomitted).2Id.at2(citationomitted)(internalquotationmarksomitted).3See28C.F.R.§50.6;U.S.DEP’TOFJUSTICE,INTRODUCTIONTOANTITRUSTDIVISIONBUSINESSREVIEWS,availableathttp://www.justice.gov/atr/public/busreview/276833.pdf.4IPXITradingInnovation,U.S.DepartmentofJusticeConcludesEight‐MonthReviewofIPXILicensingModel,availableathttp://www.ipxi.com/news‐events/90‐doj‐concludes‐review‐of‐ipxi.html.

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5Id.6SeeDEP’TOFJUSTICE&FED.TRADECOMM’N,ANTITRUSTENFORCEMENTANDINTELLECTUALPROPERTYRIGHTS:PROMOTINGINNOVATIONANDCOMPETITION65(2007)[hereinafter“PROMOTINGINNOVATION&COMPETITION”],availableathttp://www.justice.gov/atr/public/hearings/ip/222655.pdf.7Seeid.8SeeU.S.DEPARTMENTOFJUSTICE&FEDERALTRADECOMMISSION,ANTITRUSTGUIDELINESFORTHELICENSINGOFINTELLECTUALPROPERTY§5.5(1995),reprintedin4TradeReg.Rep.(CCH)¶13,132[hereinafter“ANTITRUST‐IPGUIDELINES”],availableathttp://www.usdoj.gov/atr/public/guidelines/0558.pdf.9ANTITRUST‐IPGUIDELINES§1.0.10Id.§2.0.11SeeLetterfromJoelI.Klein,AssistantAttorneyGen.,U.S.Dep’tofJustice,toGarrardR.Beeney,Esq.,at1‐4(Dec.16,1998)[hereinafter3CDVDBRL],availableathttp://www.justice.gov/atr/public/busreview/2121.pdf.12SeeLetterfromJoelI.Klein,AssistantAttorneyGen.,U.S.Dep’tofJustice,toCareyR.Ramos,Esq.,at1(June10,1999)[hereinafter6CDVDBRL],availableathttp://www.justice.gov/atr/public/busreview/2485.pdf.13Id.at13.14Id.at14n.66.15PROMOTINGINNOVATION&COMPETITIONat80.16Id.at79‐80.17ANTITRUST‐IPGUIDELINES§2.0.186CDVDBRLat3.19IPXIBRLat9.20Id.21Id.at11.22IPXITradingInnovation,U.S.DepartmentofJusticeConcludesEight‐MonthReviewofIPXILicensingModel,availableathttp://www.ipxi.com/news‐events/90‐doj‐concludes‐review‐of‐ipxi.html.23SeesupraPartIII.b.24186L.Ed.2d191(2013).25701F.3d796(5thCir.2012).26LGDisplayCo.v.Madigan,665F.3d768(7thCir.2011).27SeeAriasv.Dyncorp,738F.Supp.2d46,54(D.C.Cir.2010).28Seegenerally,JayL.Himes,StateParensPatriaeAuthority:TheEvolutionoftheStateAttorneyGeneral’sAuthority,TheInstituteforLawandEconomicPolicySymposium(2004).29See,e.g.,StateofCalif.v.LeviStrauss&Co.,41Cal.3d460,477(1986)(“[T]heparenspatriaeactionisdesignedtoprovideameansofredresswhereaprivateclassactionisnotviable.”)30ThesestatesincludeCalifornia,Colorado,Delaware,Hawaii,Idaho,Nevada,Ohio,Oregon,RhodeIsland,SouthDakota,Utah,andWestVirginia,alongwithPuertoRicoandWashington,D.C.SeeCal.Bus.&Prof.Code§16760;Colo.Rev.Stat.§6‐4‐11;Del.CodeAnn.tit.6§2108;Haw.Rev.Stat.§480‐14(c);IdahoCode§48‐108(2)–(4);Mass.Gen.LawsAnn.ch.93§9;Nev.Rev.Stat.§598A.160(1);OhioRev.CodeAnn.§109.81(A);Or.Rev.Stat.§646.775;R.I.Gen.Laws§6‐36‐12;S.D.CodifiedLaws§§37‐1‐23–‐32;UtahCodeAnn.§§76‐10‐918;W.Va.Code§47‐18‐17;D.C.Code§28‐4507(b).31ThesestatesincludeAlaska,Arizona,Florida,Illinois,Kansas,Maryland,Mississippi,NewHampshire,NewYork,NorthCarolina,NorthDakota,Pennsylvania,Vermont,Virginia,Wisconsin,andWyoming.SeeRobertL.Hubbard,AuthorityofStateAttorneysGeneraltoRepresentConsumers,presentationatABAAntitrustSpring2003Meeting,availableathttp://apps.americanbar.org/antitrust/at‐committees/at‐state/pdf/programs/spring‐03/agconsumer.pdf.32ThesestatesincludeAlabama,Arkansas,Kentucky,Louisiana,Maine,Michigan,Minnesota,Missouri,Montana,NewJersey,NewMexico,Tennessee,Texas,andWashington.Id.33SeeHawaiiv.StandardOilCo.ofCal.,405U.S.251(1972).34Id.at266.35Id.36SeeCaliforniav.Frito‐Lay,Inc.,474F.2d774(9thCir.1973).37Id.at777.381976U.S.C.C.A.N.2572,2578.39Id.40Id.atn.8.41Id.at15h.

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42701F.3dat799.43Id.at798.4428U.S.C.§1332(d)(11).45Id.at1332(d)(11)(B)(ii).46SeeLouisianaexrel.Caldwellv.AllstateIns.Co.,536F.3d418(5thCir.2008).47876F.Supp.2d758,775(S.D.Miss.2012)48701F.3dat802.49Id.at799–800(citingLouisianaexrel.Caldwellv.AllstateIns.Co.,536F.3d418(5thCir.2008)).50Id.51Id.at800–801.52Id.at801.53Miss.CodeAnn.§75‐21‐9.54SeeJannsenPharmaceutica,Inc.,v.Armond,866So.2d1092,1102(Miss.2004)(Graves,J.,concurring)(“Mississippiistheonlystatethatpermitsnoclassactionsofanykind....”)(citationomitted).55PetitionforWritofCertiorari,Hood,No.12‐1036,at7–8(Feb.19,2013).56BrieffortheRespondents,Hood,No.12‐1036,at43a(Apr.24,2013).AlthoughMississippibroughttheactioninstatecourt,severalattorneysgeneralinotherstatesfiledparenspatriaeactionsinfederalcourtbecausetheyallegedfederal‐basedclaimsaswellasviolationofstatelaw.PetitionforWritofCertiorari,Hood,No.12‐1036,at7–8.Thoseactionsfiledinfederalcourtwereconsolidatedwithotherfederalactionsrelatingtoallegedprice‐fixingconductintheLCDpanelmarket.SeeInreTFT‐LCD(FlatPanel)AntitrustLitig.,No.07‐1827(N.D.Cal.).Theparenspatriaeplaintiffsinthatconsolidatedlitigationrecentlysettledtheirclaimsagainstthedefendants.Seeid.,2013WL1365900(Apr.3,2013,N.D.Cal.).57LGDisplayCo.v.Madigan,665F.3d768(7thCir.2011).58Id.at773–74.59Id.at772–73.60Id.at772.61Id.62Id.63Id.at773.64Id.65Id.66Id.at774.67672F.3d661(9thCir.2012).68Id.at664.69Wash.Statev.ChimeiInnoluxCorp.,659F.3d842(9thCir.2011).70Nevada,672F.3dat667–68.71Id.at670.72Id.73Id.74Id.at671(citationomitted).75InreTFT‐LCD(FlatPanel)AntitrustLitig.,2011U.S.Dist.LEXIS17793(N.D.Cal.Feb.15,2011)(remandingparenspatriaeactionsbroughtbyWashingtonandCaliforniaafterfindingstatestoberealpartiesininterestinenforcingconsumerprotectionandantitrustlaws).76SeeAUOptronicsCorp.v.SouthCarolina,699F.3d385(4thCir.2012).77Id.at387.LiketheNinthCircuit,theFourthCircuithadalreadyrejectedanargumentthatparenspatriaeactionsconstitutedclassactionsunderCAFAwithoutaddressingthemassactionissue.SeeWestVirginiaexrel.McGrawv.CVSPharmacy,Inc.,646F.3d169(4thCir.2011).78Id.at391–92.79Id.at388–89.80Id.at391–93.81Id.at393.82Id.at394.83431U.S.720(1977).84Id.at731,737.

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85Id.at735–36.86Id.at736n.16.87122Cong.Rec.30878(dailyed.Sept.16,1976).88SeeABASectionofAntitrustLaw,IndirectPurchaserLitigationHandbook,AppendixA(2007);see,e.g.,Haw.Rev.Stat.§480‐13(a)(1).89See,e.g.,Ark.CodeAnn.§4‐75‐212(b).90See740Ill.Comp.Stat.10/7(2);Miss.CodeAnn.§75‐21‐9.91See740Ill.Comp.Stat.10/7(2).92SeeJannsen866So.2dat1102(Graves,J.,concurring).93SeeS.C.Code§39‐3‐180;TridentNeuro‐ImagingLab.v.BlueCross&BlueShieldofS.Car.,568F.Supp.1474,1483(D.S.C.1983)(“[T]hereisnoprivaterightofactionunderthestateantitruststatutes.”);seegenerallyAUOptronicsCorp.v.SouthCarolina,699F.3d385.