Understanding Single-Firm Behavior: Misleading and Deceptive Conduct Session

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1	UNITED STATES FEDERAL TRADE COMMISSION
2	and
3	UNITED STATES DEPARTMENT OF JUSTICE
4
5
6
7	SHERMAN ACT SECTION 2 JOINT HEARING
8	UNDERSTANDING SINGLE-FIRM BEHAVIOR:
9	MISLEADING AND DECEPTIVE CONDUCT SESSION
10	WEDNESDAY, DECEMBER 6, 2006
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12
13
14
15	HELD AT:
16	UNITED STATES FEDERAL TRADE COMMISSION
17	601 NEW JERSEY AVENUE, N.W.
18	WASHINGTON, D.C.
19	9:30 A.M. TO 1:00 P.M.
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21
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24	Reported and transcribed by:
25	Susanne Bergling, RMR-CLR

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1	MODERATORS:
2	RICHARD B. DAGEN
3	Special Counsel to the Director
4	Bureau of Competition, Federal Trade Commission
5	and
6	HILL B. WELLFORD
7	Counsel to the Assistant Attorney General
8	Antitrust Division, U.S. Department of Justice
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10	PANELISTS:
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12	Michael F. Brockmeyer
13	George S. Cary
14	Susan A. Creighton
15	R. Preston McAfee
16	Gil Ohana
17	Richard P. Rozek
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1	C O N T E N T S
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4	Introduction
5	Presentations:
6	Michael F. Brockmeyer
7	George S. Cary
8	Susan A. Creighton
9	R. Preston McAfee
10	Gil Ohana
11	Richard P. Rozek
12	Moderated Discussion
13	Conclusion
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1	P R O C E E D I N G S
2	- - - - -
3	MR. DAGEN: Okay, good morning, everybody. I am
4	Richard Dagen, Special Counsel to the Director of the
5	Bureau of Competition and one of the moderators for this
6	session. My co-moderator is Hill Wellford, Counsel to
7	the Assistant Attorney General for Antitrust at the
8	Department of Justice. Before we start, I need to cover
9	a few housekeeping matters.
10	First, please turn off your cell phones,
11	BlackBerries and any other devices. Second, the
12	restrooms are outside the double doors and across the
13	lobby. There are signs to guide you. Third, one safety
14	tip, particularly for visitors, in the unlikely event
15	the building alarms go off, please proceed calmly and
16	quickly as instructed. If we must leave the building,
17	exit the New Jersey Avenue exit by the guard's desk, and
18	please follow the stream of FTC people to a gathering
19	point and await further instruction. Finally, we
20	request that you not make comments or ask questions
21	during the session. Thank you.
22	Now, today we are honored to have assembled a
23	distinguished panel of practitioners, consultants and
24	professors who are well versed in the issues we will
25	tackle today involving misleading and deceptive conduct.

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1	The hearing will be organized as follows: First, we
2	will hear an approximately 15-minute presentation from
3	each panelist. We will likely break after the fourth
4	panelist speaks, and after the break, hear from our
5	final two speakers. After the presentations, we will
6	have a round table discussion moderated by Hill Wellford
7	and me.
8	Our panelists today are Susan Creighton, who is
9	a partner at Wilson Sonsini Goodrich & Rosati and a
10	former director of the FTC's Bureau of Competition;
11	Preston McAfee, who is the J. Stanley Johnson Professor
12	of Business Economics and Management at the California
13	Institute of Technology; Gil Ohana, who is the Director,
14	Antitrust and Competition, Cisco Systems; Richard Rozek,
15	who is a senior vice president, NERA Economic
16	Consulting; Michael Brockmeyer, who is a partner at
17	Frommer Lawrence & Haug and an Adjunct Professor of Law
18	at the University of Maryland School of Law; and George
19	Cary, who is a partner at Cleary Gottlieb Steen &
20	Hamilton and a former Deputy Bureau Director of the
21	FTC's Bureau of Competition.
22	I want to thank the FTC and DOJ Section 2 staff
23	for organizing this session. This is the last Section 2
24	hearing for 2006, but the hearings will continue during
25	the first few months of 2007, so be sure to check the

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1	agencies' web sites for updates.
2	Second, I want to explain why a session entitled
3	Misleading and Deceptive Conduct is, in fact, a session
4	about Section 2 of the Sherman Act and not a hearing
5	being held by the FTC's Bureau of Consumer Protection.
6	Deceptive conduct is a type of exclusionary conduct that
7	has been the basis for antitrust liability under Section
8	2. The Federal Trade Commission defined deception in
9	1983, noting that the FTC "will find deception if there
10	is a representation, omission or practice that is likely
11	to mislead the consumer acting reasonably in the
12	circumstances to the consumer's detriment."
13	In In re Rambus, a matter involving conduct
14	before a standard-setting organization, the Commission
15	explained that the policy statement could be applied to
16	a Section 2 analysis, although it did not directly
17	equate the policy statement's definition of deception
18	with exclusionary conduct under Section 2. Consistent
19	with our general policy to avoid discussing cases during
20	the hearings that are currently in litigation, and
21	because the Rambus matter is still in administrative
22	litigation and there has not been a final appealable
23	judgment, we will not be discussing this case today.
24	There are a variety of scenarios under which
25	deceptive and misleading conduct may form the basis of a

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1	Section 2 antitrust violation, and this hearing is
2	designed to address many of them. Deception also may
3	encompass fraud, bad faith, falsehoods,
4	misrepresentations and misleading conduct. These terms
5	are related and sometimes used interchangeably. Such
6	conduct can occur in both the private and public sector.
7	Certain business torts and standard-setting activity may
8	provide the basis of Section 2 liability.
9	In one recent case, Conwood versus United States
10	Tobacco, the Sixth Circuit upheld a $1 billion treble
11	damages award. The allegations of exclusionary conduct
12	in Conwood included misrepresentations of sales data to
13	retailers as well as the destruction of competitors'
14	products and displays.
15	In United States versus Microsoft, the D.C.
16	Court of Appeals found that Microsoft engaged in
17	exclusionary conduct in violation of Section 2 when it
18	deceived Sun Microsystems and independent software
19	developers by offering them a set of Java implementation
20	tools that ostensibly would enable them to develop
21	cross-platform applications but could be executed only
22	by Microsoft's version of the Java runtime environment
23	for Windows.
24	Misleading and deceptive conduct in the context
25	of abuse of governmental processes can also be the basis

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1	for Section 2 liability. Such cases have included FDA
2	Orange Book listings and fraud on the Patent Office.
3	Now I would like to turn it over to Hill for a
4	few remarks.
5	MR. WELLFORD: Good morning. My name is Hill
6	Wellford. I am counsel to AAG Tom Barnett. The FTC and
7	DOJ are jointly sponsoring these hearings today to help
8	advance development of the law concerning the treatment
9	of unilateral conduct under the antitrust laws. This is
10	one of the most controversial areas even within Section
11	2, which is controversial enough on its own, and I think
12	we should have a very good panel today. I have seen
13	some of these presentations that have come in, and I am
14	very much looking forward to the remarks that will be
15	presented by the panel. Thanks to my colleagues at the
16	FTC and the Division for organizing this. I will hand
17	it back over to Rich.
18	MR. DAGEN: So, I would like to introduce your
19	first speaker. Susan Creighton, as I mentioned before,
20	is a partner at Wilson Sonsini. Between 2001 and 2006,
21	she served at the Federal Trade Commission first as
22	Deputy Director and then as Director of the Bureau of
23	Competition. While at the FTC, she played a key role in
24	developing antitrust policy and made important
25	contributions about, among other things, the

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1	intersection of antitrust and intellectual property.
2	She is a frequent author of antitrust articles,
3	including a 2005 Antitrust Law Journal article entitled
4	"Cheap Exclusion" dealing with many of the issues we
5	will be discussing today.
6	Susan?
7	MS. CREIGHTON: Good morning. Let's see if I
8	can figure out how to make this thing move. That
9	worked, okay.
10	So, courts and enforcers long have recognized
11	that deception can constitute unlawful exclusionary
12	conduct under Section 2 of the Sherman Act. With
13	respect to deception in the context of private business
14	arrangements, probably the two most recent prominent
15	decisions are the D.C. Circuit decision in Microsoft and
16	the FTC's decision in Rambus. The potential for
17	deception in government proceedings to serve as the
18	basis for Section 2 liability is reflected in cases
19	stretching as far back as the Supreme Court's decision
20	in Walker Process and more recently has been a major
21	part of the FTC's enforcement agenda, as Rick mentioned,
22	in cases such as UNOCAL and the Orange Book listing
23	cases.
24	In my view, these cases are correct in holding
25	that deception can constitute a basis for finding

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1	exclusionary conduct under Section 2. Indeed, as my
2	co-authors and I argued in the article that Rick
3	referred to in the Antitrust Law Journal entitled "Cheap
4	Exclusion," deception and other forms of cheap exclusion
5	are potentially a very effective form of anticompetitive
6	conduct and properly should be a core focus of
7	enforcement efforts by the FTC, the Antitrust Division
8	and the state enforcement agencies.
9	In particular, in our article, we highlighted
10	three characteristics of such cheap exclusion, including
11	deception. First, it is cheap in the sense that it
12	costs little to the firm engaging in it. False
13	statements made during a governmental standard-setting
14	proceeding may be virtually costless, for example,
15	particularly for a firm that would have participated in
16	the regulatory proceeding in any event. These de
17	minimus costs compare favorably to the high costs that a
18	firm might incur, for example, through the low-cost
19	pricing or potentially strategies such as exclusive
20	dealing.
21	Second, the conduct also is cheap in the sense
22	of lacking any redeeming virtue. Deceptive conduct
23	unambiguously fails to enhance any party's efficiency,
24	provides no benefits short or long term to consumers,
25	and its economic effect produces only costs for the

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1	victims and wealth transfers to the firms engaging in
2	the conduct fully apart from its potential contribution
3	to market power.
4	Finally, it is also cheap in the relative sense
5	that it is a strategy where the costs are often likely
6	to be far outstripped by the anticompetitive benefits.
7	As the Antitrust Division explained in its business
8	review letter, for example, "Early in the
9	standard-setting process, standard-setting members often
10	can choose among multiple substitute technological
11	solutions, some of which may be patented. Once a
12	particular technology is chosen and the standard is
13	developed, however, it can be extremely expensive or
14	even impossible to substitute one technology for
15	another." Misrepresentations that enable a firm to
16	charge higher discriminatory royalty rates after lock-in
17	therefore may enable the firm to enjoy substantial and
18	durable market power.
19	Because deceptive conduct ordinarily has no
20	efficiency or other procompetitive benefits, other forms
21	of cheap exclusion do not provide the same type of
22	trade-off that we see with respect to most other forms
23	of exclusionary conduct that have been the subject of
24	the previous hearings, predatory pricing, bundling,
25	exclusive dealing and the like. With respect to these

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1	forms of conduct, it is generally recognized that they
2	will often, maybe even overwhelmingly often, be
3	procompetitive rather than anticompetitive. The
4	challenge, therefore, is to distinguish the times when
5	the conduct might be anticompetitive without unduly
6	chilling the procompetitive conduct.
7	With respect to deceptive or other opportunistic
8	conduct, however, there is no similar concern that we
9	will be unduly chilling deception or opportunism. In
10	fact, sort of phrased that way, I do not think we
11	generally sort of think of being concerned about
12	chilling deception. In this context, cheap exclusion
13	may be viewed as something like the Section 2 analog to
14	Section 1 price fixing; that is, we are not unduly
15	concerned with overdeterrence of this behavior, and it
16	is at the same time at the far end of the spectrum for
17	Section 2 purposes from predatory pricing.
18	If there is a category of conduct that we are
19	particularly concerned not to chill under Section 2, it
20	is price cutting. With respect to misrepresentations
21	and deception, by contrast, we have and should have no
22	such scruples.
23	Screening tests designed to find the single
24	exclusionary goat in the vast herd of procompetitive
25	sheep, therefore, are not well suited and should not be

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1	applied to exclusionary fraud or deception. The profit
2	sacrifice test, for example, originally conceived as a
3	means to screen out legitimate pricing behavior, does
4	not work well when applied to conduct that is not
5	legitimate, whether or not it is exclusionary.
6	For example, fraudulent regulatory filings that
7	can be made at de minimus costs may have powerful
8	exclusionary effects due to the operation of extrinsic
9	legal schemes. At the same time, such conduct also may
10	be profitable even if it does not result in the creation
11	of durable market power by harming competitors and
12	generating profits for the filing firms, yet the mere
13	fact of the profitability of this illegitimate behavior
14	tells us nothing about whether the behavior or the
15	fraudulent filing is legitimate efficiency-enhancing
16	behavior.
17	Now, if the balancing question typically raised
18	regarding Section 2 conduct is not present here, what
19	other concerns are raised regarding exclusionary fraud
20	or deception? It seems to me that there are three
21	concerns that are raised most frequently. The first is
22	causation. This issue underlies a considerable portion
23	of the Commission's legal analysis in Rambus, for
24	example, and I'll return to that. The second is that
25	antitrust should not be used as a kind of ex post

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1	gap-filler for poorly written standard-setting rules or
2	legal regulations. And the third is that we should not
3	use antitrust where other laws, such as business torts
4	and contract law, already can be used to reach and
5	prohibit the conduct.
6	Let me address each of these three objections
7	briefly in turn. First, with respect to causation, it
8	seems to me that contrary to the concern about causation
9	often expressed in this area, exclusionary deception, in
10	fact, often occurs in circumstances where the
11	environment is, in fact, conducive to the acquisition or
12	maintenance of durable market power. Indeed, for
13	deceptive conduct in the government context, it seems to
14	me that this is often likely to be the rule rather than
15	the exception.
16	The reason is simple. If the exclusion operates
17	by force of law, the exercise of market power will not
18	induce new entry, and the entry barriers created by the
19	need to change laws or regulations may be formidable
20	indeed. The UNOCAL case, for example, highlights these
21	effects. Now, that's in the government context.
22	In the private context, as the Commission
23	discussed in Rambus, profitable private ventures may
24	also often be conducive to the use of deception to
25	acquire or maintain durable market power. In instances

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1	where business relations are characterized by
2	cooperation rather than competition, for instance, the
3	Java development program in Microsoft or in instances of
4	private standard-setting activity, deception may be
5	difficult to deter or counter, and the resulting
6	lock-in, especially in network industries, may be
7	difficult or impossible to overcome once the deception
8	has been detected.
9	Now, in this regard, deceptive advertising,
10	where the statements are both ascertainable and
11	falsifiable, may actually be the exception rather than
12	the rule. In Caribbean Broadcasting, for example, the
13	alleged deceptive statement was one that was made
14	publicly, and it would appear to be one that would be
15	readily falsifiable. Did the company's broadcast, in
16	fact, reach the entire Caribbean region or not? That
17	seemed to be an answer that you probably could pretty
18	much figure out with a couple of guys and radios.
19	Now, by comparison, in Conwood, if I understand
20	the allegations correctly, the alleged deceptive
21	statements were made in private communications to
22	retailers. It is unclear how or when the plaintiff
23	would have been able to learn of them, and hence, to
24	counteract them.
25	One might also consider a statement that is less

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1	readily falsifiable. For example, statements claiming
2	patent infringement by a competitor's product without
3	any identification of the particular patents in issue or
4	anything sort of as formal as some kind of warning
5	letter that would make it possible to respond to the
6	allegation might be the kind of tipping event you could
7	expect potentially to have a forceful impact in network
8	industries.
9	Now, the second concern raised regarding
10	exclusionary deception is what I have called the
11	gap-filling problem. The concern here, as I understand
12	it, is that antitrust is effectively being used in these
13	circumstances to take care of problems that could have
14	been solved ex ante through more careful drafting,
15	either the Orange Book regulations or the
16	standard-setting rules.
17	Now, here I raise with some trepidation as a
18	lawyer on a panel with economists who may, in fact,
19	provide a more subtle understanding of this point, it
20	seems to me that the insight of transaction cost
21	economics is applicable here, and I have up here a quote
22	from Oliver Williamson. "The general rubric out of
23	which transaction cost economics works is that of hazard
24	mitigation through ex post governance. It being the
25	case that all complex contracts are unavoidably

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1	incomplete, the fiction of comprehensive contracting,
2	which concentrates all of the contracting action on ex
3	ante incentive alignment, is untenable."
4	Now, I have also referred in my slides here and
5	also in the "Cheap Exclusion" article by analogy to an
6	article written some time ago by former FTC chairman Tim
7	Muris regarding the judicial doctrine of the duty of
8	good faith and fair dealing. His point, as I understand
9	it, in the article was that parties to a contract cannot
10	adequately defend themselves ex ante against
11	opportunistic conduct that undermines the parties'
12	legitimate expectations, perhaps even the purpose of the
13	contract, at least not without incurring wasteful and
14	inefficient transaction costs of the type that
15	Williamson was describing.
16	So, the judicial imposition of good faith and
17	fair dealing is an efficient means of protecting parties
18	against conduct that is contrary to their legitimate
19	expectations but not necessarily contrary to the precise
20	language of the contract.
21	By analogy, the antitrust laws can and should
22	serve to protect against deceptive or opportunistic
23	misuse, for example, of collaborative ventures such as
24	standard-setting organizations where such conduct
25	defeats the very purpose of such arrangements and that

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1	which makes them acceptable under the antitrust laws.
2	That intuition, I think, for example, is what the
3	Supreme Court was driving at when it said in Allied Tube
4	that, "Private standard-setting by associations is
5	permitted under the antitrust laws only on the
6	understanding that it will be conducted in a nonpartisan
7	manner offering procompetitive benefits."
8	Now, although standard-setting organizations can
9	and should exercise self-help to the extent possible,
10	the insight of transaction cost economics is that no
11	amount of ex ante bargaining can ever perfectly secure
12	collaborative ventures or other government regulations,
13	such as the Orange Book, against opportunism in
14	circumstances where it turns the purpose of the
15	collaboration or the regulation on its head and in a way
16	that it threatens the creation of durable market power.
17	Moreover, in other contexts, such as the Java
18	development in Microsoft, the collaboration will not
19	even be pursuant to elaborate written contracts. In
20	such circumstances, antitrust law in my view properly
21	provides part of the ex post governance structure that
22	helps ensure ex ante that such collaborations and
23	regulations achieve their intended procompetitive
24	purposes.
25	Now, finally, sometimes the question whether

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1	deceptive exclusion should be subject to Section 2 gets
2	posed wrongly in my view as whether the conduct at issue
3	is a business tort, and if it is, why then do we need to
4	subject it to the antitrust laws? I think that this
5	asks the question through the wrong end of the
6	telescope. The right question to ask is, is an
7	inefficient exclusionary act that is likely to have
8	caused market power nonetheless excused under Section 2
9	because it also violates another law or statute?
10	Now, the reason it is important to ask the right
11	question is the old true saying, the wrong answer is
12	what the wrong question begets. Here, asking first
13	whether the conduct is tortious and then why do we need
14	antitrust is likely to be misleading in at least three
15	ways.
16	First, these business torts and contract rights
17	vindicate the rights of the wrong people. In a
18	standard-setting organization, for example, we are not
19	concerned ultimately with the rights of the
20	standard-setting organization or its participants, but
21	consumers. As Ted Gephart has written about,
22	standard-setting organizations and their participants
23	may or may not have interests that coincide with those
24	of consumers, but simply because they might be
25	indifferent to the anticompetitive consequences of the

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1	deceptive conduct, for example, because they will be
2	able to pass through price rises to consumers, does not
3	address what antitrust is concerned with, namely,
4	whether the conduct harms consumers.
5	Now, similarly, business torts and contract law
6	provide the wrong measures of causation and harm. A
7	standard-setting participant who is able to pass along
8	price increases may not have been harmed and should not
9	be able to recover for the nonetheless real harm that
10	consumers will have suffered.
11	Finally, business torts may have elements that
12	do not fit well with the proper issue from an antitrust
13	perspective, or conversely, may be missing elements
14	necessary to answer the antitrust claim. The intent
15	element in fraud, for example, may or may not be apt to
16	the proper antitrust question in a particular factual
17	setting.
18	Now, underlying this question, I think,
19	ultimately really is a different issue, which is the
20	hostility to private rights of action under Section 2,
21	particularly their treble damage provisions, and a
22	concern regarding unjustified suits. That issue,
23	however, in my view properly should be dealt with
24	directly and not by wrongly manipulating substantive
25	standards under Section 2.

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1	For the reasons that I have explained, I think
2	that, in fact, this is an area that should be a
3	priority, not a backwater for federal and state
4	antitrust agencies. The importance of the substantive
5	area should not be obscured or the barriers to effective
6	enforcement heightened by an effort to cut off private
7	litigation whose flaws lie elsewhere, not in their
8	substantive antitrust claims, but rather, in procedural
9	rules that govern private Section 2 actions.
10	Thank you very much.
11	(Applause.)
12	MR. DAGEN: Thank you, Susan.
13	Our next speaker is Preston McAfee. He's the
14	J. Stanley Johnson Professor of Business Economics and
15	Management at the California Institute of Technology
16	where he teaches business strategy, managerial
17	economics, and principles of economics. Preston is the
18	author of over 70 articles published in scholarly
19	economics journals and co-author of the book Incentives
20	in Government Procurement. He served as one of four
21	economists who edit the American Economic Review for
22	over nine years.
23	Preston?
24	DR. McAFEE: Thank you. Thank you, Susan, for
25	actually providing the lead-in for what I would like to

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1	talk about today, and let me also apologize for being
2	still on California time and so only about 60 percent
3	awake.
4	So, I would like to talk about the right of
5	private action under the antitrust laws and connect that
6	to deception and fraud as follows. Whatever is decided
7	about deceptive practices and the right to sue under the
8	antitrust laws will be abused in private suits if those
9	are permitted, and let me warm up with VeriSign. So,
10	VeriSign is the registrar of .com and .net, and in 2003,
11	they began redirecting mistyped addresses to their own
12	advertising site. The ISPs objected and asked the ruler
13	of the internet to stop the practice, and VeriSign
14	contended that that was an illegal conspiracy. The
15	judge threw this out, which I think was the right
16	answer.
17	One thing that is a really interesting question
18	about this particular antitrust suit is actually, what
19	is somewhat of a principle, I guess, is it is often hard
20	to fit modern industries into traditional economic
21	analysis of antitrust, and this is a really nice poster
22	child for that, because what is the quantity here? Is
23	it the number of mistyped addresses? Well, that is
24	something that is not affected by anyone's behavior,
25	because that is just purely, you know, when consumers

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1	make a mistake will determine that.
2	On the other hand, you might think it is the
3	number of advertisements, or in this case, is it the
4	number of Viagra ads that are produced? Well, here is a
5	situation where, in fact, we would like to reduce the
6	quantity. That is, it would be welfare-enhancing to
7	actually reduce the quantity that is produced by the
8	industry. It does not quite stop there.
9	So, another company that buys expired domains
10	and then redirects them to its own advertising site sued
11	VeriSign, that is, the plaintiff in the previous
12	antitrust suit, saying that the existence of VeriSign's
13	site finder itself violated the antitrust laws, and that
14	suit, last time I looked, which was a week ago, seems to
15	still be continuing. So, one thing is is that these
16	suits concern the same behavior, that is,
17	sitefinder.com, one saying that it was required and the
18	other saying that it is prohibited by the antitrust
19	laws, and so it makes for an interesting challenge.
20	So, here are the things I would like to talk
21	about. I have already talked about one example, and I
22	am going to mention a couple more. I want to then talk
23	about some research on for what purposes are private
24	antitrust claims brought, who has an incentive to sue,
25	and report on some research on that, and then conclude.

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1	The Colorado Chiropractic Council sent hospitals
2	requests for privileges and included in their request
3	the threat of a lawsuit if denied. Nine of the
4	hospitals did not admit the Colorado Chiropractic
5	Council, and these hospitals were all, in fact, sued for
6	restraint of trade. The suit was thrown out, but the
7	message I want to bring to this is 21 hospitals admitted
8	them, and while it is not demonstrated, it appears that
9	the threat of an antitrust suit was, in fact, an
10	effective threat.
11	Antitrust actions outnumber or private suits
12	outnumber government suits nine to one. Some of the
13	reasons that they are given, I spoke with an attorney
14	who says he tried to convert every contract suit into an
15	antitrust suit as his first action, because it gives him
16	access to treble damages, recovery of legal fees, and it
17	is easier to survive summary judgment. So, private
18	actions have grown. Canada, actually, did not permit
19	private litigation until 1976, and they are still rare,
20	probably because they do not have treble damages.
21	So, the general idea which I think Susan
22	reflected for me is that the incentives for private
23	antitrust litigation are not guided by consumer welfare.
24	The firms bringing the suit, consumer welfare generally
25	is not their goal or motivation. So, what I want to

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1	look at is, what are the actual motives of firms engaged
2	in private antitrust action and assess to what extent
3	the law can be used strategically, and then hopefully
4	that will give us some insight into crafting the laws to
5	minimizing the damage that is actually brought.
6	Some of the uses to which the antitrust laws are
7	brought -- private suits are put are harassment, harm
8	and extortion, and harassment and harm can actually be
9	used to induce cooperation, and this is especially
10	effective because it is often cheaper to sue than it is
11	to defend, and if you want to ensure cooperation, what
12	you want is a punishment that is easy to mete out but
13	expensive for the punished, and if it is symmetric, this
14	is actually the economic theory of cooperation or
15	collusion, actually, the same theory, suggests that that
16	is the kind of punishment you would like to use. In
17	addition, extortion reduces the returns to investment.
18	That is clearly chilling -- chilling effect on
19	investment.
20	Surveying a large number of private antitrust
21	suits, we have come up with seven different reasons for
22	private litigation, and I have color-coded them to what
23	extent they are opposed to the interests of consumers.
24	So, two quite common reasons are extorting funds from a
25	successful rival, and I want to especially point to

26

1	follow-on suits. So, when the Government brings a suit,
2	generally there is an entire group of people who follow
3	on. Microsoft, of course, has been subject to many of
4	those follow-on suits.
5	In addition, changing the terms of a contract,
6	antitrust suits can be effective means of doing that on
7	occasion, and as I said, some contract attorneys prefer
8	antitrust suits because they think that it makes the
9	defendant more likely to settle. Something that is
10	speculative on our part is that it can be used to punish
11	noncooperative behavior. Of course, no one is going to
12	admit to this, because by and large you have then
13	admitted to violating the antitrust laws directly, but
14	from a theoretical perspective, that would be a reason
15	for private antitrust litigation.
16	Responding to an existing lawsuit and preventing
17	a hostile takeover are common reasons. These do not
18	actually have any direct negative effect on competition.
19	They depend on whether the existing lawsuit was itself
20	pro or -- procompetitive or not or the existing hostile
21	takeover, and I would point to those as being in some
22	sense neutral. Where the antitrust -- where private
23	suits turn the antitrust laws on their head is when they
24	discourage the entry of a rival, such as in the Utah Pie
25	case, or that they prevent a successful firm from

27

1	competing vigorously.
2	Now, this, of course, is one of Microsoft's
3	defenses. I am not going to comment on that directly,
4	but independent service organizations often bring these
5	suits to prevent manufacturers from offering service and
6	competing successfully. So, in that sense, they can
7	quite turn the antitrust laws on their head.
8	Now, let me turn to some theoretical research.
9	This is not based on the survey of antitrust suits. The
10	question is, who has the incentive to actually bring a
11	private antitrust suit that is, in fact,
12	anticompetitive? And to assess that, we look at a
13	procompetitive action. So, this is a cost-reducing
14	action that will give a firm an advantage in the
15	marketplace versus an anticompetitive action, so this is
16	raising your rivals' costs without lowering anyone's
17	costs, and ask, holding constant the likelihood of
18	prevailing, who would benefit more from bringing the
19	suits?
20	And we actually, in the context of the sort of
21	standard work horse model, the Cornell model, the
22	standard economic model that is used most frequently in
23	antitrust evaluation, we find something I think quite
24	surprising, which is that it is the small firm in a
25	dispersed market who actually relatively benefits from

28

1	bringing an antitrust suit that is anticompetitive
2	relative to a procompetitive suit, and the reason for
3	this is the loss from a procompetitive rival's action
4	actually gets larger as the number of firms grows,
5	whereas the loss from an anticompetitive action
6	decreases as the number of firms grows, so that in the
7	limit, it is the small firm and not the large firm who
8	tends to bring the action.
9	So, to conclude, antitrust laws are often used
10	not to encourage competition -- at least private
11	antitrust suits -- but to reduce the level of
12	competition. Clearly an outright ban on private
13	antitrust litigation would solve that problem, but it
14	may create other problems that are worse. Some
15	alternatives may actually improve the situation as it
16	stands today.
17	One would be a gate-keeper, using government
18	agencies as a gate-keeper for private litigation, but I
19	am actually leery of that as a solution mainly because I
20	judge the EEOC to be a failure as a gate-keeper in
21	employment, and the gate-keeper model has not worked
22	very well.
23	One could also ask the agencies to weigh in on
24	private litigation, and that may have more of an effect.
25	Another proposal is to allow for additional support

29

1	beyond what is already created, in particular financial
2	support for agency litigation. That, of course, risks
3	capture and so would be a risky strategy for different
4	reasons. Something that -- modeling in Canada, you have
5	a -- there is a -- is decoupling the damages from the
6	awards. It may be that you want to have high damages as
7	a way of deterring behavior but low awards to reduce the
8	number of lawsuits, and there are plenty of worthy
9	agencies who would love to have the difference between
10	the damages and awards.
11	And then finally, something that from my own
12	experience in litigation I would find useful is to
13	provide experts to the court to reduce the uncertainty
14	associated with antitrust suits.
15	Let me conclude with three remarks on deceptive
16	practices. One is is that not every misleading
17	statement is intentional. There are many
18	well-intentioned corporations that make mistakes, and
19	the law should not have zero tolerance. So, this is in
20	some sense a counter to remarks of Susan's, that there
21	is no downside. There are statements that are made.
22	Generally, if you run a corporation, it is hard to
23	ensure zero probability of a misleading statement ever
24	being made. People have -- make errors on occasion.
25	One of the things I would say about Oliver

30

1	Williamson is that reading Oliver Williamson is very
2	much like reading the Bible. When you read it
3	selectively, he provides support for every point of
4	view.
5	The second point that I would like to make is
6	that traditional economic analysis where a market -- and
7	by that I mean the analysis of antitrust -- where
8	markets are either monopolies or competitive, is the
9	sort of general situation, that kind of model is very
10	poorly suited to evaluating deceptive practices, and
11	there are lots of -- the problem is, often it is the
12	case that you can have a large effect on a small number
13	of people or a small effect on a large number of people,
14	and then what seems like an inconsequential difference,
15	so a small compatibility problem which is easily
16	remedied may still be fatal if it is something that
17	consumers will not remedy. These are situations where
18	it is not either a monopoly or a competitive
19	marketplace, and as a result, we in some sense need to
20	bring new economic models to the evaluation of deceptive
21	practices.
22	And then finally, I also want to say, in my
23	view, the patent system is broken. The system itself is
24	anticompetitive. It creates entry barriers. Many firms
25	cannot enter because -- so, firms with a good idea, who

31

1	have invented a new technology and go and get it
2	patented, find that because there are many patents that
3	have some similarities, they are blocked from entry by
4	existing patent pools. Patent pools, in addition, have
5	the effect of encouraging collusive conduct.
6	With a broken patent system -- and this, I
7	think, echos a point that Susan made -- I do not think
8	it is appropriate to try to fix the patent system using
9	the antitrust laws. Instead, it would be desirable to
10	fix the patent system directly. So, let's craft
11	antitrust laws that promote competition and a patent
12	policy that justly rewards the efforts to innovation.
13	Thank you.
14	(Applause.)
15	MR. DAGEN: Our next speaker is Michael
16	Brockmeyer. He's a partner at Frommer Lawrence & Haug,
17	where his practice concentrates on antitrust and
18	consumer protection law with particular emphasis on
19	intellectual property financing agreements and the
20	pharmaceutical industry. Before entering private
21	practice, Michael served as chair of the Multistate
22	Antitrust Task Force of the National Association of
23	Attorneys General and was a chief of Maryland's
24	Antitrust Division. He is a frequent author and
25	lecturer on antitrust matters, and he is also an Adjunct

32

1	Professor at the University of Maryland School of Law,
2	teaching antitrust law.
3	DR. BROCKMEYER: Thanks, Rick. Good morning,
4	everyone.
5	For my opening remarks this morning, I want to
6	focus on abusive governmental processes, in particular
7	with respect to deception in the intellectual property
8	setting, and then I am going to briefly touch on
9	tortious conduct.
10	I find it helpful, however, that before going
11	into those subjects, we should remind ourselves of
12	certain basic principles that should apply when we look
13	at any one of the subjects that we are talking about,
14	and so, for example, and what we take for granted today
15	I would assume, everyone, that aggressive competition on
16	the merits serves consumer welfare. Even if done by a
17	monopolist, competition on the merits is not
18	exclusionary. If we do not permit that, then we deprive
19	consumers the benefit of that competition.
20	Now, that is a principle that has become well
21	accepted in antitrust law, but we must remember that
22	that principle is not one that necessarily underlies
23	certain state laws that deal with deception or tortious
24	conduct.
25	The antitrust laws should not provide a remedy

33

1	for conduct that violates the common law or another
2	statutory scheme and injures individual competitors
3	unless the conduct substantially harms the competitive
4	process. In my view, such conduct that violates the
5	common law or another statutory scheme is not
6	competition on the merits, but the question is, is
7	whether often the conduct is sufficient enough to say
8	that it harms the competitive process.
9	In my view, the principle should be that that
10	conduct substantially harms the competitive process when
11	it allows, permits, durable pricing above competitive
12	levels or there exists a dangerous probability that such
13	supra-competitive pricing will occur. In my view, when
14	you have this sort of conduct, the competitors, the
15	injured competitor, cannot be passive. The competitor
16	must have attempted to counteract, must have done so in
17	a reasonable manner evaluated in the context of what
18	would be a competitive market, and again, the harm
19	should be measured in the context of ability to price
20	above competitive levels.
21	When deciding whether that conduct is
22	exclusionary, that is, giving rise to a Section 2 claim,
23	I believe that it is essential that deciding whether
24	there is substantial harm to the competitive process
25	must be undertaken first before any balancing against

34

1	any procompetitive justification, much as what Susan
2	said, it is very difficult for much of this conduct to
3	have a "procompetitive justification."
4	The concern from a principles standpoint is if
5	you quickly, say under a Microsoft type analysis,
6	shifted the burden for procompetitive justification and
7	there was none, you may end up penalizing under the
8	antitrust laws tortious conduct that does not
9	substantially harm the competitive process.
10	Finally, when a monopolist's exclusionary
11	conduct is subject to another regulatory scheme designed
12	to promote competition, the antitrust laws should
13	provide a remedy for such conduct only after taking into
14	account the structure of the market and the significance
15	of the regulatory scheme to the workings of the market.
16	This is going to be particularly important when we are
17	talking about Hatch-Waxman, as Preston was talking about
18	in the patent arena, or even one explanation for
19	Conwood, because we must remember that because there are
20	virtual bans on advertising, the conduct there was such
21	that it was difficult for Conwood to counteract the
22	activity because it could not do so by traditional
23	advertising in the regulatory scheme that we have with
24	respect to tobacco advertising prohibited that.
25	With that, let me now first go to abuse of the

35

1	government processes through deception, and the first,
2	of course, is Walker Process, and in the 41 or so years
3	since Walker Process was decided, much has been said
4	about Walker Process, and the issue with, of course,
5	Walker Process is that we start with the principle that
6	the patentee is immune from antitrust liability
7	generally when the patentee seeks to enforce its patent,
8	and so the question in Walker Process was, when would we
9	remove that immunity, and the Court said, well, when
10	there was fraud on the Patent Office, and if there was
11	fraud on the Patent Office, there was not then a per se
12	violation of the antitrust laws.
13	Indeed, when I read the opinion again, I believe
14	the Antitrust Division or -- I do not know whether the
15	Federal Trade Commission joined -- actually had urged
16	the per se rule, which the Court rejected there; that
17	is, that once fraud on the Patent Office is shown, the
18	plaintiff merely is now in the door and has to show
19	other -- an otherwise violation of the antitrust laws.
20	I believe the importance of Walker Process,
21	however, is Justice Harlan's concurrence, and in
22	particular, he wanted to make clear that this was not
23	going to open the door or should not open the door for
24	all sorts of plaintiffs' suits where a patent is found
25	to be unenforceable or otherwise invalid, and thus, he

36

1	concluded that the private antitrust remedy, which the
2	Court was allowing as a result of the Walker Process
3	case, should not be deemed available to reach Section 2
4	monopolies carried on under a nonfraudulently procured
5	patent.
6	Well, when we think about that sentence, I want
7	to remind you on a little bit of history. Noerr had
8	been decided prior to Walker Process, but California
9	Transport had not. California Transport comes six or
10	seven years after Walker Process, and so we end up in a
11	situation where -- and let me just sort of finish with
12	Walker Process for a moment -- that with Walker Process,
13	the standard is if you do have fraud on the Patent
14	Office, it is exclusionary conduct actionable under
15	Section 2 on the assumption that the patentee otherwise
16	possesses monopoly power or there is a dangerous
17	probability that the patentee will obtain monopoly
18	power.
19	One area where I would disagree with the Federal
20	Circuit, the Federal Circuit has said that in order to
21	bring a Walker Process case, there must have been
22	enforcement of the patent before the claim can be
23	brought. In my view, Walker Process, if there has been
24	fraud on the Patent Office, a Walker Process claim
25	should be available even if the monopolist patentee has

37

1	not attempted to enforce its patent. Now, I understand
2	that in virtually all circumstances, knowledge of the
3	claim and ability to bring the claim will be in the
4	context of either a counterclaim or where there has been
5	a cease and desist or some other letter, a declaratory
6	judgment action being brought, such that there has been
7	either actual or attempted enforcement. The difficulty
8	is that there are circumstances -- and this goes a
9	little bit to Preston's point, I believe -- where
10	someone will come and ask for a review of the current
11	patent law or current state of intellectual property, an
12	opinion by a law firm may be given to say, well, your
13	particular process will infringe. There is not
14	knowledge of the fraud on the Patent Office, and someone
15	who would otherwise come to market may not come to
16	market simply because that firm does not want to risk
17	the disruption of an enforcement action by the patentee
18	who has procured the patent by fraud. So, in my view,
19	the standard should not be one where Walker Process is
20	available only when there is enforcement.
21	Back to where I was going with Justice Harlan,
22	and the question becomes this, and something that I am
23	seeing in my practice, is where there is an allegation
24	that a patent is unenforceable by reason of inequitable
25	conduct before the Patent Office. Now, where there is

38

1	inequitable conduct, there is intent, there is
2	materiality, there is a weighing, but the basic issuance
3	of the patent is not in issue; that is, in a Walker
4	Process, where there is fraud, the patent is void ab
5	initio, where that is not the case with respect to
6	inequitable conduct. And here, in the Noble Pharma
7	case, the Federal Circuit distinguished between in the
8	case Walker Process fraud and inequitable conduct, and
9	the key for that distinction is in a Walker Process
10	fraud, there must be a fraud on the Patent Office, and
11	but for the fraud, the patent would not issue.
12	In my view -- and my time is getting short --
13	the problem is that where there is inequitable conduct,
14	there is often then a claim of sham litigation; that is,
15	that the litigation is brought with the patentee knowing
16	that its patent is unenforceable by reason of the
17	inequitable conduct. In my view, the standard there
18	should be one where the litigation must be sham, that
19	is, meeting the PRE test, and the sham litigation itself
20	must have substantially harmed the litigation; that is,
21	the focus of the inquiry should be on the sham
22	litigation and not the patentee's conduct before the
23	Patent Office.
24	Let me very quickly go to the issue of listings
25	on the Orange Book. The Orange Book, as many of you may

39

1	know, created under the Hatch-Waxman Act, a brand will
2	list those patents that cover the branded drugs which it
3	is marketing, and as we also know that the FDA plays
4	only a ministerial act, meaning it lists what is
5	presented to it.
6	One point that I want to make is that listing in
7	the Orange Book does have procompetitive attributes.
8	While listing in the Orange Book means that when a
9	generic sues, that there is a 30-month stay before the
10	generic can -- its ANDA can be approved by the FDA, it
11	also has a procompetitive attribute because it will
12	encourage the generics to sue because of the 180
13	exclusive for the first to file. So, we must be mindful
14	that listings in the Orange Book do have procompetitive
15	attributes, and where the FTC has sued in BristolMyers
16	and Biovale, in both of those circumstances, the
17	allegation was, in the case of BMS, it knew or could not
18	have reasonably believed that the listing was
19	appropriate or that Biovale was aware that the patent it
20	listed did not cover the drug that it marketed.
21	In Organon, I will pass through this, there is a
22	suit that said the court had no antitrust liability,
23	because Arganon had a reasonable basis for submission on
24	its patent in the Orange Book.
25	In my view, the standard should be that

40

1	something may be actionable exclusionary conduct under
2	Section 2 only when the decision to list the patent was
3	objectively baseless; that is, the test on whether to
4	list should be objective, and it should be looking to
5	where the brand could have reasonably believed that the
6	listed patent could be asserted against a generic that a
7	manufacturer would want to bring to the market.
8	Finally, on the tortious conduct, in my view, a
9	monopolist's misleading and deceptive tortious conduct
10	that's illegal in common law or another regulatory
11	scheme could be treated, may be treated, as
12	exclusionary, but only when the conduct is
13	institutional, pervasive and substantially harms the
14	competitive process.
15	Institutional, to me, goes to the question that
16	Preston raised of mistakes. This must be one where the
17	company has purposefully looked to undertake a campaign
18	that involves misleading and deceptive conduct. It must
19	be pervasive, that is, you measure it in the context of
20	the relevant geographic market. We have to, you know,
21	deal with the rogue employee who may be engaged in some
22	tortious conduct in some area, but we should not visit
23	antitrust liability.
24	It must impair the competitive process, and
25	finally, as has been suggested, in my view, there should

41

1	be no rebuttable de minimus presumption -- I know there
2	has been the suggestion in several -- I believe the
3	Sixth and the Ninth Circuits have adopted the notion of
4	a de minimus rebuttable presumption. I believe there
5	should not be one. The plaintiff in my view has the
6	initial burden, the initial burden being to present a
7	prima facie case of substantial harm to competition.
8	Thank you.
9	(Applause.)
10	MR. DAGEN: Our next speaker is Richard Rozek.
11	He is a senior vice president at NERA Economic
12	Consulting. After starting his career as an Assistant
13	Professor at the University of Pittsburgh, Richard
14	worked for over six years in the Bureau of Economics at
15	the Federal Trade Commission in a series of senior staff
16	positions, including Deputy Assistant Director for
17	Antitrust. Since joining NERA in 1987, Dr. Rozek has
18	worked on projects affecting many different industries,
19	including the pharmaceutical industry. His work has
20	appeared in a number of journals.
21	Richard?
22	DR. ROZEK: Well, I want to thank Pat
23	Schultheiss for inviting me to come here and talk today
24	about the pharmaceutical industry. It is an industry
25	that I spend a fair amount of my time studying, and the

42

1	work I do at NERA is focused on the pharmaceutical
2	industry as well as other industries, but I want to
3	begin by summarizing some of the interesting
4	characteristics or structural characteristics of the
5	industry that make it so interesting to study. Not only
6	that, we live in a world with laws regarding patents,
7	copyrights, trademarks and trade secrets that along with
8	the effective enforcement mechanisms have contributed
9	substantially to economic growth and development in the
10	United States. Nowhere is this effect of the
11	intellectual property laws more pronounced than in the
12	health care industry, specifically for pharmaceuticals.
13	Innovators in the pharmaceutical industry invest
14	hundreds of millions of dollars in research and
15	development or R&D for new medicines that address unmet
16	medical needs. Conducting R&D and obtaining approval
17	from the U.S. Food and Drug Administration or FDA to
18	sell a new medicine as a safe, effective treatment for a
19	particular disease usually requires 10 to 15 years of
20	research. Many research projects actually fail and do
21	not even result in the innovators submitting a new drug
22	application to the FDA.
23	For the few successful projects, the innovator
24	has, at the end of that 15-year period, a patent that
25	gives it exclusivity, not to be confused with monopoly

43

1	power, for components of the product. The patent may be
2	a composition of matter, may be a process, may be a
3	method of use. Also, the innovator has a new drug
4	application approved by the FDA as a result of that R&D
5	investment, but there is no guarantee that the product
6	will be commercially successful.
7	The innovator must manufacture and distribute
8	the product. The innovator must inform patients,
9	physicians, pharmacists, and payers about the
10	therapeutic benefits of the improved product. He must
11	negotiate prices with specific payers, both public and
12	private. And in the end, many pharmaceutical products
13	may not even generate sufficient revenues to justify
14	their investment. Those products that are successful
15	provide resources in terms of retained earnings for the
16	innovator to fund its ongoing R&D efforts. So that if
17	we want to have cures for such medical problems as AIDS,
18	Alzheimer's disease, and cancer in our lifetime, we must
19	have public policy that provides the incentives for
20	innovators to invest resources in pharmaceutical R&D and
21	continue the work to solve these unmet medical problems.
22	Now, there have been some concerns raised about
23	practices that innovators engage in near the end of the
24	patent lives for their products, such issues as filing a
25	Citizen's Petition with the FDA, introducing new,

44

1	improved versions of their products based on the
2	original chemicals, settling patent infringement cases,
3	introducing generic versions of their original branded
4	products, sometimes referred to as introducing an
5	authorized generic. These practices and others that we
6	have heard about today with regard to Orange Book
7	listings and so on, have been the focus of antitrust
8	scrutiny that the pharmaceutical industry has been
9	receiving.
10	This policy debate on whether or not these
11	practices are legitimate or the incentives to engage in
12	these practices somehow be altered are guided more by
13	emotion, rather than analyses that demonstrate that
14	there is actual harm to consumer welfare from these
15	practices. As a matter of fact, there are many
16	beneficial effects from these practices that often are
17	not the focus of the debate.
18	For example, filing a Citizen's Petition with
19	the FDA makes the FDA aware of scientific or public
20	health questions regarding its efforts to approve
21	additional products. Introducing a combination product
22	that combines two active ingredients or an extended
23	release product can actually provide benefits to
24	patients, increase compliance one pill instead of two.
25	Actually, for insured patients, it can result in lower

45

1	co-payments. You have to buy a single pill, pay one
2	co-payment, instead of take two pills and make two
3	co-payments, so there can be a cost-reducing benefit.
4	Settling a patent case can reduce litigation
5	costs and can actually, in some cases, provide
6	additional entry into a marketplace. Introducing an
7	authorized generic product into the marketplace can
8	obviously increase competition. So, you see that there
9	are benefits to the practices that have been the subject
10	of these challenges, and there appears, on the other
11	hand, to be a lack of evidence that these actions harm
12	consumers.
13	Instead of talking about these types of
14	actions collectively, I'll talk about the authorized
15	generic issue, which has been the subject of some
16	debate. There has actually been legislation proposed
17	addressing authorized generics. There have been some
18	court decisions related to authorized generics and so
19	on. Most recently, to spur the debate, the Supreme
20	Court refused to hear the FTC appeal of the
21	Schering-Plough case. The Court of Appeals for the
22	Second Circuit denied a consumer group's request for a
23	rehearing in the Tamoxifen matter that involved Astra
24	Zeneca and Barr settling a patent case. Bruce Downey,
25	the Chairman and CEO of Barr, said in response to the

46

1	Court of Appeals' decision, "We are pleased that our
2	patent challenge settlement related to Tamoxifen citrate
3	has been upheld as being pro-consumer and
4	pro-competition."
5	In spite of these court decisions and in spite
6	of the benefits to competition from introduction of an
7	authorized generic, the argument has been that
8	introducing an authorized generic is inconsistent with
9	the intent of the Drug Price Competition and Patent
10	Restoration Act of 1984, sometimes referred to as the
11	Hatch-Waxman Act. Specifically, the threat to launch an
12	authorized generic reduces the incentives provided to
13	generic companies to challenge patents listed in the
14	Orange Book and, thus, will reduce the number of future
15	generic alternatives.
16	Now, the problem is that there is no evidence
17	that the number of generic alternatives will be reduced
18	or that there are a lack of profit opportunities or
19	entry opportunities for generic firms. The Hatch-Waxman
20	Act actually encourages both innovation to solve those
21	unmet medical problems and competition or imitation by
22	sellers after patent expiration. It has generally been
23	a success because it has struck this balance between
24	innovation and imitation, and restricting options
25	available under the Hatch-Waxman Act to encourage

47

1	innovation, to destroy the incentives to develop new and
2	improved medicines, will actually harm patients,
3	physicians, pharmacists, and payers.
4	Now, some of the entry opportunities that
5	exist -- and this should be of interest to the antitrust
6	community as well, because it is an issue that is a key
7	part of any antitrust inquiry -- is what are the entry
8	conditions into a marketplace? Is entry encouraged or
9	discouraged by certain actions? Well, the presence of
10	authorized generics, for example, actually creates new
11	entrants into the pharmaceutical marketplace. Obviously
12	innovator companies now have an opportunity to introduce
13	an authorized generic and enter that component of the
14	industry, as companies such as Pfizer, Novartis and
15	Schering-Plough have done. Pfizer has its generic
16	entity, Greenstone, Novartis has its generic affiliate,
17	Sandoz, and Schering-Plough has Warrick. These are
18	firms that now sell generic products. So, innovator
19	companies are entering the generic marketplace.
20	Companies that have traditionally been in the
21	generic marketplace and have launched their own generic
22	products or independent generics have also been involved
23	in participating in the authorized generic portion of
24	the industry. Mylan, Barr, Par, Watson, Ivax/Teva,
25	which is now a single firm, have all sold authorized

48

1	generic forms of drugs under licenses from the innovator
2	varieties. Barr, a company that actually derives most
3	of its revenues from sales of generic drugs, has a few
4	branded products as well, and it recently launched an
5	authorized generic version of its brand oral
6	contraceptive product Seasonale after Watson, a generic
7	company, launched a generic version of the product.
8	Bruce Downey, again, said, quote, "It is our obligation
9	to preserve our rightful interest in this product." So,
10	you see, even the generic companies see the benefit of
11	launching authorized generics when they do expand into
12	the brand or innovator segment of the industry.
13	Some firms have arisen to sell authorized
14	generics only. For example, Prasco is a firm that
15	currently sells authorized generic versions of seven
16	branded products. It is a privately held company. It
17	was created because of the opportunities presented to
18	the marketplace by this ability to sell authorized
19	generic products.
20	I have seen various estimates of the value of
21	the patented products coming off patent in the next two
22	or three years, and it could easily exceed $27 billion
23	in 2007 and $29 billion in 2008. So, the point is that
24	there are profit opportunities in the generic industry
25	with authorized generics in the marketplace as well.

49

1	So, the new entrants have emerged, and future profit
2	opportunities exist.
3	The issue remains, however, what is the role for
4	antitrust policy versus competitive forces in this
5	industry? Where in the industry should antitrust policy
6	be focused? Should it be focused at the manufacturer
7	level? Should it be focused at the retail level?
8	Should it be focused at the distribution level? There
9	are fundamental questions with regard to using antitrust
10	policy to address issues in the pharmaceutical industry.
11	I think there have been several mistakes in the current
12	application of the antitrust laws to the pharmaceutical
13	industry, broadly defined as this vertical chain from
14	research through distribution of the products to
15	patients.
16	One is that market definitions are often too
17	narrow in this industry from an antitrust perspective.
18	Market definitions that use a single chemical as the
19	appropriate defining characteristic of a market,
20	overlook the therapeutic competition that exists in the
21	pharmaceutical industry, competition between chemical
22	entities, Avandia competes with Actos, Fosamax competes
23	with Actonel, ear tubes compete with antibiotics for
24	treating otitis media. There is a lot of competition
25	that's overlooked by taking the static view that it's

50

1	only a single chemical constitues a relevant market.
2	Well, a fundamental flaw in current antitrust, taking a
3	too narrow view of the market, not realizing the
4	therapeutic competition, competition across therapies,
5	be they pharmaceutical or surgical procedures.
6	Taking that narrow view of market definition
7	causes decisions to be made that monopolies exist when,
8	in fact, they do not, you see.
9	Another flaw is taking a static, as opposed to a
10	dynamic, view of the market when you have a market
11	environment characterized by high expenditures in R&D
12	and new products emerging from research being done
13	within U.S. laboratories, UK laboratories, Japanese
14	laboratories, and even in other countries, such as India
15	and Argentina and Brazil, countries that are developing
16	and have recently improved their protection for
17	intellectual property.
18	Competitive forces are working in health care
19	markets, and I think a greater reliance on allowing
20	these competitive forces to work as opposed to
21	intervening too early with antitrust enforcement is a
22	better solution for everyone concerned. What we need to
23	do is to convince consumers that shopping for
24	pharmaceutical products, such as they do for other
25	consumer goods, is a good idea. We have to induce more

51

1	of a shopping or a searching procedure for the lowest
2	pharmaceutical prices.
3	I recently conducted with one of my colleagues a
4	survey of pharmacies in Crystal City, Virginia to
5	purchase the product albuterol, which is an asthma
6	treatment. We found that in a narrow geographic region
7	within Crystal City, Virginia, the price of a canister
8	of albuterol ranged from $8.19 to $26.49. We found out
9	this information just by calling the pharmacy and asking
10	them how much a canister of albuterol would cost. There
11	is often a significant difference in price, which you
12	can find out by just calling before you even go to the
13	pharmacy with your prescription.
14	WalMart recently announced a pilot program to
15	sell generic pharmaceutical products for $4 a
16	prescription. K-Mart is offering a 90-day supply of a
17	prescription for $15. The market is responding to the
18	need to control health care costs.
19	So, in conclusion, I want to say that innovators
20	in the pharmaceutical industry obtain patents and
21	regulatory approval in the U.S. They are subject to the
22	general U.S. antitrust laws, as are all companies, and
23	additional specialized rules, such as the Hatch-Waxman
24	Act, that strikes a balance between innovation and
25	imitation. This structure creates the incentives for

52

1	both innovators and imitators to develop, manufacture
2	and sell their products. To preserve the gains from
3	both types of activities, public policy, including
4	antitrust, should focus on maintaining a business
5	environment that allows innovators and imitators the
6	most effective means to manage their product life cycles
7	under the existing system.
8	In the case of innovators introducing authorized
9	generics and the other activities I described earlier,
10	competition has increased and new entrants have emerged.
11	Patients have had access to established therapies and to
12	new therapies, and they have the mechanism in place to
13	assure that research will be done on therapies to meet
14	unmet medical needs in the future.
15	With regard to the pharmaceutical industry, a
16	reliance on competitive forces rather than a stepped-up
17	antitrust policy that has focused on static analysis
18	under narrow market definitions holds greater promise
19	for controlling health care costs in the future.
20	Thank you.
21	(Applause.)
22	MR. DAGEN: Before we proceed to our last two
23	speakers, we will take about a ten-minute break. When
24	we come back, we will hear from Gil Ohana and George
25	Cary and then go directly from their presentations into

53

1	our round table discussion. Thank you.
2	(A brief recess was taken.)
3	MR. DAGEN: Okay, welcome back, everybody. We
4	have two speakers remaining, and after their
5	presentations we will follow with the round table
6	discussion.
7	Gil Ohana is Director of Antitrust and
8	Competition for Cisco Systems, a leading manufacturer of
9	networking equipment for the internet. He writes and
10	speaks regularly on licensing, standard-setting, patent
11	pools and other subjects at the intersection of
12	antitrust and intellectual property law. Before joining
13	Cisco, Gil was a trial attorney at the Antitrust
14	Division of the U.S. Department of Justice, specializing
15	in antitrust issues in high technology industries.
16	Gil?
17	MR. OHANA: Thank you, Richard, and thanks to
18	the Justice Department and the FTC for the opportunity
19	to speak today.
20	Susan Creighton earlier used the term "network
21	industries." I am in the networking industry, and in
22	the networking industry, something the customers care
23	about a lot is that networking products work together
24	well and the way that we make sure they work together
25	well is largely by participation in standard-setting.

54

1	So, we're very proud of the leading role that we've
2	played in developing standards that many of you use
3	every day, whether or not you realize it. To give some
4	examples, 802.3, which is the ethernet standard; 802.11,
5	which is the WIFI standard; TCPIP, which is the basic
6	transmission control protocol on which the internet
7	runs.
8	We also sell every year billions of dollars of
9	products that implement a wide variety of industry
10	standards, so both from the standpoint of participation
11	in standards development, from the standpoint of
12	implementation of standards in commercial products, we
13	are passionately interested in a transparent standards
14	development process. What do I mean by that? I mean a
15	process that values intellectual property rights but
16	that also recognizes, as the Justice Department did in
17	the Vita letter, that the incorporation of a patent into
18	a standard may confer on that patent significant market
19	power and that, therefore, the decision to incorporate
20	the patent into a standard should be made knowingly with
21	access to the best information that is available at the
22	time.
23	The deceptive practices in standards
24	development, therefore, run contrary to our interests.
25	They reduce our incentives to participate in standards

55

1	development, and they reduce our confidence that the
2	products we ship will not infringe or that if they do
3	infringe that we will be able to address the
4	infringement with a payment of reasonable licensing
5	fees.
6	I'd like to preface my remarks with a quote from
7	Justice Brennan in the Allied Tube case that I am sure
8	many of you have seen before. Historically, the
9	antitrust scrutiny that Justice Brennan referred to was
10	really around Section 1. More recently, the FTC in
11	particular has brought a number of cases involving
12	Section 2 issues in standards development, as we all
13	know. What I'd like to talk about today is those cases
14	without getting deeply into the facts of any of them and
15	make a few points about them.
16	First of all, to suggest that despite the title
17	of today's discussion, when we talk about deception, we
18	really ought to be talking about exploitation and not
19	deception. Second, that if you situate deception in the
20	broader panoply of Section 2, you come up with some
21	interesting conclusions, and I think Susan touched on
22	these earlier, regarding whether the risk of
23	over-enforcement operates as strongly in the context of
24	deception in standards development cases as it does in
25	Section 2 cases more generally. And last, I'd like to

56

1	comment on, since I am here in an event hosted by the
2	Justice Department and the FTC, I'll abuse a privilege
3	of being here by talking about how I feel the agencies
4	can best address issues of deceptions in standards
5	development, and I'll give you a hint, it's not just
6	about bringing cases.
7	I won't spend long on this slide. Here are some
8	examples all drawn from recent FTC decisions or
9	investigations involving deception in standards
10	development, and as the cases suggest, there are a fair
11	number of fact patterns -- I didn't, for example, deal
12	with government standard-setting here, the Orange Book
13	cases, et cetera, but there are a fair number of fact
14	patterns just in classic tech industry standards
15	development.
16	So, to unite the theory, I thought about a kind
17	of way of defining the issue, which is that it is a
18	patentee's exploitation of monopoly power that results
19	from the success of a standard for which their patent is
20	essential, where that power is created by actions that
21	run contrary to the rules or shared expectations of the
22	participants in standards development.
23	I'd like to focus on two parts of that
24	definition. The first is exploitation of monopoly
25	power, and the second is resulting from the success of

57

1	the standard.
2	First of all, on exploitation of monopoly power,
3	it seems to me that the analytical weakness of just
4	focusing on deception is that you are really missing
5	what matters, which is not the deceptive act itself, but
6	the exploitation of the market power that that creates.
7	Let me offer an example, as they say, ripped from the
8	headlines, though it is a situation that people in the
9	networking industry are aware of, as I think are some
10	people in this building.
11	The hypothetical is, a patent holder discloses a
12	patent in patent standards development, it offers to
13	license the patent for fully paid up $1 royalty, give me
14	a buck, use all you want. The patent holder then sells
15	the patent to someone else. The buyer buys the patent
16	without knowledge of the prior licensing commitment,
17	let's assume. The buyer begins to assert the patent
18	against companies implementing the standard, which by
19	now has enjoyed a great deal of success, and you won't
20	be surprised to learn that the successor is asking for
21	more than a dollar. The rules of the standards
22	development organization at the time did not
23	specifically require that licensing commitments made in
24	the context of the standards development effort, in
25	fact, bound successors, but if you ask people who

58

1	participate in the standards development effort, that
2	would certainly be their expectation.
3	What was the deception here? Well, there really
4	wasn't any. The successor was quite up front about what
5	they were doing. The initial patent holder did not
6	deceive anyone, the successor did not deceive anyone, so
7	where is the deception? It seems to me that what you
8	are really focusing on here is the exploitation, and the
9	exploitation begins at the moment that the successor
10	becomes aware of the past licensing commitment and the
11	consensus within the standards development effort that,
12	in fact, it would bind the successor as well. At that
13	point, failure to withdraw the claim and seek only the
14	one dollar royalty is I guess deceptive conduct, though
15	it seems to me more to be exploitative conduct.
16	Now, note in this case, the deception and the
17	exploitation essentially merged into one in the matter
18	of the standpoint of timing. In cases like Rambus and
19	BroadCom, obviously there is a much longer time period
20	between when deception occurs and when the exercise of
21	monopoly power will occur, thereby exemplifying the
22	point that the two may be different, they may be the
23	same, but in any case, what you want to worry about is
24	the second, not the first.
25	Listening to some of the discussion this morning

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1	made me think of another reason why you want to focus on
2	exploitation rather than deception. It is the question
3	of inadvertent deception. Deception may very well be
4	inadvertent, and it is particularly true in the
5	standard-setting context. Where the rules of standards
6	development organizations are not clear, people can make
7	innocent mistakes. Exploitation is never inadvertent.
8	Let's move on to the second phrase I'd like to
9	talk about, the phrase resulting from the success of the
10	standard. Here we come to a significant difference
11	between the FTC's series of standards cases and what
12	I'll call kind of classic Justice Department monopoly
13	maintenance cases, AT&T, IBM, Microsoft, all of which
14	involve durable monopoly power and raise the question
15	and the understandable concern that what you should
16	really be worried about is the risk of false positives,
17	because in those cases, you are dealing with a
18	successful company, and you have got to tease out, a
19	pretty difficult analytical task, tease out specific
20	exclusionary conduct from what made that company
21	successful as a general matter. That's not easy to do,
22	a risk that I am sure many of you have seen the Learned
23	Hand quote that captured this.
24	Now, the question I would like to pose is under
25	what circumstances can you be sure that the deceiver in

60

1	a standards deception case is or is not what Learned
2	Hand would call the successful competitor? It seems to
3	me that in deception cases, the conduct and market power
4	elements of monopolization may focus on different
5	subjects. In other words, you may be worried about or
6	you may be focusing on different actors. Certainly you
7	would be focusing on whether the act of deception was
8	anticompetitive and then whether it lacked business
9	justification, but you would also be focusing not on
10	whether the deceiver gained monopoly power through its
11	actions, but whether the standard gained monopoly power,
12	and the standard may have gained monopoly power for
13	reasons that have very little to do with the underlying
14	deception.
15	In that sense, the risk of over-enforcement is
16	lowest when, first of all, the undisclosed intellectual
17	property right was not core to the success of the
18	standard. It was, in other words, nice to have. Now,
19	this isn't an argument for counting patents. The fact
20	that the undisclosed patent was one patent out of fifty
21	or a hundred or a thousand should not be dispositive,
22	because all patents are not created equal, but the other
23	thing you should think about is, what were the rejected
24	substitutes? First of all, did they exist? Second,
25	were they close? And third, can you say with some

61

1	degree of assurance that they would have been selected
2	absent the deception?
3	Now, that may not be the easy inquiry, but it is
4	a whole lot easier than figuring out whether per
5	processor licensing was the source of Microsoft's
6	vertical monopoly in operating systems in 1984. It is a
7	whole lot easier than figuring out whether lease
8	practices were the reason that IBM enjoyed a leading
9	position in mainframes for quite so long.
10	First of all, the time period is very
11	compressed. In the facts of the Rambus case, the period
12	in which Rambus gained monopoly power through the
13	insertion of its patents in JEDEC and competitive
14	alternatives were distorted was a matter of months. You
15	knew what the alternatives were. You typically, because
16	standards development activities are ostensibly
17	documented, have a good set of evidence to look to to
18	figure out what the alternatives were, why they were
19	rejected. It seems like an easier exercise, and because
20	it is an easier exercise, the risk that you are going to
21	get it wrong it seems to me goes down.
22	Let's talk about moving on to the culture of
23	standards development. First of all, standards
24	development is not a lawyer-intensive process, which
25	goes back to the point I made earlier about the risk of

62

1	inadvertent nondisclosure or the risk of inadvertent
2	deception. In thinking about that, I go back to the
3	Rambus case and the FTC's description of standards
4	development as a cooperative effort in which the risk of
5	deception is therefore present. I would like to think
6	that that is right, but it raises an interesting
7	question and one that antitrust plays a role in.
8	The question is, how do we get there? And it is
9	not just an academic question for this audience. It is
10	a question in which antitrust does not necessarily come
11	with clean hands, not the Government, mind you, but the
12	private enforcement. Specifically, because of the
13	pervasive antitrust scrutiny of standards development
14	that Justice Brennan spoke about in Allied Tube and
15	particularly the imposition of vicarious liability on
16	standards development organizations in Hydrolevel,
17	standards organizations got very, very, very concerned
18	about antitrust liability.
19	They do not know much about it, but they know
20	enough to be frightened, which is kind of like what we
21	would feel if suddenly a brilliant men appeared at these
22	doors and told us we would be locked in this room until
23	we came up with the next standard for high speed
24	wireless data communications, and the way they responded
25	to that concern was by developing rules that

63

1	systematically discouraged the discussion of what seemed
2	like efficient things to talk about, cost, patent
3	validity, pricing, particularly in the context of input
4	pricing.
5	The standards development organizations, for
6	whom the cost of defending that antitrust case to a
7	motion of dismiss, let alone summary judgment, would
8	consume multiples of their annual budget, decided we are
9	not going there, and we are going to enforce these
10	rules. That led to the development of what I will call
11	a culture of standard-setting in which people can be
12	forgiven for not having asked what seem in retrospect to
13	be obvious questions, like, hey, I really like your
14	technology contribution, how much is it going to cost me
15	to practice that, and instead being satisfied with the
16	answer, well, it will be reasonable, and also questions
17	like, well, can you prove to me that that patent is
18	valid? How much do -- do you have patents?
19	These are questions that seem, again, pretty
20	basic from the standpoint of lawyers with the benefit of
21	reading cases in this area but that the rules of the
22	standards development organizations often prohibited
23	discussion of, which suggests a role for the agencies,
24	but not necessarily a litigation role. I don't want to
25	dismiss the litigation role, having been at Cisco during

64

1	the Rambus case and having talked to many engineers who
2	were following the coverage of the case in EE Times,
3	which is a leading semiconductor trade journal, which
4	had a full-time reporter, believe it or not, covering
5	the Rambus case.
6	It did provoke a lot of interest, and cases are
7	very useful from that standpoint, but beyond that, since
8	antitrust in some sense played a role in creating this
9	problem, it can also play a role, particularly the
10	agencies, in helping address the culture of standards
11	development by helping the agencies understand or the
12	participants in standards development understand what
13	they can and cannot do, and I would like to say that we
14	are off to a good start in that, particularly with
15	statements like Chairman Majoras' speech at Stanford
16	last year, the recent Vita letter, and also some
17	statements out of the European Union regarding this, but
18	more dialogue is needed and more help from the
19	enforcement organizations to figure out how far they can
20	go to defend themselves from these risks, to in some
21	sense change the culture, will nevertheless be
22	necessary.
23	Thank you.
24	(Applause.)
25	MR. DAGEN: Our final speaker during the

65

1	prepared presentations is George Cary. George is a
2	partner at the D.C. office of Cleary Gottlieb. Before
3	joining Cleary, George served as Deputy Director of the
4	FTC's Bureau of Competition. George also was a
5	principal contributor to the 1997 modification of the
6	1992 Federal Horizontal Merger Guidelines, which
7	incorporated consideration of efficiencies in merger
8	assessment. He is a frequent speaker and writer on
9	antitrust issues.
10	George?
11	MR. CARY: Thanks, Rick.
12	We seem to have started with some very broad
13	principles at the beginning, through Susan's comments,
14	and have now narrowed down through Gil's comments to a
15	specific analysis of the standard-setting process. I am
16	going to take it one level more narrowly, and I am going
17	to talk about implementation of specific rules within
18	the standard-setting context and whether violations of
19	those specific rules ought to be treated as an antitrust
20	issue, an issue of antitrust concern.
21	The particular provision that I am going to talk
22	about is so-called FRAND licensing commitments,
23	commitments by participants in the standard-setting
24	process to license their technology on fair, reasonable
25	and nondiscriminatory terms, and I am going to start by

66

1	laying out several premises that you have already heard
2	referenced this morning but which I believe apply in
3	this case as well.
4	First, standard-setting eliminates competition
5	among alternative technologies. Companies that
6	otherwise would be competing to promulgate proprietary
7	standards have now gotten together and eliminated that
8	competition by agreement. Antitrust, therefore, has a
9	stake in policing that standard-setting activity.
10	Second, when proprietary technology is made an
11	essential element of an industry standard, the owner of
12	that technology gains market power, exclusionary power,
13	beyond what is inherent in the patent itself. Prior to
14	the adoption of the standard, the company can exclude
15	others from practicing the particular innovation
16	incorporated in the patent. After inclusion in the
17	standard, if it is an essential patent, the patent
18	holder can exclude firms from practicing the standard
19	generally. That is a much broader grant of monopoly
20	power and one, again, where antitrust has a stake in how
21	it is exercised.
22	Third, the proposition that nondisclosure of
23	patents after lock-in as part of a standard has occurred
24	has been recognized as an antitrust concern. I think we
25	have had a couple of references to that recognition this

67

1	morning, the Rambus case, the UNOCAL case, the Dell
2	case, and other cases where the Commission and the
3	courts have recognized that if you fail to disclose a
4	patent, if you have a duty to disclose because you are
5	part of the standard-setting body, and if, as a result,
6	you have gained market power because the standard has
7	now incorporated that patent, that raises antitrust
8	concerns.
9	My premise here today is that if you accept
10	those three propositions, then it naturally follows that
11	you have to accept the proposition that violation of
12	commitments to particular terms that the standard body
13	sets in order to ensure that there is no hold-up after
14	lock-in and that there is no extension of a patent
15	monopoly to a monoply of the standard as a whole, also
16	must raise antitrust concerns. So, violations of other
17	rules designed to constrain exploitation of lock-in
18	raise similar competitive problems to failure to
19	disclose, and therefore, ought to be treated similarly
20	under the antitrust laws.
21	What is a FRAND commitment? A FRAND commitment
22	is an agreement to license on fair, reasonable and
23	nondiscriminatory terms as a condition for including the
24	intellectual property within the standard. The purpose
25	of this is to avoid hold-up, the same purpose as a

68

1	requirement that patents be disclosed, and an obligation
2	to disclose is ineffective if there is no recourse for
3	violation of the FRAND commitment. If one can simply
4	disclose, agree to license, and then fail to fulfill
5	that agreement, it raises the same competitive concern
6	as failure to disclose in the first instance.
7	What are the problems that FRAND is designed to
8	address? Before the standard is adopted, companies have
9	options. They can invent around patents. They can use
10	alternative patented technology. After the standard is
11	adopted, those wishing to practice the standard no
12	longer have options. They are locked into the use of
13	the standard, and having sunk significant investment in
14	standard-specific resources, it creates the potential
15	for monopoly rents, because their elasticity of demand
16	is now much more inelastic. They need to recover the
17	investments that they have made in that standard, and
18	they are going to be willing to pay a higher price for
19	the patented technology than they would have prior to
20	the adoption of the standard.
21	Second, FRAND is a commitment to a common
22	enterprise. Participating in the standard-setting body
23	is a commitment to the efficiency and the success of
24	that standard. That promise is that all participants in
25	the standard, many of whom contribute intellectual

69

1	property of one form or another, have committed to each
2	other as a matter of good faith and fair dealing to
3	impose a mutual restraint on their exploitation of the
4	market power created by that standard and a commitment
5	that they will not price their intellectual property at
6	such a level so as to make the standard itself
7	uncompetitive or inefficient.
8	FRAND is designed also to ensure competitive
9	markets downstream for products that are compliant with
10	the standard. To accomplish this, there is a
11	nondiscriminatory element to a FRAND commitment where a
12	holder of intellectual property promises not to use that
13	control to disadvantage its competitors in producing
14	parts, equipment, networks that are compliant with that
15	standard. These are the goals of the standard-setting
16	process in imposing FRAND, and these goals, I would
17	submit, inform us as to how to properly interpret FRAND
18	in the context of an antitrust enforcement.
19	My next premise is that FRAND is enforceable
20	under the antitrust laws under standard, conventional
21	Section 2 theory. The holder of a patent included in a
22	standard gains monopoly power. What is the definition
23	of monopoly power under the cases? It is the power to
24	exclude others from the marketplace and the power to
25	control prices. If you hold a patent, if the patent is

70

1	essential to practicing the standard, and if you refuse
2	to license that patent, you have effectively excluded
3	competition from within the standard. If you hold a
4	patent that is essential to practicing a standard and
5	you charge an exorbitant royalty to competitors who are
6	producing products compliant with the standard, you have
7	imposed costs on your rivals, and those costs have to be
8	passed onto consumers, and you have gained the power to
9	control prices in that downstream market. Both of those
10	things are the hallmarks of monopoly.
11	When does monopoly violate the antitrust laws?
12	It violates the antitrust laws where it is willfully
13	acquired; in other words, where it is not competition on
14	the merits, when the monopoly is not based on superior
15	products, business acumen or historical accident. A
16	willful violation of a FRAND commitment to license on
17	fair, reasonable and nondiscriminatory terms is,
18	therefore, monopolization. You have a monopoly by
19	virtue of the power to exclude and control prices.
20	Making a commitment to FRAND that you then renege upon
21	or do not follow through on is willful acquisition of
22	that market power, and therefore, the two would
23	constitute a violation of the Sherman Act with a
24	requisite showing of competitive effects.
25	Antitrust courts are competent to enforce FRAND

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1	commitments. Now, there has been some discussion about
2	this, but again, the idea that you can have an antitrust
3	violation by virtue of violating the essential elements
4	of Section 2 with no antitrust recourse is one I think
5	we would generally reject, and I think Susan articulated
6	the principles of that very well. Some have argued that
7	FRAND should be enforceable only under contract law or
8	under tort law, but if it is a violation of the
9	antitrust laws by virtue of its effect on competition,
10	by virtue of its effect on consumers, then the public
11	should have standing under the antitrust law and
12	recourse to vindicate a violation of the Sherman Act.
13	Participants in the standard-setting process may not
14	have the requisite incentives, and in any event, there
15	is a separate injury to consumers and to the public by
16	virtue of the exploitation of market power that results
17	from this kind of conduct.
18	Finally, if a court is capable of determining
19	whether conduct violates FRAND in a contract or tort
20	case, there is no reason why, as a matter of judicial
21	administerability, it cannot do the same in an antitrust
22	case, and there is no reason under antitrust policy why
23	it should not do so.
24	I am now going to illustrate a couple of
25	examples of FRAND violations and talk about how one

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1	might go about proving such a violation in an antitrust
2	case. The first is the most obvious, the extreme case
3	of a refusal to license. If you have agreed to license,
4	the standard has now incorporated your patent and you
5	refuse to license, you now have the capability of
6	monopolizing the market for standard-compliant parts and
7	equipment and networks. That, it seems to me, is a
8	clear violation of the FRAND commitment. It is also a
9	violation of antitrust law, because now you have created
10	a downstream monopoly.
11	Second, if you discriminate against competitors,
12	the "ND" part of the FRAND commitment, in
13	standard-compliant markets, again, you are taking your
14	monopoly on essential technology and you are extending
15	it to product markets for standards-compliant parts and
16	equipment. The hold-up potential is very real, and
17	antitrust law has recognized this kind of vertical
18	integration and abuse of monopoly in one market to gain
19	a monopoly in another in a variety of settings.
20	One example might be the case of a
21	rate-regulated utility vertically integrating into a
22	market where there is no such rate regulation and then
23	using its market power to expel other competitors from
24	that market, and once achieving a monopoly, charging
25	higher prices in the unregulated market to evade

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1	regulation in the regulated market. This is a similar
2	kind of phenomenon where a company might agree to
3	license on fair and reasonable terms but through
4	discrimination that excludes competitors in compliant
5	markets gains the ability then to charge the monopoly
6	price in the compliant parts and equipment market.
7	Such discrimination also has an effect on future
8	innovation and competition, because often in these kinds
9	of markets, you find that the companies that are making
10	the compliant parts are learning about how the standard
11	works in ways that allow them to make improvements on
12	the technology in the standard, and in the next
13	generation of standardization, provide a competitive
14	alternative to the firm that provided the essential
15	technology in the first instance. Eliminating those
16	kinds of innovators and competitors cements the position
17	of the firm providing the technology in the first
18	generation and potentially permits them to succeed to a
19	monopoly in the second generation without making the
20	kinds of commitments that a standard-setting body might
21	otherwise require or by raising what they might be able
22	to charge as a fair and reasonable royalty in the second
23	round.
24	Again, discrimination is well known to antitrust
25	courts. Antitrust courts look at that in the context of

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1	the Robinson-Patman Act, of the Sherman Act, of
2	discriminatory pricing, of predatory pricing. This is
3	not a foreign concept, and antitrust courts have
4	demonstrated an ability to administer these kinds of
5	rules.
6	What does fair and reasonable mean? Again, we
7	have to look at the underlying purposes of the
8	commitment that is being made in the light of the
9	antitrust principles that are being addressed here.
10	Fair and reasonable means a royalty that reflects the
11	competitive environment before lock-in. I think Gil
12	described it very well. It is the value of the
13	innovation separate and apart from the additional value
14	that that innovation takes on by virtue of its
15	incorporation in the standard and by virtue of the
16	lock-in created by the standard.
17	Second, fair and reasonable means a royalty that
18	is sufficient to allow the standard itself to be a
19	commercial success, so that you do not have a situation
20	where the royalties are so high that the standard is
21	debilitated, weakened, and is not able to provide the
22	efficiencies that the standard is designed to provide.
23	So, how would one determine a fair and
24	reasonable value? One would look at the alternatives
25	that were available to the standard-setting body before

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1	the standard was adopted. One would compare how close
2	those alternatives are, and one would ascribe a value
3	based on the benefits that the chosen technology
4	provides over and above the other alternatives. You
5	then might adjust that royalty if you find yourself in a
6	situation where the cumulative royalty stack is so high
7	that it impedes the efficient adoption of the standard.
8	Again, antitrust courts routinely compare the
9	but-for competitive world with the observed market when
10	assessing constraints, and this is no different. In a
11	price-fixing case, you would look at the price set
12	through the illegal restraint. You would then, through
13	economic evidence, look at what the price would have
14	been in the but-for competitive world. You would look
15	at the comparison, and you would say the difference is
16	damages. Again, here, one might look at what options
17	were available to the standard-setting body, how close
18	those options were, what did the standard-setting body
19	at the time think about their alternatives, and how much
20	incremental value, separate and apart from the lock-in
21	value, did the accepted technology provide?
22	Determining the fair and reasonable royalty is
23	within the competence of courts and enforcement
24	agencies. Courts routinely determine in the context of
25	a patent infringement suit what would a reasonable

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1	royalty have been. The courts have developed a
2	standard. The Georgia Pacific case lays out a whole
3	series of standards that might be used to do that.
4	There are industry benchmarks that could be looked at.
5	There are examples of the licensing of the same
6	technology in a context outside of the standard, what
7	kind of royalty did that patent attract where it did not
8	have the benefit of the standard?
9	A comparison of royalties charged in other
10	standards might also provide a benchmark, and a
11	comparison of the royalty charged in a competitive
12	market with no FRAND obligation might also be looked at.
13	So, courts have experience in assessing those kinds of
14	things. There is a body of case law that informs us,
15	there is an antitrust principle that gives us a
16	benchmark, and the courts are certainly capable of
17	analyzing those factors.
18	So, in conclusion, I would cite to you Justice
19	Ginburg's decision in the Cable and Wireless case that
20	was cited previously, and I would just quote from
21	Justice Ginsburg when he says, "Anticompetitive conduct
22	can come in too many different forms and is too
23	dependent upon context for any court or commentator ever
24	to have enumerated all of the varieties." It does no
25	good to shut one barn door and leave others open. It

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1	does no good to say failure to disclose is an antitrust
2	violation, but disclosure with commitments that you then
3	refuse to implement cannot violate the antitrust laws.
4	The courts are capable of looking at the factual context
5	and coming to reasoned decisions about whether the
6	antitrust laws have been violated because of the
7	creation of market power and whether a particular
8	actor's conduct should be adjusted as a result of the
9	commitments they made.
10	Thank you.
11	(Applause.)
12	MR. DAGEN: And I think it is now time for a
13	little inter-panel discussion. Each panelist -- I think
14	we will probably go in the same order that we did the
15	presentations, if you have any comments that you want to
16	share addressing other panelists' presentations or
17	questions that you want to pose to other panelists, we
18	can try to keep track of them and either have them
19	addressed as part of this discussion or further on down
20	the line. We are thinking three to five minutes per
21	person, if you have got that amount to go through, and
22	we will see how it proceeds from there.
23	MS. CREIGHTON: I am not sure I have three to
24	five minutes of things, but I had just a few points, I
25	think one comment on what Preston had to say a couple on

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1	what Gil had to say.
2	First, on Preston's observations, I found
3	intriguing his remark by the one lawyer who quoted that
4	he does his level best whenever he can to turn a
5	contract dispute into an antitrust claim. I would think
6	that typically, if people are in a contractual
7	relationship, that means that they are probably
8	somewhere in the vertical chain of supply, and so my
9	guess is that those antitrust claims that he is turning
10	his contract disputes into are a whole variety of what
11	we would view as sort of typical arguments about
12	vertical restrictions, and yet somehow we do not think
13	that that problem with turning contracts into antitrust
14	disputes means that we should invalidate all those types
15	of Section 2 claims sort of ex ante as somehow
16	invalidating them.
17	So, sort of returning to the point I had made
18	about we need to separate the question about problems we
19	have with private actions from the substantive antitrust
20	analysis, I guess I would pose as a broad experiment,
21	suppose we did away with private antitrust enforcement
22	just for the time being. In that circumstance, I would
23	be curious for those who have voiced concerns about
24	bringing -- for the Government to bring an antitrust
25	enforcement action in the context of -- I guess what I

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1	would call opportunism. If the Government is satisfied
2	that that conduct has, in fact, caused durable market
3	power, why would we nonetheless still eschew government
4	enforcement to remedy it?
5	With respect to Gil's point about intent, I
6	had -- that was actually -- I think I share the concern
7	that he does and had mentioned that one of the things
8	that can be misleading, so to speak, about using
9	business torts as our sort of initial predicate act for
10	an antitrust claim is that we really are not about
11	intent and that what you are trying to get at with a
12	business tort is different from what we are driving at
13	with antitrust, and so some folks had mentioned about
14	inadvertent deception.
15	I guess what I have tended to think of as
16	deception, I have been tending to think of -- I will
17	misuse Mr. Williamson again -- I think he defined
18	opportunism as self-interest with guile, and so I think
19	understanding it in that context, if we have -- what we
20	are really concerned about in antitrust is self-interest
21	with guile that causes durable market power, and that is
22	really what we are talking about here, not some narrow
23	business tort that may or may not fit the particular
24	facts of what we are concerned with, which is consumer
25	harm created by such market power.

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1	And then my final point, I wanted to amplify and
2	underscore a point that I thought Gil made quite well,
3	which was sort of going back to the causation question
4	that people have raised with Section 2 claims in this
5	area. I would agree with his point that it would seem
6	that many of our more traditional antitrust cases
7	actually do pose that causation problem more forcefully
8	than the kind of opportunism cases that we have been
9	focused on here. So, for example, in the cases that Gil
10	had identified, the Microsoft case, the AT&T case, the
11	IBM case, obviously untangling the effect of the
12	particular exclusionary acts is a challenge, but that
13	does not mean it is a challenge that we should forgo.
14	I would say, by contrast, in an Orange Book
15	case, if you conclude that there actually was a listing
16	that was made self-interestedly with guile and there was
17	a patent on it that automatically excluded competitors
18	from the market for 30 months where competition should
19	not have been excluded, the causation issue is pretty
20	straightforward. So, I would agree with Gil on that,
21	that sometimes the standard-setting cases, misuse of
22	government processes, the causation issue actually can
23	be quite straightforward.
24	That was it for my comments.
25	MR. DAGEN: Thank you.

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1	DR. McAFEE: Thank you.
2	Let me actually echo something that Gil said,
3	which is that it would be useful for the agencies to
4	provide guidance to the standard-setting organizations.
5	In particular, the prohibition of talking about costs or
6	for that matter the prohibition of negotiating prices
7	for the use of patented technology in advance are
8	actually quite harmful in making good decisions. It is
9	as if you had to buy a car without knowing what the
10	prices are, and so the inability or the fear of
11	discussing what technologies will cost when implemented
12	in the standard is itself something that is designed to
13	procure standards inefficiently.
14	The second thing I want to say is that -- and
15	also in response to Gil -- is when you buy a bath robe,
16	it comes with a somewhat optimistic statement that one
17	size fits all. One of the things that you learn in
18	studying standard-setting organizations is that they
19	solve very different problems from each other, and they
20	make their decisions in a very different environment,
21	and I think one of the things that will be a challenge
22	for providing guidance to standard-setting organizations
23	is that they actually -- one size will not fit all very
24	well.
25	In particular, the amount of information that

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1	they have available to them at the time that they make
2	decisions is often very different. I know JEDEC, in
3	particular, would discuss proposed standards, and then
4	the individuals would go back and work in their labs and
5	see whether or not the proposed standard was something
6	they could actually build themselves and what problems
7	needed to be solved in order to practice the tentative
8	standard. They very much were not necessarily on the
9	same page, nor did they want to get on the same page in
10	the sense that they did not want to reveal things that
11	they knew about the technology, because that would give
12	them a competitive edge. Giving advice about just what
13	they are allowed to do in such a circumstance where
14	standards are chosen, where how the standard is going to
15	be implemented is not yet even known, is going to be a
16	challenge.
17	And then finally, I have to agree with George
18	that it certainly is not a solution to say we can
19	practice a RAND -- if I make a promise that I will
20	satisfy a RAND, which there is another definition of
21	RAND, which is research and no development, which seems
22	appropriate in standard-setting organizations, but --
23	and then charge an exorbitant fee after the fact, after
24	the standard has been adopted, that is no solution at
25	all, and certainly the antitrust laws -- that is, I am

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1	going to completely agree -- that certainly the
2	antitrust laws, if they cover the deceptive conduct,
3	must also cover the failure to provide a RAND or failure
4	to live up to the RAND assurance. I am less confident,
5	however, that the courts can actually effectively
6	interpret what is reasonable.
7	Thank you.
8	DR. BROCKMEYER: I would like to comment a
9	little bit on some of the remarks of Preston and
10	Richard.
11	First of all, with respect to the issue of
12	private enforcement, I do not believe that we should
13	eliminate private enforcement, and indeed, I think the
14	decisions of the court over the last 20 years or so have
15	made it much more difficult for the plaintiff to
16	proceed, and indeed, the argument of I guess last Monday
17	or so in the Twombley case could also have an effect on
18	private enforcement, albeit that case is a Section 1
19	case.
20	But I do want to touch on private enforcement in
21	that I believe private enforcement is one way to explain
22	the result in Conwood. While not knowing what U.S.
23	Tobacco's presentation was before the jury with respect
24	to the existence of monopoly power and accepting the
25	concession that it did have monopoly power that was in

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1	the Sixth Circuit, when we think about the evidence that
2	was put forth and the reasonable juror sitting there,
3	hearing about a monopolist whose salespeople are running
4	around ripping out racks and throwing them in dumpsters
5	and various other types of conduct with respect to I
6	guess misleading information being provided or whatever,
7	in my view, the result in Conwood is not particularly
8	surprising given that it was in a private enforcement
9	setting.
10	Now the question becomes, well, do we want to
11	deter that? Well, I think one way to look at it, and
12	maybe this is Susan's point, is does the result in
13	Conwood somehow deter efficient conduct? Are we going
14	to deter throwing out racks or whatever or are we going
15	to -- whatever, and I think the end result is I do not
16	find Conwood to be a particularly surprising case, and I
17	think it can be explained in the context of private
18	antitrust enforcement and a reaction of juries to
19	evidence.
20	With respect to the pharmaceutical arena and
21	Hatch-Waxman and the regulatory scheme, Richard is
22	absolutely right. As I've mentioned in one of my
23	principles, I think we need to take into account the
24	structure of the industry and the regulation involved.
25	On the other hand, when there is deception, when there

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1	is anticompetitive conduct that disrupts the balance
2	that is struck in Hatch-Waxman, then I think antitrust
3	has an appropriate role to play. Indeed, I would say
4	that the Commission's case against Bristol-Myers and the
5	deception that was involved with Bristol-Myers is a very
6	good example of where antitrust properly intervened in
7	this particular setting.
8	MR. DAGEN: Richard?
9	DR. ROZEK: Well, as an economist, I was struck
10	by the discussion this morning that raised questions of
11	measurement. Economists like to practice their craft
12	and measure things. It comes up a lot in the areas of
13	misleading and deceptive conduct. One area where it
14	comes up frequently is in the issue of false
15	advertising. How do you measure whether an ad is really
16	false? It could have on its face a false statement or
17	it could be perceived as conveying a certain message
18	that is inaccurate, and so economists can do surveys and
19	interpret that survey result.
20	But in some cases, it is much harder to measure
21	whether something is misleading or deceptive, and I
22	think back to some of the cases I have worked on where
23	in one situation, for example, an organization had
24	funded some scientific research; it was concerned about
25	the scientific and statistical merit of the research;

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1	that is, the scientific protocol followed and the
2	statistical tools that were used to analyze the results
3	of that data.
4	So, the company raised legitimate questions, I
5	thought, as a reviewer of an academic article would
6	raise in commenting on the methodologies used to conduct
7	the research, but it was criticized for doing that and
8	for suggesting that the article not be published. To
9	avoid bad publicity, the company just paid a large
10	settlement. How to measure whether that was -- whether
11	their withholding publication -- or their request to
12	withhold publication of the article was really
13	misleading or whether there were legitimate scientific
14	questions that needed to be resolved before publication,
15	was a much more difficult issue.
16	That brings me to the question that was raised
17	earlier about private actions following on government
18	settlements. When someone settles a particular case
19	with the FTC or the Department of Justice, and they may
20	have done a calculation at that point that settling the
21	case was -- even if they could win, settling the case
22	was within that company's interest, was in their
23	interests to settle the case, but then they do not
24	always adequately factor in the private antitrust
25	actions that are going to follow and the damages that

87

1	are at issue in those private cases. So, they do not
2	take a complete picture of the damage calculation and
3	factor it in when they settle.
4	So, sometimes -- I have had cases like this,
5	too, where people come to us after two or three of the
6	private cases have gone forward and say, "we are just
7	tired of paying all this money. We are going to fight
8	this now." And I say, well, you know, you should have
9	fought it at the FTC or the Department of Justice,
10	because you could have a better case there on market
11	definition and on entry conditions and so on. In some
12	settlement discussions, the full impact of the private
13	cases are not factored into those calculations.
14	And then I was struck by George's comments on
15	the FRAND standards and what evidence is actually used
16	to determine whether a royalty rate is fair and
17	reasonable. I think the discussion of Georgia Pacific
18	factors borrowing from the patent literature, and the
19	wealth of information in the tax literature on applying
20	the arm's length standard to valuing intangible property
21	on transfers between affiliated companies such as a UK
22	research lab and an Irish manufacturing plant, that
23	would be very helpful to apply in the FRAND context.
24	Now, I was also struck by the discussions of
25	private cases and whether or not there should be a ban

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1	on private antitrust actions. It seems to me that not
2	an outright ban, but maybe some reform in the process.
3	Again, speaking to some of the cases I have been
4	involved in from my own experience, there was no reason
5	that the brand name antitrust litigation should have
6	gone on as long as it did until Judge Kocoras made the
7	decision that it was meritless. All but four
8	pharmaceutical firms who were initially sued in that
9	case settled. That case went on too long, and there
10	should have been a process in place to make a decision
11	much faster. So, there are areas where there could be
12	reform in the private antitrust cases to at least render
13	decisions on frivolous cases much faster.
14	I was struck also by Preston's comments on
15	Canada because of the absence of private actions. I did
16	a study of health care reform in Canada and compared it
17	to health care reform initiatives in the United States.
18	One of the key differences between Canadians and
19	Americans -- residents of the United States that you see
20	is that in Canada, they have a much greater confidence
21	in the Government as a solver of problems, and so they
22	trust the Government to provide their health care and to
23	provide high-quality health care. Whereas in the United
24	States, I think we saw it with the Clinton Health Care
25	Reform Initiatives, there was a great deal of distrust

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1	in the Government as a solver of problems and more the
2	Government as a creator of problems. So, there is a
3	fundamental difference in Canada and the U.S. just in
4	terms of how the residents in those countries interpret
5	the Government and government action.
6	I think part of the reason you do not see
7	private antitrust cases in Canada is that, "Well, the
8	Government will take care of it" is the solution. Those
9	are my comments.
10	MR. OHANA: I'll segue on the point that the
11	Government will take care of it. I wanted to pick up on
12	Preston's comment regarding one size fits all and the
13	role that I posited for antitrust agencies relative to
14	helping standards development organizations and their
15	participants understand what I will call the limits to
16	self-help to avoid deception.
17	I agree with Preston that one size does not fit
18	all. The point I was making maybe was a little bit
19	different. I am not positing a role for the agencies in
20	creating the uniform code of standards disclosure rules
21	or standards patent licensing rules. Far from it.
22	Standards organizations need, because of the variety
23	that Preston mentioned, a lot of freedom in that area.
24	I think, nevertheless, it is useful for the
25	agencies to do as the Antitrust Division did in the Vita

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1	letter and as the European Commission did in the letter
2	they wrote ETSI in June of this year, to set out what
3	are the points that you cannot go past? For example, in
4	ETSI, the European Telecom Standards Institute, one of
5	the proposals was to essentially create a cap that at
6	the start of a standards development exercise, all
7	participants would agree that any IP disclosed would
8	essentially be under a cap of X percent, and even if you
9	had a very fundamental, very broad, very valuable
10	patent, you were in there with the rest of the patents
11	fighting for your share of X percent, and the European
12	Commission quite rightly said that that was problematic,
13	and it is that role that I see the agencies playing in
14	terms of limiting what is now the considerable desire of
15	standards development organizations to enact rules that
16	address this problem proactively ex ante rather than ex
17	post.
18	MR. CARY: Just a couple of observations.
19	First, I think that Preston's observations about the
20	costs of antitrust enforcement, the difficulties of
21	administerability and perverse incentives are all points
22	that we constantly have to keep in mind and keep guard
23	of in terms of how one interprets and applies the
24	antitrust laws. But having said that, I think those
25	comments also paint with too broad a brush, and maybe

91

1	one size fits all does not apply in that context either.
2	I would say that for those of you who have not
3	read it, and I am assuming that is not very many, the
4	"Cheap Exclusion" article that Susan authored with her
5	co-authors is a brilliant piece. The idea that one can
6	rationally set about determining where to apply
7	prosecutorial discretion in a systematic way in coming
8	up with arrays of combinations of anticompetitive
9	conduct where antitrust enforcement is likely to do as
10	little harm as possible, is a prototype for how to make
11	prosecutorial decisions going forward.
12	And using that framework and integrating the
13	points that Michael made, I would set up an array, and I
14	would say, for example, at one end of the deceptive
15	conduct that we have been talking about might be false
16	advertising or sham litigation. In sham litigation, you
17	have a built-in control: You have a judge. And if the
18	case is frivolous and has no reasonable basis,
19	presumably a judge would be easily in a position to get
20	rid of the case quickly and efficiently; and if the case
21	is more complicated so that he cannot get rid of it
22	quickly and efficiently; then perhaps that is correlated
23	with the idea that there is a reasonable basis to
24	litigate the claim, and it ought to go forward.
25	So, sham litigation as anticompetitive conduct

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1	would seem to be one which has a built-in mechanism to
2	police it, and in addition, one where the
3	anticompetitive injury is likely to be small. Attorneys
4	are expensive, but relative to the sizes of most
5	business, paying an attorney is not likely to debilitate
6	you from competing.
7	At the other extreme would be the
8	standard-setting discussion that we have had where SSO's
9	create networks, durable market power is created through
10	lock-in, it is very, very difficult to change those
11	networks once they are established, and the
12	opportunities for exploitation of market power are
13	therefore significant.
14	In addition, you have got antitrust concerns in
15	participants establishing royalty rates pre-adoption of
16	the standard which, again, puts a premium on antitrust
17	enforcement after the fact if there is a pattern of
18	exploitation that a participant then engages in. Maybe
19	somewhere in between might be the Orange Book context
20	where there is an immediate anticompetitive effect from
21	bringing the litigation, separate and apart from the
22	standard sham litigation (where the anticompetitive
23	effect might flaw only as a result of paying attorneys'
24	fees). So that is a middle ground, in light of the fact
25	that you still have a judge who could dispense with the

93

1	case very quickly if it is truly a sham.
2	So, I do not think it is necessarily appropriate
3	to say that antitrust has no role in any of these areas
4	because of the possibility of an unintended consequence.
5	Instead, I think you can array these things and you can
6	apply antitrust where it is going to have the highest
7	likelihood of procompetitive impact and the lowest
8	possibility of making a mistake.
9	MR. DAGEN: Thank you.
10	Does anybody else have any comments they want to
11	share before we move into our rapid-fire questioning
12	period?
13	(No response.)
14	MR. DAGEN: Okay, we have some slides that I
15	think we will get to in a second with some propositions
16	and questions, but I think just since George went last,
17	I just had a question about one of the propositions he
18	just made.
19	So, in terms of your sham litigation, which you
20	put at one end, it sounds like it would be a very strong
21	presumption that there would be no sham litigation
22	monopolization claims, because it either gets disposed
23	of quickly, in which case there is no harm, or it lasts,
24	in which case it is not sham. So, is that --
25	MR. CARY: Oh, I do not know that I would use

94

1	the term "presumption," because that implies a legal
2	rule. I would say that as a matter of logic and maybe
3	some casual empiricism, that will tend to be the case,
4	and therefore, as a matter of prosecutorial discretion
5	or as a matter of the kind of scrutiny that a judge
6	might impose on such a case, it should be at the end
7	where the plaintiff might have to demonstrate a little
8	bit more in terms of context and effect than they might
9	in other contexts.
10	MR. DAGEN: Any views from the rest of the
11	panel?
12	DR. BROCKMEYER: I would like to make a quick
13	comment about Richard and what George just said about
14	mechanisms for quick disposal of cases. I am going to
15	point two cases out to you and Judge Schwarzer. Judge
16	Schwarzer attempted in the Northern District of
17	California to impose a screen -- and I will use the word
18	screening mechanism to shed cases quickly, limited
19	discovery, and in an effort to determine whether there
20	was merit to the claim. If there was not, dismissal,
21	and you move on, okay?
22	There are two cases of Judge Schwarzer's in that
23	period that went to the Supreme Court, and both were
24	reversed, Kodak and Hartford. Those both came from
25	Judge Schwarzer. So, while I recognize that, I do not

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1	know how receptive the courts will be to that type of
2	procedure.
3	And so as a result, you are right, George, yes,
4	one way to say you can get rid of the sham litigation
5	quickly. Possibly not. It may depend on the judge.
6	MS. CREIGHTON: Maybe if I could just pick up on
7	George's idea, sort of to continue -- and I also thank
8	you for the kind remarks, George -- because I agree, I
9	think, that it is definitely not one size fits all when
10	we are looking at this kind of conduct. Some is much
11	more likely to arise in circumstances where there is a
12	likelihood of causing durable market power, and I
13	think -- and I would agree with George that at the other
14	end, deceptive marketing claims where you are talking
15	about -- particularly when it is sort of dueling claims
16	about products, I think Judge Easterbrook in Sanderson
17	versus Culligan cases correctly points out on the do no
18	harm end of things or sort of not trying to chill
19	procompetitive conduct.
20	I think the FTC for the last 20 or 30 years has
21	been a pretty aggressive proponent of the notion that
22	advertising is a good, and so this is one area where if
23	you allowed claims of any -- sort of I disagree with
24	that advertising, he said bad things about my product,
25	that is an antitrust claim, that kind of claim can chill

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1	procompetitive conduct and that advertising is as much a
2	good for consumers as price competition. So, I
3	appreciate George's refinement of my analysis, and I
4	would agree with it.
5	MR. DAGEN: So, Hill, did you have anything you
6	wanted to talk about before we move on?
7	MR. WELLFORD: I have one question that several
8	people glanced over, and I think George maybe most
9	directly, so I will start there.
10	What does your point about incentives say about
11	the kind of remedies that we should look for to be
12	procompetitive or perhaps even prohibit as the FTC tried
13	to do in the Schering case, if you want to characterize
14	it that way? You said, you know, certain participants
15	in standard-setting organizations, for example, may not
16	have the incentive to correct the -- to challenge or
17	challenge the correct way. Perhaps some people who
18	claim to represent the public, which was your point,
19	some would have better incentives than others. Is there
20	anything to that that you would like to share?
21	MR. CARY: Well, yeah, let me back up a bit and
22	start from the beginning on it. You start with the
23	question, why shouldn't a violation of these kinds of
24	commitments be enforceable only in contract or tort? I
25	guess a wrinkle on that would be if it is remediable in

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1	contract or tort, why bother with antitrust,
2	particularly when, overlaying Preston's presentation,
3	antitrust litigation can do harm?
4	I was attempting to answer that question by
5	saying that there is a harm that might extend beyond
6	those individuals that might have standing to bring a
7	contract claim or a fraud claim, that that harm is also
8	a harm to consumers, and that that harm ought to be
9	vindicated. So, for example, let's say you have someone
10	who is not part of the original standard-setting
11	proceeding; let's say that a particular state law of
12	contract limits the rights of third-party beneficiaries
13	to only those who are directly anticipated to be
14	beneficiaries; and therefore, a nonparticipant in
15	standard-setting would not qualify, they would not have
16	a contract claim directly. Nonetheless, there might be
17	a situation where a violation of the standard-setting
18	rules would cause competitive harm, and that individual,
19	without standing under contract, might be an appropriate
20	party to vindicate it.
21	A second example might be a state fraud statute
22	or a state common law rule of fraud which says if the
23	representation was not made to you, you have no standing
24	to vindicate the fraud. Again, if a misrepresentation
25	is made about patents, for example; if the

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1	standard-setting body for one reason or another decides
2	not to pursue that, say, for example, the perpetrator of
3	that misrepresentation has now stacked the
4	standard-setting body with its own agents,
5	representatives, network of suppliers, allies; but there
6	is a hold-up in the sense that the failure to disclose
7	the patent was real, and now the patent is being
8	asserted, why wouldn't a member of the public who is
9	paying the bill for that violation of the
10	standard-setting body's rules have an opportunity to
11	bring an antitrust case, claiming the antitrust damage?
12	It is that kind of thing that I was referring
13	to, in saying that people with standing may not have the
14	incentives, and people without standing may have
15	suffered the consumer injury or the anticompetitive
16	harm.
17	MR. WELLFORD: Does it follow from your analysis
18	there that a member of the public should be limited to
19	remedies that benefit the public or the competitive
20	process as a whole as opposed to that particular person
21	who has brought the lawsuit, and is that done today or
22	can it be effectively done?
23	MR. CARY: I do not think that there is a
24	necessity, just because of the standard-setting context,
25	to revisit all of the rules of antitrust injury and

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1	antitrust damages. So, for example, the courts have
2	established rules as to what consumers can recover. The
3	courts have established rules as to what competitors who
4	are the target of the anticompetitive activity might
5	recover.
6	Those rules do not need be any different in the
7	context of standard-setting than they would be in any
8	other monopolization case or price-fixing case or other
9	antitrust violation. I do believe that an antitrust
10	injury requirement is appropriate.
11	MR. OHANA: Just to comment, to pick up on
12	something George said, it is by no means universal in
13	standards development organizations' IPR policies that
14	any implementer of the standard is given explicitly the
15	right to sue to vindicate a disclosure or a
16	nondisclosure made to the standards development
17	organizations. In fact, it is extremely rare in my
18	experience that they actually explicitly say that. So,
19	you are going to be proceeding at that point under a
20	third-party beneficiary theory, and a third-party
21	beneficiary theory will vary a lot with state law. So,
22	in that sense I agree with George that it is entirely
23	possible that the contractual remedy will not exist.
24	MR. DAGEN: A couple of panelists I think
25	mentioned the notion that the regular false advertising

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1	sort of claim would be on the lesser end of the
2	perspective. I wanted to try to juxtapose that with the
3	standard-setting discussion that you were having, which
4	was let's say you have a misrepresentation not about IP
5	but something else within the standard-setting
6	organization. There was a case involving Heary brothers
7	a long time ago where there was an allegation, I
8	believe, similar to an Allied Tube sort of thing with
9	packing except involving misrepresentations about an
10	alternative technology that was to be accepted or
11	proposed for an alternative within the SSO.
12	Where do you think that sort of
13	misrepresentation more or less similar to the false
14	advertising I think that you were talking about, where
15	would that fall, if you have any thoughts on that?
16	Anybody?
17	DR. McAFEE: Theoretically, it should not
18	actually make any difference. If I establish my
19	technology as the standard by claiming that the
20	alternative technology sets the atmosphere on fire and
21	burns up the earth, it is not -- and that is fraud --
22	that is not true, then it has had exactly the same
23	effect. On the other hand, it seems much less likely
24	that in reality you are going to be able to pull that
25	off, because by and large, the standard-setting

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1	organizations are composed of people who know technology
2	pretty well, and so your ability to impugn alternative
3	technologies seems much more limited than your ability
4	to keep secret, for example, that you have patents.
5	MR. OHANA: There are cases, and I am thinking
6	of the Schachar case in the Seventh Circuit, where, if I
7	remember the case right, there was an allegation that
8	there was a misrepresentation made to a standards body,
9	and I think the response of the Seventh Circuit was that
10	the answer to bad speech is more correct speech, and I
11	would tend to agree with that. Those cases are not
12	going to impose a high risk of durable competitive harm
13	and therefore are unlikely to require the intervention
14	of antitrust agencies or courts.
15	MS. CREIGHTON: I thought the Commission was
16	right in Rambus in focusing on the ability of the
17	representation to be adequately -- both that its -- both
18	public and rebuttable, I guess, in the sense of I think
19	they were focused in particular on collaborative
20	ventures where there's less ability to ferret out people
21	where it might be making misrepresentations, but they
22	were trying, I think, to be getting at this point about
23	is it something that can be responded to with the
24	contrasting speech.
25	So, if I could change your hypothetical, for

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1	example, suppose the misrepresentation was that each and
2	every member of the standard-setting organization was
3	voting based on sort of independent assessment of the
4	technology, but, in fact, I have gone around and paid
5	off everybody to vote my way, so there is a
6	representation that everyone is voting unilaterally,
7	and, in fact, that is not true. It has been stacked.
8	It seems to me like that misrepresentation poses
9	the same kind of difficult-to-get-at or ferret-out
10	problem that misrepresentations about IP do, but they
11	would be quite different from saying you should not use
12	that guy's technology because it is bad and that guy is
13	right there and he can counter.
14	MR. CARY: Having set up the continuum and
15	putting that kind of conduct at one end, now let me
16	retract just a little bit, because I do think that there
17	are environments where sowing confusion through false
18	representations can, in fact, be an antitrust violation.
19	I would not say that it does not exist, and I am
20	reminded of the good old days of pop-up windows where
21	people who were trying to create applications software
22	that ran on particular operating system platforms would
23	find that when somebody went to activate that
24	application program, a little screen would pop up
25	saying, "you are about to go into unchartered territory,

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1	and we cannot guarantee that your computer will not blow
2	up if you press the button."
3	There are examples where that kind of activity
4	causes consumers, who are not expert technicians, to
5	worry about using alternative software which might, if
6	it were allowed to grow and expand, reduce an
7	application barrier to entry and result in more
8	competition to the operating system. I would not say
9	that as a matter of law one should not be allowed to
10	pursue those claims in a well-pled complaint and beyond
11	summary judgment if there are facts to be litigated
12	about whether that kind of activity does, in fact,
13	retard the growth of competing technologies.
14	DR. BROCKMEYER: Well, yeah, I want to agree
15	with what George just said, and we need to be a little
16	careful, because while I agree also with what Gil said,
17	that often false advertising or false statements may
18	well be -- again, continuing to use the scale here -- at
19	very much the low end of the scale, I do not believe we
20	should fall victim to even possibly absolutist language,
21	which one of the cases that we looked at was a Judge
22	Easterbrook decision involving Culligan, where he has a
23	fairly direct sentence that says commercial speech can
24	never be the basis of a Section 2 claim.
25	I believe that is wrong, and indeed, to go back

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1	to the quotation from Judge Ginsburg that George read at
2	the end of his presentation I think has it right, which
3	is, yeah, we need to look at the context of the
4	circumstances where the commercial speech or the
5	misleading statements are made and then measure the
6	effect of that in the context of the market in which it
7	is made.
8	MR. OHANA: I would agree with that. I would
9	just point out that in the context of ETSI section
10	consensus-based broad participation standard-setting, it
11	seems to me that the likelihood that a disparaging
12	statement by the proponent of one technology about
13	another technology is very unlikely to have competitive
14	harm, because there are going to be a lot of other
15	participants who are going to be eagerly awaiting the
16	response from the proponent of the criticized
17	technology, and there is going to be a discussion of it,
18	and in that sense, I think the likelihood of competitive
19	harm is very low.
20	What I would point to in the example that George
21	gave, which actually I had to look at when I was at the
22	Antitrust Division, because I think it involved a
23	company in the Pacific Northwest and the Windows
24	operating system, is that what was very interesting
25	about that is that it was actually used only in the beta

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1	of I think it was Windows 3 or Windows 3.1, and what was
2	sort of interesting is that Microsoft then pulled it
3	when they actually released the operating system.
4	The argument from the complainants was that the
5	damage had been done, because obviously the beta test
6	was distributed to a lot of kind of key influencers of
7	the technology industry who were then going to write
8	articles, create demand for the product, knowing that
9	DRDOS, at least according to Microsoft, cannot work.
10	That might be a context in which responsive speech may
11	not be effective, because it has to happen in a very
12	short time period in which a lot of demand is going to
13	be set in a product market that is very subject to
14	tipping, which I guess goes to Michael's point that the
15	underlying facts matter a lot.
16	MS. CREIGHTON: Another fact pattern that might
17	be worth throwing out there at some point would be in
18	the context of something that cannot be responded to
19	effectively potentially with responsive speech or at
20	least some party is vaporware, saying you have got your
21	product coming when, in fact, it is not. So, that is a
22	deceptive statement not readily correctable.
23	I think Preston and Richard probably know the
24	literature better than I do, but I think Farrell,
25	Sloaner and others have written some articles about at

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1	least in tipping industries the potential for such
2	statements to have anticompetitive long-term effects.
3	DR. ROZEK: I think part of the discussion has
4	to involve the sophistication of the buyer. If you are
5	making statements to a buyer about a competing
6	technology, the buyer has to be able to assess those
7	statements. It may not be in every case that they can
8	do that instantaneously. It may be a statement about
9	reliability of the product after it is being used for
10	two years. You would not know if that statement is true
11	or false up front. You may have to spend a lot of money
12	to buy the machine, let's say a medical device, a
13	lithotripter, for example, something you have to spend a
14	lot of money, you would not know about the reliability
15	until after you spent the money, put it in place,
16	trained your workers and used it for a period of time.
17	Not all people can make those kinds of assessments.
18	So, I think underlying all of this in the
19	standard-setting process, in the false advertising
20	cases, you really have to conduct a rule of reason
21	analysis. You have to think about the sophistication of
22	the buyers and their ability to interpret the
23	information in a cost-effective way, without having to
24	make a purchase and wait two years or so to determine if
25	the machine is going to break down or be reliable, for

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1	example.
2	DR. McAFEE: I agree with that completely. In
3	fact, standard-setting organizations are unlikely to be
4	a place where misleading statements of that kind are
5	going to last. They tend to have a smaller number of
6	very well-educated individuals, and it is more -- the
7	vaporware, in particular, which is usually a gimmick to
8	buy time while you try to develop a product so that
9	another product does not become a standard.
10	Microsoft made various promises about Windows CE
11	as a way of trying to prevent Palm from becoming a
12	standard, although in the end, Palm did become a
13	standard. It did not -- the vaporware promises were not
14	actually effective in that case. But there, that is a
15	much more likely thing. We will eventually support
16	this, just wait another few months, and that may be
17	enough to buy time to prevent a competitor from entering
18	the market.
19	MR. DAGEN: If we could maybe put up a few of
20	our propositions for discussion, first, slide number 2
21	states, "Merely because a particular practice might be
22	actionable under tort law does not preclude an action
23	under the antitrust laws as well."
24	I think this has been discussed a fair amount
25	today. Is there -- I heard a lot of consensus on this,

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1	but I wanted to know if anybody had any views contrary
2	to that view or proposition.
3	MR. OHANA: I do not know if it is contrary, but
4	let me just offer what I hope is an exacerbation. If
5	you look at Trinko, one of the facts in Trinko is that
6	the conduct that Bell Atlantic was accused of was in
7	parallel the subject of an FCC regulatory proceeding
8	that resulted in the payment by Bell Atlantic of fines
9	to the FCC, and there is language in the opinion, if I
10	recall, that says that essentially where you have got a
11	regulatory system and the regulatory system is intended
12	to vindicate competition, the existence of the
13	regulatory system matters relative to the antitrust
14	analysis.
15	Then you get this quote from Conwood, and I will
16	not try to reconcile the two except to note that I think
17	there is a tension there.
18	MR. DAGEN: Well, given -- go ahead, Susan.
19	MS. CREIGHTON: Though I think maybe the way to
20	reconcile the tension was -- as I recall, Trinko said
21	where there is another comprehensive regulatory scheme
22	whose purpose is to promote competition --
23	MR. OHANA: Exactly.
24	MS. CREIGHTON: -- and that is a pretty
25	important difference.

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1	MR. DAGEN: Go ahead.
2	MR. WELLFORD: We have already covered the law
3	of contract a little bit, but let me talk about the law
4	of fraud and maybe some other areas. These areas of --
5	is developed in the common law over a very long period
6	of time as the collective judgments of the courts, the
7	common law courts anyway, has been that there is some
8	necessity to apply heightened pleading standards or
9	specialized pleading standards to them.
10	For example, in the law of fraud, you have
11	Federal Rule 9 and 9(B), which is the rule of
12	specificity, the rule to require justifying reliance,
13	and the law of defamation or misleading statements about
14	individuals in that area. You have the Supreme Court's
15	New York Times recklessness standard for defamation.
16	Are we at all concerned that imposing Section 2
17	liability, which very clearly has regular pleading
18	standards, regular Rule 8, is at all going to be an
19	end-run around any of those established doctrines, and
20	does that indicate that either we may be off balance
21	with Section 2 liability or we should have Section 2
22	liability but apply some different pleading standards to
23	try to vindicate those same concerns?
24	DR. BROCKMEYER: Well, let me respond first, and
25	somebody can probably tell me I am dead wrong, but I

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1	believe, for example, in Walker Process, if you plead a
2	Section 2 claim based on Walker Process, you are subject
3	to Rule 9, and so you are going to have to plead with
4	specificity, I think in the case of Walker Process and
5	maybe in the case also of inequitable conduct, such that
6	I really wonder whether Rule 9 is already coming into
7	play when you need the heightened pleading standard when
8	fraud is the predicate act for the Section 2 claim.
9	MR. CARY: I guess I would respond that the
10	typical kinds of requirements under Rule 9 are not
11	ordinarily the kind that will not be able to be met in
12	an antitrust case of this kind. I mean, it simply asks
13	you to identify the kinds of statements that were made
14	and to whom they were made, and so in the
15	standard-setting context, it would be a statement that
16	you would agree to license on FRAND terms, for example,
17	that you did not intend to comply with or that you
18	represented that there were not patents when, in fact,
19	after the fact, you revealed the patents. The so-called
20	heightened pleading requirement I do not think is all
21	that heightened in this context.
22	I think in terms of the recklessness element,
23	there might be some room for divergence for the reasons
24	that Gil described, that the thrust of the matter, the
25	crux of the matter in the antitrust case is the

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1	exploitation of market power, not the niceties of the
2	precise statements that were made, and I think in the
3	standard-setting context, especially one where you are a
4	member of the body that is establishing the standard, I
5	do not think there is scope for recklessness and then
6	exploitation of the benefits of that recklessness after
7	the fact.
8	So, maybe there is a divergence there, and maybe
9	there is also a divergence with respect to those states
10	that have imposed a clear and convincing standard on
11	fraud allegations, which is by no means the majority of
12	states, but there are some.
13	Again, I would say that since the crux of the
14	matter is the exploitation rather than the deception
15	that a clear and convincing standard would not have a
16	place in an antitrust case, whereas it might if what you
17	are talking about is fraud.
18	MR. DAGEN: Slide 4.
19	Given what we have just talked about in terms of
20	the use or the nonpreclusive effect of the actions under
21	contract or tort compared to an antitrust case, I was
22	wondering if anybody had any thoughts about the issue
23	raised in Trinko about the cost of false positives. I
24	know Susan talked about it a little, I guess several
25	panelists talked about it a little, about it not being

112

1	as significant a concern with respect to
2	misrepresentations, but I was wondering if the panel had
3	any additional thoughts on that question.
4	DR. McAFEE: I think one issue that has been
5	brought up is that while it is true that we do not have
6	to worry about chilling misleading statements, that is,
7	we are pretty happy to chill as many misleading
8	statements as we can, it was also brought up that there
9	is a fair bit of confusion among engineers, in
10	particular, about just what the antitrust laws entail
11	and that the threat of antitrust actions actually scare
12	the engineers a lot, and I think maybe the middle ground
13	here is to provide fairly concrete guidance as to what
14	is allowed and what is not so that we reduce that,
15	because it would actually be somewhat of a disaster if
16	companies instead of joining standard-setting
17	organizations said, well, we are just going to have our
18	own standard, let them fight it out in the marketplace,
19	which guarantees that the standard that comes out is
20	proprietary.
21	We are actually quite happy, it is quite
22	procompetitive, to have standards that are practiced by
23	many companies; that is, common standards that are
24	practiced by many companies. If you thought about all
25	batteries -- think about your digital camera, which

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1	probably has a proprietary battery. That is a much more
2	expensive proposition than if you have double A
3	batteries because of the standard associated and
4	multiple firms practicing it. So, we do not want to
5	actually have that harm the open standards, and, in
6	fact, we want to make sure that what we do with Section
7	2 is encouraging open standards, not discouraging it.
8	MS. CREIGHTON: I am probably just repeating
9	what I have said before. I think maybe the one area
10	where you would be concerned about false positives here
11	particularly would be chilling advertising unduly,
12	because that obviously is a positive. I agree with --
13	who was it -- Michael who made the comment that we are
14	probably not concerned with chilling having racks pulled
15	out of the shelves, you know, and we would not be unduly
16	concerned about chilling blowing up a competitor's
17	factory, and there is all kinds of conduct we probably
18	would not be too concerned about chilling.
19	I guess more generally, on the question of this
20	specter that is haunting Europe of sort of -- specter
21	haunting the United States of unduly broadening Section
22	2 liability, you know, it is not like we have got a huge
23	number of cases here we are talking about where people
24	have taken a fraud claim and then tried to turn it into
25	an antitrust claim. We have got a handful, and I am not

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1	even sure that it is very likely that we would see very
2	many, because usually they have to have some kind of
3	fraudulent relationship, you have to have a relationship
4	of trust and confidence, and the circumstances in which
5	companies are going to be engaging in that kind of
6	relationship would seem to be relatively discrete.
7	So, I guess while I agree with the Trinko
8	statement in general, other than advertising, I am not
9	sure that I see a big issue with chilling.
10	MR. CARY: I guess that brings to mind one of
11	the points that Preston made previously about lawyers
12	wanting to convert contract cases into antitrust cases.
13	It seems to me that in this regard, when you are talking
14	about allegations that essentially sound in fraud,
15	taking that and converting it to an antitrust case is
16	not something you would do as a matter of course in any
17	event.
18	First, you would still have to prove the fraud,
19	maybe not to a clear and convincing element, but then
20	you would also have to prove the other elements of an
21	antitrust case, which just expands your burden, and a
22	fraud claim is suitable for punitive damages. So,
23	limiting yourself to treble damages when you could get
24	punitives in a fraud case, I am not so sure that that is
25	necessarily the inclination most plaintiffs' lawyers

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1	would take.
2	I think what that points out, again, is that
3	there is a different role for the antitrust law than
4	there is for the private law of tort or the private law
5	of contract in this setting.
6	DR. BROCKMEYER: Yeah, I want to make a quick
7	comment about what Preston said about engineers not
8	understanding the antitrust laws, and over time it was
9	not engineers, it was someone else, some other
10	occupation who does not understand the antitrust laws,
11	and I am not particularly sympathetic with the engineers
12	in that setting in the sense that the antitrust laws are
13	obviously an important segment of our body of law, and
14	in the engineer's development of a product or technology
15	or whatever, the engineer has to come to an
16	understanding with the assistance of counsel or
17	otherwise, and we proceed. Antitrust obviously at times
18	maybe we think has gone off course, but hopefully we
19	bring it back on course. So, I must say, I am not
20	particularly sympathetic to engineers that are sitting
21	out there and worrying about the antitrust laws.
22	DR. McAFEE: All right, I am going to make the
23	counter case, because what we are asking engineers to do
24	in the standard-setting situation actually flirts with
25	directly violating the antitrust laws. So, that is to

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1	say, we are asking competitors to get together and set a
2	standard that they are all going to practice. So, there
3	is a sense in which they are already exposed to risk,
4	and as a society, we do not like the alternative,
5	because the alternative is the companies never get
6	together, they each promote different standards that are
7	not compatible, and the market chooses one, much like is
8	happening with DVDs right now.
9	We have multiple standards. The market chooses
10	one of them -- actually, does not matter whether you
11	think about old DVDs where you had plus or minus R or
12	new DVDs where you have HD and Blu-ray. The market will
13	choose one that will be proprietary. That is bad for
14	society. We would be better off as a society if we have
15	a single standard that everyone agreed on, a useful
16	standard that all of the companies get to practice.
17	And so unlike other cases of antitrust law where
18	we said these are the laws, you have to obey them, here
19	we are asking firms to get together and do something,
20	which certainly there is a phrase, "tickles the dragon's
21	tail," and it certainly tickles the dragon's tail of
22	antitrust law automatically just because the competitors
23	are standing in the same room.
24	So, I would argue, then, that it is incumbent on
25	us as a society to actually give them instruction so

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1	that they do not just say, well, we are just not going
2	to go down that road. We are going to stay in our own
3	labs and never meet, because those meetings do actually
4	result in standards that are good for society.
5	MR. OHANA: I agree with Preston. I would just
6	make the point that over-emphasis on antitrust risk and
7	the idea that in some sense standards development is so
8	fraught that engineers cannot ask probing questions
9	about whether technology is patented, how much it will
10	cost to practice, et cetera, creates the risk of
11	significant inefficiencies as well, and you have to find
12	a balance here between recognizing the potential for
13	Section 1 problems in standard-setting and facilitating
14	the risk of Section 2 problems.
15	DR. McAFEE: I want to make an unrelated remark
16	on something that Susan has said several times. She has
17	referred to advertising as a good. This is -- I would
18	say that it is actually an emerging consensus among
19	economists, but it is hardly something -- if you went
20	back 15 years and polled economists, you probably would
21	not find 50 percent agreeing with that, although that
22	number has grown dramatically, so it is actually -- and
23	sometimes it is very cutting edge for the FTC to be
24	promoting that as its view, is that advertising is
25	itself a good. Everyone understood that informative

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1	advertising is a good, but advertising which is not
2	directly informative, some sort of brand positioning
3	advertising and that kind of thing, to view that as a
4	good is actually very -- looks to the future.
5	An example of this, I think perhaps the most
6	extreme example, is playground equipment. There are
7	playground equipment companies that actually advertise
8	that their rivals' products -- and they name them --
9	kill children. Now, this is advertising we would not
10	want to chill, whether it is -- well, if it is false
11	obviously we would like to chill it, but on the other
12	hand, you have got to have -- you have to view that as
13	sort of a risky ad, especially because there is a sense
14	in which all playground equipment kills children in the
15	sense that there is stuff that you can do that will kill
16	you if you fall off it, for example, not used as
17	directed. This is -- the advertising here -- so,
18	advertising in the playground equipment area is
19	particularly extreme, and it is actually worth going and
20	getting the brochures. It is a pretty entertaining
21	example.
22	MR. DAGEN: That actually reminds me of an FTC
23	consent that we had a few years ago which involved
24	bullet-proof vest manufacturers having an agreement not
25	to engage in any sort of comparative advertising, so

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1	they -- don't tell them -- we won't tell them yours
2	fails if you don't tell them ours fails. Similar to the
3	playground equipment in terms of mortality rates, I
4	think.
5	MR. WELLFORD: Let me ask one question, which is
6	taking it outside the standard-setting context, which is
7	probably special, if misleading conduct is such an
8	anticompetitive problem, why is it so absolutely common
9	between rivals in industries? And two examples I'll
10	make, and then you can react -- anyone, I will throw
11	this to Susan first perhaps -- as to whether there would
12	be necessarily an anticompetitive problem raised.
13	One is competitors are attempting to discover
14	your trade secrets by aggressive but legal means, and
15	your response is to start putting out misinformation so
16	that they will not. That is an extremely common fact
17	pattern. Does that raise concerns if they are a
18	dominant competitor? Is that part of the rough and
19	tumble of competition?
20	The other is if you are a dominant maker of a
21	particular product, are you permitted to do what lots of
22	product makers do, Sony with the PS3 or any variety of
23	car makers have done this, put out fake test products in
24	the market and do fake tests with consumer groups in the
25	hopes that your rivals will find out about the fake

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1	tests and then try to design towards that fake thing
2	when you have got something real?
3	If you are a dominant competitor, do either of
4	those raise concerns in the fact that they are common
5	does not necessarily make them okay, as we have seen in
6	the cartel area?
7	MS. CREIGHTON: I guess I am having a hard time
8	seeing how either would be likely to create and maintain
9	durable market power, which I hope I was clear about,
10	but I think that that really is the crux of -- the
11	question is, if we have inefficient conduct that we
12	believe causes durable market power, that is what we are
13	trying to get at, and so we are not -- and, in fact,
14	part of my point had been we are not trying to make
15	torts a predicate act for antitrust. In fact, that is
16	exactly the wrong way to think about it.
17	So, the fact that this is conduct that you may
18	or may not like or might or might not be good, unless I
19	could see some way in which it was likely to be creating
20	durable market power, I would not care from an antitrust
21	perspective.
22	MR. DAGEN: Just following up on Hill's question
23	then, the mere fact that it raises your rivals' costs in
24	this context would not be sufficient in your mind? They
25	are either going down the wrong path I think was -- Hill

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1	was suggesting or they have to counter, take some
2	counter -- so it raises their costs in the short run
3	potentially.
4	DR. McAFEE: I would actually object to that as
5	being characterized as raising rivals' costs.
6	MR. DAGEN: Okay.
7	DR. McAFEE: The rivals who have actually chosen
8	to investigate whatever they investigate, putting out,
9	you know, memos that say we are investigating this, the
10	rivals are free not to follow that, and, in fact, that
11	is -- I would say generally, the rivals are the best
12	informed. The general public is much more likely to be
13	misled, which is usually damaging to the originator.
14	So, if Sony says, well, we are going to deliver this,
15	and then they do not, that is harmful to Sony, not so
16	much to Microsoft.
17	MR. DAGEN: Why don't we head to slide 3. I
18	think we have had a lot of discussion about a lot of
19	these topics, and that was the purpose of this panel.
20	So, slide 3, "The jury could have found that --" this is
21	from Conwood -- "that USTC maintained its monopoly power
22	by engaging in the challenged conduct," and I would like
23	to focus this on causation issues.
24	So, what kind of causal connection must be shown
25	between misleading conduct and the creation of or

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1	preservation of monopoly power? I think it was -- well,
2	Michael or Gil, one of them talked about what you would
3	have to show, and we would like to consider that issue a
4	little more.
5	DR. BROCKMEYER: Well, let me go first. Yeah,
6	basically what I had said was that you would need to
7	show -- I used the word institutional, that is, getting
8	away from the mistakes or the rogue district manager or
9	whatever, that is, that it was a conscious decision that
10	was corporate policy.
11	Secondly, that it was pervasive, and I thought a
12	little bit about how I would measure pervasive, and I
13	think I would -- what I suggested on the slide is
14	relative to the relevant geographic market. So, the
15	question is how much was there.
16	And then finally, ultimately, that it harmed the
17	competitive process, that somehow, in the case of
18	Conwood, that the throwing away of the racks and so on
19	and so forth harmed the competitive process among
20	Conwood and U.S. Tobacco.
21	As I mentioned earlier, I think it is a classic
22	case of what happens when you have private litigation in
23	front of a jury in that I just think about it as myself,
24	as I am sitting here, I am a juror and not an antitrust
25	lawyer, and I sit there, and here I have got a

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1	monopolist who is undertaking these acts.
2	Now, one key, of course, is I think you have to
3	distinguish -- and the judge has to instruct the jury in
4	a way to distinguish between what was deceptive or
5	misleading and what was procompetitive. For example,
6	responding to WalMart or whoever it was, the
7	competition, to have a rack, or even being the category
8	captain or whatever, you know, in and of itself, those
9	are not necessarily deceptive at all, and it is
10	important that the court, in instructing the jury,
11	allowed the jury to sort that out, and, in fact, would
12	have to.
13	So, to me, again, as I said earlier, I think
14	Conwood is just a classic case of a jury's reaction to
15	the evidence presented.
16	DR. McAFEE: This is also probably a good time
17	to remember that the antitrust laws are designed to
18	protect competition and not competitors and that that is
19	an easy mistake for a jury to make, because it is a
20	somewhat subtle distinction, but that deceptive act
21	should be viewed in that light, is does this actually
22	affect competition in the industry or does this affect
23	just one competitor in the industry.
24	MR. DAGEN: I think one of the allegations in
25	Conwood was that as category manager, they were

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1	supplying false information about their sales and their
2	competitors' sales, and there was some talk about
3	whether the information maybe was in public information,
4	easily rebuttable.
5	Does anybody have any sense of where that sort
6	of conversation would occur, where on the line that
7	would be?
8	DR. BROCKMEYER: Well, one -- I hate to use this
9	word, but when I thought about that -- and I teach
10	Conwood in my antitrust class, okay, I like Conwood for
11	teaching students, and the word that comes to my mind --
12	I hate to use it -- is whether, in fact, U.S. Tobacco
13	took on I am going to say fiduciary responsibility when
14	it became the category captain to provide that
15	information. Yeah, the person from Kroeger or whatever
16	said, I made my own decision, and U.S. Tobacco was not
17	going to sway me, but the point being is that once U.S.
18	Tobacco took on those responsibilities, I think it had a
19	bit of a higher standard of conduct than it would
20	otherwise have as a competitor going in and pitching
21	information, because it had committed to Kroeger or
22	WalMart or whomever to provide information not only
23	about itself, but about the competition as well, in a
24	role different than being just a competitor in the
25	market.

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1	MR. OHANA: Let me maybe disagree with that a
2	little bit having advised on category management issues
3	over time. You always tell your clients when they have
4	been appointed, annointed, category captain that they
5	should provide truthful information to the retailer, but
6	it seems to me that the retailer knows the biases of the
7	category captain, that it is going to design a planogram
8	that promotes its products, and if you think that the
9	incentives of the retailer in any way parallel the
10	consumer welfare, then the idea that the dominant
11	company that is appointed category captain has some kind
12	of special obligation to be truthful seems odd to me.
13	This is not the context like the ones the FTC
14	identified in the Rambus case where you are talking
15	about a cooperative enterprise. There is a fierce
16	competition for shelf space. Everybody knows what the
17	biases of category captain are, and if the competitors
18	ever feel that they are being discriminated against by
19	the behavior of the category captain filtered through
20	the retailer, they know Kroeger's phone number.
21	MR. DAGEN: In terms of causation, Judge
22	Easterbrook in Sanderson distinguishes cases from
23	Hydrolevel and says Hydrolevel had an enforcement
24	mechanism by virtue of codes being adopted based on the
25	conduct in the standard-setting organization, and he

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1	says in Sanderson there is just basically speech. Does
2	there have to be an enforcement mechanism of some sort
3	in either government or standards or some other means
4	before the requisite causation can be shown in one of
5	these misrepresentation cases?
6	MS. CREIGHTON: I guess I'd say no and cite U.S.
7	v. Microsoft. In the diluted Java, for example, there
8	was no enforcement mechanism. It was cooperative in the
9	sense that the standard-setting process is cooperative,
10	but the representation was come build to Microsoft Java
11	because all the applications that you build will be
12	interoperable with Sun's Java, and people had no reason
13	to suspect that those representations were not true, so
14	they went ahead and built applications using Microsoft's
15	version of Java and then discovered that, lo and behold,
16	they had just collectively created a library of programs
17	that would only run on Microsoft. So, there was no
18	enforcement mechanism there that I can identify other
19	than the fact that it was a network market, but
20	nonetheless, I think that that decision -- that the
21	Justice Department was correct in pursuing that claim
22	and the D.C. Circuit in upholding it.
23	MR. CARY: It seems to me that the issue is
24	durability, not enforcement, and the question is from
25	what does that durability derive? Does it derive from

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1	network effects, from existing monopoly and interfaces,
2	does it derive from enforceability, does it derive from
3	the incorporation of a standard? It could be any of
4	those.
5	MR. DAGEN: If we could go to slide 7, this
6	states, "The Federal Trade Commission may consider
7	public values beyond simply those enshrined in the
8	letter or encompassed in the spirit of the antitrust
9	laws." That is from Sperry and Hutchinson, 1972.
10	So, one of the questions that arises in
11	connection with this agency, the FTC, is whether Section
12	5 gives the Commission a different role to play in
13	policing deceptive conduct than Section 2 of the Sherman
14	Act.
15	DR. ROZEK: One of the most difficult things to
16	deal with is arbitrariness on the part of the antitrust
17	agencies or any regulatory agency. If it is going to be
18	difficult for both buyers and sellers to understand what
19	the policies are going to be or the enforcement
20	policies, just introducing some arbitrariness into the
21	process, then I think there is a social cost to that.
22	For example, one of the things that is very
23	helpful in terms of enforcement of the antitrust laws
24	are the Merger Guidelines. You have Guidelines that
25	tell you how the antitrust agencies are going to look at

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1	these things, and they follow those Guidelines. They
2	have essentially become de facto the standard for doing
3	competition analyses even in private cases.
4	To the extent that there is a hidden agenda or
5	there is a hidden policy trying to be achieved, laws are
6	going to be applied in an arbitrary manner. I do not
7	think that does a service to buyers or sellers or to
8	firms or consumers.
9	MR. DAGEN: We talked a little bit about treble
10	damage actions. The other remedy often available is
11	injunctive relief. Would that influence the standard
12	that anyone would recommend as to what sort of conduct
13	might be actionable, whether there is simply injunctive
14	relief or whether there is treble damages also
15	available?
16	DR. BROCKMEYER: Is your question in the context
17	of Section 5 or generally?
18	MR. DAGEN: More generally.
19	DR. BROCKMEYER: Okay.
20	MR. OHANA: Bringing it back to the context of
21	Section 5, I have the blessing and curse, as does Susan,
22	of being a California admitted lawyer where we have the
23	experience of private actions for injunctive relief
24	under 17-200 recently, and I note this is a cautionary
25	tale, narrowed significantly by state ballot referendum,

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1	and the pattern in those cases is that the fact that you
2	can only get an injunction and not money damages did not
3	inhibit the creativity of people in using that law for
4	some truly bizarre ends.
5	MR. DAGEN: Anybody else?
6	DR. McAFEE: There has been a little boom in
7	sending out cease and desist letters for spurious
8	copyright violations, for example. So, if I mention a
9	company's name and mention their product, they may send
10	me a cease and desist letter saying you are not allowed
11	to mention our name because it is a copyright or it is
12	trademarked, and that seems to be a case where something
13	beyond -- and these are not necessarily antitrust
14	issues, but agency action beyond the promote the First
15	Amendment, for example, might be called for, and so
16	insofar as other laws have a bearing on this, you might
17	want to be selective about enforcement or go beyond.
18	That is, I am going to agree, at least in principle,
19	that going beyond the letter of the antitrust laws might
20	be actually desirable in some circumstances, especially
21	as technologies move very rapidly.
22	MS. CREIGHTON: And just going back to your
23	Section 5 point, I guess I would say that I think
24	inefficient conduct that causes durable market power is
25	actionable under Section 2, is actionable under Section

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1	5, and I do not think we need to extend or should extend
2	Section 5 to go beyond that to reach other kinds of
3	conduct.
4	MR. CARY: I guess I would slightly disagree
5	with Gil also as a California admitted lawyer.
6	MR. OHANA: Oh, sorry.
7	MR. CARY: I think it does make a difference
8	that 17-200 is limited to injunctive relief in terms of
9	what kind of damage it can cause to pursue the more
10	frivolous claims. I think the ability to get a motion
11	to dismiss on the damage claims granted, leaving only a
12	17-200 claim, is significant and to some degree I think
13	addresses some of the anticompetitive motives of
14	bringing antitrust litigation that Preston has
15	mentioned, and it leaves you in a position of simply
16	litigating before a judge and not a jury a novel theory,
17	which I do not think is quite so bad as facing the
18	barrel of treble damages.
19	MR. OHANA: This may be an area where the
20	perspective of inside and outside counsel may differ to
21	some degree. We do not enjoy 17-200 cases even though
22	there is no ultimate risk of damages because litigating
23	them is expensive, time-consuming and difficult, and
24	yes, it is somewhat better that there is no risk of
25	damages, let alone treble damages, at the end, but that

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1	does not make the conversation with your general counsel
2	over how much you have spent on what is a completely
3	baseless action any easier.
4	MR. CARY: One man's cost is another man's
5	revenue.
6	MR. OHANA: I guess that's right.
7	MR. DAGEN: Turning to a variation on the
8	subject, are there any safe harbors in the area of
9	misleading or deceptive conduct that the panel would
10	suggest or panelists?
11	While you are pondering that, I will pose the
12	follow-up, which is what about in specific conduct
13	areas, the context of SSOs or false advertising or
14	patent abuse?
15	MR. CARY: I have got one example. I would go
16	back to the sham litigation example. It would seem to
17	me that if you are within Federal Rule of Civil
18	Procedure 11, which requires a reasonable basis for the
19	pleading, that being sued as an antitrust defendant for
20	sham litigation ought to be dismissed as a matter of
21	law. There ought to be a safe harbor if you have met
22	appropriate pleading standards. There should not be a
23	heightened standard for what might constitute sham
24	litigation.
25	DR. McAFEE: What if it is 200 sham litigations?

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1	That is, it is not one, but we have sued 200
2	different -- so, I am thinking about the Recording
3	Industry Association of America. We have sued hundreds
4	of different defendants. So, we are doing it over and
5	over and over again. It is not clear to me that,
6	especially when it is against small defendants, that
7	there should be a safe harbor. I agree about one, but I
8	am not so sure I agree with many.
9	MR. CARY: Well, I think you are back to the
10	question of whether the lawsuit is reasonably calculated
11	to yield the result that you are seeking in the case or
12	whether it is calculated to reach some other result, and
13	I am not sure the number should make a difference if
14	each one of them independently would be deemed a
15	reasonable assertion of a copyright or a patent.
16	MR. OHANA: This is the first time anyone from
17	Silicon Valley defends the RIAA, but it seems to me if
18	they bring 200 cases against 200 accused copyright
19	infringers, those are all fair cases.
20	MS. CREIGHTON: I think what Preston is talking
21	about is the kind of case that would meet what is
22	referred to as the pattern exception to Noerr, where it
23	is filed without regard to whether it is true or not,
24	and so, you know, you are going to have a coin toss
25	chance of it being true or not, but -- actually I am

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1	blanking on the name of the Second Circuit case where
2	they challenged each and every satellite certificate.
3	MR. CARY: Right.
4	MS. CREIGHTON: Primetime. So, it seems to me
5	that if you could satisfy the pattern exception in
6	Noerr, that would also stand up in antitrust law.
7	MR. CARY: Potentially it does under current law
8	in the Second Circuit and perhaps in the Ninth Circuit,
9	but I am questioning whether it should, especially in
10	the case of intellectual property where one of the
11	requirements for protecting the intellectual property is
12	that you have zealously protected that intellectual
13	property. The idea that then you could be charged with
14	an antitrust violation for having done what the patent
15	law requires you to do or the copyright law requires you
16	to do is problematic, and I think the key goes back to
17	your predicate, which is "without regard to the merits."
18	There is a distinction between bringing a case
19	which satisfies Rule 11, because you have a case that is
20	reasonably litigable on the one hand; and one that you
21	bring with no basis, which would violate Rule 11, in
22	which case if it has the requisite competitive effect,
23	there should be an antitrust remedy.
24	DR. BROCKMEYER: George, I need to give a small
25	refinement to your point, and I am not disagreeing with

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1	you, but I am aware of circumstances where the initial
2	bringing of the suit met Rule 11, but during discovery,
3	it then, at that point during discovery, the plaintiff
4	learned that there was no basis for the suit such that
5	at that point then obviously if it pursues the case
6	after that, then I think there is an issue for sham
7	litigation. Now, whether that piece of litigation is
8	exclusionary, that I do not know, but I would not agree
9	that the safe harbor is, well, if you are okay at the
10	initial filing of the suit, you are okay, because,
11	again, of the circumstances I have discussed with you.
12	MR. CARY: Yeah, I think I recognize that
13	distinction, and I do not totally disagree with that. I
14	think it gets very complicated, though, because in that
15	context, now you are talking about work product and
16	attorney-client privileged communications, and it gets
17	very complicated to assess at what point you are
18	obligated to drop that kind of lawsuit.
19	DR. BROCKMEYER: Well, but the problem is in the
20	patent arena you may learn during discovery of the
21	fraud.
22	MR. CARY: Fair enough.
23	DR. BROCKMEYER: Okay?
24	MR. CARY: Yeah.
25	MS. CREIGHTON: I think I would probably

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1	disagree with you, George, about the adequacy of Rule 11
2	sufficiently to guard against that anticompetitive
3	effect, because I think what you are proposing -- well,
4	usually my understanding of Rule 11 is an objective
5	standard, and so if you file every lawsuit and then it
6	turns out half of them are meritless, you get half of
7	them dismissed, but you have still raised rivals' costs,
8	and that is just sort of the willy-nilly filing, and to
9	your earlier point about a judge being able to serve as
10	an adequate gate-keeper, I do not think a judge
11	typically can serve as an adequate gate-keeper to that
12	kind of pattern of filing.
13	DR. McAFEE: Gemstar is alleged to be an example
14	of that.
15	MR. DAGEN: In terms of a kind of the safe
16	harbor, there is a Sixth Circuit case involving
17	podiatrists which looked at a multipart test and said to
18	survive summary judgment on a Section 2 case, you have
19	to show at least that there is a factual dispute, that
20	the statements were clearly false, and two, that they
21	were difficult or costly for plaintiff to counter. Is
22	that something that panelists would agree with?
23	DR. BROCKMEYER: Well, the problem with that
24	decision was that the Sixth Circuit adopted what I
25	indicated in my slides we should not have, which is

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1	there was a rebuttable presumption, and George or
2	someone said this earlier, we are now getting somewhat
3	into procedural law. I do not think it is appropriate
4	to have the rebuttable presumption. So, in the first
5	instance, I would disagree with that case, and I think
6	they filed a Ninth Circuit case as well.
7	MR. DAGEN: Another statement in that case was
8	that there is no liability if the statements are simply
9	misleading as opposed -- and that court talks about
10	Matsushita and what we have talked about earlier with
11	Verizon and the danger of chilling procompetitive
12	conduct, and the Sixth Circuit is saying if it is simply
13	misleading, and I think they mean by that not
14	intentionally, if you cannot show from the beginning
15	that it was an intentional misrepresentation, but if it
16	is just a statement that turns out to mislead people,
17	then they would dismiss the case on those grounds.
18	MR. CARY: In the Walker Process context, that
19	kind of distinction is an important one. In patent
20	litigation, there is always something in the file,
21	especially if it is a complicated product deserving of a
22	patent, something in the file that one can point to as
23	being slightly irregular or perhaps not as articulate as
24	it might have been or using a term of art in a
25	particular way that is distinct from how some future

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1	juror might interpret that.
2	Those kinds of technical issues that may or may
3	not give rise to inequitable conduct, it seems to me
4	that the judge does have an obligation to keep those
5	kind of, quote unquote, "simply misleading statements"
6	away from a jury and that some greater showing should be
7	required before a Walker Process fraud allegation could
8	be sustained.
9	MS. CREIGHTON: I guess I would repeat what I
10	have said before, which is I think the -- sort of the
11	intent element that seems implicit there maybe is a bit
12	misleading. I keep -- this analogy may be more
13	confusing than helpful, but I have tended to think of
14	like opportunism in contract. If a taxi driver picks me
15	up at the airport and says, you know, ten bucks, and
16	then pulls away and, you know, two miles later pulls
17	over to the side of the road and says, you know, I will
18	either let you out here or it will be a hundred bucks,
19	is probably not that relevant to me whether he thought
20	about that at the time he picked me up or only after we
21	left the airport, you know, it is still robbery.
22	And so in the same way, I do not know that it
23	would have mattered to my analysis if a Microsoft said,
24	go ahead and create, you know, applications using
25	Microsoft Java, it will interoperate, and at the time

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1	the person said that, he meant it and was sincere, went
2	back home, and somebody said, well, actually, that is
3	not true, all these people are only going to be able to
4	write applications that work on our product, and he
5	said, oh, yeah, that is a pretty nice fact, why don't we
6	just keep that ourselves?
7	I am not sure that the intent at the time of the
8	statement is really -- for antitrust purposes, that may
9	sometimes be more confusing.
10	MR. CARY: Yes, I completely agree with that,
11	and I think this goes back to Gil's distinction between
12	exploitation and deception in the first instance. One
13	can imagine, for example, a scenario where someone in
14	good faith enters into a FRAND obligation, and then a
15	year later, the CEO changes, and there is pressure on
16	the stock, and he comes up with a brilliant idea, why
17	don't we just increase the royalties on these patents?
18	It would seem to me that that kind of exploitation is
19	just as much an antitrust violation as one with the
20	deceptive intent in the first instance.
21	MR. OHANA: And since we are in the world of
22	patent trolls and nonproducing entities, the fact
23	pattern that George just described is not one that is
24	unfamiliar to many of us where incentives change after a
25	patent is disclosed subject to a RAND obligation, and

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1	what you thought was RAND based on what you perceived to
2	be the incentives of the party making the declaration
3	turns out to be quite wrong, often with significant
4	economic consequences.
5	At that point, I don't really care a whole lot
6	about whether the initial statement was made with guile
7	or opportunism. What I care about is the economic
8	consequence at the end.
9	DR. ROZEK: I think when you are talking about
10	safe harbor as being a more objective standard to apply,
11	like again, using the Merger Guidelines as an example,
12	with the Herfindahl Index standards in the Merger
13	Guideline. It is a more direct standard, easy to apply.
14	By contrast, whether something is misleading or not
15	misleading is difficult to determine with a bright line
16	rule. It would be harder in this context to have a safe
17	harbor as compared to the merger standard.
18	MR. DAGEN: Well, it is now approximately 1:00.
19	There are many other issues that we could have covered
20	today, but I think we have covered a lot of ground, and
21	I wanted to thank both the panelists and again the FTC
22	staff and DOJ staff who put pretty much all of this
23	together, and thank Hill. I would like to thank
24	everybody for being here, the panelists especially for
25	taking time out to educate us today, and I would like to

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1	ask the audience to give one final round of applause.
2	(Applause.)
3	(Whereupon, at 1:02 p.m., the hearing was
4	concluded.)
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C E R T I F I C A T I O N O F R E P O R T E R.

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DOCKET/FILE NUMBER: P062106

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CASE TITLE: SECTION 2 HEARING

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DATE: DECEMBER 6, 2006

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I HEREBY CERTIFY that the transcript contained

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herein is a full and accurate transcript of the notes

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taken by me at the hearing on the above cause before the

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FEDERAL TRADE COMMISSION to the best of my knowledge and

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belief.

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DATED: 12/20/2006

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SUSANNE BERGLING, RMR-CLR

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C E R T I F I C A T I O N O F P R O O F R E A D E R

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I HEREBY CERTIFY that I proofread the transcript

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for accuracy in spelling, hyphenation, punctuation and

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format.

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DIANE QUADE

Updated January 2, 2024