This is truly remarkable. NIN’s album

Ghosts I-IV is ranked the best selling MP3 album of 2008 on Amazon’s MP3 store. Take a moment and think about that. NIN fans could have gone to any file sharing network to download the entire CC-BY-NC-SA album legally. Many did, and thousands will continue to do so. So why would fans bother buying files that were identical to the ones on the file sharing networks? One explanation is the convenience and ease of use of NIN and Amazon’s MP3 stores. But another is that fans understood that purchasing MP3s would directly support the music and career of a musician they liked. The next time someone tries to convince you that releasing music under CC will cannibalize digital sales, remember that Ghosts I-IV broke that rule, and point them here.

According to the band, 800,000 transactions generated $1.6 million in sales revenue in the first week of the album’s availability, despite the fact that the 36-song version of the album is widely available on torrent sites.

I am very much looking forward to the ABA 2009 Antitrust Intellectual Property Conference in my new hometown Berkeley, where I will be on a panel about different approaches toward “forced access” to IP in the US and in the EU. My remarks will focus on the exciting contributions that infrastructure theory has made to our understanding of what properly constitutes an essential facility.

UPDATE: Here’s the link to the registration page.

Gary Becker and Richard Posner have a piar of interesting posts about the UAW and costs to American car manufacturers (Posner’s post, Becker’s post).  Posner on unions as a cartel:

Unions, in other words, are worker cartels. Workers threaten to withhold their labor unless paid more than a competitive wage (including benefits and work rules), but unless their union is able to organize all the major competitors in a market, the cartel will be eroded by the entry of nonunionized firms, which by virtue of not being unionized will have lower labor costs. The parallel to producer cartels is exact–workers are producers.

and:

By driving up employers’ costs, unions cause prices to increase, which harms consumers, who are not on average any better off than unionized workers are. 

I suspect it is only a matter of time until an ”enterprising” class action attorney reads this and files a lawsuit against the UAW on behalf of consumers who have purchased an “Big Three” car in the last, oh, 50 years (give or take a statute of limitations or two).

Michael R. Baye, who served as the director of the Federal Trade Commission’s Bureau of Economics for the past year and a half, is leaving the FTC on December 31 to return to Indiana University’s Kelley School of Business.  Pauline Ippolito will take over as director of the FTC’s Bureau of Economics.  According to the press release:

The director serves as the agency’s chief economist, supervises economic analysis at the Commission, and advises the Commission on economic policy matters.

“I am grateful to Mike for his exceptional work at the FTC, his excellent service, and his outstanding achievements. Mike ensured that the FTC made investments in building knowledge that will serve this agency well for decades to come. We have benefitted greatly from his expertise and his insight, his leadership in much of our policy work, and his invaluable guidance in our litigation matters,” Chairman Kovacic said. “We are most fortunate that Pauline Ippolito will take over as Acting Director of the Bureau.”

…

Ippolito, a nationally recognized scholar, has held a variety of management and staff positions while serving the FTC with distinction for 30 years. She received the Presidential Rank Award of Distinguished Executive, the highest award available to a government executive, for her contributions to improving consumer protection policy for the nation.

Ippolito’s research documents the effects of consumer policy choices on business behavior and consumer welfare. Her work on major policy initiatives has led to improvements in policies for the agency and the nation, as demonstrated by her work on health claims in food advertising and labeling. Her research on resale price maintenance led to changes in antitrust policy, which ultimately has been reflected in Supreme Court jurisprudence. Ippolito has a PhD from Northwestern University.

The complaint (via the Legal Time’s BLT) is here (pdf). The BLT reports that:

Whole Foods asks for injunctive relief that would order the FTC to halt a specialized administrative trial involving the merger, set for February 2009, and move all future proceedings into federal court.

…

The complaint also says that the FTC appointed a commissioner to serve as the presiding official for scheduling purposes instead of leaving such matters to the administrative law judge. As a final kicker, Whole Foods contends, if the company eventually tries to appeal the administrative law judge’s ultimate decision, it will have to do so in front of the full commission, including the commissioner overseeing the initial proceedings.

In a press conference this morning, Whole Foods CEO John Mackey called the FTC’s legal actions against the merger a vendetta filed in a “kangaroo court” and said he doesn’t understand what is motivating the commission.

Blawg Review #189 is now available at Infamy or Praise.

Earlier today, the Supreme Court heard oral arguments in Pacific Bell Telephone Co. v. linkLine Communications, Inc..  You can access the transcript here (pdf).  And you can read Manfred’s primer on the case here.

Here are some initial reactions to the Commission Guidance to Article 82 in no particular order.

• The Commission confirms that exclusion is a derivative antitrust offense. There is only one type of harm to competition, namely consumer exploitation. Exclusion is relevant only if and to the extent it leads to exploitation. (Para. 19) Antitrust conservatives will like this. However, as the Commission giveth it taketh away, namely with a hair trigger standard for exploitation. Consumer harm is recognized at all levels (FN. 15), and in both the short and the long run. Moreover, consumers may be harmed by a loss in innovation, market dynamism, and variety of choice. Even a loss of business rivalry as such may harm consumers, so that “the protection of rivalry and the competitive process outweighs possible efficiency gains.” (Para. 29) The Commission thus reclaims the consumer welfare concept, the favorite meme of antitrust conservatives in paring back the reach of the antitrust laws, as a foundation for a progressive antitrust policy. This proves what commentators have observed all along, namely that the consumer welfare paradigm is not necessarily a rule of non-intervention.
• Technological tying, in the eyes of the Commission, is worse than contractual tying, because it makes a “tying or bundling strategy a lasting one.” (Para. 52) Here, the Commission also includes a negative externality of technological tying in the anticompetitive calculus, namely that “technological tying … reduces the opportunities for resale of individual components.” (Id.) The latter is very much in keeping with recent policy statements in favor of modularization and open systems.
• Cross-subsidies may qualify as predatory, even if the firm is not dominant in the predation market. Tucked away in FN. 39 is the following statement.

  The Commission may also pursue predatory practices by dominant undertakings on secondary markets on which they are not yet dominant. … While the dominant firm does not need to predate to protect its dominant position in the market protected by legal monopoly, it may use the profits gained in the monopoly market to cross-subsidize its activities in another market and thereby threaten to eliminate effective competition in that other market.

  This seems to say that a firm that is lawfully dominant in the market for product A could be liable under Art. 82 for using its profits to subsidize predatory pricing in the market for product B, in which it is not (yet) dominant and where A and B are unrelated.
• The Commission does not like Trinko. Really. For a refusal to deal “it is not necessary that there is actual refusal on the part of a dominant undertaking; ‘constructive refusal’ is sufficient. Constructive refusal could, for example, take the form of unduly delaying or otherwise degrading the supply of the product or involve the imposition of unreasonable conditions in return for the supply.” (Para. 23). Moreover, having obtained a dominant position as a result of previous legislative protection from competition and now being under regulatory compulsion to grant access to essential facilities is an argument for, not against, imposing an antitrust duty to deal. A dominant firm can’t complain about a duty to share

  where regulation compatible with Community law already imposes an obligation to supply on the dominant undertaking and it is clear, from the considerations underlying such regulation, that the necessary balancing of incentives has already been made by the public authority when imposing such an obligation to supply. This could also be the case where the upstream market position of the dominant undertaking has been developed under the protection of special or exclusive rights or has been financed by state resources. In such specific cases there is no reason for the Commission to deviate from its general enforcement standard and it may show likely anticompetitive foreclosure without considering whether the above three cumulative circumstances are present.

The Commission Guidance is clearly a response to the DOJ’s recent report on single firm conduct. Time to check the FTC’s website.

The AmLaw Daily reports:

Google Inc. and Yahoo! Inc. called off their joint advertising agreement just three hours before the Department of Justice planned to file antitrust charges to block the pact, according to the lawyer who would have been lead counsel for the government.  Sanford “Sandy” Litvack (right) left Hogan & Hartson in September to consult for the department’s antitrust division on a possible court challenge to the Web giants’ agreement. The companies abandoned the deal in November after the Justice Department informed them it would seek to block the deal. “We were going to file the complaint at a certain time during the day,” says Litvack, who rejoins Hogan & Hartson today. “We told them we were going to file the complaint at that time of day. Three hours before, they told us they were abandoning the agreement.”

You can read the entire article here.

Congratulations to Jay L. Himes who has joined Labaton Sucharow.  According to the press release:

Labaton Sucharow LLP announced today that Jay L. Himes, former Chief of the Antitrust Bureau for the Office of the Attorney General of the State of New York, has joined the Firm as a Partner and Co-Chair of its Antitrust Practice Group. During his seven-year plus tenure as Chief of the Antitrust Bureau, Mr. Himes led significant and high-profile antitrust actions, including In re Buspirone Litigation ($100 million settlement), In re DRAM Litigation ($90 million partial settlement; case on-going), In re Cardizem Litigation ($80 million settlement), and In re Compact Disc Litigation ($67 million settlement).

Blawg Review #188, with an Alice’s Restaurant theme, is available at the New York Personal Injury Law Blog.

Today, the European Commission published its preliminary report on the competition inquiry into the pharmaceutical sector. The New York Times, which misleading headlines its article “E.U. Accuses Drug Makers of Gouging Consumers,” reports:

The European Union accused drug companies on Friday of adding billions of dollars to health care costs by delaying or blocking the sale of less expensive generic medicines.

One common tactic, said Neelie Kroes, the European competition commissioner, was for drug companies to amass patents to protect active ingredients in the medicines — in one case, 1,300 patents for a single drug.  Another tactic, she said, was for pharmaceutical companies to sue the makers of generic drugs for ostensible patent violations, which tended to delay the availability of the lower-cost products for years.

Hyperbole aside, as the report itself states, it “does not seek … to each any conclusion as to whether certain practices described in the report infringe EC Competition law.”

More to come, but until then, check out the preliminary report and its executive summary; also online are several fact sheets, a press release and Commissioner Kroes’ comments.

Most of us slow down a bit on holiday weeks like this one.  Not the FTC.  This week the FTC filed a petition for certiorari with the United States Supreme Court asking it to review the circuit court’s decision in Rambus Inc. v. Federal Trade Commission.  The petition, which is online, sets forth the questions presented as:

1. Whether deceptive conduct that significantly contributes to a defendant’s acquisition of monopoly power violates Section 2 of the Sherman Act.

2. Whether deceptive conduct that distorts the competitive process in a market, with the effect of avoiding the imposition of pricing constraints that would otherwise exist because of that process, is anticompetitive under Section 2 of the Sherman Act.

The FTC also released a statement by David Wales, Acting Director of the FTC’s Bureau of Competition, on the United States Court of Appeals for the District of Columbia Circuit denial of Whole Foods Market, Inc.’s petition for rehearing en banc.

The Department of Justice avoided the holiday rush and updated its FAQ regarding the leniency program and model leniency program letters last week.

The D.C. Circuit Court of Appeals issued an order today denying Whole Food’s petition for a rehearing en banc. We have posted about the case here, here, here, and here. It will be no comfort to the defendant that the Circuit granted the unusual motion for leave to file a reply (which was written by Ted Olson). The denial of a rehearing means that the panel’s decision remanding the FTC’s petition for a preliminary injunction to the district court stands, and that we can expect further insight into whether the FTC met the newly-confused standard for a preliminary injunction that will guide the district court (in this particular case).

Meanwhile, the FTC is pursuing administrative proceedings on the substance of the alleged §7 violation before Administrative Law Judge Michael Chappell.

Here is the text of the order denying rehearing:

The petition of appellee Whole Foods Market, Inc. (”Whole Foods”) for rehearing en banc was circulated to the full court, and a vote was requested. Thereafter, a majority of the judges eligible to participate did not vote in favor of the petition. Upon consideration of the foregoing and the motion of Whole Foods for leave to file a reply, the opposition thereto, and the lodged reply, it is ORDERED that the motion for leave to file a reply be granted. The Clerk is directed to file the lodged reply. It is FURTHER ORDERED that the petition be denied.

Judge Ginsburg along with Judge Sentelle issued a concurrence to the denial of rehearing which stated:I concur in the denial of rehearing en banc because, there being no opinion for the Court, that judgment sets no precedent beyond the precise facts of this case. See King v. Palmer, 950 F.2d 771, 783 (D.C. Cir. 1991) (en banc) (”without implicit agreement” among a majority of the judges “we are left without a controlling opinion”).

An amended version of the panel decision, also issued today, is here. HT to AT-CONVERSATION listserve.

Here is a youtube clip describing the sadly imperfect market conditions prevailing in the Death Star… cantine. It is a useful, if somewhat technical, illustration of asymmetrical information barriers to concluding a transaction.

HT to Olivier. And TGIF.