Today at SCOTUS: North Carolina Board of Dental Examiners v. FTC

The Supreme Court today will hear oral arguments in North Carolina Board of Dental Examiners v. FTC. The issue before the court is whether a regulatory board established by state law falls under the state-action exemption from federal antitrust laws even though the overwhelming majority of the members of the board are market participants selected by other market participants. Put a bit more succinctly, did a professional association essentially attempt an end-run around federal antitrust law by ensconcing itself in a body created by state law?

The case arose out of a Board of Examiners decision that declared that teeth whitening services were dental services, and that non-dentists offering such services were illegally practicing dentistry without a license. The FTC filed suit and the case eventually went to the 4th Circuit, which ruled in the FTC’s favor. The 4th Circuit’s decision can be found here.

Today’s Nobel Prize Winner in Economics Thinks about Competition Law

See this article about today’s winner for the Nobel Prize in Economics, Jean Tirole, at Bloomberg Businessweek. Among the noteworthy passages from the article, by Peter Coy, is this:

Tirole was among a group of economists who showed, using game theory, that it was in fact possible to make a bigger profit by extending a monopoly to higher and lower links on the production chain. One example would be a company with a patent on a cost-reducing innovation. Selling it to everyone might benefit the public. But the patent holder could make a greater profit by selling the patented invention exclusively to just one customer, which would then be able to underprice its competitors and capture the market. The patent holder might ultimately need to buy its customer, Tirole said.

In other words, contrary to Chicago School economists, vertical mergers (between firms up and down the supply chain) could be anticompetitive because prices could rise for consumers. However, before halting vertical mergers, government regulators also need to take into account the possible benefits the merger might have on innovation.

NY Times Notes Growth of Healthcare Mergers and FTC Enforcement

The New York Times reports that the FTC is using and will continue to use antitrust laws (the Clayton Act, in particular) to monitor and slow hospital mergers.

Chicago-Area Hospital Groups Announce Merger

Two of the largest hospital systems in Illinois announced today their intent to merge. If all goes according to plan, and both Illinois regulators and the FTC approve the merger, then NorthShore University HealthSystem and Advocate Health Care will become Advocate NorthShore Health Partners. The new system will be the largest in Illinois and the 11th largest in the US. Coverage at the Chicago Tribune here, Crain’s here, Chicago Sun-Times here, and the Daily Herald here.

(Full disclosure: The blogger’s wife is an employee of NorthShore University HealthSystem.)

Class-Action Lawsuit Against NHL, MLB, Broadcasters, and Cable/Satellite Companies to Proceed

Reuters reports that a putative class-action lawsuit will proceed against the National Hockey League, Major League Baseball, regional sports broadcasters, and cable and satellite television providers. The federal district court for the southern district of New York will hold the trial. Yesterday’s opinion and order can be found here.

The consumers (or sports fans) who make up the putative class claim that the sports organizations and television broadcasters have violated sections 1 and 2 of the Sherman Act. Their chief complaint stems from the practice that gives regional sports networks exclusive rights to broadcast games to their home markets. However, fans outside of a regional network’s home market must pay a higher premium to the television service provider (in conjunction with the sports league) to have access to see those games. The article gives an example of a New York Yankees fan who resides in San Francisco having to pay a higher fee to see Yankees games on television.

More to come as developments occur…

Rational Actors Join the American Express Defense

This week’s media coverage of the American Express antitrust trial has been silent except for this article from Law360. The article reviews defense testimony given on Monday, August 4, by two American Express executives. The defense appears to have made a two-pronged attack on the government’s case.

Under the first prong, William Glenn testified that American Express had negotiated with merchants to permit those merchants to engage in short-term promotions and sponsorships with other credit card companies. This is a frontal attack on the government’s primary anti-steering charge against American Express. In other words, no restraint in trade to see here. Move along. Or, it’s saying that these clauses are more like suggestions rather than requirements.

The Digital/Analogue Divide and Antitrust Law

Reuters has an opinion piece by Allison Silver on the role of antitrust law in the dispute (or see here) between Amazon and Hachette, and in the proposed merger between Fox and Time-Warner. The gist of the article is that there once was an era when the US government did not hesitate to enforce antitrust law in order to break up monopolies. However, according to Silver, that era is over, and the Department of Justice would rather take a pass on enforcement when it comes to today’s technology (i.e., digital) behemoths. She suggests, based on Amazon’s behavior and the consolidation of media companies, that the time might be upon us to pass new antitrust legislation to reinvigorate the government’s trust-busting activity.

I think Silver’s piece has missed (or glossed over) a few pertinent details.

American Express CEO: Merchant “Steering” Is Anticompetitive

American Express CEO, Kenneth Chenault, gave testimony this week in his company’s antitrust trial. The basic crux of his testimony was that American Express needs restrictions on merchants in order to compete against much larger rivals, Visa and MasterCard. The Wall Street Journal has new coverage of the trial here.

I confess I have a bit more sympathy for American Express after reading about the reasons Chenault gave for requiring merchants to refrain from giving customers incentives to use one method of payment instead of another — in other words, “steering.” According to the WSJ’s coverage, Chenault explained that such restrictions are necessary because: 1) Visa and MasterCard are accepted at more merchants than American Express; 2) American Express has tried to compete on transaction fees against Visa and MasterCard, but those efforts either cost too much or failed to increase market share for American Express; and 3) when customers are given an incentive to use one card instead of another, it is more likely they’ll use the incentivized card for the next purchase.

AMEX Trial In Progress

Bloomberg has an update on the AMEX antitrust trial here. The article covers testimony given by the AMEX President for US Consumer Services, Joshua Silverman. Now it’s no secret that American Express caters to the well-to-do, but I’m wondering if that’s really a justification for requiring merchants to agree not to discount according to the method of payment. The gist of Mr. Silverman’s testimony basically argues that in order to cater to its wealthy clientele, American Express must impose these restrictions on merchants. Or, put another way, average Joes using Visa, MasterCard, or Discover don’t get a break on price because Rich Uncle Pennybags needs to use a Platinum American Express Card to get a first class plane ticket to San Sebastián.

OK, that was a bit reductive. A less populist way to look at the testimony is to consider that those higher AMEX fees pay for a lot of AMEX employee salaries. The market for credit/charge cards is so competitive that the only way AMEX can pay those salaries is by aiming for a wealthier target clientele. Let’s try to understand this perspective.

O’Bannon v. NCAA Decision Expected Today

News reports suggest that on July 25, 2014, Federal District Judge Claudia Wilken will issue her decision in the antitrust trial, O’Bannon v. NCAA. As soon as I am able to do so, I will post a link to the decision. I will give some commentary once I have had some time to read and process the judge’s opinion.