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"Defend Trade Secrets Act" - How Will This New Law Affect Your Business?
With a near unanimous (410-2) vote on April 27, 2016, the House passed the aDefend Trade Secrets Acta (aDTSAa). Having already been passed by the Senate (87-0), the legislation advances to President Obama, who has signaled that he will sign the bill into law. The law is drafted to go into effect on the day of its enactment, and will apply to misappropriation occurring on or after that date.
Read more...(wcsr.com).
Trade Secrets of the Assault Rifles
From the Daytona Beach News-Journal of Florida, a Florida contribution to the evolving role of trade secrets, concerning old-fashioned stealing, a vendetta against a former employee, and, of course, assault weapons.
The paper reports that two men -- Mark Hazelip and Jake Economou a were arrested and charged with stealing trade secrets from Tactical Machining of Deland, Florida, a company that produces upper and lower receivers for AR-15 rifles.
The two alleged stole computer programs, blueprints, drawings and a list of customers. Hazelip quit the company in January and went to work for a competitor, Daytona CNC . Economou was later fired from Tactical Machining. According to investigators, Hazelip talked of putting Tactical Machining out of business/
Instead, after a tip from another former employee working at Daytona CNC, the police aexecuted a search warrant at Daytona CNC and found the Tactical Machining blueprints and drawings for the gun parts and a spiral bound notebook with the name of clients in Hazelip's desk.aUncle Samas Economic Espionage a Not Looking for Your Trade Secrets
This follows on the heels of reports that the NSA has hacked into the systems of various foreign companies including a Brazilian state oil company.
The report quotes James Clapper, Director of National Intelligence:
aWhat we do not do, as we have said many times, is use our foreign intelligence capabilities to steal the trade secrets of foreign companies on behalf of, or give intelligence we collect, to US companies to enhance their international competitiveness or increase their bottom line.a
This issue, obviously, is far from settled.John Deere in Trade Secrets Dispute with Former Factory General Manager
From the Business Section of the Waterloo Cedar Falls (IA) Courier, a story concerning a trade secrets case by agricultural equipment maker Deere & Co. against the long-time general manager of its largest combine factory.
Deere is seeking injunctive relief against Eric Hansotia, who was hired by Deere competitor AGCO into a position that "significantly overlaps" his old job.
The case is pending in federal court in Illinois.
By the sound of the allegations, the case concerns both inevitable disclosure type claims, but also has claims that the defendant aIn his last four days of work . . . connected portable electronic storage devices, some of which computer logs indicate contained Deere trade secrets, to his Deere computer, and he may have kept those devices after his employment ended.a Chinese Trade Secrets Theft Hits US Universities
Now, in a new twist, Reuters reports that three Chinese researchers at NYU Langone Medical Center have been charged in federal court with bribery in connection with theft of trade secrets relating to MRI technology.
The researchers apparently received at least $400,000 in bribes to provide information to a Chinese Medical Imaging company, United Imaging Healthcare, and a Chinese government-backed research institute, Shenzen Institute of Advanced Technology.
The three were charged in federal court in the Southern District of New York where the US Attorney doesnat play.
Man Bites Dog!
Morning Whistle, an unsourced report that publisher and education company Pearson has been sued for stealing the trade secrets of a Chinese competitor, CentriPoint (China).
According to the report, Pearson VUE, Pearsonas computer-based testing division, acquired Certiport on May 15, 2012, but decided to suspend the online service of Certiport (China).
That company now claims that Pearson stole its client list under the pretense of an audit and informed customers of the change without prior consent of the other shareholders of Certiport (China).
An initial court date is scheduled for May 23, 2013.Trade Secrets Finally Gets Toward the Top of the National Agenda
You know trade secrets has finally hit it big when the subject is covered in USA Today and the report is on the Obama Administrationas a new strategy to combat the theft of American trade secrets.
The administration has released its 141-page Strategy on Mitigating the Theft of U.S. Trade Secrets. This comes just after the president signed an executive order adesigned to help U.S. computer networks guard against cyberattacks,a as USA Today put it.
The story contains comments from Victoria Espinel, the U.S. Intellectual Property Enforcement coordinator.
In the words of USA Today:
aThe strategy includes diplomatic engagement with nations where incidents of trade secret theft are high, working with industries on the best ways to protect their secrets, and stepped up prosecutions of business espionage.a
The plan comes out at the same time as reports of Chinese Red Army hacking into U.S. computers.
Espinel says: "The administration will continue to act vigorously to combat the theft of American trade secrets that could be used by foreign companies or foreign governments to gain an unfair commercial advantage over U.S. companies."
Sounds like weare finally getting serious about a problem that has been allowed to grow for years.
Bratz-Mattel Doll Fight Ends Not with a Bang But a Whimper
Now it looks to be all over.
A prA(c)cis goes like this: designer leaves Mattel to go to MGA Entertainment where he designs the popular Bratz line of dolls. Mattell sues MGS for copyright infringement and gets a $100 million verdict and the rights to Bratz going forward.
The Ninth Circuit finds that amount excessive and sends the case back down to the trial court where the jury finds nothing for Mattel, but returns a $170 million verdict against Mattel on a counterclaim for theft of trade secrets, along with $137 million in attorneysa fees.
Now the Ninth Circuit vacates that verdict, finding it time-barred. The attorneysa fees, however, stick.
Itas time to find a cautionary tale here, but the case is so weird we may just need to chalk it up as a one-off.
A Video Overview of the Economic Espionage Act
From me (click the link), a short description of the recent changes in the EEA.Do Computer Fraud & Abuse Act Prosecutions Sometimes Go Too Far?
Offered here without commentary, an article from Slate concerning the recent suicide of Aaron Swartz who was set to go on trial next month for violations of the Computer Fraud & Abuse Act for unlocking a database of scholarly articles.
Prosecutors charging decisions a particularly the amount of prison time and penalties to be sought a are generally discretionary, rarely reviewable, and certainly subject to abuse (and not just under the CFAA).
There should be near unanimous agreement that what happened to Aaron is sad and, if an over-reaching prosecution played a role, something that ought to be rectified.
More on Economic Espionage Act Amendments
IP 360, a story concerning the amendments to the Economic Espionage Act.
The story quotes John Marsh of Hahn Loeser & Parks LLP as saying that the two bills passed by Congress represent "a strong commitment by the federal government to broaden the protections of trade secrets."
The bill, once itas signed by the President, will increase the maximum penalty for misappropriating trade secrets to benefit a foreign government from $500,000 to $5 million for individuals and also applies the law more broadly to the services industry.
The big question on tap for 2013: will Congress create a federal civil remedy for trade secrets theft as a cognate to the criminal statute represented by the EEA?
Amendment to Economic Espionage Act
In the Aleynikov case that we reported about over the years, the defendant managed to walk because the trade secrets he stole were not aproduceda for use in interstate commerce.
Under the new law, designed to reverse the earlier decision in Aleynikov, trade secrets used in or intended for use in interstate commerce are now included. The produced for requirement is gone.
Now say goodnight to the 112th Congress.
Chinaas Economic Espionage
Foreign Affairs, an excellent article by James A. Lewis on aChinaas Economic Espionage.a
According to Lewis, China is the worldas most aggressive practitioner of economic espionage, targeting key industries such as telecom, aerospace, energy and defense. Among other victims are Google and Nortel while some companies that are victims aoften conceal their losses.a
Lewis also argues that the national strategy of economic espionage actually serves to handicap Chinaas own development.
His final assessment:
Economic espionage lies at the heart of the larger issue of Chinaas integration into the international system -- the norms, practices, and obligations that states observe in their dealings with one another and with the citizens of other states. A failure to hold China accountable for espionage undermines efforts to bring Beijing into the fold. In the end, any peaceful rise requires that China play by the rules, even if it seeks to change them, rather than pretend they do not apply.
More Kolon Troubles
The US Attorney in Richmond has indicted the company and five officials, charging them with trade secrets theft. According to the Business Week report here the indictment includes a forfeiture claim seeking at least $225 million in alleged criminal proceeds from the company.
Civil trade secrets cases are bad enough. Criminal ones should be avoided at all costs.Huawei a Another Side of the Story
Farhad Manjoo, in Slate, says that whether a given piece of technology is dangerous is not determined by the nationality of the company that makes it.
As Manjoo puts it:
In reality, most devices are from everywhere. Your Android smartphone was designed in Korea, assembled in China, runs an operating system created in California, and works on a cellular carrier owned by a firm based in Germany. If youare worried about a certain companyas connections to China, you should be worried about pretty much every company in the tech industryathey all have large operations there, and, as a result of those operations, theyave all cut certain less-than-transparent deals with Chinese authorities.
http://www.slate.com/articles/technology/technology/2012/10/huawei_zte_are_chinese_telecom_firms_really_a_danger_to_national_security.htmlHuawei a Any Old Tech Company or Trade Secrets Threat?
On the heels of a recent report on 60 Minutes, Reuters (from LiveMint) reports on the controversy concerning Chinaas Huawei, the worldas second-largest maker of telecommunications gear.
The report quoted Rep. Mike Rogers, chair of the House Intelligence Committee: aIf I were an American company today ... and you are looking at Huawei, I would find another vendor if you care about your intellectual property; if you care about your consumersa privacy and you care about the national security of the United States of America.a
The committee is expected to release a report on the company later today (10/8/12).
Weall get a summary up as soon as itas released.
According to Reuters, Huawei has rejected charges that its expansion in the US poses a security risk and argues that it operates independently of the Chinese authorities.A Long, Long Injunction in DuPont Trade Secrets Case
We reported earlier on the $920 million damage award in favor of DuPont against South Koreaas Kolon for stealing trade secrets relating to the fibers used to make Kevlar body armor.
Now we learn from Bloomberg that the trial judge has not only upheld the verdict, but also imposed a 20-year injunction against Kolon to keep the company from producing any such fibers.
Injunctions, including permanent injunctions, are generally available under trade secrets statutes. Twenty years, though, is probably toward the outside range of what courts have ordered.
New Indictment in Bridgestone Tire Trade Secrets Case
Plain-Dealer is becoming our go-to source on current trade secrets stories.
Hereas another from that publication concerning a case out of Akron.
Xiaorong Wang, a former research scientist with Bridgestone Americas, has been indicted again on 15 counts of trade secrets theft and lying to the FBI.
The indictment claims that Wang burned six CDas of proprietary information on his way out the door after being told he would be let go. The secrets allegedly concern formulas and compound properties for race tires.
An earlier plea deal was rejected by the judge.
The FBI says that Wang provided the trade secrets to Shanghai Frontier Elastomer Co.Eaton-Frisby Trade Secrets Summary
Cleveland Plain Dealer concerning one of the strangest trade secrets cases ever, with North Carolina ties to boot.Set Back in Governmentas DuPont Trade Secrets Case
Weave reported previously on the economic espionage case concerning Pangang Group Steel Vanadium & Titanium Co Ltdas indictment for stealing DuPontas secret process for manufacturing titanium dioxide, a compound that makes products white.
Now comes this report from Reuters (in the Chicago Tribune) concerning a major set back in the governmentas case.
Federal judge Jeffrey White in the Northern District of California dismissed the indictment against the Chinese company on the grounds that service on its putative US agent was insufficient.
According to the report, White ruled that the government had not shown sufficient evidence that Pangang exercised enough control over the entity served for it to be considered an agent.
So we can now add service of process issues to the list of difficulties in trying to rein in Chinese economic espionage.
The government has until August to figure out what it will do next.
Weall report on what happens.Trade Secrets of the OLED TVas
Daytona Beach News-Journal is reporting what sounds like a potentially big trade secrets case.
According to the News-Journal, Samsung is accusing eleven people, including six of its own employees of stealing its trade secrets with respect to OLED (organic light-emitting diode) television technology.
The alleged bad-guy in the scenario: fellow Korean TV maker LG Display. Those two are currently fighting it out in OLED, believed to be the next generation of big-screen TV technology.
Samsung claims that LG stole its display technology and poached Samsung employees.Snyder's and Almeling's "Keeping Secrets: A Practical Introduction to Trade Secret Law and Strategy"
Womble Trade Secrets - after 16 great years at Womble Carlyle, I am departing for a litigation boutique that will be called Graebe Hanna & Sullivan, PLLC. Before advising you about a great new trade secret resource for all, I want to thank my friend and partner Press Millen for prompting me to co-author this blog with him back in 2006. There have been literally hundreds of thousands of visitors to this blog and I've met scores of attorneys and business people who reported perusing and using the blog for information. Thank you Press.
Our friends at O'Melveny & Myers, Darin Snyder and David Almeling, have written a practical and useful primer on trade secret law and the legal and practical treatment of trade secrets. The book, published by Oxford University Press, is divided into three parts: (a) the basics and some definitions useful in understanding trade secret law; (b) guidelines for creating a legal strategy for protecting trade secrets; and (c) practical guidance regarding business and legal responses to incidents of trade secret misappropriation or accusations of the same.
The anecdotes and breezy case studies in the book are rewarding - our favorite quote was from the founder of a company that designed underground mining vehicles and whose company was the victim of a key, respected employee's theft: "I was like the husband whose wife was getting it on the side." Messrs. Snyder and Almeling have shared with us their homework and case studies - just great stuff. We recommend this book to business litigators and non-specialists but it is great reading for those of us specializing in this area of law, as well. You can find the link to the book here: http://www.amazon.com/Keeping-Secrets-Practical-Introduction-Strategy/dp/0199797439/ref=sr_1_3?ie=UTF8&qid=1340990328&sr=8-3&keywords=almeling. http://www.amazon.com/Keeping-Secrets-Practical-Introduction-Strategy/dp/0199797439/ref=sr_1_3?ie=UTF8&qid=1340990328&sr=8-3&keywords=almelingChicago Trade Secrets Case Blows Up on Plaintiff
Take the case of Portola Packaging against its rival Logoplaste (reported here behind Litigation Dailyas paywall) but also nicely summarized in the Trial Communityas Litigation News Blog.
Logoplaste, in 2007, discussed the prospect of buying Portolaas Canadian subsidiary. They exchanged some putatively confidential information but never got a signed NDA. Negotiations broke off in February 2008. Shortly thereafter, Logoplaste landed a key Portola client.
Fast forward more than a year. Portola finally demanded return of the confidential information and filed suit claiming Logoplaste used the documents to steal the customer.
An Illinois state court judge ultimately ruled that Portola failed to protect its information. So far, pretty normal.
Hereas where it gets weird. The judge also ruled that because Portola designated its general counsel as a key witness, his emails were not protected by the attorney-client privilege.
Those emails apparently showed that he had urged Portola to sue just to hurt Logoplasteas business interests. And, he also apparently hired Logoplasteas regular counsel in an unrelated matter in order to create a conflict.
According to the report, although Portola claimed that its confidential documents were used to lure an employee away, the emails indicated the general counsel knew the employee approached Logoplaste first.
The result: a scathing opinion and an order that Portola will pay all of Logoplasteas attorneysa fees for the three years of litigation.
Ouch.
Appeals, no doubt, to follow.Another Big Verdict a Utah Style
For sheer dollars, though, this one out of state court in Utah is right up with those. The report is from the Salt Lake Tribune.
The scenario is a familiar one: Company A seeks bids to build a power plant and Company B, under a non-disclosure agreement, submits its proposal. Company A decides to pull the bidding and awards the contract to itself.
Many years and one trade secrets lawsuit later, Company A finds itself on the wrong side of $134 million verdict based on the contention that it used Company Bas trade secrets to build the power plant.
Company A is PacifiCorp (doing business in Utah as Rocky Mountain Power) and Company B is USA Power.
Now USA Power wants to double the verdict to $267 million.
Thatas a big one by trade secrets standards and weall let you know how it turns out.The Trade Secrets Dilemma a Sue and Disclose
News & Insight on an age-old problem in trade secrets, the fact that bringing suit often requires disclosing the trade secrets.
The article concerns a case in New York state court, MSCI v. Jacob and Axoma. MCSI, a software maker, claimed that its former employee, Jacob, misappropriated trade secrets in its software on behalf of his new employer, Axoma.
The judge overseeing the case made a critical ruling in a discovery dispute requiring the plaintiff to identify awith reasonable particularitya the trade secrets it contends were misappropriated. Only this, the judge ruled would allow the court to distinguish abetween the general knowledge in their field and trade secrets.a
An earlier ruling, now changed, had allowed the plaintiff to identify only those portions of its computer source code that were not trade secrets. That, defendants contended, was unfair since it essentially required them to deduce which trade secrets were at issue, possibly from millions of lines of computer source code.
The judge came around to defendantsa point of view:
Plaintiffs who have brought this action, bear the burden of proving their allegations. Merely providing defendants with plaintiffs' "reference library" to establish what portions of their source code are in the public domain shifts the burden to defendants to clarify plaintiffs' claim.
One of the defense lawyers claimed that to do otherwise would be like allowing a person to claim that he had been robbed by a suspect and then walk around the suspectas apartment to identify what was taken.
Before bringing any trade secrets case, it's always necessary to consider what disclosure may be required and its implications for the business and the trade secrets themselves.AT&T/Time Warner: Rube Goldberg Machines, Bob Dylan Quotes and a Shifting View of Video Programming Competition
My partners Mark Palchick and Marty Stern have written a good article on the District of Columbia's recent antitrust ruling rejecting the U.S. Justice Department's efforts to block AT&T's acquisition of Time Warner.
AT&T/Time Warner DOJ Smack Down: You Don't Need a Weatherman to Know Which Way the Wind Is Blowing.
Interesting stats from their article:
- The District Court's opinion is 172 pages long.
- There are over 20 exclamation points!
- References to Rube Goldberg machines.
- And at least one quote from Bob Dylan.
Here is the takeaway from their article:
The evidence adduced at trial also seemed to contradict a central concern of the Open Internet rules -- that broadband distributors will block access to rival video sources. The court found that distributors have a strong incentive to maximize distribution of video programming on their networks, not curtail it.
If you read nothing else in the opinion, and want a plain English description and a clear distillation of the current state of the programming supply and distribution markets, and the cut-throat, highly competitive, knock-down, drag-out negotiations between programmers and distributors, complexity, warts and all, peruse pages one through forty of the opinion. It is a wonderful distillation of how the sausage is made. While there are many, one key take-away from that discussion is that there is no more amust havea national programming, which is now a mere marketing term, and the absence of particular channels on an MVPD platform does not preclude the ability of MVPDs to compete in the marketplace.
Clearly, according to the judge, the market is shifting away from MVPD competition and the traditional cable and broadcast advertising markets based on linear, live programming and gross eyeballs to a market focused on data-driven targeted advertising, driving data usage through subscriber video consumption, and on the competition between wireline and wireless providers to be the broadband delivery method of choice. a[A]s Nobel laureate Bob Dylan correctly observed,a noted the court, aaYou don't need a weatherman to know which way the wind blows.aa
Mark Palchick and Marty Stern are partners in the Communications, Technology & Media practice of law firm Womble Bond Dickinson in Washington, D.C. They are co-authors of the firmas Communications, Tech & Media Review blog.
Will Kavanaugh's "Modern Approach" Change The Trajectory of Supreme Court Antitrust Jurisprudence?
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| Justice Kennedy swearing in Brett Kavanaugh to D.C. Circuit |
In my last post, I discussed one of Judge Kavanaugh's antitrust opinions, in which he argued for a "modern approach" to antitrust law. Others have similarly commented on Kavanaugh's willingness to modernize antitrust law by discarding outdated precedent and creating clear guidelines. Professor Stephen Calkins notes that "modern" appears six times in Kavanaugh's dissent in Anthem and four times in Whole Foods. In the latter case, Kavanaugh critiques older antitrust cases as "relics" with "loose" or "free-wheeling" analysis. According to Kavanaugh modern approach, antitrust cases that have not "stood the test of time," should be pushed "to the jurisprudence sidelines."
Would this "modern approach" to antitrust law change the direction of the Supreme Court's jurisprudence? It is hard to say. After all, Justice Kennedy, whom Kavanaugh is nominated to replace, was himself a modernizer of antitrust law.
Justice Kennedy authored the majority opinion in
Brooke Group v. Brown & Williamson Tobacco, which heightened the standards for predatory pricing. Kennedy held that a plaintiff must show that a defendant's price was below cost
and that the defendant would be able to raise prices and "recoup" those loses after competitors left the market. This modern standard is so hard to meet, that there have been virtually no successful predatory price cases after Kennedy's 1993 decision.
In Leegin Creative Leather Products v. PSKS, Justice Kennedy reversed 100-years of antitrust precedent in holding that resale price maintenance would no longer be considered per se illegal. In so ruling, Justice Kennedy looked to modern "economic analysis," which showed that vertical retail price restraints could be procompetitive. Rather than continuing to follow outdated precedent, Kennedy explained that the Sherman Act should be treated as a "common-law statute" which can "evolve[] to meet the dynamics of present economic conditions." Kennedy was willing to overrule established precedent because "subsequent cases [and modern economic analysis] have undermined their doctrinal underpinnings."
Similarly, Kennedy joined the majority in Twombly in changing the pleading standards for antitrust cases. That decision was based, in part, on the "costs of modern federal antitrust litigation and the increasing caseload of the federal courts." Two years later, Kennedy himself was the author of the majority opinion in Iqbal which confirmed that Twombly's heightened pleading standards apply to all cases. Together, Twombly and Iqbal represent the most significant change, or modernization, of civil procedure in decades.
Given Justice Kennedy's willingness to discard outdated precedent and modernize antitrust law based on our current understanding of economic principles, Judge Kavanaugh's "modern" approach to antitrust law will likely simply be an extension of Justice Kennedy's jurisprudence, rather than a new approach. This is not altogether surprising considering that Judge Kavanaugh was a clerk for Justice Kennedy on the Supreme Court in 1993--the same year that Justice Kennedy created the modern standards for predatory pricing in Brooke Group.
Does Kavanaugh's Dissenting Opinion in an Antitrust Case Portend His Views on Abortion?
Roe v. Wade to be "settled law."
What constitutes precedent and when can it be overruled were at issue in the D.C. Circuit's recent decision to block the Anthem-Cigna merger. Judge Kavanaugh dissented from the majority's opinion in that case, and he was criticized by the majority for not properly respecting Supreme Court precedent.
Can we learn anything from his dissent about whether and to what extent he considers established Supreme Court precedent to be binding or persuasive authority?
The Anthem-Cigna Antitrust Case
The Obama Department of Justice and multiple states sued to stop the merger of Anthem and Cigna, two of the nation's larges health insurance providers. The government argued that the merger would substantially lessen competition in the market for employers purchasing insurance. After a six-week trial, the D.C. District Court agreed and enjoined the merger under Section 7 of the Clayton Act.
There were two main issues on appeal: (1) whether courts can consider efficiencies as a defense to illegality under Section 7; and (2) whether the District Court erred in holding that Anthem's purported efficiencies were sufficient to overcome the anticompetitive effects of the merger. Anthem argued that the court had overlooked the cost savings that could be generated from the larger combined entity negotiating more favorable rates with healthcare providers.
In a 2-1 decision, the D.C. Circuit affirmed the lower court's ruling. The majority expressed some skepticism about whether efficiencies could be an ultimate defense to Section 7 illegality because of the Supreme Court's 1967 decision in FTC v. Procter & Gamble, 386 U.S. 568 (1967), that "possible economies cannot be used as a defense to illegality."
The majority noted that, despite the "clear holding of Procter & Gamble," which has not been explicitly overruled, some courts of appeals had recognized the use of efficiencies evidence in rebutting a prima facie case. In the Anthem-Cigna case, however, the D.C. Circuit sidestepped the issue by assuming that, even if efficiencies could be a defense, the District Court did not clearly err in rejecting Anthem's efficiencies defense. The majority also doubted whether there would be any such efficiencies or that any cost savings would be passed along to the employers.
Judge Kavanaugh's Dissent
Judge Kavanaugh wrote a dissenting opinion in which he determined the District Court erred by not considering that the combined Anthem-Cigna would have been able to negotiate lower provider rates, which he believed would be passed through to employers.
In reaching his dissenting opinion, Kavanaugh first argued that, despite the language from Procter & Gamble, efficiencies could be considered in a Section 7 case under a "modern" antitrust analysis. Describing the history of merger enforcement under antitrust law, Kavanaugh explained that in the 1960s the Supreme Court construed Section 7 to prohibit virtually any horizontal mergers, but subsequently cut those precedents back beginning with its 1974 decision in United States v. General Dynamics Corp., 415 U.S. 486 (1974). Thus, Kavanaugh argued that the D.C. Circuit is bound by this "modern approach taken by the Supreme Court" rather than the precise language in the outdated decision in Procter & Gamble.
The majority criticized Kavanaugh's "wishful assertion" that the older Procter & Gamble precedent could be "disregarded ... because it preceded the 'modern approach'" that Kavanaugh preferred. "Put differently, our dissenting colleague applies the law as he wishes it were, not as it currently is." Even if the Supreme Court has not recently opined on the issue, explained Judge Rogers for the majority,"it still is not a lower court's role to ignore on-point precedent so as to adhere to what might someday become Supreme Court precedent."
What Does This Mean?
The majority's critique of Kavanaugh's respect for precedent may foreshadow some of the questions he will be asked during his confirmation hearings, especially with respect to Roe v. Wade. Of course, if confirmed as a Supreme Court Justice, Kavanaugh would not be in the position of a lower court constrained by binding precedent, as he was in the Anthem-Cigna merger. Instead, he truly would be in a position to decide "what might someday become Supreme Court precedent."Is the DOJ's Approval of AT&T's Acquisition of Time Warner Conditioned on the sale of CNN?
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| Cartoon tweeted by President Trump in August 2017 |
According to several news outlets, the Department of Justice has called on AT&T and Time Warner to sell DirectTV or Turner Broadcasting, which includes CNN, in order to gain approval of AT&T's $84.5 billion acquisition of Time Warner.
The New York Times reports that executives at AT&T and Time Warner are bewildered at the request because the proposed deal is a vertical merger. When approving Comcast's similar acquisition of NBC Universal, under the Obama administration, the DOJ and FCC imposed several conditions on Comcast's business practices to prevent Comcast from withholding content from rivals. The New York Times explains that these "behavioral remedies" are typical in vertical mergers, but "[t]he Justice Department's demands for divestitures would be a major change in antitrust policy..."
Reuters reports: "Trump, who has accused Time Warner's CNN and other media outlets of being unfair to him, criticized the deal on the deal on the campaign trial last year and vowed that as president his Justice Department would block it."
The Financial Times reports: "'Its all about CNN,' said one person with direct knowledge of the talks between the company and the DOJ, adding that the regulator made it clear to AT&T that if it sold CNN the deal would go through."
An unnamed source is quoted by Politico as saying: "The only reason you would divest CNN would be to kowtow to the president because he doesn't like the coverage. It would send a chilling message to every news organization in the country."
In July, the New York Times reported that White House advisers had discussed using the deal as "a potential point of leverage over their adversary" CNN. This reporting prompted Democratic Senators to warn against political intervention. "Any political interference in antitrust enforcement is unacceptable" wrote Senator Amy Klobuchar to Attorney General Jeff Sessions, according to a CBS story. Her Minnesota colleague Al Franken stated "The Trump Administration's war against the media must not influence the fate of the transaction."
On Sunday, Kellyanne Conway said that the Trump administration is not interfering with the Justice Department's review of the deal.
To make matters more complicated, today DOJ sources apparently told Fox News that it was AT&T who offered to divest CNN, but that the DOJ rejected this offer. But according to CNN, the AT&T CEO denies this, stating: "Throughout this process, I have never offered to sell CNN and have no intention of doing so."
Apart from the "he said, she said" reporting, there are obvious political and First Amendment implications to this story, as well as antitrust concerns. This will be the first major decision for Makan Delrahim, the newly appointed antitrust chief at DOJ. Delrahim voiced tentative support for the deal prior to his nomination, but is said to be looking at it more closely now that he is in office. Even before the news came out today, analysts said that the AT&T/TimeWarner deal "could be an early test of Delrahim's public perception as an independent official."
If Republicans Allow A Hearing on Merrick Garland's Nomination, They Should Ask Him About Teeth Whitening
Before becoming a judge on the D.C. Circuit, Merrick Garland was an attorney at Arnold & Porter and a professor at Harvard Law School, where he taught antitrust law. He wrote several articles for the Harvard Law Review and Yale Law Journal on the scope of judicial review for administrative regulations and the state action doctrine. In the articles, Mr. Garland argued for a deferential, non-intrusive role for the judiciary. Courts should review administrative regulations to ensure fidelity to the intent of Congress and should not preempt the policy decisions of states through antitrust law or by restricting the state action doctrine.
The state action doctrine immunizes state regulations from challenges under the Sherman Act. In order to receive immunity, the challenged restraint must be "clearly articulated" as state policy and "actively supervised" by the state. California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980). At the time Garland wrote his article, some had argued that the state action doctrine should be narrowed to allow for the preemption of "economically inefficient" state regulations, especially when the regulations originated from the political efforts of private parties who stand to benefit from the restraint.
Garland, however, argued against such a revision, explaining:
The judiciary should not interfere under the aegis of the antitrust laws with a state's political decision, however misguided it may be, to substitute regulation for the operation of the market. Despite protestations, the revisionist proposal is little more than a return to the era the Court left behind when it repudiated Lochner v. New York. The substitution of 'antitrust' for 'due process' and 'economic efficiency' for 'liberty of contract' does not make the assault on democratic politics any more palatable.
Garland, Antitrust and State Action: Economic Efficiency and the Political Process, 96 Yale L.J. 486, 487-88 (1987).
Thirty years later, this same debate about economic liberty and the state action doctrine has resurfaced in the context of occupational licensing--specifically teeth whitening.
Like many professionals, dentists are licensed and regulated by state dental boards. Those who are not licensed are prohibited by state law from practicing dentistry. There is some dispute, however, about whether teeth whitening procedures -- i.e. shining an LED lamp into the mouth of a patient after application of a peroxide-based whitener -- can be performed by non-dentists. Not surprisingly, dentists say no.
The North Carolina State Board of Dental Examiners, for example, issued cease-and desist letters to non-dentists offering teeth whitening services. When the Federal Trade Commission brought a lawsuit against the Board claiming that it was improperly seeking to protect its members from competition, the Board argued it was immune under the state action doctrine because it was a government agency.
The case went all the way to the United States Supreme Court, which held in a 6-3 decision that the Board was not immune because it was not "actively supervised" by the state. North Carolina State board of Dental Examiners v. Federal Trade Commission, __ U.S. __, 135 S.Ct. 1101 (2015). In clarifying and narrowing the state action doctrine, the Court explained: "When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest."
In another case decided a few months later, teeth whiteners challenged a ruling by the Connecticut State Dental Commission that only a licensed dentist could shine the LED light into the mouths of customers during teeth whitening procedures. Instead of an antitrust case, this was a constitutional challenge based on the Equal Protection and Due Process Clause. The Second Circuit Court of Appeals rejected the challenge, however, finding that there was a rational basis to uphold the regulation because, however tenuous, there was at least some evidence that LED lights may cause some harm to some consumers. Sensational Smiles, LLC v. Jewel Mullen, 793 F.3d 281 (2015).
After noting that this was not an antitrust case, the Second Circuit explained that even if the true purpose of the regulations was naked economic protectionism, that still would be constitutional.
Much of what states do is to favor certain groups over others on economic grounds. We call this politics. Whether the results are wise or terrible is not for us to say, as favoritism of this sort is certainly rational in the constitutional sense...
To hold otherwise would be to interpret the Fourteenth Amendment in a way that is destructive to federalism and to the power of the sovereign states to regulate their internal economic affairs. As Justice Holmes wrote over a century ago, a[t]he 14th Amendment does not enact Mr. Herbert Spencer's Social Statics.a Lochner v. New York, 198 U.S. 45, 75, 25 S.Ct. 539, 49 L.Ed. 937 (1905) (Holmes, J., dissenting)
The Second Circuit's Sensational Smiles decision has been criticized, particularly from the right. A few weeks ago, George Will devoted an entire column attacking the teeth whitening cartel and arguing for more aggressive judicial review of economic regulations. If the Supreme Court refused to take the appeal, Will argued, government would have "an unlimited licence ... to impede access to professions, reward rent seekers and punish consumers, thereby validating Americans' deepening disdain for government."
While the Supreme Court recently declined the cert petition in Sensational Smiles, this issue is likely to come before the Court in the next few years because there is a clear Circuit split between the Second and Tenth Circuit on one side and the Fifth, Ninth and Sixth Circuits on the other side, who reject economic protectionism as a rational basis for regulation under the Fourteenth Amendment.
While I do not presume to know how Judge Garland would answer these questions today, it is noteworthy that he previously argued that courts should defer to state policy decisions even if the decision was economically inefficient and the product of political pressure from market participants. Both the Second Circuit's opinion and Garland's law review article argue that scrutinizing these types of economic regulations would lead to a return of the discredited "Lochner era," where a conservative Supreme Court invalidated New Deal legislation based on notions of economic liberty.
This would be an ideal avenue of questioning for Judge Garland as a Supreme Court nominee:
- "Do you agree that naked economic protectionism is a legitimate basis for government action?"
- "Have your views on the state action doctrine changed since you wrote that law review article?"
- "What role does economic theory have in the judicial review of state or federal regulations?"
- "Do you think the current Supreme Court is in danger of returning to the Lochner era?"
- "Where do you get your teeth whitened?"
But since the Republicans do not appear willing to hold a hearing, all that we can do is read a 30 year-old law review article and speculate as to how Judge Garland would answer these questions.
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