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:: The Rule of Reason ::

:: Tuesday, June 10, 2003 ::

Antitrust News: Take No Half-Measures Protecting Doctors from Antitrust 

:: Posted by Nicholas Provenzo at 11:44 PM

Today I provided oral testimony to the District of Columbia Council Committee on Consumer and Regulatory Affairs on The Physicians Joint Negotiating Act of 2003. As I indicated in my testimony, the bill before the Council
[i]s an implicit confession that the current regime has failed. Yet rather than address the source of that failure—which is a cornucopia of price control schemes over health care—this bill, in key areas, simply repackages that failure and tries to sell it as an improvement. Rather than acknowledge and protect the freedom of doctors to negotiate their own price terms, this bill subjects them to yet another set of complex and onerous regulations. To subject the exercise of a doctor’s legitimate rights to regulatory approval effectively denies these rights. Specifically, the bill denies doctors the unrestricted right to collectively negotiate price and compensation terms with health plans. Only if the health plan possesses a certain market share—a figure that has a history of being arbitrarily manipulated by hostile regulators—are doctors permitted to enjoy even limited rights to control their economic destiny.
I argued that the Council ought to pass a modified version of the current bill that eliminates the distinction between collectively negotiating the terms of patient care—which the current bill exempts fully—and negotiating price and compensation terms. A doctor’s right to negotiate price and compensation terms should not be assigned to a regulatory ghetto, but should instead be affirmed proudly as the cornerstone of the doctor-patient relationship.

I spoke after representatives of the Medical Society of the District of Columbia and a team of lobbyists for the health insurance industry. Unfortunately the one member of the Council who was most enthusiastic to use antitrust to limit doctor's economic rights (typically enough, a Republican) left early on other business, I was not able to refute his position directly to his face. His view was that since the District has a mandate to provide the poor with medical services and had a finite budget to do this, anything that raises prices is reflexively bad. Other members of the Council seemed to understand that artificial barriers on price would reduce the supply of doctors, but were reluctant to constantly integrate this fact with a position that would fully protect doctor’s rights.

The Council was interested in CAC's analyses of FTC antitrust enforcement efforts and we will endeavor to provide it with further analyses. We'll also seek private meetings with council members to brief them more fully on our position.

The most important achievement of the day was we made friends with the DC Medical Society. While from their perspective, even limited reform is a step in the right direction, they appreciated that our position fully protects doctors. We intend to educate them on our efforts against the FTC’s reign of terror against doctors and we are looking forward to working with them mounting a defense.

All in all, a good day. I know Skip will want to weigh in on this further, so I yield the floor to my honorable colleague.

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:: Monday, June 09, 2003 ::

Antitrust News: Daily Roundup 

:: Posted by Skip at 9:10 PM

First, we have news of Oracle raising antitrust concerns:
The chief executive of J.D. Edwards on Monday said Oracle's hostile bid for his company's intended acquirer PeopleSoft would ``drive out'' competition from a key area of business software and raise ``serious anti-trust issues.''

Robert Dutkowsky, J.D. Edwards' president and chief executive, said that Oracle's hostile bid would require an extensive review by antitrust regulators in the United States and European Union because it would eliminate PeopleSoft as one of Oracle's biggest rivals. A week ago, PeopleSoft had said it intended to buy Denver-based J.D. Edwards in a stock deal now valued at around $1.84 billion.
Oracle, of course, was a major instigator of the Microsoft antitrust case. Turnabout may not be fair play here—antitrust is wrong, regardless of circumstance—but there is a powerful lesson here. When you use antitrust against a rival, the day will likely come when someone will use antitrust against you. It's a vicious cycle with no long-term winners, at least in a free-market context.

Second, we have the latest in the long-running vitamin antitrust wars:
Organizations in Tennessee will split $5.6 million as part of a national settlement with vitamin manufacturers who allegedly engaged in price-fixing.

The Tennessee money, which represents the largest antitrust settlement in the state's history, will go to 75 organizations who'll use it to improve health and nutrition.

The alleged price-fixing pushed up costs for vitamin tablets as well as cereal, meat and baby food enriched with vitamins.

"We are pleased so many Tennesseans will benefit from such an unfortunate situation," Tennessee Attorney General Paul Summers says.
Funny how the money from these large antitrust settlements never go to the actual victims. Perhaps that's because there were no actual victims. After all, the vitamin companies never forced anyone to pay a particular price for their products.

Finally, some good news—the government actually admitted they were wrong for once:
Antitrust enforcers Monday recommended that the government abolish key regulations on airline computer reservations systems (CRS), saying they have failed to foster competition in the industry.

The Justice Department advised the Transportation Department, which is weighing the matter, that the long-standing rules may have imposed unnecessary costs on consumers and should not be extended after they expire next January.

Justice officials recommended that transportation regulators abandon price regulations that require reservation systems to charge all airlines the same prices for the same services. They argue that the price rules have not led to competitive CRS fees and may have hurt the ability of some airlines to negotiate lower ones.

There are four CRS companies operating in the United States, and airlines remain heavily dependent on them to sell tickets, even though Internet sales have become more popular. CRS operations provide the essential link between airlines and travel agents.
Yup, government price controls never benefit consumers. Hardly a shocking discovery. Of course, the antitrust regulators continue to believe price controls will work on other areas of the economy, such as physician services.

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Foreign Policy: Iran 

:: Posted by Nicholas Provenzo at 6:59 PM

This from the AP:

"The language of threats and force won't work against Iran. It will only backfire," [Iranian foreign Ministry spokesman Hamid Reza Asefi] told a press conference.
True. Iran is the worlds most notorious sponsor of terrorism. Threats will not mollify its mullahs.

Here's to hoping for the 2nd Iranian revolution.

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Rights & Reason: There They Go Again 

:: Posted by Skip at 11:38 AM

I'm beginning to feel like we're in "Groundhog Day." The FTC announced its latest violation of the Constitution this morning:
A nonprofit corporation representing approximately 1,000 participating physicians in the Dallas/Fort Worth, Texas metropolitan area has agreed to settle Federal Trade Commission charges that collective bargaining on behalf of its members has led to decreased competition and increased prices for the provision of medical services to the area's consumers. Under the terms of the proposed consent order reached with the Commission and announced today, Southwest Physician Associates (SPA) will be barred from jointly negotiating fees and other competitively significant terms on behalf of its physicians, unless certain conditions are met.

"The FTC remains committed to stopping fee-fixing and other forms of anticompetitive conduct among health care industry participants," said Joe Simons, Director of the FTC's Bureau of Competition. "We believe that SPA's actions were in violation of the law and caused consumers to pay illegally inflated prices for medical services."
There comes a point when you have recognize that the FTC is not simply a group of people who hold different opinions from your own, but committed enemies of freedom. Indeed, I'm beginning to think we're dealing with sociopaths—people who enjoy exercising power over others for the sheer enjoyment of it. No rational person can support the FTC's actions in these cases, certainly no person who claims to live under the principles of the Declaration of Independence and a government under the Constitution of the United States.

Perhaps it's time the nation's physicians take a lesson from Martha Stewart. When the government falsely charges you with committing a crime, the answer is not to surrender and cower in fear, but to hold your head high and publicly proclaim your innocence. Heck, after she's acquitted, maybe Martha would consider joining CAC as an advisor on how to stand up to prosecutorial tyranny. We'd love to have her.

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:: Sunday, June 08, 2003 ::

Rights & Reason: Bush Conflicted on Health Care? 

:: Posted by Skip at 8:18 PM

President Bush's plan to force taxpayers to provide prescription drugs for the elderly has an interesting feature. In exchange for adding a prescription drug entitlement to Medicare, the White House plan would encourage seniors to get out of Medicare altogether and join a preferred-provider organization. PPOs are networks of doctors and health care providers that contract with insurance plans to provide care at a discounted rate.

Why is this interesting? Because while the president and congressional leaders seek to subsidize PPO operations, the Justice Department's Antitrust Division (helped by the FTC) is doing what they can to undermine PPOs. Mountain Health Care, a North Carolina PPO, was forcibly dissolved by the DOJ after government lawyers complained the group was "collectively bargaining" with health plans. Of course, that's precisely the point of a PPO, but the Antitrust Division felt that Mountain was simply too big—i.e., it had too many physicians in the network—and that if allowed to continue operating, the government felt Mountain would ultimately monopolize the market and harm consumers. There was no evidence to support these arguments, of course, but the antitrust laws do not require the government to prove much of anything beyond a hypothetical "injury" to consumer welfare.

This is even more interesting when you consider a case on the Supreme Court's fall docket, an antitrust claim against the U.S. Postal Service. There, the Justice Department claims that permitting such antitrust suits would undermine the Postal Service's government-mandated objectives. Funny how it's okay for the antitrust laws to thwart some arbitrary government objectives, but not others. Apparently the Bush administration can't achieve internal consistency even among its own bureaucrats.

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:: Saturday, June 07, 2003 ::

Antitrust News: Doctors Win One in the Ninth 

:: Posted by Skip at 2:55 PM

Yesterday the U.S. Court of Appeals for the Ninth Circuit gave the nation’s doctors some good news on the antitrust front. While hardly an unconditional validation that physicians enjoy the same individual rights as any other citizen, the three-judge panel’s unanimous ruling in International Healthcare Management v. Hawaii Coalition for Health nevertheless makes a good-faith effort to put some limits on the ability of government-supported HMOs to force doctors to act against their will.

The case arises from a 1997 contract negotiation between Blue Cross/Blue Shield and physicians in Hawaii. That year, the Hawaii Medical Association and several independent physician groups formed a “consortium” with the Hawaii Coalition for Health, a consumer group composed principally of physicians. This consortium basically reviewed the Blue Cross contract proposal and issues recommendations, which individual physicians were completely free to accept or reject in deciding whether to sign the Blue Cross proposal.

International Healthcare Management, another provider network and competitor with Blue Cross, entered the market in 1998 and began offering contracts to physicians. The consortium once again provided a review and advisory role. The consortium also entered discussions with IHM about certain elements of their proposal, although apparently not about actual reimbursement levels. In any case, in June 1998, the consortium sent out an “alert” to its members, notifying them of ongoing problems with the IHM proposal. In the aftermath of this “alert,” several hundred physicians still agreed to join IHM’s network, though apparently not enough. IHM ceased its recruiting efforts and sued the various participants in the consortium for violating the Sherman Act.

The trial judge found no evidence to support IHM’s Sherman Act claims, and granted the consortium’s request for summary judgment in their favor. On appeal to the Ninth Circuit, IHM argued “that the district court erroneously held that it is lawful for physician associations to negotiate with health plans on behalf of their competing physician members.” This is a very broad claim, encompassing not just negotiations over prices, but essentially any discussion among “competing” physicians. In recent FTC and Justice Department cases, the government has actually pursued a similar goal, although they usually hide that fact by concurrently (and often falsely) alleging price-fixing. Here, IHM argued price-fixing could be inferred from the consortium’s activities. Thankfully, the Ninth Circuit found that inference was not a substitute for evidence, and that none of the alleged consortium activities came close to violating the Sherman Act. Even the “alert” that was issued contained no specific information regarding price terms, and in fact the alert came after Hawaii’s state insurance commissioner urged physicians to delay considering the IHM contract until certain non-price issues could be cleared up. Thus, the Ninth Circuit, in an opinion authored by Circuit Judge Pamela Ann Rymer, affirmed the lower court’s summary judgment, finding no reversible error.

The heart of the Ninth Circuit’s opinion deals with the scope of the “per se rule,” the doctrine under which a particular class of activity is illegal under the antitrust laws regardless of context. In physician cases, HMOs and government antitrust enforcers have sought to impose a very wide definition of “per se,” to the point, as noted above, where the mere act of communication among competing physicians is sufficient to justify an antitrust charge. It is, for all intents and purposes, a slipper slope argument: If competing doctors have a legal right to talk to one another about HMO contract terms, they will inevitable conspire to “fix prices” and harm consumers.

The Ninth Circuit wisely chose not to adopt this all-encompassing view of “per se.” Instead they maintained what is supposed to be the correct judicial standard; namely, that “[p]er se categories are not to be expanded indiscriminately to new factual situations.” The consortium members correctly claimed “that it was entitled to express its opinions and to share information about health care plans, whether or not its opinions carried weight and regardless of market effects.” The per se rule only extends to overt acts of price-fixing, not mere discussions among “competing” individuals. Nor did the appellate court accept IHM’s assertion that patient welfare would be harmed by permitting physicians to exchange thoughts on proposed contracts: “Disseminating information that fosters rational business decisions is pro-competitive.”

In short, this case was a total vindication of the Hawaii physicians’ position, although the scope of the ruling did not break much new ground in terms of expanding protection of individual rights. The Ninth Circuit simply prevented HMOs from further eroding what little protections currently remain. Nevertheless, this decision should be greeted warmly, because it provides a useful tool in refuting the federal government’s own claims in favor of expanding the “per se” rule to effectively silence physicians who attempt to speak with one another about managed care contracts. This also demonstrates why it is essential to get physician antitrust prosecutions out of the unilateral control of the FTC and DOJ and into the courts, because independent judges tend to hold antitrust prosecutors to at least minimal standards of rationality.

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The Executive Branch: Continuing the Monopoly 

:: Posted by Skip at 1:30 PM

On his last day in office, the director of the Office of Management and Budget capitulated on one of his priority items, ending the government's monopoly on government printing jobs:
The Government Printing Office will continue its century-old monopoly on federal agencies’ printing jobs, under an agreement the Bush administration announced Friday. The agreement ends outgoing Office of Management and Budget Director Mitch Daniels’ year-long quest to let agencies avoid using the printing office as their middle man.

Daniels agreed to let the printing office keep its monopoly. He even agreed to curtail or eliminate current executive branch printing operations that do some of agencies’ printing work in-house. In return, GPO chief Bruce James agreed to set up a Web-based ordering system that will let government buyers deal directly with private printers, which will negotiate discounted overarching agreements with the printing office. The system is modeled after the General Services Administration’s supply schedules. The printing office will collect a 3 percent rebate from printers to fund the cost of the system.

“It gives agencies more freedom and flexibility in selecting printers,” James said.

To be fair, Daniels didn't exactly surrender. There were legal questions as to whether the Executive Branch could unilaterally end the GPO printing monopoly without congressional authorization. But yesterday's decision is still a let-down if you ran a Kinko's in D.C. and were looking to steal some of the GPO's business from the Interior Department.

Maybe if the Supreme Court rules the Postal Service can be sued under the antitrust laws, we can go after the GPO next. Heck, I'm a consumer of government documents, and I certainly feel injured by this monopoly...

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The Economy: It Takes Money to Create Money 

:: Posted by Skip at 1:23 PM

Unemployment figures are at a nine-year high of 6.1%. A major reason for this: companies aren't making enough money:
Richard Yamarone, economist with Argus Research Corp., said the financial markets are mistaken to see signs of recovery in yesterday's report, which showed a marked downtrend in hiring that he expects to continue for the rest of the year.

"Businesses cannot spend what they don't have," he said. "Anemic economic growth will not be sufficient enough to provide the necessary gains in corporate profitability, which are needed to fuel greater business investment and new hiring."
This should come as shock to Capitol Hill legislators, who respond to bad economic news by calling for the government to further reduce corporate profitability by, just to name a few examples, extending government unemployment benefits, threatening U.S. companies that lower their tax burden by incorporating abroad, and creating new government entitlements such as prescription drug benefits. All that money comes from somewhere, and it's usually businesses, since they're the ones generating the wealth in the first place.

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Antitrust News: Raining on Seattle's Newspapers 

:: Posted by Skip at 1:18 PM

The Seattle Post-Intelligencer reports on, er, the Seattle Post-Intelligencer:
The U.S. Justice Department has entered the fray between Seattle's two daily newspapers, acknowledging yesterday that it is investigating whether the unwinding of their joint operating agreement would violate antitrust laws.

The federal agency, which approved the original agreement between The Seattle Times and the Seattle Post-Intelligencer more than 20 years ago, will "look at all relevant evidence," said a Justice Department spokeswoman, Christine Jacobs.

The Justice Department has already started gathering information about the situation. Rowland Thompson, executive director of Allied Daily Newspapers of Washington, a trade group whose members include both Seattle papers, said Justice Department attorney Maurice Stucke contacted him Thursday. Stucke and another federal attorney, Carol Bell, are leading the investigation, a Justice Department staff member in Washington, D.C., said.

"He's doing a full community background check, as far as I can tell, about what public sentiment is and how people view the two papers, and if there are community groups that have a position on it," Thompson said.

Under the joint operating agreement, or JOA, The Times handles printing, advertising, production and circulation for the P-I, in exchange for a larger percentage of the papers' joint profits. The JOA, originally intended to keep the P-I from failing, began in 1983 and was revised in 1999.

The Seattle Times Co. moved in late April to end the JOA after what it said were three years of financial losses at The Times.

The P-I, owned by The Hearst Corp., had filed suit the day before, claiming that The Times has no right to end the agreement because its losses were the result of extraordinary circumstances and didn't demonstrate that the JOA is untenable. An end to the agreement could lead to the P-I's closure. A hearing is set for July 18.
One of the more disturbing trends in federal antitrust regulation is the government's efforts to interfere with private disputes that can easily be managed through the civil courts. We've already seen this with Rambus, a corporation that was hauled before the FTC after a federal appellate court cleared the technology company in its private dispute with industry competitors. Like the Rambus case, there is no benefit to federal antitrust intervention in this dispute between the Seattle newspapers. Indeed, it will simply increase the costs of all parties involved, meaning taxpayers will see their money squandered, while the two newspapers are forced to deplete their financial resources accommodating nosy Antitrust Division attorneys.

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Rights and Reason: Bush Calls for Innovation in Medicare  

:: Posted by Nicholas Provenzo at 11:53 AM

President Bush made the following statement about Medicare during his weekly presidential radio address:

"Today, doctors routinely treat their patients with prescription drugs, preventive care and groundbreaking medical devices — but Medicare coverage has not kept pace with these changes. Our goal is to give seniors the best, most innovative care.

"This will require a strong, up-to-date Medicare system that relies on innovation and competition, not bureaucratic rules and regulations," he said.
Hmmm. Replace the word "Medicare" with "medical" and we would have license to bring the free market back to health care. If President Bush really wants "innovation and competition" and "bureaucratic rules and regulations," he would do just that.

It's amazing though that the people of the land of the free and the home of the brave are so afraid of their freedom that they would never demand the immediate abolition of government boondoggles like Medicare as a simple matter of principle. That's the power of altruism though--if you belive that need is a claim on the life of another, you will never be open to the manifest defects that the practical application of altruism produces.

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:: Friday, June 06, 2003 ::

Antitrust News: Comcast's refusal to air rivals ads criticized 

:: Posted by Nicholas Provenzo at 7:15 PM

This from USA Today:

A U.S. congressman has asked the Justice Department to examine whether cable giant Comcast's refusal to air some DSL advertisements by rival Qwest Communications is anti-competitive.

Rep. Rick Boucher, D-Va., spurred by Qwest's complaints, wrote in a May 19 letter to the agency's antitrust unit that ''Comcast's discriminatory advertising practices should be closely examined and . . . disallowed.'' Boucher, a veteran on telecom policy, said in an interview that the consumer impact ''can be very real if this practice becomes more pervasive.'' He has not heard from Justice, which did not comment.

For months, Qwest has complained to Comcast, the No. 1 cable operator, that it unfairly restricts or refuses ads. They vie for broadband customers in many markets.

Comcast says it runs DSL ads that are pitched as part of a bundle of communications services. It doesn't accept DSL-only ads.

Three other big cable operators, Cox, Charter and Adelphia, say the decision to run rival ads is made case by case. Cable operators have long refused DSL ads, arguing that the First Amendment protects that right -- and that phone companies can reach customers via local TV, radio and billboards. Critics warn antitrust concerns might come into play as cable firms consolidate.
How totaly obnoxious. I've drafted the follwing letter to Rep. Boucher:

Dear Rep. Boucher:

I read with interest USA Today’s coverage of your letter to the Department of Justice calling for an antitrust investigation of Comcast Corporation for refusing to air DSL advertisements by rival Qwest Communications.

There is a certain degree of irony in your call for antitrust investigation of Comcast. I doubt you feel obligated to use your campaign apparatus to communicate the views of your political opponents, yet you seem to have no compunction in demanding Comcast use its assets to communicate the message of its business rivals. It would seem you believe that you have the right to un-coerced control of the organization you have built, but not Comcast.

Our organization has closely monitored the antitrust enforcement efforts of the Department of Justice and Federal Trade Commission for over five years. We have observed first hand antitrust law’s use in attacking great firms, such as Microsoft, for attempting to improve its products, and simple individuals, like Ms. Marcia Brauchler, a Colorado woman earning less than $30,000 a year, but who was accused of being a monopolist by FTC antitrust enforcers because she allegedly violated its shifting mandates as she helped physicians negotiate their contracts with health plans. As long as antitrust law denies the rights of a businessman to complete control of his work and property, it is a law open to wholesale abuse.

Your position on the Comcast case ought to have been that Comcast has every right to control its communication network, and is under no obligation to service the parasitical needs of its business rivals. Yet by your letter, you have turned a simple business question into a political question. I challenge you to reconcile your position with the principle of individual rights. Every individual has a right to pursue his own self-interest in the market. To claim otherwise is to say that we are a nation of surfs obligated to serve the whims of our neighbors. I would hope your vision of America is more profound than that.

Respectfully Submitted,

Nicholas Provenzo
What are the odds of Boucher reconciling his position with the principle of individual rights? Probably a lot better if he received a host of letters like mine.

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Antitrust News: A Merger is Cleared 

:: Posted by Skip at 1:48 PM

From the Associated Press:
ScanSoft Inc.'s $132 million acquisition of SpeechWorks International Inc. received antitrust clearance from the U.S. Justice Department, the company said Friday.

Shares of both companies rose on the news.

ScanSoft shares traded at $6.16, up 26 cents, or 4 percent, Friday morning on the Nasdaq Stock Market.

SpeechWorks shares traded at $5.17, up 25 cents, or 5 percent, Friday morning on the Nasdaq.

ScanSoft said the deal must still be approved by shareholders of both companies, who will vote at special meetings after the registration statement filing with the Securities and Exchange Commission.

The acquisition has already received unanimous approval from both companies' boards, and ScanSoft said it expects the deal to close sometime in August.

ScanSoft, based in Peabody, Mass., makes software that scans paper documents and turns them into digital computer files. Its acquisition of SpeechWorks, which makes speech recognition and text-to-speech programs, will add to SpeechWorks line of voice-related programs.
ScanSoft had to pay a $125,000 "filing fee" with the Justice Department in order to obtain consideration and clearance for their acquisition of SpeechWorks. That's in addition to the thousands of dollars in legal costs and man-hours spent actually preparing and filing the forms. All so the government could say they weren't violating the law.

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The Culture: A Victory for Hootie 

:: Posted by Skip at 1:40 PM

Sportsblogger Dan Lewis points out an interesting secondary effect of the deposing of Howell Raines:
With the resignation of Howell Raines from the NY Times, and with the Masters having come and gone, I'm willing to bet that Augusta has weathered the firestorm. Perhaps we'll get to see if the controvery was a real one, or a newsroom/editorial-driven one.
I don't have much to add on the topic of Raines' resignation, although I would note that if I were a tabloid editor, my headline this morning would have read "HOWELL'S 'RAINE' OF ERROR ENDS," or something to that effect. It seems only fitting.

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Antitrust News: Blumenthal Takes on the ACC 

:: Posted by Skip at 1:06 PM

The complaint in University of Connecticut v. University of Miami is now available online. Just as I predicted last night on the radio, Connecticut Attorney General Richard Blumenthal has brought an antitrust-related claim to stop the "Shalala Three" from defecting to the ACC. Most of the complaint, to be fair, is your garden variety tort claims, but one count argues UConn was injured by the defendants' violation of Connecticut's "unfair competition" law. Of course, that claim is wholly unrelated to the rest of the claim, much of which appears to present triable questions of fact and law.

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Sports Law: Let the Lawsuits Commence 

:: Posted by Skip at 10:11 AM

Just hours after I warned of the litigation train-wreck, five Big East Conference schools sued the University of Miami and Boston College to prevent them from joining the ACC. The Associated Press reports:
The lawsuit, filed in state Superior Court in Hartford, Conn., says Miami and Boston College professed loyalty to their conference while concocting a "deliberate scheme to destroy the Big East and abscond with the collective value of all that has been invested and created in the Big East."

Big East schools went ahead with millions of dollars in renovations and upgrades under the assumption they would be part of a healthy conference for years to come, the lawsuit contends.

The lawsuit was filed by Pittsburgh, Connecticut, West Virginia, Virginia Tech and Rutgers against the ACC, Miami and Boston College. Syracuse is part of the potential ACC expansion but was not included in the lawsuit because plaintiffs said they found no evidence the school made promises to stay in the Big East.

The ACC did not immediately return phone messages seeking comment.

The five Big East schools are suing for financial damages and want an injunction to prevent Miami and Boston College from leaving.
I suspect if this lawsuit proceeds, it will have to be removed to federal court, since it's unlikely a Connecticut state court can sustain jurisdiction over all the parties. Technicalities aside, the suit itself marks the beginning of what could be a protracted litigation war for control of college football. This is what happens when you abandon capitalist principle for altruist ideals.

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Rights & Reason: The Cult of Amateurism 

:: Posted by Skip at 8:04 AM

During my national radio appearance on Steve Czaban's show last night, Steve and I discussed the antitrust implications of the Atlantic Coast Conference's expansion via the acquisition of three Big East Conference teams. For years, the debate in college football has been over creating a single playoff tournament to replace the myriad of bowl games and bowl alliances. As I explained last night, and in today's Initium, you'll never see a genuine playoff unless you take two wretched concepts out of play: amateurism and antitrust.

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:: Thursday, June 05, 2003 ::

Antitrust News: The Vitamin Wars Continue 

:: Posted by Skip at 3:00 PM

From the Justice Department's Antitrust Division:
A federal grand jury in Dallas today indicted the former president of DuCoa, L.P., based in Highland, Illinois, with participating in a nationwide conspiracy to fix prices, rig bids and allocate customers in the choline chloride industry, the Department of Justice announced.

Choline chloride, commonly known as vitamin B4, which is sold by manufacturers and resellers to customers in the animal nutrition industry, is administered to animals to ensure their proper growth and development.

According to the indictment filed today in U. S. District Court in Dallas, Daniel T. Rose of Highland, Illinois, agreed with his co-conspirators to suppress and eliminate competition in the choline chloride market in the United States from approximately August 1997 through September 29, 1998.

"This is the eighth prosecution involving choline chloride and the 30th case arising from the long running vitamins investigation being conducted by the Division's Dallas Field Office," said R. Hewitt Pate, Acting Assistant Attorney General in charge of the Antitrust Division.

Rose is charged with participating in meetings and conversations with his co-conspirators to discuss the prices and volume of choline chloride, agreeing to set choline chloride prices, agreeing to allocate choline chloride customers and rigging bids for contracts to supply choline chloride.

Rose is charged with violating Section One of the Sherman Act, which carries a maximum penalty of three years in prison and a fine of $350,000. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine.
By coincidence, Attorney General John Ashcroft testified before the House Judiciary Committee today, where he asked for additional powers to fight terrorist organizations. For example, he wants the ability to hold terrorist suspects indefinitely, something which is unlikely to win Ashcroft any new friends in the civil liberties crowd. And given the DOJ's propensity to squander taxpayer funds on things like stopping "price fixing" in the vitamin industry and punishing Martha Stewart for having a conversation with her stockbroker, it's becoming more apparent that Ashcroft's opponents have taken the ethical and moral high ground. The Justice Department simply has no core principles when it comes to individual rights and civil liberties. This is not a partisan problem—the Democrats were just as unprincipled when they ran the DOJ under Janet Reno. And indeed, it's not even completely the DOJ's fault. Congress keeps expanding the range of federal "crimes" to combat every minor interest group complaint. The result is a DOJ that's faced with too many laws to enforce and not enough resources. The result is selective prosecution of easy (or popular) targets, which is hardly anyone's idea of equal justice under law.

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CAC News: Radio Appearance 

:: Posted by Skip at 2:49 PM

Tonight I'll be appearing on the nationally syndicated "Steve Czaban Show" on Fox Sports Radio just after 9:20 p.m. I'll be discussing antitrust issues in sports, notably a recent federal appeals court ruling reaffirming baseball's antitrust exemption.

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:: Wednesday, June 04, 2003 ::

Rights & Reason: Hating Martha Stewart 

:: Posted by Nicholas Provenzo at 1:56 PM

Reuters reports that a federal grand jury has submitted a nine-count inditment of Martha Stewart.

Martha Stewart was charged with securities fraud and obstruction of justice on Wednesday, stemming from her sale of shares of ImClone Systems Inc., a biotechnology company run by a close friend.

The charges, which could carry penalties of up to 10 years in jail, marked a stunning blow to Stewart. A former stockbroker, Stewart built a catering company into a media and design empire and became a household name while courting a celebrity lifestyle.

Stewart, who has said she is innocent of any wrongdoing, was also indicted on charges of making false statements.
One has to wonder if Martha Stewart could ever get a fair shake after the negative portrayal of her rise and commercial success in NBC's recently made for TV movie of her life. Martha Stewart is a cultural icon. As someone who shows us how to make our homes more beautiful, she is easy prey for those who despise what for Martha is an almost natural grace. There is a culture in America today that says it is impossible for someone to honestly achieve business success, and Martha Stewart is no exception. By definition, she has to be wicked. Even if the charges against her prove true, insider trading is one of those nebulous crimes that lacks a victim. Just how does one quarantine information so as not to violate the anti-insider trading provisions of the law? It's simply impossible.

CEO's and other company officials can be barred from unloading stock by contract. But to quarantine information as such--it can't be done. Yet that's not going to stop the anti-Martha attack. And at the end of the day, if Martha Stewart goes down, it will be out of simple envy of her success.

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:: Tuesday, June 03, 2003 ::

Antitrust News: CAC Argues Denying Free Market Rights of Doctors Hurts Medicine 

:: Posted by Nicholas Provenzo at 7:07 PM

Today the Center for the Advancement of Capitalism (CAC) filed public comments on the Federal Trade Commission's (FTC) consent order in its case against Anesthesia Service Medical Group, Inc. (ASMG), and Grossmont Anesthesia Services Medical Group, Inc. (GAS), two medical groups which provide professional anesthesia services in San Diego County, California. The FTC charges ASMG and GAS with collectively negotiating on behalf of physicians in violation of the FTC Act with Grossmont Hospital, a La Mesa, California, hospital that extends staff privileges to ASMG and GAS members. The FTC considers any physician collective bargaining to be illegal despite the lack of congressional or constitutional authorization for such a position.

"This case is a classic so-called "price fixing" case," say Nicholas Provenzo, CAC Chairman. "The FTC’s myopic fixation on prices derives from its self-proclaimed mission to protect “consumers” from harm. By emphasizing consumer interests over all others, the Commission has subscribed to the belief that demand, not supply, drives the marketplace, and that a consumer’s every wish must be fulfilled as a matter of right."

"When those wishes cannot be fulfilled on terms of the consumer’s choosing, the FTC axiomatically concludes that it must be the fault of some producer engaging in “unfair” competition," says Provenzo. "The case against ASMG and GAS derives from this flawed premise, and if carried to its logical conclusion, the FTC’s thinking will result in the destruction of the medical profession."

"By attacking the basic rights of physicians to negotiate in their self-interest and treating the services physicians provide their patients as if they were an unquestioned right, the FTC is weakening the basic means of supplying physicians to the marketplace," says CAC Senior Fellow Sean Oliva. "If physicians are unable to profit in the market, they will simply withdraw their services, leaving hospitals without competent staff and patients without adequate care. While Grossmont Hospital may avoid a short-term rise in the costs of obtaining anesthesiologists by running to the FTC to punish ASMG and GAS, the Commission’s intervention will further erode the ability of physicians to pursue their economic self-interest, thus removing a key incentive in retaining and expanding the supply of available physicians."

A copy of the CAC comment letter in PDF format can be downloaded at: http://www.capitalismcenter.org/Campaigns/Antitrust/CAC_Comments_San_Diego.pdf

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Antitrust News: Waiting for Mountain 

:: Posted by Skip at 4:06 PM

Apparently it takes the Justice Department more than three months to read a 49-page comment letter. I discuss my plight over comments made in the Mountain Health Care antitrust settlement in today's Initium.

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Antitrust News: If not the FCC, then the DOJ and FTC 

:: Posted by Nicholas Provenzo at 10:53 AM

It seems some members of Congress are not happy with yesterdays FCC re-regulation vote, and many of them are Republicans. According to Reuters:

A bipartisan group of U.S. senators opposed to television networks expanding their reach expressed confidence they had the votes to roll back a rule adopted by communications regulators on Monday.

The group said it was pressing ahead with legislation to retain limits keeping a network from owning stations that together reach more than 35 percent of the national audience.

The three Republican members of the Federal Communications Commission voted earlier on Monday against their two Democrat colleagues to raise the limit to 45 percent as part of a wider easing of decades-old media ownership rules.

But Sen. Trent Lott of Mississippi told a news conference there was no partisanship in Senate opposition to the new cap.

"A lot of Republicans, in fact, probably most of the Republicans in Congress, would not agree with this decision," said Lott, the former Republican leader of the Senate.

The Senate Commerce Committee has scheduled a hearing for Wednesday on media ownership where all five FCC commissioners are due to testify.

[. . .] Meanwhile, two key members of the Senate Judiciary Committee expressed "serious reservations" about the FCC decision and said future media mergers should get close scrutiny from antitrust regulators at the Justice Department and Federal Trade Commission.

Sens. Mike DeWine, a Republican from Ohio, and Herb Kohl, Democrat of Wisconsin, issued a joint statement saying the agencies should "stand guard to prevent deals which will substantially injure competition in these industries that are so vital in providing the news and information relied upon by millions of Americans."

DeWine and Kohl are the chairman and ranking Democrat on the panel's antitrust subcommittee, and they said they plan to hold a hearing on the FCC rule changes "to examine its implications for competition."
DeWine and Kohl would do better to hold a hearing to examine the implication of antitrust upon individual rights. Just why is it that a businessman can't own a "concentration" of media outlets? It's clear in this case that the free market demands consolidation and efficiency, but congressional leaders seem to think the free market has it wrong. Since when did the judgment of a handful of political leaders replace the judgement of millions of investors, businessmen, and consumers? The honest answer is the second it was held that one person's need for goods and services became a mortgage on the life of another.

A businessman works for his own sake, and if he sees an opportunity to make money by consolidating his business with others, he takes it, because not to is wasteful. That said, a businessman can't outlaw his competitors, nor can he outlaw substitutes to his products and services. How come then the actions of a businessman are conflated with those of a despot, while the actions of antitrust regulators are perceived as promoting freedom?

Until CAC's representatives are able to give testimony at one of these such hearings, you will never hear these basic, elementary questions asked of members of Congress.

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Tax Policy: Universal Service Charges 

:: Posted by Skip at 10:23 AM

The Washington Times has an excellent report today on the Universal Service charge, an omnipresent yet little-noticed sales tax on long-distance telephone calls and other telecommunications services. Just about everyone pays a Universal Service charge of some kind, often just a few dollars per month. But what is this charge for? The Times explains:

It covers the high cost of making it possible for Americans to reach out and touch someone from mountains, swamps and other remote areas. It subsidizes phone bills for poor people and technology at schools and libraries.


Technically, Universal Service charges are paid by telecommunications companies, but most of them pass the cost along to their customers via the monthly fee. But the current system is weakening, according to the Times, because people are simply using less long-distance service (the e-mail effect) and newer services, such as cable modems, aren't liable for the charges. The FCC is expected to review the Universal Service rules next year, and it may allow companies to assess their customers a flat fee regardless of actual services used.

That would be egalitarianism on top of egalitarianism. The Universal Service program already punishes individuals living in high-population areas to subsidize those who live in low-population areas. A flat fee would simply make the things more regressive by forcing people who make fewer calls a month to subsidize those who make more. Of course, the entire program should be abolished, but given the number of congressmen who come from rural states, that's unlikely to happen anytime soon.

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Rights & Reason: The FCC, Continued 

:: Posted by Skip at 10:12 AM

There's a fairly lively debate on the FCC re-regulation scheme at Arthur Silber's blog. Among my favorite pro-regulation arguments is this gem:

There is a finite, shared medium available for broadcasting, like the oceans for instance in shipping. Who owns the oceans? The first people to set anchor in a 4 mile by 4 mile square tract of water? No, it's considered "commons".


The ocean has no owner because it falls outside the political jurisdiction of nation-states. Thus, while one could claim a 4 mile-by-4 mile part of the Atlantic, there would be no government to enforce property rights, opening the pseudo-owner's claim up to piracy or other rival claims. That doesn't mean, however, that property rights could not be established over parcels of water just as they are over land.

But more to the commenter's point, broadcast spectrum is not a "shared" medium by any means. Without the existence of broadcasters to develop the medium, the spectrum is nothing more than hypothetical frequencies which lack form. It is property owners who make broadcasting possible via the spectrum, not "the people" through arbitrary regulation. The fact that the spectrum was not initially privatized—i.e. that spectrum is licensed through the FCC—is due to the coincidental rise of the regulatory state as radio and television technology was invented. The spectrum could have easily been parceled out free of further government obligation, just as the entire Western frontier of America was at one time.

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:: Monday, June 02, 2003 ::

Rights & Reason: The FCC Re-Regulates 

:: Posted by Skip at 12:49 PM

The Federal Communications Commission finally voted on what I call their “re-regulation” package tinkering with existing media ownership rules. I’ve never been all that interested in this story despite the fact I deal with antitrust and competition law for a living. There are really only three things one needs to know about the FCC’s action: (1) the FCC had a statutory obligation to review the ownership rules in addition to several recent court decisions faulting the Commission’s regulation-writing process; (2) the actual changes won’t make a substantial difference in the ownership of any sector of the media; and (3) the only group that will enjoy substantial benefits from today’s action are antitrust lawyers (and policy analysts like myself, ironically) who will bottom-feed off the few new mergers that will occur.

Other then that, the faux-populist storm that came through Washington in anticipation of today’s announcement was a grand waste of time and bureaucrats. Still, you have to be somewhat impressed with the fact 520,000 public comments were filed with the FCC on this issue. Coming from someone who currently maintains the longest FTC streak for sole comment letters filed, I can say the political muscle behind the “Stop Big Media” campaign is not something to be casually dismissed. It would be nice, however, if some of these folks would actually pay attention to how antitrust laws are applied in the real world rather than hide behind fanciful anti-concepts of “media diversity” and the like.

Indeed, the fact that so many nominally libertarian and conservative groups lobbied against loosening the ownership rules is a testament to the cognitive dissonance that’s rampant inside the Beltway. For example, consider this ominous statement from this morning’s FCC announcement:

The FCC strongly affirmed its core value of limiting broadcast ownership to promote viewpoint diversity. The FCC stated that “the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.” The FCC said multiple independent media owners are needed to ensure a robust exchange of news, information, and ideas among Americans.

The FCC developed a “Diversity Index” in order to permit a more sophisticated analysis of viewpoint diversity in this proceeding. The index is “consumer-centric” in that it is built on data about how Americans use different media to obtain news. Importantly, this data also enabled the FCC to establish local broadcast ownership rules that recognize significant differences in media availability in small versus large markets. The objective is to ensure that citizens in all areas of the country have a diverse array of media outlets available to them.


Libertarians and conservatives will swallow an FCC “diversity index” while simultaneously expressing horror when the University of Michigan employs formulas to maintain a racist admissions program. Similarly, groups like the National Rifle Association favored greater restrictions on media ownership while serving as lead plaintiff against the McCain-Feingold campaign finance bill. Yet both campaign finance “reform” and media ownership restrictions arise from the same philosophy of government. It’s logically impossible to support the government censoring private acts of political speech while supporting efforts to maintain artificial barriers to entry for media ownership. The First Amendment is either an individual right or it’s not. You can’t have it both ways, or, more accurately, you can’t have it the right way only some of the time.

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FTC News: New Site, Same Mission 

:: Posted by Skip at 11:53 AM

The Federal Trade Commission has a new website. The banner reads: "Federal Trade Commission - For the Consumer." By inference, I assume that means they're against producers.

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Antitrust News: The District v. CVS 

:: Posted by Skip at 11:35 AM

Saturday’s Washington Post reported on the District of Columbia’s efforts to force drugstore giant CVS to finance their competitors:

District lawyers argue that consumers were put "at risk of substantial harm" after CVS Corp. last year bought a competing pharmacy in Northwest Washington and promptly closed it down, according to a lawsuit filed yesterday.

The city filed the suit in Superior Court, alleging that CVS violated D.C. antitrust regulations when it purchased an Anchor Pharmacy in the Palisades neighborhood in March 2002.

The Anchor store was at 4883 MacArthur Blvd. NW, a few doors from a CVS store. When CVS closed its acquisition, it left a sign directing customers to its other location.

In a seven-page filing, lawyers for the Office of the Corporation Counsel allege that consumers are at risk "because CVS Corporation can profitably choose to reduce service or increase prices."

The city has asked the court to direct CVS and Anchor companies to "provide monetary incentives sufficient to induce the opening of a competing retail pharmacy."

A CVS spokesman reacted with outrage.

"The suit is totally void of merit," Todd Andrews said.

"Anchor made its own decision to close because the location was not profitable. We purchased the assets after they approached us to purchase them. We are deeply disappointed that the District's legal office decided to take this action."

City attorneys believe differently. They contend that the Anchor Pharmacy was not a failing store and that CVS figured it would be easier to buy out its competitor than defeat it through competitive business practices.

"Defendants monopolized or attempted to monopolize trade or commerce," states the lawsuit, which also names Anchor Pharmacies Inc. of Westminster, Md., and the CVS store on MacArthur Boulevard as defendants.


Here at CAC, our first instinct is to look at a case like this as a government effort to violate the property rights of private businesses. Obviously that instinct is correct here, but there’s a more precise message one should derive from D.C.’s actions. My colleague Donald Luskin suggests we need to view antitrust as a “systematic tax” on businesses which harm productivity. The D.C. case against CVS demonstrates exactly what Luskin means. After all, the District isn’t seeking to stop or undo CVS’s acquisition—the government only seeks a tribute payment to a potential competitor. When the government appropriates private wealth for a “public” good—in this case the good is “competition”—that’s a tax. And unlike traditional taxes, the antitrust tax is arbitrarily imposed.

More interestingly, the antitrust tax is often regressive in its application. Consider the worst-case scenario for CVS: They pay several thousand dollars to support a competing store. CVS is a $24 billion company with thousands of stores nationwide. The overall impact of a single antitrust judgment would be negligible in the long-run. In contrast, many recent antitrust cases I’ve dealt with involve far less wealthy defendants who receive far greater damage. For example, in one physician collective negotiating case the FTC pursued last year, one of the defendants—a management consultant for the doctors—reported that his business was off by almost one-third as a result of the antitrust settlement he was forced to sign. This consultant has nowhere near the financial impact on the economy that CVS does, yet he faced a far harsher penalty under the antitrust tax.

This is why the “small” antitrust cases matter a great deal to us at CAC. They don’t get the media attention that Microsoft or CVS gets, but they do far greater damage to America’s free-market system in the long haul.

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:: Friday, May 30, 2003 ::

The Culture: Reading between the lines of the Jessica Lynch story 

:: Posted by Nicholas Provenzo at 11:38 AM

I just don't get it. It is a well know fact that US prisoners of war in Iraq prior to Saddam's fall were not treated with kid gloves. Beatings were standard fare. The tenets of the Geneva convention were all but ignored. Yet joining the reflexively leftist BBC, the AP now reports that Army Pfc. Jessica Lynch captors would have been just fine had her rescuers been unarmed and attempted to rescue her in broad daylight.

You know what--warfare is all about overwhelming force. You bring as much force to bear on a target as you can, to insure that victory is academic. Had Pfc. Lynch's rescuers been unprepared for whatever contingency they might have faced, there would be howling over the needless casualties to save one soldier.

Besides, in all the coverage, I never heard any claim that there was significant resistance to the rescue operation. By my military background, the operation was a textbook POW rescue operation. I say the criticism of the Pfc. Lynch rescuers is just "feet of clay," nothing more an attempt to smear a successful mission for the simple fact that it was successful, and the people back home were inspired by it.

Cheap.

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:: Thursday, May 29, 2003 ::

The Culture: Moore Website Hacked 

:: Posted by Nicholas Provenzo at 11:39 PM

Dumb Celebs reports that big lefty Michael Moore's website was hacked earlier this week by opponents of his so-called documentary "Bowling for Columbine."

I do not condone hacking, but Micheal Moore is as much a fraud as his so-called documentary. What I think Moore really deserves is a documentary on him. Heck, I'd pay money to see that.

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Antitrust News: Microsoft, AOL Time Warner Settle Suit  

:: Posted by Nicholas Provenzo at 5:57 PM

This in from the AP.

Microsoft Corp. will pay AOL Time Warner $750 million and let the media company license its browsing software for seven years in a settlement to resolve an antitrust lawsuit against the software giant, the companies announced Thursday.

The settlement also calls for Microsoft to license its digital media technology to AOL, as well as work with the company to promote digital media initiatives.

Microsoft will provide technical information to AOL to ensure that its products run effectively on the Windows operating system.

The agreement resolves a lawsuit AOL filed against Microsoft in January 2002 on behalf of its subsidiary, Netscape Communications. The complaint was one of several private antitrust lawsuits still pending against Microsoft over anticompetitive behavior.

AOL had alleged in the lawsuit that Microsoft used anticompetitive business practices to ensure the dominance of its Internet Explorer browsing software over Netscape's software. AOL argued that Microsoft made deals with computer manufacturers and others to shut out Netscape and quash competition.
I'm in the wrong business. Defending antitrust victims from unjust attacks is not nearly as lucrative as suing them.

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Rights and Reason: Muslim Woman Sues to Wear Veil for License 

:: Posted by Nicholas Provenzo at 1:08 AM

A Muslim woman has brought suit against the state of Florida for threatening to revoke her drivers license after she refused to remove her veil for her drivers license photo. The question at bar is if Florida has a compelling interest in regulating drivers that overrides the religious protections afforded one of its citizens. Florida's own conduct in issuing drivers licenses would indicate it does not, as it routinely issues drivers licenses without photos. According to the ACLU, which is representing the woman in court:

Florida officials issued more than 800,000 temporary licenses and/or driving permits - without photographs - in the past five years to individuals in a variety of different categories. Convicted drunk drivers with revoked licenses are legally allowed to drive in Florida using only driving permits without photographs, as are foreign nationals, those who failed their eye or written exams and military personnel.
A drivers license may serve as a proxy for an ID, but in fact, it is nothing more than a license to operate a motor vehicle on government highways. Such a license should not demand invading an individual's privacy if they wish to maintain it.

If the question before the court was regarding the woman's passport, for example, I would probably side with the woman having to remove her veil if she wished to be issued a passport on the grounds that a passport serves as a form of identification and demands the means to physically identify the person in question. But then again, perhaps an individual who objected to having their photo taken could simply provide fingerprints or DNA. If it takes forever to process them, that's their own fault, but I think it is at least possible to provide them reasonable accommodations as they act on their convictions.

In my mind, this particular dispute is an open and shut case. We'll see if the court sees it that way.

UPDATE: This jucy tidbit from the Smoking Gun:

Turns out the Florida woman who is suing for the right to wear a Muslim headdress in a driver's license photograph has previously been subjected to an, um, unveiled government portrait. Following her 1997 conversion to Islam, Sultaana Freeman (formerly Sandra Keller) was arrested in Decatur, Illinois for battering a foster child. Freeman, 35, pleaded guilty in 1999 to felony aggravated battery and was sentenced to 18 months probation. As a result of the conviction, state officials removed two foster children from Freeman's care.
And of course, they got pictures.

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:: Wednesday, May 28, 2003 ::

Antitrust News: Baseball Wins Again 

:: Posted by Skip at 3:20 PM

Yesterday the U.S. Court of Appeals for the Eleventh Circuit thwarted the Florida attorney general’s effort to prosecute Major League Baseball for supposed antitrust violations arising from the now-aborted plan to contract two franchises. While the Court of Appeals’ ruling was a total vindication of baseball, the judges made little effort to hide their official disdain for Major League Baseball’s antitrust exemption. The opening of Circuit Judge Tjoflat’s opinion states things succinctly:

For better or worse, professional baseball has long enjoyed an exemption from the antitrust laws. The scope of this exemption – a judge-made rule premised upon dubious rationales and labeled an “aberration” by the Supreme Court – has been the subject of extensive litigation over the years. In this case, we are called upon to address two key issues: (1) the effect of the federal rule upon state antitrust law and (2) whether the exemption extends beyond antitrust prosecutions into the realm of mere investigations. With regard to the first issue, we hold that the federal exemption preempts state antitrust law. As for the second issue, we hold that the Florida Attorney General cannot proceed with the investigation in this case. This holding is based upon the Fourth Amendment and state law rather than the antitrust exemption. In this vein, our analysis differs significantly from that of the district court, although we ultimately affirm its decision.


In November 2001, MLB owners voted to contract two franchises. The Miami-based Florida Marlins and the Tampa Bay Devil Rays were among the possible contraction candidates, although the Montreal Expos and Minnesota Twins thought to be the favored choices of MLB management. The Florida attorney general then issued a “civil investigative demand,” essentially a political call for prosecuting baseball to curry favor with voters and the media. The idea was to drown baseball in document production and deposition requests to convince them not to contract the Marlins or Devil Rays. As it turns out, no team would face immediate contraction, as MLB’s 2002 labor agreement with its players union tabled any contraction until the expiration of the five-year pact. Simultaneously, however, MLB filed suit against Florida to prevent the civil investigation from going forward.

Businesses generally don’t have to justify closing down failing operations, and even the Eleventh Circuit acknowledged MLB had perfectly valid business reasons for closing the Marlins or Devil Rays. Thus, Florida’s only legal remedy to stop contraction would be to claim a violation of the antitrust laws. Since baseball already enjoys a federal antitrust exemption, Florida tried to claim that state antitrust law could still be applied to MLB. The theory here is that the federal exemption merely removes baseball from the scrutiny of federal antitrust laws, leaving a gap the states may fill with their own regulation. The Eleventh Circuit correctly rejected this theory, relying on the Constitution’s Supremacy Clause as giving baseball “a universal exemption in the name of uniformity.”

Of course, it’s unclear to me how the antitrust laws would prevent contraction in the first place. The antitrust laws might prevent certain activities, such as a league preventing a team from moving to another city (as was the case with the NFL’s Oakland-L.A.-Oakland Raiders), but outright contraction is hardly an affront to traditional antitrust theory. Think of it this way. As outlined by MLB in 2001, contraction would involve the remaining MLB teams collectively purchasing two franchises and liquidating them. In other business contexts, this is hardly an unusual or illegal practice. For example, if McDonald’s were to close one of its failing stores by buying back its franchise from the local owner, it’s doubtful anyone would claim the antitrust laws were violated. But as I noted above, Florida’s case was more about political populism than enforcing the law.

The one curious thing about the Eleventh Circuit’s opinion is its argument that the baseball antitrust exemption—a Supreme Court ruling later written into law by Congress—is somehow illegitimate as a matter of law. The Court of Appeals seems particularly concerned with judicial activism in antitrust, as seen in this passage discussing legislative intent:

Any discussion of whether Congress meant to immunize the business of Baseball from all antitrust law (as opposed to federal antitrust law) is, of course, fanciful because Congress never conveyed its preference one way or the other. The exemption is entirely judge-made, although some decisions have attempted to cloak this disturbing fact in the language of Congressional intent.


Arguing the baseball exemption lacks legitimacy because its “judge made” is intellectually dishonest. All antitrust law is “judge made.” The two principle rules of antitrust analysis—the per se rule and the rule of reason—are fabrications of the Supreme Court, not the mandate of Congress. For more than 100 years, the courts and unelected federal agencies have been given a blank check to write, amend, and enforce the antitrust laws at will without oversight or restriction. It is the judges who bear a large share of the responsibility for this, by not only refusing to strike down the antitrust laws as facially unconstitutional (which they are), but also by indulging every politicized antitrust theory offered by government prosecutors. The Eleventh Circuit considers the baseball exemption an “aberration,” yet the courts permit the Federal Trade Commission to apply the antitrust laws to such things as “superpremium ice cream” manufacturers and private membership associations. This is hardly consistent reasoning.

Of course, one can’t fault the Eleventh Circuit too much for despising the baseball exemption. The Court’s only trying to reconcile the exemption with the theory of morality posited by the antitrust laws, a theory nicely described by the Court as follows: “the antitrust laws form the bedrock of our capitalist system premised upon competition, and that anticompetitive conduct harms consumer welfare.” As CAC has always maintained, this is just plain wrong. Capitalism is a system premised upon individual rights as the bedrock of society. Baseball is entitled to its antitrust exemption, not because it deserves special privilege, but because every business is entitled to the protection of basic economic freedom. Resolving the conflict between the antitrust laws and the baseball exemption should be resolved by repealing the antitrust laws, not by repealing the baseball exemption.

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:: Tuesday, May 27, 2003 ::

Antitrust News: Daily Roundup 

:: Posted by Skip at 4:54 PM

The Justice Department is staying out of the latest round of Microsoft appeals, meaning the Solicitor General won't file any briefs in the D.C. Circuit appeal brought by Massachusetts and West Virginia seeking greater sanctions against Microsoft. It's a fairly cowardly act by the federal government, leaving Microsoft to fend for itself in defense of an antitrust settlement the Justice Department is charged with enforcing. I suspect the Justice Department—and by extension, the White House—is implicitly bowing to political criticism from members of Congress, including key Republicans, who felt the Antitrust Division went too easy on Microsoft in the settlement.

In other news, this morning the U.S. Supreme Court granted certiorari in a civil antitrust lawsuit brought against the United States Postal Service. The Ninth Circuit previously held the Post Office could stand trial for antitrust claims, because the agency was not covered by the sovereign immunity granted to government agencies. Solicitor General Ted Olson is arguing the case for the USPS, which the justices will hear next fall. I'll have more to say on this case later after I have a chance to review the file.

Finally, my colleague Arthur Silber takes on William Safire and Glenn Reynolds, who've both recently argued in favor of government control of private media companies. Arthur demolishes the intellectual argument against "Big Media" and also discusses my recent advocacy in the federal antitrust "settlement" with Village Voice Media and New Times Media.

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Antitrust News: CAC to FTC: Hands off New Mexico Doctors  

:: Posted by Nicholas Provenzo at 9:01 AM

Alexandria, VA—Today the Center for the Advancement of Capitalism (CAC) filed public comments on the Federal Trade Commission's (FTC) consent order in the case of Carlsbad Physician Association, Inc. (CPA), a New Mexico corporation formed to allow its members to negotiate on par with health insurance groups. CAC argued that the FTC's antitrust enforcement efforts violate the rights of doctors and will harm the quality of medical care in America.

The FTC’s complaint charged CPA and eight physicians who constitute the company’s members with illegal price fixing for their attempt to collectively bargain with health insurance companies. Under the proposed consent order, the six doctors are effectively prevented from engaging in any collective bargaining activity for a period of 20 years and CPA will be forcibly dissolved.

"CAC has been closely monitoring the FTC's antitrust enforcement efforts against physicians for over a year. Like earlier prosecutions, every aspect of the FTC's case against these doctors is deficient and crumbles upon proper examination,” says Nicholas Provenzo, CAC chairman." "The FTC's antitrust enforcers claim that recognizing a doctor's right to negotiate his fees in concert with other doctors will hurt patients by increasing costs. The FTC should instead observe the effect of its own actions."

"The FTC has made it clear that the only price strategy it would allow doctors to pursue is one that forces them to see more patents for less money," says Provenzo. "This violates the rights of doctors to control the manner in which they work. In addition, reducing the monetary incentive doctors receive for providing care to their patents can hardly be said to be in the patient's best interest."

"Patents already feel like cogs in a vast, uncaring machine," says Provenzo. "The FTC's crusade against doctors will only increase that feeling. It will drive doctors out of medicine and leave patents with a declining standard of care."

“This case represents the government at its worst—prosecuting innocent citizens whose only ‘crime’ is attempting to assert their right to freely negotiate fees paid in exchange for their skills, while claiming that this somehow protects the marketplace,” says CAC Senior Fellow Sean Oliva, who wrote the Center’s comments. "The FTC's mandate is to protect the market—not destroy it, yet the FTC's consent order is confirmed, the marketplace for medicine will be seriously damaged."

A copy of the CAC comment letter in PDF format can be downloaded at: http://www.capitalismcenter.org/Campaigns/Antitrust/CAC_Comment_on_NMCPA.pdf

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:: Saturday, May 24, 2003 ::

Antitrust News: IUPUI's Confession 

:: Posted by Skip at 11:28 PM

The over-named Indiana University-Purdue University Indianapolis managed to earn itself a place in antitrust lore by turning itself in for "price-fixing":

IUPUI has agreed to refund about $500,000 to more than 46,000 current and former students to avoid prosecution for alleged price-fixing at its bookstores.

"To learn that such activity might have occurred is unacceptable, and we are implementing a restitution plan immediately," Cheryl Sullivan, vice chancellor of external affairs for the campus in downtown Indianapolis, told the Indianapolis Star for a story Friday.

The alleged price fixing between IUPUI's bookstores and an unidentified bookstore covered an 18-month period that ended in December.

Officials at IUPUI discovered the possible price fixing during a routine audit in November and reported it to the U.S. Justice Department's Antitrust Division later that month, said Susan Rivas, an attorney for the Indianapolis law firm Ice Miller.

The Justice Department granted IUPUI conditional amnesty under a program that allows businesses and organizations that report antitrust activity and cooperate with the government's investigation to avoid fines or prosecution, Rivas said.

The bookstores allegedly eliminated a 10 percent discount on new health sciences textbooks and imposed a 2 percent price increase on all new textbooks.

Under the restitution plan, students enrolled in classes anytime from July 2001 through December 2002 will receive an average of less than $5 in credit or refunds. Some students will get as little as 24 cents; two will get the highest payment, $170.


And I think we call all breath a sigh of relief now that those students are getting their $5 back. Of course, it would have been interesting to see whether the DOJ would have actually pursued the matter, given that it amounted to a $5 per student "injury."

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:: Friday, May 23, 2003 ::

Politics: Addicted to Taxpayer Funds 

:: Posted by Skip at 10:54 PM

If you thought campaign finance "reform" was bad, consider an even more appalling concept: Taxpayer-subsidized advertising against candidates and ballot initiatives. And more appallingly, this is being pushed by Republicans:

House Republicans are attempting to lift long-standing restrictions on a $1 billion anti-drug advertising program in a move that would allow the White House to use taxpayer funds to engage in partisan political activities and campaign against candidates or ballot measures favoring the legalization of drugs.

The provision was quietly tucked into a bill reauthorizing the White House Office of National Drug Control Policy and is set for markup today before the House Government Reform Committee.

Currently, the office and its director, who is commonly referred to as the drug czar, are barred by law from using their annual $195 million anti-drug advertising budget for partisan, political purposes.

Under language included in a reauthorization bill authored by Rep. Mark Souder (R-Ind.), the prohibition would be lifted when the ONDCP director is acting to oppose an attempt to legalize the use of any illegal drug. The measure was approved last week by the Government Reform subcommittee on criminal justice, drug policy and human resources.

As written, the provision would allow partisan radio, print and television ads if the purpose were to oppose the legalization of drug use. Critics said that any candidate or political party that adopts a position promoting such reforms as allowing the medical use of marijuana or reducing drug sentencing provisions could face a government-sponsored advertising campaign against them in the electoral battlefield.

Last year, for example, Rep. Barney Frank (D-Mass.) sponsored legislation that would limit federal intervention aimed at states or localities that adopted ballot measures less restrictive than current law in dealing with marijuana use. Under the eased advertising restrictions, the drug-control office could presumably use television ads against Frank, critics of the proposal said.


The impetus for this legislation, H.R. 2086, came from a controversy that developed in last year's elections, when White House Drug Czar John Walters openly used taxpayer funds to campaign against medical marijuana initiatives in Nevada and other states. The Marijuana Policy Project, a group supporting the initiatives, filed a federal ethics complaint against Walters earlier this year, charging him with violating the Hatch Act, which broadly prohibits officeholders from using their position and government resources to campaign in state elections. Last month, Nevada's attorney general formally rebuked Walters, but then held he lacked the authority to prosecute a federal official.

MPP's lobbying managed to postpone a committe vote on H.R. 2086, but that's not the end of the story. The legislation actually re-authorizes the Drug Czar's office itself, so it's likely to pass in some form. hopefully without the advertising provision. Ideally, of course, Congress would not vote to re-authorize the Drug Czar's office and the entire operation would pass into the night. There's simply no legitimate role for a government-funded lobbyist who goes around harassing states and citizens who so much as try to debate the issue of drug decrimininlization.

And if you want to extrapolate a larger theme, consider the Drug Czar's campaigning a warning sign for what will happen if the McCain-Feingold campaign finance bill is ultimately upheld by the Supreme Court. That bill restricts the First Amendment rights of citizens to engage in voluntary campaign activity. If the law survives, it will directly encourage further regulation in the form of taxpayer-financed campaigns. This means views not considered "mainstream" by government regulators will be shut out of the political process entirely.

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The Culture: You don't see that picture in the news 

:: Posted by Nicholas Provenzo at 4:51 PM

Rachel Corrie, the 23-year-old terrorist sympathizer from Olympia, Washington who was killed in an attempt to obstruct an Israeli bulldozer in March has become the new patron saint of Palestine, complete with internet shrines, the publishing of her e-mails to her family about her anti-Israeli activism and other such propaganda. Little Green Footballs reports on how Naomi Klein in the Toronto Globe and Mail has the audacity to compare Corrie with Private Jessica Lynch.

Trouble is, the deification of Corrie fails to account for this little picture.





Somehow, I doubt Jessica Lynch burned American flags while surrounded by children.

Corrie's own words damned her enough, but if this picture is accurate, it reveals an angry woman light-years apart from the sweet little activist her admirers belive her to be.

I take no glee in this story. I am saddened by this. Corrie could have worked for peace. She could have called for an end to terrorist attacks. She could have educated children that one's ethnic heritage does not define them. But instead, she did just the opposite.

What a waste.

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Health Care: Physicians Obtain Big Settlement 

:: Posted by Skip at 1:01 AM

Score one for the doctors:

Aetna Inc. Thursday broke ranks with other major health insurers, announcing a $470-million settlement of a suit filed by 700,000 doctors.

The physicians said the settlement would allow them greater flexibility in offering comprehensive care and make it easier to refer patients to specialists. They had charged Aetna with unfairly reducing payments and denying patients' coverage.

The eight other giant health insurers, however, said they would continue to fight the suit, filed in U.S. District Court in Miami by the doctors who joined together as a class last September.

Representatives for the doctors and Hartford, Conn.-based Aetna, the nation's third-largest health insurer, said physicians and patients covered by the insurer would soon have wider rights to appeal the company's decisions regarding payments and coverage. Doctors involved in the suit said the settlement must be signed by U.S. District Judge Federico Moreno in Miami before it becomes effective.


Now, some parts of this settlement rub me the wrong way, particularly the $20 million Aetna will pay to create a "foundation to focus on eliminating racial and ethnic disparities in health care." I mean, I can tell you how to do that for free—restore capitalism to the health care market. But overall, it's a good thing the physicians were able to get one major insurer to break ranks and settle. When you think about it, this settlement—which deals most with conduct rather than damages—amounts to a collective bargaining effort by the nation's physicians. This lawsuit probably would not even be necessary if the FTC and Justice Department would simply get out of the way and allow physicians to collectively negotiate with insurers in the first place. After all, it's a lot harder for an insurance company to screw physicians out of their contractual rights when they're able to respond with a group boycott. But under the almighty antitrust laws, the doctors' needs are secondary to the FTC's policy preference for maintaining the monospony power of insurance companies.

Still, the only long-term solution to the physicians' grievances is to put the government-sponsored HMO cartels out of business for good. This settlement is a good first step, but the doctors need to follow up, not just by maintaining their lawsuit against the remaining insurance companies, but by getting behind CAC's effort to exempt physicians from the antitrust laws.

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Rights & Reason: The Gender Wars Continue 

:: Posted by Skip at 12:51 AM

The Associated Press reports on a curious new Wisconsin law:

Wisconsin fitness centers can bar men or women from joining their clubs under a bill Gov. Jim Doyle signed Monday that exempts the gyms from the state's anti-discrimination laws.

Doyle said he hoped the legislation would encourage more people to exercise regularly, pointing out women lobbied for the bill because they said they felt more comfortable working out at a fitness center that caters only to them.

"Government should do everything we can to encourage physical fitness and if this bill can help encourage women to exercise by offering a supportive environment, then it deserves our support," Doyle said.

Wisconsin law prohibits discrimination in public accommodations based on sex, race, color, creed, disability, sexual orientation, national origin or ancestry.

The law creates a narrow exception for fitness centers.

It defines a fitness center as a place "that provides as its primary purpose services or facilities that are purported to assist patrons in physical exercise, in weight control, or in figure development."

Sen. Judy Robson, D-Beloit, opposed the bill, fearing someone could use the definition to justify a men-only golf course or similar venture.

She said the legislation opens the door to discrimination and creates the possibility it will spread to other public accommodations.

"Women have fought for years to end gender discrimination, especially in athletics," Robson said. "Now that we have arrived at almost full equality, this could set us back."


I'm not sure what's worse: Robson using a specious sex discrimination claim to argue against a bill women asked for, or Governor Doyle tying the constitutional right of free association to some government-approved cause like promoting "physical fitness."

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Antitrust News: CD Settlement 

:: Posted by Skip at 12:43 AM

The infamous compact disc price-fixing settlement nears final approval:

PORTLAND, Maine - A federal judge plans to rule next week on the proposed settlement of a music antitrust lawsuit that would put roughly $12.60 in the pockets of 3.5 million consumers.

Judge D. Brock Hornby heard testimony for more than three hours Thursday on the fairness of the agreement that calls for music distributors and retailers to pay $143 million in cash and compact disks.

Terms of the settlement call for checks to be mailed to 3.5 million people who filed claims under the class-action lawsuit. The actual amount depends on how much money goes to lawyers and distribution fees.

The payout would culminate an antitrust suit that was started by prosecutors in several states in 1996.

The lawsuit, signed by the attorneys general of 43 states and territories and consolidated in Portland in October 2000, accused major record labels and large music retailers facing competition from discount retailers like Target and Wal-Mart of conspiring to set minimum music prices.

The defendants — Sony Music Entertainment, EMI Music Distribution, Warner-Elektra-Atlantic Corp., Universal Music Group and Bertelsmann Music Group, as well as retailers Tower Records, Musicland Stores and Transworld Entertainment — deny any wrongdoing. Attorneys representing the companies declined to testify in court.

Of the total settlement amount, $75.7 million would be distributed in the form of 5.6 million music CDs sent to libraries and schools throughout the nation.

The proposed cash settlement in the case totals $67.3 million.The actual cash distributed to the public is expected to be around $44 million. Payments should be mailed out within weeks of the settlement's approval. The remaining cash will be eaten up by distribution costs and attorney fees.


This case is first and foremost about enriching attorneys. No serious person would argue consumers suffered a legal injury because they chose to buy a CD at a given price. Whether or not the record companies agreed to set minimum prices is irrelevant, since it's their product to sell in the first place. This settlement effectively grants consumers a government-coerced rebate.

The state attorneys general behind this case win on every front: they enrich their trial lawyer buddies, who in turn will support their future election campaigns; consumers get a warm fuzzy over the $12 and change they get for doing absolutely nothing; and a group of major companies lose a chunk of their hard-earned wealth, thus further eroding America's belief in capitalism as the proper basis of society. All in all, not a bad day's work if you're a parasitic state attorney general.

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:: Thursday, May 22, 2003 ::

Rights & Reason: Servicing Kerry 

:: Posted by Skip at 8:00 PM

John Kerry must be desperate if he's already playing the "public service" card:

The United States would be strengthened at home and abroad by a fresh emphasis on public service, Senator John F. Kerry said yesterday, as he outlined a citizenship program whose hallmark would be a free public-college education for anyone who spends two years as a volunteer.

The Democratic presidential contender, speaking first at an American Legion post and later at the prep school he attended, also proposed a federally mandated -- but locally designed -- requirement for public service by high schoolers; a ''Retired but not Tired'' work program for senior citizens; a ''Summer of Service'' program for teenagers not yet old enough to work; almost a quadrupling of the Peace Corps from 6,700 to 25,000 volunteers; and a recruitment drive led by the commander in chief to expand the ranks of the US military.

The Massachusetts senator accused President Bush of failing to quench a public thirst for service in the aftermath of the terrorist attacks of Sept. 11, 2001, and of not fulfilling his campaign promise to ''rally the armies of compassion.'' Kerry's program would cost an estimated $3.2 billion annually, which he said could be paid by closing more than $60 billion in corporate tax loopholes.


Taking money from corporations that earn it to subsidize volunteers who are leeching off the government. Sounds like a fine way to instill a sense of perpetual dependency in our young. As blogger Joanne Jacobs opined about Kerry's proposal: "I envision eager youths and cheerful seniors marching off to their work assignments, singing patriotic songs. Only they're singing in Russian, for some reason."

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Antitrust News: Pate Aces Confirmation Test 

:: Posted by Skip at 12:38 AM

I'll have more to say later today on the confirmation hearing of R. Hewitt Pate, the soon-to-be permanent head of the DOJ's Antitrust Division. For now, here's the Washington Post's take:

R. Hewitt Pate yesterday moved closer to becoming the permanent chief of the Justice Department's antitrust division when he breezed through a Senate confirmation hearing.

Pate, 40, has been acting assistant attorney general for antitrust since November, when Charles A. James left the job. Pate is less of a lightning rod than James, whose handling of the government's settlement with Microsoft Corp. was criticized by some technology companies and members of Congress.

Pate was asked few controversial questions at yesterday's two-hour Judiciary Committee hearing. Senators repeatedly implored Pate to guard against a spate of media mergers and acquisitions after the Federal Communications Commission relaxes ownership rules in the industry, as it is expected to do next month.

"The antitrust division will stand as our last line of defense against excessive media concentration," said Sen. Herb Kohl (D-Wis.).

Pate stressed that the Justice Department, under the Sherman Antitrust Act, would narrowly review such deals for their potential economic impact on local markets, rather than for their effect on television and radio programming.

"I can certainly assure you we will be in place and if there are transactions that present anticompetitive problems we will stop them," Pate said. "When we step in, that may, as a byproduct, also preserve a diversity of voices and that's all for the good."

Sen. Arlen Specter (R-Pa.) pressed Pate to speed up an investigation of Orbitz LLC, which runs a discount travel Web site controlled by five major airlines. Three years ago, the antitrust division opened an investigation of Orbitz, citing a guarantee that airlines would offer their lowest fares on the site.

"Sounds to me on its face like a restraint of trade," Specter said.

Pate said upheaval in the airline industry and "the post-September 11 environment" complicated the antitrust review. "I can assure you we're not sitting on it," he said. "It's just as important to get the right result as to move quickly in those investigations."

Pate said the division will "continue to be vigilant" in making sure that Microsoft lives up to the terms of its settlement. He declined to discuss about other pending cases, including a review of a $6 billion deal that would give News Corp., one of the world's largest owners of television networks, control of Hughes Electronics Corp.'s DirecTV, the biggest U.S. satellite television service.

The Judiciary Committee could vote today on Pate's nomination. Sen. Orrin G. Hatch (R-Utah), the committee chairman, signaled that confirmation was not in question. "I'm totally in support of your nomination," Hatch said. "It's one of the best nominations we could possibly have."

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:: Wednesday, May 21, 2003 ::

The Culture: Danny Glover's Lethal Weapon 

:: Posted by Nicholas Provenzo at 12:51 PM

Maybe it's just me, but it seems that despite general approval of MCI's release of actor Danny Glover as their pitchman, more than one commentator I've read does not approve of the use of boycott to oppose an ideological foe. It's as if hitting a guy in his livelyhood is seen as just too much of a stab.

I don't think so. When we make public statements, our worlds often have an impact beyond ourselves. While every individual has a right to speak their mind free from government coercion, they do not have a right to public support for their statements. Glover, a long-time leftist and political activist, signed a statement in support of Cuba's communist dictatorship. For the victims of that dictatorship and those who sympathize with them, Glover's stance and his omnipresence as an MCI pitchman became intolerable. So they called on MCI to release him.

Where is the coercion? MCI could have stood firm, but instead decided that Glover's private statements offended the very people MCI sought to reach and diluted his effectiveness as a pitchman. Glover is still free to speak his mind, but now he has to recognize that his words come with a price.

Yet leave it to a leftist to demand the unearned as a matter of right.

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:: Tuesday, May 20, 2003 ::

Rights & Reason: Doing Time 

:: Posted by Skip at 10:14 PM

Here's a happy thought from our favorite assistant attorney general-to-be:

Hewitt Pate, acting head of the Justice Department's antitrust division, says the new white-collar sentencing law means a price fixer previously eligible for a three-year sentence could now get 23 years if he is also convicted of obstructing justice. Pate says this should get the attention of potential corporate offenders: "Even very large fines imposed on corporations may be seen as a cost of doing business. Prison sentences are the single most effective deterrent."


Prison sentences will do nothing to deter antitrust violations, since no businessman actually knows what conduct will run afoul of the law. Under Mr. Pate's watch, the antitrust laws are violated if two businessmen in the same field merely exchange price information. Few Americans think such behavior warants one day in jail, much less 23 years.

But to be fair, Pate is not responsible for the new sentencing rules. You can thank a panicky post-Enron Congress for that.

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Antirust News: Verizon Wins a Round 

:: Posted by Skip at 10:07 PM

In the fall, the U.S. Supreme Court will hear an antitrust appeal brought by telephone giant Verizon over a Second Circuit decision forcing the company to stand trial over antitrust charges brought by a competitor’s disgruntled customers. Today, >another antitrust case against Verizon went better for the company:

A divided federal appeals court on Tuesday upheld a judge's dismissal of Cavalier Telephone's $635 million antitrust lawsuit against Verizon Virginia.

Cavalier, a Richmond-based company that sells local telephone service in competition with Verizon, alleged that Verizon had engaged in anticompetitive conduct aimed at reducing or eliminating Cavalier's ability to reach customers and raising its costs of competing with Verizon.

U.S. District Judge James R. Spencer dismissed the lawsuit in March 2002, ruling that the conduct cited by Cavalier amounted to federal Telecommunications Act violations "dressed up in antitrust garb." The 1996 Telecommunications Act laid the groundwork for competition for local telephone service.

In a 2-1 ruling, a panel of the 4th U.S. Circuit Court of Appeals agreed with Spencer. Judge Paul V. Niemeyer wrote in the majority opinion that "Cavalier's recourse is to the procedures and remedies afforded by the Telecommunications Act, not to those afforded by the antitrust laws."

Judge Morton I. Greenberg, a member of the 3rd U.S. Circuit Court of Appeals who was called in to hear the case, dissented. He wrote that while he agreed with much of the majority's opinion, Cavalier stated a claim that warranted further court proceedings.

Cavalier had alleged that Verizon was violating various federal anti-monopoly laws and telecommunications regulations and had breached an interconnection agreement. The lawsuit also claimed violations of the state's Uniform Trade Secrets Act, interference with contracts and economic advantage, and intentional misrepresentation.


There is an underlying conflict between the 1996 Telecommunications Act and the antitrust laws, the result of Congress’ deliberate decision not to incorporate an antitrust exemption into the 1996 law. This has led to significant confusion among the federal courts on whether violating the 1996 law—which imposes a number of burdens on the “Baby Bells” to open their networks to competitors—can justify an antitrust claim. In 2000, the Seventh Circuit in Chicago dismissed an antitrust complaint against Ameritech, holding that the antitrust allegations were inseparable from the Telecommunications Act allegations, and that alone could not sustain the antitrust claim. This ruling was something of a judicial standard until the Second Circuit’s contradictory decision in the Verizon case now before the Supreme Court.

In one sense, it would actually be better if Verizon loses its Supreme Court case, because then Congress would be forced to deal with the mess it created. The antitrust establishment already recognizes the potential disaster that would result if telecommunications companies were subject to antitrust suits for alleged violations of the 1996 Act. The Federal Trade Commission, in fact, filed an amicus brief with the Supreme Court calling for the Second Circuit’s decision to be reversed, citing concern that the lower court’s precedent would “improperly trivialize the antitrust laws” by encouraging parties to “seek antitrust remedies for ordinary commercial and regulatory disputes.” This is an odd charge coming from an agency that routinely pursues trivial matters, such as the ethics codes of private honorary societies.

Of course, what the FTC really means to say is that only they should engage in such trivial pursuits; letting everyone in on the fun would simply paralyze our court system, and by extension our economy.

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