Principal Deputy Assistant Attorney General Andrew Finch Delivers Keynote Address at Capitol Forum’s Fifth Annual Tech, Media & Telecom Competition Conference

Concentrating on Competition: An Antitrust Perspective on Platforms and Industry Consolidation

Good afternoon.  Thank you for the kind introduction and thank you to the Capitol Forum for inviting me to speak today. 

It would be an understatement to say that antitrust is a hot topic these days, and much of the attention has been focused on prominent tech, media, and telecom companies.  Tech platforms, in particular, have taken a central role in the current debates over industry concentration, as well as the implications of “big data.” 

Platforms undoubtedly bring tremendous innovations and benefits to the marketplace.  They lower transaction costs, enabling sellers and customers to find each other more easily.  Mobile platforms, like iOS and Android, enable app developers to launch new products and services and reach thousands of customers instantly.  Travel and ecommerce platforms like Expedia and eBay help consumers compare prices and products more easily across different sellers. 

Platforms also bring vibrant new competition to traditional industries.  For example, Uber and Lyft disrupted the taxi business and provided new opportunities for the people on both sides of those platforms.  Airbnb disrupted the hotel industry, giving consumers more options and giving home-owners additional revenue opportunities. 

No one can deny the benefits that digital platforms provide.  But some people are concerned that a few of today’s leading platforms have become too big, that markets are becoming increasingly concentrated, and they are looking to the antitrust laws to help.

First, let’s focus on the evidence of increased concentration.  Over the past few years, a number of articles have suggested that industries are becoming more concentrated, with a handful of firms accounting for an increasing share of the marketplace.

Some people blame increased consolidation on lax antitrust enforcement.  But before we rush to judgment, we need a better understanding of why there is increased concentration.  Is the rise of big firms actually due to anticompetitive behavior?  Are there regulatory barriers to entry?  Or are firms big because they are better at what they do?  The answer isn’t simple, and likely differs across markets. 

I’ll start with the evidence on concentration itself.  In 2015, the Council of Economic Advisers issued a study on competition and market power, finding that concentration in the United States has increased in recent years.  Another study relied on Census data to conclude that “[m]ore than 75% of US industries have experienced an increase in concentration levels over the last two decades.”  A number of these studies claim that this increased industry-level concentration is the result of lessened antitrust enforcement.

Some criticisms, including those published last month by Carl Shapiro, as well as Greg Werden and Luke Froeb, challenge these studies because they rely on industry-level Census data rather than measuring concentration in relevant antitrust markets. 

The studies relying on US Census data look at broad categories like “retail trade,” “utilities,” “finance and insurance,” and “healthcare.”  A relevant antitrust market, however, is invariably much narrower because it includes only products that are close substitutes from the consumer perspective. 

If the studies do not capture concentration in relevant antitrust markets, they can’t really meaningfully tell us anything about the changes in competition that we’re interested in.

But even if one assumes, for the sake of argument, that there is increased concentration in relevant antitrust markets, it’s important to consider the possible reasons behind such a trend.

One possible reason is dynamic competition based on efficiency.  If one firm is much more efficient than its rivals, it can displace inefficient competitors and leave fewer firms in the market.  Some have called these exceptionally efficient firms “superstars.” 

In fact, economists have observed increased variation in productivity levels across firms, and that the industries with the highest concentration levels are also those with the greatest productivity and innovation growth.

That’s not surprising.  When firms are able to operate at lower costs or produce better products than rivals, they can increase their market share and drive out less efficient competitors. 

Although the process may result in higher concentration, it is the result of the competitive process at work.  As Assistant Attorney General Delrahim has said: “Rather than a failure of antitrust, concentration may be the byproduct of healthy competition as the most innovative and efficient firms grow and attract customers.”  Indeed, if firms are gaining market share because they are winning consumers through competition on the merits, that should be applauded not condemned.

A second and closely related explanation for increased concentration is the growth of platforms and the rise of “winner-take-all” or “winner-take-most” markets.  

Economists have long recognized that economies of scale, including demand-side network effects, can result in concentration.  Consumers often benefit from concentration in such markets.   

Waze is a good example.  The more people on the road that use Waze, the more accurate its traffic and navigation services are for other consumers.  Drivers may benefit from having all drivers on a single platform, rather than having them fragmented across multiple different navigation services. 

This doesn’t mean “winner-take-most” markets are without competition.  Rather, there is stronger competition “for the market,” even if less competition “in the market.” 

Another example of competition “for the market” is the battle between Blu Ray and HD-DVD that occurred between 2006 and 2008.  Blu Ray ultimately prevailed in the competitive battle with HD-DVD, but its victory was fleeting.  Consumer preferences and technology shifted again and streaming video seems to be rapidly replacing Blu Ray discs and HD-DVDs. 

A third explanation offered for increased concentration is increased regulatory barriers to entry. Regulation can entrench incumbent firms and keep out new entrants, leading to concentration in a market.  Where regulation creates a barrier to entry, it can limit competition, raise the costs of goods and services, and stifle innovation. 

Of course, incumbents naturally prefer regulation because it preserves the status quo.  Regulatory barriers to entry are particularly pernicious because they cannot be surmounted through fierce or disruptive competition. 

Occupational licensing is one example.  A 2015 White House report observed that the share of US workers holding occupational licenses has increased five-fold since the 1950s and that licensing requirements had raised the price of goods and services.  Another example is the Certificate of Need regulations that hampers competition in health care markets.

In light of these possible explanations, it’s not clear that alleged market concentration is a competition law problem.  Indeed, economists have found little correlation between increases in prices and changes in concentration, as would be expected if concentration were being driven by weaker competition.

For these reasons, I am skeptical of the drastic calls for breaking up firms or turning tech platforms into regulated utilities.  Those kind of blunt approaches may ultimately harm the consumers and sellers that we seek to protect.  As we at the Antitrust Division think about our responses to this debate about concentration, we keep four basic principles in mind.

First, we have to remember that antitrust laws are concerned with competition, not concentration.  Concentration may indeed be scary, but the relevant question is really whether competition is still working to benefit consumers.  Our focus is on the competitive process and applying the consumer welfare standard to protect consumers’ interests in low prices, product quality, choice, and innovation. 

If concentration is the result of more efficient and better firms attracting customers through competition on the merits, we should conclude that antitrust is working exactly as it should.  The whole point of competition is that the market, rather than regulators, pick the winners and losers.  Indeed, much of the debate over concentration seems to overlook that many large tech companies attract consumers with lower prices and more innovative products and services.

Second, our job at the Antitrust Division is law enforcement, not regulation.  We don’t have free-wheeling authority to regulate or break-up an industry.  We bring enforcement actions where there are violations of the antitrust law, as supported by the facts and economics. 

We also recognize that we at the Antitrust Division aren’t business people.  We’re not experts at determining how businesses should be run in the long term, or what prices to charge.  Even if we had the authority to break up firms just because they are too big, it’s not clear that we would know how to do that without harming consumers or the economy.  Nor is it clear that breaking up big platforms would necessarily resolve the concerns people are voicing, which often tend not to be related to competition itself.   

Third, in looking for antitrust violations, we need to remember, as Assistant Attorney General Delrahim likes to say, “Big is not bad.  Big behaving badly is bad.” 

As antitrust enforcers, we do not object when a firm gains market share by competing on the merits, including through superior quality or lower prices. 

What we do look for is big firms behaving badly by engaging in anticompetitive conduct, such as collusive, exclusionary, and predatory behavior.  The Supreme Court has been very clear on this point, declaring that, in order “[t]o safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.”

Unfortunately, too much of the concentration debate seems to focus on the size or market power of today’s tech platforms rather than looking at whether they are engaging in anticompetitive conduct.  Our focus should be on what big platforms are doing and not merely how big they are.

Fourth, we need to keep in mind the need to preserve those incentives to innovate.  Breaking up or regulating successful firms as if they were public utilities threatens to reduce incentives to innovate. 

The prospect of making it big motivates innovators and entrepreneurs to invest in new technologies and products. 

Consider an analogy to the lottery.  When the jackpot is big, more people buy lottery tickets.  Even people who hardly ever play, will buy a ticket just for the chance of an enormous pay-out.  Some of you may remember the MegaMillions jackpot reached $1.6 billion this October, causing a frenzy of ticket purchases.  I can confess that I couldn’t resist buying some tickets, and I know I’m not alone. 

Something similar happens in the business world.  The prospect of a big payout will, as Schumpeter wrote, “lure capital” into new markets and may thereby produce a “perennial gale of creative destruction” resulting in innovative products and services that benefit consumers. 

The Supreme Court echoed this idea in Trinko, where Justice Scalia wrote: “[t]he opportunity to charge monopoly prices—at least for a short period—is what attracts ‘business acumen’ in the first place; it induces risk taking that produces innovation and economic growth.”

Keeping these four core principles in mind, we at the Antitrust Division are doing a number of things that may help alleviate concerns about increasing concentration and market power.

First, vigilant merger review is a key tool to prevent anticompetitive concentration in markets.  Under Section 7 of the Clayton Act, the Division can seek to block mergers if the effect of the merger “may be substantially to lessen competition, or tend to create a monopoly.”  Preventing an anticompetitive merger is far easier than breaking up a monopoly after the fact.

Even after the fact, however, we can take steps to protect competition, as our case against Parker Hannifin last year demonstrated.  In that case, we filed a civil antitrust lawsuit after the consummated merger on the grounds that the merger eliminated competition in the aviation fuel filtration market.  Shortly after we filed our complaint, we reached a settlement that required Parker-Hannifin to divest its aviation fuel filtration assets.

The acquisition of start-ups presents a particular challenge for antitrust enforcers.  But it’s important to distinguish between (i) acquisitions in which an incumbent firm recognizes a pesky threat and seeks to eliminate it, and (ii) acquisitions in which an incumbent firm helps fund, and greatly expand, the range of a target’s products to the benefit of consumers.  The hardest cases are those where both incentives appear to be at play. 

We also need to be careful about making it too difficult for start-ups to be acquired.  If we remove one of the important “exit strategies” for entrepreneurs, we may unintentionally reduce incentives to invest in the first place.  

And it’s important to remember in this regard that a start-up’s success as an independent firm may not be inevitable.  Entrepreneurs often can’t take their creations to market successfully on their own, and may not even be interested in running a company long-term.   Acquisitions enable firms with the necessary capital and skill set to bring innovative products and services to consumers that might not have reached them otherwise.

A second development at the Division that may help address concentration concerns is our emphasis on structural remedies, such as divestitures, rather than behavioral decrees.  Our evolution in thinking about remedies is informed by shortcomings observed in prior behavioral merger remedies. 

Back in 1961, the Supreme Court itself observed that “[c]omplete divestiture is particularly appropriate where asset or stock acquisitions violate the antitrust laws,” and such relief “is simple, relatively easy to administer, and sure.”  Behavioral decrees, in contrast, are inherently difficult to get right, and they rely on ongoing government oversight of what should preferably be a free market. 

A recent example of a structural merger remedy is the Disney-Fox merger, in which the Division secured a divestiture of the twenty-two Regional Sports Networks (“RSNs”) as a condition of the merger.  This remedy resolved the Division’s concern over harm to cable sports programming without needing to impose complicated behavioral conditions on how sports programming should be licensed to competitors.

A third development that addresses concentration concerns is the Division’s work on reducing regulatory barriers, which can increase concentration and market power.  Assistant Attorney General Delrahim recently discussed the Division’s concern over regulatory barriers to entry.  He explained that it’s “important to distinguish between regulatory barriers that are the unfortunate product of an incumbents’ attempt to block innovative entrants and those that are justified by legitimate concerns.  In some cases, competition enforcers may need to intervene to advocate for the removal of regulatory barriers and open up the marketplace for new entrants.” 

As part of that effort, we have implemented an initiative to terminate “legacy” antitrust judgments, of which there are many.  Among them, we are currently reviewing a set of decrees that apply to certain movie studios, commonly referred to as the Paramount Decrees. 

These Decrees have no termination date and have regulated the motion picture industry for over seventy years.  By banning certain film licensing practices, and even requiring certain movie studios to obtain court approval before acquiring movie theatres, the decrees impose a distribution model on the industry that, given the vast changes in the motion picture industry since the 1940s, may be outdated. 

Although our review has not reached any conclusions yet, we are analyzing whether the Decrees stifle new and innovative distribution and licensing arrangements that are efficient and beneficial to the industry and moviegoers.   

Fourth, the Division is on the watch for anticompetitive conduct in concentrated markets.  Hard core price-fixing, bid-rigging, and market allocation remain, of course, a key aspect of our enforcement mission, but the Division also is looking at other forms of coordination and collusion that can harm competition.

One example is our focus on information-sharing, which can be more effective in more concentrated markets.  Last month, the Division filed a complaint against six broadcast television companies alleging that they’d engaged in unlawful agreements to share non-public, competitively sensitive information with their competitors. 

While the parties were not engaging in direct price-fixing, they were exchanging a type of information (called “pacing” information) that could enable them to better anticipate whether their competitors were likely to raise, maintain, or lower local spot advertising prices, which in turn could help inform the stations’ own pricing strategies and their negotiations with advertisers.

Finally, the Division is looking at common ownership and interlocking directorate issues more closely. These issues become especially important in concentrated markets, where coordination may be easier.  

Section 8 of the Clayton Act prohibits a person from simultaneously serving as a director or officer of competing corporations.  The concern behind Section 8 is that a director or officer could coordinate business decisions and exchange competitively sensitive information between competitors.  Violations of Section 8 are commonly described as per se offenses, and a lack of competitive injury will not exempt parties from liability unless one of the statutory de minimus exceptions applies. 

As today’s tech platforms start competing against traditional industries and each other in new ways, this can create Section 8 and common ownership issues.  Changes in technology and business strategy can cause two companies to become competitors in markets where they previously did not compete. 

Recognizing the dynamic nature of competition, the statute does provide officers and directors with a one-year grace period to resign.  Board members should therefore pay attention to changing competitive dynamics and be prepared to step down if necessary to comply with the statute.  Recently, we’ve seen resignations on boards of various media and technology firms, as competition has evolved.

There also are interesting questions about whether Section 8 applies to corporate entities created after the statute was passed in 1914, such as limited liability corporations.  This is another issue we are currently thinking about.

In addition to Section 8, Section 1 of the Sherman Act may apply where common ownership results in firms—either directly or indirectly—agreeing to share competitive sensitive information, to allocate markets, or to otherwise pull competitive punches. 

Lots of people are discussing whether or not the mere fact of common ownership in and of itself is an antitrust problem because of the incentives it creates.  Regardless of how one feels about that issue, real problems certainly can arise when a significant shareholder actively encourages competing firms to coordinate their conduct rather than compete against each other as they otherwise would in the ordinary course of business. 

In conclusion, I’d like to ask you to reflect on where we were fifteen or twenty years ago.  On a day like today, I might send a few emails from my Blackberry, look at catalogues from retail stores for holiday shopping, log on to AOL to browse the internet, and rent a DVD from Blockbuster.  Magazines and newspapers ran articles with titles such as “How Yahoo! Won the Search Wars,” and “Will MySpace ever lose its monopoly?”

Today, however, the world looks quite different, with a whole different set of firms leading the pack.  Who knows what companies and technologies consumers will be using ten or twenty years from now.  What we do know is that antitrust authorities must remain vigilant in their role as law enforcers, and promote the competitive process, while at the same time preserving the incentives to innovate that drive the forces of dynamic competition. 

Go to Source
Author: December 14, 2018

Bay Area CPA Sentenced to 8 Months in Prison

Marc Howard Berger was sentenced today to 8 months in prison for aiding and assisting in the filing of false tax returns, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division, United States Attorney Alex G. Tse, Federal Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett, and Internal Revenue Service, Criminal Investigation (IRS-CI) Special Agent in Charge Tara Sullivan.

On July 18, after a three-week jury trial, Berger was found guilty of willfully assisting in the preparation of three false Forms 1040 for codefendant G. Steven Burrill for the 2011, 2012, and 2013 tax years.  Evidence at trial showed that Berger, 68, of Walnut Creek, California, was a Certified Public Accountant and partner with a regional tax preparation firm, Burr Pilger Mayer.  Berger’s client, Burrill, was the owner and CEO of Burrill & Company, Burrill Capital, and a number of related entities.  Through those entities, Burrill managed venture capital funds, including Burrill Life Sciences Capital Fund III L.P. (the Fund), a $283 million investment fund focused on the life sciences industry.  Between Dec. 2007 and Sept. 2013, Burrill transferred more than $18 million from the Fund to his management companies, a sum in excess of the management fees that were due and allowable under the agreements that governed the Fund.  Berger intentionally prepared and filed false income tax returns for Burrill that failed to report more than $18 million in income, resulting in unpaid taxes of more than $4.7 million.  With Berger’s assistance, Burrill did not pay individual income taxes for the years 2009 through 2013. 

Berger was indicted by a federal grand jury on Sept. 14, 2017.  Berger was charged with three counts of willfully aiding and assisting in the preparation of three false Forms 1040 for Burrill for 2011, 2012, and 2013.

The sentence was handed down by The Honorable Richard Seeborg, U.S. District Court Judge.  Judge Seeborg also sentenced the defendant to one year of supervised release and a $20,000 fine. The defendant will begin serving the sentence on July 8, 2019.

Burrill pleaded guilty on Dec. 7, 2017, to one count of investment-adviser fraud, in violation of 15 U.S.C. §§ 80b-6 & 80b-17, 18 U.S.C. § 2, and 17 C.F.R. § 275.206(4)-8, and one count of filing a false income tax return, in violation of 26 U.S.C. § 7206(1). He was sentenced to 30 months in prison on December 4, 2018.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Tse thanked special agents of IRS-Criminal Investigation and the Federal Bureau of Investigation, who conducted the investigation, and Assistant U.S. Attorney Robert S. Leach and Trial Attorney Lori A. Hendrickson of the Tax Division, who prosecuted the case.

Go to Source
Author: December 14, 2018

Justice Department Requires Divestitures to Resolve Antitrust Concerns in Gray’s Merger With Raycom

The Department of Justice announced today that it will require Gray Television Inc., and Raycom Media Inc., to divest broadcast television stations in nine markets as a condition of resolving a challenge to the proposed $3.6 billion merger between Gray and Raycom.

The Justice Department’s Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the proposed merger. At the same time, the Division filed a proposed settlement that, if approved by the court, would resolve the suit by remedying the competitive harms alleged in the complaint, through the divestitures and related conditions.

“Without the required divestitures, Gray’s merger with Raycom threatens serious competitive harm to cable subscribers and small businesses,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. “I am pleased, however, that we have been able to reach a speedy and complete resolution of the Division’s concerns, thanks in part to the parties’ commitment to engage in good faith settlement talks from the outset of our investigation.”

According to the complaint, without the divestitures the merger would eliminate head-to-head competition between Gray and Raycom in the nine local markets in which the divestitures are being required. In each of those markets, the transaction would increase the number of “Big Four” affiliate stations owned by Gray (i.e., affiliates of NBC, CBS, ABC, or FOX), leaving Gray with two or more Big Four stations in each area. The divestiture markets are Knoxville, Tennessee; Toledo, Ohio; Waco–Temple–Bryan, Texas; Tallahassee, Florida–Thomasville, Georgia; Augusta, Georgia; Odessa-Midland, Texas; Panama City, Florida; Albany, Goergia; and Dothan, Alabama.

As a result of the merger, the combined company would likely charge cable and satellite companies higher retransmission fees to carry the combined company’s broadcast stations, resulting in higher monthly cable and satellite bills for millions of Americans.

The merger would also enable the company to charge local businesses and other advertisers higher prices for spot advertising in the divestiture markets. Businesses rely on competition among broadcast station owners to obtain reasonable advertising prices. Gray and Raycom compete with one another for the business of local advertisers, and the proposed merger would eliminate that competition, harming local businesses.

The Antitrust Division has determined that the divestitures would resolve antitrust concerns related to the licensing of Big Four television retransmission consent and the sale of broadcast television spot advertising that would otherwise result from the merger. The divestitures required under the settlement announced today would, if approved by the court, require Gray to sell the Big Four affiliate stations currently owned by either Raycom or Gray in each of the nine markets where the companies have Big Four overlaps. The settlement requires that the divestitures be accomplished in such a way as to satisfy the United States that the divested stations and associated assets will be used by the buyers as part of a viable, ongoing commercial television broadcasting business.

Gray Television Inc. is a Georgia corporation with its headquarters in Atlanta, Georgia.  Gray owns 92 television stations in 56 local markets, of which 83 are Big Four affiliate stations.

Raycom Media Inc. is a Delaware corporation with its headquarters in Montgomery, Alabama.  Raycom owns 51 television stations in 43 local markets, of which 45 are Big Four affiliate stations.

As required by the Tunney Act, the proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register. Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Owen Kendler, Chief, Media, Entertainment, and Professional Services Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 4000, Washington, D.C. 20530. At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest.

Go to Source
Author: December 14, 2018

Saudi Citizen Admits to Visa Fraud and Concealing Attendance at Al Qaeda Training Camp

Naif Abdulaziz M. Alfallaj, 35, a citizen of Saudi Arabia and a former resident of Weatherford, Oklahoma, has pleaded guilty to visa fraud and making a false statement to the FBI by, among other things, concealing his application to and attendance at an al Qaeda training camp in Afghanistan in late 2000.

Assistant Attorney General for National Security John C. Demers, First Assistant U.S. Attorney Robert J. Troester of the Western District of Oklahoma, and Special Agent in Charge Kathryn Peterson of the FBI’s Oklahoma City Division made the announcement.

On Feb. 5, Alfallaj was taken into custody by the FBI without incident, based on a criminal complaint signed in the Western District of Oklahoma.  According to the complaint, the FBI found 15 of Alfallaj’s fingerprints on an application to an al Qaeda training camp, known as al Farooq, which was one of al Qaeda’s key training sites in Afghanistan.  The document was recovered by the U.S. military from an al Qaeda safe house in Afghanistan.  The document is also alleged to include an emergency contact number associated with Alfallaj’s father in Saudi Arabia.  Alfallaj is alleged to have first entered the U.S. in late 2011 on a nonimmigrant visa based on his wife’s status as a foreign student.  According to the complaint, he answered several questions on his visa application falsely, including whether he had ever supported terrorists or terrorist organizations.  Alfallaj has been detained in federal custody since his arrest on Feb. 5. 

On Feb. 6, a grand jury returned a three-count indictment against Alfallaj.  The indictment charged two counts of visa fraud.  Count One alleged that from March 2012 to the present, Alfallaj possessed a visa obtained by fraud.  Count Two alleged he used that visa in October 2016 to apply for lessons at a private flight school in Oklahoma.  The third count charged him with making a false statement to the FBI involving an offense of international terrorism, when he denied ever having associated with anyone from a foreign terrorist group. 

At today’s hearing, Alfallaj pleaded guilty to one count of visa fraud and one count of making a false statement to the FBI relating to international terrorism.  In particular, he admitted he possessed a nonimmigrant visa from March 2012 to early 2018 that he obtained by fraud.  He also admitted he falsely told agents during the December 2017 interview that he had never visited Afghanistan or participated in religious, tactical, or military training outside Saudi Arabia, and otherwise affirmed falsely that all of the answers on his nonimmigrant visa application were true and correct. 

Alfallaj faces up to ten years in prison on the visa-fraud offense.  He faces up to eight years in prison for making a false statement involving international terrorism.  He could also be fined up to $250,000 on each count.  As part of his plea agreement, Alfallaj consented to the entry of a stipulated judicial order of removal from the United States at the end of his prison term.  The Court will set a sentencing date in approximately 90 days.  The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes.  Any sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

This case is the result of an investigation by the FBI Joint Terrorism Task Force, which includes members from the U.S. Department of Homeland Security, the U.S. Secret Service, the Transportation Security Administration, the Oklahoma Highway Patrol, the University of Oklahoma Police Department, the Oklahoma City Police Department, and the Edmond Police Department. 

Assistant U.S. Attorney Matt Dillon of the Western District of Oklahoma and Trial Attorney David C. Smith of the National Security Division’s Counterterrorism Section are prosecuting the case.

Go to Source
Author: December 14, 2018

Pharmacy Owner Convicted in Medicare Fraud Scheme

A federal jury in Los Angeles, California found a pharmacy owner guilty today for her role in a Medicare fraud scheme involving more than $1.3 million in fraudulent claims for prescription drugs. 

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Nicola T. Hanna of the Central District of California, Assistant Director in Charge Paul D. Delacourt of the FBI’s Los Angeles Division and Special Agent in Charge Christian J. Schrank of the U.S. Department of Health and Human Services

Office of Inspector General’s (HHS-OIG) Los Angeles Regional Office made the announcement.

After a two-day trial, Tamar Tatarian, 39, of Pasadena, California, was convicted of one count of health care fraud and two counts of wire fraud.  Sentencing has been scheduled for Feb. 25, 2019 before U.S. District Judge John F. Walter of the Central District of California, who presided over the trial.  Tatarian was the owner of Akhtamar Pharmacy in Pasadena.

According to evidence presented at trial, from approximately October 2015 through approximately October 2017, Tatarian engaged in a scheme involving the submission of fraudulent claims to Medicare Part D plan sponsors for prescription drugs that Akhtamar Pharmacy never ordered from wholesalers, and thus never dispensed to Medicare beneficiaries.  Tatarian attempted to conceal the fraud through the creation of fake invoices, reflecting wholesale drug purchases by Akhtamar Pharmacy which had, in fact, never taken place.  As a result of this scheme, Tatarian through Akhtamar Pharmacy submitted claims to Medicare for more than $1.3 million in prescription drugs that she never purchased or dispensed to patients, the evidence showed.

This case was investigated by the FBI and HHS-OIG.  Trial Attorney Alexis Gregorian and Assistant Chief A. Brendan Stewart of the Criminal Division’s Fraud Section are prosecuting the case. 

The Fraud Section leads the Medicare Fraud Strike Force, which is part of a joint initiative between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.  Since its inception in March 2007, the Medicare Fraud Strike Force, which maintains 14 strike forces operating in 23 districts, has charged nearly 4,000 defendants who have collectively billed the Medicare program for more than $14 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

Go to Source
Author: December 14, 2018

Seattle Man Sentenced to Over Two Years in Prison for Cyberstalking Campaign

A former Information Technology professional was sentenced to 30 months in prison and three years supervised release for conducting cyberstalking and threat campaigns against multiple Washington residents, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Annette L. Hayes of the Western District of Washington.  The victims’ names are being withheld to protect their privacy.

Joel Kurzynski, 39, of Seattle, Washington, was sentenced in the U.S. District Court for the Western District of Washington by U.S. District Judge Robert S. Lasnik. 

According to admissions made in connection with his plea, Kurzynski engaged in an extensive and rapidly escalating cyberstalking campaign that targeted two individuals known to him.  The online campaign involved — among other things — death threats, body shaming, and hate speech. Beginning in March 2017, Kurzynski orchestrated numerous spam phone calls to Victim 1. The conduct soon escalated to fake dating profiles wherein Kurzynski portrayed Victim 1 as seeking sadomasochistic or underage relationships. These profiles contained photographs of Victim 1 and his contact information, resulting in solicitations and harassing messages directed toward Victim 1 from multiple strangers.  Kurzynski then sent several anonymous death threats to Victim 1, including the threat, “faggot. Time to die.”  At one point, Kurzynski impersonated a journalist and contacted Victim 1, claiming that an upcoming article would levy sexual misconduct allegations against Victim 1 related to Victim 1’s work with a non-profit youth organization.

Kurzysnki also admitted that in November 2017, he began registering Victim 2 for numerous weight loss and suicide prevention programs, resulting in a wave of calls and emails from entities such as Overeaters Anonymous, Weight Watchers, Yellow Ribbon Suicide Prevention, and others. Within weeks, Kurzynski started sending anonymous death threats to Victim 2, many of which referenced Victim 2’s work address. One threat claimed that he was waiting for her in the lobby, and another that said, “Looking forward to seeing you today and how much you bleed.  Don’t go to the bathroom alone.”

The U.S. Secret Service’s Seattle Field Office investigated the case with substantial assistance from the Seattle Police Department and King County Prosecutor’s Office.  Senior Counsel Frank Lin of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Francis Franze-Nakamura of the Western District of Washington prosecuted the case.

Victims of cyberstalking campaigns such as this often may be hesitant to come forward.  The Justice Department encourages individuals who may be the victims of similar schemes to contact their local law enforcement agencies to report this conduct.

Go to Source
Author: December 7, 2018

D.C. Resident Pleads Guilty to Conspiracy to Defraud the IRS

A Washington, D.C. resident pleaded guilty to conspiracy to defraud the United States and aggravated identity theft on December 4, 2018, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and Kelly R. Jackson, Special Agent in Charge of IRS-Criminal Investigation, Washington D.C. Field Office. The guilty plea arose from a scheme to file false tax returns in the names of unemployed individuals that fraudulently claimed refunds. Scutchings and her co-conspirators cashed or deposited more than $1 million in Treasury checks illegally obtained through the scheme.

According to court documents, Sheila Scutchings and her co-conspirators prepared false returns and then filed the returns in the names of co-conspirators and individuals in the community, whose names and Social Security numbers Scutchings and her co-conspirators obtained. Scutchings requested that the Internal Revenue Service (IRS) send the fraudulent refunds to addresses that Scutchings and her co-conspirators controlled. Included among the addresses were Scutchings’s own address and those of members of her family. Scutchings and her co-conspirators then cashed the refund checks at check cashing businesses and deposited them in various bank accounts, including a bank account in Scutchings’s name. In total, more than $350,000 of fraudulently obtained tax refund checks were deposited in Scutchings’s bank account alone.

United States District Judge Rosemary M. Collyer scheduled sentencing for March 5, 2019. Scutchings faces a maximum sentence of five years in prison on the conspiracy charge and a mandatory two years in prison on the aggravated identity theft charge.

Principal Deputy Assistant Attorney General Zuckerman commended special agents of the Department of Treasury – Office of Inspector General and IRS – Criminal Investigation, who conducted the investigation, and Tax Division Trial Attorneys Thomas Koelbl and William Guappone, who prosecuted the case.

Go to Source
Author: December 7, 2018

South Florida Pharmacy Owner Sentenced to Almost Four Years in Prison for Role in $2.5 Million Medicare Fraud Scheme

An owner of a now-defunct Miami pharmacy was sentenced today to 46 months in prison for his participation in a scheme that caused Medicare to pay $2.5 million in false and fraudulent claims for prescription drugs that were never purchased. 

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida, Special Agent in Charge George L. Piro of the FBI’s Miami Field Office and Special Agent in Charge Shimon R. Richmond of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Miami Regional Office made the announcement.

Gregory Sanchez, 44, of Miami Lakes, Florida, was sentenced by U.S. District Judge Ursula Ungaro of the Southern District of Florida.  Judge Ungaro also ordered Sanchez to pay $2,507,942 in restitution, jointly and severally with his co-conspirators, and to forfeit the same amount.  Sanchez pleaded guilty in September 2018 to one count of conspiracy to commit health care fraud.

According to admissions made as part of his plea agreement, Sanchez was an undisclosed co-owner of Med Health Equipment, LLC (Med Health), which purported to operate as a pharmacy.  Sanchez admitted that he and his co-conspirators used Med Health to fraudulently bill Medicare by submitting claims for prescription drugs that Med Health never purchased and never dispensed.  To carry out the fraudulent scheme, Sanchez and his co-conspirators paid and caused the payment of kickbacks to patient recruiters in exchange for the referral of Medicare beneficiaries to Med Health.  As a result of fraudulent claims submitted in connection with the scheme, Medicare paid Med Health approximately $2.5 million, Sanchez admitted.  

Five co-conspirators were charged separately in this case.  Lazaro Perez, 55, of Miramar, Florida, and Maria Estrada, 40, of Doral, Florida, both additional co-owners of Med Health, each pleaded guilty to conspiracy to commit health care fraud and were sentenced in April 2018 and August 2018 to serve 63 and 57 months in prison, respectively.  Yulieth Dominguez Gonzalez, 40, of Miami, pleaded guilty to conspiracy to receive kickbacks and was sentenced in June 2018 to serve 21 months in prison.  Rosa Menendez, 65, of Homestead, Florida, pleaded guilty to conspiracy to commit money laundering and was sentenced in October 2018 to serve 18 months in prison.  Pablo Garcia Menendez, another co-owner of Med Health, was charged by indictment in February 2018 and remains a fugitive. 

All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The FBI and HHS-OIG investigated the case, which was brought as part of the Medicare Fraud Strike Force under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Florida.  Trial Attorney David Snider of the Fraud Section is prosecuting the case.

The Criminal Division’s Fraud Section leads the Medicare Fraud Strike Force. Since its inception in March 2007, the Medicare Fraud Strike Force, which maintains 14 strike forces operating in 23 districts, has charged nearly 4,000 defendants who have collectively billed the Medicare program for more than $14 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

Go to Source
Author: December 7, 2018

Former Fund Manager Sentenced to Prison for Fraud and Filing a False Tax Return

An Eagle River, Wisconsin man, who resided in San Francisco, California, was sentenced to 30 months in prison on Tuesday December 4, 2018, by U.S. District Judge Robert Seeborg in the U.S. District Court for the Northern District of California, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and United States Attorney Alex G. Tse.

According to court documents, in December 2017, Burrill, 74, pleaded guilty to investment adviser fraud and filing a false 2010 individual income tax return that failed to report millions of dollars. Burrill was the owner and CEO of Burrill Capital, LLC and a number of related entities. Through these entities, he managed investment funds, including Burrill Life Sciences Capital Fund III, L.P. (the Fund), an investment fund focused on the life sciences industry. The Fund was comprised of total committed capital of approximately $283 million. To accomplish his scheme, Burrill caused the Fund to transfer millions of dollars in advance management fees to companies he controlled, although Burrill knew that he was not permitted to draw such advance fees. Burrill then filed a false federal income tax return that did not report millions in fees that he had illegally diverted.

Marc Berger, Burrill’s accountant, was convicted at trial of assisting Burrill with filing a false income tax return. He is scheduled to be sentenced next week.

Principal Deputy Assistant Attorney General Zuckerman and United States Attorney Alex G. Tse commended special agents of IRS–Criminal Investigation and FBI, who conducted the investigation, and Assistant United States Attorney Robert S. Leach and Trial Attorney Lori A. Hendrickson, Tax Division, who prosecuted the case. Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Tse also thanked the San Francisco Regional Office of the Securities and Exchange Commission, which provided assistance in this matter.

Go to Source
Author: December 7, 2018

Assistant Attorney General Makan Delrahim Delivers Remarks at the 19th Annual Berkeley-Stanford Advanced Patent Law Institute

“Telegraph Road”: 
Incentivizing Innovation at the Intersection of Patent and Antitrust Law

Thank you Jim for that introduction, and for inviting me today to participate in the Advanced Patent Law Institute. 

As the Assistant Attorney General of the Antitrust Division, I spend most of my time with antitrust lawyers and economists.  Being among this talented group of patent lawyers today brings me back to my earlier career, when I worked on patent transactions and the enforceability of intellectual property rights for the National Institutes of Health and, later, the U.S. Trade Representative.  So thank you for letting me reminisce a little and for the honor of being with you.

The title of my remarks today is “Telegraph Road: Incentivizing Innovation at the Intersection of Patent and Antitrust Law.”  As you may know, Telegraph Road is a song by Dire Straits that came out in 1982. 

It is about a pioneer who makes a home in the wilderness.  His entrepreneurship and hard work attract other people and he soon finds himself in the midst of a bustling town building up around him.  The lyrics describe the on-slaught of infrastructure:

Then came the churches, then came the schools
Then came the lawyers, then came the rules
Then came the trains and the trucks with their load
And the dirty old track was the Telegraph Road.

This transformation is an apt metaphor for the history of our envied innovation economy here in the United States—especially the part about lawyers and rules. 

Ingenuity and entrepreneurship are fundamental to our free-market economy.  Like the entrepreneur in Telegraph Road, countless American inventors have done the hard work of creating something from nothing: from electronics, to biotech, to microchips and software. 

Over the years, an infrastructure has built up around those inventors to capitalize on their ingenuity.  The American inventor is no longer alone in the wilderness.  He is surrounded by business people and lawyers, with their strategies and their rules.

With all these interests pulling the inventor in different directions, the question is whether we are doing everything we can to preserve the fundamentals that encouraged innovation in the first place.  I fear that at the intersection of patent and antitrust law, some have lost sight of that goal.

Today, I will discuss how standard-setting organizations have formed around innovators.  When they work well, they translate ingenuity into usable, commercialized technologies.  When they don’t, they can run the risk of stifling innovation.  

First, I will address the reasons to protect the patent holder’s right to seek an injunction against infringing uses of its technology, even when the patent is essential to the practice of a technological standard. 

Second, I will discuss my concerns that standard-setting organizations have been given too little scrutiny when they have acted as a forum to slow down, rather than to facilitate, the adoption of disruptive innovations. 

Third, I will discuss how standard-setting organizations can affect incentives to innovate when they set patent policies that govern participation in the forum.

I will start where lawyers often do: with the text of the U.S. Constitution.  As I have observed before, there is only one place in that founding document where the word “right” is used, and that is in Article 1, Section 8, Clause 8, otherwise known as the Copyright and Patent clause. 

It provides that “[t]he Congress shall have the Power…to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…”  And it bears emphasis that the authors of the Constitution not only used the word “right,” but they also preceded it with the equally important word “exclusive.”

Our forefathers thought that patent rights—including the ability to exclude competitors—are critical to promoting innovation in our country. 

So where do we, at the Antitrust Division, fit in?  Our job is to protect free-market competition from abuses including the unwarranted exclusion of competitors.  We enforce the antitrust laws for the benefit of consumers, who win when companies have to out-perform one another in order to earn the business of those individual consumers. 

In the past, people talked about a tension between the patent laws and the antitrust laws.  According to that view, the patent laws grant monopolies and limit competition, while the antitrust laws prohibit monopolies and promote competition.  That was overly simplistic.

Now, the prevailing view is that the increase in innovation spurred on by the patent laws leads to expanded consumer choice and enhanced competition in the long run.  These benefits are achieved when innovators try to out-perform one another in order to earn the exclusive business of consumers for some temporary period.

These were the insights of the great economist Joseph Schumpeter.  Schumpeter observed that a perfectly competitive market may not allow for the capital accumulation and investment necessary to achieve optimal levels of innovation and dynamic efficiency. 

His insight was enshrined into antitrust law in the D.C. Circuit’s opinion in United States v. Microsoft.  The court explained there that “Schumpeterian competition . . . proceeds sequentially over time rather than simultaneously across a market” and that “[c]ompetition in [technologically dynamic] industries is ‘for the field’ rather than ‘within the field.’” 

In the more recent past, we have seen somewhat of a shift toward the view that patents might confer too much power, particularly if those patents are essential to a technical interoperability standard.  The fundamental right of the patent holder to exclude competitors has been questioned in this context.

In particular, I have criticized the argument that it ought to be a violation of antitrust law for a holder of a standard-essential patent, or SEP, to exclude competitors from using the technology, including by seeking an injunction against the sale of infringing goods—I think that argument is wrong as a matter of antitrust law and bad as a matter of innovation policy. 

While the nature of these arguments vary, they all depend in some part on the contractual commitment that some SEP-holders make when their technology is accepted to a standard, what is known as the FRAND commitment.  I have spoken elsewhere about the sufficiency of contract law to deal with FRAND commitments.  Today, I want to emphasize the role of patent law. 

When it comes to the test for obtaining injunctive relief against infringement, patent law already strikes a careful balance that optimizes the incentive to innovate, for the benefit of the public.  The test was articulated by the Supreme Court in eBay v. MercExchange.  

It says that a patent holder seeking an injunction must demonstrate (1) it has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction. 

A court applying the eBay test is thus allowed to consider effects in the market, including (as Justice Kennedy noted in concurrence) how significant the patented invention is to the use of the product, and whether the patent holder can be properly rewarded for that contribution without the ability to exclude competitors. 

When this test is used to maintain appropriate incentives to innovate, it thus facilitates the goals of antitrust law and patent law alike. 

I fear that we at the Antitrust Division gave some observers the opposite impression, however, with the confusion created by the joint statement issued by the Department of Justice and the U.S. Patent & Trademark Office in early 2013, entitled “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.” 

That Policy Statement purported to offer the agencies’ perspectives on the propriety of a federal court issuing an injunction, or the International Trade Commission’s issuing an exclusion order, “when a patent holder seeking such a remedy asserts standards-essential patents that are encumbered by a RAND or FRAND licensing commitment.”  In particular, the statement discusses what is in the “public interest” because the eBay test and the Tariff Act governing the ITC name the public interest as a relevant factor.

As I have said before, this joint statement should not be read as a limitation on the careful balance that patent law strikes to optimize the incentive to innovate.  There is no special set of rules for exclusion when patents are part of standards.  A FRAND commitment does not and should not create a compulsory licensing scheme.  

In those cases, as in all cases, the question is what result will optimize the incentives to innovate for the benefit of the public.  Since injunctions against infringement frequently do serve the public interest in maintaining a patent system that incentivizes and rewards successful inventors through the process of dynamic competition, enforcement agencies without clear direction otherwise from Congress should not place a thumb on the scale against an injunction in the case of FRAND-encumbered patents. 

Despite my clarification of the Antitrust Division’s position on the propriety of these types of injunctions, the potential for confusion remains high because the joint statement from 2013 indicates that an injunction or exclusion order “may harm competition and consumers,” seeming somehow to suggest an antitrust inquiry that is distinct from the goal of optimizing the incentives for innovation—namely, dynamic competition.  

This potential for confusion has lead me to a conclusion that I would like to announce here today, in the interest of clarity and predictability of the laws, and among the patent law community with whom we share the goal of incentivizing innovation: The Antitrust Division is hereby withdrawing its assent to the 2013 joint “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.”

The 2013 statement has not accurately conveyed our position about when and how patent holders should be able to exclude competitors from practicing their technologies.  We will be engaging with the U.S.P.T.O. to draft a new joint statement that better provides clarity and predictability with respect to the balance of interests at stake when an SEP-holder seeks an injunctive order.

Any discussion regarding injunctive relief should include the recognition that in addition to patent holders being able to engage in patent “hold up,” patent implementers are also able to engage in “hold out” once the innovators have already sunk their investment into developing a valuable technology.  Additionally, a balanced discussion should recognize that some standard-setting organizations may make it too easy for patent implementers to bargain collectively and achieve sub-optimal concessions from patent holders that undermine the incentive to innovate.  That is the topic I want to turn to next.

Although standard-setting organizations can undoubtedly offer enormous benefits to consumers, there are antitrust risks associated with any activity that involves competitors making joint decisions.  When there is evidence that participants in a standard-setting organization have engaged in collusion, which is the “supreme evil” of antitrust law, according to the Supreme Court in Trinko, the Division will be inclined to investigate. 

For instance, there is a potential antitrust problem where a group of product manufacturers within a standard-setting organization come together to dictate licensing terms to a patent holder as a condition for inclusion in a standard because it may be a collective exertion of monopsony power over the patent holder. 

In American Needle, the Supreme Court articulated that “the key” to establishing the concerted action element required in Section 1 cases is whether the decision “deprives the marketplace of independent centers of decision-making and therefore of diversity of entrepreneurial interests.”  The Court went on to cite an antitrust treatise by Areeda & Hovenkamp for the touchstone principle that “the central evil addressed by Sherman Act § 1 is the elimination of competition that would otherwise exist.” 

The Antitrust Division will therefore investigate and bring enforcement actions to end practices that eliminate the independent centers of decision-making and thereby harm competitive processes, including price competition and innovation competition.  Often a single maverick firm may be willing to take a chance on a new and innovative technology or business model that the rest of its competitors would rather see killed off in its incipiency.  Antitrust law recognizes the consumer benefit of those entrepreneurial and innovative tendencies and their vulnerability to collusion.

Although there are certain best practices for guarding the process of standard setting against such abuses, we are concerned that some standard-setting organizations may not even attempt to adopt these safeguards. 

ANSI, the American National Standards Institute, publishes a set of essential requirements for due process.  These safeguards are ANSI’s view of what “the minimum acceptable” requirements are to ensure that every person or organization with a “direct and material” interest in the outcome of a standard has a right to participate in the development of that standard. 

The principles include openness to all interested parties, a balance of interests, a lack of dominance, the adoption of written procedures, and a formalized and impartial appeals process.  Although these due process requirements may not eliminate the opportunity for anticompetitive behavior within a standard-setting organization, they certainly reduce it. 

These safeguards additionally ensure a more efficient investigation by antitrust enforcers when we have reason to suspect that the standard-setting activity may have drifted from a procompetitive purpose.  Where the procedures are written and published, the interests are well-balanced, and the losing side can appeal, a standard-setting organization is very likely to have a good record of anything of concern.  This benefits both the enforcers and the participants, who certainly have an interest in predictability and that any antitrust concern is resolved quickly and with minimal resources.

When a group of competitors fails to adopt due process safeguards before engaging in an activity they call standard setting, they run a high risk that the mission will creep away from procompetitive purposes and, even worse, will go unnoticed internally as the sort of problematic collusive behavior that it is.  As the Supreme Court warned in American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., “a standard-setting organization like ASME can be rife with opportunities for anticompetitive activity” especially when “some [of the members] may well view their positions with ASME, at least in part, as an opportunity to benefit their employers.”

Hydrolevel, moreover, gives standard-setting organizations an added reason to want to adopt policies designed to prevent anticompetitive activities by their members—those organizations can be held liable for acts taken by members with mere apparent authority from the organizations.

Calling your meetings a standard-setting organization, or even in fact publishing some standards necessary for interoperability, is not a free pass for coordination designed to reduce common competitive threats or forestalling innovative developments in the industry that put a legacy business model at risk.

The Supreme Court case Allied Tube showcases the principles I have been discussing.  In that case, the standard-setting organization at issue was the National Fire Protection Association.  The National Electric Code promulgated by that organization established fire safety standards for electrical wiring and was widely adopted, including by many state and local governments as code. 

One of the specifications in the code called for the tubing around wiring to be made of steel.  The plaintiff in the case wanted to offer a new, disruptive product: tubing made of PVC.  This product was superior to steel in some respects, including that it cost less to install; but the legacy steel interests claimed it wasn’t as safe.  

Instead of letting the debate play out fairly among the safety-minded members of the organization, the nation’s largest producer of steel tubing, Allied Tube, met with other interested members of the steel industry and agreed to prevent the PVC option from gaining approval.  It agreed to pack the annual meeting with new Association members whose only function would be to vote against the new disruptive technology and it admitted that it had a pecuniary interest to do so.

The question before the Supreme Court was whether the standard’s inclusion in government codes put the standard-setting activity outside the reach of antitrust law.  The Court held the answer was no, but also took the opportunity to speak more broadly about how private standard setting can eliminate competition in violation of the antitrust laws. 

It first acknowledged an ever-present risk: “There is no doubt that the members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anticompetitive harm.”  It warned that such incentives might result in “depriv[ing] some customers of a desired product,” “eliminat[ing] quality competition,” or “exclud[ing] rival producers” unless there are safeguards designed to protect “objective expert judgements” and “prevent the standard-setting process from being biased by members with economic interests in stifling product competition.”

When competitors meet and agree on a measure they call a standard, and the measure persuades or coerces economic actors to abandon versions of the product that consumers might want, then antitrust law demands there be some need for the standard to solve a problem subject to expert judgment, like safety or interoperability. 

Thus far, I have been focusing on the processes by which SSOs select a specific standard or certify a particular product, but we at the Antitrust Division also are looking more broadly at how SSOs adopt and implement their patent policies.  Those are the policies that govern how participants in SSOs are expected to license their patents, and they can materially affect the rights of both patent holders and patent implementers. 

Patent policies affect the incentives for innovation.  If an SSO’s policy is too restrictive for one side or the other, it also risks deterring participation in procompetitive standard setting. 

Just as competition in the marketplace results in better outcomes for the consumers of goods and services, competition among standard-setting organizations to adopt better patent policies can result in better outcomes for the consumers of standard-setting activities (that is, for the participants themselves). 

It is for this reason that we will take a dim view of any coordinated effort by competitors to stifle competition among standard-setting organizations, including competition to offer the patent policy that brings the most participants to the table.  For instance, competitors would come under scrutiny if they orchestrated a group boycott of an SSO with a patent policy that is unfavorable to their commercial interests. 

Recently, ANSI has been considering how SSOs with different patent policies can achieve the due process goal of transparency.  ANSI recommends that patent holders who contribute technology to a standard declare, through a letter of assurance, whether and on what terms they will license the technology.  ANSI is currently considering publishing a Sample Patent Letter of Assurance form that standard-setting organizations could use if they want assurance that they comply with ANSI’s essential requirements. 

We at the Antitrust Division have been in communication with ANSI on this proposal to ensure ANSI’s efforts do not stifle competition among the standard-setting organizations.

Although the Antitrust Division takes no position on whether ANSI should issue a model LOA form, we have encouraged ANSI to be mindful that a model form is an opportunity for interested parties to lobby for a default rule and stifle competition among different approaches.  If standard-setting organizations are likely to adopt the model without adaptation, then any “check the box” options on the form could affect the rights of patent holders and implementers. 

We have therefore encouraged ANSI to foster independent decision-making by communicating clearly that any model form does not foreclose individual organizations from using their own patent policies and their own LOA forms, as long as the approach is consistent with ANSI’s due process requirements.  For instance, ANSI’s due process requirements allow patent holders to disclose additional information about the terms they are willing to offer, not encompassed by “check the box” options.  If organizations are encouraged to compete on the best approach to patent policies, they will be more likely to achieve the procompetitive benefits of standard setting.

* * * * * *

In conclusion, the Antitrust Division is committed to enforcing the antitrust laws for the benefit of fostering innovation.  With care, we can prevent unbridled opportunists from stifling that entrepreneurial spirit that Dire Straits sang about in Telegraph Road. 

I believe our job is to serve American consumers by ensuring that fledgling ideas can become tomorrow’s life-changing or life-saving technologies.  With that principle in mind, we are committed to ensuring that patent holders maintain their full constitutional right to seek an injunction against infringement, and that standard-setting organizations do not facilitate collusion of the sort that undermines innovative new technologies. 

Thank you once again for inviting me here to address the common ground between antitrust and patent law; and thank you for all you do in the field of patent law to promote incentives for innovation and competition on the merits.

Go to Source
Author: December 7, 2018