On April 29, 2013 Pennsylvania Court Judge Christine Ward dismissed seven consolidated shareholder derivative and purported class action lawsuits, clearing the way for the successful April 30 shareholder vote on the acquisition of H.J. Heinz by Berkshire Hathaway and 3G Capital. Plaintiffs claimed, among other things, that a variety of deal protection provisions, including termination fees, a matching provision, a no solicitation provision, and the absence of either a pre-signing or post-signing “market check” precluded other potential acquirers from bidding to acquire Heinz and resulted in a low merger consideration. Compass Lexecon has extensive experience analyzing these types of claims and in a very short time was able to marshal both theoretical and empirical evidence on deal protection provisions. Professor Kenneth Lehn submitted an Affidavit on behalf of Heinz and its Board demonstrating that target company shareholders can receive economic benefits from deal protection provisions, that such provisions are commonplace in large transactions, and that they do not preclude topping bids whether or not there was an explicit market canvass by the company. The team that supported Professor Lehn was led by David Gross and included Jonathan Polonsky and David Strahlberg from the Chicago office. Heinz and its Board were represented by Thomas Allen and Roy Arnold from Reed Smith and Lawrence Portnoy, Scott Luftglass, Brian Burnovski, and George Turner from Davis Polk & Wardwell.

On March 27, 2013, the U.S. Supreme Court ruled in favor of Comcast Corp. in an antitrust class action suit regarding so-called “clustering”— the practice of expanding the geographically contiguous service area of a cable operator by acquiring adjacent cable systems and/or swapping cable systems with other operators. Plaintiffs alleged that Comcast’s clustering in and around Philadelphia resulted in harm to a large class of Comcast customers. Plaintiffs’ economic experts advanced four theories of harm from Comcast’s clustering. However, the U.S. District Court for the Eastern District of Pennsylvania certified a class only with regard to one theory of harm put forth by plaintiffs—the alleged reduction in potential competition from cable “overbuilders,” ruling that the other theories of harm could not be assessed on a class-wide basis. The U.S. Supreme Court overturned the class certification of the lower court on the one remaining theory of harm, ruling that since the damage model offered by plaintiffs’ expert did not isolate alleged damages attributable to each individual theory of harm, plaintiffs failed to show that the appropriate measure of damages pursuant to the one remaining theory could be determined on a class-wide basis. Comcast was assisted by a Compass Lexecon team in the Century City office which included Andres Lerner, Emmett Dacey and Janin Wimer. The team supported an outside expert in submitting multiple reports and providing deposition and hearing testimony regarding both liability and class certification issues, and worked closely with counsel for Comcast, including Sheron Korpus of Kasowitz, Benson, Torres & Friedman. In addition, Compass Lexecon experts Jon Orszag and Bobby Willig submitted written testimony, and Orszag provided deposition testimony, regarding their prior econometric analyses of Comcast's pricing in the Philadelphia area.

A Compass Lexecon team including Professor Robert Willig, Mary Coleman, Jonathan Bowater, and Maria Stoyadinova assisted Jacqueline Grise and Mark Schechter of Cooley LLP, outside counsel to Bertelsmann, and Harry Robins and Scott Stempel of Morgan, Lewis & Bockius LLP, outside counsel to Pearson, in seeking DOJ approval of the proposed merger between Random House (a subsidiary of Bertelsmann) and Penguin (a subsidiary of Pearson). It was commonly viewed that a Second Request was highly likely. The Compass Lexecon team joined counsel in presenting persuasive evidence to the DOJ in meetings and white paper material demonstrating that concentration in publishing today, when accurately assessed, does not raise competition concerns, and that the digital publishing revolution has created powerful new avenues of competition. As DOJ granted early termination, the parties did not need to substantially comply with the Second Request. Before the early termination was granted, Compass Lexecon also assisted in preparing the draft responses to the Second Request. While clearance for the proposed merger is still being sought in other jurisdictions, including the European Union and Canada, the U.S. Department of Justice closed its investigation in mid-February 2013.

On February 11, 2013 United States Tax Court Judge Diane L. Kroupa issued a tax court opinion in favor of Respondent (our client) in Bank of New York Mellon Corporation, as Successor in Interest to The Bank of New York Company, Inc., Petitioner v. Commissioner of Internal Revenue, Respondent. Petitioner had sought approximately $199 million in foreign tax credits in connection with a Structured Trust Advantage Repackaged Securities (‘STARS”) transaction for the combined years at issue (and approximately $700 million in other years). The Court held that petitioner is not entitled to the claimed foreign tax credits because the STARS transaction lacked economic substance. The Court also held that that petitioner is not entitled to deduct certain expenses incurred in furtherance of the STARS transaction for the same reason. David J. Ross of Compass Lexecon provided expert testimony on behalf of respondent concerning the economic effects of the STARS transaction. The respondent was represented by Jill A. Frisch, Curt M. Rubin, Anne O. Hintermeister, Matthew J. Avon, Justin L. Campolieta, and Michal A. Sienkiewicz. Mr. Ross was assisted by Kevin D. Hartt.

D’Andrea Brother LLC v. The United States is a breach of contract case involving a contract between a producer of nutritional energy bars and the United States Army, Natick Soldier Research, Development and Engineering Center. Plaintiff alleged that the government breached its implied covenant of good faith and fair dealing by failing to support development of the product and “bad mouthing” the product to others. Plaintiff sought reliance damages, claiming that it never would have entered into the contract had it known the government would breach the contract. Bradley Reiff testified on behalf of The United States in the Court of Federal Claims in October that the plaintiffs’ reliance damages would be speculative because, even absent the alleged breach of contract by the government, the evidence showed that Plaintiff’s investment pursuant to the contract would have failed. In an opinion issued on February 8, 2013, the Court adopted that position in awarding zero damages, despite a liability finding on behalf of the Plaintiff. Lynette Neumann provided first-rate assistance in the analysis. Compass Lexecon worked with Sheryl Floyd of the United States Department of Justice.

In February 2013, the Korean Fair Trade Commission closed its investigation into the contracting and pricing practices used by Air Products Korea in its supply of industrial gases in Ulsan, South Korea. A Compass Lexecon team including Professor Dennis Carlton, Mary Coleman, and Jonathan Bowater, working with Robert Schlossberg of Freshfields Bruckhaus Deringer LLP, counsel to Air Products, submitted an expert report to the KFTC on behalf of Air Products. In May 2012, the KFTC dismissed claims related to minimum take-or-pay and contract amount terms after an initial hearing in February 2012, but continued to pursue claims related to contract length, renewal, and early termination provisions. In February 2013, after a second hearing, the KFTC decided to close the investigation with no further action or undertakings from Air Products. The case was ultimately closed on the basis of the briefs and expert reports, and the examiner at the KFTC characterized Compass Lexecon’s report as excellent.

Compass Lexecon experts Jon Orszag and Brad Cornell were retained by GeoEye as part of the regulatory review of its proposed merger with DigitalGlobe. GeoEye and Digital Globe were the only U.S. companies providing geospatial imagery to the U.S. government and were two of the primary providers of such images to commercial and other governmental customers throughout the world. After an extensive review, which included multiple white papers submitted to the agency by counsel and two expert reports by Dr. Cornell analyzing the prospects for GeoEye's business in the absence of the merger, the U.S. Department of Justice cleared the combination in early January 2013. The Compass Lexecon team also included David Weiskopf, Syre Khan, and Sara Leshen in our Washington, DC office; Peter Clayburgh and Richard Mills in our Pasadena office; and Rajiv Gokhale, Rahul Sekhar, Robin Stahl, Donnie Hong, Agustina Levy, Jim Libby, and Mike Pugh in our Chicago office. We worked with Tad Lipsky, William O'Neill, and Jason Cruise at Latham & Watkins LLP, and Cliff Aronson at Skadden, Arps, Slate, Meagher & Flom LLP.

On January 7, 2013, U.S. District Judge Deborah Batts denied the New York Attorney General’s (“NYAG”) objection to a $115 million settlement in an AIG securities litigation. Defendants included AIG, Hank Greenberg, and C.V. Starr & Co. The NYAG claimed the settlement was unfair and inadequate because plaintiffs’ expert erred in his statistical analysis of some of the alleged corrective disclosures. The NYAG further claimed that correcting the mistake would produce a higher settlement amount in the case. Compass Lexecon President Professor Daniel Fischel was retained by Thomas A. Dubbs and Thomas G. Hoffman at Labaton Sucharow and submitted a declaration concluding that the plaintiffs’ expert’s mistake was not material and did not affect the amount and reasonableness of the settlement. In reaching her decision, Judge Batts favorably cited Professor Fischel’s declaration regarding the statistical significance of the error. The team supporting Professor Fischel was led by Vince Warther and included Mike Keable, Laurel Van Allen, and others in the Chicago office.

In January 2013, the U.S. Federal Trade Commission announced that it had voted unanimously to close its 19-month investigation of Google, concluding that Google’s search-related practices did not stifle competition in violation of antitrust law. In particular, the Commission unanimously voted against bringing charges related to allegations of “search bias,” despite complaints by competitors that Google’s search results favor its own content and disadvantage “specialized” search websites. The FTC also found no evidence of anticompetitive conduct with regard to other search-related practices. Michael Katz, Andres Lerner, and Emmett Dacey submitted several papers, presented findings to FTC staff, and worked closely with counsel throughout the investigation. Compass Lexecon expert, Benjamin Klein also consulted with counsel on a variety of topics. The Compass Lexecon team included Janin Wimer, Aren Megerdichian, Robert Oandasan, and Seth Chapman. Compass Lexecon worked with Google’s in-house counsel and outside counsel Wilson Sonsini Goodrich & Rosati PC, including Susan Creighton, Jonathan Jacobsen, and Scott Sher.