Janusz Ordover, Jith Jayaratne, and Yair Eilat, supported by a Compass Lexecon team from our Oakland office were retained by Colin Kass and Rhett R. Krulla of Proskauer Rose, and Kenneth B. Schwartz and James A. Keyte of Skadden, Arps, Slate, Meagher & Flom, to assist in securing FTC approval for a merger between Hayes Lemmerz and Iochpe-Maxion, the top two suppliers of automotive steel wheels in the U.S. Compass Lexecon assisted in formulating arguments that suggested, based on economic theory and industry research, that substitution from other types of wheels and the threat of entry would curb any attempt to raise wheel prices following the merger. These arguments and others were presented to the FTC, which granted early termination.

Following a seven-year investigation, in 2010, the UK Office of Fair Trading (OFT) reached a decision that two tobacco manufacturers and ten retailers had entered into illegal vertical agreements whereby the retailers agreed to set their shelf prices for the two manufacturers’ corresponding brands at fixed relative prices. The OFT imposed total fines of £225m, the largest in any OFT case. Compass Lexecon expert Neil Dryden was retained by Asda Wal-Mart for its appeal to the Competition Appeal Tribunal (CAT). In a series of three expert reports, Dryden and his team set out evidence suggesting that Asda had not entered into such agreements, would not have had incentives to enter into such agreements, and that small changes in the nature of the agreements could led to very different results to those predicted by the OFT. At the CAT hearing, it became clear that the agreements had not in fact operated as alleged and the OFT sought to refine its theory of harm. However, citing evidence of the appellants that different types of agreement could have very different effects, the CAT ruled against the OFT. Assisting Neil Dryden were Erik Langer, Bertram Neurohr and Eduard Barniol Barcons of our London and Madrid offices, and Affiliate, Gerard Llobet, Associate Professor of Economics at CEMFI. We worked with Mark Jones and Peter Scott of Norton Rose, and James Flynn QC and Robert O’Donoghue of Brick Court Chambers.

In a case closely watched by the high technology industry, a California jury last week rejected Rambus, Inc.'s nearly $4 billion claim, before trebling, that Micron Technology Inc. and Hynix Semiconductor Inc. conspired to block the marketplace penetration of RDRAM, Rambus's proprietary DRAM technology, in favor of an alternative technology, SDRAM, and its succeeding generations. The result, which received widespread international coverage, was a complete defense victory.

Compass Lexecon was retained separately by each of two law firms to undertake independent economic assessments and provide trial testimony regarding liability and impact on behalf of Micron and Hynix:

Robert Willig, together with a Compass Lexecon team led by Doug Fontaine, Gilad Levin, Yair Eilat, and Rebecca Schindel, was retained by counsel for Micron - Bill Price, Jon Steiger, Robert Becher, and Kevin Teruya of Quinn Emanuel Urquhart & Sullivan, LLP - to develop a thorough economic assessment of the merits of Rambus' liability and impact claims. Professor Willig and his team analyzed Rambus's allegations in a rigorous framework focused on factors necessary for the successful formation and implementation of the alleged conspiracy. In his testimony, both written and at trial, Professor Willig emphasized that economic logic and the market data show that the concerted boycott as alleged by Rambus made no economic sense. To test empirically the merits of Rambus's claim, Professor Willig and his team analyzed voluminous DRAM transactional data and devised a series of statistical tests to compare DRAM pricing across technologies, time and suppliers. Professor Willig found the results inconsistent with a concerted scheme to boycott RDRAM through manipulation of its relative prices.

Janusz Ordover, along with a Compass Lexecon team led by Jith Jayaratne, Assaf Eilat, and Brianne Limber, was retained by counsel for Hynix - Tad Allan, Kenneth Nissly, Ken O'Rourke, and Susan van Keulen of O'Melveny & Myers - to develop a comprehensive economic framework to assess the merits of Rambus' claim that Hynix acted in concert with other DRAM manufacturers to disadvantage RDRAM. Professor Ordover and his Compass Lexecon team tested Rambus' claims regarding Hynix's pricing conduct through a comprehensive analysis of the RDRAM price data on record. They developed specific tests of Rambus' claims by focusing on the rates of decline of Hynix's RDRAM prices alone and relative to the prices of other DRAM technologies. The analyses demonstrated that Hynix's conduct was inconsistent with Rambus' allegations of RDRAM price manipulations and also inconsistent more generally with the cartel alleged by Rambus. Further, Professor Ordover and his team created detailed analyses of Hynix's RDRAM pricing to a major OEM that demonstrate that Hynix's RDRAM pricing conduct was consistent with unilateral behavior. In addition, the Compass Lexecon team worked closely with Hynix's counsel to provide extensive litigation support, including analyses of the massive data on the record used by Hynix counsel to create trial graphics and to develop litigation strategy.

In this recent arbitration Compass Lexecon was retained by Jonathan Polkes and Caroline Zalka of Weil, Gotshal & Manges on behalf of their client Archstone to respond to allegations that Archstone breached agreements with Claimants in the course of implementing a leveraged buy-out. Prior to the buy-out, Claimants received common units of Archstone in exchange for property valued at approximately $1.8 billion. In the leveraged buy-out, Archstone gave Claimants a choice between exchanging their common units for preferred units or cash. Claimants, and two experts they retained, argued that the buy-out presented them with a Hobson’s Choice because the preferred units were inferior to their common units and they would be forced to realize capital gains if they chose cash. At the arbitration, Compass Lexecon’s President, Professor Daniel Fischel, strongly criticized Claimants and their experts for ignoring attributes of the preferred units that were superior to the common units and the large premium offered by the buy-out. The Panel cited Professor Fischel’s testimony favorably in concluding that Archstone had not breached the agreements because the preferred stock offered a viable, market-based alternative to Claimants’ common units. The result was a complete victory for Archstone. Professor Fischel was supported by a team in Compass Lexecon’s Chicago office including Jerry Lumer, Vince Warther, Jessica Mandel, Elizabeth Wall, Laura Sekhar and Brittany Walsh.

Compass Lexecon was retained by Emily Nicklin and Gabor Balassa of Kirkland & Ellis LLP who represented a big-four accounting firm in defense of an audit malpractice claim. Compass Lexecon affiliate, Professor Kenneth Lehn, supported by David Ross and a team in our Chicago office, testified on issues of loss causation and damages in the case. The arbitrators rendered a complete defense verdict in June 2011. The parties are confidential.

On June 10, 2011, the US Department of Transportation (DOT) approved the application of Delta Air Lines and affiliates of the Virgin Blue Group for antitrust immunity which will allow the applicants to form an alliance and coordinate flights between the United States and Australia. As part of Delta’s response to an adverse September 2010 decision, Delta retained Compass Lexecon to assess the consumer benefits that are likely to arise from the joint venture. Professor Robert Willig, Mark Israel, Bryan Keating, and Jonathan Orszag, supported by Jeff Raileanu in Compass Lexecon’s Washington DC office, filed two reports with the DOT that made use of sophisticated econometric modeling to demonstrate the substantial benefits that the joint venture will generate. The DOT recognized the substantial public benefits in granting approval. In its press release announcing the approval, Delta highlighted the benefits estimated by Compass Lexecon.

Plaintiffs in this case sought to enjoin the acquisition of Massey Energy by Alpha Natural Resources, alleging that the Massey's Board had failed to secure the best possible price in order to extinguish their potential liability from derivative claims arising from the tragic accident at the Massey's Upper Big Branch mine. We were retained by counsel for Defendants to analyze the economic evidence as it related to Plaintiffs' claims. Compass Lexecon expert Professor Daniel Fischel filed an affidavit which demonstrated that the merger consideration provided for a substantial premium to Massey's shareholders, that the economic evidence did not establish that the derivative claims had substantial monetary value, and that the deal terms were fair to Massey shareholders. Vice Chancellor Strine refused to enjoin the merger and cited Fischel's affidavit favorably in his written opinon. Professor Fischel was assisted by David Ross and a team in Compass Lexecon’s Chicago office. We worked with Stuart Gold & Julie North at Cravath, Swaine & Moore LLP, Kevin Abrams & Brad Davey at Abrams & Bayliss LLP, and Greg Danilow at Weil Gotshal & Manges LLP, who successfully represented the defendants.

In late May 2011, IBM and Neon Enterprise Software LLC reached a settlement widely regarded as very favorable to Compass Lexecon’s client, IBM. At the heart of the dispute was a software product, zPrime, offered by Neon that allowed IBM’s mainframe customers to run certain workloads without incurring software charges in contravention of IBM’s agreements with its customers. As a result of the settlement, the court issued a permanent injunction against Neon, ordering Neon to withdraw its zPrime software from the market, to cancel all existing licenses for zPrime (effectively recalling the product), to ensure that its customers do in fact cease using zPrime, and to transfer to IBM any additional licensing revenue that Neon may continue to receive from its zPrime customers. The injunction also ordered Neon to publicly announce on its website and by press release the immediate withdrawal of zPrime from the market. A team from Compass Lexecon’s Oakland office including Professor Rich Gilbert, Jim Ratliff, Kun Huang, Blake Phillips, Rebecca Schindel, Brianne Limber, and Alison Davis worked on this matter. We worked with Teena-Ann Sankoorikal of Cravath, Swaine & Moore LLP and Eric Stock of Hogan Lovells LLP among others.

A Compass Lexecon team including Professor Dennis Carlton, Mary Coleman, Jonathan Bowater and Loren Poulsen assisted Deborah Feinstein of Arnold & Porter, LLP, Unilever's outside counsel in obtaining U.S. Department of Justice approval for Unilever’s acquisition of Alberto Culver. The Compass Lexecon team worked with counsel to draft several white papers outlining the economic evidence which showed that the acquisition would not likely have any anticompetitive effects in the mid-tier shampoo, conditioner, and styling aids segments. The transaction was then approved by the DOJ subject to an agreement to divest the VO5 brand and Suave Rave Hairspray brand to resolve concerns in the retail store value shampoo/conditioner and hairspray segments.

On April 26, 2011, the Department of Justice (DOJ) announced that it closed its investigation of the proposed acquisition of AirTran Airways by Southwest Airlines Company. Compass Lexecon was retained by Southwest – through its counsel Steven Sunshine at Skadden, Arps, Slate, Meagher & Flom LLP – to provide support for Southwest’s efforts to secure regulatory approval. Our team – which included Dennis Carlton, Chip Bamberger, Theresa Sullivan, Bryan Keating, Lynette Neumann, Nancy Bonn, Antara Dutta, Deidre Ciliento, and Jeff Raileanu – quantified the consumer benefits and assessed potential competitive harms arising out of the transaction. Using sophisticated econometric modeling and working closely with network planners at Southwest, we demonstrated that the merger will result in substantial consumer benefits through the enhancement of existing service and the introduction of new service. The team also dealt with novel issues arising out of the merger of two low cost carriers (LCCs). In particular, we modified econometric models typically used by the DOJ to assess competitive effects on overlap routes to also show that the introduction of new LCC service would lower fares on many routes. The DOJ acknowledged these consumer benefits as the reason that it did not challenge the acquisition.

In March 2011, a jury in Oakland rejected GlaxoSmithKline's antitrust claims against Abbott Laboratories.  GSK claimed that Abbott engaged in anticompetitive bundled discounting by increasing the price of one of its HIV drugs, Norvir, which is used to “boost” the effects other HIV drugs called protease inhibitors, and keeping constant the price of another Abbott HIV drug, Kaletra.  Kaletra includes both the active ingredient in Norvir (ritonavir) and a protease inhibitor (lopinavir).  According to GSK, Abbott’s pricing anticompetitively disadvantaged rival protease inhibitors, including GSK’s drug Lexiva, that are prescribed with Norvir as a booster.  The jury rejected all of GSK’s antitrust claims.  The jury awarded Glaxo $3.4 million on its breach of contract claims, much less than the more than $1.7 billion (after trebling) that GSK alleged.  Compass Lexecon expert Richard Gilbert offered testimony on antitrust liability issues on behalf of Abbott. Joel Hay testified for Abbott on market definition issues and alleged damages.  The Compass Lexecon team supporting Profs. Gilbert and Hay included Andres Lerner, Emmett Dacey, Guy Ben-Ishai, Dan Adomian, Rob Oandasan, and Janin Wimer.  Compass Lexecon was retained by James Hurst of Winston and Strawn and by Jeffrey Weinberger of Munger, Tolles & Olson.

In a March 2011 decision, the Surface Transportation Board, relying on the testimony of Compass Lexecon experts Professor Joseph Kalt and Dr. Glenn Mitchell, found that BNSF Railway’s coal containment polices were reasonable. Professor Kalt and Dr. Mitchell provided written testimony to the Board on behalf of BNSF in opposition to requests that certain of BNSF’s coal containment polices be deemed unreasonable. Their testimony focused on proper policymaking in situations of uncertainty, the appropriate application of the Precautionary Principle, and the role and limits of cost-benefit analyses. Professor Kalt and Dr. Mitchell concluded that the BNSF policy requiring shippers to contain (rather than clean up) coal dust emissions was a reasonable and efficient practice. Compass Lexecon worked with Sam Sipe and Tony LaRocca of Steptoe & Johnson, LLP. Professor Kalt and Dr. Mitchell were assisted by Catherine Barron of Compass Lexecon’s Washington, DC office.

After J. Crew Group, Inc. agreed to be acquired by a private equity group including TPG Capital, Leonard Green and the company’s CEO Mickey Drexler, shareholders filed suit claiming that the acquisition price was too low, the process the Board of Director’s pursued was improper, the deal provisions were unfair, and the disclosures made by the company were misleading and inadequate. Compass Lexecon expert, Professor Daniel Fischel was retained on behalf of defendants to analyze the economic evidence with regard to the plaintiffs’ claims. J. Crew subsequently entered into an agreement to settle the lawsuit challenging the pending $3 billion acquisition. The favorable settlement included a series of relatively minor concessions by J. Crew, such as agreeing to pay the class of shareholder plaintiffs $10 million upon consummation of the transaction, extending its “go-shop” period, reducing its termination fee in certain circumstances, eliminating certain matching rights provisions, and providing that a majority of unaffiliated shareholders must approve the merger which was overwhelmingly approved. Professor Fischel was assisted by David Ross, Laurel Van Allen, George Hickey and others in Compass Lexecon’s Chicago office. We worked with Meredith Kotler of Cleary Gottlieb Steen & Hamilton LLP and Wes Earnhardt of Cravath, Swaine & Moore LLP.

On February 25, 2011, the United States Court of Appeals for the District of Columbia affirmed the District Court’s 2009 grant of summary judgment to Exxon Mobil, BP America, ConocoPhillips, and Shell, Compass Lexecon’s clients. These firms hired Compass Lexecon expert Professor Joseph P. Kalt to assess Plaintiffs’ claims that the Defendants had colluded to fix the price of natural gas sold in North America. Professor Kalt’s analysis found that there was no evidence of market concentration and, more fundamentally, that there was no credible evidence of any parallel or coordinated conduct among the Defendants with respect to supply or pricing decisions. The initial grant of summary judgment relied heavily on Professor Kalt’s analysis which demonstrated that Defendants’ behavior simply reflected independent, self-interested conduct. The Appeals Court concurred, emphasizing that the Plaintiffs failed to meet their affirmative burden to present evidence that “tends to exclude the possibility that the alleged conspirators acted independently.” We worked with legal teams representing each of the Defendant companies including counsel at White & Case LLP, Fulbright & Jaworski LLP, Howrey LLP and Kirkland & Ellis LLP.