Howrey Collapse

Howrey LLP, a once very prominent global law firm that has been around since July 1956, declared bankruptcy earlier this year after the collapse of merger talks with Winston & Strawn, and is still in the process of dissolution.

It is good to see that in the field of the law at least, even the biggest firms are still considered small enough to fail.

It isn't difficult to imagine a situation in which high government offiucials run around wringing their hands about what a disaster the failure of such a multi-national well connected form will be, and asking each other what can be done to save it.

Anyway, for those interested in a proper RIP: the firm is named after  Jack Howrey, who chaired the Federal Trade Commission in the early Eisenhower years.  His first partners were Bill Simon, Hal Baker, and Dave Murchison, and the firm's first focus was on antitrust law. Early on it became associated with the cereal industry, which has long had to fight antitrust battles. 

As it grew, though, it developed other areas of focus, especially in intellectual-property law. The leading light of the firm's Amsterdam office, Willem Hoyng, is the author of a highly regarded textbook on Dutch IP law. 

So they pass into history with a hardy "Cheers!" from me, and best wishes to all the displaced partners (who seem to have long since written lucrative tickets for themselves elsewhere) and the bankruptcy law trustee who has to sort it all out.

Baseball and Football

The U.S. Supreme Court recently re-affirmed that antitrust laws apply to football. More particularly, they apply to relationships between the teams -- the National Football League is not to be treated as a single entity selling a single product.

Go here for the decision.

This is in contrast to baseball, and "Major League Baseball," and the disparity in the legal treatment of the two favorite sports of the US came about through an intriguing historical accident. Back in the 1920s, judges still cared (at least sporadically) about the separate spheres of the federal and state governments, and still interpreted the interstate commerce clause to mean something specific -- movement of people or goods across state lines.

So when the subject of enforcing federal antitrust laws in a baseball context first arose, the courts said the laws can't apply, because baseball teams aren't engaged in moving anybody or anthing anywhere. The stadium stays in one place! Customers coming to it may cross state lines, but that is their concern. This visiting team generally crossed state lines to get to the home team's park, but that is incidental. The actual game is intra-state. That was the justification for the immunity.

In the 1930s, the commerce clause came to mean anything it had to mean. So logically, the antitrust immunity for baseball could have been reconsidered. But it wasn't. It remained in place as a sort of relic of the old days.

In 1972,in the Curt Flood case, the Supreme Court admitted that this makes baseball an "established aberration," but said the immunity will stand until Congress changes it.

I'm okay with that. As I believe I've indicated in this blog before, I think the result is rational as to baseball, for reasons the SCOTUS opinion didn't so much as mention. When the Red Sox play the Yankees, they are both in the business of putting on a show -- the same show. More broadly, all of the teams in the two leagues of MLB are in the business of puttinbg on the season-long show that begins with spring training and ends with the World Series. They have the same overriding interest in maintaining public fascination with that show, and this retaining their viability for the television audience ands the advertisers who pay the big bucks. It is all a single enterprise.

Still, I'd like to see the NFL get the benefit of the same immunity. Their stadiums (stadia?) stay in place, too.

Horizontal merger guidelines

The Antitrust Division of the US Justice Department and the Federal Trade Commission have recently released their proposed revisions to merger guidelines.

This seems to be an acknowledgement of the Whole Foods fiasco.

Briefly: these guidelines involve what are known as "horizontal mergers," i.e. mergers between two participants in the same market, dealing with the same suppliers and offering their product to the same customers. One of the common questions of controversy is: what does it mean to be in the "same" market exactly? Two gasoline retailers could argue that they are not in the same market for geographical reasons -- their service stations aren't directly across the street from one another. Or, two grocery stores that are across the street from one another could argue that they aren't in the same market for product reasons. One sells organic groceries, the other sells food processed and reinforced and otherwise chemically re-jiggered. Does that break the horizontal relationship? In either case, one has a "market definition" dispute.

Through the new rules, the agencies involved want to create a way of calculating the competitive effect of a merger without first defining the market involved. It wants to be able to skip that step.

The money quote may be found on p. 7: "Some of the analytical tools used by the Agencies to assess competitive effects do not rely on market definition, although evaluation of competitive alternatives available to customers is always necessary at some point in the analysis."

I have a personal fondness for antitrust, dating to my teenage years, so I won't give you the benefit of an Austrian/anarchistic deconstruction thereof now. I will say, though, that some of the comments that agencies are about to receive on these proposed revisions may make fascinating (though of course wonkish) reading.

Not the type of reading that they do at, say, the SEC of course. Nothing wonkish about those wild and crazy guys. I suppose all the porn they've reportedly been viewing leaves them incapable of understanding the economists' sense of the term "horizontal relationship."

Beyond the Cynical Answer

My brother asked me yesterday how the US antitrust authorities could ever have allowed Exxon and Mobil to merge. Don't we still even have antitrust laws?

There was a time (the late 1970s and early 1980s, to be precise) when I was very well versed on those laws and on then-current trends in their application. I wrote a casenote for my school's law review on an antitrust enforcement action involving physicians' fees. In my final year at law school I interviewed with a Justice Department official about a job at in their antitrust division. So it wasn't too odd for my brother to think I'd have an informed opinion on the subject.

But my life and the directions of my thinking have gone in very different directions, and I had no idea how to answer the question.

I do know that according to standard operating procedure, any significant merger involving two firms in the same industry will be reviewed by either the relevant division of the Justice Department (the ones who didn't give me the job, not that I'm bitter, grrrrr) or by the Federal Trade Commission. I assumed, during our brief diner conversation on this subject yesterday, that some such review took place in one of those institutions or the other in 1999, when the Exxon/Mobil merger was in the offing.

Mind the date: 1999. You can't blame the Bush administration for this one. The only answer that came to mind was the cynical one. Perhaps Exxon and Mobil are just too powerful for any White House, and its attendant Justice Department or FTC, to cross.
I didn't give that answer, though. I hemmed and hawed about how complicated it was.

Politically, the question really is more complicated than the cynical answer will allow. In the midst of the Lewinsky impeachment trial, Clinton really had little to lose by picking a fight with Exxon and Mobil. It would have cheered his political base immensely, and they surely could have used the cheering. It wouldn't have angered anyone who wasn't already furiously against him.

Institutionally, too, the question is tangled. The career civil servants who would have had to pass on the subject in one of the afore-mentioned agencies would have been, I'm confident, unlikely to act in any crudely corrupt manner. They didn't go around with Exxon's thousand-dollar-bills sticking out of their pockets while working on their assessments. I'm pretty sure we would have heard about it if they had.

So what DID happen? The Exxon/Mobil merger put together again roughly the Standard Oil trust that Teddy Roosevelt had shattered in the heroic early days of antitrust law. This makes it a puzzle on a psychological level: didn't that matter to anyone?

So when I had a chance I went to a computer and did some research. It was the FTC, not the Justice Dept., that drew the short straw on this one. And these are the reasons they gave for allowing the merger:

http://www.ftc.gov/opa/1999/11/exxonmobil.shtm