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Rosch Highlights Supreme Court Cases to Watch
By Aruna Viswanatha | April 2, 2022 3:45 pm

Appearing at an industry panel discussion earlier this week, Federal Trade Commissioner J. Thomas Rosch said two cases on the Supreme Court docket this term that did not involve antitrust laws could have broad implications for antitrust attorneys.

Speaking at a roundtable sponsored by the Association of Corporate Counsel, Rosch highlighted a securities case — Jones v. Harris - and an intellectual property case — Bilski v. Kappos — as two cases the competition bar should pay attention to.

Jones v. Harris

The High Court handed down a ruling on Tuesday in the securities case, which involved mutual fund fees. Rosch focused on the case because two proponents of the free-market oriented Chicago School who reviewed the case came down on different sides of the question of whether the market could adequately police the fees. ”Their disagreement reflects, to some extent, a deeper debate about the role of economic thinking in the law,” Rosch said.

Courts have long used a standard that asks if the compensation falls within a range that could be reasonably negotiated in order to assess whether a fee paid to an investment adviser was too high. Investors in the Jones case argued their fund was paying an adviser too much, but the district court used the old standard and dismissed the case.

In his 7th Circuit Court of Appeals opinion, Chief Judge Frank Easterbrook affirmed the ruling but threw out the old test and advocated a more relaxed standard that relied on the market except in cases of fraud. The mutual fund industry is a highly competitive one, the panel found.

The 7th Circuit declined to hear the case again before the full panel, but in a dissent Judge Richard Posner urged his colleagues to hear the case and was skeptical that investors would be able to avoid funds that charge excessive fees. He pointed to studies that showed  fund directors had weak incentives to rein-in adviser fees.

In a unanimous decision authored by Justice Samuel Alito, the Supreme Court returned to the older strict standard and “turned its back” on Easterbrook’s “pure Chicago School” decision, Rosch said. The decision was significant, he said, both because the Supreme Court ruled in favor of the plaintiff, and because it didn’t express concerns about the court’s role in overseeing competition, as it has in some recent antitrust decisions.

Bilski v. Kappos

The intellectual property case, Bilski v. Kappos, asks what types of innovations deserve patent protection. It was brought by inventors who tried, and failed, to patent a mathematical formula designed to hedge risk.

The inventors sought a controversial “business patent” or patents on methods of doing business.  They appealed the rejection to the Federal Circuit, which upheld the denial and settled on a test to determine whether a process could be patented.

A patent is a legal monopoly, so the reach of some patents is of interest to the antitrust bar. The Justices, Rosch said, didn’t seem to favor a broader approach. Justice Stephen Breyer, for example, offered:  “I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake. . . . That you are going to say is patentable, too?”

American Needle v. NFL

The court is also expected to rule soon on one case that does involve federal antitrust laws, American Needle v. NFL, which will assess how antitrust laws apply to the National Football League. It will be the 11th antitrust decision in the last six terms, Rosch pointed out, which is an active antitrust docket for the high court.

The NFL has licensed its merchandise as one league for decades to several manufacturers, but decided to enter an exclusive arrangement with Reebok in 2000. American Needle, a rival apparel maker who lost out, sued the NFL on antitrust grounds and said each team should be required to negotiate a separate contract.

The NFL based its defense on a Supreme Court precedent that found a parent corporation and its wholly-owned subsidiaries were one unit for the purposes of antitrust laws. The district court and the 7th Circuit agreed, but both parties asked the Supreme Court to take a look.

The Justice Department and the FTC submitted a joint brief that took a middle ground and said the league sometimes but not always acted as a “single entity” in its operations. Each action should be considered on a case-by-case basis to determine if it was anti-competitive, the agencies argued. It was the first joint brief in “many years” that supported a plaintiff, Rosch pointed out.

“My reading of the tea leaves is that the [Supreme] Court is likely to reverse the 7th Circuit and remand with instructions to apply a fact-intensive test,” Rosch said.

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