Select Page

Jacobsen v. Katzer

“Trust me, this is huge.” Larry Lessig

My partner Andy Updegrove has written a post discussing Jacobsen v. Katzer. In a nutshell, theCAFC upheld an open source copyright license, pointing to the work of Creative Commons and others. As Andy discusses, this is an important decision for the open source movement.

Update: Here is a link to a thoughtful post discussing whether this decision might have the unexpected effect of tipping the scales (in favor of licensors) on the legal enforceability of license provisions prohibiting reverse engineering of software: Be Careful What You Wish For: How the Jacobsen v. Katzer Decision Could Hurt the Free Software Movement

Study: If You Go to Trial, Odds Are You're Making a Mistake

Litigation takes the place of sex in middle age.
Gore Vidal

I wrote in some detail almost two years ago about how trials can be very bad for clients. In the linked article I wrote:

Sadly, too many lawyers (you hear their ads on the radio and see them in the legal journals – “courtroom lawyers,” “trial lawyers”) are often as willing to take their clients to trial as generals are to commit their troops to battle.

Now, a study reported in the New York Times seems to find empirical confirmation for this. I quote from the article, linked here:

Note to victims of accidents, medical malpractice, broken contracts and the like: When you sue, make a deal.

That is the clear lesson of a soon-to-be-released study of civil lawsuits that has found that most of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer. . . .

In just 15 percent of cases, both sides [plaintiffs and defendants] were right to go to trial – meaning that the defendant paid less than the plaintiff had wanted but the plaintiff got more than the defendant had offered. . . .

Critics of the profession have long argued that lawyers have an incentive to try to collect fees that are contingent on winning in court or simply to bill for all the hours required to prepare and go to trial. . . .

“Most of the time, one of the parties has made some kind of miscalculation or mistake,” said Jeffrey J. Rachlinski, a law professor at Cornell who has studied how lawyers and clients decide to go to trial . . . .” The findings suggest that lawyers may not be explaining the odds to their clients – or that clients are not listening to their lawyers. . . .

Law schools do not teach how to handicap trials, nor do they help develop the important skill of telling a client that a case is not a winner. Clients do not like to hear such news.

Human nature being what it is, I don’t expect this to change anytime soon. After all, the fact that social scientists report that people tend to buy stocks when they’re high and sell them when they’re low doesn’t seem to affect most investors; the fact that half of all marriages end in divorce doesn’t seem to cause people to hesitate before getting married; and the fact that the odds favor the casinos doesn’t stop people from betting at the casinos. And so it goes ….

Andy Updegrove on Appeals in the OOXML Standards Battle

If my partner Andy Updegrove (he’s the one on the right) is not the most knowledgeable lawyer on the planet about ODF/OOXML standard adoption issues (1,2,3), I would be more than a little surprised. Here is a Q & A with Andy that Redmond Developer News has published, where he discusses the ongoing appeals process related to these standards. A link to the article on scribd.com is below, and here is a link to the article online. If you know absolutely nothing about this controversy, click here to read several articles Andy has published on the topic.

Read this document on Scribd: OOXML Q & A With Andy Updegrove

Bill Patry: End of Blog

In January 2007 I wrote:

Bill Patry, Senior Copyright Counsel at Google (how’s that for a great job), emailed me and asked me to mention the publication of his new copyright treatise, Patry on Copyright.

I like the fact that Mr. Patry said this about his 5,800-plus page, $1500 treatise: “ The book is also chock full of wikipedia references, anecdotes, riffs on logic, congitive linguistics, etc. It is many books in one.”

Although I haven’t seen this treatise yet, I hope that it is a change from Nimmer on Copyright, which is so densely academic as to often be unusable by practitioners. Somehow, I doubt that we’ll ever see Nimmer referencing Wikipedia.

On Friday, August 1, 2008, Bill Patry wrote as follows. I excerpt from the full post, here

I have decided to end the blog, and I owe readers an explanation. There are two reasons.

1. The Inability or Refusal to Accept the Blog for What it is: A Personal Blog

. . . While in private practice I never had the experience of people attributing my views to my firm or to my clients. I moved from private practice to Google I put a disclaimer to the effect that the views in the blog (as in the past) were strictly mine. . . .

For the first year after joining Google, . . . people honored the personal nature of the blog, but no longer. . . . The inevitable opening sentence now is: “William Patry, Google’s Senior Copyright Counsel said,” . . . There is nothing I can do to stop this false implication that I am speaking on Google’s behalf. . .

In the end, I concluded that it is no longer possible for me to have a blog that will be respected for what it is, a personal blog. . . .

2. The Current State of Copyright Law is too depressing

This leads me to my final reason for closing the blog which is independent of the first reason: my fear that the blog was becoming too negative in tone. I regard myself as a centrist. I believe very much that in proper doses copyright is essential for certain classes of works, especially commercial movies, commercial sound recordings, and commercial books, the core copyright industries. I accept that the level of proper doses will vary from person to person and that my recommended dose may be lower (or higher) than others. But in my view, . . . we are well past the healthy dose stage and into the serious illness stage. . . . Copyright law has abandoned its reason for being: to encourage learning and the creation of new works. Instead, its principal functions now are to preserve existing failed business models, to suppress new business models and technologies, and to obtain, if possible, enormous windfall profits . . .

So between the inability or refusal of some people to accept the blog for what it is — a personal blog — and my inability to continue to be Cassandra, I decided it was time to pull the plug. . . . I intend to spend my free time figuring out a constructive way to talk about the difficult issues we face and how to advance toward their solution.

I have read and enjoyed this blog religiously for the last 18 months, and I am saddened. Oh, and p.s.: our firm does subscribe to Patry’s treatise now, and although Nimmer is still on the shelves, we are no longer purchasing updates.

"Honey, I’m Going to Whole Paycheck, Has Our Home Equity Loan Come Through Yet?"

“[Wild Oats] is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space. Eliminating them means eliminating this threat forever, or almost forever.”
John P. Mackey, co-founder and chief executive of Whole Foods, in 2007 email to Whole Foods Board Member. Mr. Mackey also posted on Internet message boards under the pseudonym Rahodeb for seven years, ending in 2006

Every man is his own greatest enemy, and as it were his own executioner.
Sir Thomas Browne, Religio Medici

My wife loves Whole Paycheck. Even though the nearest Paycheck is a 20 minute drive from our home outside of Boston, and the really good (huge) Paycheck is 30 minutes away, she is reluctant to buy fruit or meat anywhere else. Shaws, which is right around the corner? forget it. Roche Bros., the next nearest supermarket? Boxed cereal, if they’re lucky. In fact, half the time my wife calls Paycheck “Bread & Circus,” the name of the original chain which Paycheck acquired in 1992. My soon-to-be 90 year old mother, who lives quite near a Paycheck that began as a Bread & Circus, won’t call it anything else.

When I go to Whole Paycheck, I assume that the minimum charge will be $100. For some reason, it’s almost impossible to get out of Paycheck for less than that. It’s like some obscure law of nature, or a function of consumer brain-washing, or both. At Shaws or Roche Bros., it’s actually an effort to break thirty bucks. But Paycheck, ahhh … The food is so exotic. It’s so beautifully displayed. That $40/pound goat cheese they are taste-sampling is so delicious, and after all, you only live once. For foodies, shopping at Paycheck is almost a religious experience. And by the way, I ain’t no foodie.

The only competition to Paycheck in the greater Boston area that I can think of is Trader Joe’s (which has around 300 stores nationwide), but frankly Paycheck is in a completely different class than Joe’s. In fact, the more I think about it, the more I’m inclined to say that Joe’s competes with Paycheck only when it comes to “dry grocery items” (chips and snacks) and frozen foods, and not in the key areas of meat, fish, bakery goods, fruits and vegetables.

Wild Oats Market? Never shopped there, and never heard of it before its merger with Paycheck last year. According to this site, which maps all Wild Oats locations, the closest Wild Oats stores are in Saugus and Medford, way outside of my family’s travel zone.

Now to antitrust.

Paycheck has a voracious appetite. Since its single-store start in Austin, Texas in 1980, it has swallowed up 15 other natural foods grocery chains, and by early 2007 it operated almost 200 stores nation-wide. Wild Oats operated over 100 stores, and was the U.S.’s second largest “natural foods” chain. In February 2007 Paycheck announced that it would acquire Wild Oats for $65 million, resulting in a natural food store behemoth 300 stores strong. (If you think I’m being facetious, you’re right).

The proposed merger triggered a Hart-Scott-Rodino filing, which gives the Federal Trade Commission the authority to investigate certain mergers and challenge them under Section 7 of the Clayton Act, which prohibits mergers or acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

The FTC did challenge this merger. It’s position, summarized by the D.C. Court of Appeals, was –

. . . Whole Foods and Wild Oats are the two largest operators of . . . premium, natural, and organic supermarkets (“PNOS”). Such stores “focus on high quality perishables, specialty and natural organic produce, prepared foods, meat, fish and bakery goods; generally have high levels of customer services; generally target affluent and well educated customers [and] . . . are mission driven with an emphasis on social and environmental responsibility.” . . . In eighteen cities . . . the merger would create monopolies because Whole Foods and Wild Oats are the only PNOS.

The FTC attempted to block the acquisition pending its proceedings, but the U.S. District Court denied the FTC’s request for a preliminary injunction barring the merger. The D.C. Circuit denied an emergency motion requesting the injunction, pending appeal. With no legal obstacles, the merger was consummated in August 2007.

On July 29, 2008 the U.S. Court of Appeals for the D.C. Circuit issued a 40 page 2-1 decision (including the concurrance) reversing and remanding the case to the District Court.

The critical question on appeal was whether the economic impact of the acquisition should be measured against Paycheck’s core customers, and whether the District Court judge erred by failing to recognize this group as a relevant sub-market worthy of antitrust protection. I prefer to call the Paycheck core customers latte-drinking, Volvo-driving, NPR-listening, Birkenstock-wearing, New York Times-reading, natural/organic food-eating liberals, or “tofu-niks” for short. The District Court judge over-focused on Paycheck’s marginal customers. I prefer to call these customers McDonald’s-eating, Dunkin Donuts Coffee-drinkin, beef-loving, conservatives, or “beef-niks” for short. The tofu-niks shop at Paycheck religiously, and consider Paycheck to be only a step removed from their church or temple; the beef-niks go there to grab a gallon of milk or some apples only when a trip to Star Market is inconvenient. They mumble their response when the cashier gives them the standard Paycheck full eye-contact friendly greeting.

When it comes to mergers, as in many areas of antitrust law, how you define the market is everything. If Paycheck’s product market was grocery stores that catered mostly to beef-niks, in other words it was basically a conventional supermarket, it didn’t have a large market share and it’s acquisition of Wild Oats was not likely to negatively impact competition. However, if Paycheck and Wild Oats comprised a distinct market that catered to a sub-market of tofu-niks, competition in that “core” market might be threatened by the acquisition, at least in the 18 cities identified by the FTC, and the FTC may have the right to bar the acquisition.

The district court defined the product market broadly to include both groups, and therefore allowed the merger to proceed. The D.C. Circuit disagreed, and held that there is a core group of customers (the tofu-niks), and when this group is considered the market can be defined narrowly. Therefore, the merger was properly challenged by the FTC, and should have been preliminarily enjoined to allow the FTC to conduct a full administrative hearing. To reach this decision the D.C. Circuit’s opinion is filled with the opinions of competing economists, and enough economic jargon to set the average Paycheck customer’s head spinning – “small but significant non-transitory increases in price” or SSNIP, “critical loss analysis” and so forth. And, of course, any opinion by an economist is subject to scathing criticism by another economist, so the decision and dissent are filling with polite academic cross-invectives.

Where does the case go from here, given that the merger was completed almost a year ago? The cage-free hen-hatched, antibiotic-free, hormone-free, omega-3 enriched organic eggs have, so to speak, have been scrambled. (sorry …)

The FTC could, after further administrative proceedings, attempt to force Paycheck to divest itself of the stores where competition was the most affected (some or all of the 18 markets it had identified when it chose to challenge the acquisition) and re-establish competition in those areas. According to the decision, there were a limited number of markets where competition was most affected. However, one wonders how that would be implemented given that the operations of the two companies have been combined, and it may not be possible for Wild Oats to reestablish itself. I suspect that lawyers at both the FTC and at Paychecks’ law firms are scratching their heads in puzzlement. And after all, the FTC doesn’t want to actually hurt former Wild Oats tofu-niks who have converted to Paycheck, does it?

Oh yes, as mentioned, one of the three appellate court judges dissented, arguing that there really isn’t a core market for Paycheck’s customers, and that for purposes of merger analysis the market definition should be all supermarkets, not just “organic” supermarkets. He argued that the economic evidence supported the conclusion that “organic” and “conventional” supermarkets compete for the same customers, and therefore the district court judge’s decision should be affirmed.

Obviously, he doesn’t shop at Whole Paycheck.

Stay hungry.