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This article appears courtesy of The Connecticut Law Tribune. Copyright 1997. American Lawyer Media, L.P. All rights reserved. For reprints of recent articles, please contact Yvette Otero at 203-256-3600, or by email at (clt@counsel.com). PAPER: The Connecticut Law Tribune DATE: 02-24-97 SECTION: News, page 1 HEADLINE: A See-No-Evil Merger Probe? DECK: HyperLaw contends the public needs to see secret Lexis-West pacts to fathom the West-Thomson merger, and that Justice went soft on it antitrust investigation. BY: THOMAS SCHEFFEY What started as an exceedingly friendly meeting on Feb. 6 over the latest settlement terms for the West-Thomson merger is escalating into a frontal assault on the U.S. Department of Justice's antitrust enforcement role. Merger critics, including one small CD-ROM law publisher encouraged to intervene in the case, charge that Justice was "rolling over" in its antitrust enforcement duties by allowing the nation's two biggest legal publishers to merge. [HL Note: the rolling over statement was made in a letter from Juris, Inc., attached to a HyperLaw motion] Now, it suddenly appears that West and Thomson may sell up to 76 products to the Number 2 law publisher, Lexis-Nexis. It's amounted to "disgraceful" antitrust enforcement, complains a former West executive who attempted to bid on products that Thomson and West agreed to divest for antitrust purposes. The courts should scrutinize the agreements behind the industry in which online legal research costs are priced four times higher than they should be, says New York's HyperLaw Inc. The proceedings started peacefully on Feb. 6, in the Washington, D.C., courtroom of U.S. District Judge Paul N. Friedman. The parties were there for a status conference on the merger. But Friedman's ire was slowly rising. Ranged before him stood the once-warring lions of legal publishing -- West, Thomson and Lexis -- who for over 20 years have taken their battles to federal courts and the U.S. Congress. Along with these saber-toothed litigators were the ringmasters -- state and federal antitrust enforcement officials. Yet on that day all was sweetness and light. Everybody was happy with the latest version of the West-Thomson merger deal -- except the judge. "You know, basically I see everybody fighting vigorously all this time against the backdrop of a proposal that ends years or decades of Thomson and West fighting vigorously against each other and you [turning to Lexis' scrappy litigator Gary L. Reback, of Palo Alto, Calif.'s Wilson, Sonsini, Goodrich & Rosati] were championing the third largest player out there. And now you've reached an agreement on everything. Friedman was under heavy pressure from Justice, West, Thomson and Lexis to sign off on the merger of American legal publishing's two largest companies, West Publishing Corp., of Eagan, Minn., and the Thomson Corp., headquartered in Stamford. But new details were bedeviling. To Friedman's clear surprise, Thomson and West had in January signed a pending deal to sell all 52 of the merger divestiture products -- large and small legal reference works plus the electronic online citator AutoCite -- to a single company, Reed-Elsevier, the British-Dutch parent of Lexis-Nexis. "[M]aybe I was the only one that wasn't operating on what [Thomson antitrust lawyer Wayne Dale Collins] said was the assumption all along -- that all of the products would likely be divested to one acquirer. Maybe I missed that somewhere along the way," Friedman said. Other new points arose during the hearing: In the settlement of a separate federal contract action in Ohio last month over AutoCite, Lexis won an option to buy 24 more Thomson properties. And as a clincher, Thomson, West and Lexis agreed to sign antitrust releases in each others' favor. Friedman clearly recognized the merger's potential impact on legal publishing. Between West's Westlaw and Lexis, the two companies command virtually 100 percent of the online legal research industry in the U.S. But the judge also saw the merger's settlement as raising live questions about how the antitrust enforcers do their job, and how far a judge can go in reviewing what they give him to sign. `Cops' No Help Friedman's role in the case arises from the federal Tunney Act, which was enacted 22 years ago to increase public awareness and input in federal antitrust deals. The act calls for a federal judge to sign off on mergers and settlements. In the case of the West/Thomson merger, the experts here -- state and federal antitrust enforcers who have been prosecuting and settling the case -- were frustratingly noncommittal about the newest developments. On Dec. 23, Friedman withheld his approval of the merger due to a flaw he saw in the settlement's key feature: the commercial license allowing West competitors, for a fee, to cross-reference West's book and page numbers. Such "star pagination" would make points of law found in non-West case collections citable to West's standard reference books -- and thus practical for court briefing and other formal legal work. Friedman rejected the proposal because he said he doubts that West legally owns the cite rights it would purport to sell. Since the copyright issue is in active litigation, Friedman suggested that West abstain from charging other legal publishers until the law is settled. Two days before the Feb. 6 hearing, Thomson proposed terms designed to address Friedman's concerns. To encourage new competition in legal publishing, Thomson-West proposed free "star pagination" licenses for small publishers until the legal issue is settled, or until the year 2001. But big companies -- which West defined as any with annual sales of over $25 million -- would get no price break on the pagination licenses. At the hearing, Collins identified the large legal publishers as Lexis; Commerce Clearing House Inc., of Chicago; Matthew Bender Inc., of New York; and Bureau of National Affairs, of Washington, D.C. Mushroom's Complaint Like a mushroom, kept in the dark and fed a diet of horse manure, Judge Friedman had reason to complain. He was being asked to sign off on this weighty merger, and the state and federal antitrust officials had briefed him of the deal with only a two-page memo. "And [the merger] may well be, as you say, in the public interest," said a decidedly skeptical Friedman near the end of the 90-minute conference, but "I'm apprised of it in two pages which basically doesn't tell me anything." The DOJ's James Foster explained that the enforcers would take no position on the new terms -- free pagination licenses for small publishers, charges for big ones -- or the proposed sale to Lexis, until after Friedman signs off on the merger consent decree. Throughout this case, Friedman's shown an appetite for information and a keen sensitivity to the legal limits of his role. At a Sept. 30 Tunney Act hearing, he said he'd read the voluminous comments of 26 companies, associations and individuals who objected to the merger, and had studied the 1995 case of U.S. v. Microsoft, from the U.S. Court of Appeals for the D.C. Circuit. The Circuit Court harshly criticized a judge for going beyond the scope of DOJ's antitrust investigation of Microsoft's software sales practices. The appellate court also defined Tunney Act review as simply determining whether or not the DOJ consent decree was "within the reaches of the public interest." Reback, Lexis' lawyer, had represented small software developers in the Microsoft case. Friedman also knew him as the showy litigator who, at the September Tunney Act hearing, noisily ripped segments out of a volume of Thomson's American Law Reporter to illustrate the impracticality of the proposed consent decree. Lexis, which won amicus curiae status, contended then that Thomson's entire ALR research system should be divested by the merged company to compete with West's system. Too Quiet But four months later, on Feb. 6, Lexis' Reback was more subdued, Friedman noted, remarking that suddenly "you don't even have Mr. Reback around to argue; he's playing a much more passive role than the last time I saw him." In the interim, Reback had made the book divestiture deal with West and Thomson. Friedman posited: If the Tunney Act and Microsoft say the court's role is a limited one, isn't