"Back to DOJ Antitrust Review of Thomson/West Merger Page"
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1 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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UNITED STATES OF AMERICA, .
3 ET AL, . Docket No. CA 96-1415
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4 Plaintiffs, . Washington, D. C.
. September 30, 1996
5 vs. . 10:00 a.m.
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6 THOMSON CORPORATION, ET AL, .
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7 Defendants .
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8 . . . . . . . . . . . . . . . . . .
9 TRANSCRIPT OF HEARING
BEFORE THE HONORABLE PAUL L. FRIEDMAN
10 UNITED STATES DISTRICT JUDGE
11 APPEARANCES:
12 For the Plaintiffs: JAMES FOSTER, ESQUIRE
MINAKSI BHATT, ESQUIRE
13 CRAIG W. CONRATH, ESQUIRE
KATHLEEN FOOTE, ESQUIRE
14 LEIB DODELL, ESQUIRE
15 For the Defendants: WAYNE COLLINS, ESQUIRE
GARY L. REBACK, ESQUIRE
16 JAMES E. SCHATZ, ESQUIRE
17 Official Court Reporter: SANTA THERESA ZIZZO
ROOM 4800C U. S. Courthouse
18 Washington, D. C. 20001
(202) 289 1160
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Computer-Aided Transcription of Stenographic Notes
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Pages 1-88
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1 P R O C E E D I N G S
2 THE DEPUTY CLERK: Civil action 96-1415. United
3 States of America versus Thomson Corporation, et al. Mr.
4 Foster, Miss Bhatt, Mr. Conrath, Miss Foote and Mr. Dodell for
5 the plaintiffs. Mr. Collins represents Thomson Corporation, Mr.
6 Schatz representing West Publishing and Mr. Reback representing
7 Lexis-Nexis.
8 THE COURT: On Wednesday I issued an Order denying the
9 motion of various people to intervene to file amicus briefs. I
10 denied the motion of Lexis-Nexis to intervene but permitted
11 Lexis-Nexis to participate as an amicus and to participate at
12 this hearing. I granted the motion of Hyper Law to participate
13 as an amicus but not to participate in the hearing. I denied
14 the motion of three other entities.
15 In that Order I asked that the parties get together to
16 see if they agreed on how this proceeding should proceed and how
17 much time they'd allow. There was a joint submission submitted
18 by the parties and something which was called our separate part
19 of the joint submission submitted by Lexis-Nexis, and as a
20 result of that I entered an Order on Friday setting forth the
21 order of presentation which was as the United States proposed it
22 and setting forth time limits which was not as the United States
23 proposed it or as Lexis-Nexis proposes it.
24 Lexis-Nexis has 30 minutes as part of the main
25 presentation and five minutes in rebuttal or surrebuttal, which
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1 means that they have 20 minutes more than the Government
2 originally proposed and so therefore I said that all of the
3 other parties could have an additional 20 minutes to share as
4 they saw fit and Mr. Foster was going to tell me at the outset I
5 guess how that was supposed to be done.
6 MR. CONRATH: If I may, Craig Conrath for the
7 Government, Your Honor.
8 THE COURT: I'm sorry, Mr. Conrath.
9 MR. CONRATH: That's all right. We proposed to submit
10 the additional time -- would it be easier by talking the bottom
11 line?
12 THE COURT: Yes. Who is doing what?
13 MR. CONRATH: The United States, 20 minutes to begin.
14 The State plaintiffs, ten minutes. Defendants, 15. Then the 30
15 minutes for Lexis. Then ten for defendants, 15 for plaintiffs,
16 and I understand it five for surrebuttal for Lexis. I believe
17 that allocates the extra time.
18 THE COURT: Fine. So you're up first and who is
19 speaking for the State plaintiffs?
20 MR. CONRATH: Kathleen Foote from California.
21 THE COURT: Okay, Mr. Conrath. I think you're up.
22 MR. CONRATH: All right. Thank you.
23 May it please the Court.
24 I represent the United States which together with
25 seven plaintiffs, other States, brought this antitrust case
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1 against the merger of Thomson Corporation and West Publishing
2 Company.
3 At the same time we filed a proposed judgment of that
4 case which provides for divestitures and other related matters.
5 This proposed judgment is subject to the Tunney Act and that's
6 why we're having this proceeding. And the question in that
7 proceeding is whether this judgment is in the public interest.
8 This case, Your Honor, was a result of an extensive
9 and intensive investigation that lasted about five months at the
10 Department of Justice. It involved about 30 people. Each State
11 had at least one person as well. There were a dozen attorneys,
12 perhaps the equivalent number of paralegals, five economists
13 involved in this process. We interviewed over the course of
14 this over 100 people, Your Honor, law offices, librarians at law
15 offices. We talked to legal publishers, large established ones
16 and small ones. We did 25 depositions. Reviewed about 230
17 boxes of documents.
18 We investigated in the course of that every possible
19 theory of competitive harm. At the end of that process we found
20 that there was a problem. In fact, a lot of problems.
21 We told the companies that we would sue them. They
22 said let's talk. This is garden variety merger practice. We
23 negotiated with them. We negotiated a consent decree and this
24 as well is garden variety merger practice. This decree solves
25 the problems that was found in that investigation. It's in the
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1 public interest and it should be entered.
2 In particular in the course of this we investigated
3 very carefully the views of Lexis-Nexis. We discussed with them
4 the issues that they raised with us as well as additional issues
5 that we raised with them that related to the merger. We
6 reviewed documents from Lexis, met with officials from Lexis,
7 proposed officials of Lexis, met repeatedly with counsel and met
8 extensively with officials from Thomson.
9 Nothing that's in the comments of Lexis-Nexis on the
10 motion to intervene was new to us but were in fact matters that
11 were carefully considered.
12 On some of the issues that we discussed that related
13 to Lexis-Nexis we brought a case, and I believe this is
14 reflected in the complaint. On other issues we did not bring a
15 case, based on a review of all the evidence and the available
16 law.
17 In particular we looked at the question of whether
18 there is a case for divesting ALR or a case based on the
19 competition between two competing legal research systems. We
20 evaluated that question extensively and very carefully and
21 decided not to bring that case.
22 Now, Lexis-Nexis was disappointed in that decision and
23 essentially what they raise in this proceeding is an attempt to
24 refight this question. And of course the question of what case
25 the Government should bring is a question that's inappropriate
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1 in a Tunney Act proceeding.
2 THE COURT: So basically what you're saying about the
3 ALR and the divestiture of Amjur and Corpus Juris Secundum is
4 that that's not part of the complaint. You chose not to make
5 that part of the complaint and therefore under Microsoft it's
6 not relevant to my job.
7 MR. CONRATH: Well, Your Honor, yes, insofar as that
8 goes but I want to say Lexis says it's also a question of
9 whether the divestiture relief that we got, that is included,
10 will be effective and that is of course an appropriate
11 consideration in a Tunney Act proceeding.
12 It will be clear that really what we're saying is that
13 we should have brought a different case, but even if you examine
14 those issues just straight on the merits and say is this
15 divestiture relief effective and the answer to that is an
16 unequivocal yes. The criticisms just don't hold water if we
17 take a good look at it.
18 In order to do that let me explain roughly the
19 questions that we looked at in this case so that I can explain
20 where the relief comes from.
21 A question under Clayton Act Section Seven is did this
22 merger substantially lessen competition? An important point to
23 note that it talks about what the effective merger is and
24 doesn't relate to other competitive problems in the industry.
25 How to look at this kind of question is well
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1 established in the case law. In this case there's a horizontal
2 aspect of the vertical aspect. The horizontal aspect is a
3 garden variety merger investigation.
4 We asked questions like do the products of the merging
5 firms compete? In the case of firms that make many products,
6 like these two firms, which particular products of one firm
7 compete with the products of the other firm? How many other
8 firms compete in that same product market and how hard would it
9 be for another firm to enter and start competing effectively?
10 That is, are there some barriers to entry.
11 The relief in such cases is normally divestiture of
12 one competing product, that is, sell it to an independent third
13 party who can continue to compete effectively.
14 Also in this case there's some relief for reducing
15 entry barriers which are found in one of these industries. In
16 this case there were a lot of horizontal problems, overlaps
17 between the two companies. These were garden variety problems.
18 The relief contained in the decree is garden variety relief.
19 The vertical aspects in this case are something that
20 arises in other merger cases although it's less frequent than
21 the horizontal issues.
22 That issue arises this way. Lexis competes with
23 Westlaw. We want to protect the -- the antitrust laws want to
24 protect the consumers who benefit from that competition between
25 Lexis and Westlaw.
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1 Now, Lexis assembles the contents that is on its
2 service from a variety of sources. One important source is
3 Thomson where it gets Lawyer's Edition, Auto-Cite and a number
4 of legal and a number of nonlegal materials.
5 The vertical foreclosure problem as it's sometimes
6 called is if someone now owns Westlaw it might not be so
7 interested in Lexis being a good competitor. So it might cut
8 off access. It might reduce the quality or it might raise the
9 price of the materials it supplies. This is a typical vertical
10 foreclosure issue.
11 The typical solution is either to require Thomson to
12 continue to supply to Lexis on appropriate terms or more or less
13 commonly, divestiture of the products in question to a third
14 party. Both kinds of relief are present in the consent decree
15 that we've presented to the Court.
16 For example, the new owner of USCS or Lawyer's Edition
17 will have exactly the same incentive to provide those products
18 to Lexis as Thomson does. So Lexis will have the benefit of the
19 same competition that exists today.
20 Similarly, early in our investigation, Lexis and
21 Thomson negotiated extensions of supply agreements for some of
22 the product, especially including nonlegal products. We
23 required some extensions of those. An additional five years in
24 the decree. And finally we insisted on the divestiture of
25 Auto-Cite so that again a third party can step in the shoes of
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1 Thomson and continue supplying Lexis.
2 THE COURT: What is it in your view that Lexis still
3 objects to with respect to Auto-Cite in view of what's required
4 in the decree and what's the answer to their objection? Unless
5 you want to deal with that later?
6 MR. CONRATH: I'm sure I'll deal with it again later,
7 Your Honor, but their objection I believe and I don't want to
8 state it for them, but I think it is that first they complained
9 that it's not a complete divestiture and I think that results
10 from simply not understanding what the decree involves.
11 To ask what the divestiture is you've first got to
12 step back and then ask what is Auto-Cite? Well, Auto-Cite is a
13 product but it's an intangible product. It's something that
14 let's you when you're on Lexis go up and check the subsequent
15 history of a case. Today Lexis gets that from Thomson. After
16 the divestiture a new buyer will step into the shoes of
17 Thomson. They'll have the same contractual obligation to supply
18 Auto-Cite to Lexis. And they'll have all the tools that are
19 necessary to make Auto-Cite in the same ways that Thomson makes
20 it today. The divestiture includes the whole data base of
21 history of cases and everything else that's used in making the
22 Auto-Cite product, software, knowhow, trade secrets, trade
23 names, and an option to hire the personnel.
24 In other words, if you think of Auto-Cite today as a
25 black box, in this side comes cases, new decisions, they are
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1 manipulated in a way and out this end comes something that's a
2 feed, that's a literal feed to Lexis. What's in that black box
3 is what gets divested and Thomson or rather Lexis is in a
4 position to get from the new buyer exactly what it gets today
5 and therefore to provide the same product to consumers that it
6 gets today. And that's why this relief keeps competition for
7 those consumers who are the ultimate beneficiaries the same.
8 They have access to the same Auto-Cite product after the
9 divestiture that they have today on Lexis.
10 Some of the other comments that were raised about this
11 essentially say we ought to have divested more. As I said
12 before, in large part we think that's a recasting of the claim.
13 We should have brought a different case. But let's take them on
14 one by one.
15 A number of people made this point but talked about
16 specific other products they thought should have been included
17 in the divestiture. ALR, Amjur, CJS. Even as far as all of
18 Lawyer's Cooperative. The idea of these commenters is that the
19 divested products won't be as competitively effective without
20 those things that are not divested and there are three reasons
21 essentially given. Cross-references, editors, economies of
22 scope. Let me take them each in turn.
23 Cross-references. Well, just what is at issue? In
24 fact it's less than it's made out to be. This is Lawyer's
25 Edition Supreme Court Reporter volume 125. I open here to Edge
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1 Broadcasting. This little box right here is the
2 cross-references. It contains six references to other products.
3 THE COURT: Usually to Amjur and ALR.
4 MR. CONRATH: Right. Amjur, ALR. USCS. Lawyer's
5 Edition Digest, Lawyer's Edition Index. About half of them in
6 this particular case are products that will be divested.
7 Now, that's -- this cross-references thing is not
8 complicated or difficult. It's a box with citations to other
9 sources that are relevant to the point in this case. And the
10 question is will the divested -- the buyer of the divested
11 products be able to continue a box with cross-references like
12 that? Well, creating these cross-references is a simple
13 product. You look up the relevant citations, put them in the
14 product. Print them.
15 The new owner can continue these particular
16 cross-references to Thomson products, could even add more to its
17 own products or other products if it wishes. Why is that?
18 Because the cross-reference to another source, like the ones
19 contained in this box, is not an infringement of any copyright.
20 We looked carefully at the question of whether there
21 ever had been any interference by Thomson or any claim to
22 prevent somebody from citing to its product and found that there
23 wasn't any. That was recently confirmed to us in a letter from
24 Thomson when the issue was raised in the comments, and more to
25 the point, it's even confirmed in the declaration that's
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1 attached to Lexis' pleading in this Court, the declaration of
2 Mr. Svengalis at paragraph nine says that the competitor buying
3 the three divested TCSL titles could include citations to Amjur
4 and ALR specifically is what he's referring to there.
5 In short, the divested products after a new buyer
6 takes them can include cross-references just like they include
7 them today and therefore in this regard they will be just as
8 competitively effective in the future as they are today.
9 THE COURT: Is there any guarantee that Thomson won't
10 change its view on that sometime in the future besides the
11 letter that he's just wrote to you?
12 MR. CONRATH: Well, Your Honor, I don't think that
13 there's a colorable claim. I'm not a copyright lawyer and I
14 won't want to push this beyond my level of competence, but as I
15 understand it, mere citation to another product is not an
16 infringement. That is a reference saying you can find a
17 discussion of this topic somewhere else.
18 THE COURT: I'm sorry you're not a copyright lawyer
19 because I do have some questions that relate to copyright on
20 another subject.
21 MR. CONRATH: Well, you might be able to find one in
22 the courtroom, Your Honor.
23 THE COURT: I'll be probably able to find one of every
24 kind of lawyer in the courtroom.
25 MR. CONRATH: That's a good bet.
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1 The next question is editors. Some commenters claim
2 that the divested products won't be as effective because they
3 won't have adequate editors to maintain them in the future.
4 We also carefully looked at this question. Indeed,
5 the decree addresses this issue. It had its provisions require
6 that Thomson make the relevant personnel involved in producing
7 divested products available to the new buyer and Thomson cannot
8 interfere with a new buyer hiring.
9 Now, this also is garden variety divestiture relief of
10 a product line. You can't obviously -- we can't make them go.
11 The employees. But if the product that they work on is being
12 divested, and there is an offer to continue to work they
13 obviously will have to carefully consider whether that isn't
14 likely to be a better opportunity than staying at a company
15 where the product they work on is being discontinued.
16 Furthermore, the United States, and in consultation
17 with the State Plaintiffs and the approval of the State
18 plaintiffs in the case of State specific products has to approve
19 a buyer. We will not approve any buyer who cannot run these
20 products competitively and this of course includes having
21 adequate editorial staff. And this review of a prospective
22 buyer for its viability, its ability to run the product, is also
23 garden variety in divestiture relief.
24 We make those determinations in a lot of industries.
25 It's legal editors in this case. In another case it might be
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1 software engineers, ski slope designers, software programmers or
2 whatnot.
3 And I should add that in our investigation we found
4 that there are a lot of firms that hire legal editors.
5 Typically the people who are hired to begin this task are
6 relatively recent law school graduates, and contract editors are
7 used extensively by Thomson. So there's no reason to think that
8 a new buyer will not be able to hire from Thomson, use its own
9 existing editors, and to the extent necessary, to fill out in
10 order to obtain an adequate editorial staff. And we will assure
11 that they do that to make sure that these products are
12 competitive after the divestiture.
13 The third general claim that we ought to have gotten
14 more is I think described in varieties of ways but it might be
15 called economies of scope or roughly the proposition that the
16 sum of the parts -- the whole is greater than the sum of the
17 parts. And it's important to note exactly what this means.
18 The idea is that some products that are -- should be
19 spun off, even though there's no competition between West and
20 Thomson on those products and we of course examined this
21 question carefully, too, in particular, this goes to the
22 question of whether there are a lot of shared costs in producing
23 these products.
24 Now, as -- there are some shared costs of course as
25 with any multi-product firm but frankly there are not as many as
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1 one might think. For the most part, for example, editors work a
2 single publication and this is particularly true since a lot of
3 editors are contract editors. So in this case there is formal
4 sharing of costs and there's separation only in Deering and
5 California Reporter and those are both going to be divested.
6 So in this case there's no reason to think that the
7 products, the divestiture products have to be assembled with a
8 bunch of noncompeting products in order to be effective in the
9 future.
10 The final issue, Your Honor, on which there was a lot
11 of comments was star pagination. The proposed decree reduces an
12 entry barrier by providing the mandatory license to where West
13 page numbers are located which is commonly called star
14 pagination. There are a lot of comments on this subject. A lot
15 of them said that the star pagination is not an infringement.
16 And indeed that's a position that the Department of Justice has
17 taken as amicus in two lawsuits.
18 THE COURT: One is the Oasis case. Is that on appeal
19 now? Judge Montgomery I guess decided this sometime in March.
20 MR. CONRATH: Right.
21 THE COURT: And then the other case, the case before
22 Judge Martin in the Southern District.
23 MR. CONRATH: In the Southern District. That's right,
24 Your Honor. So --
25 THE COURT: Am I correct, there is some reference in
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1 at least one of the comments, I think it was Geronimo
2 Development, with respect to the copyrightability or the
3 copyright interest in the text of judicial opinions. Am I
4 correct that that -- A, that's not part of the complaint?
5 MR. CONRATH: That's right.
6 THE COURT: And maybe I should ask the West/Thomson
7 attorneys this, but does West allege that there is
8 copyrightability in the text on the opinion?
9 MR. CONRATH: You should ask them. The United States
10 doesn't believe so.
11 THE COURT: But from your perspective that's not an
12 issue in the case. What is an issue is star pagination and the
13 licenses.
14 MR. CONRATH: That's right.
15 THE COURT: I guess I have a couple of questions about
16 that and your time is more or less up but, first, why is it in
17 the public interest to preserve West's right to maintain this
18 debatable position? And isn't it anticompetitive when one of
19 its primary competitors who presumably didn't agree with that
20 position before is now going for ever more to agree with that
21 position?
22 MR. CONRATH: Well, the first point is if this did --
23 if this result did entrench -- Your Honor, I've forgotten the
24 exact word, this position did entrench West's position on
25 copyright we wouldn't agree to it. We think the West position
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1 is wrong and we're participating litigation to try to overturn
2 it.
3 In this merger case, however, there's a -- the fact --
4 a market fact that we found when we looked at this market is
5 that West's assertion of this, this copyright, impedes entry in
6 secondary law and enhanced primary law markets. The mandatory
7 license reduces, does not eliminate, but reduces that barrier
8 and as a result that's good for consumers. Barrier entry is
9 reduced. We hope, in fact, eventually through litigation to
10 eliminate it, but that's for another forum and other
11 litigation.
12 This decree doesn't endorse it and indeed has a
13 variety of provisions set forth in the whereas clauses
14 explaining that it doesn't mean any endorsement, it doesn't
15 limit any parties from opposing West's claim and so on, and
16 obviously we acted on that in the times since we negotiated the
17 decree.
18 So the first thing is that it does not accept or
19 endorse the West claim. It merely deals with the facts, the
20 market fact that it's there, and reduces it as a barrier.
21 The second question is whether this binds Thomson
22 which had criticized the West claim in the past and therefore
23 makes it want to -- has caused it to endorse that position. I
24 think though that goes to -- let me step back and ask what would
25 that mean, that we would be -- have to allege -- because we
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1 thought about this issue as well. Does that mean we have to
2 allege a case that's contingent essentially on Thomson's public
3 advocacy? That is, if the competition would be talking in a
4 sense a public advocacy forum. Because that's what Thomson was
5 arguing as the testimony before Congress and in I think in
6 particular State hearings or matters. And that's a form of
7 intellectual competition really, but I think it's not exactly
8 the kind of market competition that the antitrust laws govern.
9 THE COURT: Let me ask a follow-up question.
10 MR. CONRATH: Sure.
11 THE COURT: All that having been said, whether or not
12 I agree with it is another question, but all that having been
13 said, what is the possible public interest in the Justice
14 Department endorsing and asking the Court to endorse a licensing
15 agreement that requires as a condition of getting a license that
16 all these other middle-sized and smaller publishers abandon
17 their right to challenge this copyright position when West is
18 going the continue to pursue it and when Thomson is now joined
19 with West.
20 Everybody who wants a license under exhibit B to the
21 proposed final judgment has to abandon their right to challenge
22 what to me is a very dubious proposition after the Supreme
23 Court's decision in Feist. I don't see the public interest in
24 having this in the license at all.
25 MR. CONRATH: Your Honor, we concur with that
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1 assessment of the law. The reason that this is in the public
2 interest is because it provides an additional option to firms
3 who are thinking about competing in one of these product lines.
4 Today, the option they have is to publish and litigate or not to
5 publish. Or litigate and publish. But they can fight the
6 claim. We hope they prevail. We're supporting those claims.
7 This -- until that position prevails and of course we're not
8 assured that it will, we hope that it will, but until it
9 prevails or if it does not prevail, there's another route that
10 someone could use to publish the kinds of materials that
11 incorporate West page numbers and that's to take the mandatory
12 license in exhibit B and so in that sense no one loses an option
13 that they have today. There's an additional option. It's not a
14 perfect option but it's a very good improvement over the status
15 quo because it lets someone begin publishing immediately and
16 using West page numbers.
17 THE COURT: But the Justice Department could have said
18 to West and Thomson the only way this merger will go through is
19 if you grant this mandatory license. We're sure not going to
20 agree to prohibit all of the other legal publishers in the
21 country from continuing to pursue you on this copyright claim.
22 MR. CONRATH: Well, someone -- that limitation is very
23 narrow and confined. It's confined. It doesn't impose a
24 prohibition on anybody that they don't have -- anyone who wants
25 to do what they can do can continue to do it.
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1 THE COURT: But they can't have a license.
2 MR. CONRATH: They can't have a license. That's
3 right. It is in essence a provision -- if you're taking a
4 license during the term of the license you're not disputing the
5 license. It's a relatively standard property claim.
6 THE COURT: That's what you say and that's what West
7 says and I suppose if it's a freely negotiated claim that's one
8 thing, but this isn't. This is a license to impose. The terms
9 of the license are imposed by the consent decree and by the
10 final judgment you're asking me to sign.
11 MR. CONRATH: That's true.
12 THE COURT: It's not freely negotiated. It's not what
13 Judge Posner was talking about.
14 MR. CONRATH: That's true, but the fact that it arises
15 in freely negotiated decrees is I think a suggestion that it's
16 not irrational that if you're taking a license you're not
17 contesting the license. But the more important point that I
18 think is useful to decide whether it makes sense, the more
19 important point is that nobody has to take this license. It is
20 an additional option. Anybody who wants to can do what Matthew
21 Bender is doing in the Second Circuit which is publish and
22 litigate. And we wish them well and we support them. This is
23 an additional option for someone who doesn't have that choice.
24 And I think this is mainly likely to apply to CD-ROM
25 publishers. It's an option. It's an option. And in this sense
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1 it's in the public interest because those who might enter have
2 more choices with the decree than they would have without the
3 decree.
4 THE COURT: I should have you sit down and hear from
5 the others. Let me ask you one other question totally unrelated
6 to this. What is the significance of the fact that Connecticut
7 hasn't joined in the response to the comments? They are a
8 plaintiff in this case. What is their posture vis-a-vis the
9 other plaintiffs in this case?
10 MR. CONRATH: May I suggest that you ask Miss Foote
11 that question.
12 THE COURT: All right. I'll do that.
13 MR. CONRATH: Thank you, Your Honor.
14 THE COURT: Thank you. Yes, Miss Foote. Do you want
15 to start there?
16 MS. FOOTE: Good morning, Your Honor. Let me just
17 begin by saying I'm Kathleen Foote from the state of California,
18 the California Attorney General's Office. Mr. Leib Dodell from
19 the Commonwealth of Massachusetts is also here today.
20 I am speaking on behalf of the seven States,
21 California, Connecticut, Illinois, Massachusetts, New York,
22 Washington and Wisconsin.
23 In response to your question concerning Connecticut,
24 the fact of the matter is that at the time that the responses
25 were filed the States were -- which was last Monday, it was Yom
22
1 Kippur. The States had in fact had some debate about whether or
2 not to sign on to the responses to public comment particularly
3 because it had taken some time to resolve the issue of the
4 royalty rates and it was not until the eleventh hour that that
5 issue was resolved and we decided that we would sign on and join
6 the Department on that. And as it so happened on that
7 particular day we could reach no one in the AG's office in
8 Connecticut. Mr. Rubinstein has since told me that he intends
9 to send the Court a letter indicating that he's in accord with
10 the position that the rest of us have taken.
11 THE COURT: But my fundamental question is Connecticut
12 still supports the consent decree and the proposed findings.
13 MS. FOOTE: That's correct. I would like to make
14 certain that the Court is aware that we all brought independent
15 minds to this particular matter from the very beginning of the
16 investigation and through the filing of the complaint and the
17 negotiation of the settlement. In most cases we did our own
18 separate investigation and in-depth interviewing of people
19 within our State. In particular, representatives of our Courts,
20 of our public agencies, our Bar Associations, as well as
21 particularly small law firms and solo practitioners who we felt
22 might well be the most hard hit of the consumers in this
23 particular case. We also worked cooperatively with the United
24 States. In most cases we had separate face to face negotiations
25 with Thomson and West about the issues that were of special
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1 concern to us and scenarios of what would happen with -- who
2 would be the likely players under certain scenarios and what
3 exactly would take place, what would they get, how could they
4 use it, things of that kind.
5 And as a result of those negotiations there are quite
6 a number of specifics in the final judgment that were inserted
7 specifically in our request and based on understandings that we
8 reached in these separate negotiations. Not least of which I
9 might add is the provision that in section 4B of the judgment,
10 that the States also with respect to the State specific products
11 will have the opportunity to review and pass judgment on the
12 competitive suitability of the requirement.
13 That's something we have done before in other
14 mergers. We believe it's quite important in this case because a
15 continued long-term competitive viability of these divested
16 products will depend in substantial part on who the new
17 publisher is. So that's something that we do intend to pursue
18 quite conscientiously in order to carry out the full intent of
19 this particular judgment.
20 I do want to mention the -- paragraph 11 relates to
21 the Official Reporter volumes. Those are the States of
22 California, Washington and Wisconsin. And paragraph 11 makes
23 special provision for that which I want Your Honor to
24 understand. This is something that we concurred thoroughly with
25 the Justice Department in handling it the way it did. We did
24
1 feel there because the Official Reports are competitive with the
2 West National Reporter system, that divestiture was
3 appropriate.
4 However, we also knew that the Courts by and large
5 conduct their own competitive process, a bidding process for the
6 right to publish. And they have their own set of considerations
7 about competitive suitability. As well as their own particular
8 conditions that they want to write in and they want to reach
9 understandings on.
10 So rather than summarily interfere with that process
11 we set it up so that if they want to rebid and find another
12 publisher they can do it, and if they do it, then all of the
13 various benefits that flow to the new publisher in the ordinary
14 divestiture situation also flow here.
15 There are some additional benefits to the Court if the
16 Court elects to do this which are, if you will, an incentive to
17 the Court to take advantage of this opportunity to go out to
18 rebid.
19 THE COURT: Do you have any reactions to the comments,
20 particularly of New Mexico and I believe there are also comments
21 from Rhode Island that raise some concerns? I'm not entirely
22 certain that I understand the responses to those concerns in the
23 responses. Again, I could ask Mr. Conrath when he gets up
24 again, but I thought perhaps -- you and most of the plaintiffs
25 in this case, the State plaintiffs represent the larger States
25
1 and I assume that you understand perhaps better than I at this
2 point what those concerns of the smaller States are.
3 MS. FOOTE: I have to say, Your Honor, that I am not
4 really in a position to speak to those. Possibly Mr. Conrath
5 can do that better than I can. There is some question in my
6 mind whether those come specifically from the merger or whether
7 those are issues that may be preexisting.
8 THE COURT: That was an impression that I got from the
9 response but I must say that the two paragraphs -- the two
10 paragraphs in the response didn't convey to me enough in view of
11 the seriousness and the vehemence with which New Mexico and
12 Rhode Island expressed their concerns. Then again Mr. Conrath
13 can probably speak to that when he stands up again.
14 MS. FOOTE: Okay. There are a couple of issues
15 involving the California specific areas that have been raised in
16 the comment with a frequency and vigor, that I'd really like to
17 mention them here.
18 THE COURT: And most of those, I gather, at least from
19 the point of view of the Reporter in California Reports through
20 various negotiations and letters, most of those concerns seemed
21 to have been resolved at least to the satisfaction of the
22 Reporter but there's still some consumers that persist.
23 MS. FOOTE: Well, there may be but I think that the
24 concerns that the consumers have perhaps would be satisfied in
25 the same way that Mr. Jessen's concerns were satisfied. We were
26
1 obviously very concerned with Mr. Jessen's objection and we're
2 very happy that he's withdrawn it. His concern about the
3 linkage of the Deering's Codes with the California Official
4 Reporters was in fact a concern that we were quite aware of at
5 the time we entered into negotiations with Thomson and West
6 representatives and we talked about it at length with them.
7 We were satisfied at that point at the time of
8 settlement that because of the linkages, whoever got Deering's
9 would in fact be probably the most active and most interested
10 bidder for the California Official Reports, and assuming the
11 market worked the way markets are supposed to, that all of that
12 would happen just as it should.
13 We were a little concerned about the timing because of
14 the expiration of the current contract and we were eager to make
15 certain that Mr. Jessen would have time to go out to rebid
16 before his contract expired. That has obviously been taken care
17 of through this correspondence that extends the contract and we
18 have reassured Mr. Jessen, I think, that just in case the market
19 doesn't work quite as perfectly as we think it will, that we
20 certainly plan to scrutinize very carefully as to the taker of
21 Deering's. What plans they have for going after the California
22 Official Reporters, what their budgets look like, what their
23 timeline looks like. What kind of personnel they will employ
24 and so forth. And he understands that, and I think we fully
25 worked that one out.
27
1 The other issue I just want to touch on has to do with
2 the divestiture of Bancroft-Whitney as an operating entity.
3 Perhaps to some extent the same issue arises with respect to
4 some of the other entities within Thomson. But the possibility
5 of the complete divestiture of all of the Bancroft-Whitney
6 materials was something this we thought about a great deal.
7 Deering's and the California Official Reports are the largest of
8 those. The next one after that is the Witkin Library which is a
9 staple of certainly every law library and most law firms in
10 California. And the possibility, the possibility requiring the
11 divestiture of Witkin was basically the main issue as to whether
12 or not it -- if Witkin were included then the whole of
13 Bancroft-Whitney might be suitable, but after a good bit of
14 investigation we concluded that the evidence on whether -- on
15 the grounds for divesting Witkin, namely how directly
16 competitive Witkin was with the other group publications at
17 West, as well as how integrated Witkin was with the other
18 Thomson publications, there was -- there was a very mixed
19 picture presented by quite a number of individuals, including
20 individuals from the Court, from our own library and again from
21 some of the other individuals whom we heard from. And on that
22 basis we finally concluded that we should not require the
23 divestiture.
24 We had one additional concern as well which was that
25 the Witkin Library is a very special kind of a publication. The
28
1 editorial staff to that is held separate and is treated -- is
2 treated in very special ways that Professor Witkin insisted on
3 during his lifetime and has continued since that time. And
4 which had a very active concern that if there were a divestiture
5 to another publisher, that that specialness in effect would be
6 eroded rather rapidly. And we frankly felt that that would not
7 be a desirable outcome of the Attorney General's intervention in
8 this particular merger.
9 Just in conclusion, I would like the say that we
10 are -- we do feel that this settlement is in the public interest
11 with respect to our States and we join wholeheartedly with the
12 Antitrust Division in asking the Court to approve it today.
13 Thank you.
14 THE COURT: Thank you, Miss Foote.
15 MR. COLLINS: Good morning, Your Honor. May it please
16 the Court, my name is Dale Collins, I'm with Shearman & Sterling
17 and we represent the Thomson Corporation in this transaction.
18 I'd like to also introduce you to, if I may, to Mr.
19 Jim Schatz who is with Schatz, Paquin, Lockridge, Grindal &
20 Holstein in Minneapolis. Mr. Schatz has served as the outside
21 general counsel effectively to the West Publishing Company and
22 is extremely knowledgeable with their operations and with your
23 permission I'd like to move him pro hac vice so he may
24 participate in this proceeding. I think you would find it very
25 helpful.
29
1 THE COURT: The motion will be granted.
2 MR. COLLINS: Thank you, Your Honor.
3 Mr. Conrath and Miss Foote have already explained both
4 the standards that Courts in this Circuit have developed to
5 govern Tunney Act public interest determinations and they've
6 also explained in particular the depth of their investigation,
7 the fact that no new issues were raised. And indeed this
8 transaction, as large as it is, and as many products as it
9 involves, is really a fairly straightforward transaction
10 analytically both as to the tools and techniques to be used to
11 determine whether or not there may be a substantive antitrust
12 problem and also the kinds of remedies that if there is a
13 substantive antitrust problem that will alleviate them. These
14 techniques are well within the Justice Department's and the
15 States' experience and expertise.
16 What I'd like to do rather than go over this again,
17 I'd like to talk about another factor which might be a little
18 bit awkward for the Government and the plaintiffs to talk about
19 and that is the question of the balance of bargaining power in
20 the settlement negotiations. For reasons I'll get into in a
21 minute, based on at least our experience at the table with the
22 Government in these transactions -- in this transaction we
23 believe the plaintiffs in this case gave up very little, if
24 anything, at the table and the defendants, on the other hand,
25 gave up quite a bit.
30
1 We, in particular, the defendants, acceded to numerous
2 terms in the proposed final judgment that would not be
3 obtainable in a litigation under Section Seven of the Clayton
4 Act. And in particular, and I'll give you two examples in a
5 second, the defendants compromised substantially on the theories
6 of liability and they also compromised significantly on the
7 terms of the relief.
8 I will bring this up not to, in any attempt, to reform
9 the proposed final judgment to require something less, but
10 rather to demonstrate that the Justice Department and the States
11 did a good job at what they were trying to do to have left
12 nothing on the table and consequently I think this provides
13 another very significant reason for the Court to find the
14 proposed final judgment is in the public interest.
15 Let me just go through those three points if I could
16 real quickly. The asymmetry in the bargaining position and my
17 examples on acquiescence -- on theories of liability and
18 acquiescence.
19 The asymmetry in the bargaining position is really
20 quite easy to understand. This was a 3.4 billion dollar
21 transaction payable in cash to the shareholders of the West
22 Publishing Company which are quite few in number for a company
23 of this size. The way the Hart-Scott-Rodino Act works and for
24 Courts granting preliminary relief basically gave the plaintiffs
25 in this case the practical ability to hold up the closing of the
31
1 entire deal pending a resolution either on the merits or
2 settlement. That was true even though a relatively small number
3 of products were in issue. There's no doubt there were products
4 in issue and the companies knew that going into the deal. But
5 they were relatively small numbers.
6 The very products between the West Company and Thomson
7 do not overlap in any way and basically have no antitrust
8 implications whatsoever. Okay.
9 So we couldn't close the part of the deal that had no
10 problems until we resolved the problems, at least the problems
11 that the Government plaintiffs in this case saw. And this is
12 really quite different than a lot of cases where the conduct in
13 question has already taken place and we're really fighting about
14 something retrospectively. This is something prospectively.
15 I think an interesting statistic is if you take just
16 the note on 3.4 billion dollars, a very conservative 30-year
17 Treasury bond rate, it comes to $630,000 a day on interest and
18 that's what the West people were losing and since Thomson wanted
19 to do the transaction and wanted to pay the 3.4 billion dollars,
20 they obviously were losing at least that much. They would
21 rather have less than lose the note on the 4.3 billion dollars.
22 In any event, this asymmetry bargaining position left
23 the Government in a position where they could ask for a lot, and
24 indeed they did. I'd like to give you two examples on that.
25 One on liability and one on relief.
32
1 On liability, another -- an important thing to keep in
2 mind here, although it may not be obvious that there were
3 substantial levels but there wasn't a problem in any of the
4 areas that the Government has alleged constituted an antitrust
5 violation in this case. That includes all the obvious subject
6 matter overlaps. And just the fact that the books overlap and
7 subject matter doesn't mean there's necessarily an antitrust
8 violation and we believe we can submit substantial evidence to
9 the Government to suggest there wasn't an violation.
10 The easy illustration is going to be in the vertical
11 area and in particular with respect to Auto-Cite. Now, in
12 Auto-Cite Mr. Conrath has already explained the situation to
13 you. Thomson supplies Auto-Cite to Lexis-Nexis pursuant to a
14 license agreement. What he did not mention and I realize is not
15 relevant to his argument here but is relevant to mine is that
16 Auto-Cite contributes very few percentage points of revenue to
17 Lexis-Nexis total revenue, including its revenue as an online
18 legal service. That percentage is, as I said, just a couple of
19 percentage points and is far below the threshold of vertical
20 foreclosure concerns that you see in the cases including those
21 cases back in the sixties and the early seventies where vertical
22 concerns were really quite substantial. Largely the varieties
23 of vertical concern today are very rare to say the least, but
24 back in the sixties and seventies they weren't and even then
25 this case wouldn't make out a prima facie structural case if
33
1 there was a problem.
2 In order to make out the showing on Auto-Cite to begin
3 with, some special showing would have to be made beyond the
4 usual techniques that people use. Since Mr. Reback here is
5 representing Lexis-Nexis I would invite the Court to ask him
6 whether such a showing could in fact be made.
7 Let me give you some suggestions as to what the
8 showing would have to be. It would have to be demonstrated that
9 Auto-Cite was significant to Lexis-Nexis' competitive liability
10 in the marketplace notwithstanding the low contribution to
11 revenues that Auto-Cite had to Lexis-Nexis.
12 Secondly, a plaintiff on this theory would have to
13 show that Lexis-Nexis could not protect itself, could not find
14 another substitute service or create another substitute
15 service. And indeed on that point Lexis-Nexis would have to or
16 the plaintiff in such a case would have to demonstrate that
17 Lexis-Nexis could not create its own service in the time it had
18 available, and the time it had available was the term of the
19 license agreement which as a result of negotiations that Thomson
20 had with Lexis-Nexis had been extended on its current terms and
21 conditions to I believe the year 2003. So there's a lot of time
22 for them to work.
23 Now, another point that could be made is -- the
24 plaintiffs could argue in the case is that Thomson,
25 notwithstanding the license, could have impaired Lexis-Nexis'
34
1 ability somehow by manipulating the Auto-Cite service.
2 Those are the things that the plaintiffs would have to
3 show in order to succeed on a liability in the Auto-Cite case.
4 We do not dispute the theory in the abstract. What we
5 question is whether or not there could have been a showing that
6 would have proven a violation in this case and would have given
7 the plaintiffs the right to relief. If they couldn't succeed on
8 the liability question, certainly they would not have been able
9 to get the relief.
10 Again I bring this to the Court's attention only to
11 demonstrate why we believe we compromised significantly on the
12 theory of liability.
13 On the relief itself, Mr. Conrath has already
14 explained that this transaction, again notwithstanding the large
15 number of products involved, basically can be parsed into a
16 series of horizontal questions and vertical questions such as
17 the Auto-Cite question and area by area the relief that was
18 obtained to the horizontal side and the vertical side was either
19 traditional or more than traditional, but traditional horizontal
20 relief is the divestiture of the one of the company's top
21 product lines in the overlap area to an independent buyer who
22 would be capable of continuing to compete effectively in the
23 marketplace. So although the identities of the players might
24 change in effect the independence of the parties remains intact,
25 and that relief was given to every horizontal overlap that was
35
1 alleged in the complaint.
2 In the vertical situation, the typical -- again there
3 are very few vertical cases brought in modern times, say within
4 the last 20 years. In getting out of the sixties and seventies
5 cases, I'm unaware of any case in which a vertical concern has
6 been resolved through the divestiture relief. The typical
7 relief in this case is just simply an access provision and
8 perhaps a fire wall of some sort, but this case is unique to the
9 best of my knowledge in going so far as getting divestiture
10 relief for a horizontal concern.
11 My proposition to the Court is that if we stopped at
12 that point, the proposed final judgment without anything else
13 would have been in the public interest. Traditional forms of
14 relief in every area of concern, but that's not true in this
15 case, and the proposed relief goes further and in particular as
16 Miss Foote pointed out there's relief for licensing of headnotes
17 and case summaries to the State Reporters for the Official State
18 Reporters in the event that they exercise their option to
19 switch. That relief could not have been obtained in a litigated
20 Section Seven case.
21 There was unprecedented interference by the Government
22 plaintiffs in this case through the proposed final judgment in
23 the bidding process. The way that they controlled how we would
24 go about finding a bidder to satisfy our obligations. What we
25 hoped to do --
36
1 THE COURT: You didn't mean in the past tense.
2 MR. COLLINS: It is going on right now. We're under
3 an obligation under the stipulation that was so ordered by Judge
4 Richey to act as if the consent decree was put into place. We
5 have a very ongoing bid process right now to divest.
6 THE COURT: And the Government has the right to
7 approve various things.
8 MR. COLLINS: Exactly. What they did was eliminate
9 our ability to go for a preemptive bid, but that's not the real
10 example I want to use. The real example I want to use is the
11 star pagination. The star pagination could not, I submit, have
12 been obtained as relief in a litigated case and the reason for
13 that is exactly as Mr. Conrath explained. This is a Section
14 Seven Clayton Act case. Under Section Seven the nature of the
15 violation is a threatened substantial loss to lessen the
16 competition that flows from the acquisition. Now, for star
17 pagination, whatever the merits of the copyright claims, either
18 it's a meritorious claim or it's not. If it is a meritorious
19 claim, the scope of the claim does not expand by virtue of this
20 acquisition and of course if it's not a meritorious claim, there
21 was nothing to expand in the first place. So I submit to the
22 Court that star pagination relief could not have been obtained
23 in a litigated Section Seven case.
24 Now, if it's not necessary to cure the antitrust
25 violation in this case, and it's not obtainable as a relief in a
37
1 litigated case, then how should the Court approach the public
2 interest determination? And I suggest to the Court that there
3 is no doubt, as Mr. Conrath explained, that the addition of a
4 mandatory license to the options that legal publishers have can
5 do nothing other than further the public interest.
6 Now, I won't dispute with the Court that the public
7 interest in some sense may have been furthered even more if we
8 had given more generous terms to the licensees but that I submit
9 is not the test of public interest under the Tunney Act. It's
10 not necessary to cure the alleged violation. Okay. And how
11 does it compare having it as opposed to having the status quo?
12 And I think the only answer there can be is that it improves the
13 status quo since no one is forced to take the license. So must
14 it further public interest? And the answer is yes.
15 So in conclusion on this point, not only is the relief
16 unnecessary but the facts that it's there does further the
17 public interest over the status quo, and in response really to
18 one of the questions I believe you asked Mr. Conrath earlier, it
19 is true that this is a mandatory license but it's mandatory only
20 in the sense that Thomson is obligated to sign it. If someone
21 comes to Thomson and basically tears out the exhibit B license
22 in the back of the consent decree, signs it and presents it to
23 Thomson we have no choice but to sign it. Okay? It is not
24 mandatory in the sense that anybody has to sign that license nor
25 does it foreclose anyone from coming to Thomson and negotiating
38
1 the license on different terms. We may grant the license. We
2 may not. But those negotiations certainly can take place.
3 So the only one who is actually bound by the license
4 is Thomson and West, and what the license does is it creates an
5 option that legal publishers did not have prior to this proposed
6 final judgment and they have it today.
7 The last thing really I'd like to say comes back to
8 the point that we are in the process of finding a buyer for the
9 divestiture products is that the timing is a bit of the
10 essence. I recognize that the Court must go through whatever it
11 feels is necessary in order to make its public interest
12 determinations but I would respectfully urge the Court to do so
13 as expeditiously as possible. We're really at a point in the
14 bidding process brought about in large part by the short time in
15 which we have to do the divestiture. The time actually started
16 to run as of the filing of the proposed judgment with the Court
17 as opposed to the entry of the proposed judgment, so our time is
18 running on this and we're at a point where the prospective
19 buyers of the products would really like to know with some
20 certainty what it is we're going to have to divest, if we're
21 going to have to divest anything. And for that reason I would
22 urge the Court to, as I say, act expeditiously.
23 THE COURT: Let me just ask this question. I'm
24 supposed to determine whether a merger is in the public interest
25 or whether the terms of the final judgment are in the public
39
1 interest?
2 MR. COLLINS: The Tunney Act requires as a
3 prerequisite for entering a proposed antitrust consent decree
4 that the consent decree be in the public interest and the Courts
5 in this Circuit have interpreted that to mean that the consent
6 decree basically be within the reaches on the public interest.
7 THE COURT: I never understood that phrase. I was in
8 Bechtel and it was in the earlier D.C. Circuit opinion. It was
9 in Judge Green's various opinions. It was in Microsoft. What
10 is in the reaches on the public interest? What does that mean
11 and how does that differ from a finding that it's in the public
12 interest, which is the language of the statute?
13 MR. COLLINS: May I make a suggestion on that? When
14 you parse through the cases this is what I believe is going on,
15 I think the Courts in this Circuit, which is the Circuit that's
16 got the experience, recognized --
17 THE COURT: I've read the Microsoft cases from this
18 Circuit several times, for obvious reasons.
19 MR. COLLINS: Okay. Now, what they recognize, they
20 recognize in our constitutional scheme that there is, quote,
21 separation of powers between the judiciary and the executive
22 branch and there's also checks and balances, and the
23 constitutional question underlying the Tunney Act which bothered
24 Justice Rehnquist is how exactly does the Court do this. They
25 don't have a record for it. Is there a problem of judicial
40
1 manageability. There's no evidence in this case in the usual
2 way. What's before you are records of public comments and
3 response by the Justice Department, responses by the defendants,
4 and the briefs of Lexis-Nexis.
5 So how does the Court deal with this? I think what
6 the Courts in this Circuit have basically said is recognizing
7 the separation of powers problem but combining that with the
8 checks and balances, after all this will be an Order by the
9 Court, this is not a private contract between the Government and
10 the parties, what do you do and the answer is in the first
11 instance the judiciary should not usurp the prosecutorial
12 function of the Justice Department and consequently you don't
13 substitute the Court's judgment for the Justice Department's
14 judgment without a compelling reason.
15 And in particular again as a result of the separation
16 of powers, the Court is to defer to the executive branch
17 provided that the executive branch has acted reasonably and with
18 diligence, and moreover, that there is no malfeasance or bad
19 faith in negotiating the decree on the part of the Government.
20 I think it's important to remember that the history of
21 the Tunney Act largely flows out of alleged malfeasance by the
22 Justice Department or bad faith and indeed some interference by
23 the White House in 1974.
24 There is absolutely no suggestion, colorable
25 suggestion in this case that the Government has acted in bad
41
1 faith or with malfeasance. In fact, the evidence is just the
2 opposite. In light of that, when the Court speaks of within the
3 reaches of the public interest what they mean is they must defer
4 to the executive branch's judgment as to not only the charges
5 that are brought in the complaint but also the nature of the
6 relief that the Government as a prosecutorial agent believes is
7 sufficient to cure the problems that they perceive.
8 So really I think at the end of the day it becomes a
9 separation of powers and a checks and balances question. It's a
10 very difficult one for the Courts to deal with.
11 THE COURT: I'm still not sure you answered the
12 question I put to Mr. Conrath which is the consent decree and
13 the final judgment which the Court is asked to sign has as an
14 appendix to it a licensing agreement which has a provision in it
15 which requires those that sign it in order to get certain -- I
16 was going to use the word rights, maybe you could call it
17 privileges, but to get a license to do things that they might
18 not otherwise be entitled to but which the Justice Department
19 thought was appropriate in view of the merger or the acquisition
20 to assure -- to help assure that others might compete. In order
21 to get that right or privilege which the Justice Department
22 thought was appropriate and necessary in the public interest
23 they have to give up a right to litigate an important copyright
24 question which only two Courts have now addressed in West
25 Publishing Company's home state. One before the Feist decision
42
1 and one after the Feist decision which I find hard to reconcile
2 with Feist. And why should -- why should I conclude, why should
3 I put my name on a document which says that that provision, that
4 licensing agreement is in the public interest?
5 MR. COLLINS: Well, Your Honor, two responses.
6 The first is that as Feist pointed out, a no contest
7 provision is relatively common in copyright provisions, and
8 quite frankly I think that's the reason, my understanding, you
9 can speak to Mr. Conrath about this, is that when that was
10 suggested, that it be included in the licensing agreement, that
11 the Justice Department indeed went out and check it to see
12 whether or not it was common and we included references to
13 various materials in the literature that says it's common.
14 THE COURT: But the only case that anybody cited was
15 Judge Posner's decision for the Seventh Circuit and at page 1200
16 of that decision he says, and I quote, "Our case involves a
17 negotiated clause rather than a contract that in effect reads a
18 no contest clause into every licensing agreement."
19 MR. COLLINS: That's correct and, Your Honor, I would
20 respectfully submit that ours involves a negotiated clause as
21 well.
22 THE COURT: And everybody else out there that wants it
23 has to take what you have agreed to.
24 MR. COLLINS: That is right and wrong. Everyone who
25 wants to sign the exhibit B license agreement commits themselves
43
1 to this provision but there is no one who has to sign the
2 exhibit B license agreement.
3 It goes back to my central premise in this case that
4 if we just took the star pagination agreement, not the agreement
5 but the provision in the consent decree and just through a big X
6 through it the resulting revised proposed final judgment would
7 be in the public interest.
8 As Mr. Conrath explained, the addition of an option
9 for legal publishers over what they have in the status quo can
10 do nothing other than be in the public interest and you may have
11 a question as to whether or not, say, if you were negotiating
12 the decree you would have agreed to that provision, but the
13 Government or the executive branch in its wisdom did.
14 THE COURT: It's a very interesting question. Of
15 course there's no question -- unlike Microsoft, there's no
16 question that the complaint in this case in at least three
17 different places discussed the star pagination issue as an
18 important part of the Government's theory of its case and
19 therefore the star pagination part of the final judgment, you
20 may say it wasn't necessary, even though you agreed to it, but
21 you may say it's not necessary to assure that the settlement
22 agreement and the consent judgment is in the public interest,
23 but it is within the scope of what I'm entitled the look at and
24 should look at since it is contained in paragraph 32, paragraph
25 43 and I think one other place in the allegations of the
44
1 complaint.
2 MR. COLLINS: That's correct, Your Honor. What I
3 would submit to you is that the gravamen of the complaint does
4 not depend on basically any barrier entries the Government might
5 assert that exists as a result of the star pagination copyright
6 and I would also submit to the Court that you can find numerous
7 other cases where barrier entries were present because of what
8 other factors were in the market and as a matter of fact in
9 almost every case in which the Government obtained relief there
10 were substantial barrier entries. That's why they needed the
11 relief and the relief was simply the Canonical curative of the
12 divestiture. There's no effort to go after the divestiture.
13 It's different in this case.
14 Thank you.
15 THE COURT: I think we're going to take about five
16 minutes.
17 MR. REBACK: Your Honor, may I move the easel forward
18 during the break? I have some posters.
19 THE COURT: So that I can see it and other people
20 might be able to see it as well. Why don't we take until about
21 20 after then.
22 MR. REBACK: Twenty after, Your Honor?
23 THE COURT: Yes.
24 (Recess)
25 THE COURT: Mr. Reback.
45
1 MR. REBACK: Thank you, Your Honor, good morning. My
2 name is Gary Reback. I'm appearing as amicus curiae pursuant to
3 the Court's Order. I'm appearing on behalf of Lexis-Nexis and I
4 wish to begin by thanking the Court for allowing us to
5 participate in these proceedings and particularly the Court's
6 patience with the blizzard of papers that just came in. I wish
7 to thank the Court for its patience as we struggled to comply
8 with the Court's scheduling order.
9 Manifestly I'm here to protect the interests of
10 Lexis-Nexis. The Antitrust Division says it's protecting the
11 public interest. I think there are issues about that have been
12 addressed by the law librarians and the press and haven't really
13 been addressed by the Government. The Government's failure to
14 protect the public interest is an issue before the Government
15 and this Court.
16 That's not where I want to start. I want to start
17 with something that's very important to Lexis-Nexis and that is
18 that my client bargained for a very important property right in
19 Auto-Cite. It gave consideration for that property right. It
20 relied upon that property right in making significant
21 investments and the Government simply intends to appropriate
22 that property right as a way of settling its dispute with some
23 other party, Thomson in this case. We believe the Government
24 cannot appropriate private property without providing just
25 compensation none of which has been tendered here.
46
1 The Government in its papers takes the position that
2 it's fully equipped to protect the interests of my client. Your
3 Honor, I really don't believe that's the case. The Government
4 has no competence or experience in business issues that my
5 client bargained for, received and invested in by way of the
6 Auto-Cite contract and I think it's important, and if you could
7 give me the first poster, please, I think it's important that I
8 try to explain exactly what these rights are.
9 They are included in the confidential agreement
10 between Lexis and Thomson which we've offered to make part of
11 the record under seal. And which I'm going to move into
12 evidence under seal at the conclusion of this hearing with the
13 Court's permission because I want to make sure the Court has the
14 opportunity to look at these documents. Otherwise it may not
15 understand the seriousness of this problem.
16 Now, the original contract dated March 7, 1991 said
17 that Thomson could not assign any aspect of Auto-Cite without
18 the prior consent of Lexis. Period. That contract was amended
19 in 1996 in hard fought negotiations and under the amendment,
20 what you see at the bottom, Thomson can assign the Auto-Cite
21 contract to another company but only if it assigns all the
22 business and assets associated with Auto-Cite.
23 Those businesses and assets include the ALR's. The
24 ALR's are defined as part of the Auto-Cite product in the 1991
25 contract and indeed the ALR's are part of Auto-Cite since the
47
1 1980's.
2 Now, the Auto-Cite contact goes through the year 2003
3 with an obligation requiring negotiation in good faith for an
4 additional five-year term beyond that. So Lexis has, we
5 believe, for the next ten years and more the right in its sole
6 discretion to decide to whom and under what circumstances
7 Auto-Cite is transferred. That's an important property right
8 bargained for, invested in, which the Government simply proposes
9 to appropriate, and I'd like to show the extent of that
10 appropriation by comparing the property right with the proposed
11 final judgment.
12 Your Honor asked a question, are you approving the
13 merger or is the Court approving the judgment. The Court has
14 been asked to approve the judgment. The judgment is what takes
15 away the property right. That's the taking.
16 The original contract shown on the left says Lexis
17 must give consent if Auto-Cite is to be transferred. But the
18 proposed final judgment shown on the right says the Government
19 in its sole discretion will decide about the terms of the
20 divestiture.
21 Let's look at the amendment.
22 Go ahead, please.
23 The amendment to the contract says that if Thomson
24 wants to divest Auto-Cite without Lexis' permission it cannot
25 divest Auto-Cite piecemeal. Lexis specifically bargained for
48
1 and got the right to require all businesses and assets, all
2 businesses and assets associated with Auto-Cite to go to the
3 same company. But the proposed final judgment shown here on the
4 right intends to break up those rights in derogation of the
5 contract between Lexis and Thomson, giving Thomson some of the
6 Auto-Cite rights including the important right to sublicense and
7 divesting other Auto-Cite rights but without the right to
8 sublicense.
9 The Government proposes to take a valuable contract
10 right and to appropriate it without giving compensation to
11 Lexis-Nexis.
12 Let me try to give an analogy. It's as if a local
13 Government were having a dispute with a landowner, a big
14 landowner that proposed to built a high rise property and the
15 building of the high rise would require the moving of a public
16 roadway. If the local Government and the high rise owner
17 resolved their differences by simply putting the highway right
18 through the middle of my house without giving me any
19 compensation for that it's an illegal taking.
20 Now, the Court has examined the Government's
21 complaint. The complaint states again and again how important
22 continued competition by Auto-Cite is to the public welfare. To
23 use my analogy, the Government plans to take my house as a
24 contract with a third party, without compensating me or the
25 public at all.
49
1 Now, the Government's response in its papers is that
2 they're going to have the same interest Lexis does and therefore
3 they're going the see to it that Lexis gets a fair shake and
4 they're going to compete vigorously with respect to its
5 Auto-Cite product. Your Honor, we just can't agree with that.
6 The Government's attorneys in this case, respectfully,
7 simply do not have the training or competence to determine
8 whether something is a good business deal to Lexis. The single
9 Government attorney in this case has had a day of business
10 experience in his or her background. Lexis has bargained for
11 the right to have its president and its chairman decide to whom
12 and how Auto-Cite should be divested.
13 The Government attorneys now claim that they can sit
14 in the chair of the president of the Lexis-Nexis and decide
15 what's best for his company.
16 Now, Your Honor, even on the West Coast we are aware
17 that Your Honor was a distinguished lawyer representing
18 sophisticated companies prior to your elevation to the bench and
19 I think Your Honor is well aware that sophisticated companies
20 don't delegate to lawyers serious business questions of business
21 relationships and divestitures. They don't delegate those kinds
22 of issues to lawyers because lawyers don't have training in such
23 issues. If a lawyer makes a mistake in his practice he files a
24 bad brief, but if a business executive makes a mistake with
25 respect to permitting the divestiture of a key asset it can cost
50
1 the jobs of many of its employees.
2 So the decision of Auto-Cite's divestiture pursuant to
3 this is contract is Lexis' to make. Not the Government's, and
4 very respectfully, sir, we would respectfully argue, it's not
5 the Court's to make either. Unless of course Lexis is
6 compensated for the taking of its property rights.
7 Now, the fact that Lexis might be able to cite ALR's
8 doesn't remedy this problem. I think it's plain to see that
9 before the merger Thomson had the incentive to make ALR's as
10 good as they possibly could because Thomson competed with West
11 through Lexis-Nexis with respect to the online services
12 business.
13 Now, Thomson, on the other hand, is in competition
14 with Lexis-Nexis and Thomson has no incentive to make Lexis the
15 better online system because that would simply provide
16 additional competition for Thomson's own online system,
17 Westlaw.
18 So once the Tunney Act proceedings are completed they
19 could simply tube the ALR's if they wanted to or they could at
20 least stop innovating because they no longer would have an
21 incentive to make Auto-Cite strong. The problem is that the
22 quality of the ALR's will likely diminish and that could harm
23 Auto-Cite.
24 Now my colleague from Shearman & Sterling asked where
25 is the harm? The harm is precisely recognized in the
51
1 Government's competitive impact statement. The whole purpose of
2 the divestiture is to make sure there's no reduction in the
3 quality of the Auto-Cite product. That's also directly
4 recognized in the complaint itself.
5 If you give me complaint paragraph three, please.
6 The very issue that my colleague from Shearman &
7 Sterling made a point of is reflected in the complaint. It's
8 both common sense and it's explained in the declaration of
9 Professor Garth Saloner that accompanies Lexis' papers. The
10 Department of Justice has more than 50 staff economists, yet not
11 one, so far as I know, is willing to come forward and submit a
12 declaration contradicting anything Professor Saloner said.
13 Apparently the Government can't find an economist who would
14 predict anything other than what Professor Saloner predicts,
15 which is higher prices and poorer quality. But that's not the
16 most important point. The most important point is not the
17 inability of the Government to come up with an economic
18 affidavit. Rather the most important point is that in these
19 contracts both Lexis and Thomson recognized that Auto-Cite may
20 well suffer diminution in quality unless all the businesses and
21 assets associated with Auto-Cite are transferred together.
22 That's the reason for the contract amendment.
23 The contract amendment constitutes an important
24 copyright owned by Lexis. Lexis has this right. The right will
25 be taken away if the Court signs the Government's proposed
52
1 decree.
2 Earlier in this argument the Government asked a
3 question whether it is approving the decree or the merger? The
4 Court I believe is being asked to approve the decree and it is
5 the decree that constitutes the taking.
6 In short, Your Honor, Lexis is a third party to the
7 dispute between the United States and Thomson and yet it is
8 Lexis that's being hurt.
9 Now I know Your Honor has read and studied the United
10 States Microsoft case, United States versus Microsoft case, and
11 what it means. Let me say I lived that case and I hope one day
12 in my legal career, perhaps in this case, to challenge some of
13 Judge Silberman's decision in the Supreme Court in this case but
14 there's one important holding in that case that's very germane
15 to this issue and I'd like to show that to Your Honor although
16 I'm sure Your Honor is aware of it from his study of the case.
17 Here is Judge Silberman's holding. "Certainly if third parties
18 contend that they would be positively injured by the decree, a
19 district judge might well hesitate before assuming that the
20 decree is appropriate."
21 THE COURT: What am I supposed to do after I
22 hesitate?
23 MR. REBACK: I think under the holding of United
24 States versus Microsoft you're not supposed to approve the
25 decree unless we're compensated for the taking.
53
1 Now, frankly, Your Honor, the problem with the
2 divestiture of Auto-Cite is the same problem that's present
3 throughout this entire decree. Auto-Cite as the complaint in
4 this case explains is an enhanced legal product. The Government
5 is ordering divestitures but it's not ordering divestitures of
6 the enhancements, like the ALR's, that are the gravamen of the
7 complaint itself. That's true for Auto-Cite. It's true for all
8 the other divestitures.
9 The complaint in this case under United States versus
10 Microsoft correctly identifies the problem. The complaint says
11 that the markets to be concerned about are the markets for
12 enhanced legal materials. And according to the complaint at
13 paragraphs 20 and 21 enhanced means comprehensive legal
14 descriptions and cross-references to relevant secondary law
15 products and relevant case law. That is, legal summaries and
16 cross-references.
17 The complaint correctly indicates that anyone can
18 publish decisions or codes. Anyone could do that. But what
19 makes this merger anticompetitive is that the two key publishers
20 of enhancements are being allowed to merge.
21 For having correctly identified the problem, the
22 Government does nothing to fix it.
23 Now, Mr. Conrath earlier alluded to the fact that one
24 of the most important overlap products is the publication of
25 Supreme Court decisions. The decree proposes to order the
54
1 divestiture of the Thomson product, Lawyer's Edition of the
2 Supreme Court Reports. But the decree has allowed the
3 Government -- the Government has allowed Thomson in the decree
4 to keep all the important enhancements in the work.
5 Let me demonstrate. The volume I have in my hand is
6 volume 117. It's the one that contains the INDOPCO case that's
7 cited in our brief that Your Honor has read. Now, the
8 enhancements in this volume come in two parts, only one of which
9 Mr. Conrath referred to. The first is in the back of the volume
10 starting at page 657 indicating annotations for cases reported
11 in this volume and that goes through page 744.
12 Now, the Government states that Thomson is making a
13 divestiture of this Lawyer's Edition product but in point of
14 fact all these enhancements in the back, the ALR's, the
15 comprehensive legal descriptions described and identified in the
16 complaint, Thomson gets to keep.
17 Now, the second set of enhancements Mr. Conrath
18 identified are the cross-references found at the beginning of
19 every single case in the volume. And we gave you an example of
20 that in our brief as did Mr. Conrath and that's the box of
21 cross-references to the legal description called the Total
22 Client Service Library references.
23 For example, the cross-references identified in the
24 complaint for the INDOPCO case are found on page 228. The
25 Government says that Thomson must divest the text of this
55
1 decision. That's in the public domain to begin with. But the
2 Government let's Thomson keep the cross-references, the
3 enhancements that it identifies in the complaint.
4 Now, that's true for every single decision in this
5 volume. It's true for every single volume in the entire set
6 that the Government is purporting to have Thomson divest.
7 I've gone through and I've ripped out every single one
8 of those enhancements. Thomson gets to keep them. So you
9 see --
10 THE COURT: But anybody can cite them.
11 MR. REBACK: Anybody can cite them, but Thomson gets
12 to keep them.
13 THE COURT: What does that mean, Thomson gets to keep
14 them? The person that buys the Lawyer's Edition and continues
15 to publish the Lawyer's Edition, I take from it what Mr. Conrath
16 said, that the new owner could have a box at the beginning of
17 the case, a 1997 Supreme Court case, the new owner publishes it,
18 the new owner can have a box and can list ALR, Amjur, whatever
19 else is listed there. So what is it the new owner doesn't get?
20 MR. REBACK: The new owner does not have the same
21 incentive that Thomson did prior to the acquisition. That's the
22 harm identified in the complaint. You see, the complaint --
23 THE COURT: Because they're not --
24 MR. REBACK: Because they're not competing with West.
25 THE COURT: The new owner is competing with West, are
56
1 they not?
2 MR. REBACK: But they don't control the enhancements.
3 THE COURT: So your answer is that they have no
4 incentive to include the cross-references because they're
5 Thomson products and they really don't care whether anybody
6 reads them.
7 MR. REBACK: That is certainly one argument, but the
8 argument that is explained in Professor Saloner's declaration
9 and in our brief is that the public would not be benefited by
10 this because Thomson does not have the same incentive that it
11 did to provide competition as it did before the merger with
12 West.
13 In our view, Your Honor, the complaint in this case
14 directly separates the wheat from the chaff. It says
15 that --
16 THE COURT: But whenever you file a complaint you
17 rarely get everything you ask for in a complaint.
18 MR. REBACK: I recognize that but they have to get
19 sufficient relief to remedy the problems that they've raised.
20 That also was the holding of the United States versus Microsoft,
21 and in this case having correctly separated the wheat from the
22 chaff, they give Thomson the wheat and they leave the chaff for
23 the American public. That's the problem we see.
24 THE COURT: I'm still not sure I understand the
25 Lawyer's Edition example. If I buy a Lawyer's Edition and I'm
57
1 competing with the Supreme Court Reports and U.S. Reports, they
2 need to provide some enhancements because why else would anybody
3 buy the Lawyer's Edition?
4 MR. REBACK: Indeed.
5 THE COURT: So I look at what I bought and I see that
6 the enhancements that used to exist are this box that had Amjur
7 and ALR. I don't publish Amjur and ALR but I decide my
8 consumers might want them. I go one better. The box I'm going
9 to include might be bigger and have more things in it because
10 I'm going the compete with U.S. Reports and the Supreme Court
11 Reporter. And I can do that. There's nothing in this final
12 judgment that prevents me from doing it.
13 MR. REBACK: If Thomson had the same kind of incentive
14 after the merger as it does now to make the ALR's possible, the
15 problem would be solved, but it didn't. That's the problem.
16 THE COURT: What is their incentive not to make ALR as
17 good as Thomson?
18 MR. REBACK: Because Auto-Cite competes with Westlaw.
19 Why would they do something that would enhance a competitor's
20 product when they have no economic incentive to do that.
21 THE COURT: If they decide that some sort of ongoing
22 thing like that is useful its more like, and I know -- I'm not
23 confusing Amjur with ALR, they serve different functions, but I
24 think any reasonable lawyer would conclude that it's more likely
25 that Corpus Juris Secundum is likely to disappear from the scene
58
1 rather than ALR and Amjur.
2 MR. REBACK: The analog for Amjur is Corpus Juris
3 Secundum but the analog for ALR is the West Keynote and Headnote
4 system. That's what's identified in the complaint. It's the
5 enhancements and cross-references.
6 THE COURT: But the numbering system isn't all that
7 ALR is all about.
8 MR. REBACK: Of course not. It's much more than that
9 and Amjur is part of the package of assets that we negotiated
10 for in this contract that I showed the Court. I agree they're
11 all packaged together, but my point is the single most important
12 aspect of the divestiture is the failure to divest the ALR's
13 pursuant to our contract right, not Amjur or Corpus Juris
14 Secundum. That's my point.
15 You see, the complaint and the competitive impact
16 statement explained the injury that merger will cause in great
17 detail.
18 If you will give me the next poster.
19 The competitive impact statement indicates that the
20 complaint alleges that Thomson's acquisition of West will
21 substantially reduce competition in nine enhanced primary law
22 product markets in the publication of secondary law and in the
23 market for comprehensive online legal research, but having
24 identified the problem the Government hasn't fixed it.
25 It's no wonder that a Thomson executive said, "I
59
1 wouldn't use the word overjoyed but elated would be fair," quips
2 a Thomson executive describing management's reaction to the
3 divestiture. I mean they gave up nothing.
4 THE COURT: Is he still a Thompson executive?
5 MR. REBACK: Given the layoff that they've had in
6 Rochester, I think that's a fair question.
7 THE COURT: Seriously, this isn't evidence in the
8 case, is it? That some unnamed unknown person makes a flip
9 statement to a reporter? I gather that there's been depositions
10 by the Government. There have been investigations by the
11 Government. Has anybody ever probed with this person what he
12 meant, what the basis for it was, and to what extent should a
13 Court give that sort of anonymous statement any credence?
14 MR. REBACK: Your Honor will recognize that I have
15 asked for permission to take some depositions which Your Honor
16 has denied.
17 THE COURT: I thought you wanted to depose librarians
18 use.
19 MR. REBACK: I would like to do that as well, but this
20 is a good example where further probing would help elucidate the
21 problem.
22 I would also point out that under the Tunney Act the
23 Act is very clear. Your Honor is entitled to look at what it
24 wishes, whether its meets the laws of evidence or not. You may
25 give that whatever weight you wish, but it's probative under the
60
1 law because that's what the statute says.
2 In our view, Your Honor, there are gaping holes in the
3 Government's submission that in our view make it impossible for
4 the Court to perform its public interest evaluation.
5 Let me give you one example. The Government has
6 attempted to cure this ALR citation problem by a side letter
7 with Thomson. No one knows whether the side letter is part of
8 the proposed judgment in this case or not. If the side letter
9 is not part of the proposed judgment then the side letter is an
10 acknowledgment that there's a serious problem that the
11 Government hasn't fixed, but if the side letter is part of the
12 judgment, the public hasn't had the opportunity to comment on
13 that important development during the 60-day comment period that
14 the Tunney Act contemplates.
15 Now, for the reasons that I've explained, relying on
16 the affidavits of Professor Saloner and the declarations of law
17 librarians I think that the assurances in the side letters are
18 worthless and self-serving and counter-intuitive, but at the
19 very least the Government ought to publish those assurances and
20 get comments from the librarians that are going to be affected
21 by it.
22 Similarly, there's economic testimony from the
23 Government stating, arguing or even proclaiming that the company
24 that they've created will not be free to exploit consumers by
25 imposing monopoly prices.
61
1 With that I want to close by reading some sworn
2 testimony before Congress by a Thomson executive in 1992
3 complaining that West was already at that time a monopolist,
4 damaging consumers and I'm sorry I didn't blow this one up.
5 Here's what he said. "A single private publisher, West, has
6 been able to monopolize the publication of lower Federal Court
7 decisions, statutory law in Illinois and Texas and elsewhere and
8 the appellate cases of many States. That has forced," and I'm
9 still quoting, "That has forced libraries and others to pay tens
10 of millions in monopoly charges for access to legal texts and
11 has deprived users of improved choices, quality and timeliness
12 that competition could have provided."
13 Now, what has the Government done in response to those
14 allegations? They've permitted the monopolist, West, to combine
15 with its biggest competitor, Thomson, which, according to this
16 testimony, would only lead to further exploitation of the
17 American consumer.
18 So, Your Honor, for all those reasons we would
19 respectfully ask that the Court not enter the decree,
20 particularly until our contract rights have been considered by
21 the Court.
22 The issue of the Government standing in our stead I
23 have already addressed. I wish to point out that we have not
24 been involved in the bidding process. That we have gone to the
25 Government to ask their help and they've given us none. That
62
1 the information that we see from the filing of these public
2 comments is that Thomson has begun a process under which people
3 are to review the assets. We have not been involved in that.
4 We had to make a bid without the most rudimentary business
5 information of any kind, and to suggest that the Government at
6 the end of the day is going to protect the employees and
7 shareholders of Lexis-Nexis I don't think is very realistic and
8 I would respectfully ask the Court to consider that in its
9 deliberation.
10 Whatever time I have left I will reserve for rebuttal,
11 Your Honor.
12 THE COURT: Yes, sir, Mr. Collins.
13 MR. COLLINS: Your Honor, one of the things that makes
14 Mr. Reback just a great advocate is he's able to take things
15 which are less than a molehill and try to make them more a
16 mountain.
17 I've got a response to everything that he's brought up
18 so far but before I get to those I'd really like to cover two
19 particular things. One is the so-called Thomson quip. I must
20 tell you we don't know who made that statement, if that
21 statement was made at all. I recognize it appeared in the
22 American Lawyer but we really know nothing about it.
23 I can tell you that immediately upon reading that
24 article a letter to the editor was sent. The letter was from
25 Brian Hall who is the president-chief executive officer of the
63
1 West Information Publishing Company and he said basically, yes,
2 we were elated that the -- that we were able to sign the consent
3 decree which enabled us to avoid months and months of litigation
4 and, yes, we gave away nothing but only in the sense that the
5 products that we contemplated coming out of the merger of these
6 two companies, the new integrated products, that none of these
7 were impaired by the divestitures.
8 If indeed you measure the divestiture by the dollar
9 amount that people have expressed interest in paying, including
10 I might add contrary to Mr. Reback's assertions, Lexis-Nexis who
11 has been completely involved in the bidding process up to this
12 point, it is a substantial divestiture, so it certainly in
13 monetary terms is nothing.
14 As to the statement that Ms. Downing made about the
15 so-called monopolization of the West -- by West of certain -- of
16 the star pagination, I think that this really is just a good
17 illustration of the fact that when someone else has a right that
18 you would like to have, particularly an intellectual property
19 right, then naturally you're going the criticize it. When you
20 have that right you tend to defend it. When Ms. Downing was a
21 representative of Thomson she made the argument of someone who
22 would like to have the right but did not have the right.
23 Now, Thomson owns the company that's asserting the
24 right and we are giving up the right at least partially through
25 the exhibit B license agreement.
64
1 Now, having said that, let me turn to Auto-Cite which
2 is the taking question that Mr. Reback has raised. I think it's
3 very telling here that the original license agreement provided
4 for no assignment without Lexis-Nexis approval. The amendment
5 actually provided for assignment -- provided that we could
6 assign, that Thomson could assign the Lexis-Nexis contract to a
7 third party under certain conditions, and the certain conditions
8 were that we sell all or substantially all of the assets
9 associated with the Auto-Cite business.
10 Now, that raises two questions. One question. First
11 of all, it's a contract question, okay? The question is whether
12 or not what we are required to sell under the consent decree is
13 all or substantially all of the assets of Auto-Cite.
14 Now, that raises a question of what is Auto-Cite and I
15 would respectfully suggest to you that until this proceeding or
16 until indeed perhaps until today in this courtroom no one that
17 you would ask in the Bar would say that ALR is part of, quote,
18 Auto-Cite and therefore would have to be divested. The fact
19 that references are contained in Auto-Cite doesn't make ALR part
20 of Auto-Cite itself.
21 So it can't be the case that the failure of the decree
22 to require the divestiture of ALR by itself negates the all or
23 substantially all language of the amended license agreement.
24 And indeed if you go back and ask the question, the
25 question of contract construction, what can possibly be meant by
65
1 all or substantially all in this context? The answer I think is
2 fairly straightforward. Lexis-Nexis came to us, that is, to
3 Thomson or we came to them and actually on this one, excuse me,
4 they came to us with a letter and said that you've got lots of
5 problems in this deal. You're going to have to divest lots of
6 things. One of the things you're going to divest in order to
7 protect us is Auto-Cite. They wanted the divestiture of
8 Auto-Cite. They came to us and they wanted us to divest
9 Auto-Cite.
10 We opened up these negotiations in large part to
11 eliminate any concern that Lexis-Nexis may have that they would
12 be hindered by this acquisition and one of the things we
13 negotiated for because we recognize the possibility that there
14 may be a vertical foreclosure concern is the divestiture of
15 Auto-Cite and that's what this the all the or substantially all
16 the language was negotiated for, both to protect them and to
17 protect us. And what it was designed to do, I submit, and I
18 think that any Court construing this language would so find, is
19 that the concern was that Auto-Cite if left in the hands of
20 Thomson would not be provided by a -- by a vendor who was
21 disinterested in the quality of the service that was going over
22 to Lexis-Nexis, and the purpose of the divestiture was to take
23 that service, as Mr. Conrath has explained, put it in the hands
24 of an independent third party who would be capable of providing
25 exactly the same service that Thomson provides today to
66
1 Lexis-Nexis but without the taint of the involvement in Westlaw,
2 and that is precisely what this proposed final judgment
3 provides. I don't see how they could argue that it's anything
4 else than all or substantially all when construed in that
5 light.
6 So Mr. Reback is trying to create a basically a taking
7 claim out of a contract clause that we submit has already been
8 satisfied.
9 Now, to go even further, he says that Thomson would
10 have an interest in degrading ALR. I think that too would be a
11 proposition that would come as a great surprise to the members
12 of the Bar and the bench. I mean ALR is an extremely valuable
13 product in its own right and I respectfully suggest that its
14 value depends very little on the ALR citations in Auto-Cite and
15 moreover I would suggest to the Court, Mr. Reback did not
16 address this point of any evidence that they might have that
17 suggests that ALR citations in Auto-Cite is in fact important to
18 the Auto-Cite service. Most people don't use Auto-Cite to go
19 find the ALR citations. Most of them use them for other
20 reasons, particularly to find the direct and indirect,
21 significantly indirect history of the case. Not the ALR
22 references.
23 To the extent though that the new buyer would take
24 along with the Auto-Cite service -- would perceive the
25 assignments of Thomson's rights and obligations under the
67
1 Auto-Cite takeover which we believe we have the right to assign,
2 they would have the obligation to continue to provide the
3 service in the same way that we are providing it today and if
4 Lexis-Nexis believes that that includes the ALR references, then
5 the ALR references will continue to be included. The ALR
6 references are widely available and publicly available and
7 indeed if the Government was not satisfied that the new buyer
8 could do this without additional help, I have no doubt that the
9 Government would insist in the contract of sale that we provide
10 additional assistance to the new buyer, but that's a question
11 that doesn't have to be answered today. That's a question that
12 can be answered when the Government actually makes its
13 determination whether or not the buyer we bring forward can
14 effectively compete, but the all or substantially all argument
15 here is really there's nothing there.
16 Now, another point that Mr. Reback makes is that this
17 decree does not order the divestiture of the enhancements. This
18 is a mysterious argument, to say the least.
19 The way I read the complaint and the way that I
20 understood the concerns of the Government during the course of
21 the investigation was the enhancements are not things so much
22 like the cross-references. When we think of an enhanced code,
23 for example, we're talking about the work that goes in creating
24 the headnotes or in a Case Reporter, the case summaries. Those
25 are the enhancements that people look for.
68
1 Indeed if you look at the West Supreme Court Reporter,
2 for example, you won't find cross-references, and I submit that
3 Your Honor got it exactly right when you said that if this was
4 something of true value to the end users of the product it would
5 increase the desirability to the product and you would expect to
6 see more cross-references. But the major enhancements, the
7 things like the case summaries or the so-called annotations
8 which are really Law Reviews or commentaries that are contained
9 in the back of things like the U.S. Supreme Court Reporter that
10 Mr. Reback so dramatically ripped out of the back.
11 THE COURT: What happens to those?
12 MR. COLLINS: With respect to the ALR we're telling
13 them when they pick up the volumes they pick up all the rights
14 to those annotations. With respect to the 1997 edition of U.S.
15 Supreme Court Reporter the new buyer will be perfectly free to
16 add any kind of commentary they'd like to be in there. We're
17 not restricting.
18 The whole question of what exactly is Thomson keeping,
19 Thomson is not keeping anything in the new book. It's not like
20 we're going to write a contract that says and you're restricted
21 from including commentary in the back of your book or that
22 you're restricted from including cross-references. They can do
23 exactly what we do now. One thing they cannot do is they cannot
24 use the trademark Total Service Library. They wouldn't want to
25 use our trade mark anyway. They would want to use their own,
69
1 but other than that they can do exactly what we're doing.
2 The one thing then that really I don't think anybody
3 thought of as an enhancement during the course of the
4 investigation were things like ALR. ALR is a book that sits
5 over to the side. It's very important. It's critical to
6 Thomson's operation but it sits on its own. It's valuable to
7 Thomson on its own. It's one of Thomson's biggest products.
8 We think the users of those books will find those
9 cross-references valuable. And if the new buyer think that's
10 true they can continue to cross-reference. The question of
11 whether or not the agreement is such that the new buyers are
12 able to cross-reference, that that commitment is contained in a
13 side letter is a little bit specious in the sense that Thomson
14 never asserted that there was a right that it had to preclude
15 other people from -- under the cover letter, to preclude them
16 from including cross-references. We've never taken that
17 position. Indeed it would be economically irrational for us to
18 do so but right now we contemplate just as a result of the
19 concerns that were raised in the comments that in the purchase
20 agreement we will include a provision that explicitly recognizes
21 that Thomson will not take any action to preclude the buyer of
22 any divestiture product from cross-referencing the Thomson
23 retained books. Any Thomson retained books. I just don't think
24 that that's a problem.
25 I've already addressed the issue of whether or not
70
1 Lexis-Nexis is involved in the bidding process. I believe
2 there's an affidavit by Michael Harris that was attached to our
3 opposition papers on the motion to intervene that actually
4 discusses in some detail exactly how much Lexis-Nexis have
5 participated in every aspect of the negotiations.
6 And, Your Honor, unless you have further questions
7 which I'll be delighted to address, I will be happy to answer
8 them.
9 I think this is an effort to make a mountain out of a
10 molehill.
11 THE COURT: Thank you. Mr. Conrath.
12 MR. CONRATH: May it please the Court.
13 I'd like to begin with the New Mexico question so I
14 don't forget that and then advance and eventually conclude my
15 responses with the Auto-Cite issues.
16 The New Mexico comment is best understood in the
17 context of the market situation in that case. West apparently
18 is the Official Reporter, according to their comments in that
19 case. There is no competing Thomson Reporter. The question
20 that should we have an option, that they said they would like an
21 option to reopen the bidding, but the fact is that the State of
22 New Mexico is -- it has presumably some schedule in which it
23 decides to bid for publication of its often contracts and it's
24 free to do that when it wishes according to the terms of its own
25 contract that it lets.
71
1 Now, we noted that the complaint or the comment said
2 that they don't feel they can contract with anybody but West,
3 which suggests that reopening the bidding -- well, suggests two
4 things. One, they weren't benefiting from any potential
5 competition from West, and second, if they really believed that,
6 first the merger has no effect and reopening the bidding would
7 have no effect.
8 So, we looked for cases where there were competing
9 State Reporters that both offered enhanced products, and those
10 are the cases in which the divestiture rebidding really is
11 applied.
12 The second comment that I understood New Mexico can
13 raise is an issue of whether West reports of New Mexico
14 decisions are copyrightable. Again we're at a little of a loss
15 because New Mexico, if its taking bids to be the Official
16 Reporter, can establish terms in that bidding. And could, for
17 example, say that the successful bidder will not have a
18 copyright in these cases. I believe there are other States that
19 have that provision. And there's no reason why they can't, if
20 that's an interest that they want to achieve, it's not affected
21 by the merger, and I'm puzzled why they can't achieve it in
22 their own bidding process which would be the normal way to
23 address it.
24 The next issue that I want to address is Lawyer's
25 Edition. I am totally at a loss where Lexis' complaints come
72
1 about this. The proposed consent decree says that all rights
2 and interests in Lawyer's Edition will be divested. That
3 includes all the back issues. We want those pages that were
4 ripped out back. That's part of the divestiture relief. They
5 go to the new buyer. The new buyer gets those in the existing
6 volume and can continue to publish them and they can continue to
7 create them in the future. They have the option to hire the
8 people who create them to date. There's simply no way in which
9 Lawyer's Edition or any other product is being torn apart by
10 this divestiture. It is divested in whole and will continue
11 just as it is.
12 Now, let's turn finally to Auto-Cite and ALR. It's
13 important to recognize -- and the question both of whether
14 there's harm or rather whether the relief is adequate and
15 whether there's harm to Lexis in the sense that might add to
16 injury to its contract rights.
17 It's first important to note that while Lexis at one
18 point did have the nonassignment clause, after the merger was
19 announced it negotiated a specific provision that allows
20 assignment of a contract. Now, this is the provision that says
21 that Thomson can assign this agreement to anybody who buys all
22 or substantially all of the assets of Auto-Cite.
23 Now, what could this possibly mean, given when they
24 negotiated it? Both parties clearly were contemplating a
25 divestiture of Auto-Cite as a result of the Government's
73
1 review.
2 Now, the next question, does that require divestiture
3 of ALR? Well, it certainly says nothing about ALR, and with all
4 respect to Lexis, sophisticated businessmen write contracts that
5 mean what they say. And more importantly, what is included in
6 Auto-Cite itself, and ALR is not included in Auto-Cite.
7 References to ALR, citations to ALR are included in Auto-Cite.
8 The text of ALR, the substance of ALR is a completely separate
9 publication. I might add it is the subject of a completely
10 separate license between Lexis and Thomson and that contract
11 continues, the contract concerning Auto-Cite requires that the
12 new owner provide Auto-Cite the quality that it has been in the
13 past and the new owner will be put in a perfect position to do
14 that by acquiring all the rights and so on that I explained
15 before.
16 The only ways in which Lexis suggests additionally
17 that there might be harm to them is the claim that Thomson might
18 have a reduced incentive to maintain ALR in its quality. But
19 the fact is that ALR is an independent publication that existed
20 long before Auto-Cite existed. It is sold separately. And it
21 is a product that has its own demand and the incentives to
22 produce that and make that acceptable depend very little on any
23 inclusions of references of ALR in Auto-Cite which any of that,
24 as I point out, can continue.
25 I think the only other issue that I have noted that I
74
1 should address, Your Honor, is the way in which what is an
2 enhancement is -- has been somewhat muddled in the way the term
3 is used. An enhancement -- the ALR itself is not an enhancement
4 to the primary law. An example of Lawyer's Edition is a good
5 one. ALR is not part of it. There are some references to ALR.
6 The enhancements are the headnotes, the summary of the case, and
7 in the case of ALR there are some articles and annotations in
8 the back. ALR is a collection of essentially little articles
9 about points of law and in that sense some people have compared
10 it most prominently to Law Review articles as a source.
11 The fact is that the enhancements that go with the
12 products that are being divested will be divested in the same
13 way that Lawyer's Edition and its enhancements will be
14 divested. And that's the reason why these products, once
15 divested, can continue and why they've in the hands of a new
16 owner.
17 So where are we in this proceeding? I submit that no
18 contract right of Lexis is affected by this transaction. Lexis'
19 contract right specifically contemplates that there will be --
20 that there will be an assignment and this is an assignment,
21 although it's a contract question, this Court doesn't have to
22 reach. We don't even know whether Lexis will be the buyer of
23 that, but if there is a contract right it is for the sale of
24 substantially all the assets of -- and business of Auto-Cite and
25 that sale will be accomplished by this divestiture.
75
1 Second, the enhancements that go with the products
2 will be divested, which is good reason, in addition to the
3 reasons I talked about before, to conclude that these products
4 will be sufficiently vigorous competitors after the
5 divestiture.
6 We submit that the issues that have been presented
7 when examined on their own do not raise a substantial issue that
8 should leave the Court to do anything other than enter the
9 judgment.
10 I suppose I should note that we did not submit a
11 counter-affidavit to Mr. Saloner, noting that if you look at it
12 on its own terms it just doesn't raise an issue that requires
13 it, and there are plenty of economists in the Department of
14 Justice who would have been glad to submit an affidavit. I
15 don't want to let that misstatement go uncorrected.
16 Finally, Your Honor, this decree resolves a case that
17 the States and the Department of Justice believe raise serious
18 competitive harms. It solves the problems that are raised in
19 this case. The decree has to be evaluated as a whole. No
20 single provision solves every problem. Nor is it fair to ask
21 that each provision by itself is alone in public interest.
22 Taken as a package, we submit this is a relief for the problems
23 identified in the complaint. It's in the public interest. It's
24 good for consumers, and it ought to be entered.
25 Thank you.
76
1 THE COURT: Anything you want to say about article
2 three of the proposed licensing agreement that has to deal with
3 the agreement not to contest the validity of copyrights or have
4 you said all you want to say about that?
5 MR. CONRATH: I will say this, and I guess two
6 things. One, it is a part of a package of the greater decree as
7 a whole. The way in which it is a benefit to the public
8 interest is that it is an option not available to anyone today.
9 The Court is not imposing it on anyone. It is an alternative
10 that firms may use if they want to enter the market and in that
11 sense it is a net improvement. It is mandatory on Thomson.
12 It's not mandatory on anyone else. They have the options they
13 would have today and this is an additional option.
14 THE COURT: Thank you.
15 MR. CONRATH: Thank you, Your Honor.
16 THE COURT: Mr. Reback.
17 MR. REBACK: I appreciate the opportunity to respond
18 and I'll be very brief, Your Honor, and then there are a couple
19 of housekeeping matters I would like to address so we don't
20 inconvenience the Court again.
21 Let me begin where the Government left off on the
22 issue of the taking. The contract says that all the assets and
23 businesses are to be divested, and yet both parties here agree
24 and the proposed judgment indicates, that Thomson gets to keep a
25 copy of the data base. They get to keep it. Just forget about
77
1 ALR's for a second. They get to keep a copy of the Auto-Cite
2 data base, and the Government goes on, on page 31 of its brief
3 in footnote 20 indicating they're going to keep a copy of that
4 data base for the purpose of improving Westlaw.
5 So it doesn't strike us, Your Honor, as realistic to
6 say that all the assets are being divested if they can keep the
7 asset for the purpose of competing against us and we would
8 respectfully argue that that's virtually a summary judgment
9 proposition and we would invite the Court to examine footnote 20
10 on page 31.
11 As to the divestiture of the ALR's, I would merely ask
12 Your Honor to understand that the ALR's are not just a legal
13 encyclopedia but as you saw from the book they are a rival
14 system and the problem is that Thomson will not be in a position
15 that it would have the incentive to improve that system. So the
16 notion that we could start our own or that somebody else could
17 start their own new product doesn't sufficiently address the
18 issue of whether there was a divestiture in the first place.
19 And finally on the proposition that Thomson could not
20 contemplate asserting a copyright in some of these materials,
21 Thomson has repeatedly said, including in sworn testimony, that
22 it couldn't contemplate asserting a copyright in star
23 pagination, but now does exactly that.
24 So I think we have to take that into account in
25 assessing the efficacy of the Government's relief.
78
1 Now, if I might ask the Court on a couple of
2 housekeeping matters, I would like at the conclusion of this
3 argument to mark and submit under seal the contract that we've
4 all been debating about and the addendum to the contract so the
5 Court would have it during its deliberations.
6 THE COURT: This is the contract between you and
7 Thomson.
8 MR. REBACK: That is correct.
9 THE COURT: When you say under seal, Thomson would
10 have the contract.
11 MR. REBACK: The Government has a copy and Thomson has
12 a copy.
13 THE COURT: Is there an objection? I understand there
14 may be relevance objections.
15 MR. COLLINS: No objection.
16 MR. CONRATH: No objection.
17 MR. REBACK: I don't know whether Your Honor intends
18 to take the matter under advisement. We would at some point
19 respectfully request a ruling on our motion for briefing on some
20 of the issues that we have raised for the Court's attention in
21 the brief that we filed last Friday.
22 Should the Court elect to enter the decree, we would
23 at that point wish to move to stay the entry of the decree
24 pending appeal on the issue of intervention and if Your Honor
25 will take that into consideration, we would be prepared to brief
79
1 that issue should that question arise, and we would ask that
2 Your Honor give us the opportunity to fully brief that issue
3 because there is good authority in this District on the issue of
4 when intervention as a matter of right is appropriate and we
5 would respectfully ask the opportunity to seek a stay for that
6 purpose.
7 The final point, Your Honor, as an administrative
8 matter I wonder if the Court would permit me to move in pro hac
9 vice my partner Susan Creighton so that she may also sign
10 pleadings. I'm a member of the Bar of this Court. Miss
11 Creighton is a former Supreme Court clerk and is a member in
12 good standing of the Bar of California and I would respectfully
13 ask the Court to admit her pro hac vice for purposes of this
14 matter.
15 THE COURT: Certainly. She'll be admitted.
16 Welcome, Miss Creighton.
17 MR. REBACK: Thank you for your consideration.
18 THE COURT: Mr. Conrath, you wanted to talk about
19 housekeeping matters, too, I think. I have a couple. One has
20 to do with timing.
21 Mr. Reback has filed a motion for leave to file a
22 supplemental brief. I received this morning from Mr. Reback a
23 motion to file declarations of librarians from various States
24 and a motion of Hyper Law and supporting memorandum for
25 permission to file its amicus brief after the Government
80
1 complies with publication and disclosure requirements of the
2 Tunney Act and there is attached to that a motion for summary
3 judgment -- wait a minute. Maybe that's -- I'm sorry, that's an
4 exhibit. I'm glad to see it's just an exhibit.
5 And the question I had is in terms of timing I noted
6 in something that you filed last week you indicated that the
7 Government still has to file -- publish in the Federal Register,
8 and I think you said you were going to do that at the end of
9 last week, your responses to the public comments. So what is
10 required under the Tunney Act in terms of the timing with
11 respect to those responses? What is your view of Mr. Reback's
12 questions and the motion that I received the other day and this
13 morning?
14 MR. CONRATH: Actually why I was rising was to ask
15 permission to address the question of Thomson keeping a copy.
16 I'll refer to that if I might.
17 THE COURT: Okay.
18 MR. CONRATH: Because I think it's important to look
19 at the language of this contract.
20 THE COURT: That's going to be in what I get under
21 seal.
22 MR. REBACK: Yes, it is, Your Honor.
23 MR. CONRATH: Excuse me, I don't mean to address it.
24 MR. REBACK: What you'll get under seal will be both
25 the contract and the addendum to the contract, Your Honor.
81
1 MR. CONRATH: So this contract language is permission
2 to Thomson, Thomson may assign to any successor all or
3 substantially all of the business and assets. It's true that
4 the decree permits Thomson to keep a copy for internal
5 purposes. What we submit is that the -- well, this is a
6 separate contract law question but the assets divesting --
7 providing all the assets of Auto-Cite does not mean that someone
8 else can't have an intellectual property right.
9 With respect to the technicalities, we submitted the
10 responses to public comments to the Federal Register Tuesday.
11 We hoped to have it completed by today but it usually takes a
12 week to ten days. It should be published within a few days.
13 When that's completed we will submit to the Court a
14 certification that all the procedural requirements have been
15 complied with.
16 With respect to the Hyper Law motion, I note that
17 while the response to public comments and the responses and
18 comments have not been published in the Federal Register yet,
19 they were delivered to Hyper Law. So they have them. They have
20 had an opportunity to address them.
21 THE COURT: Do you want to respond to these various
22 motions I got? Either oppose them or accede to them or propose
23 some sort of a schedule?
24 MR. CONRATH: Yes. I propose that we respond on or
25 before Thursday if that's all right, Your Honor?
82
1 THE COURT: And with that maybe you could suggest --
2 in the case of -- I haven't read all of those motions carefully
3 but I guess what I need to know from the Government's point of
4 view is what your response is and how granting or denying these
5 various motions is going to have an impact on the timing of
6 things and what your view is as to the timing of things.
7 Somebody, I think it was probably Mr. Collins, said
8 time is of the essence, and the question is giving everybody
9 their due with whatever supplementals and follow-ups is -- I
10 think is appropriate, but with some reaction first from you as
11 to what the Government feels appropriate and what you think is a
12 legitimate timeframe to do this.
13 I would like to be able to try to resolve my ruling in
14 this case reasonably promptly, whatever that may mean, in view
15 of the volume of materials but I will tell that you did -- I
16 have read all of the comments, the public comments and the
17 Government's papers, responses, Thomson/West responses, all of
18 the briefs except for the ones that I received this morning, so
19 I've read everything. And that may or may not mean that I can
20 resolve things quickly.
21 Mr. Reback, you wanted to say something.
22 MR. REBACK: If I might just ask on some agreement on
23 service of process. We have never received Thomson's response
24 to the public comments. We received them from the Government
25 only after a lot of begging. Could we agree that they will fax
83
1 us whatever their response is on the date that they file it to
2 the Court? We're in California trying to do our best to comply
3 with the Court's very busy schedule. We will certainly endeavor
4 to fax to them any submission that we make on the day we file it
5 in Court.
6 MR. CONRATH: Certainly.
7 MR. REBACK: And that would be true of Thomson as
8 well.
9 MR. COLLINS: Yes, Your Honor.
10 THE COURT: Anything else?
11 MR. CONRATH: I think with respect to the pending
12 motions, Your Honor, I think we will -- I don't believe I've
13 seen the additional affidavits and I presume we'll accede to
14 that request. When we respond to the others we will maybe
15 suggest what will be appropriate with regard to timing, if
16 that's all right with Your Honor.
17 THE COURT: Yes. That's what I'd like you to do. If
18 you deny the motions, here's what we think is appropriate with
19 respect to timing. If you grant the motions, here's what we
20 think will be appropriate with respect to timing. Keeping in
21 mind the concerns about a timely resolution of the case.
22 Mr. Collins.
23 MR. COLLINS: May I be heard on this?
24 THE COURT: Yes, sir.
25 MR. COLLINS: Thank you.
84
1 As you correctly observed, Thomson does believe that
2 time is of the essence and what -- although we haven't seen the
3 papers what we have seen in all the papers that have been
4 submitted is basically just repetition of things that have come
5 before. So I strongly suspect there won't be anything new in
6 these papers.
7 If I can have the Court's indulgence on two points I'd
8 like to make and offer both to the plaintiffs and to the Court
9 two issues that appear to be of concern.
10 One was the provision in Section 3.01 of the license
11 agreement which prohibited the licensee who signs the agreement
12 from challenging the copyright during the term of the license
13 agreement. Although, as I said before, Thomson firmly believes
14 that the license is in the public interest as stated and
15 unquestionably we would like the terms to be better, we would be
16 willing to concede to an amendment of the license agreement to
17 strike that provision. So formally the amendment that we would
18 be willing to accede to is in Section 3.01 of the license of the
19 exhibit, the license agreement, to strike the language that
20 starts with a small Roman I and goes through that and Roman II
21 and I believe that will resolve any dispute on this question
22 whatsoever. If there are other things on the license agreement
23 that will impact, we will make formal amendment. I don't
24 believe there are.
25 The second proposal I have both to the plaintiffs and
85
1 to the Court is on this whole question of the taking, if you
2 will, the assignment of the Lexis-Nexis license agreement. That
3 assignment is provided for really as a matter of definition
4 under Section 2B of the proposed final judgment. And in the
5 amendment that I propose which I think removes the taking issue
6 from this Court is that we insert the language after the
7 assignment of the Auto-Cite license agreement, we insert the
8 words or its economic equivalent. And in particular what I have
9 in mind, this --
10 THE COURT: What page?
11 MR. COLLINS: I'm on page four, Your Honor. I'm
12 sorry. Basically in the middle of Section B.
13 THE COURT: And where it says Auto-Cite is a
14 divestiture product?
15 MR. COLLINS: Right, and it goes down under my version
16 at least four lines from the bottom of Section B at the end it
17 says the assignment of the Auto-Cite license agreement, which is
18 a defined term, and my suggestion is to insert the words after
19 agreement and before the comma, or its economic equivalent, and
20 let me explain what I have in mind.
21 MR. REBACK: Could you tell us where it is?
22 MR. COLLINS: Section 2B of the definition.
23 THE COURT: Page four.
24 MR. REBACK: I'm sorry, may I ask you just to repeat
25 what you said because I didn't get it.
86
1 MR. COLLINS: Okay. My proposal is that we insert the
2 words or its economic equivalent after the language the
3 assignment of the Auto-Cite license agreement. So it would read
4 the assignment of the Auto-Cite license agreement or its
5 economic equivalent.
6 This situation where a company is selling a plant or
7 other assets and the plant, in particular I have in mind
8 actually a recent deal that involved a can plant, a plant that
9 manufactures cans and it had a contract to supply a facility
10 with cans. The company that owned the can plant is going to
11 sell the plant and there was no assignment provision for that
12 agreement. So what the parties agreed to in the purchase
13 agreement is that the new buyer of the plant would supply the
14 cans to the seller basically and the seller would just turn
15 around and provide those cans to the original beneficiary of the
16 contract.
17 We can do exactly the same thing here. We can divest
18 the Auto-Cite service in a way that obligates the buyer just as
19 if they would be obligated to Lexis-Nexis directly to provide
20 Thomson with the fee, that is in fact the Auto-Cite commercial
21 service provided by the Lexis-Nexis contract. We can take that
22 fee and we can pass it through directly to Lexis-Nexis. There
23 would be no assignment to the license agreement, and the
24 economic objective of the divestiture would be fully
25 accomplished. Thomson would not keep any of the business of the
87
1 Auto-Cite commercial service but there would be technically no
2 assignment, and I would ask the Court and the perhaps if they
3 agree to this, that we still have a question -- we still believe
4 that we can assign the Auto-Cite license agreement but that's a
5 question now that is just a pure contract question. Either we
6 can or we can't, but the consent decree now with this amendment
7 would take care of any problems about a taking.
8 THE COURT: Mr. Reback is shaking his head because he
9 doesn't think it would take care of those problems.
10 MR. REBACK: I was going to say if they want to
11 propose this I would be happy to brief this. This is something
12 we strongly object to. We think we have a deal. If they are
13 going to propose that we would be happy to brief this at Your
14 Honor's convenience.
15 THE COURT: I would suggest, Mr. Collins, that you
16 file something briefly which says after talking to the
17 Government, because in the first instance I guess they have to
18 agree to an amendment to the final judgment or its appendix
19 before it's presented to me, but if that is where you and the
20 Government come out, the Governments, plural, come out, I'm
21 sorry, then I think you need to file something with the Court
22 saying that the licensing agreement will be amended as you say
23 and that the final judgment will be amended as you say and if
24 Mr. Reback wants to submit something brief in reaction to the
25 second point, he certainly can do so.
88
1 MR. COLLINS: I will, Your Honor.
2 THE COURT: I think that I will find the first
3 point -- I haven't thought through the taking issue fully. I
4 would find the first point certainly helpful.
5 MR. COLLINS: We will talk to the plaintiffs
6 immediately after the proceeding.
7 MR. CONRATH: I think I can confirm that all
8 plaintiffs will go for the first one and the second one we'll
9 think about.
10 THE COURT: Okay. Thank you all very much.
11 (Proceedings concluded at 12:30 p.m.)
12 CERTIFICATE OF OFFICIAL REPORTER
13 It is certified by the undersigned Official Court Reporter
14 of the United States District Court for the District of Columbia
15 that the foregoing is the official record of the proceedings
16 indicated.
17 ____________________
18 SANTA THERESA ZIZZO
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