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