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1 1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA 2 UNITED STATES OF AMERICA, . 3 ET AL, . Docket No. CA 96-1415 . 4 Plaintiffs, . Washington, D. C. . September 30, 1996 5 vs. . 10:00 a.m. . 6 THOMSON CORPORATION, ET AL, . . 7 Defendants . . 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 19 20 21 22 23 24 Computer-Aided Transcription of Stenographic Notes 25 Pages 1-88 2 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 3 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 4 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 5 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 6 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 7 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. 8 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 9 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 10 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 11 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 12 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. 13 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 14 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 15 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 16 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 17 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 18 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 19 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. 20 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 21 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 23 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 19 20 21 22 23 24 25