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Transcript - Hearing, September 30, 1996 - USA v. Thomson, 96 CV 1415, USDC District of Columbia

3  ET AL,                            .     Docket No. CA 96-1415
4               Plaintiffs,          .     Washington, D. C.
                 .     September 30, 1996
5            vs.                     .     10:00 a.m.
7               Defendants           .
8  . . . . . . . . . . . . . . . . . .
9                       TRANSCRIPT OF HEARING
12  For the Plaintiffs:         JAMES FOSTER, ESQUIRE
13                              CRAIG W. CONRATH, ESQUIRE
14                              LEIB DODELL, ESQUIRE
15  For the Defendants:         WAYNE COLLINS, 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
   Computer-Aided Transcription of Stenographic Notes
     Pages 1-88
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
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
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
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
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
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.
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
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
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
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
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.
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
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
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
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
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
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
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.
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
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
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
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
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
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
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.
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
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.
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.
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
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.
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
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'
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
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 --
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
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
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
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
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
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
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
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
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.
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.
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
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
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.
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
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
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
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.
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
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
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
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
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
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
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
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.
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
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
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.
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
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
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
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.
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,
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
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.
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
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
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
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.
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.
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
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.
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
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
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.
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?
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
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 tha