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A See No-Evil Merger Probe?The Connecticut Law Tribune 2/24/97

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This article appears courtesy of The Connecticut Law Tribune. 
Copyright 1997.  American Lawyer Media, L.P. All rights reserved. 
For reprints of recent articles, please contact Yvette Otero at
203-256-3600, or by email at (clt@counsel.com).

         PAPER: The Connecticut Law Tribune

DATE: 02-24-97

SECTION: News, page 1

HEADLINE: A See-No-Evil Merger Probe?

DECK: HyperLaw contends the public needs to see secret Lexis-West
pacts to fathom the West-Thomson merger, and that Justice went
soft on it antitrust investigation.


What started as an exceedingly friendly meeting on Feb. 6 over the
latest settlement terms for the West-Thomson merger is escalating
into a frontal assault on the U.S. Department of Justice's
antitrust enforcement role.

Merger critics, including one small CD-ROM law publisher
encouraged to intervene in the case, charge that Justice was
"rolling over" in its antitrust enforcement duties by allowing the
nation's two biggest legal publishers to merge.

[HL Note: the rolling over statement was made in a letter
from Juris, Inc., attached to a HyperLaw motion]

 Now, it suddenly appears that West and Thomson may sell up to 76 products to the
Number 2 law publisher, Lexis-Nexis. It's amounted to
"disgraceful" antitrust enforcement, complains a former West
executive who attempted to bid on products that Thomson and West
agreed to divest for antitrust purposes. The courts should
scrutinize the agreements behind the industry in which online
legal research costs are priced four times higher than they should
be, says New York's HyperLaw Inc.

The proceedings started peacefully on Feb. 6, in the Washington,
D.C., courtroom of U.S. District Judge Paul N. Friedman. The
parties were there for a status conference on the merger. But
Friedman's ire was slowly rising.

Ranged before him stood the once-warring lions of legal publishing
-- West, Thomson and Lexis -- who for over 20 years have taken
their battles to federal courts and the U.S. Congress. Along with
these saber-toothed litigators were the ringmasters -- state and
federal antitrust enforcement officials. Yet on that day all was
sweetness and light.

Everybody was happy with the latest version of the West-Thomson
merger deal -- except the judge.

"You know, basically I see everybody fighting vigorously all this
time against the backdrop of a proposal that ends years or decades
of Thomson and West fighting vigorously against each other and you
[turning to Lexis' scrappy litigator Gary L. Reback, of Palo Alto,
Calif.'s Wilson, Sonsini, Goodrich & Rosati] were championing the
third largest player out there. And now you've reached an
agreement on everything.

Friedman was under heavy pressure from Justice, West, Thomson and
Lexis to sign off on the merger of American legal publishing's two
largest companies, West Publishing Corp., of Eagan, Minn., and the
Thomson Corp., headquartered in Stamford. But new details were

To Friedman's clear surprise, Thomson and West had in January
signed a pending deal to sell all 52 of the merger divestiture
products -- large and small legal reference works plus the
electronic online citator AutoCite -- to a single company,
Reed-Elsevier, the British-Dutch parent of Lexis-Nexis.

"[M]aybe I was the only one that wasn't operating on what [Thomson
antitrust lawyer Wayne Dale Collins] said was the assumption all
along -- that all of the products would likely be divested to one
acquirer. Maybe I missed that somewhere along the way," Friedman

Other new points arose during the hearing: In the settlement of a
separate federal contract action in Ohio last month over AutoCite,
Lexis won an option to buy 24 more Thomson properties. And as a
clincher, Thomson, West and Lexis agreed to sign antitrust
releases in each others' favor.

Friedman clearly recognized the merger's potential impact on legal
publishing. Between West's Westlaw and Lexis, the two companies
command virtually 100 percent of the online legal research
industry in the U.S. But the judge also saw the merger's
settlement as raising live questions about how the antitrust
enforcers do their job, and how far a judge can go in reviewing
what they give him to sign.

`Cops' No Help

Friedman's role in the case arises from the federal Tunney Act,
which was enacted 22 years ago to increase public awareness and
input in federal antitrust deals. The act calls for a federal
judge to sign off on mergers and settlements. In the case of the
West/Thomson merger, the experts here -- state and federal
antitrust enforcers who have been prosecuting and settling the
case -- were frustratingly noncommittal about the newest

On Dec. 23, Friedman withheld his approval of the merger due to a
flaw he saw in the settlement's key feature: the commercial
license allowing West competitors, for a fee, to cross-reference
West's book and page numbers. Such "star pagination" would make
points of law found in non-West case collections citable to West's
standard reference books -- and thus practical for court briefing
and other formal legal work.

Friedman rejected the proposal because he said he doubts that West
legally owns the cite rights it would purport to sell. Since the
copyright issue is in active litigation, Friedman suggested that
West abstain from charging other legal publishers until the law is

Two days before the Feb. 6 hearing, Thomson proposed terms
designed to address Friedman's concerns. To encourage new
competition in legal publishing, Thomson-West proposed free "star
pagination" licenses for small publishers until the legal issue is
settled, or until the year 2001.

But big companies -- which West defined as any with annual sales
of over $25 million -- would get no price break on the pagination
licenses. At the hearing, Collins identified the large legal
publishers as Lexis; Commerce Clearing House Inc., of Chicago;
Matthew Bender Inc., of New York; and Bureau of National Affairs,
of Washington, D.C.

Mushroom's Complaint

Like a mushroom, kept in the dark and fed a diet of horse manure,
Judge Friedman had reason to complain. He was being asked to sign
off on this weighty merger, and the state and federal antitrust
officials had briefed him of the deal with only a two-page memo.

"And [the merger] may well be, as you say, in the public
interest," said a decidedly skeptical Friedman near the end of the
90-minute conference, but "I'm apprised of it in two pages which
basically doesn't tell me anything."

The DOJ's James Foster explained that the enforcers would take no
position on the new terms -- free pagination licenses for small
publishers, charges for big ones -- or the proposed sale to Lexis,
until after Friedman signs off on the merger consent decree.

Throughout this case, Friedman's shown an appetite for information
and a keen sensitivity to the legal limits of his role. At a Sept.
30 Tunney Act hearing, he said he'd read the voluminous comments
of 26 companies, associations and individuals who objected to the
merger, and had studied the 1995 case of U.S. v. Microsoft, from
the U.S. Court of Appeals for the D.C. Circuit.

The Circuit Court harshly criticized a judge for going beyond the
scope of DOJ's antitrust investigation of Microsoft's software
sales practices. The appellate court also defined Tunney Act
review as simply determining whether or not the DOJ consent decree
was "within the reaches of the public interest."

Reback, Lexis' lawyer, had represented small software developers
in the Microsoft case. Friedman also knew him as the showy
litigator who, at the September Tunney Act hearing, noisily ripped
segments out of a volume of Thomson's American Law Reporter to
illustrate the impracticality of the proposed consent decree.
Lexis, which won amicus curiae status, contended then that
Thomson's entire ALR research system should be divested by the
merged company to compete with West's system.

Too Quiet

But four months later, on Feb. 6, Lexis' Reback was more subdued,
Friedman noted, remarking that suddenly "you don't even have Mr.
Reback around to argue; he's playing a much more passive role than
the last time I saw him." In the interim, Reback had made the book
divestiture deal with West and Thomson.

Friedman posited: If the Tunney Act and Microsoft say the court's
role is a limited one, isn't the flip side of that "that the
Justice Department's role is an aggressive one and [it] is the
primary bulwark against anticompetitive impacts" and the source of
assurance to the court that "a serious analysis and investigation
has been done"? If the judge has to go lightly, shouldn't Justice
be tough?

Both Foster for the Department of Justice, and New York Assistant
Attorney General John Ioannou, speaking for Connecticut and the
other five state plaintiffs, offered nothing to guide the judge.
Said Ioannou, "With respect to approving this proposal, we take
the exact position that the Department does. We neither support
nor object to it." 

Friedman was not hearing what he wanted to hear. "You've got to
say more than that . . . in terms of levels of comfort, you ought
to be saying to a court in a Tunney Act proceeding we've
investigated the case, we've looked at the competitive impact,
we've done everything we're supposed to do [and we] continue to
believe that this consent decree is in the public interest."

Shake Things Up

With everybody huddled in West's corner of the ring, the judge
called in a new challenger. Friedman invited amicus curiae
HyperLaw Inc., which previously had not been granted leave to
argue orally, to intervene.         It did so with a blistering
Feb. 13 legal memo urging Friedman not to view the Microsoft case
as a straitjacket:

"Microsoft does not anticipate a three-giant controlled industry
becoming a two-giant industry where, as is the case here, 100 per
cent of the entire on-line market would be shared by those
contracting two entities -- and where the Justice Department
simply refuses to release any of the relevant information," wrote
HyperLaw, which is represented by Carl M. Hartmann III and Paul J.
Ruskin in New York and Lorence L. Kessler in Washington.

HyperLaw asserts: "[T]his Court is being hoodwinked into approving
something that it cannot even begin to understand, in light of the
paucity of information it has been given by the parties."

The Tunney Act requires that federal antitrust cases receive a
public airing for comment and that the investigators release the
"determinative" documents used in its merger analysis and remedy,
according to Justice.

HyperLaw quoted from the 1973 testimony of D.C. Circuit Judge J.
Skelly Wright before the Subcommittee on Antitrust and Monopoly of
the Judiciary Committee: "[A]ntitrust litigation is very complex
litigation . . . unless they [federal judges] have the light from
outside, the light from the public as well as from the Attorney
General who also, of course represents the public, and the
defendants in interest in the case, there is always the
possibility that a judge, through his inability to grasp the
issues and the importance of concessions being made by both sides
in the consent decree, will sign a decree that is not in the
public interest."

HyperLaw argues that West's 1988 settlement pact with Lexis -- the
details of which have always been under seal -- "gave Lexis access
to the West citation and text to both case law and statutes and
(it appears) vice versa." Lexis has been the only significant
licensee of West star pagination in past years.

Westlaw and Lexis' caselaw in computer format uses West book and
page references to cite points of law with precision. The
legally-contested West pagination system -- which some judges and
scholars believe is actually in the public domain -- is like an
atlas for the collective text of American law. Under the 1988
copyright settlement agreement between Lexis and West, Lexis won
the right to license West star pagination at an undisclosed,
multimillion-dollar annual rate. Under the latest license
modifications, Lexis would get the lowest current rate.

HyperLaw says that due in part to their "copyright cartel,"
Westlaw and Lexis "are the only real competitors in the on-line
legal research market, and they have a deal. Together they control
almost 100% of that market," and charge four times what other,
similar proprietary databases do, says HyperLaw.

"The result is that, in the post-merger period, even without the
problem presented by the [pagination] license proposal, West,
Thomson and Lexis will be able to use the intellectual property
pool to the virtual exclusion of all other legal publishers."

"The cost of this to the public is staggering," HyperLaw contends.
It asked for just half an hour each to cross-examine West,
Thomson, Lexis and Justice, under oath, on the facts behind the
merger investigation.

Longtime West litigator James E. Schatz, now of Oppenheimer, Wolff
& Donnelly, in Minneapolis, says, "First of all, I doubt there is
any stiffer competition in the online service business than there
is between Westlaw, Lexis and these other online service
companies. LOIS' [owner] Kyle Parker is not exactly a shrinking
violet when it comes to competition. Both Westlaw and Lexis have a
huge amount more material than a lot of other services, and they
have a huge amount of value added." Schatz also points out that
West pays large royalties to Shepard's and "thousands of other
data providers."

Lexis' counsel, Reback, says Lexis has fought hard to bring
competition to the marketplace. "Every day, in every major law
firm, there's a West rep and a Lexis rep, and they go head to
head. Following this merger, all the Thomson content can go on
Westlaw. We have been able to secure extensions of the meaningful
databases, and we've gotten a bunch of other stuff, like Shepard's
and other things, so we're going to make a very high-quality
competitor. People benefit from competition. . . . In my view, the
fact that we were able to get the things that provide meaningful
competition, we deserve a medal. We don't deserve this derision.
We're the only ones that are going to be able to compete and
benefit law librarians. The Alan Sugarmans of the world are,
frankly, incidental."

In a Feb. 19 motion, the DOJ and the states strenuously oppose
HyperLaw's motion to be allowed to participate as an intervenor.
"HyperLaw has not explained why public disclosure of, and
additional comment on, the 1988 West/Lexis settlement, the 1996
Thomson/Lexis Agreement, or the 1997 Thomson/Lexis sale documents,
will assist the Court" in making an informed and confident
decision, the motion reads. DOJ and the states offer to give the
judge any documents he did not have for in camera inspection, but
far from being mandated by the Tunney Act, disclosure of their
investigative files would be counterproductive and actually

Thomson-West is expected to file a brief in opposition to
HyperLaw's involvement next week.

"The fact that Lexis was able to get 24 new products added to the
deal in the last few weeks shows that the DOJ didn't push very
hard in the beginning," says HyperLaw president, Alan D. Sugarman,
a critic of the enforcement effort.

Justice's Foster and Lawrence Fullerton did not return call for
comment by press time.

DOJ's Merger Task Force Chief Craig Conrath was blasted in a Feb.
12 letter from Juris Publishing, of Yonkers, N.Y. Charles L. B.
Kitzen, Juris' publisher, says, "As a former executive of West
Publishing for more than 20 years, I understand perhaps better
than most how clearly your rolling over on the Thomson acquisition
created a restraint of competition. Now, your office is
undermining even the minor roadblock created by the divestiture
order by tacitly approving Thomson's successful attempt to buy
Lexis's silence." Kitzen says he was refused a chance to bid on
any divestiture products because he was "too small" and seethes
that the "degree to which the remaining two, foreign-owned
companies will be permitted to control the American legal
publishing market is unparalleled." Thomson's position throughout
that it wanted to sell the properties as a bloc, necessarily to a
large buyer.

One antitrust law expert who has been observing the West-Thomson
merger proceedings over the past 11 months, Steven Axinn, of New
York's Skadden, Arps, Slate, Meagher & Flom, does not give the DOJ
high marks on West-Thomson. Axinn says that the normal aim of the
antitrust enforcers is at least to maintain competition in the
marketplace at the status quo pre-merger level. And even by the
government's own standards, this really hasn't happened.

"Creating an enormous monolithic powerhouse is what the antitrust
laws were designed to protect against -- and I don't think you
could argue that the end result of this, in terms of the market
competition in legal publishing, simply maintained the status quo