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HyperLaw, Inc. P.O. Box 1176 New York, NY 10023 212-787-2812 212-496-4138 (fax) firstname.lastname@example.org http://www.hyperlaw.com Via Fax -- 202-307-5802 Copy by Federal Express and Hand Delivery September 3, 1996 Craig W. Conrath Chief, Merger Task Force Antitrust Division U.S. Department of Justice Suite 4000 1401 E Street, N.W. Washington, D.C. 20530 Dear Mr. Conrath: This letter completes HyperLaw's comments to the Department of Justice concerning the Consent Decree relating to the merger of Thomson and West Publishing Company. This letter should be read in conjunction with our letters of June 26, 1996 and June 28, 1996. The Consent Decree is not in the public interest and the Department of Justice must withdraw its consent. HyperLaw, Inc. publishes the opinions of federal appellate courts on CD-ROM, and is thus a competitor of West. It also is a supplier of tagged federal appellate opinions to Thomson. In addition, HyperLaw has been threatened by West, which threats have prevented HyperLaw from including West's star pagination in its product and from copying public domain material from West reporters. As United States District Judge John S. Martin found in Matthew Bender & Company, Inc and HyperLaw, Inc. v. West Publishing Company, 94 Civ. 0589 (JSM), 1996 U.S. Dist. LEXIS 11091 (SDNY August 5, 1996) (attached): "[t]he Court finds that HyperLaw had a reasonable apprehension of being sued by West over use of the West features at issue here at the time that it filed the complaint." Among the factors the court considered was that "Schatz [West General Counsel] told Sugarman that his firm wins all his lawsuits for West." The Court "accept[ed] Sugarman's testimony that Schatz made the comment in the context of a discussion about HyperLaw's use of West features" after noting that "Schatz gave varying versions of the time and place of the conversation in his deposition and hearing testimony, and finally testified at the hearing that he was not certain where the conversation took place." The Court also found it relevant that "Stephen Haynes, a senior executive and attorney for West approached Sugarman at a convention and stated that Sugarman was aiding and abetting infringement of West copyrights..." [This is the same Stephen Haynes that is the chair of an ABA Database Protection subcommittee which authored a 1996 report in favor of database protection legislation.] By filing a comprehensive complaint against West-Thomson, and then proposing an ineffectual consent decree, the Antitrust Division has provided the following benefits to West-Thomson: Insulated West-Thomson from further antitrust enforcement by the Department of Justice for the foreseeable future. Sanctioned a license agreement which will be falsely characterized by West- Thomson so as to enable West-Thomson to sway and mislead Congress, the courts, and public opinion, as shown below. Without a doubt, West-Thomson will use this license agreement before Congress as a reason why a database protection action would not be anticompetitive. In a sense, the Antitrust Division has punched a free antitrust waiver ticket for West- Thomson. It will be able to throw its weight around in the legal market without any concern as to enforcement from the Antitrust Division. Indeed, the half-hearted inconsequential relief is so limited in effect that we urge DOJ to withdraw its complaint and have no consent decree, rather than perpetuate a meaningless remedy on the public. Lawyers Cooperative must be divested as an ongoing operating entity, and, the License Agreement must be revised to provide in an unambiguous way a meaningful and adequate remedy to the harms described in the complaint, many of which pre-existed the merger. We reject as ludicrous the position of the Antitrust Division that in the Division must ignore preexisting violations of the antitrust laws that are discovered during a merger approval investigation. The consent decree does not provide an adequate remedy to the allegations in the complaint, is ambiguous (the ambiguity of the license agreement has been documented in HyperLaw's previous letters), and lacks any effective enforcement methodology. If the Antitrust Divisions persists in its efforts to protect its public relations posture and its political deal with West and Thomson, we believe that even under the stringent standards of U.S. v. Microsoft, the District Court should reject the consent decree. The following excerpts are from U.S. v. Microsoft and describe what the District Court judge may do. Of course, the Antitrust Division, after consideration of the new information brought to its attention, is in no way restricted by the limited discretion permitted to the District Court. "whether the remedy provided in the decree was adequate to the allegations in the complaint" * * * "A district judge pondering a proposed consent decree understandably would and should pay special attention to the decree's clarity." * * * "Similarly, we would expect a district court to pay close attention to the compliance mechanisms in a consent decree." * * * "When the government and a putative defendant present a proposed consent decree to a district court for review under the Tunney Act, the court can and should inquire, in the manner we have described, into the purpose, meaning, and efficacy of the decree. If the decree is ambiguous, or the district judge can foresee difficulties in implementation, we would expect the court to insist that these matters be attended to. And, certainly, if third parties contend that they would be positively injured by the decree, a district judge might well hesitate before assuming that the decree is appropriate." U.S. v. Microsoft, 56 F.3d 1148 (D.C. Cir 1995) [Because West claims a copyright in its internal page numbers, and because HyperLaw has not paid a citation tax to West so that it could insert the page numbers in its database ... assuming that West would license the internal pagination for use in HyperLaw's CD-ROM database of almost all of the opinions in recent Federal Reporters and assuming that HyperLaw would sign the onerous agreement and could afford the exorbitant up-front payments without any assurance that it could increase prices and sales to cover such payments ... HyperLaw does not have the internal page numbers of this opinion in its database, and is unable to cite to the internal page numbers without locating an open public law library during the Labor Day weekend.] We conclude as follows: The Consent Decree is defective ab initio and has little remedial effect on a grossly anticompetitive merger. To the extent the Consent Decree might provides a scintilla of meaningful relief, it relies for enforcement on the good faith of parties that in the past has never been shown. Between the signing of the settlement and the present time, the Wilson Sonsini letter shows that West-Thomson is not acting, and has no intent to act, in good faith. The Department of Justice has not the means or the will to enforce even that scintilla of relief. The Department of Justice in its description of the Consent Decree has intentionally misrepresented the scope and effect of the Consent Decree and the License Agreement. The Antitrust Division has argued as a reason for its tepid actions that in a merger approval under Hart-Scott Rodino, it is circumscribed in addressing past antitrust wrongs. However, there is nothing in Hart-Scott Rodino that prohibits the United States from initiating antitrust enforcement action when it develops evidence of violation of the antitrust laws in the course of a Hart-Scott-Rodino investigation. Thus, there is no justification for the Division's argument that a weak meaningless license agreement should be gratefully accepted by the public merely because it remedies problems that pre- existed (but are worsened by) the merger. THE LICENSE AGREEMENT IS NOT AN "OPEN LICENSE AGREEMENT AND IS BEING MISREPRESENTED BY THE ANTITRUST DIVISION AND WEST TO FURTHER THEIR MUTUAL SELF-INTEREST AND TO DECEIVE THE PUBLIC INTO BELIEVING THAT THE CONSENT DECREE IS A "VICTORY FOR ALL OF US" AND "RESOLVE[S] ANY POSSIBLE ANTITRUST CONCERN REGARDING THE AVAILABILITY OF STAR PAGINATION LICENSES" DOJ's initial press release misdescribed the scope and applicability of the Consent Decree and in particular called the license agreement an "open agreement." Nothing could be further from the truth. Subsequent to our June letters, during a two hour telephone conversation (described below in more detail) with you, Larry Fullerton and others in the Antitrust Division, we reiterated our displeasure with this mischaracterization, and the Division was unable to provide a credible defense for its positions concerning the license agreement. Shortly thereafter, as part of its public relations campaign, the Antitrust Division once again engaged in gross misrepresentation of the license agreement in a letter and brief filed by the Antitrust Division on August 5, 1996 before the United States District Court for the Southern District of New York in Matthew Bender & Co., Inc. and HyperLaw, Inc. v. West Publishing Company. "Part of that settlement requires Thomson to license to other law publishers the right to star paginate to West's National Reporter System. ... In announcing the settlement, the U.S. Department of Justice stated: 'Today's settlement, with its open licensing requirement does not suggest ... that the Department believes a license is required for use of such pagination.'" Memorandum Of United States Of American As Amicus Curiae In Support Of The Proposition That Bender's Star Pagination To West's National Reporter System Does Not Infringe Any Copyright Interest West May Have In The Arrangement Of The National Reporter System Volumes, p. 2, August 5, 1996, Matthew Bender & Co. Inc. and HyperLaw, Inc. v. West Publishing Company, 94 Civ. 0589 (JSM), United States District Court, Southern District of New York (DOJ New York Brief). Among other things, it is inappropriate to describe the License Agreement as an "open" agreement when it will be negotiated in private and arbitrated in private pursuant to confidentiality provisions agreed to by the Antitrust Division. We also note that this continued misrepresentation in the August 5 brief occurred after our June letters and the two hour conference in late July with you and other senior Antitrust Division counsel. DOJ tossed out this self-serving public relations slow ball. Then, West on August 24, 1996, exaggerated further this micharacterization in its response to the DOJ New York Brief: "West had agreed, as part of its Proposed Final Judgment in United States v. The Thomson Corp., No. 96-1415 (D.D.C. filed June 19, 1996), to license all other law publishers the right to star paginate to West's National Reporter System publications -- at standardized royalty rates which the Antitrust Division approved as commercially reasonable. While, as the Antitrust Division points out, the inclusion of a star-pagination license in the Proposed Filed Judgment does not mean that the Antitrust Division agrees with West's position on star-pagination -- it doesn't -- the negotiation of the Proposed Final Judgment does not mean that the Antitrust Division agrees with West's position on star-pagination -- it doesn't -- the negotiation of the Proposed Final Judgment does resolve any possible antitrust concern regarding the availability of star pagination licenses to West competitors." West Publishing Company's Memorandum Of Law In Opposition To The Memorandum Of The Antitrust Division Of The Department Of Justice As Amicus Curiae, August 24, 1996, Matthew Bender & Company, Inc. and HyperLaw, Inc. v. West Publishing Company We were not aware that the Division was of the opinion that the Proposed Final Judgment "resolved any possible antitrust concern regarding the availability of star-pagination licenses" nor are we aware of any basis that the rates are commercially reasonable. We note that there has been no record created as to how the Division arrived at the royalty rates, and how it may be commercially reasonable in certain limited situations, and unreasonable in others. We believe that West-Thomson should be held to its posturing, and the Licensee Agreement be renegotiated to resolve "any possible antitrust concern" by making the agreement an open, practical, reasonably priced agreement both in form and in substance. WEST'S COPYRIGHT CLAIMS TO TEXT OF COURT OPINIONS, OPINION ARCHIVES AND THE DATABASE PROTECTION ACT. The DOJ Complaint fully recognized the importance of archives of the text of legal opinions. Unfortunately, not only does the Consent Decree not propose any relief with respect to this problem, but the merger only increases the concentration in this area, by placing into the combined entity the archives of West and the Thomson Companies, and removing the Thomson Companies from it continuing efforts to create and obtain its own archives of opinions. Quite clearly, Thomson was not only a potential competitor in the creation of archives of opinions, but was well on the way to so doing. The License agreement provides for West to license the internal pagination at an expensive license fee, but is singularly silent as to whether a licensee as part of the license may obtain the text by copying the opinion text from a West reporter. Moreover, no other relief provided in the consent decree will have any measurable impact on the dominance of West and Thomson in enhanced and unenhanced case law. What does the complaint state: "Entry would be difficult for three reasons. First, successful entry would require access to past and current court opinions and statutes. Past and/or current opinions simply are not available from many courts, and in many others, obtaining access is costly and time-consuming." DOJ is correct in this regard. This paragraph of the complaint although devoted to the West Thomson dominance in enhanced case law, applies equally to unenhanced case law, particularly in those jurisdictions, such as the federal courts (recipients of West's largesse) at West's urging have acquiesced to West's being the provider of the authoritative archive of federal court opinions. The reasons set forth in Paragraph 19 are some of the factors relating to the domination of on-line case law research described later in the Complaint. [Paragraph 19 of the Complaint's lists those markets where West and Thomson's compete in case law. This list is substantially understated, since it only refers to enhanced case law. For example, HyperLaw licenses to Thomson tagged case opinions for the federal appellate courts which Thomson includes on CD-ROMs of state case law in Texas, Louisiana, Mississippi, and Kansas.) We understand that the American Association of Legal Publishers is providing today to DOJ an analysis of its efforts to obtain original copies of federal court opinions directly from the courts for opinions from the 1960's and 1970's. This study shows that opinions are simply missing from files, that court files are not able to be found, that opinions are misfiled in the case files, that the court archive centers limit the number of case files to as few as three that may by viewed, and that the process if fraught with delays, confusion and expense. It is sometimes difficult to obtain even current court opinions and some federal courts of appeals do not even make all of their published opinions available electronically. One reason that archives are such a competitive advantage is that the incremental cost of publishing a CD-ROM treatise or enhanced product with the full text of cited opinions is zero for a company with an archive. In other words, the West incremental cost is zero. It does not have to locate and copy the original opinions and does not have to convert them to electronic form. Nor of course does West have to pay a license fee to use the star- pagination. What is the current position of West-Thomson on the issue of copying court opinion text from West case reports? West's Response to Matthew Bender's Rule 3(g) Statement (wherein Matthew Bender recited undisputed facts in support of its motion for summary judgment) filed August 19, 1996 in Matthew Bender & HyperLaw v. West states as follows: MATTHEW BENDER STATEMENT OF UNDISPUTED FACT: 40. West contends that rival publishes, including Matthew Bender, are free to obtain slip opinions directly from their issuing courts, but will incur copyright liability by copying those opinions from a West reporter. WEST'S RESPONSE: West cannot admit or deny this statement, which is actually a hypothetical situation, rather than a "fact," without having specific facts about how much copying has been done from a West Reporter. This statement also incorrectly refer to opinions rather than case reports. To make matters worse, the DOJ New York Brief suggests that the Antitrust Division is playing a double game here. First, the Antitrust Division has at no time indicated its desire to file a brief in support of HyperLaw's motion that will permit rival publishers to copy the text of court opinions from West reporters. Second, as anticipated in HyperLaw's June letters which referred to West efforts to end-run the copyright laws by lobbying for database protection legislation, DOJ states as follows in its brief: "Copyright is not the only conceivable legal regime for protecting the fruits of industrious collection. The Delegation of the United States of American recently proposed to the World Intellectual Property Organization an international treaty that would provide to the "maker" of certain databases the exclusive right to extract all or a substantial part of the contents, without regard to copyrightability. World Intellectual Property Organization, Preparatory Committee of the Proposed Diplomatic Conference (December 1966) on Certain Sui Generis Protection of Databases, CRNR/PM/7 (May 20, 1996). Legislation providing for such protection has been introduced in Congress. See H.R. 3531, 104th Cont., 2d Sess. (1996). DOJ New York Brief, Page 6, Note 4. Fortunately, because of widespread opposition, the Congressional legislation has not gone anywhere. So, what has the Administration done in this politcal season: on behalf of information industry lobbyists and campaign contributors including West, with the seeming support of the Antitrust Division, the Administration has put in place an end-run around the United States Congress and the United States Constitution by having international bodies composed of member nations with constricted views of the public's right of access to government information agree to a treaty that will then be forced down Congress's throat. If the Antitrust Division was merely being inartful in its disregard of the West monopoly on text, and if it agrees that West has and is engaging in copyright misuse and anti-trust violations by asserting claims in the text of court opinions drawn from West case reports in West reporters, then we invite the Antitrust Division to: (1) require the amendment of the License Agreement to specifically include the right of the pagination licensee to copy the text of court opinion from West case reports and (2) file an amicus brief in support of HyperLaw's motion for declaratory relief permitting competing publishers to copy the court opinion portion from West case reports. LICENSE AGREEMENT ISSUES DISCUSSED IN JULY MEETING We also wish to follow up on the discussion we held in late July concerning our two letters: 1. We specifically objected to the characterization of the license agreement as an "open" license agreement. Thereafter, DOJ repeated this mischaracterization twice in its filings in Matthew Bender & HyperLaw v. West. 2. We discussed the effect of Section 1.03. which states: "1.03 'Licensee Case Reports' shall mean Licensee's reports of judicial decisions that are selected for reporting by Licensees in [Licensee Product(s)/Services(s) and coordinated and arranged by Licensee within [Licensee Product(s)/Services]." Not one of the five senior Antitrust Division attorneys present at the meeting disputed our interpretation that West would not be required to license page numbers to publishers publishing all of the opinions in a single West Reporter Series. I used as examples the proposed Oasis CD-ROM of opinions found in West Florida Cases, and HyperLaw's CD- ROM which includes almost all opinions appearing in West's Federal Reporter. 3. The Antitrust Division argued that Lear v. Adkins, in prohibiting no-contest provisions in license agreements, had been narrowly construed in later opinions. However, there was no response to our point that the public policy issues raised in Lear v. Adkins remain valid and were even more relevant where the Antitrust Division had negotiated a compulsory license to remedy destructive anti-competitive behavior. 4. The Division argued that the no-contest provision was narrowly drafted and would only relate to "contest[ing] the validity of the copyrights claimed by Licensor in Licensor's arrangements of case reports in NRS Reporters as expressed by NRS pagination" and would not prohibit other objections to West copyright claims. However, we pointed out that West linked all of its claims to its compilation claims, and, that, all West had to do was pull the license and take the licensee to a confidential arbitration in Minnesota, so, that the effect of 3.01 was to prohibit a broader range of contest. 5. The Division argued that the multiple license fee was not a problem since it had determined that most publishers were not intending to publish in multiple media. We pointed out that this was a flatly incorrect statement and that most CD-ROM publishers are or were planning to offer Internet versions. One example I provided was CD-LAW in Washington. In addition, Law Office Information Systems has announced that it would make its CD-ROM information available on the Internet. The Department's position evidences a complete lack of understanding of the information industry, wherein the medium of dissemination is irrelevant. In addition, the Division's response is just plain illogical. If no publishers will publish in multiple media, then West-Thomson would lose no revenue by permitting a single license to cover publication in different media. The Division cannot have it both ways. 6. The Division argued that the confidentiality provision were for the protection of the licensee. That may be if the licensee desires confidentiality, and, the Division was unable to explain why the licensee would be forced to maintain confidentiality over its objections. It is clear to us that the primary beneficiary of confidentiality would be West- Thomson. Once again, the Division's defense to accepting this provision is completely illogical. 7. We objected to the fact that providers of HyperLaw would be unable to market star-paginated cases to third parties who would then obtain a license from West, unless HyperLaw also obtained a license from West. Thus, West would obtain two license fees for only one public distribution. The Division staff argued that third-party sales was permitted under Section 2.02. But, we think the staff has misunderstood our objection. Only a third party provider who already had a license would be able to engage in the wholesale sale of star-paginated cases. This is like paying a double sales tax. Moreover, HyperLaw, in order to sell star-paginated cases would have to both sign the license agreement and thereby agree to dismissal of it litigation against West. We think that the Division has completely misconstrued the clear language of Section 2.02. 8. We addressed another issue not covered in our earlier letters: Section 2.01 requires the Licensee to provide star-paginated cases to customers, but only if the customer has signed a Licensee Subscriber Limitations contractual agreement as described in section 1.08. In other words, star-paginated cases will only be available to customers who sign contracts similar to contract signed by Westlaw subscribers. West as part of the licensing will be able to ask for copies of proposed license agreement and even monitor that process and otherwise harass the publisher. Most important, we noted that any star-paginated case law on the Internet would be limited only to services with restricted access and who obtained written agreements with each user. We noted the belief by Emory Law School that it could obtain a star-paginated license for its Federal Court of Appeals WEB pages was completely misplaced, although, understandable in view of the DOJ's misleading press releases. Here, the Division completely misunderstood the practical impact of this provision. In our prior letters, and during that conversation, we referred several times to the fact that any and all ambiguity or arguable ambiguity would be interpreted by West-Thomson in its own interests, absent any concept of implied good faith. In all due deference to the views of the Division staff, we do not believe that commercial arbitrators from Minnesota will share the Division's view of the License Agreement. We have reviewed the letter submitted by Wilson Sonsini Goodrich and Rosati on behalf of Lexis-Nexis, a Division of Reed Elsevier. This letter describes conduct that to us would indicate a complete variance by West-Thomson from the divestiture procedures outlined in the Consent Decree. West-Thomson for example has ignored the requirement to divest Auto-Cite and ignored requirements to permit publishers acquiring divested products to hire West-Thomson employees. We also understand from other sources that publishers are not being permitted to purchase single products, but must also agree to purchase the dog products which riddle the list of divested products. Thus, even during this period where the Consent Decree is under review and its actions are not subject to confidentiality, West-Thomson is acting as expected, to narrowly and in bad faith interpret each and every provision of the Consent Decree. No doubt, it will do the same with the License Agreement. Our comments focused on the license agreement. However, the approval of the merger, without also requiring the divestiture of Lawyers Cooperative is not in the public interest. The divestiture of products with a revenue of only 48 million dollars will have no significant competitive impact on legal publishing in the future. We believe that most of these products would have been consolidated with other West-Thomson products, left without marketing or development resources to die on the vine, or killed outright. Certainly, West-Thomson has no reason to fear competition from any company that is foolish enough to purchase a crippled divested product. Absent significant modifications to the Consent Decree, we believe that the public interest would be best served were the Antitrust Division to seek dismissal of the Complaint without prejudice. We believe that the bad faith shown by West-Thomson as described in the Wilson Sonsini letter and the mischaracterization of the settlement as indicated in the West filing in the New York litigation is sufficient reason standing alone for the Antitrust Division to pull its consent. Sincerely, /s/ Alan D. Sugarman President HyperLaw, Inc. HyperLaw, Inc. to Antitrust Division September 3, 1996 Page 4 of 11