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1 1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA 2 UNITED STATES OF AMERICA . Docket No. CA 96-1415 3 . Plaintiff, . Washington, D. C. 4 . February 6, 1997 vs. . 2:30 p.m. 5 . THOMSON CORPORATION, ET AL, . 6 . Defendants . 7 . . . . . . . . . . . . . . . . . . . 8 TRANSCRIPT OF STATUS CONFERENCE 9 BEFORE THE HONORABLE PAUL L. FRIEDMAN UNITED STATES DISTRICT JUDGE 10 APPEARANCES: 11 For the Plaintiff: CRAIG W. CONRATH, ESQUIRE 12 JAMES FOSTER, ESQUIRE JOHN IOANNOU, ESQUIRE 13 For the Defendants: WAYNE D. COLLINS, ESQUIRE 14 JAMES E. SCHATZ, ESQUIRE MARK SIEMANS, ESQUIRE 15 For the Amicus: GARY L. REBACK, ESQUIRE 16 Official Court Reporter: SANTA THERESA ZIZZO 17 ROOM 4800C U. S. Courthouse Washington, D. C. 20001 18 (202) 289 1160 19 20 21 22 23 24 Computer-Aided Transcription of Stenographic Notes 25 Pages 1-61 2 1 P R O C E E D I N G S 2 THE DEPUTY CLERK: Civil action 96-1415. United 3 States of America versus Thomson Corporation, et al. Mr. 4 Conrath and Mr. Foster and Mr. Ioannou for the plaintiff. Mr. 5 Collins representing Thomson. Mr. Schatz representing West 6 Publishing. And Mr. Reback is here for the amicus Lexis. 7 THE COURT: Anybody else needs to be introduced? 8 Let me first apologize to all of you for being late. 9 This was scheduled for two o'clock. I'm in a trial and I told 10 the jury that we would just sit this morning and we'd finish by 11 one but we didn't finish by one and that's why we are a little 12 late starting this afternoon. 13 I've gotten lots of pieces of paper since my opinion 14 in December. I had vowed to myself I was going to get it done 15 before Christmas so I wouldn't have it on my mind over 16 Christmas. I figured I would transfer it to your minds. And 17 I'm sure -- I hope I didn't interrupt anybody's holiday too 18 much. And then I issued a subsequent order in January and also 19 got some documentation with respect to Ohio litigation going on, 20 that had been going on and I'm sure you can bring me up to speed 21 on that as well. Because there was something in some of the 22 papers about possibly transferring it here and I have some 23 reason to believe that may have been stayed because of things 24 that happened subsequently. 25 And then there was a joint status report from West, 3 1 Thomson and Lexis. There's a motion that no one has had time to 2 respond to yet from Hyperlaw renewing its motion to intervene. 3 And then there is a very recent motion from the 4 defendants but not from the plaintiffs that has a modified or 5 amended proposed final judgment that I'm asked to enter. 6 The status conference that brings us here was really 7 at the request of the Government and obviously I want to hear 8 anything and everything that you all have to say. 9 A couple of things strike me which I guess I will just 10 mention. One is that with respect to the divestiture issue, if 11 I'm reading what was a very short and uninformative document 12 correctly, the -- every divestiture product is going to Lexis, 13 if I'm reading it properly. And presumably under the final 14 judgment and negotiated settlement of the case, that would have 15 to be approved by the Justice Department and I have no knowledge 16 as to whether it's been approved yet, and in some cases by 17 individual States. 18 Secondly, there's mention of antitrust releases 19 between Lexis, West and Thomson and I don't have any information 20 about what that means but I assume that the Justice Department 21 does. Since I have such limited information I don't know that 22 those people in the industry other than West, Thomson and Lexis 23 may want to be heard on what are dramatically changed 24 circumstances wherein it appears that all three of the most 25 major players are now in agreement on everything when before 4 1 they weren't. 2 And the question is how deeply does the Justice 3 Department look into these questions, what does the Justice 4 Department do next and what should the Court do after that? 5 And separate and apart from the divestiture and the 6 apparently dramatic changed circumstances in the marketplace, I 7 means questions like do we need another round of public 8 comment? Is that authorized by the statute? Do we need a 9 revised competitive impact statement? What exactly is the 10 Justice Department doing about it, doing about the information 11 it has which the Court does not have? 12 Then we get to the star pagination issue and what I've 13 been told in the papers submitted by West, Thomson and Lexis is 14 that the Justice Department doesn't object to what they're 15 proposing, and the first question is whether that's a sufficient 16 posture for the Justice Department. The first question is 17 whether that's an accurate description of the Justice Department 18 position. 19 The second question is whether that's an appropriate 20 posture for the Department to take. Maybe it is since it didn't 21 disagree -- since what I did in my opinion was not something 22 that emanated from the Department. But under the statute is 23 that the appropriate posture? Does the Department have to do 24 more, say more than that, and what's going to happen to that. 25 And then the specifics of the proposal I think we 5 1 ought to talk a little bit about and I'm not sure that I fully 2 understand -- obviously the bottom line for me on that is 3 whether or not it meets my concerns but I'm not sure I fully 4 understand all of the pieces of it and why they are in there. 5 So, those are sort of my preliminary reactions to what 6 I have read. And shall we start with the Department? 7 MR. FOSTER: I'm James Foster and I'm be speaking for 8 the United States today, the Department of Justice. I'd like to 9 introduce Mr. John Ioannou from the New York State Antitrust 10 Bureau representing New York State and he can also confirm the 11 positions of the other State plaintiffs. We have seven State 12 plaintiffs. They all couldn't be here today. 13 The plaintiffs called for this status conference so 14 that we could discuss with the Court the issues raised in the 15 December 23rd opinion as it relates to the star pagination 16 license fee. The other reason we're here today is because of 17 Thomson's motion to re-enter, to enter a new decree. 18 If you have any particular questions you want me to go 19 ahead with first, as to the divestitures I just heard you 20 mention I'll be glad to answer those. 21 THE COURT: You can go in whatever order you want to. 22 MR. FOSTER: The plaintiffs read the December 23rd 23 opinion and we focused on the Court's concerns about the star 24 pagination fee and although the plaintiffs believe that the 25 original relief requested was within the reaches of the public 6 1 interest, we feel that a revision along the lines the Court 2 suggests would also be in the public interest. And therefore we 3 have urged the defendants to make an agreement that the Court 4 will find acceptable. The plaintiffs don't believe it will be 5 right for us to try to secondguess the Court's specific 6 requirements as to what it would find acceptable. So we thought 7 it was appropriate for Thomson to make its proposal directly to 8 the Court. To that end Thomson has submitted a proposed 9 revision and we need to say that we do not support nor do we 10 object to Thomson's proposal. 11 As I said, we believe the original was in the public 12 interest and Thomson's proposal does not appear to provide 13 any -- it does appear to provide some additional relief compared 14 to the original. So we have no basis to object to it. We don't 15 believe it adds any anticompetitive element to the relief 16 package. 17 THE COURT: Let me ask this question although it may 18 be that it's more logical to get an explanation from Thomson and 19 West before you answer this unless you understand it better than 20 I. There does seem to be as part of the proposal for a number 21 of reasons a requirement that competitors of Thomson and West 22 would be required to submit detailed financial information to 23 Thomson and West in order to -- as a part of a licensing 24 agreement. I assume it is in order to -- well, I'll ask them to 25 explain why, but has the Department considered whether or not 7 1 requiring disclosure of that kind of financial information to a 2 competitor and certainly the largest competitor might in and of 3 itself raise some anticompetitive concerns? 4 MR. FOSTER: Yes, Your Honor. We have considered 5 that. We looked at that particular clause carefully and we 6 have -- how we interpret the books and records requirement and 7 we interpret it very narrowly to mean only the minimal amount of 8 books and records necessary to verify sales. And we don't 9 believe that would include any secret information, any 10 proprietary information, or other information that could hurt a 11 licensee's ability to compete. That's the definition we would 12 use in enforcing the provision. 13 THE COURT: That's all I have on that question for the 14 moment. It was -- I'll have to look at the language again. 15 I've got to sign something. I'll have to look at the language 16 again and see if I read it as narrowly as you do because you 17 all, I'm sure, will give me your views on what you intended and 18 what you think it means but it does raise a concern, I think, 19 unless it's carefully circumscribed with respect to competitors' 20 financial conditions. 21 Let me just sign this order if you'll excuse me for a 22 moment. 23 Sorry, Mr. Foster. 24 MR. FOSTER: Was there a question? 25 THE COURT: I have no other question on the books and 8 1 records issue of you. I do have -- 2 MR. FOSTER: Would you like me -- if it please the 3 Court, I'll turn the podium over to Thomson now. 4 THE COURT: Well, before you do that, let me ask you 5 this question. On the divestiture question, unless you want to 6 come back and deal with it afterwards, I had always assumed that 7 the Thomson product would probably be divested to lots of 8 different people and now I see that if I'm reading it right 9 they're all being divested to Lexis and that there are certain 10 antitrust releases which no one has defined in the papers 11 submitted to me. 12 At what point does the Justice Department determine 13 whether or not having these three giants now be two big giants 14 with antitrust releases in place might in and of itself have 15 more serious dramatic anticompetitive effect upon the other 16 people in the marketplace? Shouldn't that be done before I 17 enter a final judgment? And shouldn't those people have an 18 opportunity to be heard through the normal processes set forth 19 in the plan? 20 MR. FOSTER: You referred to the normal processes 21 under the Tunney Act and that's where I'd like to start. This 22 particular consent decree as it concerns divestitures looks like 23 almost every other merger consent decree that comes out of the 24 Department of Justice. 25 It provides for a divestiture prospectively to some 9 1 other firm subject to the approval of the Department and in this 2 case the State plaintiffs, for State specific products. We do 3 take a careful look at the proposed divestiture for its 4 competitive effect on the industry involved and we're in the 5 process of doing that in this particular case. But there is 6 nothing unusual in having a divestiture after a consent decree 7 is entered, nor is it unusual to have a group of divestiture 8 products sold to one firm and that's not leading to an 9 anticompetitive effect. 10 THE COURT: So essentially what you're saying, if I 11 hear correctly, is that -- maybe I'm putting words in your 12 mouth, maybe I'm not, that essentially the consent decree says 13 that under the consent decree and under my opinion, the first 14 part of my opinion, all other things being acceptable to me, 15 namely star pagination, I should go ahead and enter a final 16 judgment and the final judgment then says that post-judgment or 17 even as we speak you are doing -- you're doing an analysis of 18 these divestitures and you still have to approve them but that 19 can all happen after the judgment is in? 20 MR. FOSTER: That's correct. We look at divestitures 21 and we look at it like in this particular case it would be the 22 merger which we do every day. 23 THE COURT: And the States under the consent decree 24 have -- each State has a special role with respect to things 25 that affect its particular State with respect to some of these 10 1 divestitures. 2 MR. FOSTER: Each State has a particular role in 3 officially approving for State specific products and a 4 consultative role on the whole. I can speak for the 5 Department. We're working very closely with the States. 6 Working out a document and information request from Lexis. We 7 expect that will be in their hands very shortly and you can ask 8 the States what their role is, too. 9 THE COURT: And if you should disapprove any one or 10 more divestitures, then Thomson would have to go find -- either 11 they have to meet your concerns or Thomson would have to go find 12 another buyer for that particular product? 13 MR. FOSTER: That's correct, and if they could not 14 find an acceptable buyer, the assets would be transferred to the 15 authority of a trustee. 16 THE COURT: Right. In what situations -- let's put it 17 this way, when you publish in the Federal Register a competitive 18 impact statement and a proposed final judgment, you accept 19 comments, you analyze the comments, you react to the comments, 20 you file your response with the Court and publish the 21 responses. Are there ever circumstances where through 22 negotiations or through litigation there are such dramatic 23 changes in the final judgment or in the impact of the final 24 judgment that the Tunney Act permits or requires the Justice 25 Department to solicit additional public comments on the changed 11 1 or amended proposed final judgment or in which it is appropriate 2 for the Justice Department to advise the Court in a supplemental 3 competitive impact statement as to its views? 4 MR. FOSTER: We took a look at that when we made some 5 amendment to the consent decree previously and we didn't -- I 6 did not become aware of any instances where we had to republish 7 and resubmit for comment a consent decree. I think how we 8 concluded was that where the changes in the decree moved the 9 decree further in the public interest and the things that had 10 been changed were specifically commented on, and it moved in the 11 direction that the comment went, that that did not require any 12 further publishing. I believe there has been a time or two 13 where we have withdrawn our consent altogether and made a new 14 consent decree. That isn't this case. 15 THE COURT: But my concern is -- I guess my concern is 16 this, the Tunney Act and the Court of Appeals have said that the 17 Court's role is a limited one, and it is. They've also said the 18 Court is not just a judicial rubber stamp. But isn't the flip 19 side of the Court's role being a limited one is that the Justice 20 Department's role is an aggressive one and the Justice 21 Department is the primary bulwark against anticompetitive 22 impacts and also the primary or at least the initial way in 23 which the Court is assured that a serious analysis and 24 investigation has been done in which it can have some conflicts 25 such that when circumstances change dramatically the Court needs 12 1 to have its confidence rebuilt and it seems to me there are a 2 couple of ways it can be done. 3 One is for the Justice Department to, not just to say 4 we don't object, although I understand why you're saying that on 5 star pagination, but to say we've looked at all of these things 6 that have happened since we submitted our original final 7 judgment and we're still confident and we have taken a fresh 8 look at the competitive impact and we're still confident, but 9 there's some additional things we should tell you so that you 10 could be confident too. That's one way to do it. 11 Another way to do it would be to say to the 26 people, 12 or probably the world at large, you commented previously on one 13 document, that's changed a lot and here's a chance to comment 14 again. 15 Another way to do it if the Justice Department doesn't 16 think that's appropriate is for the Court to reconsider all of 17 its decisions on the question of intervention and amicus status 18 so that now that West and Thomson are no longer competitors and 19 Lexis seems to be a happy camper, everybody else who might not 20 be has the opportunity if it doesn't have the opportunity, to 21 let the Justice Department know, to let the Court know. And I 22 have just serious questions about whether -- about whether all 23 of the issues that need to be ventilated publicly have been or 24 will be in view of the fact that Lexis appears to be buying all 25 of the divestiture products and there are some unknown, 13 1 undefined, unexplained antitrust releases out there. That's 2 separate and apart from my concerns about star pagination. 3 Maybe I'm asking the wrong person. Well, I'm not asking the 4 wrong person that question although there may be more 5 information that will become available. 6 MR. FOSTER: I think that Thomson will be able to best 7 answer what the antitrust releases entail. It's my 8 understanding that they are only in so far as this transaction 9 is subject of an antitrust matter, it's a release. It is not a 10 blanket antitrust release. 11 I think I'd like to go back to your original point 12 about what happens if the consent decree is changed 13 dramatically, how does the Department rebuild the Court's 14 confidence that the decree is in the public interest, and you've 15 raised some interesting possibilities. 16 In this particular case, I would submit that the 17 decree has not been changed dramatically. We have some very 18 small changes and if I can recite the ones that were made. We 19 took out a prohibition on licensees challenging Thomson and West 20 on the copyright. We lowered the pagination fee. And now we 21 have made some other changes regarding the license fee or 22 Thomson has proposed that we make those changes. Those are the 23 only changes. The other smaller items were simply 24 clarifications. Nothing else in the decree has changed. 25 From day one when we filed the decree Lexis could have 14 1 been the purchaser of all the divestiture assets. That was 2 freely open to comment in the original comment period. The 3 other items have also been fully commented on. 4 THE COURT: Good answer. 5 MR. FOSTER: Do you have anything else? 6 THE COURT: No. Maybe I should ask Mr. Ioannou if 7 you'd like to just sort of bring us up to date on the position 8 of the States. 9 MR. IOANNOU: Your Honor, my name is John Ioannou. 10 I'm an Assistant Attorney General in the New York State Attorney 11 General's Office. Today I'm representing the seven State 12 plaintiffs in this matter. 13 With respect to approving this proposal, we take the 14 exact position that the Department does. We neither support nor 15 object to it. It appears -- 16 THE COURT: On the star pagination point? 17 MR. IOANNOU: Yes, on the star pagination. 18 THE COURT: And on the other points I take it that the 19 States and the Government urge for the reasons Mr. Foster just 20 mentioned that the judgment be entered on the divestiture point 21 subject to your later review. 22 MR. IOANNOU: That's correct. 23 THE COURT: And you all are in that process. 24 MR. IOANNOU: Yes, we are. 25 THE COURT: All right. Anything else? 15 1 MR. IOANNOU: No. 2 THE COURT: Thank you, sir. 3 MR. COLLINS: Good afternoon, Your Honor, I'll Dale 4 Collins. I'm representing the Thomson Corporation. 5 If I can take a second I'd like to introduce the other 6 people at counsel table. We have Jim Schatz who is representing 7 West, Michael Harris who is the general counsel of Thomson and 8 my colleague Mark Siemans. 9 Your Honor has asked a lot of questions. I'd like to 10 take a shot at answering some of them. Hopefully I can provide 11 at least some information for the Court. 12 Let me start with one of the easier ones and that's 13 the question of releases. Just to make sure we're clear about 14 what this is. This is really not mysterious, and as the Court 15 is aware, there has been some discussions, let us say, in 16 various forums between Thomson-West on the one hand and 17 Lexis-Nexis on the other. Some of those discussion have been 18 pursued rather vigorously in courtrooms and in connection with 19 sort of resolving this whole problem we'd like to get this whole 20 thing behind us. 21 That's the purpose of the releases and in particular 22 what the releases are going to. They're going to any State or 23 federal antitrust violations and unfair trade practices relating 24 solely to the acquisition, nothing else. They would relate to 25 anything that comes out of this particular action. I can't 16 1 really imagine that anything could but if there was anything we 2 took the abundance of caution and put those in. Also the Ohio 3 action which is the breach of contract action that Your Honor 4 referred to before. 5 THE COURT: What is the status of that? 6 MR. COLLINS: That is stayed right now, Your Honor. 7 THE COURT: And Mr. Reback -- we'll hear from him in a 8 minute. You say it's stayed. 9 MR. COLLINS: That's my understanding. 10 THE COURT: And meaning what? 11 MR. COLLINS: Well, it's basically right now the 12 breach of contact action in Ohio was over whether or not Thomson 13 engaged in an anticipatory breach in offering to sell Auto-Cite 14 and assign the Auto-Cite license agreement. Since the sale now 15 that's been entered into, we have an executory contract. That 16 sale is to Lexis-Nexis and consequently if that sale does in 17 fact close there can't really be a breach of contract. 18 THE COURT: That case would be over with the sale? 19 MR. COLLINS: That's right. At least it's my 20 understanding -- 21 THE COURT: Is that right, Mr. Reback, as long as 22 we're on this issue? 23 MR. REBACK: I may be incorrect but it's my 24 understanding that we have in place a rolling stay. In other 25 words, there is a date for a preliminary injunction hearing. 17 1 The judge granted our motion for expedited discovery and the 2 parties then jointly made a motion to stay all discovery pending 3 this Court's deliberations. And it's my understanding that's 4 where the matter now stands. 5 THE COURT: So there's a stay and there's some dates 6 certain but it can be extended and so on depending upon what 7 happens, is that what you're saying? 8 MR. REBACK: Yes, that's correct. I would at some 9 point like to address that because I think it will take a lot of 10 the mystery out of this. 11 THE COURT: I'll certainly let you do that, but what 12 you've just said, and it's before Magistrate Judge Merz in 13 Ohio -- 14 MR. REBACK: Yes, that's correct. 15 THE COURT: I've spoken to him in my chambers and that 16 seems consistent with what he told me. 17 MR. REBACK: Yes, Your Honor. 18 MR. COLLINS: That's correct, Your Honor. I stand 19 corrected. Mr. Reback is correct, that the preliminary 20 injunction date in some sense hasn't been stayed but there are 21 no active proceedings going on as far as discovery and the Court 22 in Ohio is well aware of what's happening. Our expectation 23 hopefully will be fulfilled is that the transaction will close 24 and the Ohio action will go away. None of these releases by the 25 way is in effect right now. They're all contingent on the 18 1 closing of the transaction. 2 Just to complete the releases point, in addition to 3 what I've already said about the possible violations and 4 antitrust violations in connection with the acquisition, this 5 action, the Ohio action, there's also a release in connection 6 with Thomson's enhancement of the Instacite data base. That's 7 the data base that there's been some discussion about that. 8 There's a release with respect to that. 9 And then there's another release, sort of an ancillary 10 one that, goes to certain false aseptic and just advertising 11 type claims, interference with contractual relations that would 12 have occurred, claims which would approve before the closing 13 date but that's it. It's not a global release on anything that 14 either one of these companies have ever done before. As I said, 15 it was primarily designed to just clean up this acquisition 16 situation. 17 THE COURT: So the bottom line is that no other 18 competitors need be worried about these releases. 19 MR. COLLINS: That's right, Your Honor, I can't 20 imagine that there should be a competitive concern by any third 21 party about these releases and of course, you know, whatever 22 goes on in the industry is subject to the scrutiny of the States 23 and the Justice Department as well and all third-parties 24 naturally have -- whatever antitrust claims they may have in 25 which to assert, they're free to assert it. There's nothing 19 1 that we can do at Lexis-Nexis that would stop them from doing 2 that. 3 THE COURT: Unless you want to amend the license 4 agreement. 5 MR. COLLINS: We would amend it if they would release 6 us from all the claims that they have against us. That's the 7 releases situation. I think as far as the Lexis-Nexis binds 8 everything. I have two points on that. 9 One it was actually it was Thomson's conception all 10 along that we would bid the products out to a single buyer as 11 opposed to multiple buyers and that's been, I think, well known 12 at least from the plaintiffs, I'm sorry we didn't make it well 13 known to the Court. It was really as much as anything for 14 administrative convenience on our parts. 15 We also thought quite frankly that we would maximize 16 the value of the properties if we could find a single buyer as 17 opposed to separate buyers. This is a fairly substantial 18 package of legal publications. And they probably have, at least 19 we believe they have more value when taken together than they 20 would be separately. If they were sold to a independent 21 financial buyer they could establish that buyer as a new force 22 in the arena, in the marketplace, and you know, for the same 23 reason that the strategic buyer wanted to buy them, 24 strategically they would have more value to the strategic 25 buyer. It was our hope for reasons of expediency and maximizing 20 1 the value that we would sell them to one person. And we did go 2 through a fairly extensive auction process in which Lexis-Nexis 3 did come out to be the winner of the process and consequently 4 entered a contract with them to sell them all of the divestiture 5 products. So that's the status on the divestiture. Now, that 6 divestiture is subject to the approval, as Your Honor has noted, 7 of the plaintiffs in this case. 8 I think one of the ways to think, at least the way I 9 think about these types of proceedings, about consent decrees 10 and approvals of the buyers is basically along the following 11 lines, the tip of the case, as Mr. Foster has already pointed 12 out is that the consent decree is presented to the Court and 13 usually there's not a buyer that's going to come along any time 14 soon. The typical case is that the buyer comes in at the last 15 minute and the Court approves the decree months and months and 16 months in advance. 17 I think in part not to impose too much on the time of 18 the Court and also to give the Justice Department and the States 19 in their roles as executive branch type agencies to do their 20 prosecutorial function in investigating these consent decrees 21 universally require that the approval of the plaintiffs be 22 obtained before the defendants can make a sale. They also don't 23 require that the Court approve those sales, and at least it's my 24 conception as an observer of this for some years that sort of 25 the paradigm, if you will, in which that analysis is made is 21 1 like a regular merger paradigm as Mr. Foster has pointed out. 2 The question really is twofold. The first question is 3 the normal question and that is would the acquisition by the 4 proposed buyer of the divestiture products itself be an 5 anticompetitive acquisition and subject to challenge under 6 Section Seven of the Clayton Act. The answer to that is yes, of 7 course the plaintiffs should not approve, and I'm convinced they 8 would note approve a transaction if they thought it threatened 9 Section Seven violation. Now, if it didn't threaten Section 10 Seven violation, what that really implies is it's not going to 11 have a negative or anticompetitive effect on the marketplace. 12 That's the threshold question, will there be an anticompetitive 13 effect. 14 Now, the second question is will the objective of the 15 consent decree be served, whether the objective of the consent 16 decree is to remove certain products from the hands of merging 17 parties and put them in the hands of the third party who will be 18 able to compete effectively with these products, and typically 19 in a case of a strategic buyer which itself does not present a 20 Section Seven concern the answer to that latter question is 21 going to be of course it can. 22 So, the way the consent decrees typically work is the 23 Court often does not involve itself. It almost always does not 24 involve itself. I'm not aware of a single case in which a Court 25 has involved itself in the question of the adequacy of the 22 1 buyer. The Justice Department, as I say, has historically 2 applied the usual tests of anticompetitive acquisitions to these 3 and they've applied it somewhat more aggressively than they do 4 even in the normal case and the reason for that is they bear the 5 burden of proof, if you will, in the normal non-Court order 6 divestiture situation. If we were doing a transaction and they 7 sought to object to it they would say the only way you can 8 really stop us is go to Court and get a Court order against us, 9 get a preliminary injunction under Section Seven. In this case 10 we bear the burden of proof. They can always say no. That the 11 consent decree did enable us to come to you and ask you to 12 examine the propriety of their decision saying no. But 13 typically, as I say, the Courts do not involve themselves in the 14 approval of the buyer and largely I think again it's somewhat 15 because of timing. The court's usually long gone as far as the 16 at least the day-to-day supervision of the consent decree at the 17 time this comes about. To the best of my knowledge there has 18 not been a question either raised or a serious problem ever 19 raised under this. So I think -- 20 THE COURT: But certainly one of the -- this is 21 perhaps a slight aside, but maybe you're going to get to this 22 question. One of the things that flows from the decision to 23 sell everything off to Lexis is that all of the myriad issues 24 that have been written about other commentators, argued in 25 amicus briefs and everything, that there's no one left to 23 1 challenge either the process that the Justice Department or the 2 Court has gone through or the decisions that have been made with 3 respect to this consent decree because the Justice Department 4 and all the States agree to everything or don't object and you 5 don't even have Mr. Reback around to argue, he's playing a much 6 more passive role than the last time I saw him. And you may or 7 may not want to deal with that today because I know the 8 Hyperlaw's motion was just filed the other day but it does raise 9 a question whether or not there are -- I guess one way to look 10 at it is whether or not some of the concerns that I am raising 11 today can be dealt with by revisiting some of the decisions with 12 respect to intervention that I previously reached. Not that you 13 necessarily are happy with that, but that would at least enable 14 somebody to raise some of the questions further. 15 MR. COLLINS: Your Honor, if I may though, one of the 16 ways to look at this is to break sort of what's happening here 17 into two parts. One is the consent decree that is before the 18 Court and the other is the approval of the buyer. 19 THE COURT: Right. 20 MR. COLLINS: Okay. Now, as far as the consent degree 21 before the Court I think Mr. Foster has correctly characterized 22 the situation. There have been some changes but the changes are 23 relatively, depending I guess on your perspective, minor and in 24 any event moving in the direction universally of furthering 25 public interest, if you will. Every one of them has been 24 1 contrary to the self-interest of Thomson and West. Each one of 2 the changes in the consent decree itself. The consent degree 3 was subject to extensive comment by the parties including -- 4 well, by third party, including extensive comments that were put 5 in by Lexis-Nexis. Basically all the commenters were on a level 6 playing field at the time when the request for public comment 7 came out. The comment sort of came in. No one could really 8 count on Lexis-Nexis or anyone else making particular comments. 9 Presumably the people who commented said what they had on their 10 minds. 11 I think if you break this down now into the part 12 between the divestiture on the one hand and star pagination on 13 the other, the principal commenter by far on the divestiture 14 provision was Lexis-Nexis and when you compared to star 15 pagination there was virtually no comment on the divestiture 16 provisions outside the comment by Lexis-Nexis. 17 So if you look at the consent degree and ask is there 18 any reason to open this up for further comments, as far as the 19 divestiture provisions are concerned, in the consent degree, and 20 I'll isolate that from the question of the adequacy of the 21 buyer, I don't see any reason why the Court should open that one 22 back up. And there the Court did have an extensive treatment of 23 those questions in the opinion. The comments all dealt with the 24 Justice Department and their response to public comments. Your 25 Honor dealt with them individually in the opinion and as you 25 1 pointed out you probably don't like the flood of papers that 2 come into your office, people who have something to say are 3 still making their thoughts known to you. 4 And from what we -- when I read the papers I see that 5 the principal objections as far as the divestiture provisions 6 are concerned are really gone and so I see no reason why there 7 should be any need to recomment on the divestiture provisions in 8 the consent decree. They only have the question of whether or 9 not there should be comments on the adequacy of Lexis-Nexis as a 10 buyer. 11 As Mr. Foster has pointed out, that has never really 12 been traditionally apart of the Tunney Act proceeding. That is 13 by the consent decree committed to the discretion of the Justice 14 Department with certain rights of appeal by the parties. The 15 Justice Department in the exercise of its prosecutorial 16 discretion or its discretion here to approve unquestionably will 17 entertain whatever comments people wish to make to it just as it 18 would in any other merger investigation. 19 And the parties haven't been silent about the 20 existence of this particular purchase and sale agreement. I 21 think it's pretty widely known in the legal community today that 22 Lexis-Nexis is buying the divestiture products or signing the 23 agreement to buy the divestiture products. I have no doubt that 24 if people were interested in commenting they will make their 25 comments known to the Justice Department in the course of its 26 1 review and to the States as well. 2 Given the comments that have occurred so far I'm not 3 sure we're going to see a whole lot of it. But there is a means 4 for it already and that leads to the question of star pagination 5 and the question is should the consent degree be reopen for 6 either a renewed competitive impact statement or public comment 7 on what is now the proposals for modification. In the -- 8 THE COURT: Well, I -- let me put it this way, my 9 initial -- my questions that went to renewed public comment and 10 competitive impact statement were primarily addressed to the 11 divestiture question in the decision that Lexis-Nexis would be 12 the buyer of everything and the fact that so little information 13 seemed to have been provided in the joint status report that I 14 got. But I need the details of that and therefore I think it's 15 difficult for members of the public to comment on that. I'm 16 not -- I'm -- my preliminary thinking in coming in here today 17 was not so much the need for further public comment or 18 competitive impact statement with respect to star pagination, I 19 think there have been a lot of comments on star pagination. 20 I think Mr. Schatz and his colleague persuaded the 21 Justice Department, they were involved in that, too, but West 22 persuaded the Justice Department that the license agreement as 23 originally proposed was opposed. I have no problem on that. 24 Not with the Justice Department or the commentators so I 25 don't -- again I haven't thought this all completely through. 27 1 That's why we're having a status hearing. But I'm not inclined 2 to think we need more public comment or competitive impact 3 statements certainly with respect to the star pagination issue. 4 With respect to the other issues. I think that you already just 5 discussed. But I do think we need to talk about what exactly is 6 proposed with respect to star pagination. 7 MR. COLLINS: Would you like me to turn to that now, 8 Your Honor? 9 THE COURT: If you've said all you want to stay about 10 the other issues. 11 MR. COLLINS: If there are further questions on the 12 other issues I'll be delighted to address those first. I can 13 take them one at a time. 14 THE COURT: If you want to talk about it now or at the 15 end or do you just want to wait, maybe you want to wait and 16 reply to the recently filed motion of Hyperlaw with respect to 17 intervening for purposes of appeal. 18 Lexis-Nexis had asked originally before you reached 19 your accommodation with Lexis-Nexis to intervene for purposes of 20 appeal in order to persuade the Court of Appeals that I might be 21 wrong in certain of the decisions that I made in my opinion and 22 on January 16 I guess it was I denied that but without prejudice 23 to renewing it when we got to the end of the process. 24 Lexis-Nexis presumably no longer wants to appeal. Do you want 25 to talk about it or do you want to reply in writing or both to 28 1 the motion of Hyperlaw? 2 MR. COLLINS: Actually, Your Honor, I'll be delighted 3 to talk about it. Unfortunately we did not receive the Hyperlaw 4 papers before coming in. 5 THE COURT: Well, maybe the thing to do then is for 6 all of the parties in the case to take the normal number of days 7 or less than normal number of days if you want to reply in 8 writing to what Hyperlaw says in terms of their desire to be 9 allowed to intervene for purposes of appeal the issues that they 10 want to argue in the Court of Appeals but also in the context 11 and again the background of what I said today about, you know, 12 there seems to be nobody left that has been given a voice in 13 this litigation that will have a voice in the Court of Appeals 14 if I don't grant your motion. 15 MR. COLLINS: Your Honor, may I ask for some guidance 16 in replying to the papers, however, and that is Hyperlaw is on 17 record in its public comment to the Justice Department and its 18 various other filings with this Court about the nature of its 19 concerns. As least up to the filing of this morning or whenever 20 it was. 21 THE COURT: Right. 22 MR. COLLINS: When we respond, should we assume that 23 any appeal that it would be given leave to take as an intervenor 24 would be limited to the issues that it has already raised or 25 should we assume that it basically is free to roam widely over 29 1 the decree and raise any issues that it sees fit to raise. 2 THE COURT: Well, is Mr. Kessler here? 3 MR. KESSLER: Yes, Your Honor. 4 THE COURT: Mr. Kessler, you heard the question. 5 Attached to your motion as an exhibit is a notice which lists 6 the two questions that you want to appeal on and I guess Mr. 7 Collins wants to know, and if you're not ready to answer it now 8 we can figure out a procedure for you to do so, whether or not 9 in responding to your motion he ought to assume that those are 10 the only two issues or whether it might be broader than that. 11 MR. KESSLER: Your Honor, those were the only two 12 issues we had at the time. However, that was written and filed 13 before the -- before we had the proposed final judgment. 14 THE COURT: Well, maybe the best way to deal with it 15 is to give you -- let's decide on a number of days by which Mr. 16 Kessler can supplement what he's filed so that the defendants 17 and the plaintiffs can respond in one -- you don't have to 18 respond together, but so that each side can submit a single 19 response rather than rounds of it and since it's for purposes of 20 intervening on appeal, it's not going to delay anything else 21 that I need to decide to do, I don't think. How much time do 22 you think you would want to supplement what you've already 23 filed? 24 MR. KESSLER: I think we could do that within a week, 25 Your Honor, but the question I would have is since our motion 30 1 was directed toward intervention strictly for purposes of 2 appeal, there have been no other decisions by Your Honor other 3 than those -- your decisions are what they are and some of the 4 issues that have been talked about today depending on how you 5 might rule might be things that we would be interested in 6 raising on appeal but they're not really decided yet. 7 THE COURT: True. Well, I'll give you two choices 8 then. One is you can take a week or so to supplement what 9 you've already filed and everybody will respond to that or you 10 can wait until I either sign a final judgment or do something 11 else in response to today's -- everybody who is already in the 12 case, and you are an amicus, everybody who is already in the 13 case can respond to West-Thomson's motion to amend the proposed 14 final judgment within the requisite number of days. 15 I assume the Government is going to file something. 16 The plaintiffs are going to file something with -- in response 17 to it and I don't know whether Mr. Reback is going to file 18 anything. He's an intervenor. And -- he's an amicus and so he 19 doesn't necessarily have to and, you, Mr. Kessler, are also an 20 amicus, but if you want to file something with respect to the 21 pending motion from Thomson and West you can do that and you can 22 wait until I rule on that motion. 23 MR. KESSLER: Your Honor, one other point here. We 24 only have 60 days from the time of the -- to the extent that 25 your order of December is treated as a final order, we only have 31 1 60 days, but aside from that issue I think we would choose to 2 respond to the Thomson and West filing yesterday and in the 3 normal course and then supplement, we can supplement our motion 4 with respect to any additional issues so that the other parties 5 can respond to our motion in one single shot. 6 THE COURT: So you're going to supplement this and 7 they'll respond within the next week or so and then -- so that 8 you preserve your time limits from the December 23rd order. 9 MR. KESSLER: I think -- 10 THE COURT: But you then may also file something with 11 respect to the pending motion of West and Thomson and depending 12 on what I do you may want to file another notice of appeal, is 13 that what you're saying? 14 MR. KESSLER: Yes, Your Honor. 15 THE COURT: All right. 16 MR. KESSLER: I'm concerned about the time limit. 17 THE COURT: That's fine. It's now the 6th, so why 18 don't you file something -- in fact, well, I won't tell you how 19 to write your papers. If you file something in a week, that's 20 the 13th, and if everybody else has a week to respond to that, 21 that's the 20th. That only gives me 20 days to rule on your 22 motion. You might want to file something faster even if it's 23 just a list of additional issues or under the rules can I extend 24 your time to appeal? 25 MR. COLLINS: Your Honor, if I may? Mr. Kessler 32 1 actually brings up a very interesting point about the December 2 23rd order and the 60 day clock for appeal. Really I'm not sure 3 even if his client was granted intervenor status would they 4 appeal with respect to a denial of an order entering a consent 5 degree, but there are other parties in this case who do have an 6 in interest in going forward and I can tell Court if we didn't 7 have a decision before that 60-day period we would have to 8 protect our position and we will have to notice an appeal. 9 THE COURT: I think anybody can and should do that and 10 then you can always withdraw it. 11 Mr. Kessler, if you want to supplement this, my 12 suggestion is that you do it as fast as possible even if it's 13 just to supplement with additional issues, and not a full 14 briefing, and then why don't I give the Government and 15 West-Thomson a week to respond to whatever -- to this document 16 that I already have from Mr. Kessler plus anything he files in 17 the next few days and I will try to rule on that by -- I will 18 rule on it before the 23rd. 19 MR. KESSLER: That's satisfactory, Your Honor. 20 THE COURT: And if you don't hear from me by the 22nd, 21 call my law clerk. If you don't hear from me by the 21st, call 22 my law clerk. We interrupted you. 23 MR. COLLINS: Your Honor, if I may just stay with the 24 divestiture for a second. One of the things that Thomson and 25 West would like to ask the Court to consider is, actually to 33 1 reconsider, if you will, is to bifurcate in some sense the 2 divestiture questions from the star pagination questions. If 3 there is no serious appeal coming forward or argument coming 4 forward on the divestiture questions we do have an executory 5 contract to sell the products. The only remaining condition, 6 material condition to the closing of that sale is the 7 plaintiff's approval. I think that you should ask Mr. Foster 8 but I believe that the plaintiff of course has already said they 9 are going forward with their review and I believe it is that 10 expectation that they will have completed that review within, 11 literally within the next couple of days, next week or something 12 like that. It's not something that I think is on a schedule for 13 months and months and months and we would urge the Court to take 14 into account that there are some social costs, if you will, of 15 not going forward with the divestiture. We have employees who 16 are basically living under somewhat of a cloud of uncertainty 17 that, you know, what's going to happen when the products are 18 sold, basically what happens to their lives professionally. The 19 product, although we have an obligation to support them and 20 Thomson and West continue to support them, are in some sense in 21 limbo since we know we are not going to be the ones to own them 22 in the long run and to put them in the hands of the owner sooner 23 than later would make them be able to upgrade them more quickly 24 and modify them as this buyer thinks would make it more 25 attractive to the legal community. And I also have no doubt 34 1 given the fact that there is now an executory contract, that the 2 buyer would rather have the product in that hand sooner rather 3 than later. That is something that Mr. Reback can address. 4 So if there didn't seem to be a serious question about 5 the adequacy of the divestiture provisions, what we would 6 respectfully request of the Court is that you basically let the 7 plaintiffs know that you don't have an objection to them going 8 through their normal approval process and revealing whatever 9 conclusion they come to at any time of that process, whether 10 it's one of approval or one of rejection. So we can get these 11 things divested and to link them, if you will, from the star 12 pagination question if there is a serious question going forward 13 on appeal and on star pagination. 14 Would you like me to address the star pagination 15 issue? 16 THE COURT: Yes. 17 MR. COLLINS: Let me address the simple question of 18 books and records first. There's really nothing nefarious going 19 on here. There is a provision in our proposal which basically 20 has a cutoff based on sales as to whether or not companies would 21 have the benefit of the addendum that we proposed. There has to 22 be some way to measure that, okay? To see whether or not a 23 company satisfies -- is within the addendum. Within the 24 $25,000,000 sales limit. 25 THE COURT: What companies are going to be excluded 35 1 from the addendum? 2 MR. COLLINS: I think in the legal publishing area, 3 not very many. 4 THE COURT: Lexis is gone. 5 MR. COLLINS: Matthew Bender is out. CCH, for 6 example, BNA. 7 MR. FOSTER: Your Honor, I do have a list of legal 8 publishers that would be able to take advantage of the license. 9 They are less than $25,000,000. 10 THE COURT: So the list that Mr. Collins has just 11 given me were those that are more than 25 million. 12 MR. COLLINS: That's right. 13 THE COURT: But you think it might be CCH, BNA and 14 Matthew Bender. 15 MR. COLLINS: BNA I believe is independent. 16 MR. FOSTER: BNA would not qualify. They have sales 17 of $300,000,000. 18 THE COURT: What about Hyperlaw. 19 MR. FOSTER: Hyperlaw certainly would be able to take 20 advantage of the license change. As well as Geronimo 21 Development Corp., Tax Analysts, CD Law, Oasis Publishing, 22 International Copy Research and Darby, all of whom commented. 23 THE COURT: Right. So -- 24 MR. COLLINS: Your Honor, it's hardly necessary for 25 Thomson to delve into the books and records of companies in any 36 1 depth to determine whether or not this threshold to satisfy for 2 any given company -- indeed I mean all Thomson is really looking 3 for is the question of whether or not a company meets the 4 $25,000,000 threshold or not. They don't have to know, for 5 example, 24.9 or 13.6 or 47.8. Is it under the threshold. 6 That's a question that many companies will be able to answer. 7 Companies are going to have in the regular course of business, 8 you know, financial information, a balance sheet or an income 9 statement that will show sales. If some company really has a 10 problem with us looking at that Thomson would be happy to refer 11 the matter over to a third-party independent accountant just for 12 a certification. This really is nothing more than the question 13 of how do you determine whether a company has, you know -- meets 14 the sales threshold or not and as I said we could be absolutely 15 delighted if someone wanted to employ a third-party accountant 16 on a certification process to use that. 17 THE COURT: That's all predicated on my statements in 18 the opinion that I was concerned about small publishers. 19 MR. COLLINS: That's correct, Your Honor. What we 20 tried to do, the exercise that Thomson and West had to go 21 through was physically take the concerns that the Court 22 expressed in its December 23rd opinion and try to marry those 23 with the concessions that the companies have already made, 24 including additional concessions on the star pagination issue. 25 Such as lowering the license fee. 37 1 For example, since the day that we actually cut the 2 deal with the Justice Department on the consent decree, the deal 3 that we have today is certainly different in some respects than 4 the ones we had on the day that we cut this deal and we have to 5 make a decision on when is it commercially reasonable, if you 6 will, to stop, and in looking at the Court's opinion it struck 7 us that there were three concerns that we had over just an 8 outright sort of royalty free license. 9 The Court's suggestion that we considered was to grant 10 all comers a license, a royalty free license until such time as 11 there was a final determination once and for all as to the 12 validity of the West copyright. 13 Our first concern was how do we determine that we're 14 at the point where we have a final judicial decision? If the 15 Supreme Court decides then we can probably be fairly safe. 16 Assuming that that's final. But this is a case where there's no 17 guarantees it will go to the Supreme Court. There can be splits 18 in the Circuits. 19 THE COURT: What happens if there is a split in the 20 Circuits. 21 MR. COLLINS: I would assume that Your Honor would 22 view this as not being a final determination. And my -- 23 THE COURT: But practically speaking, does that mean 24 that West would then act one way with its licensees in one 25 Circuit and a different way in another Circuit. 38 1 MR. COLLINS: Your Honor, I have no idea what the 2 answer to that question is. It's one that we haven't confronted 3 yet and it's one hopefully that we won't confront. 4 THE COURT: I'm sorry, Mr. Collins. 5 MR. COLLINS: Your Honor, let me just go back on that 6 last statement. If the proposal that we put forward is accepted 7 by the Court and there's a split in the Circuits it would be at 8 least our view that there's not a final determination and all 9 benefits that would accrue under the addendum, you know, to 10 parties, pending a final determination, would continue to 11 accrue. 12 So it brings us to the question of it strikes me, all 13 though the probability may be small, there is still some 14 probability out there that a considerable length of time, years 15 if not decades, could pass where there is not what one would 16 call a final determination, this is not an in rem action. We 17 can't basically judge outright against the world. We can do 18 that in the Supreme Court but not through the District Courts 19 and the Court of Appeals and there could be just a continuing 20 sequence of actions coming up with various decision from one 21 Court or another. At least it's conceivable. 22 And what we have proposed in order to not put us in 23 the position where there is really an undefined period of time 24 in which we would be not collecting royalties as we have put in 25 the cutoff date, the cutoff date is December 31st, the year 39 1 2000, roughly four years from now. 2 There are, as Your Honor is well aware, active 3 litigation going on, so it's not as if new litigations have to 4 start up. There's a fair chance, if not a very good chance, 5 that there will be a resolution by that time and if there is, 6 then the cutoff date is meaningless. If there is not, then 7 under our proposal we will be collecting royalties from 8 licensees, from companies that wish to enter, they're not 9 required to, but from that day forward but would not collect 10 the royalties from now and basically 2001. 11 THE COURT: What you're basically telling the 12 licensees between now and then is that they should put some 13 money aside either in fact or in their planning because after 14 December 31, 2000 they've got 30 days to pay off the preceding 15 four years. 16 MR. COLLINS: That's actually not what I intended, 17 Your Honor, and this proposal is not what Thomson intended and 18 if we have written it that way, then we need to change it. As 19 December 30th, the year 2000 comes along and, say, there's no 20 final decision and someone has been a licensee for roughly four 21 years, prior to that time, in beginning January 1st, 2001 on a 22 going forward basis only they have to start to pay. So they 23 don't need to escrow anything because of the cutoff date as far 24 as the deferred payments are concerned. Okay. They might want 25 to think of their business, planning on what they want to do if 40 1 in fact there is no final decision by the year 2001 and they 2 have to pay on a going forward basis but for any payment that I 3 will call deferred which is really not all that accurate because 4 it might be forgiven but at worse from the perspective of a 5 licensee the deferred payment would not be due until 30 days 6 after there was a final determination, whether that 7 determination was in 1998 or in 2002 or 2010. 8 THE COURT: I see what you're saying. So, in other 9 words, if you're deferred for four years you can still wait for 10 a final determination even though it comes after January 1, 2001 11 or before the deferred payments are paid? 12 MR. COLLINS: That's correct. 13 THE COURT: But then, but then they will be paid -- 14 MR. COLLINS: But then they're due, Your Honor. 15 THE COURT: All right. 16 MR. COLLINS: And just to go to that point, I mean 17 this is a point on retroactivity and nobody likes my example 18 with the trees so I'm not going to go through that but the idea 19 is that either West has the rights that it claims that it has or 20 it doesn't and when a copyright Court decides it doesn't, 21 talking about creating any new rights, it's either going to say 22 you've always had the rights or you never had the rights. If 23 it's the decision you never had the rights so there will be no 24 collection of deferred payment. They will all be forgiven and 25 it's expressed in the addendum. 41 1 If the Court determines that West did in fact have the 2 rights and people used West's property, then it should be 3 compensated under the license scheme, the fee arrangement that's 4 set forth in the license agreement, and that's what this does. 5 Although it could have been written a slightly different way it 6 is somewhat beneficial to the licensees but there's not an 7 adjustment for interest. It's just a nominal amount that's 8 due. That's the retroactivity provision. And Your Honor really 9 has already discussed what we call the large company exception. 10 We do have empirical evidence that at least one large 11 company in particular has not been deferred from entering the 12 market and indeed going forward with star pagination and that is 13 Lexis-Nexis. It has had a contract with star pagination which 14 it has paid significant amounts for a number of years. It 15 certainly was not deferred from entering the market because of 16 license fees and we would anticipate that no other large company 17 would. It's conceivable that small companies might, so we have 18 an exclusion for them. 19 THE COURT: Is Lexis-Nexis excluded by virtue of the 20 $25,000,000 cutoff or is Lexis-Nexis excluded or otherwise dealt 21 with by virtue of some other arrangements or discussions going 22 on in the meantime? 23 MR. COLLINS: The answer is that under the consent 24 degree Lexis-Nexis does not have any rights, under our proposal, 25 the addendum, Lexis-Nexis would not have any rights to take 42 1 advantage of these deferments and what we've been talking about 2 in the addendum. 3 THE COURT: Because of the $25,000,000. They're not 4 specially dealt with in the addendum. 5 MR. COLLINS: That's right. 6 THE COURT: Are they not specially dealt with? 7 MR. COLLINS: They're not specially dealt with in the 8 addendum other than the $25,000,000 cutoff. To answer Your 9 Honor's question in the course of the contract negotiations 10 there is a most favored nations clause that runs to the benefit 11 of Lexis on star pagination. 12 THE COURT: What is meant by a final judicial 13 determination? 14 MR. COLLINS: Your Honor, I have no idea. 15 THE COURT: There are several ways to look at it, I 16 suppose. The Eighth Circuit -- by way of hypothetical only, if 17 the Eighth Circuit agrees with West and the Second Circuit 18 agrees with Judge Merz, we have two determinations of two 19 different circuits. Then somebody petitions for cert and cert 20 is denied. Are we going to call that a final judicial 21 determination or are we going to say that, well, as is often the 22 case the Supreme Court sees a conflict in the Circuits and 23 decides not to deal with it now but maybe three years later some 24 other Court has done something, the Sixth Circuit or Ninth 25 Circuit, and the Supreme Court said, well, maybe now it's an 43 1 important enough issue that we will deal with it. 2 MR. COLLINS: That actually was pretty much the 3 example I had in mind when I made the recommendation to the 4 clients that we put in something in the proposal like a cutoff 5 date. My view is, Thomson's views is that with a split in the 6 Circuits there would not be a final judicial determination of 7 the validity of the West copyright claims once and for all, to 8 use your language. It would still be a matter of uncertainty 9 because by definition because of the split in Circuits and 10 consequently as far as the addendum is concerned several things 11 would happen. One is there would be no collection of any 12 deferred royalties. There's now a final judgment. No royalties 13 would be due and owing. 14 By the same token, since there's no final judgment 15 that says West doesn't have the right that it claims, there 16 would be no forgiveness either and the state of affairs would 17 just continue until there was some final determination, as far 18 as the deferments are concerned. Of course, with the cutoff 19 date in there on a going forward basis, people would have to 20 pay. 21 THE COURT: Interesting. 22 Anything else, Mr. Collins? 23 MR. COLLINS: I believe that does it. I would again 24 urge the Court to consider our request to bifurcate the 25 divestiture side from the star pagination side so we can go 44 1 forward as quickly as we possibly can with the divestitures. 2 Thank you, Your Honor. 3 THE COURT: Thank you. 4 I think Mr. Reback wants to say a few things. 5 MR. REBACK: Gary Reback on behalf of Lexis-Nexis Your 6 Honor. Good afternoon. 7 THE COURT: Good afternoon. 8 MR. REBACK: Your Honor had raised some questions 9 about divestitures. Mr. Collins, feel free to object whenever I 10 move over the line, I regret that this has come up so 11 mysteriously. I really do. I have sort of a different view of 12 the Tunney Act process than I think the Court does or the 13 parties do. These two companies -- 14 THE COURT: Some of my comments today could be taken 15 to be more along the lines that you've argued in the past and 16 other people have argued in the past. 17 MR. REBACK: I was wondering, Your Honor, about how 18 delighted you were to receive those comments, in the past having 19 ruled against me. I'm wondering now whether you wish me to go 20 back up to the Court of Appeals and argue with Judge Silberman 21 again. It strikes me as very curious. I lost on those issues 22 here but I did do what Your Honor suggested in its opinion which 23 is that we resorted to self-help and we sued Thomson in Dayton 24 and our motion for expedited discovery was granted and we had -- 25 we have a preliminary injunction date and we filed our motions 45 1 here and either as a result of that vigorous activity or because 2 they were tired of dealing with this or because of something, we 3 got them to the negotiating table and it was a very difficult 4 negotiation because frankly these companies don't like each 5 other. They have sales reps that compete against each other 6 every day of the week in every major law firm in the country and 7 the consequence of that was a settlement. And that settlement I 8 believe is strongly in the public interest because it preserves 9 the ability to use these assets effectively against 10 West-Thomson, and one point at which Your Honor and Lexis have 11 never seemed to be in accord is how effective competition seems 12 to work in this market and we strongly believe that having these 13 assets in one place enables effective competition, and I'm sorry 14 Miss Foote from California is not here because she's made that 15 point repeatedly to us, seeking assurance that we would support 16 California publications, for example. 17 So the assets have far greater value if we can package 18 them together and sell them to a competitor and that's the 19 reason we've reached the result we've reached here. It's not 20 a -- I had the feeling that taking the bench Your Honor felt 21 that there was something secret or mysterious and I just want to 22 assure the Court that's not the case. 23 THE COURT: You know, basically I see everybody 24 fighting vigorously all this time against the backdrop of a 25 proposal that ends years or decades of Thomson and West fighting 46 1 vigorously against each other and you were championing the third 2 largest player out there, and now you've reached an agreement on 3 virtually everything and it may well be, as you say, in the 4 public interest and I'm apprised of it in two pages which 5 basically doesn't tell me anything. 6 MR. REBACK: Well, that was not my decision to make. 7 I think that the Court would derive some greater assurance 8 seeing this deal that on each and every point in the proposed 9 final judgment there is a more competitive outcome than what 10 this Court contemplated. And I would make that representation 11 to the Court. I don't know whether Mr. Collins will disagree or 12 not. The Government has the documents and they've had it for a 13 very long time. It is beyond my power to give them to the Court 14 unilaterally. I cannot do that. 15 Now, I want to make it clear that the timing here is 16 an important point and it's a very important point for reasons 17 other than the social reasons that Mr. Collins mentioned. We 18 have -- one of the things that we were concerned about and that 19 we argued about coming in here is whether there would be 20 employees to support the divestiture properties and as a 21 consequence of this tough negotiation we've gotten that. But 22 these people are, as Mr. Collins said, in limbo. We need to go 23 in and get them signed up and we can't do that completely until 24 there's an adjudication by this Court. 25 THE COURT: Do you also need to do that, for the 47 1 Justice Department and the States to finish their process which 2 Mr. Collins suggests is happening very quickly. 3 MR. REBACK: We have been in the process of 4 cooperating with at least some of the States I know about. Now 5 I don't know what we filled out with the Department of Justice. 6 Mr. Foster can talk about that. But the States have sought 7 assurances from us that we will support employees, that we will 8 support publications and I would ask if not us, who then? I 9 mean the concept that these divestiture products might be broken 10 into a million different places I think the Court will 11 acknowledge it would be very hard for a small publisher to give 12 the kind of assurance to the state of California that we can 13 give, and that's what we're driving at here. So if weeks go by 14 and we can't close on these employees, then the value of the 15 assets change, the competitive process changes, things like 16 that. 17 Similarly, and trying to be completely candid here, 18 Mr. Collins didn't quite articulate it this way, but 19 West-Thomson has no real economic incentive since the deal has 20 closed, to divest these properties early. Through no fault of 21 theirs, properties without an owner deteriorate in value. 22 Now, if these properties are to be properly supported, 23 we need to move in and we need to move in rapidly and so I would 24 ask Your Honor to do whatever is necessary to adjudicate the 25 matter as quickly as possible. 48 1 Are there any further questions that Your Honor has of 2 me? Because I don't -- I really don't want to leave with the 3 Court thinking that we're trying to put one over or hide one or 4 that we're not going to continue to compete as vigorously as 5 we've done in the past, because that is the intention of our 6 company. And that's the intention of this deal. It was a hard 7 fought deal and it was the result of lawsuits and participation 8 in this case and a whole bunch of other things. 9 THE COURT: Well, as I say, I received a two-page 10 document and it didn't give me very much information and maybe I 11 was the only one that wasn't operating on what Mr. Collins said 12 was the assumption all along that all of the products would 13 likely be divested to one acquirer. Maybe I missed that 14 somewhere along the way. So when I saw a two-page document 15 saying, well, Lexis-Nexis now has everything that Thomson used 16 to have and Lexis-Nexis is no longer going to be raising the 17 banner which -- and I may have ruled against you but you were 18 there raising the banner for what you thought was the public 19 interest and the issues that were important to you along with 20 Hyperlaw and CD and Geronimo and one or two others, Tax 21 Analysts, and I mean I think that -- I obviously feel that my 22 opinion is right and that it's consistent with what the Tunney 23 Act requires of the Court and you would have me go further and 24 that it's consistent with the Microsoft opinion but I also think 25 it's important for someone to be doing what you did in Microsoft 49 1 in the Court of Appeals which is to try to persuade the Court of 2 Appeals that maybe there are some points that the Justice 3 Department wasn't aggressive enough on or the Court wasn't 4 aggressive enough on. 5 It's never a good thing -- I won't say it's never a 6 good thing, to encourage settlement, and that's what this is all 7 about but in a case that's complicated and where the public 8 interest is at issue as well as the interests of a lot of major 9 companies but also major service providers to several 10 professions and segments of the commercial public, that if there 11 are errors made by a trial judge it's important that somebody be 12 there to try to point them out to the Court of Appeals. 13 So when I got a two-page document that said, you know, 14 everybody that has been fighting with each other is now quite 15 happy with each other, it was -- raised my level of concern in 16 particular because it didn't tell me very much about the 17 details. 18 MR. REBACK: Well, I recognize that. I will say that 19 in my view this settlement is far more strongly in the public 20 interest, this is my own view and the view of Lexis-Nexis, than 21 what was contemplated in the proposed final judgment and having, 22 as Your Honor characterized it, championed that position, on 23 this point I continue to assert it. 24 Now, if there's some way we can give Your Honor 25 assurance to that effect I think it's certainly appropriate for 50 1 the Court to ask those questions but, you know, we operate in 2 the context of the Court's opinion, the Court of Appeals' 3 opinion in Microsoft and what we can do within that context and 4 I believe what we've done is strongly in the public interest. 5 THE COURT: You notice I even took your suggestion and 6 quoted your suggestion from Microsoft. I hesitated. 7 MR. REBACK: Yes, Your Honor. 8 THE COURT: Mr. Foster, anything you want to add? 9 MR. FOSTER: Thank you. 10 First I'd like to make one small remark about the idea 11 that the divestitures are going to one company. I think you 12 should know that the plaintiffs from the outset had envisioned 13 in fact that the breakup on the divestiture products may have 14 had some anticompetitive or would have made those products less 15 competitive than had they been in the hands of one buyer. 16 Some of those products in the divestiture are very 17 strong products and some are not so strong and one of our ideas 18 was that it would be pro-competitive to put them in the hands of 19 a strong legal publisher to counter balance Thomson-West. 20 Before the merger those divestiture products are in the hands of 21 a very large company and after, if things go according to the 22 plan between Thomson and Lexis, they will still be in the hands 23 of one company. 24 As far as our investigation of Lexis as a buyer, we 25 have begun investigating them. We have received some comments. 51 1 We're going to pursue more input. 2 THE COURT: How do you get comments in a case like 3 this? Does everybody out there know this is happening? 4 MR. FOSTER: They certainly do. All these people have 5 to do is to hook into Hyperlaw's web page. 6 Concerning the motions of Hyperlaw, we're glad to 7 answer that in writing. We're always glad to listen to 8 Hyperlaw's comments and we'll answer them again and again if we 9 need to. 10 One thing I need to say about the Court of Appeals 11 process. The plaintiffs don't think that the divestiture 12 products can stand waiting until the end of the Court of Appeals 13 process. That could take up to a year or more. That would 14 really hurt the divestiture products. 15 THE COURT: Assuming that no Court enters a stay of 16 anything pending appeal, isn't that argument made in lots of 17 business litigation and lots of merger cases? I mean there are 18 impacts on businesses who litigate in trial courts and win or 19 lose in trial courts and there's always the possibility of an 20 appeal. I mean is the argument that in a merger case, that 21 different standards ought to apply to intervention than in other 22 kinds of cases? There were a number of intervenors in Microsoft 23 and the Court of Appeals struck me that they were -- that they 24 and ultimately the Justice Department was well served by having 25 all the arguments ventilated and decided by a Court of Appeals, 52 1 whereas if there had been no appellant that case never would 2 have been decided. 3 MR. FOSTER: That's true, Your Honor, but if you 4 recall, that particular case wasn't a merger. It was for 5 enjoining future conduct. 6 THE COURT: Right. 7 MR. FOSTER: I just have one more point that 8 addresses -- 9 THE COURT: You're going to make that point I suppose 10 when you oppose Hyperlaw, if you oppose Hyperlaw's motion. 11 MR. FOSTER: That's right. I just have one more point 12 about something that was brought up by Thomson and Lexis. You 13 should know that it's always been the plaintiff's intention not 14 to approve a buyer for the divestiture products until there's a 15 final judgment entered in the case. The reason for that is -- 16 THE COURT: What do you mean by a final judgment? 17 MR. FOSTER: Entering the final judgment in this case. 18 THE COURT: In this Court. 19 MR. FOSTER: Right. The reason for that is that the 20 relief is an entire package. There are a lot more things in the 21 consent degree than just the divestitures. We're not willing to 22 risk losing the other parts of the relief. 23 THE COURT: So you don't like Mr. Collins' bifurcation 24 idea. 25 MR. FOSTER: Certainly not. If you'd like, I can go 53 1 through those things. 2 The option to reopen the bidding for the Official 3 Reporter contracts. There's more than an entire page of 4 obligations put on Thomson to maintain the assets on those 5 Official Reporters, to maintain the employees associated with 6 that, to cooperate in the transfer of those official contracts 7 when a new Official Reporter is picked, and there's an all 8 important transfer of the intellectual property in the past 9 volumes. There's a continuing compliance mechanism in the 10 consent decrees we don't want to lose and we don't want to lose 11 judicial enforcement of the decree. 12 THE COURT: Is it your intention to file a document 13 shortly in response to the February 4th filing of Mr. Collins? 14 Because I now have Thomson and West's motion to amend the 15 proposed final judgment and to enter. Is it your intention and 16 the State plaintiffs' intention to file something that says we 17 agree this should be entered? We don't oppose the proposed 18 changes on star pagination and we affirmatively propose and 19 agree with everything else? Is that what you intend to do? 20 MR. FOSTER: I'm not sure that we'll do it exactly the 21 way that you phrased it there. We're certainly saying we do not 22 object. 23 THE COURT: You've got to say more than that. If you 24 want to say that on star pagination, however you want to say it, 25 say it. I come back to where I started. You all told me that I 54 1 shouldn't worry about the divestiture issue since I've already 2 ruled on the divestiture issues and the Justice Department and 3 the States are doing what they are supposed to do under the 4 consent decree but in terms of the level of comforts, you ought 5 to be saying to a Court in a Tunney Act proceeding we've 6 investigated this case, we've looked at the competitive impact, 7 we've done everything we're supposed to do and we've also 8 continued, as you suggested earlier, to monitor developments 9 even as they changed. I can't remember your exact language but 10 basically you said we don't think they're strictly substantial 11 changes. They're not anticompetitive changes. We continue to 12 believe that this consent decree is in the public interest. 13 We want -- we think you should enter the final 14 judgment. I mean you may have a caveat with respect to star 15 pagination but it seems to me that the way the Tunney Act is 16 supposed to work it's your settlement, it's your consent decree, 17 and to the extent that a Court is supposed to be somewhat 18 deferential and not overly active, it is in part, perhaps in 19 large part under Microsoft and the Tunney Act because it's 20 deferring to the prosecutorial judgment of the Justice 21 Department and because it's been given a level of comfort from 22 the Justice Department that the investigation has been thorough 23 and that the concerns that the Justice Department raised in the 24 initial complaint have been largely matters that have passed and 25 I think before I enter what is now only defendants' motion to 55 1 enter a final judgment, you've got to say something along those 2 lines. 3 Maybe you will say, well, we already said that except 4 for star pagination but things have changed, whether as Mr. 5 Collins says they're not terribly substantial, or as Mr. Reback 6 says they're even more in the public interest than they were 7 before, I think a judge has a right to know what the 8 prosecutor's views of that is before I grant what is now the 9 motion of one party, the defendants, the people who were sued, 10 to enter a final judgment, and you don't have to respond now but 11 I suspect you'll agree when you think about it. 12 MR. FOSTER: I'd be glad to file something unless 13 directed otherwise by my superiors. 14 THE COURT: I think you have to file something because 15 one party has filed a motion. It's a question of what you say 16 and whether you deal with the comments that I've made to them, I 17 will call them comments rather than concerns. 18 Anything else, Mr. Foster? 19 MR. FOSTER: There's nothing else except to add that 20 the States have a very serious concern about not breaking up the 21 package and if you'd like to hear from them they'd be glad to 22 talk about it. 23 THE COURT: Hold on one second. 24 Yes, sir. 25 MR. IOANNOU: As Mr. Foster has already stated, the 56 1 final judgment provides significant prognosticative benefits, 2 separate but intertwined divestitures. The benefit the States 3 would like to highlight at this point is provided for in section 4 11 of the final judgment. Pursuant to section 11 after entry of 5 the final judgment the States of California, Washington and 6 Wisconsin have the option to terminate their contracts with 7 respect to the official -- to their Official State Case Law 8 Reporters with Thomson. If the option is exercised, among other 9 things Thomson must provide a substitute publisher with a myriad 10 of assets used in production of that respective Official 11 Reporter. 12 In addition, Thomson must disclose which personnel are 13 involved in the editorial process and not enter any negotiations 14 with the substitute publisher and the employees. 15 Another thing that's very important that Mr. Foster 16 has already mentioned is that Thomson must transfer a perpetual 17 in term license of all its intellectual property rights to the 18 substitute publisher with respect to the Reporter at issue. 19 A specific detriment that the States have concerns 20 Deerings, California, Code Annotated and the California Official 21 Reporter. Now, these two products are heavily tied to each 22 other and when we reached the decree it was envisioned that the 23 purchasers of Deerings would be best qualified to bid for the 24 California Official Reporter without the option provided for in 25 the final judgment. In other words, if the divestiture is 57 1 allowed to go forward before the decree is entered, those 2 products will be split and will seriously be damaged 3 competitively and also their viability as individuals will be 4 threatened. 5 For those reasons and those given by Mr. Foster the 6 plaintiff States will not approve any buyer until the final 7 judgment is entered. 8 THE COURT: Thank you. 9 Mr. Collins, did you want to add anything? 10 MR. COLLINS: Very quickly, Your Honor. I know we've 11 taken a lot of your time. 12 Just on this bifurcation point. One, as far as the 13 States are concerned, particularly California is concerned on 14 the Deerings issue, I have no doubt that we can work something 15 out there as far as a support agreement or whatever, at least 16 for the interim time and if there was an approval and we'd be 17 happy to take that up with the States to make sure that we can 18 arrange something satisfactory to them. 19 I think as far as generally the bifurcation issue is 20 concerned as was brought out by Mr. Foster's comment that the 21 Justice Department was against it, we're probably using it and I 22 started it using the term bifurcation loosely. I don't have in 23 mind that we will bifurcate anything in the decree. The decree 24 will continue to go forward. The June 19th stipulated order 25 will continue to go forward with all the obligations in it, 58 1 whether or not we have closed on the sales of Lexis-Nexis. If 2 there's an appeal everything that could possibly be subject to 3 an appeal could go up at that time. The only thing that will 4 have happened is there would have been a closure on the sale of 5 Lexis-Nexis. Maybe we're undermining the appeal process some 6 way if we allow the transaction to close before an appeal has 7 been decided. That could be one possible concern, but think 8 about what's going to be appealed here. 9 As far as the divestiture is concerned, there are 10 really only two things to appeal. One is the decree that 11 requires us to divest too little or the decree that requires us 12 to divest too much. No one is arguing that it requires us to 13 divest too much. The people who could argue that with West and 14 Thomson and we're not arguing that. 15 If the argument is that we've divested too little, 16 then we certainly would have to divest whatever it is that's on 17 the table right now plus something more if that appeal is 18 successful. 19 So if we go forward today and divest with the 20 plaintiff's approval, having solved the State of California's 21 concern, and there's a successful appeal on that issue, then 22 we'll just have to divest some more. 23 But in any event, either we will divest voluntarily or 24 we'll have to divest by Court Order. The things that are on the 25 table could be divested to Lexis-Nexis. 59 1 So I don't see how the appellate process should be 2 undermined at all by this, shouldn't jeopardize anybody's 3 rights, any third party's rights or anyone who decides they 4 should be an intervenor in this case to come in if you allow the 5 closing to go forward, and all of that is really separate and 6 apart from the entry of the decree, given the June 19 stipulated 7 order and the appeal process. 8 THE COURT: And the issues at least at this point that 9 Hyperlaw is interested in are basically procedural issues 10 although they're important ones. You haven't seen the papers. 11 The issues that they listed were whether or not I was wrong in 12 concluding that there was adequate notice under the Tunney Act, 13 public comment and so forth, and whether I was wrong in 14 determining that there was sufficient disclosure of documents 15 like I dealt with and I think I dealt with in a footnote about 16 disclosure of document, central to the consideration of merits 17 pursuant to the Tunney Act. That's the kind of thing if I'm 18 wrong on that everybody would be back to square one and people 19 would have a different understanding for future Tunney cases, 20 but you all would have to determine whether it is significant 21 enough risk to give you -- that the Court of Appeals would agree 22 with those arguments, to give you serious pause. 23 MR. COLLINS: Your Honor, if I may, think about what 24 could happen in the Court of Appeals. They could reject those 25 arguments and the intervening status and the case go forward on 60 1 that basis, in which case nothing has changed, or they could 2 accept them. What acceptance means is that the order that was 3 entered, Hyperlaw has appealed, was improperly entered. So 4 we're back to the situation where now we don't have an order. 5 Okay. At all. If we don't have an order, then West and Thomson 6 should be free to divest whatever they want to, to anybody they 7 want to and we happen to choose under our contract to divest it 8 to Lexis-Nexis. So, really it doesn't do anything. Whether 9 Hyperlaw would win or lose on the appeal we can still divest to 10 Lexis-Nexis. 11 I mean in any case that's one of the key points that 12 seems to be missed I think a little bit in the proceeding and 13 that this is a proceeding about the entry of an order to compel 14 Thomson and West to divest and do some other things, but to 15 divest things. It is not the entry of an order that would 16 restrain Thomson and West from divesting. 17 The order will be entered and it will be compelled to 18 divest or it won't be entered, in which case it will be free to 19 divest but not compelled. 20 We would like to get the divestitures ordered for the 21 reason I've suggested and what Mr. Reback has suggested, that he 22 would like to see it take place as soon as possible. 23 We urge the Court to give very serious consideration 24 in telling the plaintiffs that you have no objection to the 25 plaintiff going forward with its approval process and revealing 61 1 the result of that investigation when they finish. 2 Thank you very much, Your Honor. 3 THE COURT: Thank you. 4 Thank you all, and again I'm sorry to have kept you 5 waiting before we started this hearing. 6 Thank you. 7 (Proceedings concluded at 4:15 p.m.) 8 CERTIFICATE OF OFFICIAL REPORTER 9 It is certified by the undersigned Official Court Reporter 10 of the United States District Court for the District of Columbia 11 that the foregoing is the official record of the proceedings 12 indicated. 13 ____________________ 14 SANTA THERESA ZIZZO 15 16 17 18 19 20 21 22 23 24 25 ---- next item ------