By Overnight Mail

Mark A. Jacobson, Esq.
Lindquist & Vennum, P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402-2274

Re: VSB's Request for Proposals for Online Legal Research Services

Dear Mr. Jacobson:

The Virginia State Bar ("VSB" or "the Bar") has asked me to review and respond to your letter of December 6, 2004, concerning the Bar's recent request for proposals from suppliers of state-oriented, basic online legal research services. I understand that you represent Geronimo Development Corporation ("Geronimo"), the publisher of Casefinder®, a CD-ROM-based computerized legal research service with a Virginia-oriented database. The Office of the Virginia Attorney General represents the Bar, a judicial branch agency of the Commonwealth of Virginia.

Your letter alleges three antitrust issues: (1) VSB controls all potential purchasers in Virginia of online legal research with a Virginia focus; (2) VSB's request for proposals and subsequent purchase of such a service for all of its members constitutes an agreement among VSB members to monopolize the buyers' side of this market by a group boycott or collective refusal to deal with any supplier not winning the bid; and (3) such an agreement is per se illegal under Section 1 of the Sherman Act. 15 U.S.C. § 1 (1994).

We do not believe the Bar controls all potential purchasers in Virginia of online legal research services, nor does the Bar's offer of a Virginia-oriented, basic online legal research service to its members constitute a group boycott or collective refusal to deal. Although we anticipate and hope that many Virginia attorneys will use the service the Bar will be providing, there is no prohibition by the Bar that would prevent members from using any other legal research tool they wish, and many law firms will almost certainly retain their subscriptions to other services, such as Lexis or Westlaw. Many other mandatory state bars, as well as several voluntary state bars, already offer a state-oriented, basic legal research service to their members, and some of these suppliers, such as VersusLaw and the National Law Library, also are available to any consumer who signs onto the state bars' websites and pays a relatively low monthly or single-search fee. Utilization of the databases provided to their members by several other mandatory bars with whom we spoke in evaluating your allegations is significantly below 100%, so it is very likely that even with the provision of this basic service by the Bar, some members will prefer other search tools for reasons such as the ease of the search term structuring or the depth of the information available on the competing services.

Your letter states that the current situation in Virginia "encourages innovation, customer service, [and] reasonable pricing," while the selection by the Bar of a supplier to provide a Virginia-oriented, basic legal research service to its members would "completely eliminate potential competition among suppliers." These statements, however, do not reflect marketplace reality. As stated previously, VSB members will continue to be free to use any legal research service they wish, and no matter which supplier the Bar chooses, the suppliers of databases for other state bars remain competitors in this market. There is no reason to suspect that these companies will not present proposals when the Bar re-bids this project in three years.

You also do not mention whether there are any barriers to entry into a market for state-oriented, basic online legal research services. We are aware that West has expressed interest in bidding on a few different state bar requests for proposals, and there have been at least four other entrants into this relatively new market over the last seven years. Geronimo itself could choose to innovate into an online service, rather than only a CD-ROM-based service, and also bid when the Bar's contract is re-let. In the meantime, the Bar is not denying Geronimo access to VSB members; its actions may simply force Casefinder® to remain a competitive enough alternative so that some VSB members will still prefer to use it, despite having to pay more for the service.

Even if the behavior were characterized as a group boycott or collective refusal to deal, however, we believe the Bar's conduct would still be legal under the rule of reason, which is the appropriate standard of antitrust review for a vertical arrangement such as this. The Supreme Court has clearly stated that a "vertical restraint is not illegal per se unless it includes some agreement on price or price levels." Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 735-36 (1988). The group boycott you are alleging would be a vertical combination among conspiracy members at different marketing levels — i.e., the members of the Bar as the buyers of online legal research services and the winning bidder as the supplier of that service — that is designed to disadvantage and exclude from the market direct competitors at only one of the marketing levels of the combination — i.e., other, non-winning suppliers of online legal research services, such as Geronimo.

Cases to which the U. S. Supreme Court has applied the per se approach generally involve joint efforts by firms to disadvantage their horizontal competitors, which actions were not "justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive." Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 294 (1985). Therefore, in addition to whether the group action occurs in the horizontal or vertical context, application of the per se rule to group activity also turns on "whether the practice facially appears, always or almost always, to tend to restrict competition and decrease output or rather to increase efficiency and competition." Balmoral Cinema, Inc. v. Allied Artists Pictures Corp., 885 F.2d 313, 316 (6th Cir. 1989), citing Northwest Wholesale Stationers, 472 U.S. at 290, and National Collegiate Athletic Ass 'n v. Board of Regents of University of Oklahoma, 468 U.S. 85, 103-04 (1984).

The type of cooperative relationship the Bar is contemplating, like the wholesale buying cooperative at issue in the Northwest Wholesale Stationers case to which your letter refers, seems to be "designed to increase economic efficiency and render markets more, rather than less, competitive." Northwest Wholesale Stationers, 472 U.S. at 295, quoting Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 20 (1979). By using the winning bidder of the Virginia-oriented, basic online legal research system, members of the Bar may save considerable research time and spend considerably less on the costs of the legal research service they utilize, both of which usually cost their clients money. Any such savings could then be passed along to Virginia consumers of legal services. Although horizontal group boycotts are often held to be per se illegal, the Court has considered procompetitive justifications for both horizontal and vertical boycotts when defining the scope of the per se rule. Nynex Corp. v. Discon. Inc., 525 U.S. 128, 135 (1998), citing 7 P. Areeda & H. Hovenkamp, Antitrust Law, ¶ 1510, p. 416 (1986).

The Supreme Court's most recent decision in this area involved a monopsonist buyer that decided to switch from one supplier to another, causing the spurned supplier to go out of business and file suit against the buyer, alleging, inter alia, that the buyer had engaged in anticompetitive behavior that was designed to benefit the supplier's competitors at its expense. Discon, 525 U.S. at 130-32. The Court noted that normally, the "decision to discriminate in favor of one supplier over another will have a pro-competitive intent and effect." Discon, Inc. v. Nynex Corp., 93 F.3d 1055, 1061 (2d Cir. 1996), citing Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 724-25 (1988). Because the market effects from switching suppliers are usually efficiency-enhancing and because of the vertical nature of the agreement, the Court held that its precedents limit the application of the per se rule in the boycott context to cases involving horizontal agreements among direct competitors. Therefore, the antitrust plaintiff in these cases must prove harm, not just to a single competitor, but to the competitive process, meaning to competition, itself. Discon, 525 U.S. at 135.

Such considerations cut against the existence of a group boycott or collective refusal to deal at all. Even if collective action were to be established, however, the vertical nature of the "boycott" among the members of the Bar as the buyers and the winning bidder as the seller requires the legality of the collective action to be analyzed under the rule of reason, rather than under a per se analysis. The continued vitality of other providers of online legal research services, as well as the obvious procompetitive benefits to consumers of having this service available to members of the VSB, obviate against finding the Bar's actions violative of the antitrust laws under the weighing test mandated by the rule of reason.

I will be happy to discuss any further questions or concerns you may have about this issue. I can be reached at (804) 786-6557.

Very truly yours,

Sarah Oxenham Allen

Assistant Attorney General

Antitrust & Consumer Litigation Section