We like competition. We also like themes. Law is competitive, and so the theme of this issue of The Temple 10-Q is, loosely, “competition.” We have solicited pieces on cutting-edge developments in antitrust law, proposals to deal with competition between franchisors and franchisees, and the Supreme Court’s recent Aereo decision on technological competition with the broadcast television industry, among other things. We hope you find these and other developments in Temple’s growing business law community of interest. If you are interested in participating in this community, click here

- The Editors

Increasingly, online merchants, together with brick-and-mortar sellers and data intermediaries, are knitting together mass data collection, the interconnective power of the “Internet of Things” and automated algorithmic pricing and selling with their existing retailing and supply-chain businesses. The result of this coordination is that traditional sales functions such as competitive intelligence gathering and pricing are being delegated to software “robo-sellers.” In a recent paper I study the implications of this shift away from humans to robo-sellers for antitrust law.

Blackletter antitrust law conditions illegality on an anticompetitive “agreement.” To find an “agreement,” courts, government enforcers, and practitioners tend to focus on finding “intent,” efforts to sow fear and distrust, and a “meeting of the minds.” These totemic inquiries derive from a more than a century-old embedded assumption that antitrust regulates sales by human actors.

I point out that, as sales are increasingly generated and implemented by machines, such standard antitrust inquiries will become less effective. Robo-sellers will function differently and will likely not create the same kinds of evidence that these inquiries rely on. For example, robo-sellers will not need to create an internal paper- or email-trail of communication between sales and marketing employees evidencing an anticompetitive intent. Furthermore, robo-sellers will not be deterred by the possibility of individual criminal punishment – a tool that the DOJ uses to inhibit price-fixing. The outcome may be anticompetitive, but the human element showing intent will have vanished.

Second, robo-sellers will exacerbate an existing gap in the Sherman Act. Oligopolists that achieve price coordination interdependently, without explicit communication, generally escape antitrust enforcement, even when their actions yield supracompetitive (“above market”) pricing that harms consumers. This antitrust dilemma in dealing with parallel behavior by oligopolists will widen: robo-sellers possess certain traits that will probably make them better than humans at achieving supracompetitive pricing without the need for express communication and collusion. For example, the ability to gather and process massive amounts of data will reduce the probability that coordinated pricing would break down due to error or mistake in assessing market conditions.

What can be done about the anticompetitive effects of roboselling? I assess several possible solutions, but find that they will be quite difficult to reconcile with current antitrust law. I conclude that, at least as a feasible second-best result, the FTC should incorporate an evolving approach to robo-sellers. Indeed, the FTC’s ongoing regulatory program has already begun to target the competitive and consumer protection aspects of consumer data collection by sellers. For example, the FTC has already begun to consider the effects of mass data collection and algorithmic processing on consumers from the perspective of disclosure and discrimination (both price and social); efficiencies should exist in broadening the inquiry to include effects on price coordination and cartel behavior.

Harold Kohn, the Philadelphia lawyer who was the architect of the modern-day class action, will be honored in memoriam this fall at Temple Law. On October 9, to mark what would have been Kohn’s 100th birthday, Temple will host a lecture sponsored by Kohn’s eponymous chaired professorship, and delivered by Delaware Chief Justice Leo E. Strine, Jr.

Harold Kohn “brought many cases to protect ordinary people and their rights against government and big corporations,” remembers former Temple Dean Robert J. Reinstein. “He was a remarkable man. Indeed, he is generally recognized as one of the most brilliant Philadelphia lawyers going back to Andrew Hamilton. I think his greatest accomplishment was being a principal creator of the modern class action. He turned [Federal Rule of Civil Procedure 23](b)(3) into . . . a powerful instrument in antitrust, securities and consumer cases. Harold was one of the first to understand that class certification was not merely a procedural device to consolidate individual claims but that it changed the entire nature of the litigation.“

Kohn became nationally famous for his innovative civil antitrust practice in the 1960s, famously (and successfully) suing firms ranging from electronics manufacturers to the timber industry. Though known as the “grandfather of class actions,” Kohn also took on cases involving the First Amendment, privacy, zoning and commercial transactions. Known as a titan of the Philadelphia Bar, Kohn was a member of Temple’s Board of Trustees and a generous donor to the Law School.

Len Barrack, Esq., LAW’68, one of Harold Kohn’s many protégés and a long-time colleague, credits Kohn with teaching him how to be a great lawyer. He cites Kohn as one of the great lawyers of the 20th century. The Kohn Chair was jointly endowed by the Barrack Foundation and the Kohn Foundation, co-directed by Kohn’s widow, Edith Kohn, and his son, Joseph C. Kohn.

Chief Justice Strine’s lecture, Regular (Judicial) Order As Equity: The Enduring Value Of The Distinct Judicial Role, will be published in the Temple Law Review. Professor Dave Hoffman and Greg Varallo, LAW ’83, an Executive Director of Richards, Layton & Finger, will comment. Professor Jonathan Lipson, named as the Harold E. Kohn professor in 2012, invited Chief Justice Strine to Temple "because the Chief Justice is one of the nation's preeminent jurists, and, like Mr. Kohn, is concerned about issues of structural integrity and fairness."

Kohn was devoted to many charitable causes. Apart from Temple’s Board of Trustees, he was chairman of the Board of Governors of Temple University Hospital, and was associated with the American Civil Liberties Union, the Arronson and Lavine Foundations, the Federation of Jewish Agencies, the Philadelphia Geriatric Center, the Villanova Law School and Moss Rehabilitation Center.

More information about the lecture is available here. It is made possible through a generous gift from the Kohn Foundation.

In ABC v. Aereo, the Supreme Court, in a 6-3 decision, held that Aereo, Inc.’s subscription service - which gave subscribers access over the Internet to a miniature TV antenna and a miniature DVR housed in Aereo’s facility, allowing them to record over-the-air broadcast television signals (like the ones transmitted by your local ABC affiliate) and to re-transmit those recordings to themselves at a later time over the Internet - infringed the broadcasters’ copyrights in their programming.

The Copyright Act gives the owners of the copyright in an “audiovisual work” – an episode, say, of “The Good Wife,” or “CSI: Miami” - the exclusive right to (among other things) “perform the copyrighted work publicly,” which is defined to include “transmit[ting] or otherwise communicat[ing] a performance . . . of the work . . . to the public.” So the narrow question in the case was: did Aereo “transmit or otherwise communicate a performance” of last night’s episode of The Good Wife “to the public”?

On behalf of a group of 36 copyright law professors, I co-authored an amicus brief arguing that it did not, largely on the ground that Aereo was simply providing equipment enabling individual consumers to do something copyright law allows them to do: to record for themselves, and play back to themselves, over-the-air TV broadcasts. [The brief is available online at http://tinyurl.com/p53gnke]. It’s just like giving (or leasing) to each of them a rooftop TV antenna connected to a DVR; nobody would suggest that the supplier of that equipment was “publicly performing” copyrighted works. Enabling a million such private performances of The Good Wife, we argued, does not equal a public performance; a million times zero is still zero.

We were delighted when we saw that Justice Scalia’s opinion cited, and relied quite heavily upon, our arguments – though our delight was tempered by the fact that Justice Scalia wrote in dissent (on behalf of himself and Justices Thomas and Alito).

Justice Breyer’s opinion for the majority took a different tack, rejecting our rooftop-antenna-plus-DVR metaphor for a different one: that Aereo is, in effect, a cable system. Cable systems re-transmit over-the-air television broadcasts to paying customers all the time; in fact, they are required to do so (by the so-called “must-carry” provisions of a different statute, the Communications Act). And § 111 of the Copyright Act – one of the most impenetrable and complex provisions of federal law I have ever encountered – makes them liable as infringers when they do (and, simultaneously, provides them with a statutory license for doing so, at a statutorily set rate payable to the broadcasters).

Aereo, the Court held, is doing what cable systems do: re-transmitting over-the-air broadcast TV signals to its subscribers. Cable systems pay a royalty for the privilege, and it would upset Congress’ “regulatory purpose” in this “intricate regulatory scheme” to allow Aereo to offer the same service to consumers on a royalty-free basis.

The Court was presented with arguments on the broadcasters’ side that could have had major implications for copyright law and for the many industries – from online streaming to cloud computing to social media – who are dependent upon settled understandings of their copyright liability. The majority, I’m happy to say, declined the opportunity to adopt them. Justice Breyer takes great pains, at several points in the opinion, to emphasize the narrow scope of its holding. While Congress did intend the re-transmission provisions “to apply broadly to cable companies and their equivalents”, it didn’t “intend to discourage or to control the emergence or use of different kinds of technologies,” and the Court’s “limited holding today” won’t have that effect. Id.

“Questions involving cloud computing,[remote storage] DVRs, and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented.”

This case, the Court repeats at several junctures, is just about broadcast television and the re-transmission of over-the-air broadcast TV signals. Congress has made a choice about what you may or may not do with those signals: anyone who re-transmits them (like the cable companies do) must pay royalties to the broadcasters when they do so. It is only Aereo’s “overwhelming likeness to the cable companies targeted by the 1976 amendments [to the Copyright Act],” and the “many similarities between Aereo and cable companies” viewed “in terms of Congress’ regulatory objectives,” id.,that carried the day here.

So if you’re not doing that – re-transmitting over-the-air broadcast TV signals – you can continue to go about your business without worrying unduly about the implications of this decision. Because the decision has little or nothing to say about any content-delivery or content-storage platforms that deal with the vast array of non-broadcast-TV content, it is likely to have limited consequences for larger questions of copyright law outside of broadcast TV (though it will, of course, have major implications for broadcast television economics). And I don’t think I’m giving away any secrets here when I say that over-the-air television broadcasting is probably not where the action is going to be over the next 10 or 20 years, as content continues its migration from broadcast TV to other platforms (cable, cellular network, wireless Internet). Precisely the way Justice Breyer intended it, I believe.

Franchising is a growing business model in the U.S. As franchising grows, however, franchisors can compete with their franchisees over the right to goodwill generated by the franchisee. I have recently completed a dissertation in Temple’s doctoral program that examines legal mechanisms to address expropriation of goodwill generated by franchisees, and proposes an alternative solution.

The franchising model permits the franchisor to impose strict terms and conditions to protect and enhance its brand name. As a result, franchise contracts are often standard form contracts drafted by the franchisor and presented on a "take it or leave it" basis. Although these typically one-sided contracts may be necessary to prevent franchisees from harming the franchisor’s brand name, in practice, the franchisors’ contractual power can lead to franchisor-opportunism, in particular through wrongful terminations, onerous transfer restrictions, and so on.

Currently, U.S. law struggles to provide appropriate solutions to deal with this problem. In most states, courts have developed common law policies that limit particular franchising practices to prevent the franchisor’s appropriation of the franchisee’s investment. Nevertheless, courts are reluctant to override express contract provisions with common law principles. Hence, federal and state legislatures have enacted franchise laws in order to balance potential power imbalances and to protect franchisees from opportunism.

While comprehensive “disclosure requirements” have been the highlights of the regulatory efforts, a number of states have passed “franchise relationship laws” that considerably restrain franchisors’ contractual power. These statutes typically require franchisors to show “good cause” for terminations and non-renewals, in some cases before making any adverse decision. Nevertheless, state relationship laws have been criticized for being harmful to the franchising sector as they restrict franchisors’ termination power, and thus, encourage franchisee-opportunism. Accordingly, the majority of the states have not enacted franchise relationship laws.

As current laws fail to provide a fair solution for both parties, my dissertation offers an alternative theory drawn from the European concept of “goodwill recoupment.” Under the proposed approach, once a franchise comes to an end, the franchisee would be entitled to a payment for goodwill lost to the franchisor. This solution differs from existing theories in the U.S. legal system mainly because the recovery does not depend on the franchisor’s intentional wrongdoing. If and to the extent that a franchisee has positive local goodwill, the transfer of this value to the franchisor upon cessation justifies the payment. Unlike existing U.S. laws, however, the payment aims to recoup only a limited expected period of time in which the franchisor’s extra earnings might still be traced back to the franchisee’s efforts. Therefore, the recoupment doctrine offers a narrow but relatively precise protection for franchisees’ goodwill. Moreover, because the proposed solution targets the economic effect of franchisor-opportunism, there is no need for strict termination restrictions.

While I do not expect courts or legislatures to enact this proposal immediately, my hope is that it provides a basis for a richer discussion of the balance of power between franchisors and franchisees. The proposed approach is a more tailored solution to franchisor opportunism than those currently used in the U.S. legal system. It would allow the franchisee to receive a fair return for its intangible investment without constraining the franchisor’s monitoring power and flexibility. Ultimately, this approach would reduce both franchisee and franchisor opportunism, and incentivize investment and cooperation.

Temple Law School has long been known for its trial advocacy programs. What some may not know is that its transactional programs are growing fast, and provide students with innovative hands-on opportunities to develop competitive business transactional skills, such as negotiating and drafting corporate documents

During my 3L year, I had the opportunity to immerse myself in transactional law at Temple. In the fall, I registered for a new course—Negotiating and Drafting Corporate Transactions— taught by Professors Ed Ellers and Jonathan Lipson. In the spring, I was chosen to participate on Temple’s LawMeets Transactional Team, coached by Professors Ellers and Lipson.

In the Negotiating and Drafting course, I worked closely with my co-counsel, Pat Bianchi (LAW ’14), other classmates, and the professors on a simulated asset purchase transaction. The course included assignments such as an engagement letter, a nondisclosure agreement, a letter of intent, and the final asset purchase agreement. Throughout the semester, we learned the ins and outs of each part of the deal. We learned not only how to draft these agreements, but also how to prepare and negotiate the documents.

Professors Ellers and Lipson taught us that coming to a deal isn’t just about winning or losing— it’s about understanding, and developing persuasive rationales for, your client’s needs. Effective negotiating facilitates an organic give and take amongst counsel, which then helps parties secure deals in their best interests. Although we learned that transactional practice involves competition among the parties, it also requires cooperation in order to make the deal work.

Based on our work in this course, Pat Bianchi, Chip More (LAW ’14), Rich Barzaga (LAW ’15), and I were selected to represent Temple in a nationwide transactional skills competition. This is much like a “moot court,” but for developing deal lawyers. This year, it involved drafting and negotiating an indemnification agreement. Each team prepared for negotiations by drafting the agreement and marking up revisions made by opposing teams.

After drafts and comments were exchanged, Pat and I had the opportunity to spend the day in New York, and Chip and Rich in Chicago, negotiating with (and against) teams from other law schools to reach a deal on behalf of our clients. We received constructive feedback while being judged by firm attorneys and in-house counsel. This feedback was invaluable and gave us an unbiased opinion on both our strengths and weaknesses.

These experiences helped me develop skills and insights that will better enable me to compete in the marketplace for legal services. While transactional lawyers do not compete in the same ways that trial lawyers do, I learned that both types of practice share important foundational skills, including the ability to identify appropriate goals for a client and to develop and implement strategies and tactics that advance the client’s interests, in particular through reasoned, persuasive argumentation. While I don’t plan to try many cases, my experience in Temple’s business law program prepared me well to “try the deal.”

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