On May 14, 2012, United States Tax Court Judge Joseph Robert Goeke issued a memorandum opinion in favor of Respondent (our client) in Hewlett-Packard Company and Consolidated Subsidiaries, Petitioner v. Commissioner of Internal Revenue, Respondent. Petitioner had sought approximately $177.6 in foreign tax credits and a $15.6 million capital loss deduction in connection with the transaction at issue. The Court held that Petitioner’s investment in the foreign entity Foppingadreef (“FOP”) that it had characterized as equity, was more appropriately characterized as debt. David J. Ross of Compass Lexecon provided expert testimony on this issue, and his testimony was specifically cited by the Court as being “of particular import to our decision.” Respondent was represented by Jill A. Frisch, Anne Hintermeister, Caroline T. Chen, and Vincenza A. Taverna-Ciarlo. Mr. Ross was assisted by Kevin D. Hartt.

On April 18, 2012, Judge Donald W. Hafele of 15th Circuit Court in Florida issued a written order denying certification of a class of indirect purchasers of Fresh Del Monte Pineapples in Florida. Judge Hafele wrote, “Dr. Reiff concludes, and the Court agrees, that [plaintiffs’ expert] does not provide either theoretical or empirical support for his assumption of a constant 100% pass-through rate.” On March 7, 2012, Judge P. J. McGuinness of the First Appellate District of California affirmed a similar denial of certification of a class of indirect purchasers of Fresh Del Monte Pineapples in California. These cases are the first two of a number of state indirect purchaser class actions stemming from the Fresh Del Monte Pineapples Antitrust Litigation, in which plaintiffs allege that Del Monte had created a monopoly for extra sweet whole pineapples by improperly using its claimed patent rights over a particular strain of pineapples. Compass Lexecon expert, Bradley Reiff was retained by Del Monte to testify on indirect purchaser class issues. In rejecting certification, the courts cited Dr. Reiff’s analysis of pass-through of the alleged overcharge. The California appellate decision stated, “In rejecting the opinion of plaintiffs’ expert, the trial court found in substance that the declaration of defendants’ expert [Bradley Reiff] persuasively demonstrated that a presumption of a one hundred percent pass-through of overcharges from retailers to consumers was not supported by either economic theory or an empirical analysis of the available data between wholesale price changes and retail price changes across time and location.” The Florida and California decisions followed a similar ruling in Federal court in 2008, which also relied on Dr. Reiff’s testimony in rejecting the indirect purchasers class. The Compass Lexecon team included Heather Spang in our Chicago office. Compass Lexecon worked with David Barrett, Carl Goldfarb, Stuart Singer and Carlos Sires of Boies, Schiller & Flexner LLP.

In December 2011, the Federal Trade Commission approved IMS Health’s acquisition of SDI Health, bringing together two of the largest data providers servicing the pharmaceutical industry. Compass Lexecon was retained by David Gelfand at Cleary Gottlieb Steen & Hamilton LLP on behalf of IMS Health and also worked closely with Michael Sohn and Arthur Burke at Davis Polk & Wardwell LLP, who represented SDI Health. In its investigation, the FTC expressed concern that the transaction would reduce the number of firms providing “commercial APLD” services, data services making use of anonymized patient level data for commercial research on the success of various pharmaceutical products, from three to two. Compass Lexecon experts, Professor Dennis Carlton, Mark Israel, and Antara Dutta, with support from Maria Stoyadinova, submitted a white paper and made presentations to the FTC demonstrating that other firms not currently providing commercial APLD services could easily enter the commercial APLD space to discipline any attempt by the merging parties to raise prices for these services. On the basis of these and related arguments, the FTC approved the transaction with no divestitures or conditions on APLD services, requiring only divestiture of two of SDI’s much smaller “audit” products.

On March 5, 2012, the Federal Trade Commission cleared Western Digital Corp.’s acquisition of Hitachi Global Storage Technologies. The companies produce hard disk drives (HDD) for use in computers and other devices. In a settlement with the FTC, the companies agreed to divest to Toshiba Corp. assets used to produce 3.5” HDDs for desktop computers. In November 2011, the European Commission approved the acquisition with divestiture of certain assets. Along with Seagate’s acquisition of Samsung Electronics Co.’s HDD business, the Western Digital – Hitachi transaction reduces the number of HDD producers from 5 to 3. Professor Dennis Carlton, Bradley Reiff and Lynette Neumann of Compass Lexecon were retained by Western Digital to analyze the competitive effects of the proposed acquisition and to evaluate its efficiencies. They presented their findings at the Federal Trade Commission and in a report presented to the European Commission. Compass Lexecon worked with legal teams headed by George Cary at Cleary Gottlieb Steen & Hamilton LLP (representing Western Digital in the U.S.), Francisco Enrique Gonzalez-Diaz at Cleary Gottlieb Steen & Hamilton LLP (representing Western Digital in Europe), and Stephen Smith at Morrison & Foerster LLP (representing Hitachi Global Storage Technologies).

On November 11, 2001, BankAtlantic Bancorp, Inc. and BB&T agreed to a transaction wherein BB&T was to acquire 100% of the equity of BankAtlantic, a federal savings bank, from BankAtlantic Bancorp. The holders of several series of trust preferred securities (“TruPS”) issued by BankAtlantic Bancorp sued to enjoin the transaction and enforce covenants that generally prohibit BankAtlantic Bancorp from transferring or selling all or substantially all of its assets without the debt being assumed by the purchaser. Compass Lexecon was retained to analyze the relevant economic evidence on the percentage of assets transferred and the effect of the proposed transaction on the TruPS holders.

After submitting a detailed expert report, Compass Lexecon’s President, Professor Daniel Fischel provided direct and rebuttal testimony at trial on the quantitative measures of the portion of assets that would be transferred in the transaction, and the market evidence as it related to the portion of assets transferred and to whether the amount of assets that would be left with BankAtlantic after the transaction would be enough to cover its obligations to the TruPS.

On February 27, 2012, Vice Chancellor J. Travis Laster of Delaware Chancery Court, permanently enjoined BankAtlantic Bancorp from consummating the sale to BB&T. Vice Chancellor Laster noted that even though the TruPS’ value almost doubled when the proposed transaction was announced, they still traded at under two-thirds of their par value, and found, consistent with Professor Fischel’s testimony and contrary to the testimony of Plaintiffs’ expert, that the transaction constituted a sale of all or substantially all of BankAtlantic Bancorp’s assets and therefore violated the applicable covenants. Compass Lexecon was retained by Jonathan Pickhardt and Richard Werder, Jr. at Quinn Emanuel Urquhart & Sullivan, LLP, who successfully represented the preferred security holders. Professor Fischel was supported by Rajiv Gokhale, Cliff Ang, and Paul Eastwood in our Chicago office.

On February 23, 2012, Kraft Foods Global Inc. and plaintiffs representatives announced they had reached a tentative settlement of two proposed class actions. Plaintiffs had alleged, among other things, that the fiduciaries responsible for overseeing a 401(k) plan for Kraft employees and retirees had breached their duties under ERISA by, among other things, offering imprudent investment options in the company’s retirement plan. Plaintiffs’ expert claimed that inclusion of two allegedly imprudent investment funds damaged the retirement plan by between $109.4 million and $179.6 million, and that the retirement plan suffered additional losses of $28.5 million from excessive fees. In his rebuttal report, Compass Lexecon’s David Ross opined that Plaintiffs’ expert’s calculations were fundamentally flawed and that the plan’s losses, assuming liability, ranged from $0 to $22 million depending on the alternative investment. The tentative settlement provides for a $9.5 million monetary payment as well as non-monetary relief. Mr. Ross was assisted by Laurel Van Allen and Gina Vinogradsky in Compass Lexecon’s Chicago office. Kraft Foods Global Inc. was represented by Ronald Kramer, Ian Morrison, and Amanda Sonneborn at Seyfarth Shaw LLP.

A Compass Lexecon team successfully assisted outside counsel for a Central European state (Respondent) in dismissing a claim in excess of €230 million raised by a major multinational pharmaceutical company (Claimant). The Compass Lexecon team included Manuel Abdala and Pablo Spiller as quantum experts, with Sebastian Zuccon as case manager, and Pablo López Zadicoff, Gustavo De Marco, and Alan Rozenberg providing key support. Claimants alleged expropriation of their investment following the denial by Respondent to renew the marketing authorizations of two products. Claimant’s economic expert recommended damages based on a lost profit analysis, as if the State had breached a sales contract with the pharmaceutical company, rather than breached an investment treaty. The Compass Lexecon team showed that damages ought to be assessed as the loss in value to the affected investments, which Claimant defined as the intangible assets related to the trademark, copyrights and rights to industrial processes conducted within the host country, as opposed to the pharmaceutical’s overall lost profits from the State’s failure to renew their marketing authorizations. The Tribunal fully sided with Compass Lexecon quantum experts’ assessment of damages, and found that they accurately determined the loss to Claimants, estimated at only €3.9 million for the loss of their intangible investments in the one product the Tribunal found Respondent to have breached the Treaty.

On February 6, 2012, JPMorgan Chase reached an agreement with a potential class of debit cardholders who allege that JPMorgan Chase charged excessive overdraft fees on debit cards. Plaintiffs’ claims stem from the bank’s method of posting transactions in a given day from highest to lowest amount rather than an alternative posting order. The posting order can affect the number of overdraft fees because account balances are more likely to go negative when larger transactions are processed before smaller transactions. JPMorgan Chase retained Robert Willig to address the class certification question of whether there exists a common methodology for determining class-wide damages. Dr. Willig filed an expert report in which he showed that an individual’s checking and debit card transactions are affected by posting order. Therefore, determination of damages would require an individualized inquiry into each debit cardholder’s likely transactions under an alternative posting order. The settlement with plaintiffs was reached prior to the court’s ruling on class certification. The Compass Lexecon team included Neal Lenhoff, Lynette Neumann, Eugene Orlov, and Bradley Reiff. Compass Lexecon worked with David Lesser and Christopher Lipsett of WilmerHale.

On February 3, 2012, Judge Richard J. Holwell (Southern District of New York) ruled in favor of Compass Lexecon’s client, Prudential Retirement Insurance and Annuity Co. (PRIAC), in the lawsuit it had brought against State Street Bank and Trust Company. Acting on behalf of nearly 200 retirement plans, PRIAC alleged that State Street had breached its fiduciary duties under ERISA by failing to prudently manage two intermediate-term bond funds which, among other things, had sizable investments in mortgage-backed securities. Two Compass Lexecon experts testified at trial: Compass Lexecon’s President, Professor Daniel Fischel, testified concerning damages, and Compass Lexecon Affiliate Christopher Culp testified concerning State Street’s failure to follow its own risk management procedures. Professors Culp and Fischel also responded to and demonstrated the flaws in the analysis of the defendant’s expert. After hearing the testimony, Judge Holwell determined that State Street breached its duty to manage the investment options prudently, and awarded PRIAC $76,733,879 in damages. Judge Holwell quoted from Professor Culp’s testimony extensively and accepted Professor Fischel’s damage methodology and calculations in their entirety. Professors Fischel and Culp were assisted by David Ross, Laurel Van Allen, Andrea Neves, and Laura Sekhar in Compass Lexecon’s Chicago office. PRIAC was represented by Edwin Schallert, Jeremy Klatell, Courtney Dankworth, and others at Debevoise & Plimpton LLP.

On January 9, 2012, the Superior Court of California (County of Santa Clara) granted a complete victory to Compass Lexecon’s client, DVD CCA. The Court ruled that Kaleidescape, a manufacturer of DVD movie servers, breached its license agreement with DVD CCA, the organization responsible for licensing the security technology that protects against unauthorized copying of DVD content. Citing extensively to the testimony of Compass Lexecon expert, Professor Richard Gilbert, the Court ruled that the harm suffered by DVD CCA as a result of the breach could not be adequately remedied through money damages and therefore that a permanent injunction was warranted. Professor Gilbert was supported by Bret Dickey and Jim Ratliff, working with Kun Huang, Chris Rhyu and others in Compass Lexcecon’s Oakland Office. DVD CCA was represented by Steve Zager, Reg Steer, and others at Akin Gump Strauss Hauer & Feld LLP and Mark Weinstein, Mark Lambert, and others at Cooley LLP.

On January 3, 2012, The United States District Court (Southern District of Florida) denied class certification in the indirect purchaser action in favor of our clients, several producers of ready-mix concrete in Florida. The Defendants retained Compass Lexecon expert, Professor Janusz Ordover, to testify regarding class certification issues. The Court found that the typicality and adequacy requirements of Rule 23(a) were not satisfied, a finding sufficient to deny class certification. The Court also found that the Plaintiffs failed to show that impact on direct purchasers is susceptible to common proof, consistent with the Court’s decision in the direct purchaser action. Lastly, the Court indicated that Plaintiffs’ expert erred in assuming a 100% pass-through rate and that such an assumption was counter to industry realities. Mary Coleman, David Weiskopf, and Nauman Ilias, working with a team of research analysts, supported Professor Ordover on this matter. We worked with several legal teams including Bruce Hoffman, Ryan Shores, Melissa Levitt, and Leslie Kostyshak at Hunton & Williams LLP; Shepard Goldfein, Paul Eckles, Matthew Martino, Marissa Troiano, and Nick Danella at Skadden, Arps, Slate, Meagher & Flom LLP, Richard Brosnick and Benjamin Steffans at Butzel Long, and James Cooper and Ryan Watts at Arnold & Porter LLP.

On January 3, 2012, The United States District Court (Southern District of Florida) denied class certification in the direct purchaser action in favor of our clients, several producers of ready-mix concrete in Florida. The Court relied heavily on the opinions of Compass Lexecon expert, Professor Janusz Ordover, in its ruling. In particular, “The Court finds persuasive Dr. Ordover’s opinion that when coupled with the substantial variation in the size and presence of Defendants and non-Defendants by geographic area, the fact that competition for Concrete is localized necessitates a localized analysis of potential impact to class members.” The Court also found that correlations using highly aggregated price series are not dispositive, again citing the customer-level analysis of Professor Ordover. Mary Coleman, David Weiskopf, and Nauman Ilias, working with a team of research analysts, supported Professor Ordover on this matter. We worked with several legal teams including Bruce Hoffman, Ryan Shores, Melissa Levitt, and Leslie Kostyshak at Hunton & Williams LLP; Shepard Goldfein, Paul Eckles, Matthew Martino, Marissa Troiano, and Nick Danella at Skadden, Arps, Slate, Meagher & Flom LLP; Richard Brosnick and Benjamin Steffans at Butzel Long, and James Cooper and Ryan Watts at Arnold & Porter LLP.