James P. Love Consumer Project on Technology P.O. Box 19367 Washington, DC 20036 September 3, 1996* Craig S. Conrath, Esq Chief, Merger Task Force U.S. Department of Justice Antitrust Division 1401 H. Street, Suite 4000, N.W. Washington, DC 20530 via fax 202-307-5802 re: United States v. The Thomson Corporation and West Publishing Company, Case No. 1:96CV01415 (U.S. District Court for the District of Columbia) Dear Mr. Conrath: This letter presents the comments of the Consumer Project on Technology (CPT) on the Proposed Final Judgment in the above referenced case. CPT is a project of the Center for Study of Responsive Law. CPT was created by Ralph Nader in 1995. We maintain a page on the World Wide Web which describes our activities, at: http://www.essential.org/cpt When the Proposed Final Judgment (PFJ) was first made public, CPT made comments to several news organizations expressing satisfaction with the proposed divestitures, while expressing reservations about the economic terms of the compulsory license agreement. After having the opportunity to more closely examine the PFJ, we reiterate our concerns about the onerous economic terms of the compulsory license, and we express our additional concerns about the proposed divestitures. It is our opinion that the PFJ does not adequately protect the public interest, and that the proposed merger should not be permitted. Proposed Divestitures CPT was pleased see that the divestiture would include the U.S. Code Service (USCS), the U.S. Reports, Lawyers Edition (L.Ed.), and Auto-Cite, three important Thomson valued-added services which compete with products currently offered by West Publishing. However, legal publishers and law librarians have expressed persuasive concerns about omissions in the list of divested products, and raised questions about the viability of USCS and L.Ed., if Thomson does not also divest its American Law Reports (ALRs) and American Jurisprudence 2d (Am Jur). At the heart of the problems over the enhanced legal products that will be divested are the issues of economies of scope in publishing, and the inter-related nature of the various value-added products. The USCS, L.Ed., and Auto- Cite products rely upon access to research and analysis from ALRs in a fundamental way, and to exclude the ALRs from the products to be divested will greatly diminish the value of the products which are divested. The economies of scope issue is also important. Other legal publishers do not believe that USCS and L.Ed. are economically viable, if they are spun off without the ALRs and Am Jur products, because of the lower cost of producing the products jointly, as compared to the stand alone cost of producing enhanced case analysis. These publishers believe the PFJ will create a set of "product fragments" which cannot succeed economically on their own. CPT did not fully appreciate the importance of the ALRs and Am Jur publications at the time the PFJ was announced, and we would like the record to reflect our views after having the opportunity to more closely examine the agreement. A third area of concern is the implementation of the divestitures. Reed-Elsevier, the owner of Lexis-Nexis, has held discussions with Thomson to determine what assets will actually be sold. While we do not have access to the confidential documents that have been shown to Reed- Elsevier, we do know that Reed-Elsevier believes that Thomson intends to retain the Auto-Cite trained staff and database, along with the exclusive rights to integrate Auto- Cite with the ALRs and other Thomson products. It is one thing to divest a trademark plus copies of the database and software, and yet another to divest a product as a going concern. If Thomson effectively guts the product and sells the service in name only, the purpose of the divestiture will be undermined. Potential bidders on these products have apparently raised these issues with DOJ. The Compulsory License In a June 19, 1996 press release, the DOJ emphasized the fact that the PFJ would require Thomson to "openly license" West's page numbering system under a system of "capped" fees. In fact, the proposed compulsory licensing system seems to permit very little new entry into the market for primary source case law with the use of the West citation. Basically, publishers who seek licenses must agree to purchase the right to use the citation for each and every case that is cited, in each and every product that is published, in each and every year the product is sold. A publisher who licenses the citation to a single case for use in CD-ROM and online products would have to pay twice for the citation, and renew the payment year after year, with fees increasing each year. The costs for those licenses are very high. According to publishers, typical federal circuit court opinions run from 20 to 40 thousand characters, and U S. Supreme Court cases often exceed 150 thousand characters. The PFJ requires publishers to pay 9 cents per thousand characters in the first year, increasing to 13 cents after two years, with annual increases for inflation. Thus, for a 30 thousand character opinion, Thomson will receive $3.90, for each product where the opinion is published, in every year the product is sold. This is a very high price to pay simply to publish the law of the land. These "capped fees" are also likely to be the minimum fees. This particular fee structure sets very high hurdles for entry into the market. The fee structure is strongly biased in favor of the largest competitors to Thomson, and strongly prejudiced against small businesses. Of course, the most important competitor to a foreign owned Thomson/West is foreign owned Lexis-Nexis. Lexis-Nexis will surely license the citations. But the proposed compulsory licensing system makes it nearly impossible for many of the innovative American small technology firms who are seeking entry into this market to obtain the citations and become effective competitors. This is a kind of reverse industrial policy that will hurt consumers and American small businesses. These fees must be paid by anyone, including not-for- profit institutions. The license agreement is written in such a way that the subscribers must agree to the terms of the license, and Thomson must approve the license, making it extremely unlikely that the citations will ever be available for browsing on the Internet. We are concerned that the compulsory license agreement will have the perverse effect of adding credibility to West's assertions of copyright to the text and citations of federal court opinions, without providing the public with any real improvements in access to legal information. For these reasons, we urge DOJ and the court to reject the PFJ, and we urge the DOJ to bring an antitrust case against West Publishing which addresses the serious anticompetitive problems in the market for legal information. Sincerely, /s/ James P. Love Director Consumer Project on Technology * corrected for typos... In uncorrected version, USCS was identified as USC.