NERA, in cooperation with the Tax Executives Institute (TEI), will host a tax and transfer pricing seminar in New York City on 19 October 2010 from 9:00 am to 1:00 pm. Experts from NERA's Global Transfer Pricing Practice will provide updates on US international tax legislation and country specific updates on transfer pricing issues in Canada, the UK, Germany, France, Japan, and China. The seminar will also examine transfer pricing implications from recent tax court cases Veritas Software (qualified cost sharing arrangements), GE Captital (intercompany loan guarantees), and GlaxoSmithKline (valuation of know-how and marketing intangibles), as well as the impact of recent changes in business valuation practices for transfer pricing studies.

Please contact Jay Bharatiya, L-3 Communications, at +1 212 805 5352, Tony Alexandrou, Interpublic Group,  at +1 212 704 1484, or Stuart Harshbarger at +1 212 345 2812 to RSVP, or with any questions you may have.

Two NERA experts will participate in this Law Seminars International conference, to be held in Phoenix on 7-8 October 2010. The conference will examine the current law, policy, and economics of solar and wind energy development in Arizona, and will feature an address by FERC Commissioner Marc Spitzer. On the first day of the conference, NERA Vice President James Heidell will deliver a presentation entitled "Stimulus Program Funding for Renewable Energy Development in the Southwest: How it is Working? What will be the Future Impact?" Mr. Heidell will provide an update on winners in the application process, who is starting construction, the role of subsidies, and what to expect next. Later that day, Vice President Sandra Ringelstetter Ennis will participate in a session on transmission. She will discuss current cost allocation approaches, with a focus on renewable generation, and will also discuss the status of merchant transmission projects and their role in transmitting renewable generation between markets.

To learn more or to register for this event, please visit the Law Seminars International website.

This conference, to be held in Portland, Oregon on 29-30 September 2010, will focus on the recent growth and technological breakthroughs in the area of ocean renewables. Industry experts will discuss a range of issues affecting this emerging market, including regulatory procedures, market demand influences, finance and investments, Pacific-region projects, technological advances, and environmental impacts. NERA Vice President Sandra Ringelstetter Ennis will serve as a panelist for the session "Business Finance & Access to Capital." She will discuss the due diligence process for financing of renewable energy projects, with a focus on the DOE Loan Guarantee Program.

The federal rulemaking process resulting from the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act is likely to be highly contentious. For potentially affected businesses or other parties, engaging in the rulemaking process through public comment is now the means to have an impact on the new regulatory regime.

Because DC Circuit judges have recently sent several rules back to the SEC for reconsideration due to perceived weaknesses in the application of economic analysis (NetCoalition v. SEC (2010); Am. Equity Investment Life Co. v. SEC (2009); and Chamber of Commerce of US v. SEC (2005)), regulators are likely to pay increased attention to economic considerations in promulgating rules under Dodd-Frank. Public comments will carry more weight if they include meaningful economic analysis and urge the regulator to weigh these economic considerations in its rulemaking.

The purpose of this seminar is to hear from a panel of experts about how to effectively participate in the federal rulemaking process. Panelists will include:

• Elaine Buckberg, Senior Vice President, NERA Economic Consulting
• Kathleen Casey, Commissioner, Securities and Exchange Commission
• James Overdahl, Vice President, NERA Economic Consulting
• Eugene Scalia, Partner, Gibson Dunn & Crutcher LLP

For more information or to RSVP, please contact Blair Wright at +1 202 466 9209 or blair.wright@nera.com.

The New York City bar will host this program on 21 September 2010 to discuss the critical importance of using expert witnesses in employment litigation. NERA Senior Vice President Dr. Elizabeth Becker will participate in a session entitled "Making the Most of Your Expert Witness" along with Dr. Stuart Kleinman, Associate Clinical Professor of Psychiatry at the Columbia University College of Physicians & Surgeons. Dr. Becker will share best practices on working with expert witnesses in employment-related class actions and offer her perspective on how expert witnesses can shine at trial.

Directed by NERA Senior Consultant Amparo Nieto, NERA's Marginal Cost Working Group (MCWG) gatherings provide an invaluable forum for discussion, allowing member electric and gas utilities to exchange information and keep pace with the latest energy industry and regulatory developments. Membership in MCWG is especially useful to industry professionals in the rates and resource planning departments, as they face the need to address increased energy efficiency goals, as well as increase reliance on renewable energy resources. MCWG convenes twice a year year to share research and ideas on utility marginal cost studies, innovative tariff design, cost-benefit analysis of smart grid investments, latest regulatory methods, and other critical areas such as dealing with energy storage and demand-response mechanisms. Since its inception in 1982, hundreds of utility staff members from dozens of companies have participated in the MCWG.

The Agenda for the Fall 2010 meeting will include, among others, the following topics:

• Alternative rates valuation
• Decoupling methods
• Performance-based regulation for electricity distribution
• Smart Grid pilot update
• Electric vehicles and impact on system loads and rates
• Renewables feed-in tariffs and net metering
• Wind integration issues
• Critical peak pricing and TOU rate design results
• Smart Grid: rate options, funding, and demand response issues

Utilities interested in becoming members of the MCWG are encouraged to attend an initial meeting as a guest. For more information, please refer to the materials located in the right-hand column of this page.

NERA Senior Vice President Dr. John Montgomery will examine recent trends in ERISA litigation at this Practising Law Institute conference, to be held in New York City on 15 September 2010. The program will focus on a range of timely issues, including the latest analysis of stock drop, indirect fee, and other class actions; the fallout from recent Supreme Court decisions; the practical, ethical, and emerging issues arising from the threat of ERISA litigation; and the role of government litigation and regulatory and legislative reactions to ERISA litigation. Dr. Montgomery will provide an economist's perspectives on fiduciary responsibilities in the selection of investment options for defined-contribution plans; analysis in litigation over allegedly excessive fees in such plans; and damage calculations in ERISA litigation.

California has established ambitious goals in generation mix, climate change policy, design, and investment in the high-voltage transmission system, energy efficiency, and standards for resource adequacy. This multi-faceted and evolving energy agenda must now deal with the consequences of the global financial meltdown and high unemployment. This twelfth annual conference will bring together experts at the state and federal levels, as well as the private sector, to address the current state of energy markets, legislative and regulatory initiatives, the perspectives and concerns of the financial community, regulators, and the private sector who must deal with the myriad practical issues which determine who will succeed in this rapidly evolving environment. NERA Vice President James Heidell will present a session entitled "Pushback on Rate Impacts of Greater Reliance on Renewables." Mr. Heidell will discuss issues including LA City Council vs. LADWP, the Connecticut governor's veto of renewables bill, and how the issue is playing out around the country.

To learn more and to register for this event, please visit the Law Seminars International website.

Tokyo -- NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters, announced today that Masao Yanaga has joined the firm's Tokyo office as a Special Consultant in the Securities and Finance practice.

In addition to his role at NERA, Mr. Yanaga is a Professor of law and accounting at the University of Tsukuba, Tokyo's Graduate School of Business Sciences. Professor Yanaga specializes in corporate accounting, regulation for financial institutions, accounting standards, and cyber law. He has served as a member of the legislative council of Japan's Ministry of Justice and the Accounting Standards Board of Japan.

"We are pleased Mr. Yanaga has decided to affiliate with NERA," said NERA Senior Vice President Nobuo Mori. "His distinct experience in financial regulation and corporate accounting will be an asset to the firm, as he expands the scope and service offerings of NERA's Securities and Finance practice in Japan."

Previously, Mr. Yanaga chaired the doctoral program in systems management and business law and was head of the Business Law Unit at the University of Tsukuba, Tokyo's Graduate School of Business Sciences. A certified public accountant in Japan, Mr. Yanaga is a former visiting researcher at the Institute for Monetary and Economic Studies of the Bank of Japan.

Mr. Yanaga has presented and published widely on the topics of accounting and financial disclosures of financial institutions, accounting irregularities, the role of auditors, and debt-equity swaps. His work has appeared in publications including Minshoho Zasshi, Jurist, and Shoji Homu. Mr. Yanaga is also the author of a best-selling textbook on company law, Kaishaho.

Mr. Yanaga holds a BA in economics from Meiji University, and an LLB from the University of Tokyo.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.
 
NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

The South African competition authorities, the Competition Commission, and the Competition Tribunal, together with the Mandela Institute of the University of the Witwatersrand, held this year's annual competition conference in Johannesburg on 2 September 2010. NERA Associate Director Patrick Smith presented a paper discussing the relationship between economic quantification in competition policy investigations and the requirements of the underlying law. 

There has been a global trend away from form-based and towards a more effects-based approach to competition policy. However, these effects-based analyses still need to be based on the relevant legal framework. This fundamental requirement is reflected in successful court challenges globally, and specifically in recent appeals against the South African Competition Tribunal's decisions in which the Competition Appeal Court has insisted that competition policy investigations are grounded in the specific language of the Act, the "black letter" of the law, and the meaning of that language as intended by the legislature. One area in which practitioners may find it particularly difficult to reconcile the underlying legal requirements with the tests performed in practice is that of econometrics or economic quantification more generally. 

In his paper, Mr. Smith uses two areas of competition policy -- market definition and unilateral effects -- as the basis for a discussion of the potential for quantitative analyses, their relationship to legal provisions, and the limitations of apparently simpler approaches or heuristics. Mr. Smith argues that the law provides the stipulation that practitioners must substantively engage with economic phenomena even when this may involve complex issues or uncertainty, and that the law forms an important tool in distinguishing between relevant tests and those which do not address the legal questions of interest. As such, he motivates a deeper appreciation of the inter-relationship between the emerging and economically sophisticated quantitative tests and the underlying legal requirements, within the constraints of competition policy inquiries.

Complex pricing strategies deployed by dominant undertakings have often been targeted by competition authorities and courts on the basis of alleged exclusion. Their effects are however difficult to evaluate. In this article from the Revue Concurrences, NERA Senior Consultant Dr. Fabien Curto Millet starts by providing a basic framework for the assessment of exclusionary abuses through an analysis of predatory practices and the means for their detection. This starting point is used to shed light on the mechanics of practices such as loyalty rebates and bundling, noting both their potential for anticompetitive and possible procompetitive efficiency effects. The article is published in French, and is based on Dr. Curto Millet's presentation at a recent Droit & Economie de la Concurrence conference in Paris, which also featured Professor Emmanuel Combe, Member of the Autorité de la Concurrence and Professor of Economics at the Université de Paris I, and Joseph Vogel, Senior Partner at Vogel & Vogel.

View abstract and text on the Revue Concurrences website, or download a PDF of the article by using the link on the left.

Citation: Joseph Vogel, Fabien Curto Millet, Complex pricing strategies , Concurrences, N° 3-2010, n°31903, www.concurrences.com.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is a wide-ranging set of financial reforms that make the largest change in financial regulation in decades. Among the most contentious provisions in the bill is the creation of the Bureau of Consumer Financial Protection (BCFP). The BCFP will consolidate consumer protection powers from a variety of agencies and will gain rulemaking and enforcement authority.

In this paper, the second in a NERA series examining the impact of the new financial regulations, Dr. Ethan Cohen-Cole -- Assistant Professor in the Finance Department of the University of Maryland Robert H. Smith School of Business and Special Consultant to NERA -- discusses key provisions of Dodd-Frank that pertain to the consumer finance industry. As Dr. Cohen-Cole notes, the consolidation of consumer regulatory authority into a single agency that has both rulemaking and enforcement authority will enable the BCFP to highlight potential consumer issues, issue new rules, and enforce them with minimal complication. The newly streamlined process will likely mean stricter rules on disclosure for retail financial products, including disclosures on product design and a greater chance of regulatory action.

Other papers in the series:
Economic Analysis in the Federal Rule-Making Process to Implement the Dodd-Frank Wall Street Reform and Consumer Protection Act
By Dr. James Overdahl

In this issue of Viewpoint, experts from NERA's Global Transfer Pricing Practice review three major recent transfer pricing cases -- Xilinx, Veritas, and GE Capital -- and draw attention to some of the lessons learned from these cases for taxpayers and transfer pricing practitioners. Although each of these cases is different and unique in its own way, it can be argued that all three boil down to selecting the most appropriate application of the arm's length principle -- the most fundamental concept in transfer pricing. The cases demonstrate that, when applying this principle, practitioners must be extremely cautious in using and interpreting third-party, market evidence to argue their case.

New York, NY, 30 August 2010—In an affidavit filed today with the Federal Energy Regulatory Commission (FERC) on demand response compensation in organized wholesale markets, the “father of regulatory economics” Dr. Alfred E. Kahn testified in support of FERC’s Notice of Proposed Rulemaking (NOPR) to require that organized wholesale markets compensate demand response in the same manner as generation. In his testimony, Dr. Kahn emphasizes that “demand response is in all essential respects economically equivalent to supply response,” and that “economic efficiency requires, as the NOPR recognizes, that it should be rewarded with the same Locational Marginal Price (LMP) that clears the market.”

Dr. Kahn further advocates that “any increase in the efficient responsiveness of demand (to prices competitively determined, as in the ISO-conducted auctions) will move us in the direction of correcting the most severe deficiency in most such markets in the US, the lack of an adequately, price-responsive demand side.”

Dr. Kahn’s testimony comes on the heels of comments filed by opponents to demand response parity, including the Electric Power Supply Association, which, according to Dr. Kahn, mischaracterized full LMP compensation for demand response as a “subsidy” rather than a legitimate investment.

 “That electricity generators have opposed this plan should not be surprising: their primary business is to sell power, not to encourage its conservation, and I have myself publicly cited evidence that they reap the preponderance of their profits on those occasions when demand is at its peak,” said Dr. Kahn in his comments.

Dr. Kahn is a world-renowned economist and the Robert Julius Thorne Professor of Political Economy, Emeritus, at Cornell University. He served as an economic advisor to President Carter, the Chairman of the New York Public Service Commission, and the Chairman of the Council on Wage and Price Stability. Dr. Kahn is the author of many publications including The Economics of Regulation, the first comprehensive integration of the economic theory and institutional practice of economic regulation.

“Having Dr. Kahn, one of our country’s most respected economists, advocate so articulately for full LMP compensation for demand response as set forth in the FERC NOPR is a significant win for ratepayers, for the demand response industry, and for the businesses and organizations that provide this valuable service to the grid,” said David Brewster, President of EnerNOC.

Audrey Zibelman, President and CEO of Viridity Energy, added, “I am pleased to see such a strong statement from Professor Kahn highlighting the impact of demand response in bringing greater levels of competition to the organized electricity markets and in improving the operation of the markets for consumers."  

“EnergyConnect commends Dr. Kahn for his vision to empower energy users to be part of the solution that improves the competitiveness and reliability of the smart grid,” said Kevin R. Evans, President and CEO, EnergyConnect. “When price-responsive demand is adequately compensated for the service it provides to grid operators, everyone wins.”

"Dr. Kahn's testimony provides a strong foundation for FERC adoption of the demand response compensation approach that FERC proposed in the NOPR. Dr. Kahn makes abundantly clear that paying market-clearing prices for demand response is an economically efficient and practically superior way to help ensure just and reasonable pricing outcomes, as required by the Federal Power Act," commented Robert A. Weishaar, Jr., who serves as counsel to industrial customers that operate facilities in the MISO and PJM regions. 

Read the affidavit

Media Contact
Mary Guman
Senior Marketing Associate
+ 1 202 466 9267
mary.guman@nera.com 

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA’s clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

The recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act marks the completion of an arduous legislative process. But it also marks the beginning of an entirely new (and equally arduous) undertaking: the post-enactment process of creating the rules and regulations necessary to give effect to the Dodd-Frank Act. Although Dodd-Frank articulates the general intent of Congress with respect to the reformed regulatory structure, important decisions about crafting the specific rules and regulations have been delegated to financial regulatory agencies such as the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the newly created Federal Bureau of Consumer Financial Protection. Dodd-Frank instructs or empowers regulatory agencies to propose and finalize well over 200 rules and regulations (nearly 100 at the SEC alone). Many of these rules and regulations will be crafted jointly across agencies.

In this paper, the first in a NERA series examining the impact of the new financial regulations, Vice President Dr. James Overdahl provides an overview of the rule-making process and warns of a potentially combative process among the regulators and various stakeholders as the new rules are drafted and opened to public comment. He also examines the potential for future court challenges to federal rules, and notes that the outcomes of recent court challenges of this nature have turned on the adequacy of the economic support considered by regulators when they adopted new rules. As a result, parties submitting comments should pay particular attention to the quality of their economic arguments.

Other papers in the series:
Consumer Protection and Regulatory Changes in the Dodd-Frank Bill
By Dr. Ethan Cohen-Cole

In light of the nearly catastrophic crash of the market in 2008, regulators are now pursuing legislation aimed at tightening up rules governing bank-created asset-backed securities. The FDIC has recently proposed that banks hold onto at least 5% of these securities or risk government seizure of these assets in the event of a failure, and the SEC has also proposed a similar rule. NERA Senior Vice President Dr. Faten Sabry discussed the implications of these proposals during a live webcast, hosted by The Knowledge Group on 26 August 2010. Dr. Sabry examined the SEC's proposed revisions to Regulation AB regarding the offering process, disclosure, and reporting for asset-backed securities. She also discussed the economic impact of the risk retention regulations on the cost and availability of credit to consumers and businesses. The other panelists included John Kiff, Senior Economist at International Monetary Fund; Jordan E. Yarett, Partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP; and Chuck Weilamann, Senior Vice President at DBRS, Inc.

The ability to manage and analyze large, complex datasets is a core skill at NERA. We use sophisticated data processing techniques to assist clients facing potential liabilities due to wage and hour claims, and allegations of employment discrimination or disparities in public sector contracting. We bring together the required disciplines –– including economics, statistics, computer programming, claims management, and accounting –– to address the most complex problems of assessment and valuation of liability claims. Our experts have extensive experience with the most up-to-date econometric modeling. These analytical skills, combined with our state of the art computing capacity and technical expertise, allow us to respond quickly and tailor our projects to meet the needs of individual clients.

New York -- Dr. Agustin Ros has returned from a leave of absence to resume his work as a Vice President in NERA Economic Consulting’s global Antitrust and Energy, Environment, and Network Industries practices.

Dr. Ros took a leave of absence from the firm in 2008, when he was selected by the Organisation for Economic Co-operation and Development (OECD) to co-lead a team of experts associated with Mexico's independent competition authority, the Federal Competition Commission (CFC). The team worked with the Chairman of the CFC to develop proposals to eliminate unnecessary restrictions of competition in laws and regulations in many different sectors, as part of a high-level effort to develop new policies to increase the competitiveness of the Mexican economy.

"We are proud of the valuable contribution Dr. Ros made to the OECD's important work in Mexico," said NERA President Dr. Andrew Carron. "We're also delighted that he is back with us full time, using his formidable expertise in economics, business, and regulation on behalf of NERA’s clients."

With particular expertise in the telecommunications industry, Dr. Ros has appeared as an expert witness on numerous occasions and has submitted expert reports in the US at the state and federal levels, as well as before regulators in Mexico, Canada, Peru, Guatemala, China, New Zealand, Spain, Italy and the Bahamas. He has also consulted in the Dominican Republic, Brazil, Panama, Singapore, Trinidad and Tobago, and the UK. Dr. Ros has consulted for US and international clients on topics such as price cap regulation, telecommunications cost modeling and efficiency studies, competition policy, investment appraisal and cash flow analyses, credit and bankruptcy risk analyses, and managerial and market strategy assessment.

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

Banking institutions insured by the Federal Deposit Insurance Corporation (FDIC) have failed at an unusually high rate since the beginning of 2008. The FDIC is engaged in investigations, has issued subpoenas, sent demand letters, and brought its first suit of the recent credit crisis against the directors of IndyMac. According to the FDIC's former head of litigation, "about half" of the bank failures will "see some director litigation." The claims being made by the FDIC in this recent activity are similar to those made during the Savings and Loan (S&L) crisis. Using that experience as a guide, the FDIC can be expected to recover billions of dollars. Private actions will add to the scope of litigation. This paper, by NERA Vice President Paul J. Hinton, examines the economics of these recent bank failures, reviews related litigation activity to date, draws parallels with the S&L crisis, and looks forward to the likely course of litigation.

The magnitude and duration of Bernard Madoff's Ponzi scheme establish the compelling need to dramatically improve the Securities and Exchange Commission (SEC)'s ability to detect financial fraud. In this note, published in the Harvard Business Review blog, The Conversation, NERA Senior Vice President Dr. Marcia Kramer Mayer and Vice President Paul Hinton suggest that crowdsourcing can help.
 
Fraud detection is a tedious task that can involve sifting through large amounts of data seeking a signature pattern of discrepancies. This is where crowdsourcing, the chief concept underlying Wikipedia, may be quite useful. In the context of fraud detection, crowdsourcing entails making the relevant data available online and inviting the public to access it and report suspected irregularities. This approach has already been used in Britain, where The Guardian newspaper created an online database of 700,000 expense claims by UK members of Parliament for anyone to search; the erroneous and outrageous expenses identified by some 20,000 participants fueled a national scandal. Dr. Mayer and Mr. Hinton argue that crowdsourcing could be used by the SEC to assess investment advisor performance claims and review tips, which are two of the major tasks on Chairman Mary Schapiro's plate that lend themselves to this approach.
 
The authors invite you to post comments to the HBR blog. The full version of the note can be downloaded via the link on the left-hand side of this page.

The Competition Law and Policy Institute of New Zealand held its 21st annual workshop in Wellington on 6-7 August 2010. On the first day of the workshop, NERA Special Consultant Dr. Lewis Evans participated in a session entitled "Use and Misuse of Empirical Methods in Antitrust." He and the other speaker, Dr. Dennis Carlton of the University of Chicago, discussed the place of simulation analysis in antitrust. They explained the very real limitations of the recently proposed "upward price pressure" (UPP) calculation as a substitute for simulation and as an antitrust tool.

At the annual meeting of the American Bar Association, held in San Francisco on 5-10 August 2010, NERA Senior Vice President Dr. Gregory K. Leonard participated in a panel discussion on the proposed Google Books settlement. The settlement was proposed in response to the class action lawsuit brought by authors and publishers who claimed that Google has violated their copyrights by scanning their books and creating an electronic database that displays short excerpts without the permission of the copyright holders. The Google Books settlement raises a number of antitrust and other issues, and could also have  important implications for how class action settlements are negotiated in the future. This program examined potential price fixing among publishers, a possible Google monopoly over orphan works, and implications for copyright policy and privacy, as well as questions about the appropriate use of class actions.

A new report from NERA finds that total damages from misstatements in Japanese securities litigation cases rose to a record 45.9 billion yen in 2009 from 9.9 billion yen in 2008. The 45.9 billion in 2009 is in fact larger than the aggregate amount of securities litigation damages determined by court decisions in Japan for the entire previous decade.

Co-authored by NERA Vice President Makoto Ikeya and Consultant Satoru Kishitani, the report reviews 300 "judgment cases" from 1998 to 2009 identified by NERA as securities litigation based on the Financial Instruments and Exchange Act (formerly the Securities and Exchange Law). The report analyzes trends by items including type of litigation, industry, and damages amounts.

NERA finds that the average damage award per judgment, also a record high, reached 1.9 billion yen in 2009. While damages may have increased, the 14 judgments in litigation claiming damages from misstatements in 2009 remained essentially flat over the 15 judgments in 2008. Judgments in 2009 consisted of many large cases including Livedoor and Seibu Railway, in which most judgments were in favor of plaintiffs.

Tokyo -- Total damages from misstatements in securities litigation cases rose to a record 45.9 billion yen in 2009 from 9.9 billion yen in 2008 according to NERA Economic Consulting's report, Trends in Securities Litigation in Japan: 2009 Update, released today. The 45.9 billion in 2009 is in fact larger than the aggregate amount of securities litigation damages determined by court decisions in Japan for the entire previous decade.

The average damage award per judgment, also a record high, reached 1.9 billion yen in 2009. While damages may have increased, the 14 judgments in litigation claiming damages from misstatements in 2009 remained essentially flat over the 15 judgments in 2008. Judgments in 2009 consisted of many large cases including Livedoor and Seibu Railway, in which most judgments were in favor of plaintiffs.

The report Trends in Securities Litigation in Japan: 2009 Update reviews 300 "judgment cases" from 1998 to 2009 identified by NERA as securities litigation based on the Financial Instruments and Exchange Act (formerly the Securities and Exchange Law). The report analyzes trends by items including type of litigation, industry, and damages amounts.

Appraisal Right Trends
In recent years, there have been an increasing number of securities cases where shareholders dissenting from a company reorganization exercise their appraisal right to require that the reorganized company purchase back its shares. In 2009, there were 11 such cases, with the aggregate judged fair purchasing price of acquired companies totaling 6.2 billion yen. Driving this increase in cases has been an uptick in petitions for appraisal of stock purchase price, as a result of recent amendments to the Companies Act in 1999.

Misstatement Case Outlook
Japan could see an increase in future misstatement cases due to a variety of factors, including the introduction of new accounting standards, more rigorous audits, and disclosure of quarterly reports, all of which have added disclosure responsibilities and burdens to companies and increased awareness of responsibility of trustees of institutional investors.

However, many of the recent misstatements detected by the Securities and Exchange Surveillance Committee, Japan’s securities regulator, have involved emerging companies with small market capitalization, and these companies have not been sued for damages. As notable cases such as Livedoor and Seibu Railway, which involved a large number of individual shareholders and institutional investors, are resolved, there may be a short-term decrease in the number of judgements and judged damages from misstatements in 2010.

Additional Trends

• From 1998 to 2009 there have been 300 court decisions in cases involving securities litigation.
• The total number of securities cases in 2009 was 39.
• Broker-dealers litigation was the largest component of securities cases in 2009, at 23 cases.
• Of these cases, cases concerning unlisted stock trading continued to be the most frequent type of case, with 12 cases.
• The percentage of cases in which 50% or more of the claimed amount was awarded—that is, cases where the ratio of judged amount to claimed amount is 50% or above—increased to 45% of the total number of cases in 2007-2009 from 33% in 2004-2006.
• The finance industry constitutes the majority of securities litigations during 2007-2009 at 72 cases, a substantial increase from 2004-2006.

Trends in Securities Litigation in Japan: 2009 Update was authored by NERA Economic Consulting Vice President Makoto Ikeya and Consultant Satoru Kishitani. Previous reports in our series on securities trends in the United States, Canada, and Australia may be viewed at www.securitieslitigationtrends.com.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

Uncertainty is at the center of many of the most important strategic decisions made by private businesses and public agencies. Most decisions are both data-driven and judgment-driven. However, in the current environment, the really important decisions fall largely into the latter category. Both public and private decisions are driven by judgmental uncertainties such as the rate of climate change, the impact of globalization, the prospects for regional conflicts, the extent of environmental legislation, or the advancement of technology. 

This article, published in the Summer 2010 issue of California Management Review, is designed to help improve the way that these important judgment-driven decisions are made. First, the authors briefly review current practice for assessing judgmental uncertainty in strategic decision-making. Then, they suggest how an emerging tool -- prediction markets -- can improve this practice and thereby improve the quality of decisions that affect us all.

"Prediction Markets: A New Tool for Strategic Decision Making" was published in California Management Review, Volume 52, Issue 4 - Summer 2010.

In this issue of BNA International's Transfer Pricing Forum, NERA Special Consultant Dr. Alexander Voegele and former NERA Analyst Chunyu Zhang examine a number of issues affecting  the transfer pricing of cross-border business restructurings in Germany. Apart from the US, Germany is one of the first OECD countries to have introduced extensive transfer pricing regulations for cross-border business restructurings. The authors describe the valuation of transferred functions and intellectual property (IP) and show how to obtain the economic ownership in such IP, how to split the values between the contributors to this IP, and how to calculate the respective license fees and other remunerations.

In the August issue of Financier Worldwide magazine, NERA Senior Vice President Dr. Steven Schwartz participates in a roundtable discussion on corporate disputes in the current financial climate. Such conflicts often result from a combination of factors, and developing a comprehensive dispute resolution strategy has never been more important. This roundtable focuses on how a company can manage risks and deal with conflicts as soon as they arise, and how a company can determine whether a conflict should be resolved in court, via arbitration, or through other forms of alternative dispute resolution. Dr. Schwartz is joined by a panel of experts including Tania Siciliano, Director, Bell Dewar; Christopher E. Thorsen, Partner, Bradley Arant Boult Cummings; Tim Portwood, Partner, Bredin Prat; Geoffrey B. Shaw, Partner, Cassels Brock & Blackwell; John S. Kiernan, Partner, Debevoise & Plimpton; Deborah E. Greenspan, Partner, Dickstein Shapiro; and Kamil Zawicki, Partner, Kubas Kos Gaertner-Adwokaci sp.p.

In this article from Antitrust, NERA Senior Vice President Dr. Gregory K. Leonard examines the various issues raised by the proposed Google Books settlement. The settlement was proposed in response to the class action lawsuit brought by authors and publishers who claimed that Google has violated their copyrights by scanning their books and creating an electronic database that displays short excerpts without the permission of the copyright holders. The Department of Justice has objected to the settlement on antitrust and other grounds, and its antitrust objections provide a window into the current administration's stance toward antitrust enforcement, especially Section 2 enforcement. Dr. Leonard notes that, if the Google Books settlement is ultimately approved by the court, that could have important implications for how class action settlements are negotiated in the future. The adoption of the class action mechanism in the US legal system was motivated by efficiency. The proposed Google Books settlement, in resolving a purported class action, similarly generates substantial efficiencies. The central question is whether these efficiencies are sufficient to outweigh the objections raised by critics of the settlement.

The German government has been working on drafting Advance Pricing Agreements (APAs) guidelines for many years, producing the first draft guidelines in 2000 and releasing a circular for bilateral and multilateral APAs in 2006. In this article from Transfer Pricing International Journal, NERA Special Consultant Dr. Alexander Voegele and former Analyst Chunyu Zhang explain why APAs are increasingly necessary for gaining security in complex situations, particularly when business models are revised and when functions, risk, and intellectual property are relocated to other countries. APAs have proven very helpful in cases of unexpected events, such as the recent economic downturn. The authors note that the most important effect of an APA is the creation of fairness and a trusting relationship between taxpayers and tax authorities. Since the prevailing economic structures of today have made it impossible to take each possible change into account in the APA program, an APA can therefore only be successful if all parties are willing to act in the spirit of the agreement.

Much of the current interest in patent reform appears to arise out of a widely held belief that many awards based on supposedly reasonable royalties have been excessive. In this column from Law360, NERA Senior Vice President Dr. Alan Cox and Senior Consultant Stephen Rusek note that some of these awards have resulted from the use of methods -- including the so-called 25 Percent Rule -- that have no rational, scientific, or business basis but are merely rules-of-thumb applied using ad hoc techniques. Such awards are also wildly unpredictable, unnecessarily increasing business uncertainty and making it difficult for attorneys to advise their clients on litigation and settlement strategies. However, several recent decisions by judges of the US Court of Appeals for the Federal Circuit (such as Cornell v. Hewlett-Packard and Lucent v. Gateway) indicate that courts will increasingly reject these methods, and instead require the use of logical and rigorous business and economic methods in the calculation of royalty rates. To meet the higher standard, the authors advise that courts reject unscientific methods in pretrial rulings on Daubert motions, in verdicts or in post-trial judgments as a matter of law.

The pace of federal securities class action filings slowed in the first half of 2010, with filings on track to decline for a second consecutive year, according to this edition of NERA's semi-annual study. Co-authored by NERA Senior Consultants Dr. Jordan Milev, Robert Patton, Dr. Stephanie Plancich, and Svetlana Starykh, the study draws from more than 15 years of NERA research on case filings and settlements in securities class actions, and includes data on filings, dismissals, and settlements through 30 June 2010.

The latest edition shows that, from January to June 2010, there were 101 fillings of securities class actions. If the pace of filings to date continues there will be a total of 202 federal securities class actions filed in 2010. This would represent a decline from the 221 filings observed in 2009 and the 248 filings in 2008.

According to the authors, one key factor in the decline of securities class action filings was a decline in cases related to the global credit crisis. In the first half of 2010, there were 17 credit crisis cases filed; if the pace of such filings is maintained there will be 34 such cases filed in 2010. That would represent a sizeable drop from the 57 credit crisis-related cases filed in 2009 and the 103 filed in 2008. The decline in credit crisis-related filings was partially offset by an increase in the frequency of other types of filings—such as cases alleging breaches of fiduciary duty and cases filed against companies in the life sciences and technology sectors. Recent developments such as the Gulf of Mexico oil spill also produced new filings.

The median settlement in the first half of 2010 was considerably higher than in any prior year. At $11.8 million, the median settlement exceeded 2009's value of $9 million by almost one-third, crossing the $10 million mark for the first time. According to the authors, one factor driving the increase in median settlement values was a substantial increase in median investor losses—a variable which correlates strongly with settlement size. Median investor losses in cases settled in the first half of the year were $436 million, the highest level since 1996.

Experts from NERA's Securities and Finance Practice participated in a live broadcast, hosted by the SEC Historical Society on 27 July 2010, in order to discuss recent NERA work. Senior Consultant Christopher Laursen began by reviewing myths and realities around structured finance securities, including a comparison of their risk and complexity to more "traditional" corporate securities. Senior Vice President Dr. Chudozie Okongwu then examined alleged conflicts of interest among the various parties involved in structured finance deals, looking at the key issues of information and control. Senior Vice President Dr. Elaine Buckberg concluded with a discussion of trends in SEC settlements since the passage of the 2002 Sarbanes-Oxley Act, including an analysis of the recent Goldman settlement. The seventh annual installment of the program was moderated by Professor Lisa Fairfax of The George Washington University Law School.

A company’s best armor against potentially damaging litigation or government audits is a clear statistical understanding of its workforce. Such reviews can be particularly important when a company is considering a reduction in force (RIF).
With statistical and economic experts who are fluent in the complex and ever-changing language of employment law, NERA offers workforce reviews that provide a detailed analysis of a firm’s workforce composition. Drawing on the company’s HR information, we use rigorous statistical tools and accepted techniques to analyze and compare key metrics (such as salaries, promotions, or layoffs) across company operations, age categories, job positions, salary ranges, and more.

In litigation, NERA experts are familiar with the types of analyses typically introduced by plaintiff experts and frequently provide expert testimony demonstrating where such analyses are unfounded or unreliable. In addition, NERA’s workforce studies are often used by companies to ensure compliance with federal and state regulations, as well as to determine if proposed actions will meet such guidelines. NERA’s analyses have been used in the following areas:

• Liability and class certification assessments
• RIF analyses
• Workforce and contracting affirmative action studies
• Economic loss and damages calculations
• Union-related analyses

In this overview, we address five questions typically posed by companies considering workforce reviews.

Exchange-Traded Funds (ETFs) have garnered close attention from the investment community and regulators in recent years, as they have rapidly increased in popularity, variety, and complexity. Until recently, ETFs had enjoyed a relatively uncontroversial history, having gained popularity as alternatives to similar index-tracking mutual funds, with the advantage of intraday liquidity, lower fees, and greater tax efficiency. As ETFs have expanded in popularity, newer and more complex products have emerged, including ETFs that track bond indices or hold other less liquid securities, leveraged and inverse ETFs, and actively managed ETFs.

In this paper, NERA Senior Consultant Raymund Wong and Analyst Kara Hargadon argue that, as these newer ETFs expand beyond simple tracking of equity indices, they may face some challenges in duplicating the success of their predecessors. Leveraged and inverse ETFs have already been the subject of several recent securities class action lawsuits. Additionally, actively managed ETFs have been attracting significant attention after their long-awaited Securities and Exchange Commission (SEC) approval in February 2008. Complex investment strategies may be more costly to implement, and more exotic and less liquid securities may impede the arbitrage mechanism upon which ETFs depend.

The authors suggest that, as ETFs continue to expand beyond traditional strategies, it is not entirely clear that they will be able to maintain their original advantages. If successful, future innovative ETF products may provide a challenge to the dominance of mutual funds beyond traditional index strategies. However, the history of past regulatory scrutiny and litigation risk for other similar types of investment funds suggests that ETFs may still have certain hurdles to overcome.

The Obama Administration's support of nuclear energy has resulted in renewed interest in nuclear power in this country. The first wave of nuclear new build projects in decades are underway in the US, helped along by US DOE loan guarantees. IQPC’s Nuclear Power Growth & Operations Symposium addressed the dramatic shifts in the nuclear power industry, including existing plant operations, nuclear new builds, regulatory policy, project finance, and international industry trends. NERA Vice President Edward Kee gave the Symposium's opening keynote address, entitled "First Wave Nuclear Projects: Learning from the Past and Defining the Future," explaining the factors that are driving the nuclear power industry restart in the US and abroad.

Understanding fundamental economic interactions and relationships is a key input into business success. The Oxford University Business Economics Programme is an international course which offers business executives and senior managers intensive training on how to take into account the macroeconomic environment, industry trends, and market developments in their strategies and decision making. The course content spans a range of economic concepts, from market structure (monopoly, oligopoly, perfect competition) to game theory models of rivals' interaction (Bertrand, Cournot, tacit collusion) and the analysis of auctions, with various case studies to illustrate business successes and failures.

NERA Associate Director David Matthew was this year's guest speaker on competition policy and antitrust. He described the institutional setup in the UK (in particular the OFT and the Competition Commission) and Europe (in particular DG Comp at the European Commission), gave an overview of the main types of investigation (such as merger control, cartels and anticompetitive agreements, abuse-of-dominance, market investigations and sector inquiries, and state aid investigations), and discussed the role of economics in competition cases.

New York -- NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters, announced today the promotion of Dr. Anne Gron to Vice President.

Dr. Gron is a Chicago-based member of NERA's Securities and Finance Practice. She specializes in economic research and analyses in the areas of insurance, finance, intellectual property, and antitrust. Dr. Gron has worked on a number of matters involving the insurance industry, and analyzed property-casualty insurance pricing, life insurance pricing, long-term care insurance, annuities, insurance distribution, broker compensation, loss reserve adequacy, reinsurance issues, and claims allocation. She also has worked on class certification matters involving insurance-related allegations. In addition, Dr. Gron has analyzed damages and valuation issues in complex commercial litigation, mergers and acquisitions, insurance contracts, and insurance reserves.

Dr. Gron earned her PhD in economics from the Massachusetts Institute of Technology and was an Assistant Professor at the Kellogg School of Management prior to joining NERA.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.
 
NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

NERA Vice President Dr. Sharon Brown-Hruska, a former Commissioner and Acting Chair of the Commodity Futures Trading Commission (CFTC), joined Ellen P. Pesch of Sidley Austin and David Kaufman of Morrison & Foerster for this ALI-ABA webinar on 22 July 2010. The program focused on the tougher regulations for over-the-counter derivatives included in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The faculty discussed various aspects of the new law, including the enhanced and shared regulatory authority of the SEC and the CFTC; broader enforcement powers to root out fraud and punish those who perpetrate it; requirements for central clearinghouses and exchange trading; new data collection and reporting requirements to enhance market transparency; new regulation for foreign exchange swaps; and new code of conduct for swap participants.

This program, held in Chicago on 20-21 July 2010, focused on fuel flexibility, an increasingly valuable tool for electric power producers. Originally employed as a response to coal supply constraints, today's fuel flexibility tactics provide utilities with options for meeting environmental and energy efficiency mandates, as well as optimizing operations and economic outcomes. The program examined marketplace and public policy factors driving the need for fuel flexibility approaches. NERA Vice President Sandra Ringelstetter Ennis delivered a presentation entitled "New Source Review Compliance:  Emissions Analysis Tools," which discussed ways of setting up a process for achieving compliance with current environmental regulations.

In this paper, NERA Vice President Christian Dippon examines the widely-held belief that faster is better when it comes to mobile telephony. Most countries around the world have allocated 3G spectrum and are eagerly moving forward to allocate advanced wireless services and 4G spectrum, both of which promise subscribers broadband Internet access with faster download speeds. Mobile operators anticipate that subscribers will adopt these services swiftly, thereby justifying the large investments operators must pay to be at the forefront of these developments. However, only two countries -- Japan and South Korea -- currently have more 3G than 2G subscribers. Furthermore, leading nations such as the US, the UK, and Germany have 3G penetration rates of less than 30 percent.

It is hypothesized that mobile subscribers do not view 3G services as being sufficiently different from 2G services and that regulators and operators have limited influence on adoption rates. Also, a country's socioeconomic attributes as well as the time that has passed since 3G services have been launched might have an impact on the pace at which 3G technology is adopted by end users. This paper facilitates the testing of these and other hypotheses by examining the determinants of 3G penetration rates and the effectiveness of various policy tools and derive several econometric models based on the 3G diffusion patterns and other attributes of 47 countries.

NERA Vice President Dr. Sharon Brown-Hruska and Morrison and Foerster's David Kaufman presented a webinar on the implementation and economic consequences of the Wall Street Transparency and Accountability Act of 2010. The Act, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, envisions sweeping reform of the over-the-counter derivatives markets, and requires regulators, including the Commodity Futures Trading Commission and the Securities and Exchange Commission, to conduct numerous rulemaking proceedings and studies over the course of the next few months and into the coming years. This two-hour webinar, hosted by the Practicing Law Institute, addressed topics including: the new key definitions; exceptions/exemptions available; treatment of existing swaps; the cost, risks, and challenges of central counterparty clearing; margin and collateral issues; the impact of "Volcker Rule" and pushout provisions; reporting obligations; fiduciary duty and business conduct standards; Basel III proposals relating to derivatives; and other areas of additional rulemaking still to come.

According to current accounting standards in Japan and the United States, all R&D expenditures are charged to expense when incurred. IAS 38 states that development expenses are to be capitalized and recognized as an intangible asset if specific criteria are met. This NERA seminar, held in Tokyo on 13 July 2010, examined the valuation of intangible assets internally generated through R&D activities, from the perspectives of financial accounting and transfer pricing experts. NERA Vice President Makoto Ikeya and Consultants Satoru Kishitani and Yaye Nakano presented.

Their presentations discussed how, in measuring an intangible asset, entities need to define the time when expenditures are incurred and recognized, the length of useful life, and the amortization method. The treatment of intangible assets is also important in tax law with regard to income calculation.  The main issue in a transfer pricing audit is whether a domestic entity is able to collect a royalty from its related parties overseas for the use of its intangible assets.  Both international accounting standards and transfer pricing taxation standards require valuation of intangible assets based on R&D activities and their related economics. Therefore, companies will need to investigate, analyze, and document their R&D activities in a consistent manner globally for both financial reporting and transfer pricing documentation.

The economic crisis that began in 2007 and continues to affect the major world economies requires a reevaluation of the classification of the routine/functional versus non-routine/entrepreneurial activities originally assigned to the entities of a multinational group when valuing related transactions. The methods traditionally used to determine the arm's length prices/margins have to be revisited to take into account the adverse impact that the drop in global demand has had on the financial results of multinational groups.

NERA's Transfer Pricing Practice hosted a lunch session in our Madrid office to address how the economic recession affects traditional transfer pricing analysis. NERA Special Consultant Pim Fris, Associate Director Dr. Emmanuel Llinares, and Senior Consultant Victoria Alonso Cantero presented "Transfer Pricing for Surviving the Economic Downturn," in which they discussed the different methods that can be used to mitigate the impact of the crisis on the results of multinational groups when performing comparability and benchmarking studies.

The Conference Of Minority Transportation Officials (COMTO), the premier organization for the training, education and professional development of minority transportation professionals, held their annual conference in Cleveland, OH on 10-13 July 2010. The theme of the conference was "Planes, Trains, Automobiles & Buses: Promoting Liveable and Sustainable Communities," and the event aimed to capture the strategic cooperation that the future requires with a full slate of training topics, discussions, and networking opportunities. Attendees included national, regional, and local leaders, policy makers, and administrators, who discussed and presented on a diverse set of transportation challenges, issues, and promises. NERA was a sponsor of this event.

In this guest column from Law360, NERA Senior Vice Presidents Dr. Elizabeth Becker and Dr. Denise Neumann Martin discuss the circuit court split that emerged this spring over whether the Daubert standard should apply to expert testimony at the class certification stage of civil litigation. The US Court of Appeals for the Seventh Circuit, in American Honda Motor Co. Inc. v. Richard Allen et al., came down squarely in support of applying Daubert at the class certification stage. Meanwhile, the US Court of Appeals for the Ninth Circuit, in Dukes v. Wal-Mart Stores Inc., although advocating a "rigorous standard" of review, fell short of relying on Daubert at the class certification stage. It gave the nod to the district court's certification of a class of as many as 1.5 million women alleging employment discrimination.

Dr. Becker and Dr. Martin note that the resolution of this split in support of the application of Daubert may play an important role in ensuring the efficient allocation of judicial resources on alleged Title VII violations. Currently, approaches used by trial lawyers leave larger employers uniquely vulnerable to bet-the-bank class actions relative to small and midsize employers -- even in circumstances where women and minorities are treated better by these large employers. Statistical evidence in support of class certification is frequently relied upon by district courts, despite arguments by defense counsel that excessive aggregation and omitted variables negate the reliability of the reported statistics. Application of Daubert to class questions could eliminate potential waste of judicial and litigant resources in situations where discrimination is alleged to exist on the basis of superficial analysis, but where a proper statistical analysis would show these results to be spurious.

The fifth annual Tax Journal conference, a leading industry forum attended by corporate tax directors, managers, and advisors from large and medium-sized public and private entities, will take place on 1 July 2010 in London, UK. This year's program will focus on the political climate, which is creating much uncertainty for the future of UK tax following the General Election. As part of the event, NERA Associate Director Dr. Emmanuel Llinares will lead a session on "Transfer Pricing: Business Restructuring," which will address valuation issues, the changing definition of intangibles, and the business restructuring discussion draft. In the afternoon, Associate Director Dr. Graham Poole will co-lead a session entitled "Transfer Pricing Controversy" with Rupert Shiers of McGrigors. The session will focus on challenges in tax tribunals, strategies for negotiation and closure, risk assessment, technical developments in the UK, and revisions to the OECD Guidelines.

NERA Director Dr. Francesco Lo Passo participated as a speaker at this Green City Energy forum, held in Pisa on 1-3 July 2010. Dr. Lo Passo spoke on smart grids and smart cities in a session with Mauro Annunziato, Coordinator Smart Cities ENEA; Franco Anzioso, Research Department FIAT; and Livio Gallo, CEO ENEL Distribuzione SpA. Dr. Lo Passo presented interim results of a smart grid project being carried out by NERA, Telecom Italia SpA, STMicroelectronics, Telit, Edison Energia, Electrolux, RPS (Riello), Energy Team, Neohm, Ospedale S. Raffaele,  Università di Roma "La Sapienza," and Università di Verona. The project seeks an innovative solution to enhance demand management capabilities and carbon reading for residential, commercial, and industrial customers, where appliances (including smart plugs) will communicate wireless using the ZigBee Technology.

In this article, published in the 30 June 2010 edition of Italian business newspaper Milano Finanza, NERA Director Dr. Francesco Lo Passo comments on the draft  legislation being discussed at the Italian Parliament, which is proposing to aggregate two zones of the electricity market, Sicily and South Italy, in order to lower electricity price in Sicily.

These two zones are currently split in the day ahead market due to transmission constraints, thereby limiting Sicily's ability to import from the South Italy zone. A new interconnection will be authorized in the near future, which will increase transmission capacity. The draft legislation asks to combine Sicily and the South of Italy in the same zone, in order to create only one price in the day ahead market for the whole area. Congestions will be solved by the TSO in real time. The stated goal is to decrease electricity prices.

However, Dr. Lo Passo argues that the proposed solution will increase the final price of electricity because of the existing physical transmission constraints. Plants in Sicily and South of Italy will offer electricity at a price that will take into account existence of physical transmission constraints; furthermore, the TSO will have to pay constrained off plants that have been contractualized in the day ahead market, and purchase ancillary services from plants located in the import constrained area (i.e., Sicily) in order to grant delivery of electricity.

Dr. Lo Passo contends that the outcome would be opposite to the one envisaged by the draft Law. In addition, the draft legislation would significantly differ from recent international decisions. In a proceeding against Sweden, in fact, the EU Commission and Sweden have agreed to solve congestions by splitting the market in order to preserve price signals.

This summit examined the latest in regulatory developments, investment opportunities, and the state of the global securities markets. Participants assessed how the global ABS markets have fared during the financial crisis and the prognosis going forward, taking a comprehensive look at core ABS asset classes including auto, credit cards, mortgage, and student loans. As part of the summit, NERA Senior Vice President Dr. Faten Sabry participated in a session entitled "ABS and Financial Reform: Evaluating the Impact of New and Proposed Regulatory Changes on Investors and Issuers," which discussed the long-term impact of TALF, recent trends in agency MBS purchases, the potential impact of the FDIC's safe harbor reform proposals, and whether new or proposed reforms will conflict internationally. Other speakers on the panel included John Kiff, Senior Economist, International Monetary Fund and Adam Aschcaft, Head of Structured Credit at the Federal Reserve Bank of New York.

This presentation, part of a series of presentations on "Mergers from Strategy to Hearing," will focus on how litigation strategies may change to accommodate merger analysis under the new merger guidelines. Panelists will present litigation strategies and considerations both from the point of view of those opposing the merger as well as those defending the merger. The program will consider how the parties may use economic analysis to explain their respective and divergent views to the judge. The program concludes a series of presentations that have followed the lifecycle of a planned merger from the initial decision to merge, through first filings, responding to a second request, working productively with the agencies through the process, and now to the final stage of litigations those issues that could not be resolved pre-trial. NERA Senior Vice President Dr. Lauren Stiroh is the program coordinator, and Senior Vice President Dr. Ramsey Shehadeh will be participating as a panelist.

To learn more about and register for this event, please visit the links on the right-hand side of the page.

With offices in Europe, Asia, Australia, and throughout North America, NERA's capabilities are well-matched to the demands of a global market. NERA's economic advice has shaped business, regulatory, and legal strategies around the world for nearly half a century.

Most projects at NERA require—and NERA professionals bring—a thorough understanding of markets to provide analysis, expert testimony, and regulatory insight in complex litigation, regulation, and business situations. NERA professionals employ a combination of economic, accounting, statistics, and finance theory along with the latest quantitative techniques to go beyond mere recitation of abstract economic principles. We analyze all available evidence before presenting our findings and analyses in a clear, conclusive, and defensible manner. This rigorous and innovative approach to economic analysis reflects our passion for finding the right answer, no matter the circumstances.

The hottest trends in advertising law have made the field more complicated than ever before. User-generated content has created new challenges for advertising lawyers and new guidance on the use of endorsements and testimonials has changed how companies may promote their products and services. This seminar, hosted by the PLI New York Center on 25 June 2010, provided attendees with the practical skills needed to manage the many regulatory and legal risks that may arise. The seminar addressed issues including procedural considerations and remedies; materiality and the key differences between puffery and parody; navigating the FTC's guides on endorsements and testimonials, including how they apply to bloggers; special issues related to user-generated content; social networking and advertising; and how to develop and utilize surveys in false advertising litigation. NERA Special Consultant Dr. Eugene Ericksen participated on a panel about surveys. Dr. Ericksen and his co-panelists addressed the topics of implementing an effective survey via the Internet (and avoiding hidden pitfalls), and the increasing sophistication of controls in false advertising surveys.

NERA has extensive and specific expertise in aviation industries around the globe, where our experts have been involved with the economic policy questions raised by virtually every aspect of these industries. We advise airports, airlines, regulators, and policy makers on issues of industry structure, competition, regulation, pricing, efficiency, and environmental assessment.

This conference, held by CRRI on 23-25 June 2010, featured some of the latest developments in the network industries, including deregulation, market structure, policy and regulatory issues, environmental policy and GHG, telecommunications and water, pricing and demand response, and capacity and reliability. On the second day of the conference, NERA Senior Consultant Amparo Nieto participated in a panel session entitled "Strategies for Demand Response." Ms Nieto and her co-panelists addressed differing strategies for managing implementation of demand response in wholesale energy markets, challenges and opportunities in smart grid, and development of utility-scale planning models.

Our Toronto transfer pricing team provides solutions that meet both clients' business objectives and the arm's-length requirements imposed by national tax authorities. We have provided testimony in tax cases involving valuation, derivative accounting, hedge funds, tax arbitrage, intracompany financial transactions, and income determination. Tax practitioners benefit from our Toronto experts' experience in valuation and the application of finance theory to complex tax problems. We have worked on behalf of taxpayers, as well as the Canada Revenue Agency and the Department of Justice. Our direct, hands-on approach to transfer pricing enables us to offer our clients the highest quality solutions, and to achieve effective collaboration.

NERA economists provide advisory services to clients related to securities, derivatives, finance, valuation, and risk management. We work with regulators, banks, insurers, trade associations, corporations, building societies, and policy makers within the financial services sector. Our team combines rigorous economic thinking and quantitative analysis with practical experience. Our finance experts specialise in the design and evaluation of financial regulation; the application of techniques to measure and manage risks; and the development of financial sector policy. Our sectoral experience includes investment and savings products, insurance, mortgages, brokerage and trading (including clearing and settlement), consumer credit, debt management, and export credit.

NERA economists assist clients in all stages of litigation and arbitration relating to finance, financial asset markets, valuation, and complex commercial disputes, including discovery, fact analysis, and development of economic and financial models addressing questions of liability and economic damages. We act as independent experts, provide consulting services, review and critique reports by opposing experts, and assist clients with preparation of well-documented reports, exhibits, and testimony. Our expert testimony has been provided in courts and arbitration forums in countries around the world.

The Airport Business Diversity Conference is the primary vehicle for the Disadvantaged Business Enterprise (DBE) and the Airport Concessions Disadvantaged Business Enterprise (ACDBE) community to informatively engage with the airport business environment. The conference provides participants with business networking and educational opportunities including public policy issues impacting the entire aviation industry; providing immeasurable benefits to all conference participants. With DBEs and ACDBEs seeking fair and substantive levels of participation as airport vendors, professional services providers, construction and concessionaires, this conference is the paramount business networking forum. NERA was a sponsor of this year's event.

NERA Director Dr. Mark Williams and Associate Director Paul Hofer will speak at the international competition policy conference hosted by Chatham House on 18 June 2010 in London.

The conference will explore the relevance and the political, economic, and practical role of competition policy in the era immediately following the recent global financial upheaval, in both the developed world and in the emerging economies. An effective competition policy and antitrust regime can play a key role in restoring economic prosperity, but uncoordinated regulatory action, national champion protectionism, and ill-informed intervention are likely to place an inappropriate burden on the economy and indirectly also on consumers.

The Chatham House conference, now in its 8th year, is one of the highlights of the European competition policy calendar. This year's keynote speakers include Lowri Evans (Deputy Director General for State Aid at the European Commission), John Fingleton (Chief Executive of the UK Office of Fair Trading), Peter Freeman (Chairman of the UK Competition Commission), Bill Kovacic (US Federal Trade Commissioner), and Bruno Lasserre (President of the French Autorité de la Concurrence).

Specific topics to be discussed include the role of the International Competition Network (ICN), the effectiveness of state aid measures, the relationship between market studies and behavioral antitrust enforcement, the design of different remedies, and the challenges for merger control in the international geopolitical context.

To learn more, please visit the links located in the right-hand column of this page.

Over the past few years, the asbestos litigation environment has undergone many changes, including legislative and judicial tort reform, judicial investigations into the quality of supporting medical evidence, and a heightened scrutiny of the documentation accepted by several larger asbestos trusts. In this second annual review of recent trends in filings and settlements in asbestos litigation, NERA Senior Vice President Lucy P. Allen and Vice President Mary Elizabeth C. Stern extend their analysis to review asbestos-related claims during the period 2001 through 2009 for over 150 solvent defendants who report claims in their public filings.

In this report, the authors find that aggregate trends continue to be generally favorable to asbestos defendants, and that there were few substantial changes in the asbestos litigation environment in 2009. Over the past year, asbestos claim filings have continued to decline; average aggregate indemnity payments rose, but remained below earlier spikes; the number of resolved claims stayed constant; dismissal rates pulled back some, but continued at high levels; pending claims dropped to their lowest level since 2001; and average dollars per resolved claim increased, but remained below prior spikes.

NERA Economic Consulting's Global Transfer Pricing Practice has launched Viewpoint, a new publication series aimed at providing regular commentary on developments in the world of transfer pricing from the viewpoint of economists who specialize in transfer pricing. Viewpoint will give insight into new ideas, thought leadership, and news by and from the practice. The inaugural issue of Viewpoint reviews three recent notable transfer pricing decisions -- DSG Retail Ltd (UK), Société Man Camions et Bus (France), and Glaxosmithkline (Canada) -- and highlights a number of points for transfer pricing practitioners. These points include: the importance of defining how to apply the arm's length principle, that the bar is being raised in comparability analysis and the making of adjustments; economics can, and is, being used to challenge and dismiss the positions advanced by taxpayers or tax authorities; and that tribunals and tax courts do, on occasion, appear to arrive at somewhat puzzling conclusions.

This two-part panel series, sponsored by the Insurance and Financial Services Committee of the Antitrust Section of the ABA, was an in-depth primer on the antitrust issues that arise in the context of valuating transactions and other business conduct where complex financial instruments are involved. Panel 1 covered market definition and included an overview of the various security and commodity instruments in the marketplace, their general product parameters and how dealers, traders, and consumers use them. Panel 2 broadly covered competitive effects and examined what types of conduct may be potentially harmful in these types of markets. Topics for discussion included: issues relating to the vertical integration of trading with clearing/settlement; the role of network effects and liquidity in the analysis of potential harm; issues that arise where joint ownership (whether as a formal joint venture or otherwise) is present; and barriers to entry, including questions of minimum viable scale and critical mass. NERA Vice President Dr. James Overdahl participated in Panel 2, which was moderated by Scott Scheele of the US Department of Justice, Antitrust Division, Networks & Technology Enforcement Section.

New York -- Three economists from NERA Economic Consulting’s Global Antitrust and Competition Policy practice have been appointed by the American Bar Association Section of Antitrust Law to its publication editorial boards for the 2010-2011 ABA year.

Dr. Gregory Leonard, formerly an Associate Editor of Antitrust Magazine, has been appointed an Assistant Editor of the Antitrust Law Journal -- a peer-reviewed law review published three times each year by the ABA. The Journal publishes original articles, comments, and essays on significant current issues of antitrust law. Dr. Leonard is a Senior Vice President based in NERA's San Francisco office.

Dr. Elizabeth Bailey, formerly an Editor of the Antitrust Source, has been appointed an Associate Editor of Antitrust Magazine, which is published three times a year and features original forward-looking articles of practical interest to attorneys dealing with new court decisions, legislation, or other recent developments. Dr. Bailey has also been appointed to serve as a Member of the Section's newly-formed Economics Task Force during the 2010-2011 ABA year. She is a NERA Vice President based in Boston.

Dr. Fei Deng has been appointed an Editor of the Antitrust Source -- a bimonthly online journal for antitrust and consumer protection matters which publishes original articles, comments, book reviews, and letters on all facets of antitrust and consumer protection law and economics, with a focus on timely matters of interest to practitioners. Dr. Deng is a Senior Consultant in NERA's San Francisco office.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.
 

NERA Director Dr. Francesco Lo Passo participated in this annual aviation meeting in Milan on 16-18 June 2010. Leaders in the airport and airline industries -- as well as national and European-level legislators and regulators, consultants, and suppliers -- convened to discuss important issues facing the aviation industry and suggested strategies for success.

On 15 June 2010 in Gainesville, Florida, NERA Special Consultant Dr. Hethie Parmesano led a one-day training session on electricity ratemaking and cost studies at this international training program, a collaboration between the World Bank and the Public Utility Research Center (PURC) at the University of Florida Warrington College of Business. Dr. Parmesano discussed the key elements of energy tariff design, including issues in setting class revenue requirements, marginal vs. embedded costs studies, efficient tariff structures, and innovative demand response tools. The session included a group tariff exercise with role-playing.

New Project Taps Clean Energy Experts to Provide Insight Into Future of the Industry
 
San Francisco -- NERA, a leading economic consulting firm, today announced the launch of the Clean Energy Exchange, where clean energy experts pool their knowledge to produce more useful forecasts regarding the future of the industry. The Exchange uses Crowdcast Social BI (SBI) technology to collect and aggregate participants' insights.

"Clean energy is an emerging industry with little historical data to draw upon to make informed decisions about investments, technologies and policies. The Clean Energy Exchange addresses this critical need," said Dr. Adam Borison, Senior Vice President at NERA and project leader of the Clean Energy Exchange. "It is a uniquely powerful way to capture business intelligence about trends and developments in this fast-moving field. We are excited to provide investors, developers and policy makers with a new tool to improve decision-making in this critical area."

Participants in the Clean Energy Exchange include business leaders, investors, technologists, and academics. Clean energy professionals from around the world are invited to join the Exchange, share insights and help fill the information gap in the industry. Participants will use Crowdcast SBI to bet virtual money on outcomes of key industry events. Bets are then aggregated into crowd forecasts, which are timely, unbiased, and shown to be more reliable than forecasts from traditional methods.

"As the leader of the SBI market, our mission is to add people-driven intelligence to data to help businesses in clean energy and other industries achieve outstanding forecasting accuracy. Through our partnership with NERA, we're drawing on an untapped expert pool in a vital industry," said Mat Fogarty, CEO of Crowdcast. "Clean energy is an exploding market, rich in opportunities for a broad range of technologies and constantly in flux from economic, political and social forces. With fresh knowledge surfacing every day, the Exchange will help industry participants use that knowledge for a better understanding of the future of clean energy."

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

About Crowdcast
Crowdcast leads the Social BI market, bridging the gap between traditional business intelligence and enterprise social network applications. Crowdcast provides a new outlet that aligns people and purpose, where insight, plans and experience come together, creating insanely accurate business outcomes. Some of the world's most innovative companies rely on Crowdcast to improve project and portfolio management and to uncover and mitigate strategic and operational risk. Now future business is everyone#s business. For more information, visit http://www.crowdcast.com.

The European American Tax Institute held its first annual Transfer Pricing Congress in London on 11 June 2010. The event focused on current issues and perennial problems in transfer pricing. The event was chaired by NERA Special Consultant Pim Fris, who gave the chairman's introduction and closing remarks. As part of the program, Senior Consultant Susanne Toft participated in a panel on "Significant Cases: Some Unique Perspectives." Ms. Toft's presentation addressed economic and financial aspects of the ruling in the GE Capital Canada case, which focused on the value of intercompany guarantees. Associate Director Dr. Emmanuel Llinares participated in a panel on "Business Restructuring," which addressed the changing definition of intangibles, IP valuation and structuring, and techniques for function shifting and exit charges.

After years of criticism for not allegedly challenging horizontal mergers vigorously enough, the Justice Department's Antitrust Division and the Federal Trade Commission are revising their guidelines for reviewing mergers of competitors. The Antitrust Division says the revisions will "put[] antitrust enforcement on sounder economic foundations" and eliminate gaps between the Guidelines and the enforcement agencies' actual merger-review practices. But what would these revisions, and the economic thinking behind them, mean for deals to come? Will merger review still be economically rigorous and consumer-focused? Will the agencies be less willing to count on new entry to compensate for increased compensation? How would an unproven new economic test affect mergers involving "differentiated" (non-commodity) products? This Mayer Brown teleconference addressed these and related issues. Mayer Brown Partners Mark Ryan and Chris Kelly, along with NERA Vice President Dr. Elizabeth M. Bailey, discussed the key changes in the proposed new Guidelines, and how they could affect the US agencies' merger reviews as the economy picks up.

This research symposium, hosted by the by the Searle Center on Law, Regulation, and Economic Growth at the Northwestern University School of Law in Chicago, IL on 10-11 June 2010, provided a forum where economists and legal scholars convened with Northwestern faculty to present and discuss high quality research relevant to the economics and law of Internet search. The conference covered academic work on Internet search and the discussion examined public policy issues in antitrust, regulation, and intellectual property. On the first day of the symposium, NERA Special Consultant Dr. Henry Butler, the Executive Director of the Searle Center, gave the welcome and introduction, and moderated a session entitled "Market Structure and the Internet." As part of this session, Special Consultant Dr. Michael Baye, the Bert Elwert Professor of Business at Indiana University's Kelley School of Business, gave a presentation entitled "Horizontal Mergers Involving Online Firms: Structural Estimation and Competitive Effects."

Industry experts convened at this symposium in Boston on 9 June 2010 to examine the interactions between energy prices, growth, and inflation, as well as the determinants of oil prices and the effect that oil prices have on the world economy. NERA Vice President Dr. James Overdahl participated in a session on financial innovation and oil markets. In his presentation, Dr. Overdahl reviewed the development of financial products linked to commodity prices, focusing on commodity index-linked products. He described how order flow to these products makes its way to the underlying price discovery market, that is, the futures markets. He also discussed the consequences of commodity-linked investment on the oil market, such as the convergence of nearby and backdated futures prices.

New York -- NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters, announced today that Dr. Ethan Cohen-Cole has joined the firm's Securities and Finance practice as a Special Consultant.

In addition to his role at NERA, Dr. Cohen-Cole is an Assistant Professor in the Finance Department of the University of Maryland Robert H. Smith School of Business. He is an expert in financial risk management, with particular focus on credit and operational risk, complex financial products, regulation, and consumer products.

"NERA is pleased to welcome Ethan to the firm," said Dr. Robert Mackay, Senior Vice President and Chair of NERA's Securities and Finance Practice. "Dr. Cohen-Cole's deep industry experience in financial economics and risk management will make him an invaluable resource to NERA clients."

Previously, Dr. Cohen-Cole was an economist and bank supervisor with the Federal Reserve Bank of Boston, where he led quantitative reviews of large bank risk modeling efforts, served as a system quantitative expert on risk management and Basel II, and conducted supervisory reviews and/or provided consultative expertise in areas including interest rate risk/asset-liability management, securities lending, operational risk, economic capital, credit risk, and transfer pricing. He has also consulted with a number of companies on issues related to financial risk management.

Dr. Cohen-Cole has presented and published widely on the topics of consumer credit, banking and financial markets, and health economics. His work has appeared in publications including the American Law and Economic Review, the Journal of Health Economics, the Review of Economics and Statistics, Economic Inquiry, and Economic Letters. He is a referee for multiple economic journals.

Dr. Cohen-Cole holds a BA in history from Harvard University, an MPA in public policy from Princeton University, and an MA and PhD in economics from the University of Wisconsin at Madison.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

The Futures Industry Association and the Futures and Options Association held the third annual International Derivatives Expo, which highlights the latest trends, technology, and issues in the derivatives industry, in London. As part of the event, NERA Vice President Dr. Sharon Brown-Hruska participated in a panel session on "Financial Supervision: New Architecture, New Tools, and New Challenges." The panel compared and contrasted the post-crises approaches to financial supervision of firms developing in both the US and EU, exploring areas of convergence and divergence. The panel also discussed the new architecture for financial supervision within the EU, the challenges for national supervisors such as the FSA, and the international implications.

NERA Economic Consulting Releases Update to Credit Crisis Insights Series

New York -- Total write-downs and losses stemming from the credit crisis reached $1.8 trillion worldwide as of May 2010, according to a white paper from NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters. These massive losses amount to approximately 12.5% of annual US GDP. The total number of credit crisis lawsuits has now surpassed 400.

The authors of NERA Insights -- Subprime Lending Series, Part VII note that the outlook for future credit crisis lawsuits remains mixed. Filings of credit crisis lawsuits have declined and almost half of the decisions to date have been dismissals. However, the types of allegations, products, and defendants continue to shift, and the cases against some defendants, most notably the rating agencies, have survived several motions to dismiss and will proceed.

"The lawsuits, just like the credit crisis, have evolved towards more complex financial products and the trends in allegations, defendants, and plaintiffs have shifted accordingly," said paper co-author and NERA Senior Vice President Dr. Faten Sabry. "Regulatory investigations, such as the recent SEC lawsuit against Goldman Sachs, add to the uncertainty surrounding the direction and focus of the litigation."

Additional NERA Insights Findings

• The largest component of the write-downs and losses has been loan charge-offs and increased loss provisions, accounting for 36%, or $641.9 billion.
• Lawsuits involving products such as asset-backed securities, CDOs, and CDS now make up the majority of the recent credit crisis lawsuits.
• The percentage of credit crisis filings that name D&O defendants decreased to 52% in 2009, down from 70% in 2007 and 61% in 2008. Early filings in 2010, however, show an increased filing rate against D&O defendants, with 67% naming D&O.
• Through April 2010, 60% of filings targeted securities issuers/underwriters, though this increase is partially due to the wave of litigation against Goldman Sachs and its involvement in synthetic CDOs.
• Credit crisis settlements reached over $2.1 billion through 30 April 2010. Of the $2.1 billion, approximately $1.7 billion arose from class action settlements.

NERA Insights -- Subprime Lending Series, Part VII examines the current trends in filings, settlements, recent decisions, and the changing nature of allegations in credit crisis lawsuits. The paper is authored by Dr. Sabry, NERA Senior Analyst Anmol Sinha, Associate Analyst Jesse Mark, and Analyst Sungi Lee.

The Subprime Lending Series can be read on the NERA website: www.nera.com.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.
 

When we first examined the credit crisis and its subsequent litigation in July 2008, the related losses and lawsuits were in their early stages. Preliminary loss estimates were in the range of $125 billion to $945 billion and there were approximately 130 credit crisis lawsuits. As of 12 May 2010, total writedowns and losses stemming from the credit crisis have reached $1.8 trillion worldwide -- or approximately 12.5% of US annual GDP -- and the total number of credit crisis lawsuits has exceeded 400.

As of April 2010, there are conflicting signals regarding the future of the litigation. On one hand, credit crisis filings have declined and almost half of the decisions to date have been dismissals. However, the types of allegations, products, and defendants continue to shift, and the cases against some defendants, most notably the rating agencies, have survived several motions to dismiss and will proceed. In addition, the regulatory investigations, such as the recent Securities and Exchange Commission (SEC) lawsuit against Goldman Sachs, add to the uncertainty surrounding the direction and focus of the litigation.

This paper examines the current trends in filings, settlements, recent decisions, and the changing nature of allegations in credit crisis lawsuits. The lawsuits, just like the credit crisis, have evolved towards more complex financial products and the trends in allegations, defendants, and plaintiffs have shifted accordingly. The authors discuss trends in filings and Director and Officer (D&O) liability, examine the types of claims alleged in the lawsuits, and review both the types of defendants facing these claims and the plaintiffs asserting them, and assess the types of products involved, and review trends in bankruptcies. The paper concludes with a discussion of recent decisions.

This is the seventh installment of the NERA Insights series of articles dedicated to the analysis of the credit crisis (the others are available on the right-hand side of the page).

The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) (collectively, "the Agencies") have solicited public comments on the revisions that the Agencies are making to the Horizontal Merger Guidelines, which are used by the Agencies to evaluate the potential competitive effects of mergers and acquisitions under the federal antitrust laws. Three economists from NERA's Global Antitrust and Competition Policy Practice -- Dr. Elizabeth M. Bailey, Dr. Gregory K. Leonard, and Dr. Lawrence Wu -- submitted comments on the proposed revisions on 3 June 2010. Dr. Bailey, Dr. Leonard, and Dr. Wu believe that the proposed Horizontal Merger Guidelines ("Proposed Guidelines") appropriately shift the focus of merger analysis, but that the Proposed Guidelines could be further revised or clarified in four important ways.

The Proposed Guidelines appropriately shift the focus of merger analysis in five principal ways. First, the Proposed Guidelines describe an approach that emphasizes empirical analysis and the various types of evidence that the Agencies will consider in evaluating competitive effects. Second, they reflect a shift towards direct competitive effects analysis and away from market definition as the first step in a merger review. Third, they recognize that the competitive effects of a merger potentially extend beyond price effects to include effects on innovation, product variety, product quality, and service, all of which, along with price, are determinants of consumer welfare. Fourth, the Proposed Guidelines are useful because they reflect actual agency practice and approaches to merger review. Fifth, the illustrative examples in the Proposed Guidelines are particularly valuable because they add to the transparency by describing how those principles are likely to be applied.

Dr. Bailey's, Dr. Leonard's, and Dr. Wu's suggestions on how the Proposed Guidelines could be further revised or clarified fall into four categories:

1. They strongly urge that the Proposed Guidelines explicitly make the point that it is not reliable to use market shares to evaluate the degree of competition among products or firms when the assumptions of the market share approach have not been checked for consistency with the facts that describe the nature of consumer demand in the markets at issue.
2. They argue that the proposed standard for evaluating whether entry is likely to be sufficient to discipline supracompetitive pricing post-merger has been raised in a way that is not economically justified. In particular, requiring the scale of entry to be at least the scale and scope of one of the merging firms generally will be too stringent a standard.
3. They explain why a market definition test based on an analysis of value-added prices focuses the analysis too narrowly. In many cases, the value-added service is not actually purchased by customers on a standalone basis in the marketplace.
4. They explain why the competitive effects discussion in the Proposed Guidelines should include an integrated assessment of the cost efficiencies and output-enhancing activities that affect overall prices or output. These efficiencies are as much a competitive effect of the merger as any price effect due to reduced rivalry. A competitive effects analysis that leaves efficiencies for a separate review is flawed in that it implicitly gives lesser weight to the procompetitive role that the merged firm may play in the market post-transaction.

Additional information regarding the Horizontal Merger Guidelines Review Project is available at http://www.ftc.gov/bc/workshops/hmg/index.shtml.

Collateralized debt obligations (CDOs) and other structured financial products containing subprime mortgages have been a focal point of the credit crisis, giving rise to a growing amount of investigative journalism as well as credit crisis litigation. It is widely agreed that the leading edge of the credit crisis was the meltdown of the US subprime mortgage market that began in early 2007. Many of these mortgages were structured into asset-backed securities (ABS) that were then further structured into CDOs. Given their prominent role, it is clear that disputes will continue to revolve around CDOs and other subprime-backed structured products for some time. Through the end of March 2010, the credit crisis had yielded at least 395 securities filings (excluding arbitrations). Of these, at least 41 are CDO-related.

Though many market participants were conversant with these structures, it will usually be the case that a lay audience does not have such familiarity. This paper goes behind the current headlines to describe in plain English the fundamental analytics of the ABS-backed CDOs and synthetic CDOs that were instrumental in the financial crises. The authors -- NERA Senior Vice President Dr. Elaine Buckberg, Securities and Exchange Commission Economic Fellow Dr. Frederick C. Dunbar, NERA Analyst Max Egan, Senior Consultants Dr. Thomas Schopflocher and Dr. Arun Sen, and Consultant Carl Vogel -- also discuss the principles of their valuation, including the important issue of correlation.

2009 ushered in several interesting cases which indicate a significant shift in the thinking of the courts regarding patent infringement damages, and specifically, the entire market value rule. Damages awards have been reduced, reversed, or questioned on appeal. Going forward, the recent rulings may affect the desirability of evidence related to whether/how much the allegedly infringed patented feature drives demand. On 2 June 2010, The Knowledge Group will hold a 2-hour live webcast to provide insights on developments in patent litigation. NERA Vice President Dr. Elizabeth Bailey will participate in the webcast, and will speak on a range themes related to patent infringement damages emerging from a number of recent CAFC decisions including, understanding why reasonable royalty damages do not depend on whether the patented technology is a large or small component of the overall product; explaining why the royalty base and royalty rate must be jointly determined; and discussing why non-economic approaches to calculating reasonable royalties, such as the use of non-comparable benchmarks and the so-called 25% rule, are unreliable.

The Center for Research in Regulated Industries at Rutgers University held this annual conference in Porvoo, Finland on 2-5 June 2010 to address postal economics and postal policy. Two NERA experts presented papers as part of the conference. NERA Associate Director Stuart Holder gave a joint presentation with Rob Sheldon, Managing Director of Accent, entitled "The Value of Post Offices: How to Define the Question, Estimate the Answer, and Interpret the Results." The paper summarizes the evidence from previous studies of the value to consumers of post offices, and considers the implications of the results from four different studies carried out jointly by NERA and Accent for the UK postal regulator, Postcomm. NERA Consultant Francesca Mazzarella, along with Vincenzo Visco Comandini, Professor at the University of Rome Tor Vergata, presented a paper entitled "Competition and Regulation in the Italian Postal Market," which provides a basic overview of the Italian postal market at the starting gate of its full liberalization and suggests a reform of USO financing.