AMR urges court to back restructuring despite antitrust suit

An American Airlines passenger jet glides in under the moon as it lands at LaGuardia airport in New YorkNew York, August 28, 2012.

Credit: Reuters/Eduardo Munoz

By Nick Brown

NEW YORK | Fri Aug 23, 2013 4:43pm EDT

NEW YORK (Reuters) - American Airlines and its creditors' committee on Friday urged a bankruptcy judge to approve the airline's restructuring plan despite an antitrust challenge from the Department of Justice.

In court papers filed in U.S. Bankruptcy Court in Manhattan, American's bankrupt parent, AMR Corp (AAMRQ.PK), said failing to approve the restructuring would add "a destabilizing factor" to its proposal to merge with US Airways Group (LCC.N) and pay back creditors.

AMR's creditors' committee, in a separate filing, said refusal by Judge Sean Lane to give the plan his blessing could threaten creditor support for the plan, which includes AMR's unions and most of its creditors.

"While the DOJ enforcement action has unsettled creditor and stockholder expectations, deferring entry of the confirmation order ... would only exacerbate this uncertainty," the committee said.

The U.S. government also filed a brief on Friday, but did not, as might have been expected, urge Lane to not approve the restructuring plan. Instead the government, through U.S. Attorney Preet Bharara, said it took "no position as to whether" Lane should confirm the plan, but cited the "attendant risk that a confirmed plan may not be able to become effective for a considerable time, if at all."

AMR and US Airways agreed to merge in February in an $11 billion deal that would end AMR's bankruptcy and create the world's largest airline. Experts had expected the deal to enjoy a smooth ride through the regulatory process.

But on August 13, two days before the restructuring plan was to gain final court approval, the DOJ sought to block it, filing a lawsuit in Washington, D.C., alleging a stifling of competition that would harm consumers though higher fares.

Judge Lane, overseeing AMR's bankruptcy in New York, held off confirming the plan in the face of the DOJ's lawsuit, giving the parties until Friday to brief him on the best course of action.

AMR, in its court papers, stressed that the merger agreement, which Lane already approved, contains "a mechanism" to account for this very scenario. If the parties cannot obtain regulatory approval, the deal would eventually be terminated, AMR said.

Lane voiced hesitation to rubber-stamp a deal that might later change due to a settlement with the DOJ. But AMR said future changes to the plan, namely divestitures, are expressly required to go back before Lane for approval.

The creditors' committee said Lane's job is to make sure the plan meets standards under the bankruptcy law. Worrying about antitrust concerns is the DOJ's job.

"They are separate processes, before different courts, and on different schedules," the committee said.

If the Justice Department ultimately succeeds in blocking the merger, it would put AMR's restructuring back at square one, requiring it to forge new strategies for paying back creditors.

AMR shareholders, who stand to receive a 3.5 percent stake in the new entity under the merger, would likely be wiped out under any plan that excludes a merger, restructuring experts have said.

AMR's unions also support a merger. The Transport Workers Union, representing ground crew members, on Thursday filed court papers urging Lane to approve the deal.

But not everyone is in favor of Lane signing off. A group of plaintiffs in a separate antitrust lawsuit against US Airways filed a brief on Thursday in AMR's bankruptcy, saying the judge cannot under bankruptcy law confirm a plan that may prove not to be feasible. AMR appears "unable to articulate a ‘Plan B' which would resolve" antitrust risks, the group said in its filing.

Regardless of Lane's decision, the issue will come down to the sides' ability to resolve matters with the DOJ. Chapter 11 merger plans require both bankruptcy court approval and regulatory approval, and one does not impact the other.

At a hearing last week, Lane did not seem opposed to the restructuring plan on its face, his hesitation instead rooted in concerns that the deal he was being asked to approve might look different a few months down the road.

The DOJ antitrust suit will take months to resolve, and possibly longer if it goes to trial.

(Reporting by Nick Brown; Editing by Tim Dobbyn)

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Argentina markets give back gains after U.S. court stay

By Jorge Otaola and Walter Bianchi

BUENOS AIRES | Fri Aug 23, 2013 4:10pm EDT

BUENOS AIRES (Reuters) - Argentine markets initially rose on Friday after a U.S. appeals court put a hold on injunctions against the government in its legal battle with "holdout" bond investors, but stock and bond price gains were soon erased as concerns over the case persist.

The South American grains-exporting country lost its appeal of a judge's order requiring it to pay $1.33 billion to bondholders who refused to take part in two debt restructurings.

But the 2nd U.S. Circuit Court of Appeals in New York delayed implementing the decision pending a ruling by the U.S. Supreme Court, sparking a brief market rally in Buenos Aires.

"After the appeals court decision was analyzed, the realization set in that Argentina has only bought itself some time," a local stock broker told Reuters, asking not to be named. "So sellers started showing up to take profits."

The U.S. high court is likely to consider whether to hear the case in the fall. If the justices agree to hear the case, a ruling would be issued by the end of June.

"All this does is extend the fight to next year," said Rodolfo Rossi, an economist and former central bank president.

The MerVal .MERV blue-chip stock index ended the day 0.7 percent lower at 3,916.8 points after rising 1.53 percent earlier in the session.

The case still threatens to push Argentina toward a debt default if the country is finally ordered to pay holdouts the 100 cents on the dollar that they are demanding.

President Cristina Fernandez vows never to pay on those terms. She characterizes the holdouts as "vultures" out to profit on her country's catastrophic 2002 bond default.

The holdouts bought their Argentine bonds at steep discounts, refused to restructure the obligations and are demanding repayment at face value.

The international bond market seesawed on news of the appeals court decision, with Argentina's country risk premium initially tightening by 21 basis points and then widening by 43 basis points to 1,066 basis points over comparable U.S. Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus.

The index as a whole was at a much tighter spread of 357 basis points over safe-haven U.S. Treasury paper, showing the market sees Argentina three times as likely as other emerging market countries to default.

If final judgment goes against Argentina and the government nevertheless refuses to pay the holdouts what they want, the courts could block it from paying holders who accepted big writedowns as part of debt restructurings in 2005 and 2010.

Missing interest payments to the holders of restructured bonds would put the country in technical default.

"The appeals court decision means the Argentine government can continue paying bondholders who participated in the restructurings at least until there is a final decision," said Ignacio Labaqui, who analyzes the country for emerging markets consultancy Medley Global Advisors.

The ruling nonetheless marked a potential victory over the long term for holdouts led by NML Capital Ltd, a unit of billionaire hedge fund manager Paul Singer's Elliott Management Corp, and Aurelius Capital Management.

U.S. Circuit Judge Barrington Parker, writing for the three-judge panel, said the court believed "it is equitable for one creditor to receive what it bargained for, and is therefore entitled to, even if other creditors, when receiving what they bargained for, do not receive the same thing."

(Additional reporting by Brad Haynes and Alejandro Lifschitz, writing by Hugh Bronstein; editing by Dan Grebler, Kenneth Barry and Andrew Hay)

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Argentina markets give back gains after U.S. court stay

By Jorge Otaola and Walter Bianchi

BUENOS AIRES | Fri Aug 23, 2013 4:10pm EDT

BUENOS AIRES (Reuters) - Argentine markets initially rose on Friday after a U.S. appeals court put a hold on injunctions against the government in its legal battle with "holdout" bond investors, but stock and bond price gains were soon erased as concerns over the case persist.

The South American grains-exporting country lost its appeal of a judge's order requiring it to pay $1.33 billion to bondholders who refused to take part in two debt restructurings.

But the 2nd U.S. Circuit Court of Appeals in New York delayed implementing the decision pending a ruling by the U.S. Supreme Court, sparking a brief market rally in Buenos Aires.

"After the appeals court decision was analyzed, the realization set in that Argentina has only bought itself some time," a local stock broker told Reuters, asking not to be named. "So sellers started showing up to take profits."

The U.S. high court is likely to consider whether to hear the case in the fall. If the justices agree to hear the case, a ruling would be issued by the end of June.

"All this does is extend the fight to next year," said Rodolfo Rossi, an economist and former central bank president.

The MerVal .MERV blue-chip stock index ended the day 0.7 percent lower at 3,916.8 points after rising 1.53 percent earlier in the session.

The case still threatens to push Argentina toward a debt default if the country is finally ordered to pay holdouts the 100 cents on the dollar that they are demanding.

President Cristina Fernandez vows never to pay on those terms. She characterizes the holdouts as "vultures" out to profit on her country's catastrophic 2002 bond default.

The holdouts bought their Argentine bonds at steep discounts, refused to restructure the obligations and are demanding repayment at face value.

The international bond market seesawed on news of the appeals court decision, with Argentina's country risk premium initially tightening by 21 basis points and then widening by 43 basis points to 1,066 basis points over comparable U.S. Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus.

The index as a whole was at a much tighter spread of 357 basis points over safe-haven U.S. Treasury paper, showing the market sees Argentina three times as likely as other emerging market countries to default.

If final judgment goes against Argentina and the government nevertheless refuses to pay the holdouts what they want, the courts could block it from paying holders who accepted big writedowns as part of debt restructurings in 2005 and 2010.

Missing interest payments to the holders of restructured bonds would put the country in technical default.

"The appeals court decision means the Argentine government can continue paying bondholders who participated in the restructurings at least until there is a final decision," said Ignacio Labaqui, who analyzes the country for emerging markets consultancy Medley Global Advisors.

The ruling nonetheless marked a potential victory over the long term for holdouts led by NML Capital Ltd, a unit of billionaire hedge fund manager Paul Singer's Elliott Management Corp, and Aurelius Capital Management.

U.S. Circuit Judge Barrington Parker, writing for the three-judge panel, said the court believed "it is equitable for one creditor to receive what it bargained for, and is therefore entitled to, even if other creditors, when receiving what they bargained for, do not receive the same thing."

(Additional reporting by Brad Haynes and Alejandro Lifschitz, writing by Hugh Bronstein; editing by Dan Grebler, Kenneth Barry and Andrew Hay)

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It’s back: District court judge revives SCO v IBM

Enlarge / DARL MCBRIDE THE EVER-LIVING.

Sad that Game of Thrones has wrapped up its third season? Looking for some drama to fill the time? We've got just the thing for you. One of the Internet's longest-running and most-hated lawsuits is back: SCO v. IBM has been reopened by Utah district court judge David Nuffer.

The case stretches back ten years to March 2003, when the SCO Group filed a massive $1 billion suit against IBM for allegedly contributing sections of commercial UNIX code from UNIX System V, which the SCO Group (allegedly) owned, to the Linux kernel's codebase. SCO Group claimed that the alleged presence of its proprietary code in the open source kernel devalued its proprietary code and that by making the source code available, IBM had violated its license agreement with SCO Group.

From there, the case spawned other cases and quickly ballooned to a truly ridiculous size and scope. The SCO Group demanded royalties from major companies using Linux and filed suit against several (including DaimlerChrysler and AutoZone. Novell stepped in, asserting that it actually held the copyright to the code SCO Group claimed was infringing, which then spun off into its own major lawsuit. Groklaw has an excellent and intricate timeline of the entire mess.

Throughout the case, SCO Group maintained three central claims: first, that it owned System V code that had been illegally used in the Linux kernel; second, that anyone who used Linux owed them money; and third, because the infringing code was proprietary, SCO refused to actually identify any of the code except under a highly restrictive NDA.

SCO Group CEO Darl McBride kept the fires of negative public opinion well-stoked as the cases continued, repeatedly stating that SCO "owned" UNIX and that there were "hundreds" of lines of infringing code in the Linux kernel (an estimate that was later revised to "more than a million").

Actually determining what UNIX code existed in the Linux kernel was a process that stretched out over a number of years and involved a lot of foot-dragging on SCO Group's part. In spite of numerous orders to produce actual evidence, SCO Group never presented a complete corpus of copied code. Samples of allegedly infringing code occasionally trickled out and were quickly analyzed and dismissed by an angry army of developers. In the end, SCO Group failed to produce anything, and in 2006 the court struck most of SCO Group's evidence.

All of the various lawsuits wound down, though it wasn't until 2010 that SCO v. Novell was definitively settled. Which brings us back, finally, to SCO v. IBM. SCO Group filed for bankruptcy back in 2007, but it's still at least somewhat alive and kicking. In March 2013, SCO Group asked the US District Court in Utah to consider its motion to reopen SCO v. IBM, which has been bouncing around the court system since 2011. The judge it's all landed on, David Nuffer, has decided to reopen the case, but he is sticking to the guidelines IBM has suggested on how things should proceed.

It's too early to tell what the possible implications are, and the new judge is taking things slowly as he familiarizes himself with the case. The parties involved are being asked to provide him with background information and details so that he can have at least some idea of what he's being asked to rule on. Groklaw has a number of predictions of how things might shake out; it's entirely possible that IBM will find its motions for summary judgment against SCO reaffirmed.

It's possible, though, that this latest round will drag on for a number of additional years. "Groan," comments Groklaw's Pamela Jones. "Who can believe this is still going on?"

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Myriad, fresh off Supreme Court loss, keeps on suing over gene patents

For years, Myriad Genetics has had a monopoly on testing two key genes related to breast and ovarian cancer, BRCA1 and BRCA2. But the Utah company's dominance was supposed to end last month. Doctors' groups, supported by the American Civil Liberties Union and the Public Patent Foundation, took their legal challenge against all patents on genomic DNA to the Supreme Court and won a unanimous decision.

"Myriad did not invent the BRCA genes and should not control them," said ACLU attorney Sandra Park, who worked on the case. "Because of this ruling, patients will have greater access to genetic testing and scientists can engage in research on these genes without fear of being sued."

One of the plaintiffs in the Myriad lawsuit, a breast cancer survivor named Lisbeth Ceriani, said that she was grateful other women wouldn't have to go through her ordeal—waiting more than 18 months for a critical test because she couldn't afford Myriad's price of more than $4,000. "I'm so glad that the Supreme Court agrees that women deserve full access to vital information from their own bodies," she said in the ACLU statement.

But while health advocates expected Myriad's dominance of testing in this area to be over, Myriad and its lawyers see things quite differently. The Supreme Court's allowance of patents on another type of genetic material—cDNA—means that Myriad can still stop competitors from offering specific types of tests relating to the genes. It has other, differently worded patents that the competing tests are still infringing, according to Myriad lawyers.

The company is still flush with genetic patents it says remain valid. It originally owned 520 valid patent claims, and the Supreme Court decision merely "reduc[ed] the overall patent estate to 24 patents and 515 patent claims," lawyers wrote in documents filed Tuesday and Wednesday. 

Myriad has earned $57 million from its monopoly on BRCA1 and BRCA2 tests, the company states in court documents. It's not giving up that revenue stream without another courtroom brawl.

PubPat director Dan Ravicher, e-mailing Ars from Beijing, described Myriad's new suits as a way to save face with Wall Street. He said the Supreme Court decision was a "total loss" for Myriad, and the synthetic cDNA they are focused on now is not needed for genetic testing. "I am confident they will lose these cases, too, so long as the defendants have the financial resources and institutional desire to fight," said Ravicher.

The new lawsuit is sure to anger advocates who were hoping for exactly the type of price competition Myriad is now trying to foreclose in court. 

Just hours after the Supreme Court decision was published, two competitors launched lower-cost tests. Ambry Genetics, based in Orange County, California, immediately offered its BRCAPlus test for $2,280; Houston-based Gene by Gene offered BRCA1 and BRCA2 testing for $995. Both are steeply discounted when compared to the price of Myriad Genetics' test, BRACAnalysis, which costs $4,040.

The alternative tests have already led insurers and HMO's to pressure Myriad to lower its price, according to a Myriad executive quoted in court documents. "This could lead to a competitive response by Ambry and even lower market prices. Additionally, other competitors potentially could enter the market at even lower prices."

Both Ambry and Gene by Gene engage in two "areas of infringing activities" that Myriad says are still covered by its patents: sequencing the BRCA1 and BRCA2 genes, and preparing synthetic DNA samples for BRCA1 and BRCA2 sequencing and analysis.

In the testing process, both companies prepare short pieces of synthetic DNA called "primers." When preparing those lab-made pieces of synthetic DNA, "scientists use natural DNA sequences as inspiration," write Myriad's lawyers. The suit claims that using those primers violates claims 16 and 17 of Myriad's Patent No. 5,747,282 and claims 19 and 20 of Patent No. 5,837,492.

The new lawsuits assert 10 different patents in all. Some of them originated at the University of Utah, the same institution that shared ownership of the Myriad genetic patents that were at issue in the Supreme Court case. Patents in this case are co-owned and shared with other research institutions, including the University of Pennsylvania and the Hospital for Sick Children based in Toronto. Those institutions receive royalty payments from Myriad's testing and are also plaintiffs in this case.

The suit emphasizes Myriad's investment of more than $500 million in tracking down the BRCA1 and BRCA2 genes. It succeeded in 1994, and "this discovery was universally hailed," Myriad's lawyers note.

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