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EU Inspects Four Firms in Oil Probe TOPICS: anticompetitive, Business Ethics, European Union, Price Fixing SUMMARY: European Union antitrust authorities carried out inspections at oil companies in three countries and a price-index publisher, part of an investigation into whether oil firms distorted published prices. "Commission officials carried out unannounced inspections at the premises of several companies active in and providing services to the crude oil, refined oil products and biofuels sectors," the European Commission said in a statement. "The commission has concerns that the companies may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products." That price-reporting firm was Platts, owned by McGraw Hill Co., a Platts spokeswoman said. Spokespeople for U.K.-based BP PLC, Anglo-Dutch firm Royal Dutch Shell PLC and Norway's Statoil ASA said they have been inspected and are cooperating with the probe. "Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers," the commission said. "Competition authorities suspect that several companies may have participated in anticompetitive agreements," Statoil spokesman Jannik Lindbaek Jr. said in an interview. "In addition, the inspection is about the potential abuse of a dominant position by another company." CLASSROOM APPLICATION: Price fixing or price collusion is an agreement between two or more companies to set a certain price on their products. This agreement is beneficial to competitors because it allows them to set a higher price than perhaps the market would normally allow. However, it also reduces competition and could lead to unfair prices for consumers. As a result, price fixing is illegal. The accusation that three oil companies used price fixing to set oil prices is serious. If these three oil companies are guilty of price distortion and/or price collusion, then they could have seriously manipulated the prices of oil, gas, and coal commodities. Considering how much consumers depend upon these commodities, such an agreement would not only make these companies liable for legal damages, but it could also seriously undermine their reputations among consumers. QUESTIONS: Reviewed By: OC Ferrell, University of New Mexico S&P Warns Credit-Rating Proposal Could Create 'New Conflicts' TOPICS: Business Ethics, Conflict of Interest, Credit Rating Agencies, Financial Crisis, S&P SUMMARY: Standard & Poor's Ratings Services President Douglas Peterson said Tuesday that a proposal to upend the credit-rating firms' business model would create new conflicts of interest and disrupt financial markets. Mr. Peterson told Securities and Exchange Commission commissioners, debt-issuers and others credit-rating industry participants at a round table discussion hosted by the SEC on Tuesday that regulators and lawmakers had made "tremendous progress" in increasing oversight of the credit-rating industry. The 2010 Dodd-Frank financial-overhaul law requires the SEC to create a board that would assign a rating firm to evaluate structured-finance deals or come up with another option to eliminate the conflicts that could arise when debt issuers pay rating firms to rate their bonds. "The proposed system could create new conflicts," Mr. Peterson said at the first of three panels at the all-day round table in Washington. "The system could be costly and slow to implement, causing uncertainty in the marketplace." Lawmakers and others have said the "issuer pays" business model helped give incentive to the rating firms to issue the overly rosy ratings on mortgage-linked deals that were later downgraded en masse, deepening the financial crisis. Mr. Peterson said a government board, such as that proposed in the Franken Amendment, shouldn't decide which rating firm rates a deal. "Issuers and investors," Mr. Peterson said, "are those that should be making decisions." The SEC has faced criticism from Mr. Franken and others for the lack of substantial changes to the credit-rating industry since the passage of the Dodd-Frank legislation in 2010. CLASSROOM APPLICATION: One of the major issues that lawmakers have been asking regarding the financial crisis is whether credit rating agencies used accurate ratings when assessing the financial health of certain companies. Companies themselves pay for the ratings, and it has not been unheard of for companies to "shop" for ratings. Because the credit rating agencies were getting paid by the companies, some believe that they had a serious conflict of interest that may have caused them to overlook warning signs in the companies, which they rated highly. These overly rosy ratings masked the serious financial trouble many of these companies were in. Therefore, the government has been considering changing the system so that a government assigned board would assign rating firms to evaluate structured finance deals. This could eliminate the conflict of interest, as credit rating agencies would no longer be getting paid by the companies they are issuing ratings for. However, the S&P Ratings Services President has criticized this proposal, stating that it would end up creating even more conflicts such as new conflicts of interest, higher costs, and uncertainty in the marketplace. QUESTIONS: Reviewed By: OC Ferrell, University of New Mexico Indiana Farmer Loses Fight Over Monsanto Seed Patent TOPICS: Business Ethics, Monsanto, Patent Infringement, Supreme Court SUMMARY: The Supreme Court afforded broad patent protection to genetically engineered seeds Monday, siding with biotech giant Monsanto Co. in its dispute with an Indiana farmer. The court unanimously found that farmer Vernon Bowman violated Monsanto's patent on herbicide-resistant soybean seeds by using them to grow successive generations of similarly endowed crops, rather than consuming or selling the seeds. A patent holder can prohibit others from reproducing its invention, but under a doctrine known as "patent exhaustion," the holder has no power over what someone does with a purchased product. The question was how to understand what Mr. Bowman did: Was he simply using the seed for its normal function by planting it to raise successive harvests, or did using the seed to reproduce itself infringe on Monsanto's patent? The court said it was the latter. Justice Elena Kagan wrote for the court in a brief, 10-page opinion suggesting the justices found the question simpler to resolve than they may have initially expected. Mr. Bowman's "seeds-are-special argument"-that seeds, unlike most products, naturally sprout replications of themselves-died on the vine, Justice Kagan wrote, because the farmer must undertake to plant and nurture his crop to attain a harvest. Monsanto General Counsel David Snively hailed the ruling as a victory for innovation, protecting "breakthrough 21st-century technologies that are central to meeting the growing demands of our planet and its people." CLASSROOM APPLICATION: The Supreme Court awarded a victory for the biotechnology industry when it supported Monsanto in its case against farmer Vernon Bowman. Bowman had grown successive generations of crops using Monsanto's genetically engineered seeds without permission or payment to the firm. Bowman argued that growing a successive crop from the purchased seeds was not copying the product, and he believed that since he had purchased the seed, he should be able to use it as many times as he wanted. Monsanto claimed that the license of the seeds it sells only extends to one generation; to do otherwise would be infringing on its patent and could act as a serious detriment to innovation in this area. The Supreme Court took very little time to discuss the argument before ruling in favor of Monsanto. QUESTIONS: Reviewed By: OC Ferrell, University of New Mexico |
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