Resale Price Maintenance Should Remain Per Se Illegal: FTC Commissioner


Vertical minimum price fixing “is almost always harmful to consumers,” creates no incentive for distributors and retailers to become more cost-effective in the delivery of goods and services, and “typically leads to higher prices without bestowing countervailing benefits,” according to FTC Commissioner Pamela Jones Harbour.

Thus, the U.S. Supreme Court should “keep these principles in mind” when it considers overruling the long-held rule of per se illegality for resale price maintenance, Commissioner Harbour wrote in a February 26 “Open Letter” to the Supreme Court.

Review of Long-Standing Rule

The Court is reviewing a decision of the U.S. Court of Appeals in New Orleans that resale price maintenance is per se unlawful (Leegin Creative Leather Products, Inc. v. PSKS, Inc., 2006-1 CCH Trade Cases ¶75,166). The decision relied on the 1911 Supreme Court decision in Dr. Miles Med. Co. v. John D. Park & Sons Co. (230 U.S. 373), which established the per se rule against resale price fixing.

In this case, Leegin (a manufacturer of women’s accessories) announced that it would do business only with retailers that followed the suggested retail prices for its Brighton line of products. When retailer PSKS placed its Brighton products on sale, Leegin cut off all further supplies.

PSKS brought suit under Section 1 of the Sherman Act, alleging that Leegin entered into illegal agreements with retailers to fix retail prices and terminated PSKS as a result of those agreements. A jury found in favor of PSKS and awarded $1.2 million in damages.

On appeal, Leegin did not dispute the finding that it had entered into price-fixing agreements; it challenged only the application of the per se rule. The appeals court affirmed the district court judgment. “Because the [Supreme] Court has consistently applied the per se rule to such agreements, we remain bound by its holding in Dr. Miles Medical Co,” the court held.

Federal Government's View

Commissioner Harbour’s view is contrary to that of the federal government—including three FTC Commissioners—which filed an amicus brief on January 22, 2007. The government argued that a minimum pricing agreement between a supplier and its dealer should not constitution a per se violation of Section 1 of the Sherman Act because (1) Dr. Miles was based on reasoning and economic assumptions that predated and conflicted with modern economic theory and (2) the current presumptive standard for assessing the legality of the conduct at issue was the rule of reason, which examines the reasonableness of a given restraint in the context of a particular case.

The amicus brief further contended that the principle of stare decisis had less force in the antitrust context because Congress expected the Court to give continuing shape to the meaning of the antitrust laws, thereby reflecting “changed circumstances and the lessons of accumulated experience.” Current theory holds that the effects of resale price maintenance could be anticompetitive or procompetitive, depending on the facts in a given situation. Thus, a per se rule was “clearly inappropriate.”

Nevertheless, Commissioner Harbour asserted that overruling Dr. Miles would be erroneous as a matter of law, would constitute bad economic policy, would run contrary to Congressional findings and intent, and would be unsupported by the facts in the Leegin case itself.

The 20-page "Open Letter" appears on the FTC web site. Oral argument of the Leegin case is scheduled for March 26.

Antitrust Modernization Commission Given More Time to Close Out Operations

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

President George W. Bush signed the “Antitrust Modernization Commission Extension Act of 2007” on February 26. The law will provide the Antitrust Modernization Commission (AMC) with extra time to close out its operations following its report to Congress and the President. The legislation (H.R. 742) was presented to the President on February 16.

The AMC is expected to submit its report containing its findings and recommendations on the future of the federal antitrust laws on April 2, 2007. Pursuant to the new law, the AMC will have 60 days after submission of the report to cease operations.

Under the Antitrust Modernization Commission Act of 2002 (Trade Regulation Reports ¶27,640), the AMC had been required to disband within 30 days of the deadline for submitting its report.

The AMC was created in 2002 to examine the need to modernize the federal antitrust laws, solicit public comment concerning the operation of the antitrust laws, evaluate current practices and proposals for change, and submit recommendations to Congress and the President. Further information regarding hte AMC appears at the Commission web site.

Physician's Professional Conduct Is Subject to Kansas Consumer Protection Act

This posting was written by Mark Engstrom, editor of CCH State Unfair Trade Practices Law.

The Kansas Consumer Protection Act should be liberally construed to allow claims against physicians who engage in deceptive or unconscionable professional conduct, the Kansas Supreme Court has ruled. Because the state legislature did not explicitly exclude physicians from the scope of the Act, a physician could be sued under the KCPA for alleged misrepresentations about patient care and treatment.

Therefore, a patient could proceed with a KCPA claim against her doctor, who allegedly misrepresented or concealed material facts about the success rate of a surgical procedure he was recommending.

According to the patient, the doctor represented that the procedure had a "high likelihood" of success when, in fact, he knew or should have known that the procedure had produced "bad results" for the majority of his patients. The doctor unsuccessfully argued that the patient's KCPA claims were an impermissible attempt to creatively plead medical malpractice.

Scope of the Act

The plain language of the KCPA was broad enough to encompass the provision of medical care and treatment services within the context of a physician-patient relationship, the court decided. Moreover, the fact that the KCPA had specifically excluded other persons and transactions indicated that the legislature knew how to exclude specific categories of people and transactions from the Act, and could have excluded physicians, as well, had it intended to do so.

Although courts in other states had articulated "persuasive policy reasons" for excluding physicians from liability under their consumer protection laws, those courts generally relied on specific statutory language that limited the scope of those laws to entities engaged in trade or commerce. The KCPA, the court noted, did not contain any such "trade or commerce" language.

Finally, despite the doctor's contention that the Kansas legislature had adopted a "comprehensive statutory scheme" for litigating medical malpractice cases, and thus had made it clear that claims against physicians were not intended to be remedied under the KCPA, the legislature had not passed any statute prohibiting the application of the KCPA to medical negligence claims.

Expert Testimony

In order to establish whether the physician had actually violated the KCPA by failing to affirmatively disclose his experience and/or actual success rate, expert testimony would be required, the court ruled. Under the KCPA, a finding of liability for failing to disclose a material fact required proof of a willful failure to state the fact, or a willful concealment, suppression, or omission of the fact. Before one can willfully fail to disclose a material fact, however, there must be an obligation to disclose that fact. Ordinarily, expert testimony was required to establish a physician's professional obligations, i.e., the standard for what a reasonable medical practitioner would have disclosed under similar circumstances.

The case is Williamson v. Amrani, Kansas Supreme Court, No. 95,154, filed February 9, 2007, CCH State Unfair Trade Practices Law ¶31,349.

Senate Panel Approves Bill To Ban Some Drug Patent Settlements

This posting was written by John Scorza, CCH Washington Correspondent.

The Senate Judiciary Committee has passed a bill to prohibit brand-name drug companies from compensating generic drug companies to delay the entry of generic drugs to the market, a practice known as an "exclusion payment settlement." The committee passed the bill—the "Preserve Access to Affordable Generics Act" (S. 316)—on February 15, clearing the measure for consideration by the full Senate.

The bill's supporters say it would lead to more robust competition by generics and could save consumers billions of dollars.

"I believe today's vote shows that many of my colleagues agree that these settlements are anticompetitive and that brand and generic drugs are abusing this practice," sponsor Sen. Herb Kohl (D, Wisconsin), observed. "Our solution is very simple: Make these anti-consumer patent settlements illegal."

The FTC supports the bill. FTC Commissioner Jon Leibowitz told the Judiciary Committee in January that exclusion payment settlements "restrict competition at the expense of consumers, whose access to lower priced generic drugs is delayed, sometimes for years." Leibowitz said these types of settlements are on the rise as the result of two 2005 appellate court cases that took a lenient view of them.

A recent FTC study documented the increase. It found that half of the 28 final patent settlements in 2006 between brand-name drug manufacturers and their potential generic drug competitors involved compensation to the generic drug manufacturers and agreements from the generic firms to delay the launch of their equivalent products. By comparison, none of the 14 settlements in 2004 contained those provisions.

Not surprisingly, the pharmaceutical industry opposes the bill. It contends that strong patents are necessary to allow pharmaceutical companies to recoup their investments. Blanket prohibitions on certain types of settlements could lead to extended patent litigation, the drug companies say.

Jury Finding of Walker Process Fraud Overturned

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

An ice cream product manufacturer’s failure to disclose, in a patent application, sales of the product made more than a year before the application was filed did not support a finding of patent procurement through fraud on the Patent Office, the U.S. Court of Appeals for the Federal Circuit has held.

A jury’s determination that the manufacturer violated the antitrust laws by asserting a patent procured by fraud on the Patent Office was reversed, and an award of attorney fees under the Clayton Act (2005-2 Trade Cases ¶74,996) was vacated.

The heightened standard of materiality in a Walker Process case required that the patent would not have issued but for the patent examiner’s justifiable reliance on the patentee’s misrepresentation or omission. Materiality was established based on a finding that the patent would not have issued if the manufacturer had disclosed the relevant sales.

However, it could not be said that the omission of the sales was done with fraudulent intent. In order to find a prosecution omission fraudulent, there had to be evidence of intent separable from the simple fact of the omission. An omission could happen for any number of non-fraudulent reasons, the court noted. The applicant could have had a good-faith belief that disclosure was not necessary or could have forgotten to make the required disclosure.

The manufacturer’s argument for not disclosing the relevant sales to the Patent Office was not refuted to the extent necessary for a reasonable jury to find Walker Process fraud, according to the court.

The case is Dippin’ Dots, Inc. v. Mosey, Docket Nos. 2005-1330 and 2005-1582, decided February 9, 2007. It is reported at 2007-1 Trade Cases ¶75,590.

Punitive Damages Not Recoverable for Injury to Nonparties: Supreme Court

This posting was written by William Zale, editor of CCH Advertising Law Guide.

The U.S. Supreme Court has vacated a state court jury's $79.5 million punitive damages award against tobacco company Philip Morris in a wrongful death action. The Due Process Clause of the U.S. Constitution prohibited an award of punitive damages based in part on harm to nonparties, the Court held.

The action was brought by the widow of a man who died of lung cancer, caused by cigarette smoking. She claimed that Philip Morris committed fraud by using its advertising power in a 40-year publicity campaign to undercut published concerns about the dangers of smoking. A jury found Philip Morris liable for its deceit in knowingly and falsely leading the decedent to believe that smoking was safe, awarding $821,000 in compensatory damages and $79.5 million in punitive damages.

The Oregon Supreme Court upheld the punitive damage award, stating that it comported with due process, in view of the extreme and outrageous conduct by Philip Morris (CCH Advertising Law Guide ¶62,127). Philip Morris then requested Supreme Court review, asking (among other things) whether due process permits a jury to punish a defendant for the effects of its conduct on nonparties.

On review, the U. S. Supreme Court acknowledged that evidence of actual harm to nonparties was admissible to show that the conduct harming the plaintiff also posed a risk of substantial harm to the general public, and thus was particularly reprehensible. However, contrary to the view of the Oregon Supreme Court, there was no authority supporting the use of punitive damages for the purpose of punishing a defendant for harm to nonparties, the Court said.

The trial court refused the company's proposed instruction that the jury could not seek to punish Philip Morris for injury to other persons not before the court. The plaintiff's attorney told the jury that cigarettes were going to kill one in every ten smokers and that Philip Morris' market share would account for one of every three killed.

The Due Process clause required that states provide assurance that juries do not impose punishment for harm caused to strangers, the Court held. How could it be known whether a jury, in taking account of harm to others under the rubric of reprehensibility, also sought to punish the defendant for having caused injury to others? The answer, according to the Court, was that state courts could not authorize procedures that would create an unreasonable and unnecessary risk that any such confusion would occur.

In particular, where the risk of that misunderstanding was a significant one (because of the evidence or arguments made to the jury), the trial court, upon request, was required to protect against that risk. Although the states had some flexibility in determining what kind of procedures they would implement, federal constitutional law obligated them to provide some form of protection in appropriate cases, the Court determined.

The Court left undecided whether the $79.5 million award was “grossly excessive” under the Constitution. The Court remanded the case to the Oregon Supreme Court to determine whether a new trial was required or whether the amount of the award should be changed.

The decision, Philip Morris USA v. Williams, No. 05-1256, February 20, 2007, will be reported in the CCH Advertising Law Guide.

Supreme Court Imposes Brooke Group Standard on Predatory Bidding Claim

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

A unanimous U.S. Supreme Court has ruled that the test applied to claims of predatory pricing in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (1993-1 Trade Cases ¶70,277) applied to a defunct lumber mill's predatory bidding claim against lumber giant Weyerhaeuser Company.

The Supreme Court vacated a decision of the U.S. Court of Appeals in San Francisco (2005-1 Trade Cases ¶74,817), upholding a $26 million jury verdict against Weyerhaeuser (trebled to approximately $79 million) on the sawmill's monopolization claim.

Weyerhaeuser had argued that the sawmill's claim failed as a matter of law because it did not satisfy the Brooke Group standard. Under the Brooke Group test, a plaintiff seeking to establish competitive injury resulting from a rival's low or predatory prices was required to: (1) prove that the prices complained of were below an appropriate measure of its rival's costs and (2) demonstrate that the competitor had a dangerous probability of recouping its investment in below-cost prices.

Noting that predatory pricing and predatory bidding claims were analytically similar, the High Court ruled that, in order to succeed on its predatory bidding claim, the sawmill had to prove that: (1) the alleged predatory bidding led to below-cost pricing of the alleged predator's outputs (the predator's bidding on the buy side caused the cost of the relevant output to rise above the revenues generated in the sale of those outputs); and (2) the alleged predator had a dangerous probability of recouping the losses incurred in bidding up input prices through the exercise of monopsony power.

Both predatory pricing and predatory bidding claims involved the deliberate use of unilateral pricing measures for anticompetitive purposes. And both claims logically required firms to incur short-term losses on the chance that they might reap supracompetitive profits in the future, according to the Court.

The complaining sawmill blamed Weyerhaeuser for driving it out of business by bidding up input costs. It argued that Weyerhaeuser overpaid for alder saw logs to cause saw log prices to rise to artificially high levels as part of a plan to drive it out of business. As proof that this practice had occurred, the sawmill pointed to Weyerhaeuser's large share of the alder purchasing market, rising alder saw log prices during the alleged predation period, and Weyerhaeuser's declining profits during that same period.

During the nine-day trial, the jury was instructed that the sawmill could prove that Weyerhaeuser's bidding practices were anticompetitive acts if the jury concluded that Weyerhaeuser “purchased more logs than it needed, or paid a higher price for logs than necessary, in order to prevent the complaining sawmill from obtaining the logs they needed at a fair price.”

The trial court denied Weyerhaeuser's motions for judgment as a matter of law or for a new trial, which were based in part on Weyerhaeuser's argument that the sawmill had not satisfied the Brooke Group standard.

The appellate court affirmed the verdict against Weyerhaeuser. Because the sawmill conceded that it had not satisfied the Brooke Group standard, there was no support for the jury's verdict.

The decision—delivered by Justice Thomas—is Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., Docket No. 05-381, decided February 20, 2007.

Franchise Association Hails China’s New Regulation

China’s new franchise regulation has been praised by the International Franchise Association (IFA) as a significant improvement over earlier proposals. According to the IFA, the new regulation "came about as a result of intensive efforts by the International Franchise Association to build strong relations with the Chinese government.” The association’s leadership “made extensive presentations . . . to support the case for a more tolerable regulatory regime.”

The U.S franchise association cites the following achievements in the rulemaking process:

■ The elimination of a proposed provision that would have imposed liability on franchisors for loss caused by the products or services of suppliers designated by the franchisor, even in the absence of any financial relationship between the franchisor and the supplier.

■ The imposition of a “notice filing” form of franchise registration rather than an “approval” process.

■ The elimination of the requirement that franchisors operate at least two company-owned units in China for at least one year prior to offering franchises. The “in China” requirement was dropped.

The global community of franchising should be encouraged by these steps,” said IFA President Matthew Shay.

The Washington, D.C.-based organization will now address the upcoming Implementation Guidelines “to ensure that those hard-won gains will not be lost,” observed David French, IFA Vice President of Government Relations. “We welcome comments from all segments of the franchising world as we formulate our own thinking and strategy in that regard.”

China’s New Franchise Regulations Require Disclosure, Registration

The anticipated China franchise regulations—entitled “Commercial Franchise Administration Regulation”—have been released and will become effective on May 1.

The new regulations require franchisors to make presale disclosures, register within 15 days of signing the first franchise agreement, and impose a duty of good faith and fairness on the parties to a franchise agreement.

The language of the disclosure requirement has been significantly changed, according to Toronto franchise attorney Paul Jones. The State Council or the Ministry of Commercial may require information other than the items listed in the regulation.

The rule states that “related” information may not be concealed, that franchisees be promptly informed of significant changes, and that a franchisee may terminate a contract for the franchisor’s concealment of information or provision of false information. Franchisors must estimate whether the franchisee’s business is doing well or not.

The regulations mandate that franchisors register with the local Ministry of Commerce within 15 days of signing the first franchise agreement; provide a copy of the standard franchise agreement, operating manual and marketing plan; and certify that the agreement conforms to the regulations.

Franchisors are required to have a “mature management pattern” sufficient to provide support to franchisees and requires franchisors to have owned two locations for at least one year before offering franchises. The parties to the franchise are obligated to conduct themselves fairly and “in good faith.”

Official text of the regulations appear at the Chinese language web site of the China Chain Store & Franchise Association. An unofficial English translation will appear in an upcoming report of the CCH Business Franchise Guide.

Advertising Not Shown to Deceive Substantial Segment of Audience

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

Where a motion picture had grossed more than $40 million, 18 affidavits were not enough to show that a substantial segment of the film's audience was deceived by the film's advertising, as required to support a Lanham Act, Sec. 43(a) false advertising claim, according to the U.S. Court of Appeals in Chicago. Summary judgment in favor of the defending film studio was affirmed.

The film, Hardball, was based on a book about a youth baseball league in economically depressed areas of Chicago. The advertising for the film claimed that it was "inspired by a true story." A coach and co-founders of the league contended that a particular character in the film, although purportedly fictitious, was easily identifiable as him, and that the movie portrayed him in a false and negative light. According to the coach, the movie falsely implied that he had a drinking problem and had become a youth baseball coach in order to pay off a gambling debt.

In bringing false advertising claims against the movie studio, the coach presented 18 affidavits from viewers of the film who knew him personally or had personal knowledge of his association with the league. The affidavits all stated the affiants' belief that the main character in the movie was portraying the complaining individual and listed specific reasons for the belief.

In order to establish a claim of false advertising under Sec. 43(a) of the Lanham Act, a plaintiff must show both “a material false statement of fact in a commercial advertisement and that the false statement deceived or had a tendency to deceive a substantial segment of its audience,” the court stated.

Even if the advertisements had contained a material false statement of fact, the coach’s claim would fall short based on his failure to demonstrate that a substantial segment of the movie’s audience was deceived by the advertisements. Most of the viewers of the ads presumably did not have the same personal acquaintance with the coach as the 18 affiants. The affidavits constituted the type of de minimis evidence insufficient to withstand a motion for summary judgment, the court held.

The case is Muzikowski v. Paramount Pictures Corp., U.S. Court of Appeals for the Seventh Circuit, Nos. 05-3004 and 05-3005, decided February 8, 2007 (2007-1 Trade Cases ¶75,587).

Distributor’s Termination Not Result of Price Fixing Conspiracy

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

A distributor of tile installation products failed to establish that its termination was the result of a price fixing conspiracy, the U.S. Court of Appeals in Chicago has ruled. Dismissal of the distributor's antitrust claims (2006-1 CCH Trade Cases ¶75,167) was affirmed.

The termination of the distributor, following complaints from other distributors, did not establish concerted action among competing distributors such that a reasonable jury could find a horizontal conspiracy, the court decided. That all of the competing distributors complained to the supplier about the terminated distributor's prices did not create a genuine issue of material fact. Such complaints were natural and unavoidable reactions by distributors to the activities of their rivals.

Moreover, distributors' threats to carry competing brands or to stop promoting the supplier's brand did not support the inference that the competing distributors conspired together to boycott the supplier unless it terminated the complaining distributor, the court explained.

The distributor's termination did not establish a per se illegal vertical conspiracy aimed at stabilizing prices. There was no evidence of some agreement on price or price levels, according to the court. Under the proposed post-termination plan, key distributors allegedly were given a “heads up,” so they could be “up and rolling” before the complaining distributor learned of its termination.

There was also evidence of a post-termination sales blitz involving concerted activity between the supplier and the competing distributors. There was no question that the supplier and its other distributors acted in concert regarding non-price issues like retaining customer accounts and promoting the the supplier's product, even going so far as to blitz the market upon the complaining firm's termination.

Nonetheless, a reasonable jury could not have inferred concerted action to fix prices from the fact that the supplier and its other distributors acted in concert in other respects. The evidence did not sufficiently exclude the possibility that the supplier and its non-terminated distributors were acting independently, the court decided.

The decision is Miles Distributors, Inc. v. Specialty Construction Brands, Inc., No.06-1992, decided February 6, 2007 (2007-1 Trade Cases ¶75,584).

Senate Antitrust Subcommittee Sets Active Agenda for 2007

This posting was written by Darius Sturmer, editor of CCH Trade Regulation Reporter.

The Senate Subcommittee on Antitrust, Competition, and Consumer Rights plans an active agenda of hearings and legislation in 2007, according to Subcommittee Chair Herb Kohl (Wisconsin) and Ranking Member Orrin Hatch (Utah).

The Subcommittee expects to scrutinize closely the antitrust enforcement activities of both the Department of Justice and the Federal Trade Commission, including holding an antitrust oversight hearing. It will review the recommendations for antitrust law reform contained in the Antitrust Modernization Commission’s anticipated April 2007 report, including whether any legislation is necessary to implement meritorious recommendations in the report.

According to Senators Kohl and Hatch, the Subcommittee also plans to address issues in the pharmaceutical industry, the gas and oil markets, the airline industry, railroad industry, telecommunications industry, media sector, agricultural markets, health care, and international markets.

One particular focus will be eliminating barriers to the entry of generic competition to brand name drugs. To this end, Senator Kohl intends to pursue legislation to ban “reverse payment” patent settlements, in which brand name drug manufacturers pay off generic makers to forestall the introduction of those generics into the marketplace.

Other features of the agenda will include (1) close examination of the likely competitive effects of several proposed airline mergers; (2) the investigation of dominant railroad shippers’ practices; (3) advocacy of proposed changes to the Telecommunications Act to promote competition and to consider ways the Justice Department can play a role in protecting that competition; (4) examination of the need to renew the program access law so that all cable and satellite providers will have access to programming necessary to compete effectively; (5) scrutiny of agricultural consolidation; (6) evaluation of whether hospital group purchasing organizations operate as intended to lower costs for hospitals, caregivers, and patients; and (7) close consideration of how U.S. multinational companies have been affected by difference antitrust regimes in various countries.

Finally, the Subcommittee will examine whether legislation would be advisable in the area of industry standards and the standard-setting, in view of recent controversies over the competitive effects of such standards.

“Pretexting” Bill Proposed as Part of Privacy Push

This posting was written by Ted Gotsch of Telecommunications Reports International, Inc.

Top lawmakers on the U.S. House Energy and Commerce Committee unveiled proposed legislation to prohibit parties from “pretexting” (fraudulently obtaining of phone records) and to beef up security requirements for customer proprietary network information (CPNI).

Committee Chairman John Dingell (D., Mich.) and Rep. Joe Barton (R., Texas) introduced the Prevention of Fraudulent Access to Phone Records Act (H.R. 936) on February 8, as part of a slate of measures tackling privacy matters during National Consumer Protection Week. Mr. Dingell said the committee plans to make quick work of all of them.

"We intend to process these bills by regular order in the committee and report them expeditiously to the House," he said. "We will work cooperatively with other committees to resolve jurisdictional differences, and with stakeholders (government regulators, consumer groups, and business) to resolve policy issues."

Rep. Barton said he hoped the panel would approve the proposal, as it approved a similar measure last year.

"Pretexting is pretending to be somebody you're not, to get something you probably shouldn't have, to use in a way that's probably wrong," he said. "This committee did its part last year to pass a bill that made it abundantly clear where the federal government stands regarding pretexting for personal records. . . . and I hope we do it again.”

The bill would outlaw the obtaining of CPNI under false pretenses and would bar the sale or disclosure of phone records gleaned in a fraudulent manner. The Federal Trade Commission would be charged with enforcing the law.

The measure is the second House bill introduced this week that attempts to tackle the pretexting issue. Reps. Jay Inslee (D., Wash.) and Marsha Blackburn (R., Tenn.) also reintroduced a measure they sponsored last session. H.R. 852, introduced on February 6, would prohibit the acquisition of customer information from telecommunications carriers by false pretenses and the sale or disclosure of such records obtained by false pretenses.

Telecommunications Reports International Inc. is a division of Aspen Publishers Inc., a Wolters Kluwer Company. Further information about Telecommunications Reports is available at www.tr.com.

Bills Would Extend Term of Antitrust Modernization Commission

Proposals to extend the term of the Antitrust Modernization Commission (AMC) by 30 days were introduced in the House of Representatives (H.R. 742) and Senate (S. 480) on January 31 and February 1, respectively. H.R. 742 was passed by the House on a voice vote on February 7.

The Commission was created in 2002 to examine the need to modernize the federal antitrust laws, solicit public comment concerning the operation of the antitrust laws, evaluate current practices and proposals for change, and submit recommendations to Congress and the President.

The Antitrust Modernization Commission Act instructed the Commission to submit a report containing its findings and recommendations to Congress and the President within three years of its first meeting. (The report is due April 2, 2007.) The Commission was then required to disband within 30 days of the deadline for submitting the report. The proposed legislation would extend the period for the Commission's termination to 60 days after the report deadline.

Explaining the need for the measure, House bill sponsor Rep. John Conyers (Michigan), voiced a concern by Commission members that dismantling the Commission would require it to begin archiving its records prior to completion of the report, which would likely affect the integrity of the report. Senate bill sponsor Herb Kohl (Wisconsin) similarly urged his fellow senators to grant the AMC extra time to close out its operations, noting the Commission's limited staff resources and its need yet to transfer acquired property to other government agencies.

Identity Theft Again Tops FTC List of Consumer Complaints


For the seventh consecutive year, identity theft led the list of consumer complaints to the Federal Trade Commission, according to an annual report issued February 7. The 246,035 identity theft complaints accounted for 36 percent of the 674,354 total complaints lodged during the 2006 calendar year.

The number of identity theft complaints dwarfed other categories in the top five: shop-at-home/catalog sales (7 percent); prizes. sweepstakes, and lotteries (7 percent); Internet services and computer complaints (6 percent); and Internet auction fraud (5 percent).

According to the Commission, consumers reported fraud losses totaling more than $1.1 billion, with the medium monetary loss being $500. Credit card fraud was the most common form of identity theft (25 percent), followed by phone or utilities fraud (16 percent), bank fraud (16 perent), and employment fraud (14 percent).

“Consumers’ help in stopping unlawful operations is critical,” said FTC Chair Deborah Platt Majoras. “By filing a complaint with the FTC, consumers are making information available to more than 1,600 law enforcement agencies that have access to our secure database.”

To file a complaint, a consumer may fill out a form at www.ftc.gov or call 1-877-FTC-HELP.

For the first time, complaint data was broken out by metropolitan statistical area. A list of statistical areas for the 350 metropolitan areas with populations greater than 100,000.can be found here on the FTC web site.

The metropolitan areas with the most complaints per 100,000 people were (1) Greeley, Colorado; (2) Albany-Lebanon, Oregon; (3) Napa, California; (4) Provo, Utah; and (5) Willimantic, Connecticut.

Complaint data has been sorted into 16 categories of fraud. They are:


1 Identity Theft ...........................................246,035..........36%
2 Shop-at-Home/Catalog Sales.....................46,995...........7%
3 Prizes/Sweepstakes and Lotteries...............45,587...........7%
4 Internet Services, Computers.....................41,243...........6%
5 Internet Auctions.......................................32,832...........5%
6 Foreign Money Offers................................20,411...........3%
7 Advance-Fee Loans,Credit.........................10,857............2%
8 Magazines and Buyers Clubs......................8,924.............1%
9 Telephone Services.....................................8,165............1%
10 Health Care..............................................7,467............1%
11 Bus. Opps and Work-at-Home Plans........7,460...........1%
12 Travel, Vacations, Timeshare..................6,712............1%
13 Office Supplies, Services.........................5,723............1%
14 Grants, Scholarships..............................5,310............1%
15 Employment/Job Counselors..................4,485............1%
16 Investments...........................................3,630............1%
Other Coded Complaints...........................12,399...........2%


The information is contained in a report--Consumer Fraud and Identity Theft: Complaint Data, January-December 2006. The report appears here on the FTC web site.

Antitrust Modernization Commission to Hold Public Meeting on Recommendations

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

The Antitrust Modernization Commission will hold a public meeting on February 22 to deliberate on possible recommendations regarding the antitrust laws to Congress and the President. The meeting will be held in the main conference room at the law offices of Morgan Lewis, 1111 Pennsylvania Avenue, N.W., Washington, D.C.

Materials relating to the meeting will be made available on the AMC web site [www.amc.gov] in advance of the meeting. For additional information, contact Andrew J. Heimert, Executive Direct and General Counsel, Antitrust Modernization Commission by telephone (202-233-0701) or e-mail (info@amc.gov).

Interested members of the public are invited to attend, with advance registration required. Persons wishing to attend should submit their names by e-mail (meetings@amc.gov) or call Mr. Heimert before noon on February 21.

The Antitrust Modernization Commission was created by statute in 2002 to (1) examine whether the need exists to modernize the antitrust laws and to identify and study related issues, (2) solicit views of all parties concerned with the operation of the antitrust laws, (3) evaluate the advisability of proposals and current arrangements with respect any issues identified, and (4) prepare and submit a report to Congress and the President.

The Commission consists of 12 members—four appointed by the President, four appointed by the leadership of the Senate, and four appointed by the leadership of the House of Representatives.

Compulsory Licensing Imposed on Rambus for Abusing Standard-Setting Process

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

Rambus Inc., a developer and licensor of computer memory technologies, has been required by the FTC to refrain from making misrepresentations or omissions to standard-setting organizations and to adhere to licensing obligations, under a February 2 final order.

The order was designed to remedy the effects of the unlawful monopoly Rambus established in the markets for four computer memory technologies that were incorporated into industry standards for dynamic random access memory—DRAM chips. DRAMs are widely used in personal computers, servers, printers, and cameras.

A unanimous Commission concluded last summer that Rambus engaged in monopolistic practices in violation of Sec. 5 of the FTC Act by abusing the process for setting industry standards for DRAM chips (2006-2 Trade Cases ¶75,364). However, the five members could not agree on the appropriate extent of the licensing obligations to be imposed.

All five Commissioners agreed that the Commission had the authority to require royalty-free licensing under certain circumstances. Complaint counsel had asked the Commission to impose such a remedy.

According to the majority, however, complaint counsel failed to satisfy their burden of demonstrating that a royalty-free remedy was necessary to restore the competition that would have existed in the “but for” world. The majority instead determined the maximum reasonable royalty rate that Rambus was permitted to charge for the relevant technology.

Rambus was barred from collecting or attempting to collect more than the maximum allowable royalty rates from companies that might already have incorporated its DRAM technology. Commissioners J. Thomas Rosch and Pamela Jones Harbour dissented from the majority's decision to impose above-zero royalty rate licensing provisions.

The final order also prohibits Rambus from misrepresenting its patents or patent applications to any standard-setting organization or its members. It requires that Rambus abide by standard-setting organizations’ requirements or policies to make complete, accurate, and timely disclosures of its patents or patent applications. In addition, the order requires Rambus to employ a Commission-approved compliance officer to ensure disclosure of intellectual property rights to standard-setting organizations and to verify the accuracy of the company’s periodic reports to the Commission.

The February 2 Commission opinion and final order In the Matter of Rambus Incorporated, FTC Dkt. 9302, appear on the FTC web site.

Is Failure to Disclose Product Placement Deceptive Advertising?

With the Super Bowl fast approaching, our attention naturally turns to advertising. Not the hyped 30-second commercial spots—going for a reported $2.6 million during this year’s game—or even the sponsorship gambits that the NFL is so good at.

This posting is about the more subtle advertising method of product placement. “Product placement” is the integration of a brand’s product in a movie, play, television show, music video, or even computer or video game in exchange for some type of compensation.

Famous examples of product placement include the use of Reese’s Pieces in the film “E.T.,” the employment of the DeLorean automobile in the “Back to the Future” movies, the prominent placement of Coca-Cola glasses in front of the “American Idol” judges, and even the familiar orange Gatorade jug at NFL games.

While the EU and other foreign jurisdictions have started regulating product placement, the U.S. has not. Some public interest groups have pushed for regulation, but to no avail.

Commercial Alert, an organization founded by Ralph Nader, formally asked the Federal Trade Commission and Federal Communications Commission to require the disclosure of product placements in a clear and conspicuous fashion. According to the organization, the failure to disclose that advertisers pay for product appearances in programming constitutes an unfair or deceptive practice in violation of the Section 5 of the Federal Trade Commission Act.

In a February 10, 2005 letter, Mary K. Engle of the FTC responded that “there may be instances in which the line between advertising and programming may be blurred, and consumers may be deceived, absent a disclosure clarifying that a communication is an advertisement. However, we believe that the existing statutory framework provides sufficient tools for challenging any such deceptive acts or practices.”

Recently, the National Advertising Division of the Council of Better Business Bureaus brought an inquiry regarding statements about dating service Perfectmatch.com made in the Lifetime Channel’s “Lovespring International,” a situation comedy about a fictional online dating service.

Perfectmatch.com sponsored the show and had an agreement for the Lifetime Channel to “integrate” the real life dating service into the program. In one episode, the boss of the fictional dating service asks “Do you know how many people have signed up for Perfectmatch.com in the last five minutes? 1,623!”

The NAD questioned whether that statement constituted an advertising claim and whether such a claim was substantiated. Perfectmatch.com responded by stating that it had no script or content control and no right to approve the show. The program is partially scripted and partially improvised. The actors can say what they want, as long as it isn’t slanderous.

In a case of first impression, the NAD found that Perfectmatch.com “had insufficient control over the content to render the character’s statement to be national advertising” within the NAD’s jurisdictional purview. The statement regarding the number of individuals who signed up for Perfectmatch.com was not created or scripted by the advertiser. This finding did not preclude the NAD from exercising jurisdiction in the event of a product placement that is controlled by PerfectMatch.com and that makes express or implied claims, the NAD noted.

The decision is Perfectmatch.com, National Advertising Division, Case #4611, December 15, 2006. The abstract is available at CCH Adverising Law Guide ¶62,400. Full text of the decision is available in NAD/CARU Case Reports, Vol. 37, No. 1, January 2007. For further information, contact the National Advertising Division, 70 West 36th Street, 13th Floor, New York, New York 10018; http: www.nadreview.org.

U.S. Gives Views on Two Antitrust Cases Before Supreme Court

Federal antitrust enforcers have filed two “friend of the court” briefs with the U.S. Supreme Court, expressing their views on cases involving vertical minimum price maintenance agreements and implied antitrust immunity.

Resale Price Maintenance

The FTC and Department of Justice filed a joint amicus curiae brief in the appeal of Leegin Creative Leather Products, Inc. v. PSKS, Inc., a decision by the U.S. Court of Appeals in New Orleans (2006-1 CCH Trade Cases ¶75,166) that vertical minimum price fixing agreements are per se unlawful. The decision relied on the 1911 Supreme Court decision in Dr. Miles Med. Co. v. John D. Park & Sons Co. (230 U.S. 373) that established the per se rule against resale price fixing.

In Leegin, the government argued that the existence of a minimum pricing provision in an agreement between a supplier and its dealer should not constitute a per se violation of Sec. 1 of the Sherman Act because (1) Dr. Miles was based on reasoning and economic assumptions that predated and conflicted with modern economic theory and (2) the current presumptive standard for assessing the legality of the conduct at issue was the rule of reason, which examines the reasonableness of a given restraint in the context of a particular case.

The principle of stare decisis had less force in the antitrust context, the brief contended, because Congress expected the Court to give continuing shape to the meaning of the antitrust laws, thereby reflecting “changed circumstances and the lessons of accumulated experience. Current theory holds that the effects of resale price maintenance could be anticompetitive or procompetitive, depending on the facts in a given situation. Thus, a per se rule was “clearly inappropriate,” according to the government.

The petition is Leegin Creative Leather Products, Inc. v. PSKS, Inc., Docket 06-480, cert granted December 7, 2006. The amicus brief, filed on January 22, 2007, appears at the Department of Justice web site. Oral argument is scheduled for March 26.

Antitrust Immunity

In another joint amicus brief, the FTC, Department of Justice, and the Securities and Exchange Commission maintained that an implied antitrust immunity was applicable to collaborative underwriting activities related to the initial public offering of securities.

The Supreme Court has agreed to review a decision of the U.S. Court of Appeals in New York City (2005-2 CCH Trade Cases ¶74,943), rejecting the implied immunity defense in its entirety and vacating the dismissal of a lawsuit against underwriters and institutional investors who allegedly engaged in tying and laddering arrangements that were unlawful under the federal securities law. In Credit Suisse Securities (USA) LLC v. Billing, the high court will decide the extent to which SEC regulations impliedly repealed the antitrust laws. The government argued that the United States had a substantial interest in reconciling the two statutory schemes in a manner that gave effect to both, rather than holding one or the other completely overridden.

The government’s brief asserted that antitrust immunity extended not only to collaborative underwriting activities that was expressly or implicitly authorized under the securities laws, but also to conduct that was inextricably linked to such activity. Conduct ancillary to collaborative activity authorized under the securities laws acquired “a kind of derivative immunity,” the brief contended, because an antitrust challenge to such conduct could interfere with the regulatory scheme.

Nevertheless, the government acknowledged that conduct regulated under one statutory scheme did not enjoy a “blanket exemption” from the antitrust laws. Thus, the underwriters’ conduct was not categorically exempt from antitrust scrutiny merely because it occurred in the context of an initial public offering.

The petition is Credit Suisse Securities (USA) LLC v. Billing, Docket 05-1157, cert granted December 7, 2007. The amicus brief, filed on January 22, 2007, appears at the Department of Justice web site. Oral argument is scheduled for March 27.