Right of Publicity Damages Were $750, Not $10 Million

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

A jury award to a collectibles authenticator of over $10 million in statutory damages under the California right of publicity statute was reversed by a California appellate court.

A collectibles seller's use of the authenticator's name without his consent on 14,060 certificates of authenticity (COAs)—each corresponding to a different collectible item—supported only a single statutory damages award of $750 for wrongful appropriation, the court held.

Statutory, Actual Damages

Under the statute, a person who knowingly and without authorization uses another’s name on goods, or to advertise, sell, or solicit purchases of goods or services, is liable to the injured party for statutory damages of $750 or actual damages suffered “as a result of the unauthorized use,” whichever is greater, as well as profits from the unauthorized use, discretionary punitive damages, and attorney fees and costs.

Contrary to the seller's contention, the single publication rule—that a mass communication or display of identical content supports only a single right of publicity cause of action—did not apply to the COAs here, which were issued to separate individuals to authenticate separate items. Instead, the COAs were held to support only a single statutory damage award under the “primary right” theory used in California to determine whether causes of action are identical.

Common Purpose, Common Plan

Even though the 14,060 COAs were issued to authenticate 14,060 separate items, they were all issued for a common purpose pursuant to a common plan: to use the authenticator’s name as a member of a panel of experts, the court said. The COAs were printed at the same time (only the serial numbers were different), and they were issued seriatim as authentication services were purchased by the customers.

The authenticator’s injury—the worry and uncertainty regarding his reputation and his potential liability for improperly authenticated items—occurred when the seller knowingly issued its first COA without his prior consent. The number of COAs issued might be relevant to his actual damages, if any, and to punitive damages. But with regard to his statutory damages, the issuance of subsequent improper COAs did not give rise to new causes of action, according to the court.

The judgment was reversed for retrial with directions to reinstate the authenticator's common law invasion of privacy and punitive damages claims, which he had elected not to pursue after the trial court's erroneous in limine ruling allowing multiple statutory damages awards.

The opinion in Miller v. Collectors Universe, Inc., appears at CCH Advertising Law Guide ¶62,657. Further details regarding Advertising Law Guide appear at the CCH Online Store.

EC Competition Commissioner Explains Microsoft Decision, Deflects U.S. Criticism

This posting was written by John W. Arden.

The latest volley in the battle of words between U.S. and European Union antitrust officials comes from Neelie Kroes, EC Commissioner for Competition, who published an article (“Why Microsoft Was Wrong”) in yesterday’s Wall Street Journal online edition.

In explaining last week’s European court ruling that Microsoft Corp. abused its dominant market position and the imposition of a € 497 million fine, Ms. Kroes was clearly answering criticism from the U.S. Department of Justice that the decision “may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”

Protecting Consumer Welfare

From the top, Ms. Kroes rejects the claim that, unlike U.S. antitrust law, EU competition law is not concerned with protecting consumer welfare.

“U.S. and EU antitrust laws agree on most things, not least the objective of benefiting consumers . . . This is hardly surprising. When Jean Monnet, one of the European Union’s founders, was working on antitrust rules in the draft treaties over 50 years ago, he was heavily influenced by his many U.S. friends . . . Since then, discussion among academics, practitioners and enforcers on both sides of the Atlantic have never stopped. Both in Europe and America the objective is to find the best solution for the consumers, the best way to solve competition problems so as to increase consumer welfare.”

Ms. Kroes enumerates how EU antitrust enforcement has benefited consumers by breaking up international cartels, saving consumers at least $6 billion per year, and by “pushing down” the price of international telephone calls in Europe by more than 40%.

She observes that the EU and U.S. have similar views on a number of issues: the iniquity of cartels, the circumstances when mergers between competitors bring risks to consumers, the importance of spreading the gospel of free markets around the world, and the rare instances when antitrust laws should limit unilateral action by companies, even when those companies are monopolists.

Legal Tests Largely the Same

“When looking at such conduct the legal tests set out in their respective Microsoft cases by the U.S. Court of Appeals in Washington, D.C., on one hand, and the EU Court of First Instance, on the other, is largely the same. Both require a type of rule of reason analysis, looking not just at whether the potential consumer benefits outweigh the harm in the short run, but whether incentives to innovate will be maintained in the long run.”

The DOJ comment on chilling innovation was dispatched with the following observations:

“In the Microsoft case decided last week in the EU, the court noted that not even Microsoft had argued that its incentive to innovate had been undermined by its previous practice of disclosing Windows desktop interoperability information. It is worth remembering that, in common with industry practice, Miscrosoft voluntarily used to provide information permitting interoperarability between services and its Windows desktop. Of course, this was before Microsoft wanted to push its own server software; then the provision stopped. Even after Microsoft was later forced to resume providing certain interoperability information—as part of the settlement it reached with the U.S. Department of Justice—Microsoft stated that its incentives to innovate had not been undermined.”

“Chicago School” Economics

Citing statements by FTC Commissioner J. Thomas Rosch, Ms. Kroes stated that the antitrust policies of both jurisdictions are based on the same philosophical underpinnings. Commissioner Rosch “has recently suggested that U.S. and EU antitrust policies are based, respectively, on “Chicago school” and “post-Chicago school” economics.”

There is some truth to this characterization, she noted. However, “I have difficulty seeing the real cutthroat world of business in the theoretical models of the Chicago school,” she remarked. “They remind me of Dr, Pangloss in Voltaire’s “Candide,” believing that we live in the best of all possible worlds and that all is for the best. In reality, businesses do engage in strategic behavior to undermine their rivals.”

Where a monopolist exploits his position to colonize neighboring markets, “this can scare investors from funding competitors, undermine the incentive and ability of those competitors to invest and innovate, and drive out competitors who are as efficient as the monopolist.”

A discussion of the September 17 decision in Microsoft Corp. v. Commission of the European Communities, and the Department of Justice reaction was posted on this blog on Monday, September 24.

Physician Practice Association’s Negotiations with Health Plans Should Not Be Challenged: FTC Staff

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

A multi-specialty physician practice association—serving the greater Rochester, New York, area—can proceed with its proposal to engage in joint contract negotiations with health plans on behalf of its members, after the FTC staff informed the group that it had no present intention to recommend a challenge to its proposed operation as a non-exclusive physician network joint venture.

In a 30-page letter sent September 17, the FTC Bureau of Competition staff concluded (1) that the program would involve substantial clinical integration, (2) that the joint contracting would be subordinate and reasonably related to the association’s plan to integrate, and (3) that the joint contracting would be reasonably necessary to achieve the plan's efficiency benefits.

Text of the letter (Greater Rochester Independent Practice Association, Inc., Advisory Opinion) appears on the FTC web site.

Conference Discussion Topic

The staff letter was released in time to serve as a topic of discussion for a gathering of antitrust and health care attorneys in Washington, D.C. on September 17 and 18, sponsored by the American Health Lawyers Association and the American Bar Association Sections of Health Law and Antitrust Law.

In an address entitled "Clinical Integration in Antitrust: Prospects for the Future," FTC Commissioner J. Thomas Rosch explained that "the agencies identified the concept of clinical integration to the 1996 Statements [of Antitrust Enforcement Policy in Health Care] as an additional means for physician groups to avoid antitrust liability for joint negotiation of fees."

Previous Advisory Opinions

Noting that physician groups have not made a lot of progress in establishing clinical integration, as opposed to financial integration, Rosch cited two previous letters by Commission staff addressing the topic.

In February 2002, the FTC staff notified MedSouth, Inc., a multi-specialty physician practice association in the Denver area, that its plans to operate as a nonexclusive physician network joint venture would not be challenged. Under the proposal, the association would coordinate and integrate its members' provision of medical services to patients through a clinical resource management program, then would contract for the sale of participating physicians' services to health plans on a fee-for-service basis.

Four years later, in March 2006, the FTC staff rejected a proposal by Suburban Health Organization, Inc. to serve as the exclusive bargaining and contracting agent with most insurers for 192 primary care physicians employed at Suburban Health Organization's eight member hospitals in Indiana. The Commission staff concluded that the proposal involved some potentially beneficial integration among the participants, but that the reasons given for collective bargaining did not justify that elimination of competition.

“Light” Cigarette Advertising Suit Not Barred by Federal Law, FTC Order

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

Smokers may pursue a suit alleging that tobacco company Philip Morris made fraudulent misrepresentations in violation of the Maine Unfair Trade Practices Act by advertising and promoting Marlboro and Cambridge Lights as “light” and as having “Lowered Tar and Nicotine,” the U.S. Court of Appeals in Boston has ruled.

Philip Morris unsuccessfully contended that the smokers’ claims were expressly preempted by federal law, impliedly preempted by FTC regulation, and exempted from the prohibitions of the Maine statute.

Express Preemption

The U.S. Supreme Court, in Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992), held that some—but not all—actions for damages under state law are expressly preempted by the Federal Cigarette Labeling and Advertising Act (FCLAA).

The Maine Unfair Trade Practices Act outlawed unfair or deceptive acts or practices in the conduct of any trade or commerce. The substance of the smokers’ claim was that Philip Morris had falsely represented some of its brands as “light” or having “lower tar and nicotine,” although they delivered the same quantities of these ingredients to a smoker as did “full-flavored” cigarettes.

The state law “duty not to deceive” was a general obligation falling within Cipollone’s holding that claims based on allegedly false statements of material fact made in advertisements survive FCLAA preemption, according to the court. Contrary to Philip Morris’s argument, the smokers’ claims were not failure-to-warn or warning neutralization claims subject to preemption.

The smokers’ theory was not that the advertising should have included warnings, in addition to those mandated by he FCLAA, or that the statements “light” and “lower tar and nicotine” diluted the warnings on Philip Morris’s packaging or advertising so as to make its cigarettes unreasonably dangerous or otherwise defective.

Rather, the smokers’ claims were premised on longstanding rules governing fraud, which themselves arose not from any duty based on smoking and health, but on the duty not to deceive. So, as held in Cipollone, neither the text of the FCLAA’s statement of purpose nor the preemption provision itself fairly evinced the intent to displace all potentially inconsistent state cigarette advertising regulations, only regulations that were “based on smoking and health,” the court reasoned.

Implied Preemption

Philip Morris argued that the smokers’ claims were impliedly preempted by the FTC’s oversight of cigarette advertising under the Federal Trade Commission Act. The question, as framed by the court under the established rules of conflict preemption, was whether the FTC’s oversight of tar and nicotine claims manifested a federal policy intended to displace conflicting state law.

Philip Morris contended that the smokers’ state law claims stood as an obstacle to the FTC’s policy, expressed in a 1971 consent order, of allowing advertising of tar and nicotine claims as long as they were substantiated with numerical results derived through testing according to the Cambridge Filter Method and the results were published in all brand advertisements.

However, since its 1969 agreement with the tobacco companies, the FTC had never issued a formal rule specifically defining which cigarette advertising practices violated the FTC Act and which did not, the court noted.

Section 57b(e) of the FTC Act specifically provided that state law rights of action survived the FTC’s efforts at judicial enforcement of its own federal standards: in other words, that those efforts are in addition to, and not in lieu of other available remedies. There appeared to be no purpose for the provision other than to allow further relief from unfair or deceptive acts or practices under state law even after the Commission had already challenged them through litigation under the FTC Act.

The FTC could not preempt state law actions arising out of particular practices simply by entering into a consent order allowing them to continue, the court determined.

Regulated Conduct Exemption

Finally, the smokers’ claims were not barred by the Maine Unfair Trade Practices Act’s exemption for actions otherwise permitted under laws as administered by any regulatory board or officer acting under the statutory authority of the United States. This argument, like Philip Morris’s implied preemption theory, depended largely on its characterization of FTC policy as allowing the use of the terms “light” and “lower tar and nicotine” when supported by testing under the Cambridge Filter Method.

The court declined to follow decisions holding that the FTC had “authorized” Philip Morris’s “light” and “lower tar and nicotine” claims so as to put them beyond the reach of state consumer protection statutes with exceptions similar to Maine’s: Flanagan v. Altria Group, Inc., (E.D. Mich. 2005) CCH Advertising Law Guide ¶61,878; Price v. Philip Morris, Inc (Ill. 2005) CCH Advertising Law Guide ¶61,914; and Sullivan v. Philip Morris USA, Inc., (W.D. La. 2005) CCH Advertising Law Guide ¶61,833.

The opinion is Good v. Altria Group, Inc., No. 06-1965, August 31, 2007. It will be reported in CCH Advertising Law Guide.

European Competition Decision Against Microsoft Causes International Discord

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

The buzz among members of the antitrust bar during the last week has concerned the European court decision holding that Microsoft Corp. abused it dominant market position, the response of U.S. antitrust enforcers to the decision, and the reaction of the European Competition Commission to the U.S. response.

The European Court of First Instance (CFI) essentially upheld the European Commission’s 2004 decision against Microsoft Corp. for abusing its dominant market position by leveraging its near-monopoly in the market for PC operating systems onto the markets for work group server operating systems and for media players.

On September 17, the CFI affirmed the €497 million fine against the computer software company, as well as the order requiring Microsoft (1) to disclose interoperability information to allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers and (2) to offer a version of its Windows operating system without Windows Media Player.

U.S. Response

In response to the CFI decision, Thomas O. Barnett, Assistant Attorney General in charge of the U.S. Department of Justice Antitrust Division, expressed concern “that the standard applied to unilateral conduct by the CFI, rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”

Barnett went on to say that the U.S. antitrust agencies would continue to work with their European counterparts “to develop sound antitrust enforcement policies that benefit consumers on both sides of the Atlantic.

European Reaction

European Competition Commissioner Neelie Kroes called Barnett’s remarks “totally unacceptable.” Questioning the propriety of a representative of the U.S. administration criticizing a European court, she observed that “The European Commission does not pass judgment on rulings by U.S. courts, and we expect the same degree of respect.”

The American Antitrust Institute (AAI) weighed in on September 24, questioning Barnett’s statement in light of past U.S. antitrust enforcement efforts against Microsoft and the resulting court decisions.

“The oddity of Barnett’s statement is that both Europe and the U.S. found that Microsoft was a monopolist which had acted to harm competition, and both insisted on interoperability in framing a remedy,” the AAI noted in a September 24 release. "Both jurisdictions concluded that Microsoft exercised market power in personal computer operating systems, though the specifics of its antitcompetitive conduct differed . . . And in fashioning a remedy, both required interoperability to assure that independent suppliers of application software can work with the monopoly."

The decision of the Court of First Instance is Microsoft Corp. v. Commission, Case T-201/04, September 17, 2007. The September 17 press release containing Thomas O. Barnett’s response to the decision appears at the Department of Justice Antitrust Division website.

In-Term Noncompete Pact in Trademark License Was Unenforceable

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

In a decision of great interest to the franchise bar, the U.S. Court of Appeals in San Francisco held that an arbitrator manifestly disregarded California law by enforcing an in-term restrictive covenant in a trademark license agreement to prevent a comedy club operator from opening or running any other comedy clubs in the United States until 2019 or the termination of the parties’ agreement.

Accordingly, a federal district court was ordered to vacate the arbitrator’s award of injunctive relief to trademark licensor Improv West as to any county where the operator did not currently operate an Improv West branded club. The district court was further ordered to uphold an award of injunctive relief in those counties where the operator currently had Improv West clubs.

Dramatic Geographic and Temporal Scope

As interpreted by the arbitrator, the noncompete covenant applied geographically to the contiguous United States, and did not end until the agreement expired in 2019. Thus, the covenant not to compete had dramatic geographic and temporal scope, the appellate court commented.

Combined with the arbitrator's ruling that the operator, by breaching the agreement, had forfeited its rights to use the Improv West marks license in any new location, the practical effect of the award was that, for more than 14 years, the entire contiguous United States’ comedy club market, except for the operator's seven current Improv West clubs, was off limits to the operator. Thus, the arbitrator's ruling foreclosed competition in a substantial share of the comedy club business, according to the appellate court.

Foreclosing Competition

Under California Business and Professions Code Section 16600, an in-term covenant not to compete in a franchise-like agreement was void if it foreclosed competition in a substantial share of a business, trade, or profession, the court noted. California courts were less willing to approve in-term covenants not to compete outside a franchise context because there was not a need to protect and maintain the franchisor's trademark, trade name, and goodwill.

The operator's relationship with Improv was, in essence, a franchise agreement as the operator contracted with Improv West to use its trademarks and open comedy clubs modeled on Improv West's clubs.

Weighing the operator's right to operate its business against Improv West's interest in protecting and maintaining its trademark, trade name, and goodwill, the balance tilted in favor of Improv West with regard to counties where the operator was operating an Improv West club, the court held. However, under the restraint of Section 16600, California law did not permit an arbitrator to foreclose the operator's competition in opening comedy clubs throughout the United States.

The September 7 decision in Comedy Club, Inc. v. Improv West Associates appears at CCH Business Franchise Guide ¶13,703.Petition for Rehearing

Following extensive discussion of the decision on the ABA Forum on Franchising listserv, Katherine J. Galston of Irell & Manella LLP in Los Angeles wrote to inform the franchise bar that Improv West had submitted a petition for rehearing, with a request for rehearing en banc, to the Ninth Circuit. Interested persons may submit an amicus brief in connection with the petition through October 1.

Among other points, the petition argued that “[p]rior to the Panel’s decision, every court to consider the issue had held that a franchisor can lawfully restrict a franchisee from directly competing with it and its other franchisees during the term of a franchise agreement.” The decision “will have serious consequences for California businesses,” the petition claimed.

Mukasey to Be Nominated as Attorney General

This posting was written by Paula Cruikshank, CCH White House Correspondent.

President Bush on September 17 announced his intention to nominate Michael B. Mukasey, former chief justice of the U.S. District Court for the Southern District of New York, to become U.S. Attorney General, succeeding Alberto Gonzales.

Mukasey’s rulings on terrorism-related cases and expertise in constitutional law show that "he knows what it takes to fight this war effectively and he knows how to do it in a manner that is consistent with our laws and our Constitution," the president stated.

Mukasey said the Justice Department faces “vastly different” challenges than 35 years ago when he was a U.S. attorney. “But the principles that guide the department remain the same—to pursue justice by enforcing the law with unswerving fidelity to the Constitution,” Mukasey asserted.

Senate Majority Leader Harry Reid, in a written statement, commended the president’s choice for Attorney General.

"Judge Mukasey has strong professional credentials and a reputation for independence," said Reid. "A man who spent 18 years on the federal bench surely understands the importance of checks and balances and knows how to say no to the President when he oversteps the Constitution."

Mukasey is currently a Partner in the New York law firm, Patterson Belknap Webb & Tyler, working on white collar defense and investigative matters, providing advice on corporate governance issues, and actively litigating civil and criminal cases.

President Reagan in 1987 nominated him to be judge of the U.S. District Court for the Southern District of New York, a position he held from 1988 to 2006. From 1972 to 1976, Mukasey was an assistant U.S. attorney in Manhattan. He earned his bachelor’s degree from Columbia University and his LLB from Yale Law School.

FTC Chairman Defends Record on Energy, Lending, Internet Issues

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

The chairman of the Federal Trade Commission defended her agency’s record on energy, banking, and “net neutrality” at a September 12 congressional hearing by the Senate Commerce, Science, and Transportation Subcommittee on Interstate Commerce, Trade, and Tourism.

Mergers of Oil Refiners

Subcommittee Chairman Byron Dorgan (D-N.D.) expressed concern that mergers by oil refiners have led to increased market power, higher profits, and higher consumer prices. FTC Chairman Deborah Platt Majoras responded that the FTC has not concluded that mergers of refiners have resulted in increased prices. Rather, increased demand is the driving factor, with refineries being unable to keep up with that demand.

Deceptive Practices in Lending

On the issue of subprime loans, Dorgan questioned Majoras about deceptive advertising and lending in that industry. Majoras acknowledged that the agency has concerns about deceptive practices, but suggested that borrowers also share some blame. “Consumers are just not understanding what they get in their mortgages,” she said.

Majoras noted that the agency on September 11 sent more than 200 letters to mortgage companies and media outlets, warning that some mortgage ads are potentially deceptive or in violation of the Truth in Lending Act.

“Net Neutrality”

Dorgan and Majoras respectfully agreed to disagree about “net neutrality,” the principle of keeping broadband networks free from restrictions on (1) the kinds of equipment that may be attached, (2) the modes of communication allowed, and (3) the communication streams that may degrade network communications.

Some lawmakers, including Dorgan, advocate legislation that would require broadband providers to treat all content providers equally. Essentially, broadband carriers would be barred from favoring certain Internet content providers by granting higher-speed access to their content. Dorgan said he feared we are moving toward a system where big providers “set up new roads – new highways – some tolls, some not.”

Majoras advised against legislation, warning that premature regulation could squelch technological innovation. “If we put rules in place here, there will be unintended consequences,” Majoras stated.

Consumer Protection, Competition Enforcement

In a prepared statement, Chairman Majoras discussed the Commission’s consumer protection efforts in the areas of data security and identity theft, technology, health care, financial practices, telemarketing, violence in the media, and “green marketing.”

The second section of the statement covered the Commission’s efforts at maintaining competition “in sectors of the economy that have a significant impact on consumers, such as health care, energy, technology, and real estate.”

In conclusion, the chairman expressed the agency’s commitment to maintaining the quality of its work, “despite the breadth of our mission and the challenges that have been described involving technological change and an evolving global economy.”

She pointed out that Congress has recently passed a variety of new legislation that the FTC is charged with implementing and enforcing, including the CAN-SPAM Act, the Children’s Online Privacy Protection Act, the Gramm-Leach-Bliley Act, and the U.S. SAFEWEB Act.

Text of the 49-page prepared statement appears on the FTC web site.

Monopoly Claims for Abuse of Standard-Setting Process Revived

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

The U.S. Court of Appeals in Philadelphia has remanded an antitrust dispute between rivals in the wireless technology market to permit Broadcom Corp. to assert monopolization and attempted monopolization claims against Qualcomm, Inc. for abusing the standard-setting process for mobile wireless telephony.

The appellate court reversed the dismissal of two of Broadcom's antitrust claims brought under Section 2 of the Sherman Act; however, it affirmed dismissal of two other claims that Broadcom lacked standing to assert.

In mobile wireless telephony, standards are determined privately by standards-determining organizations (SDOs). Currently, there are two paths or families of standards under which cellular telephone service providers operate: code division multiple access (CDMA) and global system for mobility (GSM).

The standard used in current-generation GSM-path networks is known as the Universal Mobile Telecommunications System (UMTS) standard. Qualcomm supplies some of the essential technology, Wideband CDMA (WCDMA), included in the UMTS standard and holds patents in this technology. Qualcomm purportedly has a 90 percent share in the market for CDMA-path chipsets.

Broadcom claimed that Qualcomm seeks to obtain a monopoly in the UMTS chipset market because Qualcomm views competition in that market as a long-term threat to its existing monopolies in CDMA technology.

“Patent Holdup”

Broadcom was permitted to proceed with its claim that Qualcomm engaged in a "patent hold-up," the court held. Broadcom alleged that Qualcomm induced the SDO to include its proprietary technology in the UMTS standard by falsely agreeing to abide by the SDO's policy requiring participants to license technology on fair, reasonable, and non-discriminatory terms.

Qualcomm allegedly "held up" SDO participants by intentionally breaching its promise, which was relied on by participants, to license fairly and reasonably essential proprietary technology adopted as part of the new standard after the lengthy standard setting process had been completed.

Rejected was Qualcomm's argument that antitrust liability could not turn on so vague a concept as whether licensing terms were "reasonable." Thus, the district court erred in dismissing the monopolization claim on the ground that abuse of a private standard-setting process did not state a claim under antitrust law.

Broadcom adequately alleged that Qualcomm attempted to obtain a monopoly in the UMTS chipset market by exploiting its monopolies in WCDMA technology and CDMA-path chipsets, according to the court. Qualcomm allegedly engaged in a variety of anticompetitive practices, acted with specific intent to obtain a monopoly in the UMTS chipset market, and had a "dangerous probability" of successful monopolization.

Standing, Antitrust Injury

The court also held that Broadcom lacked standing to sue Qualcomm for its alleged monopolization of the markets for another chipset technology standard—third-generation (3G) CDMA technology and 3G CDMA chipsets. Broadcom's theory of standing was "highly attenuated," in the court's view. Injury to Broadcom was extremely remote, and there was no apparent reason why the Qualcomm's competitors in the CDMA markets could not assert a monopoly maintenance claim.

In addition, Broadcom failed to allege an antitrust injury resulting from Qualcomm's proposed acquisition of a firm that was a leading competitive threat to CDMA technology. The claim was too speculative, the court explained. Any directly harmful effects resulting from the acquisition would be experienced by firms competing in the markets for the development of the new chipset standards, and the Broadcom did not compete in these markets. Dismissal of a claim for injunctive relief blocking the transaction was affirmed.

The September 4 decision in Broadcom Corp. v. Qualcom Inc. is reported at 2007-2 Trade Cases ¶75,852

Massachusetts, Illinois, Oregon Enact New Privacy Laws

New privacy laws recently enacted in three states address data security breaches, “phishing,” and identity theft.

Security Breach Notice Law

On August 2, Massachusetts Governor Deval Patrick approved legislation that calls for notification of data security breaches, allows residents to place a security freeze on their consumer credit reports, and establishes rules for the disposal of records containing personal information.

The statute requires that a person, business, or government agency that owns or licenses data including personal information about a Massachusetts resident must provide notice when it knows or has reason to know of a breach of security or that the information was acquired or used by an unauthorized person. The notice must be provided to the person involved, the state attorney general, and the Director of Consumer Affairs and Business Regulation. Enforcement actions may be brought by the attorney general.

The law (House Bill No. 4144, Chapter 82, codified at Massachusetts General Laws, Chapter 43H, Sec. 1 through 6) becomes effective on October 1, 2007, except for the records disposal provision, which becomes effective on February 3, 2008. Text of the law appears at CCH Privacy Law in Marketing ¶32,100.

“Phishing”

The Illinois “Anti-Phishing Act” prohibits the use of the Internet—through e-mail, websites, or other means—to represent oneself, without authority or approval, as a business in an effort to solicit or induce a person to provide identifying information. “Identifying information” under the Act includes Social Security Numbers, driver’s license numbers, bank account numbers, credit or debit card numbers, personal identification numbers (PINs), automated or electronic signatures, account passwords, or any other information that can be used to access financial accounts or to obtain goods or services.

The law provides for enforcement actions by the attorney general and state’s attorney and private suits by Internet Service Providers affect by a violation and individuals who are the ultimate targets of identity theft. ISPs may seek to recover the greater of actual damages or statutory damages of $500,000. Individual victims may seek injunctive relief and the greater of three times the amount of actual damages or $5,000 per violation.

The “Anti-Phishing Act” was approved on August 23 and becomes effective on January 1, 2008. The law appears at CCH Privacy Law in Marketing ¶31,340.


Identity Theft

The Oregon Consumer Identity Theft Protection Act requires businesses to notify residents of data security breaches, allows Oregon resident to place security freezes on their credit reports, and prohibits the printing, communicating, or otherwise making available to the public a consumer’s Social Security Number.

Any individual or business that owns or maintains data that includes a consumer’s personal information must give notice of a breach of security to any consumer whose personal information was included in the information breached. Notification must be made in the most expeditious time possible. A consumer may elect to place a security freeze on his or her consumer report by sending a written request to a consumer reporting agency. The agency must place a security freeze on the within five business days of receiving the request.

The legislation (Senate Bill No. 583, Chapter 759) was signed by Governor Theodore R. Kulongoski on July 12 and will become effective on October 1, 2007. The Consumer Identity Theft Protection Act is published at CCH Privacy Law in Marketing ¶33,700.

CCH Privacy Law in Marketing publishes 138 privacy laws from 46 states and the District of Columbia, in addition to U.S. federal privacy laws, and privacy laws from 35 foreign jurisdictions. Further information regarding Privacy Law in Marketing is available at the CCH Online Store.

$16 Million Antitrust Award in Favor of Oregon Hospital Vacated

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

A jury's verdict and $16.2 million award in favor of the operator of a 114-bed hospital in Springfield, Oregon, in an antitrust action against a larger competitor, has been vacated by the U.S. Court of Appeals in San Francisco. The appellate court reversed findings that the competitor, PeaceHealth, engaged in attempted monopolization and price discrimination.

PeaceHealth operated three facilities in the area, including a 432-bed operation that offered primary, secondary, and tertiary care in Eugene, Oregon. The complaining firm operated McKenzie-Willamette Hospital, which provided only more standard, primary and secondary acute care. The lower court's grant of summary judgment in favor of PeaceHealth on McKenzie's tying claims prior to trial was also reversed. The case was remanded for further proceedings.

Attempted Monopolization

In its attempted monopolization claim, McKenzie alleged that PeaceHealth offered insurers discounts of 35 to 40 percent on tertiary services if the insurers made PeaceHealth their sole preferred providers for all services—primary, secondary, and tertiary. McKenzie argued that, although it could provide primary and secondary services at a lower cost than PeaceHealth, it was frozen out of the market because it did not provide tertiary services. Thus, it could not match the discount that PeaceHealth offered insurers.

A multi-product bundled discount would be anticompetitive if the discount excluded a rival who was equally efficient at producing the competitive product simply because the rival did not sell as many products as the bundled discounter, the appellate court explained. However, McKenzie could not base its attempted monopolization claim on the fact that PeaceHealth offered a discount that it could not match, according to the appellate court.

PeaceHealth convinced the appellate court to reverse the attempted monopolization claim on the ground that the district court incorrectly instructed the jury about when bundled discounting can amount to anticompetitive conduct for purposes of a Sherman Act, Sec. 2 claim.

In order to prove that PeaceHealth's bundled or package discounts to insurers constituted exclusionary conduct, McKenzie had to establish that, after allocating the discount given by the defending hospital operator on the entire bundle of products to the competitive product or products, PeaceHealth sold the competitive product or products below its average variable cost of producing them. The exclusionary conduct element of a claim arising under Sec. 2 of the Sherman Act could not be satisfied by reference to bundled discounts, unless the discounts resulted in prices that were below an appropriate measure of the defending firm's costs—average variable cost.

Primary-Line Price Discrimination

The appellate court also reversed the jury's finding of primary-line price discrimination in violation of the Oregon price discrimination statute.

McKenzie argued that PeaceHealth violated the state law by charging a higher reimbursement rate to an insurer with whom it had an exclusive arrangement than it charged an insurer with whom it did not have an exclusive arrangement.

In order to state a primary-line price discrimination claim, McKenzie had to prove that PeaceHealth priced below cost. Because the jury instructions did not require the jury to find that PeaceHealth priced below cost, the jury's verdict in favor McKenzie had to be vacated.

Tying Arrangements

Before trial, the district court granted PeaceHealth summary judgment on McKenzie's claim that PeaceHealth illegally tied primary and secondary services to its provision of tertiary services in violation of Sec. 1 of the Sherman Act.

The lower court incorrectly concluded that McKenzie had not presented any evidence that PeaceHealth coerced insurers into purchasing primary and secondary services from it in order for the insurers to obtain tertiary services, the appellate court held. PeaceHealth's practice of giving a larger discount to insurers who dealt with it as an exclusive preferred provider might have coerced some insurers to purchase primary and secondary services from it rather than from McKenzie.

There were genuine factual disputes about whether PeaceHealth forced insurers either as an implied condition of dealing or as a matter of economic imperative through its bundled discounting, to take its primary and secondary services if the insurers wanted tertiary services.

Moreover, PeaceHealth's substantial market power, as a result of being the exclusive provider of tertiary services in the market, created a possibility that it was able to force unwanted purchases of primary and secondary services. Thus, summary judgment on McKenzie's tying claim was inappropriate.

The September 4, 2007, opinion in Cascade Health Solutions v. PeaceHealth, will appear at 2007-2 Trade Cases ¶75,846.

“Network Neutrality” Regulations Might Deter Investment in Internet, Limit Consumer Choice

This posting was written by John W. Arden.

Proposals for FCC regulations—offered by companies and organizations in the name of “net neutrality”—might deter broadband Internet providers from upgrading and expanding their networks to reach more Americans, according to a Department of Justice filing submitted in response to an FCC Notice of Inquiry regarding broadband practices.

The term “net neutrality” encompasses a variety of proposals that seek to regulate how broadband Internet providers transmit and deliver Internet traffic over their networks, the Department said.

Shifting of Costs

Proposals that preclude broadband providers from charging content and application providers directly for faster or more reliable service “could shift the entire burden of implementing costly network expansions and improvements onto consumers.” If the average consumer is unwilling or unable to pay more for broadband Internet access, the result could be to reduce or delay critical network expansion and improvement, the Department said in its filing.

It may make economic sense for content providers who want a higher quality of service to pay for the Internet upgrades necessary to provide such service, since any regulation that prohibits charging content and application providers “may leave broadband providers unable to raise the capital necessary to fund these investments.”

“Consumers and the economy are benefitting from the innovative and dynamic nature of the Internet,”said Thomas O. Barnett, Assistant Attorney General in charge of the Department’s Antitrust Division. “Regulators should be careful not to impose regulations that could limit consumer choice and investment in broadband facilities.”

Absence of Widespread Problems

Despite the FCC’s call for specific information on harmful broadband activities, the Department noted that comments filed in response to this Notice of Inquiry did not provide evidence that would suggest the existence of a widespread problem that needs to be addressed. In addition, there is no consensus on what “net neutrality” means or what should be prohibited in the name of “neutrality.”

“The FCC should be highly skeptical of calls to substitute special economic regulation of the Internet for free and open competition enforced by the antitrust laws,” the Department said in its filing. “Marketplace restrictions proposed by some proponents of ‘net neutrality’ could in fact prevent, rather than promote, optimal investment and innovation in the Internet, with significant negative effects for the economy and consumers.”

Internet Regulation v. Antitrust Enforcement

While cautioning against premature regulation of the Internet, the Department noted its authority to enforce the antitrust laws. “Anticompetitive conduct about which the proponents of regulation are concerned will remain subject to the antitrust laws and enforcement actions by government as well as private plaintiffs, and the Department will continue to monitor developments, taking enforcement action where appropriate to ensure a competitive broadband Internet access market,” the Department stated.

The Department of Justice’s ex parte filing and a news release are available from the Department of Justice on the Antitrust Division’s web site.

Microsoft Final Judgments Benefit Competition, Consumers: Antitrust Division

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

Final judgments entered in the federal/state antitrust enforcement action against Microsoft Corporation in 2002 have benefited competition and consumers, according to the Department of Justice Antitrust Division.

"The judgment has protected the development and distribution of middleware --including web browsers, media players, and instant messaging software --that has increased choices available to consumers," the Justice Department stated.

In an August 30 joint filing with the federal district court in Washington, D.C., the Justice Department and the states of New York, Louisiana, Maryland, Ohio, and Wisconsin submitted a review of the Microsoft final judgments (2006-2 CCH Trade Cases ¶75,418; 2006-2 CCH Trade Cases ¶75,541), which resulted from federal/state allegations that the computer software company "unlawfully maintained its monopoly in PC-based operating systems by excluding competing software products known as middleware that posed a nascent threat to the Windows operating system."

"The final judgments have been successful in protecting the development and distribution of middleware products and in preventing Microsoft from continuing the type of exclusionary behavior that led to the original lawsuit," said Thomas O. Barnett, Assistant Attorney General in charge of the Department of Justice Antitrust Division. "The Antitrust Division has made enforcement of the final judgments an important priority and will continue to vigorously enforce the antitrust laws in computer software markets."

According to the August 30 court filing, there have been "a number of developments in the competitive landscape relating to middleware and to PC operating systems generally that suggest that the Final Judgments are accomplishing their stated goal of fostering competitive conditions among middleware products ..." The report cites:

 Increased competition facing Microsoft's Internet Explorer from other Web browsers;

 The popularity of Apple's iTunes and Adobe's Flash for handling multimedia content;

 The increasing use of Web-based services for e-mail and other applications that historically would have been handled by local applications; and

 The decisions by computer manufacturers to offer the option of computers pre-loaded with a Linux operating system rather than Windows.

Since Microsoft was never found to have acquired or increased its monopoly market share unlawfully, the final judgments were not designed to eliminate Microsoft's Windows monopoly or reduce Windows' market share by any particular amount, the court filing noted.

Rather, the final judgments were designed to re-invigorate competitive conditions that Microsoft had suppressed so that the market could determine the success of these software products. The final judgments are succeeding in that goal, according to the Justice Department.

The Microsoft final judgments are scheduled to expire in November 2007. The Department concluded that it was necessary to extend certain provisions of the final judgments relating to protocol licensing until November 2009. Microsoft agreed to that extension, which was approved by the federal district court in 2006. Microsoft has also agreed that the Department and state antitrust enforcement agencies may, at their discretion, apply to the court in fall 2009 for an additional extension to all or part of the extended provisions of the final judgments for a period of up to three additional years, through November 2012.

A news release on the filing appears at the U.S. Department of Justice Antitrust Division web site.

High Court Review Sought in Driver Privacy Class Action

This posting was written by William Zale, Editor of CCH Privacy Law in Marketing.

Officials of the Florida Department of Highway Safety & Motor Vehicles, who face potential liability of billions of dollars for selling drivers’ personal information to mass marketers, have asked the U.S. Supreme Court to review the drivers’ putative class action.

The officials seek review of a decision by the U.S. Court of Appeals in Atlanta that they were not entitled to qualified immunity.

Driver’s Privacy Protection Act

The appellate court held that, although the officials’ alleged sale of drivers’ personal information to mass marketers did not violate a constitutional right, a statutory right to privacy in motor vehicle information was clearly established by the federal Driver’s Privacy Protection Act, giving fair notice that the alleged conduct violated federal law.

The plain language of the Act clearly, unambiguously, and expressly created a statutory right enforceable by enabling aggrieved individuals to sue persons who obtain, disclose, or use their personal information in violation of the Act.

Private Suit Authorization

The Act’s private suit provision (18 U.S.C. Sec. 2724(a)) states:

“A person who knowingly obtains, discloses or uses personal information, from a motor vehicle record, for a purpose not permitted under this chapter shall be liable to the individual to whom the information pertains, who may bring a civil action in a United States district court.”

The remedies provision (18 U.S.C. Sec. 2724(a)) states:

“The court may award—(1) actual damages, but not less than liquidated damages in the amount of $2,500; (2) punitive damages upon proof of willful or reckless disregard of the law; (3) reasonable attorneys’ fees and other litigation costs reasonably incurred; and (4) such other preliminary and equitable relief as the court determines to be appropriate.”

The appellate court noted that, in Reno v. Condon, 528 U.S. 141 (2000), the U.S. Supreme Court had determined that, under the statute as amended in 1999:

“States may not imply consent from a driver’s failure to take advantage of a state-afforded opportunity to block disclosure, but must rather obtain a driver’s affirmative consent to disclose the driver’s personal information for use in surveys, marketing, solicitations, and other restricted purposes.”

Petition for Review

In their petition for Supreme Court review, the Florida officials contend that the appellate court’s decision that the DPPA created a private cause of action for damages against state officials for complying with state law is wrong and will have disastrous consequences for the states. The officials further contend that the suit for damages solely for compliance with or implementation of state law is barred by the Eleventh Amendment. Finally, the officials argue that they did not violate clearly established law and were entitled to qualified immunity.

Further developments relating to the petition for certiorari filed August 13, 2007, in Dickinson v. Collier, U.S. S.Ct. Dkt. 07-197, will be reported at CCH Privacy Law in Marketing ¶20,000.

The February 12, 2007, decision of the U.S. Court of Appeals for the Eleventh Circuit in Collier v. Dickinson, No. 06-12614, will be reported at CCH Privacy Law in Marketing ¶60,109.

Details regarding recently-issued CCH Privacy Law in Marketing appear at the CCH Online Store.

Advertising Claims on Insurance Referral Website Not Puffery

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

Advertising claims on insurance referral website operated by MostChoice—stating that the referral service was “Better Than NetQuote.com” and “All the leads are . . . customers requested”—were not mere puffery, the federal district court in Denver has ruled.

Thus, competitor NetQuote sufficiently alleged a Lanham Act Section 43(a) false advertising claim against MostChoice, the court determined.

Factual Statements

Although a simple statement that one’s products are better than a competitor’s likely would be nonactionable puffery, NetQuote correctly characterized the bulk of MostChoice’s alleged statements as factual, according to the court.

NetQuote argued that the claims deceived existing and potential customers by contending that NetQuote sold an inferior product based in large part on bad leads.

In fact, NetQuote alleged that MostChoice hired Brandon Byrd in order to submit false leads to NetQuote. Both MostChoice and employee Byrd admitted that the latter submitted at least 394 fictitious leads.

Coverage of Lanham Act

Implied falsities fall within Lanham Act Section 43(a), the court noted. The statute encompassed more than literal falsehoods. Otherwise, clever use of innuendo, indirect intimation, and ambiguous suggestions could shield an advertisement from scrutiny precisely when protection against sophisticated deception was most needed, the court observed.

In this case, the complaint fairly could be construed to allege that MostChoice’s advertising claims implied that NetQuote’s leads generally were of poor quality. Nothing in the advertisements would have notified the readers that the reason NetQuotes leads were of poor quality was because of the false leads submitted by MostChoice. Thus, the allegations supported a claim for false advertising under the Lanham Act.

The decision is NetQuote, Inc. v. Byrd, Civil Action No. 07-cv-00630-DME-MEH, filed August 15, 2007. The opinion appears at CCH Advertising Law ¶62,627 and will appear at CCH 2007-2 Trade Cases ¶75,837.