Wednesday, October 31, 2007





Oregon Consumer Identity Theft Law Takes Effect

Oregon legislation implementing consumer protection measures to prevent identity theft took effect on October 1, 2007.

The Consumer Identity Theft Protection Act (1) provides for consumer notification of breaches of security of computerized data; (2) allows consumers to place and temporarily lift a freeze on their consumer report; (3) restricts the printing or displaying of Social Security Numbers; (4) creates a duty for businesses that own, maintain, or possess data to safeguard personal information; and (5) authorizes the Department of Consumer and Business Services to make rules implementing the Act and to enforce them.

The security freeze provisions allow consumers to freeze—or block access to the credit—for a $10 fee or for free if they are victims of identity theft. Consumers may temporarily lift a freeze for a fee of $10.

The printing or displaying of a Social Security Number is prohibited unless the number is made unreadable, with certain exceptions. A penalty of $1,000 may be assessed for every violation, which is considered a separate offense. In the case of a continuing violation, each day’s continuance is a separate violation, although the maximum penalty for any occurrence may not exceed $500,000.

The law (Senate Bill 583, Chapter 759) appears at CCH Privacy Law Guide ¶33,700. While the law became effective on October 1, its requirements pertaining to the safeguarding of personal information are operative on January 1, 2008.

Further information about this law--and other state identity theft laws--is available in CCH Privacy Law in Marketing.

Monday, October 29, 2007





Distributor Fails to Allege Antitrust Injury from Monopolization

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

An aggregate distributor that was driven out of business lacked antitrust standing to sue its former supplier for monopolization, the U.S. Court of Appeals in New York City has ruled.

According to the complaining distributor, the defending supplier monopolized the market for manufacturing aggregate in the Long Island and the New York metropolitan area by buying out its only significant manufacturing competitor and then refusing to sell aggregate to the complaining firm. The defending supplier expanded vertically into the distribution level and ultimately purchased the complaining distributor's assets “at a sacrifice.” The complaint contended that the defending firm raised prices to customers soon after the sale. Dismissal for failure to allege an antitrust injury (2006-2 Trade Cases ¶75,452) was affirmed.

Anticompetitive Practices

The court outlined the defending supplier's alleged anticompetitive practices as: (1) acquisition of its only major competitor, resulting in a monopoly in the production of aggregate, followed by (2) vertical integration into the distribution level and refusal to deal with the complaining firm, leading to a second monopoly at the distribution level for the supplier. The distributor lacked antitrust standing to assert claims of monopolization at either the manufacturing level or the distribution level, the court ruled.

Power to Raise Prices

At the manufacturing level, the distributor’s injury was not caused by an exercise of the defending suppliers newly acquired power to raise prices for aggregate. Instead, the distributor’s injury was caused by the supplier’s decision to terminate their relationship, something the supplier could have done without monopoly power, in the court's view.

Refusal to Deal

Moreover, the distributor failed to allege any facts that would suggest that the supplier’s refusal to deal following its vertical expansion into distribution was for anticompetitive reasons. The supplier’s expansion into distribution was most likely in pursuit of increased efficiency. Thus, there was an apparent legitimate business reason for its refusal to deal. The supplier would have had no anticompetitive incentive to exclude the distributor because it already enjoyed a monopoly at the production level, the court explained.

The October 23 decision in Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 06-4908, will appear at 2007-2 Trade Cases ¶75,913.

Friday, October 26, 2007





Letter Writing Campaign Could Constitute Advertising for Lanham Act Claim

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

The “commercial advertising or promotion” element of a Lanham Act false advertising claim could be satisfied by an alleged letter writing and telephone campaign by a computer lock manufacturer and former employees of its competitor aimed at discrediting the competitor and its affiliates, the federal district court in Norfolk, Virginia has ruled.

The customers were told that the competitor and its affiliates were distributing a product that infringed a patent owned by the manufacturer and that, to avoid legal trouble, the customers should begin purchasing their locks from a marketing firm formed by the competitor’s former employees.

The competitor’s pleading did not estimate the number of customers contacted. Nevertheless, it could not be said to a legal certainty that the letter writing and telephone campaign did not constitute commercial advertising or promotion, according to the court.

The competitor allegedly engaged in wholesale lock distribution to computer giants such as Dell, Gateway, and Hewlett Packard. These customers allegedly were contacted during the course of the conspiracy to steal the business of the competitor and its affiliates. Potential misrepresentations to these companies alone might establish commercial advertising, the court said.

Since discovery was critical in determining market composition and the breadth of the alleged scheme, the court denied the defendants’ motions to dismiss.

The September 28 decision in Miz Engineering, LTD v. Avganim appears at CCH Advertising Law Guide ¶62,715.

Thursday, October 25, 2007





Distributorships Not Protected “Franchise” or “Dealership”

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide, and John W. Arden.

In decisions issued four days apart, two distributors failed to obtain statutory protection against termination by their manufacturers either as a Connecticut “franchise” or as a Wisconsin “dealership.”

Connecticut “Franchise”

The relationship between a Delaware-based manufacturer of countertop surfaces and a Lewiston, Maine distributor was not a “franchise” within the meaning of the Connecticut Franchise Act because there was no evidence that the manufacturer contemplated that the distributor would establish or maintain a place of business in Connecticut, as required by the Act.

The contractual choice of Delaware law indicated that the parties did not intend to apply Connecticut law or the Connecticut Franchise Act. When the distributor acquired a Connecticut distributor and its Connecticut distribution facility, the parties amended their agreement to include most of Connecticut and Massachusetts within the distributor’s territory. However, no other provisions of the agreement were modified or altered.

If the parties had intended for the distributor to establish a place of business in Connecticut, they could have included that understanding in their agreement, the federal district court in Portland, Maine observed. Deposition testimony failed to indicate that the agreement and the parties contemplated that the distributor would establish or maintain a place of business in Connecticut.

Absent a place of business within the state, neither the Connecticut Franchise Act nor its requirement of good cause for termination was applicable. Thus, the termination without cause, upon 60 days’ notice was justified.

The September 14 decision is New England Surfaces v. E.I. Du Pont De Nemours and Co., U. S. District Court for the District of Maine, CCH Business Franchise Guide ¶13,713.

Wisconsin “Dealership”

A boiler equipment distributor that did not share a “community of interest” with its manufacturer was not a “dealership” within the Wisconsin Fair Dealership Law, according to the federal district court in Green Bay. Thus, the Fair Dealership Law could not be applied to require the manufacturer to have “good cause” for termination of the distributorship.

The distributor had been in business for almost 35 years when it was selected to be the manufacturer’s exclusive distributor in Wisconsin and upper Michigan. Apart from a small stock of parts, the distributor did not actually warehouse boilers or keep any in stock. There was nothing like a showroom for the manufacturer’s products.

In 2005, the first year of the relationship, the distributor sold $128,000 worth of the manufacturer’s products. By 2007, the distributor was on pace to exceed $1 million in sales of the manufacturer’s products. The distributor, however, sold numerous other products and stated that sales of the manufacturer’s products constituted roughly 15% of its total sales in 2007.

Some factors used to determine whether a “dealership” existed were at least partially favorable to the distributor’s claim, the court observed. The distributor stated that it undertook a two-year effort to promote the manufacturer’s products, asserting that it invested its previously-earned goodwill and lent its well-regarded name to the promotion. There was some “inkling of unfairness” involved if the manufacturer was to reap the benefits of the distributor’s good name and then sign on with another distributor. However, it was difficult to see how the distributor’s goodwill investment would be lost as a result of the termination. There was no indication that the distributor’s good name was tarnished by its promotion of the manufacturer’s products.

The relationship was only exclusive with respect to the manufacturer. The distributor felt free to sell numerous other product lines, a practice that was the basis for the parties’ dispute. To the extent that an exclusive relationship could support a finding of a dealership, it was only significant where the dealer sacrificed its ability to sell other competing products in order to sell the manufacturer’s products.

Although the parties disputed to what extent the distributor became identified with the manufacturer’s brand, it was difficult to discern how a company that sold numerous product lines for 35 years would become identified with a single line in less than two years. The fact that the parties’ relationship was relatively brief cut against a finding of a dealership, as did the distributor’s “admittedly modest” investment in advertising the manufacturer’s products.

Ultimately, there was little about the obligations imposed on the distributor to suggest a significant level of interdependence between the parties. The court did not need to speculate about whether the manufacturer had the distributor over a barrel. It didn’t, the court ruled.

The September 18 decision is Heat & Power Products, Inc. v. Camus Hydronics Ltd., U.S. District Court for the Eastern District of Wisconsin, CCH Business Franchise Guide ¶13,714.

Wednesday, October 24, 2007





Sandpaper Maker's Injury Was Result of Competitive Conduct

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

A company that "largely developed," but was later driven from, the market for do-it-yourself automotive sandpaper lacked standing to sue a competitor for engaging in monopolization by executing exclusive dealing contracts with four of the six largest distributors of such abrasives, according to an en banc decision of the U.S. Court of Appeals in Cincinnati.

The complaining firm held 67% of the market before it lost most of the market to its only competitor, as a result of the defending firm's up-front discounts and longer exclusive agreements. To allow the litigation to continue would have been to "allow one monopolist to sue a competitor for seizing its market position by charging less for its goods," according to the court. Dismissal of the antitrust claims (2006-2 Trade Cases ¶75,365) was affirmed.

The complaining company failed to establish a cognizable antitrust injury, because its injury flowed from the kind of competition that the antitrust laws were designed to foster, according to the court.

Competitive Tactics

Three of the defending firm's tactics were targeted: (1) the up-front payments offered to the four of the six major retailers; (2) the multi-year terms of the exclusive agreements with the retailers; and (3) the exclusive nature of these agreements. The court considered each and rejected the complaining firm's challenges.

The non-predatory discounts furthered the competition-enhancing goals of the antitrust laws, and the retailers insisted on such payments. With respect to the multi-year agreements, the defending firm did nothing more than compete on terms that the market already required, the court found. And while exclusive agreements in some instances might create impermissible barriers for new entrants to a market and might permit a supplier to charge monopoly prices, the complaining firm could not tenably claim that it suffered these anticompetitive effects.

Dissent

A dissent expressing the views of four of the 13 judges nostalgically reflected back on a time "when monopoly was an evil targeted by Congress and guarded against by the antitrust laws of the United States." The dissent concluded that the majority read the antitrust laws too narrowly and "treat[ed] monopoly more as a board game than as an economic harm to the public."

The October 17 decision in NicSand, Inc. v. 3M Company, appears at 2007-2 Trade Cases ¶75,908.

Tuesday, October 23, 2007





Novell’s Scaled-Back Antitrust Claims Can Proceed Against Microsoft

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

Novell, Inc., the software company that once owned the WordPerfect word-processing and Quattro Pro spreadsheet applications, can proceed with claims that Microsoft Corporation engaged in anticompetitive conduct in the market for personal-computer (PC) operating systems, even though Novell did not directly compete in that market, the U.S. Court of Appeals in Richmond, Virginia, has decided.

However, Novell is unable to pursue allegations based on harm to the office-productivity-applications market. A decision granting in part and denying in part Microsoft's motion to dismiss (2005-1 Trade Cases ¶74,830) was affirmed.

Novell argued that its popular applications, though themselves not competitors or potential competitors to the defending firm's dominant operating system, posed a potential threat to the Microsoft's monopoly in the market for PC operating systems by offering developers of competing operating systems a "bridge" across the applications barrier to entry.

Antitrust Standing

A multi-factor analysis was applied to determine that Novell had antitrust standing. Novell could have suffered an antitrust injury and that injury could be traced to the alleged antitrust violations, the court ruled. It alleged harm of the type the antitrust laws were intended to prevent and that Microsoft specifically targeted its products for destruction as a means to damage competition in the operating-systems market. The directness of the injury weighed in favor of finding antitrust standing. There was little risk that any damages that might be established would need to be allocated or apportioned among any more-directly injured parties.

Statute of Limitations

The statute of limitations barred Novell's claims based on harm to the office-productivity-applications market, according to the court. However, the tolling provision of Sec. 5(i) of the Clayton Act preserved the other claims. Sec. 5(i) of the Clayton Act suspends the running of the statute of limitations during the pendency of a federal antitrust action and for one year thereafter for private suits based in whole or in part on the government action.

Although Novell's claims arose prior to November 1996, when it sold WordPerfect and Quattro, it did not file its complaint until November 2004. The government's complaint was filed in May 1998. Novell convinced the court that its claims based on harm to the PC operating-systems market involved the same conduct at issue in the government's complaint.

However, Novell could not establish that the tolling provision saved its claims related to the office-productivity-applications market. It unsuccessfully argued that tolling was appropriate because the "core elements" of these claims "echo[ed] allegations made throughout the government's complaint" and that the government's complaint referenced other software markets.

The decision is Novell, Inc. v. Microsoft Corp., decided October 15, 2007, 2007-2 Trade Cases ¶75,901.

Monday, October 22, 2007





FTC Opposes Antitrust Exemption for Pharmacies


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

A bill that would allow family pharmacies to band together to negotiate the price of prescription drugs with health plans likely would raise prices for consumers, private employers, and the government, a Federal Trade Commission (FTC) official testified at a recent congressional hearing.

Under a bill introduced in the House (H.R. 971), independent pharmacies would be granted an antitrust exemption that would allow them to bargain collectively with health plans to set fees and contract terms. The pharmacies would be treated as bargaining units, akin to employees engaged in negotiations with employers under the National Labor Relations Act. Companion legislation has been introduced in the Senate (S. 885).

License to Engage in Price Fixing, Boycotts?

David Wales, deputy director of the FTC’s Bureau of Competition, clearly stated the Commission’s opposition to the legislation.

“Giving health care providers – whether pharmacies, physicians, or others – a license to engage in price fixing and boycotts in order to extract higher payments from third-party payers would be a costly step backward, not forward, on the path to a better health care system,” Wales said in testimony to the House Judiciary Committee’s Antitrust Task Force on October 18.

Caution in Considering Exemptions

Wales cited the work of the Antitrust Modernization Commission (AMC), which earlier this year urged Congress to exercise caution when considering antitrust exemptions. The AMC concluded that exemptions typically “create economic benefits that flow to small, concentrated interest groups, while the costs of the exemption are widely dispersed, usually passed on to a large population of consumers through higher prices, reduced output, lower quality, and reduced innovation.”

The AMC recommended that such statutory immunities be granted “rarely” and only when proponents have made a “clear case” that exempting otherwise unlawful conduct is “necessary to satisfy a specific societal goal that trumps the benefit of a free market to consumers and the U.S. economy in general,” Wales noted.

The proposed exemption for pharmacies is one of those instances in which an exemption would satisfy an important societal goal, in the FTC’s view. “The bill would immunize price-fixing and boycotts to enforce fee and other contract demands, conduct that would otherwise amount to blatant antitrust violations,” the deputy director observed.

The Commission voted 5-0 to approve the testimony. Text of the written testimony appears on the FTC website.

Sunday, October 21, 2007





Freedom of Speech Trumps Baseball Players’ Publicity Rights

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

Even though baseball players established a cause of action for violation of their rights of publicity by a fantasy game provider (CBC), the First Amendment trumped the right of publicity, the U.S. Court of Appeals in St. Louis has ruled. CBC sold fantasy sports products via its website, e-mail, mail, and the telephone. Its fantasy baseball products incorporated the names along with performance and biographical data of actual major league baseball players.

Right of Publicity

The players offered sufficient evidence to make out a cause of action for violation of their rights of publicity under Missouri law. In Missouri, the elements of a right of publicity action included (1) the use of an individual's name as a symbol of his identity, (2) without consent, and (3) with the intent to obtain a commercial advantage.

The parties agreed that CBC's continued use of the players' names and playing information after the expiration of a 2002 licensing agreement was without consent. The symbol-of-identity element was satisfied because there was no doubt that the players' names used by CBC were understood by it and its fantasy baseball subscribers as referring to actual major league baseball players. In addition, because CBC used baseball players' identities in its fantasy baseball products for purposes of profit, their identities were being used for commercial advantage.

First Amendment

Though the dispute was between private parties, the state action necessary for First Amendment protections was present because the right of publicity claim existed only insofar as the courts enforced state-created obligations that were never explicitly assumed by CBC.

Pictures, graphic design, concept art, sounds, music, stories, and narrative present in video games had been held to be speech entitled to First Amendment protection. Similarly, CBC used the “names, nicknames, likenesses, signatures, pictures, playing records, and/or biographical data of each player” in an interactive form in connection with its fantasy baseball products.

The recitation and discussion of factual data concerning the athletic performance of major league baseball players commanded a substantial public interest, and, therefore, was a form of expression due substantial constitutional protection, according to the court.

The right of publicity provides incentives to encourage a person's productive activities and to protect consumers from misleading advertising. But major league baseball players were handsomely rewarded and could earn additional large sums from endorsements and sponsorship arrangements, the court noted.

There was no danger that consumers would be misled, the court found, because the fantasy baseball games depended on the inclusion of all players and thus could not create a false impression that some particular player with “star power” is endorsing CBC's products.

No-Use Agreement

The court, with one judge dissenting, held unenforceable a no-challenge provision of the parties’ 2002 agreement and a no-use provision, which prohibited CBC from using players' names and playing records after the expiration of the agreement.

A warranty of title in the agreement provided that the players association was “the sole and exclusive holder of all right, title and interest” in and to the names and playing statistics of virtually all major league baseball players. Because the players association did not have exclusive “right, title, and interest” in the use of the information, the association breached a material obligation that it undertook in the contract, the court determined. CBC thus was relieved of the obligations that it undertook, and the association could not enforce the no-use and no-challenge provisions.

The October 16, 2007 decision in C.B.C. Distribution and Marketing, Inc. v. Major League Baseball Advanced Media, L.P., will appear at CCH Advertising Law Guide ¶62,693.

Thursday, October 18, 2007





Advertising Industry Board Revises Self-Regulatory Procedures

This posting was written by William Zale, Editor of Do's and Don'ts in Advertising.

The Board of Directors of the National Advertising Review Council (NARC) has approved revisions to the policies and procedures that guide the advertising industry’s system of self regulation.

The revisions, effective immediately, include (1) the expansion of the categories of case dispositions reported by the National Advertising Division (NAD) of the Council of Better Business Bureaus, (2) the implementation of a filing fee for competitive challenges brought before the Electronic Retailing Self-Regulation Program, and (3) an increase in the filing fee for appeals before the National Advertising Review Board.

New Reporting Category

Prior to the revisions, NAD decisions have reported that the advertising claims at issue were “substantiated” or should be “modified” or “discontinued.” Changes to the procedures allow the NAD to report that claims at issue are “substantiated in part/discontinued in part.”

“The new reporting category will allow us to more accurately report the final outcome of many NAD cases,” said C. Lee Peeler, NARC president and CEO. “In the majority of cases, the advertiser provides adequate substantiation of at least some of the challenged claims, even though NAD may also recommend that other claims be modified or discontinued.”

Electronic Retailing

The Electronic Retailing Self-Regulation Program (ERSP) was launched in 2004 when the Electronic Retailing Association (ERA) requested that NARC develop an advertising self-regulation program for the direct-response marketing industry. The ERSP examines the truth and accuracy of claims in direct-response marketing. ERSP’s work is funded by the ERA. Under the revised procedures, non-ERA member companies filing a claim will pay a fee of $2,500.

Filing Fees for Appeals

The Board also approved an increase in filing fees for appeals brought before the National Advertising Review Board (NARB), the appellate body for the advertising industry’s system of self regulation. The filing fees for appeals were increased from $1,000 to $1,500 for members of the Council of Better Business Bureaus and from $2,000 to $2,500 for non-members of the Council.

The revised procedures appear in full text in the Do’s and Don’ts in Advertising, a two-volume, monthly reporter of the Council of Better Business Bureaus.

Through a partnership with the CBBB, Do’s and Don’ts in Advertising is being published by Wolters Kluwer Law & Business. Further details regarding the publication are available at the CCH Online Store.

Wednesday, October 17, 2007





California Clarifies Franchise Registration Rules

This posting was written by John W. Arden.

California has set out the rules for franchise disclosure and registration, as it transitions from acceptance of the Uniform Franchise Offering Circular to the Uniform Franchise Disclosure Document, prescribed by the new Federal Trade Commission franchise disclosure rule.

According to a release posted October 16 on the ABA Forum on Franchising list serve by the California Department of Corporations:

 The Uniform Franchise Offering Circular (UFOC) is valid until June 30, 2008, “regardless of when the registration was approved in California.”

 The FTC has withdrawn permission for franchisors to use the UFOC after June 30, 2008.

 Franchisors must use a franchise disclosure document that complies with the new FTC franchise rule after July 1, 2008.

 The California Corporations Commission began accepting the FTC’s Uniform Franchise Disclosure Document (UFDD) on July 1, 2007.

 A registered franchisor “must file the UFDD as part of its 2007/2008 application process or file and have approved a post-effective amendment application with the UFDD before any franchises can be offered or sold on or after July 1, 2008."

 Thus, “no UFOC may be distributed to prospective franchisees after July 1, 2008 under any circumstances.”
Instructions for the soon-to-be-released UFDD packet—which will include “fillable” franchise forms—will appear on the Corporations Commission’s web site:
http://www.corp.ca.gov/srd/franchise.htm

The release was signed by California Corporations Commissioner Preston DuFauchard and Lead Attorney, Securities Regulation Division, Henry Lew.




Korea Amends Franchise Act to Require Disclosure, Registration, Cause for Nonrenewal

This posting was written by John W. Arden.

Recent amendments to Korea’s Fair Franchise Transactions Act of 2002 require franchisors to register disclosure statements with the Korea Fair Trade Commission, to deliver written disclosure states to all prospective franchisees, and to have just cause to refuse renewal of a franchise, according to a presentation by Brendon Carr at the International Bar Association meeting this week in Singapore.

Disclosure Statement

The “most profound change” of the August 3 amendments is the article mandating that franchisors prepare and register a detailed disclosure statement containing information similar to that prescribed by the U.S. Uniform Franchise Offering Circular, Mr. Carr observed. Previously, Korea did not require registration of a disclosure statement.

Such disclosure statements may be subject to review and approval by the Korean Fair Trade Association. Prior to these amendments, the KFTA had promulgated a suggested Model Disclosure Statement, which was not mandatory but was widely adopted by Korean domestic franchisors.

Delivery to All Prospective Franchisees

In addition to making the disclosure statement mandatory, the amendments affirmatively obligate franchisors to deliver disclosure statements to all prospective franchisees not just to prospective franchisees who make written requests for disclosure statements, as previously required.

A prospective franchisee is defined as any party who conducts discussions or negotiations with a franchisor concerning the execution of a franchise agreement. The law now authorizes franchisees to rescind franchise agreements and demand refunds of franchise fees where disclosure statements contain false or exaggerated information.

Just Cause

The amendments completely overhaul the law’s previous renewal section, allowing franchisors to decline renewal only when there is “just cause,” defined as default in payments, failure to adhere to standards and practices applied to the rest of the franchise system, or default in adherence to “material standards” of the franchise system.

Franchisors intending to refuse renewal must send two default notices over 60 days and provide an opportunity to cure the cited default.

Other Provisions

Besides the disclosure, registration, and nonrenewal requirements, the amendments (1) impose a cooling off period of at least 14 days after the delivery of a disclosure statement; (2) expand the definition of “franchise fees” to include the cost of required fixtures, trade dress elements, and rent paid to the franchisor; and (3) prohibit franchisor competition with the franchisee.

The amendments will become effective on February 4, 2008, with an Enforcement Decree expected to be issued before that date, according to Mr. Carr. Like the original law, the amended version does not address cross-border franchise agreements.

Further details and text of the law in English translation will appear in the CCH Business Franchise Guide.

The paper, “Recent Amendment of the Korean Franchise Act,” was written by Brandon Carr, Foreign Legal Consultant with Hwang Mok Park, P.C. of Seoul, Korea. He is the editor of the Korea Law Blog.

Monday, October 15, 2007





Fashion Brand Group to Pay $550,000 for Alleged HSR Act Violation

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

Iconix Brand Group—owner of a diverse portfolio of fashion brands, such as Candie's and London Fog—has agreed to pay $550,000 in civil penalties to settle charges that it violated pre-merger notification requirements of the Hart-Scott-Rodino (HSR) Act of 1976 when it acquired hip-hop apparel company Rocawear.

According to the Department of Justice Antitrust Division, Iconix failed to submit to the antitrust enforcement agencies certain company documents with its pre-merger notification filing. The acquisition closed in April 2007.

Filing Requirements under HSR Act

In addition to imposing notification and waiting period requirements on large acquisitions, the HSR Act requires that parties to a large acquisition supply certain documents prepared or reviewed by the company’s officers and directors in connection with their evaluation or analysis of the proposed transaction.

Iconix submitted no such documents, despite the existence of such documents, including a formal presentation made to its Board of Directors about the transaction and a less formal e-mail among officers and directors, the Antitrust Division alleged. In addition, when initially asked to review whether such documents existed, the company allegedly reaffirmed that no such documents existed.

Compliance “Fundamental”

“Compliance with Hart-Scott-Rodino Act filing obligations is fundamental to the agencies’ ability quickly and accurately to evaluate a transaction’s competitive impact,” said Thomas O. Barnett, Assistant Attorney General of the Antitrust Division. “Filing parties must understand that the Division will vigorously enforce filing requirements even if we conclude that the transaction poses no threat to competition or consumers.”

The Antitrust Division filed the complaint in the federal district court in Washington, D.C., against Iconix on October 15. At the same time, it filed a proposed settlement that, if approved by the court, will settle the charges.

An October 15 news release on this development appears on the U.S. Justice Department web site.

Iconix Brand Group, based in New York City, owns fashion brands that serve retail distribution segments from the luxury market to the mass market. It “licenses its brands to leading retailers and manufacturers worldwide and specializes in marketing its portfolio of brands with innovative and creative advertising,” according to the company.

Sunday, October 14, 2007





“Robust” Forum on Franchising Celebrates 30th Annual Meeting

This posting was written by John W. Arden.

The American Bar Association Forum on Franchising celebrated its 30th annual meeting on October 10-12 in Phoenix, with a record number of attendees.

Speaking before a group of approximately 850 on October 12, Forum chair Jack Dunham gave a very positive “State of the Forum” address.

“The State of the Forum is, in every way, robust,” said Dunham, a partner with the law firm of Wiggin and Dana.

An example of the group's success is the remarkable turnout at the annual meeting of 850 out of 2,100 Forum members (excluding student-members), he observed.

“No other part of the ABA comes close to the high percentage of Forum members who come, year in and year out,” according to Dunham.

The “threads” that connect the membership include (1) the extremely welcoming and collegial nature of the group “that knows how to have a good time” and (2) the dedication to “high standards of scholarship and craft” in its meetings and publications.

The group is in excellent financial shape, due to the efforts of Charles S. Modell, the Forum’s financial chief, Dunham said. The chair paid tribute to three outgoing members of the governing board (Phyllis Alden Truby, outgoing immediate past chair Steven M. Goldman, and immediate past chair Dennis E. Wieczorek), as well as ABA Forum director Kelly Rodenberg and meeting co-chairs Harris Chernow and Leslie Smith-Porter.

In a short business meeting, the membership voted in three new members of the governing committee: Kerry L. Bundy, Kathryn Kotel, and Ms. Smith-Porter.

The Forum will hold its 31st annual meeting on October 15-17, 2008 in Austin, Texas. Further information about the ABA Forum on Franchising is available from the group's web site.

Friday, October 12, 2007





Antitrust Division Web Site Touts Benefits of Competition for Real Estate Industry

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

Over the last few years, the federal antitrust agencies have kept a close watch on competition in the real estate market. In October 2005, the Department of Justice Antitrust Division and the FTC hosted a joint workshop to debate some of the issues. And, in July 2006, representatives from the agencies testified at a House subcommittee hearing about their advocacy efforts and enforcement actions in the industry.

Now, the Department of Justice Antitrust Division has launched a Web site aimed at educating consumers, policymakers, and the real estate industry about the benefits of competition. According to Thomas O. Barnett, Assistant Attorney General in charge of the Antitrust Division, the “Web site will help consumers and policymakers understand the benefits of increased competition among real estate agents."

The Web site, which was launched on October 10, includes maps identifying states with real estate laws that can inhibit competition, a calculator to help consumers tally their potential savings when brokers pursuing new business models compete for their business, and links to additional government resources.

State Restrictions

Some states have passed laws making it illegal for brokers to offer rebates or requiring them to offer a full package of traditional services regardless whether all consumers want them, according to the Antitrust Division. The Web site contains data showing that if these sorts of barriers to competition were eliminated, consumers could save thousands of dollars in real estate commissions when selling one home and buying another.

The Antitrust Division identifies 12 states that forbid buyers’ brokers from rebating a portion of the sales commission to the consumer and eight that states require consumers to buy more services from sellers’ brokers than they may want, with no option to waive the extra items.

The Web site address is: http://www.usdoj.gov/atr/public/real_estate/index.htm.

Thursday, October 11, 2007





State of Illinois Was a RICO Enterprise in U.S. Action Against Former Governor

This posting was written by Sonali Oberg, editor of CCH RICO Business Disputes Guide.

A sovereign state was considered a legal entity and, therefore, could be an enterprise under the RICO statute, according to the U.S. Court of Appeals in Chicago. Improprieties in awarding four leases and three contracts formed the basis of the RICO and mail fraud counts against former Illinois Governor George Ryan and state employee, Lawrence Warner, as the leases and contracts were steered improperly to entities controlled by Warner. The result was hundreds of thousands of dollars in benefits to Ryan and Warner.

The legislative history of the RICO statute was silent as to whether public entities, such as governments and states, may be considered an enterprise for purposes of RICO liability. The governor of Illinois and the state employee engaged in racketeering activity by depriving the state of proceeds by misusing state resources for their personal gain. The federal government's indictment identified the RICO enterprise, which consisted of Ryan and Warner engaging in acts of extortion, mail fraud, money laundering, and obstruction of justice.

In determining whether an enterprise should be construed to include public entities, the court observed that the definition of an "enterprise" in Sec. 1961(4) did not differentiate between public and private individuals or entities, and emphasized that the congressional statement of purpose and findings in the statute denounced racketeering activities because they subvert the democratic process. To the extent that an enterprise is merely the vehicle through which defendants conduct allegedly illegal activity, a major purpose of the RICO statute was to protect legitimate enterprises by attacking and removing those who had infiltrated them for unlawful purposes. The government provided sufficient evidence that Ryan and Warner infiltrated legitimate state government and defrauded the citizens of the state of Illinois.

The September 6, 2007, decision in U.S. v. Lawrence E. Warner, et al., No. 06-3517, will appear in the CCH RICO Business Disputes Guide.

Wednesday, October 10, 2007





FTC Brings First Action Resulting from Information-Sharing Powers Under U.S. SAFE WEB Act

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

The FTC has filed an action in the federal district court in Chicago seeking to block alleged spam containing false and unsubstantiated claims for hoodia weight-loss products and human growth hormone anti-aging products. The defendants--a marketing company and the company’s principals, as well as a Web site operator--were also charged with violating the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act). The case might sound like a routine FTC enforcement action; however, what makes this case of particular interest is the fact that it is the first action brought by the agency using the U.S. SAFE WEB Act to share information with foreign partners.

Neither the FTC complaint nor the corresponding press release provided detail on the information shared; however the FTC release said that the international enterprise, with defendants in the United States, Canada, and Australia, used spammers to drive traffic to Web sites selling two kinds of pills—one that was supposed to contain hoodia gordonii and cause significant weight loss—and another that was supposed to be a “natural human growth hormone enhancer” that would dramatically reverse the aging process. The FTC’s spam database received over 175,000 spam messages sent on behalf of the operation, according to the agency.

The agency also contends that the defendants violated the CAN-SPAM Act by initiating commercial e-mails that contained false “from” addresses and deceptive subject lines and failing to provide an opt-out link or physical postal address.

U.S. SAFE WEB Act

The U.S. SAFE WEB Act, which was signed into law on December 22, 2006, made a number of amendments and additions to the FTC Act in order to assist the agency in fighting illegal spam, spyware, and cross-border fraud and deception. It allows the FTC to share confidential information and investigative resources with foreign law enforcement officials in consumer protection cases. It confirms the FTC's remedial authority in cross-border cases on behalf of U.S. victims.

LAP-CNSA Meeting

FTC Chair Deborah Platt Majoras announced the action at an international meeting of government authorities and private industry about spam, spyware, and other online threats, held on October 10 in Arlington, Virginia. The meeting was the first time members of the London Action Plan (LAP) and the European Union’s Contact Network of Spam Authorities (CNSA) have come together in the United States. The LAP, created in 2004, is a global network of industry representatives and law enforcement agencies involved in the fight against spam, phishing, and other online threats. The CNSA, which the European Commission created in the same year, is a network of spam enforcement authorities from EU Member States.


Details of Federal Trade Commission v. Spear Systems, Inc., et al., Civil Action No.: 07C-5597; FTC File No.: 072-3050, appear on the FTC’s Web site.

Tuesday, October 09, 2007





California Tobacco Statutes Withstand Antitrust Attack

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

The State of California’s participation in the multi-billion dollar Master Settlement Agreement (MSA) of the national tobacco litigation and enactment and enforcement of California statutes implementing the MSA did not implicate federal antitrust law, the U.S. Court of Appeals in San Francisco has ruled.

The MSA and implementation statutes were not preempted by the Sherman Act, and the state and four major tobacco manufacturers that were parties to the MSA were immune from any antitrust liability stemming from the MSA or implementation statutes, the court decided.

Thus, dismissal of a cigarette purchaser’s putative class action antitrust claims against the state and tobacco manufacturers (2005-1 Trade Cases ¶74,753) was affirmed.

Output Cartel, Price Fixing Scheme

The complaining smoker alleged that the state and tobacco manufacturers had created a per se illegal output cartel and price fixing scheme through their execution of the MSA and the enactment and enforcement of the two state statutes—the “Qualifying Act” and the “Contraband Amendments.”

These laws were allegedly designed to protect the MSA’s anticompetitive provisions by (1) requiring tobacco manufacturers to become participants in the settlement or to pay a percentage of their sales to the participant and (2) authorizing the attorney general to bar noncompliant manufacturers from selling cigarettes in the state. As a result of this regulatory structure, prices “skyrocketed,” the smoker alleged.

Federal Preemption

Stating that the MSA and California statutes were not subject to preemption, the appellate court explained that, although the settlement and implementing statutes arguably created an output cartel, they did not explicitly permit tobacco manufacturers to fix prices, limit output, divide markets, or engage in any other per se illegal monopolistic behavior.

The settlement and implementing statutes did not create such high barriers to market entry and to the ability to price-compete that they placed irresistible pressure on all tobacco manufacturers to fix prices. Even though the statutes did place some pressure on new-entrant tobacco manufacturers to charge higher prices and dissuaded some potential market entrants, nothing in the laws forced those companies either to peg their prices to those of participating manufacturers or to refrain from entering the market. In fact, the new entrant could compete on price by charging a normal price.

State Action Immunity

Even if the smoker had adequately pleaded an antitrust violation, the State of California was immune from antitrust liability under the state action doctrine, the court noted. The settlement, as a sovereign act of the State of California, clearly constituted direct state action. Since the statutes were direct legislative activity resulting from the MSA, they too constituted direct state action. The state was not required to show clear articulation of state policy and active supervision, as required for state action immunity to apply to private actors.

Noerr-Pennington Immunity

The tobacco manufacturers were immune under the Noerr-Pennington doctrine from claims that they violated antitrust laws by negotiating and then operating under the provisions of the MSA and the statutes, the court ruled. The Noerr-Pennington doctrine protects from antitrust liability those who petition the government in order to secure or amend their rights. The act of negotiating a settlement with the state undoubtedly was a form of speech direct at a government entity.

The decision is Sanders v. Brown, No. 05-15676, filed September 26, 2007, 1997-2 Trade Cases ¶75,888.

Monday, October 08, 2007





Lost Future Royalties vs. Liquidated Damages in Franchise Termination Cases

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

In the recent case of Radisson Hotels v. Majestic Towers (CCH Business Franchise Guide ¶13,680, C.D. Cal., 2007), the franchisee was terminated for failure to pay royalties. The franchisor brought suit "seeking the recovery of (1) past due fees, (2) liquidated damages, and (3) attorneys' fees." The court granted "summary adjudication on the issue of past due fees and liquidated damages." There was no claim for lost future royalties, and the issue was not adjudicated by the court.

But the franchise agreement's liquidated damages clause allowed the franchisor to recover two times the royalties paid during the prior year, because the franchisor alleged that it took them, on average, two years to find a replacement franchisee.

Authorization of Future Lost Royalties

From that reference, it has been argued by many in the franchise bar that, since the decision strongly disagreed with Postal Instant Press v. Sealy (CCH Business Franchise Guide ¶10,893, Cal. Ct. App. 1996), claims for future lost royalties will now be more readily entertained.

The court in Sealy had held that (1) the franchisor's election to terminate the franchise agreement, not the franchisee's failure to pay royalties, was the proximate cause of the franchisor's lost future profits and (2) an award of lost future royalties or advertising fees to the franchisor would be unreasonable, unconscionable, and oppressive, providing the franchisor with disproportionate compensation for the franchisee's breach.

Allowing franchisors to recover lost future profits in such circumstances would improperly enable them to terminate franchise agreements upon the first material breach by the franchisees and then collect all the royalty payments they allegedly would have received from those franchisees over the course of the franchise relationship, the Sealy court reasoned.

Mistaken” Decision

Those arguing that California courts will recognize claims for lost future royalties rely on the language in Radisson that, "this Court believes that the Sealy decision is mistaken . . . In this Court's view, the Sealy court's holding that a franchisor has no remedy but to sue the franchisee over and over again as lost royalties accrue is simply untenable."

Radisson was decided by a federal district court, which noted that it was bound only by decisions of California's highest court --and that the Sealy court was merely an intermediate appellate court.

However, this author believes expansive interpretations of Radisson may be wishful. The criticism of Sealy is clearly dicta and, in fact, is merely footnote dicta. It is not even in the body of the opinion but rather comes in footnote 10. It is only part of the discussion of a claimed defense against the liquidated damages clause in the nature of "causation."

Upholding of Liquidated Damages Claim

As noted, there was not even a claim in the Radisson complaint for lost future royalties. Accordingly, in this writer's opinion, the essence of the decision simply upheld a specifically negotiated liquidated damages clause. Future royalties were only dragged into the argument as a means of computing the liquidated damages amount.


Additional information on valuation of franchises and dealerships is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.

Thursday, October 04, 2007






Bills Seek to Make Do-Not-Call Registry Permanent

This posting was written by Tom Long, Editor of CCH Privacy Law in Marketing.

Proposals to amend the Do-Not-Call Implementation Act to eliminate the automatic removal of the telephone numbers registered on the Federal Do-Not-Call Registry have been introduced in both houses of Congress.

Currently, individuals’ numbers must be deleted from the registry after five years. Thus, people have to sign up again every five years. Registrations will begin to expire in June 2008.

The proposed “Do-Not-Call Improvement Act of 2007” (H.R. 3541) was introduced by U.S. Rep. Mike Doyle (D-Pa.) on September 17. A similar bill (S. 2096) was introduced by Senator Byron Dorgan (D-N.D.) on September 26,

The automatic expiration of registrations after five years is unnecessary, Sen. Dorgan contends, because “most people who initially wanted to be rid of telemarketing calls likely still want to block these calls.”

The system in place automatically removed numbers that are disconnected and reassigned, he noted. Automatic expiration of all numbers will create “a hassle for Americans [who] start receiving calls again and the have to go through the process of re-registering,” he said.

In addition, the automatic removal and re-registering process will result in an expense for the U.S. government—which will have to launch a public awareness campaign to let people know that they need to manually sign up again.

H.R. 3541 was referred to the House Committee on Energy and Commerce. S. 2096 was read twice and referred to the Committee on Commerce, Science, and Transportation.

Wednesday, October 03, 2007





Edwards Endorses Stronger Antitrust Enforcement

This posting was written by John W. Arden.

In a statement released by the American Antitrust Institute on October 2, Democratic presidential candidate John Edwards declared that “we desperately need strong antitrust enforcement in America” to protect small businesses, farmers, and families and to encourage innovation “in every sector of the economy.”

“Rigged” System

“The system in Washington is rigged and our government is broken,” according to Edwards’ submission. “It’s rigged by greedy corporate powers to protect corporate profits. It’s rigged by the very wealthy to ensure they become even wealthier. At the end of the day, it’s rigged by all those who benefit from the established order of things.”

Antitrust and fair competition laws “enable the Justice Department and Federal Trade Commission to stop companies from abusing their power,” Edwards observed. “But those laws are a paper tiger without a president who is willing to stand up for regular Americans, and a government willing to enforce them. We have neither today—and the result is an economy out of line with our values.”

Specific Initiatives

If elected president, the former senator pledged to launch specific initiatives to (1) protect livestock farmers who are “at the mercy of big agribusiness”; (2) help small physician groups who are “being squeezed by insurance companies”; and (3) relieve consumers from having to pay artificially high prices for gasoline from vertically-integrated oil companies.

Steps to Vigorous Enforcement

“Vigorous implementation of antitrust laws starts with appointing officials committed to protecting fair competition, competitive pricing and innovation,” the candidate noted. “The next step is providing sufficient resources for effective enforcement. Finally, it requires nominating judges who are committed to protecting the economic rights of regular Americans.”

Edwards submitted this statement after the AAI invited all presidential candidates to submit their views on antitrust. Senator Barack Obama was the only candidate to respond within the requested time period.

In his statement, Senator Obama (D-Ill.) pledged “to reinvigorate antitrust enforcement” by stepping up review of merger activity, taking aggressive action to curb the growth of international cartels, monitoring key industries to ensure that consumers realize the benefits of competition, and strengthening competition advocacy domestically and in the international community

Edward’s statement ("Submission to the American Antitrust Institute") appears at the AAI website.

The American Antitrust Institute—an independent, non-profit education, research, and advocacy organization based in Washington, D.C.—said it would publish any additional statements submitted by candidates.

Tuesday, October 02, 2007





European Commission Initiates Proceedings Against Qualcomm

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

The European Commission (EC) announced on October 1 its decision to open formal antitrust proceedings against Qualcomm Incorporated, a U.S.-based chipset manufacturer, concerning an alleged breach of EC Treaty rules on abuse of a dominant position in the wireless technology market.

Qualcomm is a holder of intellectual property rights in the “code division multiple access” (CDMA) and “wideband CDMA” (WCDMA) standards under which cellular telephone service providers operate. The WCDMA standard forms part of the “3G” (third generation) standard for European mobile phone technology.

Refusal to License on Reasonable Terms

The proceeding follows complaints lodged with the EC by Ericsson, Nokia, Texas Instruments, Broadcom, NEC, and Panasonic—all cellular phone and/or chipsets manufacturers—that Qualcomm breached its commitment to the standards-determining organizations (SDO) for the mobile wireless telephony industry by refusing to license its technology on fair, reasonable, and nondiscriminatory (FRAND) terms and conditions.

More specifically, the complaints claimed that Qualcomm imposed exploitative licensing terms and royalties on patents it holds that are essential to the WCDMA standard.

Economic Principle

The economic principle underlying FRAND commitments is that essential patent holders should not be able to exploit the extra power they have gained as a result of having technology based on their patent incorporated in the standard, the EC said.

The complaints also allege that charging non-FRAND royalties could lead to final consumers paying higher handset prices, a slower development of the 3G standard, and all the related negative consequences for economic efficiency associated with inhibited growth of the standard. In addition, the complainants allege that this behavior could negatively affect the standard-setting process more generally as well as the adoption of the future 4G standard.

The EC’s initiation of proceedings does not imply that it has proof of an infringement, the EC explained. Rather, it signifies that the EC will conduct an in-depth investigation of the case as a matter of priority.

There is no strict deadline for the EC to complete inquiries into anticompetitive conduct; their duration depends on a number of factors, including the complexity of each case, the extent to which the undertakings concerned cooperate with the EC and the exercise of the rights of defense.

Similar Domestic Action

A private suit based on similar allegations that was brought against Qualcomm in the United States by Broadcom in 2005 remains before a federal district court in New Jersey, after the U.S. Court of Appeals in Philadelphia recently reversed dismissal of two of Broadcom’s Sherman Act, Section 2 claims (2007-2 Trade Cases ¶75,852).

A blog item on this domestic development (“Monopoly Claims for Abuse of Standard-Setting Process Revived”) was posted on September 12.

Monday, October 01, 2007





Administration Would “Reinvigorate Antitrust Enforcement”: Senator Obama

This posting was written by John W. Arden.

If elected president, Senator Barack Obama would direct his administration “to reinvigorate antitrust enforcement” by stepping up review of merger activity, taking aggressive action to curb the growth of international cartels, monitoring key industries to ensure that consumers realize the benefits of competition, and strengthening competition advocacy domestically and in the international community.

Senator Obama (D-Ill.) made this pledge in a statement to the American Antitrust Institute (AAI), released September 27. The AAI had invited all the presidential candidates to submit their views on antitrust. However, only Senator Obama responded within the requested time frame.

“American Way to Make Capitalism Work”

“Antitrust is the American way to make capitalism work for consumers,” according to the statement. “America has been a longtime leader in antitrust, and our antitrust rules and institutions have often served as models for other countries wanting to make capitalism work for consumers.”

“At home, for more than a century, there has been broad bipartisan support for vigorous antitrust enforcement, to protect competition and foster innovation and economic growth,” the statement continued. “Regrettably, the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century.”

Merger Enforcement

As an illustration, Senator Obama pointed out that between 1996 and 2000 the FTC and Department of Justice challenged an average of 70 mergers per year on antitrust grounds. Between 2001 and 2006, the agencies challenged only an average of 33 mergers per year. “And in seven years, the Bush Justice Department has not brought a single monopolization case.”

This “lax enforcement” has resulted in higher concentration and higher prices in industries such as health care and insurance, he indicated. “My administration will also ensure that insurance and drug companies are not abusing their monopoly power through unjustified price increases—whether on premiums for the insured or on malpractice insurance rates for physicians.”

Senator Obama’s two-page statement appears on the AAI web site.

The American Antitrust Institute—an independent, non-profit education, research, and advocacy organization based in Washington, D.C.—said it would be pleased to publish any additional candidate statements.