Mortgage Company to Pay $50,000 for Tossing Loan Documents in Dumpster
This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.
An Illinois-based mortgage company that left loan documents with consumers' sensitive personal and financial information in and around an unsecured dumpster has agreed to pay a $50,000 civil penalty to settle FTC charges that the conduct violated federal regulations.
According to a complaint filed by the Department of Justice at the request of the FTC, the company violated the Disposal, Safeguards, and Privacy Rules by failing to properly dispose of credit reports or information taken from credit reports, failing to develop or implement reasonable safeguards to protect customer information, and failing to provide customers with privacy notices. The action marks the FTC's first Disposal Rule case, as well as its 15th challenge to the data security practices of companies that handle sensitive consumer information.
The complaint alleged that since at least December 2005, the company engaged in a number of practices that, taken together, failed to provide reasonable and appropriate security for consumers' personal information. Among other things, the company allegedly failed to implement reasonable policies and procedures requiring the proper disposal of consumers' personal information, including consumer reports; to take reasonable actions in disposing of such information; and to identify reasonably foreseeable internal and external risks to consumer information.
The company also allegedly failed to develop, implement, or maintain a comprehensive written information security program, it was alleged. As a result of these failures, on multiple occasions documents containing consumers' personal information were found in and around a dumpster near the company's office that was unsecured and easily accessible to the public.
The complaint charged specifically that in February 2006, hundreds of these documents were found, many in open trash bags, including consumer reports for 36 consumers. The FTC averred that although its staff notified the company in writing about this situation in March 2006, more such documents were found in and around the same dumpster on at least two occasions afterward.
In addition to requiring the company to pay the civil penalty for violations of the Disposal Rule, the proposed settlement would prohibit the company from further violations of the Disposal, Safeguards, and Privacy Rules. It would also require the company to obtain, every two years for the next 10 years, an audit from a qualified, independent, third-party professional to ensure that its security program meets the standards of the order.
The action is FTC v. American United Mortgage Corporation, FTC File No. 062 3103, court complaint and proposed consent decree filed December 18, 2007. Further details appear at CCH Trade Regulation Reporter ¶16,090.
Marketer Asserts Actual Controversy in Russian Vodka Advertising Dispute
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
A vodka marketer seeking to enter the U.S. market by touting the "authentically Russian" character of its product established the existence of an actual controversy for purposes of a declaratory judgment action against the marketer and U.S. importer of the well-established Stolichnaya vodka, the federal district court in New York City has ruled.
"Not Truly Russian"
The vodka marketer (Russian Standard) sought a declaration that it would not violate the Lanham Act through its advertising campaign, highlighting the distinction between its Imperia vodka and Stolichnaya—which Russian Standard had publicly claimed to be "not truly Russian" because some of its production processes occurred in Latvia.
The marketer (Pernod Ricard) and importer (Allied Domecq) of Stolichnaya had engaged in conduct indicating that there would be a controversy between the parties by sending a cease and desist letter to Russian Standard and initiating a proceeding at the National Advertising Division (CCH Advertising Law Guide ¶62,367). Although Pernod and Allied had waived their right to sue for past statements, the threat of legal action based on Russian Standard's future conduct was sufficiently immediate to create an "actual controversy."
Stay Pending NAD Decision
A motion by Pernod and Allied to stay litigation for 30 days was granted, pending resolution of the relevant issues in the National Advertising Division (NAD) proceeding. Allowing the NAD to provide its expert view on Stolichnaya's authenticity as a Russian vodka would be extremely useful in resolving the case, according to the court.
The November 19 decision is Russian Standard Vodka (USA), Inc. v. Allied Domecq, SD N.Y., CCH Advertising Law Guide ¶62,764.
Justice Department Will Not Appeal Dismissal of Stolt-Nielsen Antitrust Indictment
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.
The Department of Justice announced on December 21 that it will not appeal a federal district court's dismissal of an indictment against London-based Stolt-Nielsen S.A., two of its subsidiaries, and two company executives for conspiring to restrain trade in the parcel tanker shipping industry.
On November 29, 2007, the federal district court in Philadelphia dismissed the indictment, after ruling that the Department of Justice Antitrust Division's revocation of conditional leniency under the corporate leniency program was unfair (2007-2 CCH Trade Cases ¶75,962). The Justice Department failed to meet its burden of demonstrating that Stolt-Nielsen materially breached the cooperation agreement, according to the court.
In its statement, the Justice Department said that it was “disappointed with the ruling” but “respect[ed] the role of the court in making the factual determinations that support the decision that Stolt-Nielsen, two of its subsidiaries, and two executives did not breach the conditional leniency agreement.”
The Justice Department also noted that “Stolt-Nielsen is the only company that the Antitrust Division has ever sought to remove from its Corporate Leniency Program since the policy was first adopted in 1978 and then subsequently revised in 1993.”
The announcement was made in a December 21 news release, posted on the Department of Justice Antitrust Division's web site.
Privacy Principles for Online Behavioral Advertising Proposed by FTC Staff
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
The Federal Trade Commission staff has released proposed privacy principles to guide the development of companies’ “self-regulation” in the rapidly evolving area of online behavioral advertising. The Commission vote approving issuance of the principles was 5-0.
“Behavioral advertising” is the tracking of a consumer’s activities online—including the searches the consumer has conducted, the web pages visited, and the content viewed—in order to deliver advertising targeted to the individual consumer’s interests.
Commissioner Jon Leibowitz, in a statement issued in connection with the closing of the FTC’s investigation into the Google/DoubleClick merger, called the staff's self-regulatory principles “a very useful first step” in moving forward the discussion of how the Commission should address privacy issues across industries and from multiple perspectives.
The FTC staff’s proposed privacy principles are as follows:
1. Transparency and consumer control
Every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option.
2. Reasonable security, and limited data retention, for consumer data
Security against risk of unauthorized access. Any company that collects and/or stores consumer data for behavioral advertising should provide reasonable security for that data. Consistent with the data security laws and the FTC’s data security enforcement actions, such protections should be based on the sensitivity of the data, the nature of a company’s business operations, the types of risks a company faces, and the reasonable protections available to a company.
Retention time. Companies should retain data only as long as is necessary to fulfill a legitimate business or law enforcement need. FTC staff commends recent efforts by some industry members to reduce the time period for which they are retaining data. However, FTC staff seeks comment on whether companies can and should reduce their retention periods further.
3. Affirmative express consent for material changes to existing privacy promises
As the FTC has articulated in its enforcement and outreach efforts, a company must keep any promises that it makes with respect to how it will handle or protect consumer data, even if it decides to change its policies at a later date. Therefore, before a company can use data in a manner materially different from promises the company made when it collected the data, it should obtain affirmative express consent from affected consumers. This principle would apply in a corporate merger situation to the extent that the merger creates material changes in the way the companies collect, use, and share data.
4. Affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising
Companies should only collect sensitive data for behavioral advertising if they obtain affirmative express consent from the consumer to receive such advertising. FTC staff seeks specific input on (1) what classes of information should be considered sensitive, and (2) whether using sensitive data for behavioral targeting should not be permitted, rather than subject to consumer choice.
5. Call for additional information: using tracking data for purposes other than behavioral advertising
FTC staff seeks additional information about the potential uses of tracking data beyond behavioral advertising and, in particular: (1) which secondary uses raise concerns, (2) whether companies are in fact using data for these secondary purposes, (3) whether the concerns about secondary uses are limited to the use of personally identifiable data or also extend to non-personally identifiable data, and (4) whether secondary uses, if they occur, merit some form of heightened protection.
Request for Comments
FTC staff seeks comment and discussion on the appropriateness and feasibility of the above principles for both consumers and businesses, including the costs and benefits of offering choice for behavioral advertising.
Comments should be sent by Friday, February 22, 2008, to: Secretary, Federal Trade Commission, Room H-135 (Annex N), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580, or BehavioralMarketingPrinciples@ftc.gov. The comments will be posted on the FTC’s behavioral advertising web page for possible use in the development of self-regulatory programs.
The full text of the FTC Staff Statement is available here on the FTC website and will be published in CCH Privacy Law in Marketing and CCH Advertising Law Guide.
FTC Closes Antitrust Investigation into Google/DoubleClick Combination
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.
Explaining that the “sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition,” the FTC announced its decision to close its eight-month investigation into the Google Inc.’s proposed $3.1 billion acquisition of Internet advertising server DoubleClick Inc.
Although consumer groups had raised concerns about the proposed acquisition’s impact on consumer privacy, the agency limited its review to the transaction’s impact on competition. In a four-to-one vote, the Commission concluded that the proposed acquisition was unlikely to substantially lessen competition.
According to the Commission statement, Google and DoubleClick are not direct competitors in any relevant antitrust market. Google, the ubiquitous search engine provider, sells advertising space. Through its ad intermediation product—AdWords business—Google is the dominant provider of sponsored search advertising. DoubleClick does not sell any form of advertising, including sponsored search advertising. Rather, it is the leading firm in third-party ad serving markets.
While Google had been attempting to develop a third-party ad serving solution at the time of the transaction, and therefore was a potential future competitor of DoubleClick, it has not released or sold a commercially viable ad serving product in the United States.
Competitive Effects Analysis
The transaction was analyzed under three theories of potential competitive harm: (1) whether the merger threatened to eliminate direct and substantial competition between Google and DoubleClick; (2) whether the merger threatened to eliminate potential competition; and (3) whether there was any non-horizontal theory of harm, such as the possibility that Google could leverage DoubleClick’s leading position in third-party ad serving to its advantage in the ad intermediation market. Under any of these three theories, the transaction did not threaten to eliminate competition or potential competition.
Dissenting Statement
Commissioner Pamela Jones Harbour voted against the decision to close the investigation and issued a dissenting statement. “I dissent because I make alternate predictions about where this market is heading, and the transformative role the combined Google/DoubleClick will play if the proposed acquisition is consummated,” she wrote. Commissioner Harbour noted troubling horizontal overlaps that might have provided a predicate for the Commission to impose conditions on the merger. She also suggested that the Commission could have utilized the full scope of its statutory powers to not only ensure competition was not harmed, but also to address the privacy issues raised by the merger.
A news release on the Commission action, a 13-page “Statement of the Federal Trade Commission,” and the 13-page dissent appear at the FTC website. The documents will appear at CCH Trade Regulation Reports ¶16,092.
Pentium 4 Purchasers Cannot Pursue Illinois False Ad Class Action
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
A class of Illinois purchasers of Intel Pentium 4 computers cannot be certified on claims that Intel violated the Illinois Consumer Fraud Act, the Illinois Supreme Court has ruled. The suit was filed in Illinois as a nationwide class action, with alternative claims brought under Illinois and California consumer fraud laws.
The purchasers asserted deception by computer-chip manufacturer Intel in its massive advertising campaign touting the high performance of its Pentium 4 microprocessor. Intel allegedly conditioned consumers, through its marketing and naming practices, to believe that each generation of its high-performance processors was superior in speed and performance to the previous generation. The name “Pentium 4” was alleged to be an implicit representation of processor performance that deceived all consumers.
Choice of Law
Because the consumer fraud laws of California and Illinois conflicted, the choice of law was potentially outcome-determinative, the court found. While named plaintiffs were required to prove actual deception under the Illinois Consumer Fraud Act, individualized proof of deception and reliance had been held not to be required under the California Unfair Competition Law, according to the court. Although the suit implicated potential class members and consumer fraud laws of all 50 states and the District of Columbia, relief was sought only under Illinois or California law.
The Intel employees responsible for designing and marketing the microprocessor were primarily located in California, and Intel made its marketing decisions in California. Eight of the named purchaser-plaintiffs resided in Illinois, and three resided in Missouri.
The purchasers argued that Intel’s alleged injury-causing conduct occurred in California and also that the allegedly false representations emanated from California. Intel contended that Illinois possessed the more significant contacts—as the place where the majority of the named plaintiffs received the representations and where their alleged reliance and injury occurred.
Illinois law was held applicable based on court’s choice-of-law analysis favoring the place were the plaintiffs acted in reliance. While either Illinois or Missouri law could have been applicable, the purchasers did not seek relief under Missouri law. The case was limited to Illinois purchasers’ claims because the Illinois Consumer Fraud law applied to transactions that occurred primarily and substantially in Illinois.
The court noted that questions of whether California law could be applied to citizens of other states and to acts occurring outside its borders would likely be decided by California courts in a similar putative nationwide class action, Skold v. Intel Corp., Cases No. RG 04 145635 (Cal. Super. Ct. Alameda County).
Denial of Class Certification
In seeking class certification, the purchasers argued that the uniform representation implicit in the name “Pentium 4”—allegedly that this processor was the best and fastest on the market—was sufficient to afford recovery under the Consumer Fraud Act. However, this implicit representation was nothing more than mere sales “puffery” and therefore was not deceptive under the Act, in the court’s view.
The purchasers contended that Intel conditioned the market to believe that each generation of the “Pentium” processor would be better than the last. But the purchasers could only identify one statement that was communicated to the entire class—the name “Pentium 4”. This was viewed as indistinguishable from the use of the term “best,” which the court in 2005 had ruled to be nonactionable puffery (Avery v. State Farm Mutual Automobile Insurance Co, CCH Advertising Law Guide ¶61,875).
The November 29, 2007 decision in Barbara’s Sales, Inc. v. Intel Corp. will be reported at CCH Advertising Law Guide ¶62,756.
House Passes Bill to Eliminate Need to Re-Register for Do Not Call List
This posting was written by John Scorza, CCH Washington Correspondent.
The House of Representatives has passed legislation that would eliminate the automatic removal of telephone numbers from the Do Not Call registry and the need for consumers to re-register their numbers. The House also passed a related bill that would allow the Federal Trade Commission to continue to maintain and operate the Do Not Call program, which prohibits telemarketers from calling consumers who have registered their phone numbers with the agency.
The FTC established the registry in 2003 and began allowing consumers to list their phone numbers for a five-year period. As originally devised, consumers would be required to re-register after five years. However, the FTC in October announced that it would suspend the deletion of expired numbers, pending congressional action.
The House on December 11 approved the Do Not Call Improvement Act (H.R. 3541), which would eliminate the expiration of listings on the registry. The Senate Commerce, Science and Transportation Committee approved identical legislation (S. 2096) in October.
“By signing up with the National Do Not Call registry, more than 130 million Americans have told telecommuters, ‘Don’t call us—we’ll call you,’” said Representative Mike Doyle (Pennsylvania), sponsor of H.R. 3541. “Let’s save them the hassle of signing up again and again.” Doyle said he expects the Senate to move quickly to pass the legislation.
The related bill approved by the House—the Do Not Call Registry Fee Extension Act (H.R. 2601)—would give the FTC the permanent authority to continue collecting fees from telemarketers to operate the registry. The agency’s authority to collect fees and maintain the registry expired in September, the end of the fiscal year.
“I appreciate this broad bipartisan support for this legislation,” remarked Representative Cliff Stearns (Florida), sponsor of H.R. 2601. “I have heard countless expressions of gratitude for providing a means to stop these unwanted calls at home. Those who have added their numbers to the registry have seen a noticeable decrease in calls interrupting their family life.”
Chairman Majoras, FTC Reject Request for Recusal
This posting was written by John W. Arden.
FTC Chairman Deborah Platt Majoras will not recuse herself from the Commission’s review of Google’s proposed acquisition of DoubleClick Inc., based on DoubleClick’s representation by the Jones Day law firm, where her husband is a partner in the antitrust practice group.
In a December 14 statement, Chairman Majoras wrote that the relevant laws and rules “neither require nor support recusal.” Commissioner William E. Kovacic also released a statement that his wife was a member of Jones Day, but that her status did not warrant his recusal from the Google/DoubleClick matter.
Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch issued a brief statement agreeing with the analyses in the statements of Commissioners Majoras and Kovacic. “It is evident that these Commissioners have at all times taken affirmative steps to conduct themselves in complete conformity with the ethical standards that apply to their positions.”
Complaint Requesting Recusal
The Chairman issued her statement in response to a Complaint Requesting Recusal, filed with the Federal Trade Commission on December 12 by two public interest groups. The groups—the Electronic Privacy Information Center and the Center for Digital Democracy—moved for recusal based on DoubleClick’s retainer of Jones Day “to represent the company before the Federal Trade Commission in the pending merger review.”
The complaint contains “some key factual errors,” according to the Chairman, including the statement that Jones Day represented DoubleClick before the FTC. The law firm of Simpson, Thacher & Bartlett LLP actually represents the company before the FTC. Jones Day “has never appeared or even been mentioned” in DoubleClick’s meetings with the agency or submissions to the agency, she maintained.
The complaint cited a statement on the Jones Day web site that the law firm “is advising DoubleClick, Inc. the digital marketing technology provider, on the international and U.S. antitrust and competition law aspects of its planned $3.1 billion acquisition by Google Inc.”
According to Ms. Majoras, “no one at the FTC was aware that Jones Day was involved in the EC review of this transaction until the afternoon of Tuesday, December 11, 2007, at which time staff learned and contacted me. Following my customary practice when I learn that Jones Day is or may be involved in a matter, I immediately contacted the FTC’s Ethics Official, and asked him to undertake a conflict of interest analysis.”
Financial Interest
The complaint further erroneously claims that the Chairman’s spouse, John M. Majoras, “is currently an equity partner with the law firm Jones Day,” the statement asserted. As of January 1, 2006, Mr. Majoras converted to non-equity status and became a fixed participation partner. Since Mr. Majoras does not have a financial interest in the firm’s income, no financial interest could be imputed to the Chairman.
“The FTC’s Ethics Official determined that, based on the applicable facts, including those described above, no impartiality conflict exists,” the Chairman wrote.
In a separate statement, Commissioner Kovacic indicated that his wife, Kathryn Fenton, also converted from equity partner to fixed partner status on January 1, 2006. As a fixed partner, her compensation will not be affected by changes in the firm’s income. Thus, the Commissioner announced that he would not recuse himself from the Google-DoubleClick matter.
Groups Seek Majoras Recusal in FTC Review of Google-DoubleClick Merger
This posting was written by John W. Arden.
Federal Trade Commission Chairman Deborah Platt Majoras should be disqualified from the FTC’s review of the proposed merger of Google and DoubleClick because the law firm where her husband practices antitrust law is advising DoubleClick on the U.S. and international competition law aspects of the deal, according to a complaint filed with the FTC by two public interest groups.
The complaint—filed by the Electronic Privacy Information Center and the Center for Digital Democracy—moves for the recusal of Chairman Majoras based on DoubleClick’s retainer of the Washington law firm of Jones Day “to represent the company before the Federal Trade Commission in the pending merger review.”
Relationship with Law Firm
Prior to her government service, Chairman Majoras was an equity partner in Jones Day’s antitrust section. Her husband, John M. Majoras, is currently an equity partner in the antitrust section, as well as the partner-in-charge of business development in the Washington, D.C. office, according to the complaint.
The complaining groups allege that Chairman Majoras has previously recused herself in antitrust matters where there was “a similar conflict of interest” with Jones Day. These matters included Proctor & Gamble’s acquisition of Gillette, the merger of Valero Energy Corp. and Premcor, and Federated Department Stores Inc.’s acquisition of the May Department Stores Co.
Financial Interest, Question of Impartiality
According to the complaint, the Chairman is subject to disqualification in this matter, under the Standards of Ethical Conduct for Employees of the Executive Branch, because (1) the matter has a “direct and predictable financial interest” on the Chairman’s spouse; (2) a reasonable person with knowledge of relevant facts would question the Chairman’s impartiality based on her prior association with the firm, her spouse’s current association and financial interest in the firm, her spouse’s specific expertise in antitrust issues involved the client’s matter, and the spouse’s responsibility for business development in the Washington, D.C. office; and (3) the Chairman failed to give notice of this arrangement.
The complaint was filed on December 12, 2007. The Electronic Privacy Information Center (EPIC) is a public research center in Washington, D.C, established in 1994 “to focus public attention on emerging civil liberties issues and to protect privacy, the First Amendment, and constitutional values.” The Center for Digital Democracy (CDD) is a not-for-profit group, based in Washington, D.C., “dedicated to ensuring that the public interest is a fundamental part of the new digital communications landscape.”
Antitrust and Privacy Concerns
The proposed merger—which would combine the world’s largest Internet search company (Google) with the leading company that places advertising on the Internet (DoubleClick)—has raised antitrust and privacy concerns in both the U.S. and Europe.
After a September 28 hearing conducted by the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights, Senators Herb Kohl (D-Wis.) and Orrin Hatch (R-Utah) sent a letter to Chairman Majoras, asking the FTC to examine the competition and privacy issues raised by the merger. The Senators voiced concern that the deal “could cause significant harm to competition in the Internet advertising marketplace.” Privacy advocates expressed serious misgivings about DoubleClick’s data on individual’s web use preferences coming under the control of Google, which can track individuals’ search requests.
The European Commission announced on November 13 that it will investigate whether the proposed merger would significantly impede effective competition within the European Economic Area.
Web Site Operator Agrees to Settle FTC Charges Based on Sexually-Explicit Pop-Up Ads
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.
The operator of a Web site that touts itself as "the World's Largest Sex & Swingers Personal Community" has agreed to settle FTC charges that it engaged in unfair practices by foisting unsolicited sexually-explicit marketing materials—including, but not limited to, online pop-up advertisements—on unwitting consumers.
According to the FTC, the Web site operator and its affiliates used pop-up ads to drive traffic to Web sites that offer consumers the opportunity to access other members’ sexually-oriented personal files, photographs, and Web cam videos, as well as a live video chat site. The agency alleged that the practice of displaying graphic pop-up ads without consumer consent was unfair in violation of Sec. 5 of the FTC Act.
Under the terms of a proposed consent decree, awaiting approval in the federal district court in San Jose, California, the Web site operator would be prohibited from displaying sexually-explicit online ads to consumers who are not seeking out sexually-explicit content.
The proposed consent decree would require the defendant to take steps to ensure that its affiliates comply with the restriction and would require the defendant to end its relationship with any affiliates who do not comply. It also would require the defendant to establish an Internet-based mechanism for consumers to submit complaints. The proposed settlement would impose bookkeeping and record-keeping requirements that would allow the Commission to monitor compliance.
The complaint and stipulated final order for a permanent injunction is FTC v. Various, Inc., FTC File No. 072-3000, December 6, 2007. Further details appear at CCH Trade Regulation Reporter ¶16,083 and here on FTC web site.
Acquisition in Drop Cable Industry Challenged by Justice Department
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.
The Department of Justice Antitrust Division filed a complaint and proposed consent decree on December 6 in the federal district court in Washington, D.C. to preserve competition in the manufacture of drop cable, in light of CommScope Inc.’s proposed $2.6 billion acquisition of Andrew Corporation.
CommScope is a leading manufacturer and provider of wire and cable products, including drop cable, coaxial cable used by cable television companies. Andrew Corp., a major manufacturer and supplier of products for antenna and cable and wireless communications systems, manufactured drop cable until it sold the business in March 2007 to Andes Industries Inc. Andrew maintained a 30 percent ownership interest in Andes, as well as governance rights and the right to appoint members to Andes’ board of directors.
Interlocking Directorates
The Justice Department alleged that the transaction, as originally proposed, might have substantially lessened competition in the highly-concentrated market for drop cable in the United States and would have created interlocking directorates. The transaction would have given CommScope the ability to appoint directors to the board of Andes, a substantial competitor, in violation of Section 8 of the Clayton Act, according to the Justice Department.
Under the proposed consent decree, CommScope and Andrew must divest all of Andrew’s stock ownership and other interests in Andes. Upon completion of the divestiture, neither CommScope nor Andrew will have any rights to appoint Andes directors or otherwise control or influence the business operations of Andes.
European Commission
The European Commission (EC) announced on December 4 that CommScope’s acquisition of Andrew cleared scrutiny under the European Union Merger regulation. The EC concluded that the transaction would not significantly impede effective competition in Europe. The EC announcement noted the companies’ strong position in the U.S. and the U.S. Department of Justice review of the transactions.
The December 6 announcement of the action appears on web site of the Department of Justice Antitrust Division. Details of the complaint and proposed consent decree in U.S. v. CommScope, Inc., will appear in CCH Trade Regulation Reports.
FCC Proposes Permanent Do-Not-Call Registrations
This posting was written by William Zale, Editor of CCH Privacy Law in Marketing.
The Federal Communications Commission announced on November 27 that it has adopted a Notice of Proposed Rulemaking seeking comment on whether to require telemarketers to honor registrations with the National Do-Not-Call Registry beyond the current five-year registration period.
Under this proposal, telemarketers would be required to honor a registration indefinitely, until the registration is cancelled by the consumer or the telephone number is removed by the database administrator because it was disconnected or reassigned.
Since the opening of the National Do-Not-Call Registry was announced in June of 2003, more than 145 million telephone numbers have been placed on the Registry, according to the agency. Under the current rules, registered numbers will begin to expire in June 2008 and may be dropped from the Registry, unless consumers take steps to re-register the numbers.
The FCC proposes making registrations permanent to alleviate the inconvenience to consumers of having to re-register their preferences not to receive telemarketing calls, and to enhance consumer privacy protections.
The Federal Trade Commission announced on October 23 that it will not remove any telephone numbers from the registry, pending final Congressional or agency action regarding whether to make registration permanent. When the registry was developed, the Commission adopted a five-year re-registration mechanism under the telemarketing sales rule. The list was to be periodically purged of disconnected or reassigned numbers to ensure accuracy.
Insurers, Hospitals Could Have Conspired Against Surgical Facilities
This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reports.
Two managed care organizations (MCOs) and three hospitals in the Kansas City area could have engaged in a group boycott against physician-owned specialty surgical hospitals in violation of federal antitrust law, the federal district court in Witchita, Kansas has ruled.
Direct and circumstantial evidence that MCOs and hospitals acted to prevent such specialty hospitals from becoming part of the MCOs’ managed care plan networks sufficed to create a genuine issue of fact for a jury as to whether the defendants participated in an antitrust conspiracy.
Motions for summary judgment and partial summary judgment on the claim were, therefore, denied. However, a fourth hospital’s motion for partial summary judgment on the horizontal conspiracy claim was granted, owing to the complaining specialty hospital’s failure to demonstrate sufficient participation by the hospital in the conspiracy.
Evidence that a complaining specialty surgical hospital presented—showing the defending MCOs’ participation in an unlawful conspiracy with other health insurers and health care facilities—was sufficient to survive summary judgment, the court decided.
The evidence included a demonstration that, although one of the MCOs aggressively competed with other MCOs for members and gave good initial responses to the specialty hospital, the MCO then acted to exclude it subsequent to its attendance at meetings in which other MCOs expressed opposition to including specialty hospitals within their networks and planned to exclude them. Moreover, it could be inferred from testimony that the MCOs were part of a “gentleman’s agreement” among MCOs in the Kansas City area not to extend managed care contracts to specialty hospitals.
One of the defending MCOs also had spearheaded coordination of network hospitals’ waiver of network configuration clauses in their managed care contracts to enable the hospitals’ own majority-owned specialty hospitals to be part of the network, while at the same time not extending the same sort of waiver to independent, physician-owned facilities. The other MCO was shown to have participated in this effort, as well.
Owing to the existence of some direct evidence, a plausible economic motive, and the inferences of conspiracy that could be drawn from this circumstantial evidence, summary judgment in favor of the MCO would have been inappropriate.
The decision is Heartland Surgical Specialty Hospital, Inc., 2007-2 Trade Cases ¶75,957.
Revocation of Antitrust Immunity Held Unfair; Indictment Dismissed
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.
The federal district court in Philadelphia has dismissed an antitrust indictment against London-based Stolt-Nielsen S.A., two of its subsidiaries, and two company executives for conspiring to restrain trade in the parcel tanker shipping industry.
The court ruled that the indictment followed an unreasonable and unfair decision by the Department of Justice Antitrust Division to revoke its promise of immunity granted to Stolt-Nielsen for the company's cooperation with the government's investigation into a parcel tanker shipping cartel. The Antitrust Division failed to meet its burden of demonstrating that Stolt-Nielsen materially breached the agreement, according to the court.
Conditional Leniency Agreement
In 2003, the Justice Department entered into a conditional leniency agreement with Stolt-Nielsen under the Antitrust Division's corporate leniency program. The corporate leniency program provided an opportunity and incentive for companies to cooperate with the government’s criminal investigations into violations of the antitrust laws. Under the program, the Antitrust Division would agree not to prosecute companies that report their illegal antitrust activity to the Antitrust Division and meet all of the program's conditions. Only the first company to report a cartel is eligible to qualify for leniency.
Stolt-Nielsen provided the Antitrust Division with incriminating evidence of the cartel. In exchange for the cooperation, the Antitrust Division promised not to prosecute Stolt-Nielsen or its directors, officers and employees for the reported conduct. Ultimately, the government successfully prosecuted the company's co-conspirators.
Withdrawal of Leniency
The government withdrew its grant of conditional leniency to Stolt-Nielsen in March 2004, after concluding that the defendants had not fulfilled their obligations under the leniency agreement. In January 2005, the court attempted to block the government's indictment (2005-1 Trade Cases 74,669); however, the U.S. Court of Appeals in Philadelphia ruled that the district court lacked the power to enjoin the filing (2006-1 Trade Cases 75,172). The Third Circuit instructed Stolt-Nielsen to assert the agreement as a defense after indictment. A grand jury returned the indictment on September 6, 2006.
There was “no evidence that the defendants breached the agreement by failing to cooperate,” the court held. Thus, there was no reasonable basis upon which to revoke the agreement, and fundamental fairness demanded that the indictment be dismissed.
Benefit of Bargain
The government was able to dismantle a cartel and secure guilty pleas from Stolt- Nielsen’s co-conspirators, which included prison terms and fines totaling $62 million. Thus, the Antitrust Division obtained the benefit of its bargain. The defendants, however, were not afforded the benefit of their bargain, in the court's view.
The government solicited “the cooperation of the very co-conspirators whom the defendants had reported to the Division in reliance on its promise of immunity, and used the co-conspirators’ testimony to prosecute the defendants.”
The November 29, 2007, decision in U.S. v. Stolt-Nielsen, S.A., Criminal No. 06-cr-466, will appear in CCH Trade Regulation Reports.
Trying to Disprove Franchisee Damages Without an Expert Fails Again
This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.
In Section 13.04 of CCH Franchise Regulation and Damages, we’ve long noted, as a cautionary tale, the case of Century 21 Real Estate Corporation v. Meraj International Investment Corp, (10th Cir. 2003) CCH Business Franchise Guide ¶12,490.
Franchisee's Testimony
In this case, a franchisor, Century 21, argued that the franchisee's testimony was too speculative to support a jury award of lost profits and disputed all of the franchisee’s underlying assumptions.
The court made clear that it shared, at least in part, Century 21's concern about the reliability of the plaintiff's testimony and felt that his projections of income and costs seemed unrealistic in light of his minimal profits prior to the termination of the franchise agreement.
The jury verdict of $700,000 was half of the franchisee's request and about 70% of his lowest projection of lost income. The court nonetheless noted that at trial the franchisor did almost nothing to dispute the assumptions on which the franchisee based his projections.
No Evidence, No Expert
The franchisor had tried to get away with presenting no evidence of its own and called no expert. But on appeal the court said, "In these circumstances, despite our concerns about the award of a windfall . . . [w]hen a litigant is knocked out after tying both its hands behind its back, a court may properly refuse to heed the litigant's plea to be given a second chance for a fair fight."
Well, it happened again in the recent case of FMS, Inc. v. Volvo Construction, (ND IL March 20, 2007), CCH Business Franchise Guide ¶13,599.
"Risky Strategy"
In that case, the court rejected Volvo’s arguments on appeal that FMS’ lost profit calculations were overly speculative, noting that Volvo had chosen the “risky strategy” of not proposing an alternative damage calculation by putting on its own expert.
Once again, this raises the question: Why do reputable litigators try to “wing it” in these areas without damages experts?
