Use of Former Chef’s Name Could Be False Advertising; Breach of Publicity, Privacy Rights

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

A hotel chain’s continued use of a renowned chef’s name, after he had resigned, to promote wedding packages at a Philadelphia hotel could constitute Lanham Act false advertising and unauthorized use of a name under a Pennsylvania statute, as well as common law misappropriation of publicity and invasion of privacy, the federal district court in Philadelphia has ruled.

Statements “In Commerce”

The hotel’s representations were held to be “in commerce” within the meaning of the Lanham Act. It was reasonable to infer that customers from the greater Philadelphia area—including New Jersey and Delaware—would plan a wedding at a prominent hotel in Philadelphia, especially given the alleged extent of the chef’s renown.

Commercial Value of Name

The chef (Carl Lewis) sufficiently alleged that his name had secondary meaning, for purposes of false advertising under the Lanham Act, and commercial value, for purposes of the right of publicity claims. Lewis alleged that he was a well-known chef, caterer, and event planner in the Philadelphia area, having cultivated an excellent reputation in the food and beverage and event planning industries since the early 1980’s.

He alleged that the hotel chain (Marriott International, Inc.) generated over $2 million in revenue from his wedding packages in 1999, his first year as executive chef, and over $4 million in 2005, the year he left the hotel.

Based on the significant revenue generated by the chef’s wedding packages, it was reasonable to infer that the chef’s personal marketing was successful with the public, thus creating an association between his name and event planning and catering, the court concluded.

The court denied the hotel chain’s motion to dismiss the chef’s four claims (Lanham Act false advertising, unauthorized use the chef’s name under Pennsylvania statute, misappropriation of the right of publicity, and invasion of privacy).

The December 19, 2008 decision is Lewis v. Marriott International, Inc., CCH Advertising Law Guide ¶62,815.

Misrepresenting Mortgage Prepayment Credits Could Violate California Consumer Laws

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

Federal banking law and regulations did not preempt state law claims that a mortgage lender misrepresented how it would apply prepayments to principal, and the lender's practices could have violated the California Consumer Legal Remedies Act, False Advertising Act, and Unfair Competition Law, the federal district court in San Francisco has ruled.

Federal Preemption

Consumer protection laws of general application, which merely required all businesses (including banks) to refrain from misrepresentations and abide by contracts and representations to customers, did not impair the exercise of lending powers, the court determined. The state consumer laws only incidentally affected the exercise of powers under the National Banking Act and regulations of the Office of the Comptroller of Currency.

Representations in Documents, Coupons

The lender could have violated the California statutes through misrepresentations in loan documents and monthly payment coupons, according to the court. Contrary to the lender's argument, its monthly statements to existing customers could constitute “advertisements” as statements to the public.

Contrary to the lender’s argument that its representations were not likely to deceive a reasonable consumer, nothing in the payment coupons placed any condition on the lender’s promise to apply undesignated funds to principal. The lender conceded that its practice was to apply undesignated payments to a suspense account until it heard further from the borrower.

Reliance

The borrower's declaration that he continued to send in payments and was told he would have to send a written request, despite the payment coupon representation was sufficient to raise a triable issue of fact as to reliance. Although the precise nature of the harm suffered was not clear, the borrowed had raised at least a triable issue of fact as to whether he was divested of the use of funds placed into the suspense account until they were applied to his principal, the court found.

The decision is Jefferson v. Chase Home Finance, filed December 14, 2007, CCH State Unfair Trade Practices Law ¶31,519 and CCH Advertising Law Guide ¶62,816.

Copier Equipment Lessors Alleged Restraint In Aftermarkets

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

Lessors of copier equipment adequately alleged that a competitor violated the antitrust laws by restraining competition in the aftermarkets for equipment upgrades and lease-end services, the U.S. Court of Appeals in San Francisco has ruled. Dismissal of the antitrust claims, as well as Lanham Act, false advertising claims (2005-1 Trade Cases ¶74,682), was reversed, and the case was remanded.

The complaining lessors claimed that the competitor engaged in an ongoing scheme to defraud its customers by extending their lease agreements and service contracts. The purpose of extending the contracts, according to the complaining lessors, was to shield the competitor's customers from competition in the aftermarkets for equipment upgrades and for lease-end services.

By extending the term of the original contract, the competitor was purportedly able to raise the contract's value, which in turn raised the price to the complaining lessors of buying out that contract.

Relevant Market

The central issue was whether the antitrust claims alleged any legally cognizable "relevant market." The district court rejected the proposed markets on the ground that they were not legally cognizable, finding that the boundaries of the markets impermissibly depended on a contractually-created group of consumers. The appellate court concluded, however, that the relevant market did not fail as a matter of law, at least on a Rule 12(b)(6) motion to dismiss.

There was no per se rule against contractually-created submarkets, according to the appellate court. Such submarkets were potentially viable when the market at issue was a wholly derivative aftermarket.

The complaint alleged the existence of two separate but related markets in intrabrand copier equipment and service. The first market was an initial market for copier leases and copier service, which was a competitive market in which the competitor had no significant market power. The second market was a derivative aftermarket for replacement equipment, which included markets for lease "buy outs" and for "lease-end service."

The aftermarket was wholly derivative from and dependent on the primary market. The complaining lessors alleged that market imperfections, as well as the competitor's fraud and deceit, prevented consumers from realizing that their choice in the initial market would impact their freedom to shop in the aftermarket. A factual question remained as to whether the alleged aftermarket actually existed.

False Advertising Claims

For purposes of the complaining lessors' Lanham Act claims, the district court's conclusions with respect to four of the five challenged statements rested on factual findings rather than legal conclusions. Thus, the Lanham Act claims were remanded, as well.

The defending copier equipment lessor's allegedly false statements that it would "deliver 95 percent up-time service" on its contracts and that it intended its contracts to be for a fixed term of 60 months could constitute false advertising actionable under Sec. 43(a) of the Lanham Act, the court ruled. However, alleged statements that the defending lessor would provide its customers "low costs" and "flexibility" were puffery and thus could not constitute false advertising under the Lanham Act.

The January 23 decision is Newcal Industries, Inc. v. Ikon Office Solution, No. 05-16208, 2008-1 Trade Cases ¶76,010.

FTC Challenges Refusal to Meet Commitment to License Patents for “Ethernet”

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

A divided Federal Trade Commission issued a complaint alleging that Negotiated Data Solutions LLC (N-Data) engaged in unfair methods of competition and unfair acts or practices in violation of Sec. 5 of the FTC Act by enforcing certain patents against makers of equipment employing Ethernet—a computer networking standard used in nearly every computer sold in the United States.

A proposed consent order would prohibit the company from charging higher royalties for the technologies used in the standard.

Liability Under Section 5 of FTC Act

In an unusual move, the three commissioners who made up the majority—Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch—found N-Data liable for its conduct under Sec. 5 of the FTC Act alone, without a concurrent determination that the conduct rose to the level of a Sherman Act violation.

Recognizing that “some may criticize the Commission for broadly (but appropriately) applying our unfairness authority to stop the conduct alleged in this Complaint,” the majority contended that the FTC’s authority to stop anticompetitive conduct that does not rise to the level of a Sherman Act violation is unique among federal agencies.

“Using our statutory authority to its fullest extent is not only consistent with the Commission's obligations, but also essential to preserving a free and dynamic marketplace,” the majority noted.

Dissenting Statements

Chairman Deborah Platt Majoras and Commissioner William E. Kovacic dissented and issued separate statements. Chairman Majoras suggested that the case departed materially from the prior FTC standard-setting “hold up” challenges and that she was not convinced that any party was injured by the challenged conduct. Commissioner Kovacic questioned the impact of the settlement on state unfairness statutes that are modeled after the FTC Act.

N-Data licenses patents that it acquires from inventors or other holders of patents. The patents involved in this matter were originally held by National Semiconductor Corporation.

Commitment to License Technology

According to the FTC's complaint, in 1994, National made a commitment to the IEEE—an electronics industry standard setting organization—that if the IEEE adopted a standard based on National’s patented NWay technology, National would offer to license the technology, for a one-time, paid-up royalty of $1,000 per licensee, to manufacturers and sellers of products that use the IEEE standard.

As alleged in the complaint, N-Data obtained the patents knowing about National’s prior commitment and after the industry became committed to the standard, but N-Data refused to comply with that commitment and instead demanded royalties far in excess of that commitment.

The action is In the Matter of Negotiated Data Solutions LLC, CCH Trade Regulation Reporter ¶16,097.

Attorney-Requested Studies Not Shielded from Discovery in False Ad Suit

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

Five scientific studies of the efficacy of a power toothbrush were not shielded from discovery by the attorney work product privilege, even though the studies were undertaken by the manufacturer (Ultreo) in consultation with outside counsel under the looming specter of litigation, the federal district court in New York City has ruled.

A competitor (Procter & Gamble) sought disclosure of the studies in its Lanham Act false advertising suit. P&G challenged Ultreo’s claim that its power toothbrush cleaned beyond the reach of the toothbrush’s bristles by virtue of its high-speed sonic bristle action and ultrasound wave technology. According to P&G, such claims were misleading because they were based exclusively and improperly on laboratory studies rather than clinical studies involving human subjects.

Attorney Work Product

The attorney work product privilege under the Federal Rules of Civil Procedure was intended to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategies with an eye toward litigation, free from unnecessary intrusion by adversaries.

The factual nature of the clinical studies did not, by itself, negate the potential applicability of the privilege, the court noted. However, under the law of the Second Circuit, the work product doctrine did not extend to documents in an attorney’s possession that were prepared by a third party in the ordinary course of business and would have been created in essentially similar form regradless of any litigation anticipated by counsel.

The affirmation of Ultreo's outside counsel that the studies were conducted at his request in anticipation of litigation was not sufficient to shield them from discovery. Since 2005, well before the studies at issue were requested, Ultreo as part of its business plan had sought to obtain clinical proof of the effectiveness of the ultrasound component of the its new toothbrush.

Indistinguishable from Other Studies

The court’s in camera review of the studies revealed that they were virtually indistinguishable from other studies conducted by Ultreo. It could not be said that the studies at issue would not have been prepared in substantially similar form but for the prospect of litigation, according to the court. To extend the privilege to the studies at issue would create a precedent for shielding every clinical investigation and scientific inquiry, so long as the party was savvy enough to include outside counsel in the decision-making process, the court said.

The January 8, 2008, decision in Procter & Gamble Co. v. Ultreo, Inc. will be reported in CCH Advertising Law Guide at ¶62,790.

Petroleum Marketing Practices Act Amended to Allow Franchisees to Sell “Renewable Fuel”

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

Recent amendments to the Petroleum Marketing Practices Act prohibit gasoline franchisors from restricting franchisees—through a new or renewed franchise-related document—from (1) installing renewable fuel pumps or tanks (except when premises are owned by the franchisor), (2) converting fuel pumps or tanks to renewable fuel use, (3) advertising the sale of any renewable fuel, (4) selling renewable fuel in any area of the franchise premises, (5) purchasing renewable fuel from another source if the franchisor does not offer such fuel for sale, (6) displaying the availability and price of renewable fuel, or (7) permitting payment of renewable fuel with a credit card.

“Renewable fuel” is defined as any fuel that is at least 85 percent ethanol or that is a mixture of biodiesel and diesel containing at least 20 percent biodiesel. Under the amendments, no franchise-related contract that requires the sale of three grades of gasoline may prevent a franchisee from selling a renewable fuel in lieu of another grade of gasoline.

The amendments were contained in H.R. 6, which was signed by the President on December 19, 2007 and became effective on December 20, 2007. The Petroleum Marketing Practices Act, as amended, is reported at CCH Business Franchise Guide ¶6940.

Supreme Court to Review “Light” Cigarette Advertising Case

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

The U.S. Supreme Court has agreed to consider whether smokers can pursue a suit alleging that tobacco company Philip Morris made fraudulent misrepresentations in violation of the Maine Unfair Trade Practices Act by advertising and promoting Marlboro and Cambridge Lights as “light” and having “Lowered Tar and Nicotine.”

The Court granted Philip Morris’s petition for review of a 2007 decision by the U.S. Court of Appeals in Boston (Good v. Altria Group, Inc., CCH Advertising Law Guide ¶62,656; CCH State Unfair Trade Practices Law ¶31,454).

Preemption by Federal Law

The question presented for review, according to the petition, is whether state law challenges to FTC-authorized statements regarding tar and nicotine yields in cigarette advertising are expressly or impliedly preempted by federal law.

The appellate court held that the smokers’ state law claims were not expressly preempted by the Federal Cigarette Labeling and Advertising Act (FCLAA). In addition, the court rejected Philip Morris’ contentions that the smoker’s state law claims were impliedly preempted by the FTC’s oversight of cigarette advertising and barred by the Maine statute’s exemption for actions otherwise permitted under laws as administered by any regulatory board or officer acting under the statutory authority of the United States.

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

Absence of FTC Rule

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

Section 57b(e) of the FTC Act specifically provided that state law rights of action survived the FTC’s efforts at judicial enforcement of its own federal standards: in other words, that those efforts are in addition to, and not in lieu of, other available remedies, the appellate court noted.

There appeared to be no purpose for the provision, in the appellate court’s view, other than to allow further relief from unfair or deceptive acts or practices under state law even after the Commission had already challenged them through litigation under the FTC Act.

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

Petition for Review

The petition is Altria Group, Inc. v. Good, Docket No. 07-562, filed October 26, 2007, cert. granted January 18, 2008.

In its petition, Philip Morris maintained that the appellate court’s decision is at odds with Supreme Court’s decision Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992) and in conflict with the decisions of other courts.

FTC Announces Revised Thresholds for Premerger Notification Process

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

The Federal Trade Commission announced today its revised thresholds for acquisitions and mergers subject to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act. The new thresholds will likely be published officially in the Federal Register next week and become effective 30 days later.

Pursuant to the HSR Act, plans for large acquisitions and mergers must be disclosed to the Department of Justice and the FTC to enable the federal antitrust enforcement authorities to examine their competitive effects and have an opportunity to challenge them under the antitrust laws prior to consummation. Only the transactions that exceed the jurisdictional thresholds need to be reported on the Notification and Report Form.

Amendments to the HSR Act in 2000 imposed new thresholds and called for indexing of these thresholds for inflation annually beginning in Fiscal Year 2005. They have since been revised based on the change in Gross National Product in 2006 and 2007.

Original Thresholds for 2000

Between February 1, 2001, and March 2, 2005, all acquisitions that resulted in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $200 million were reportable, unless otherwise exempted. On the other extreme, no transaction resulting in an acquiring person holding $50 million or less of assets or voting securities of an acquired person needed to be reported.

The reportability of transactions falling between these boundaries is based on the "size of person" test (which generally required one side of the transaction to have sales or assets in excess of $100 million and the other $10 million).

New Thresholds for 2008

Under the revised thresholds announced today, acquisitions that result in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $252.3 million will be reportable (up from the current $239.2 million), unless otherwise exempted. And no transaction resulting in an acquiring person holding $63.1 million or less (up from $59.8 million or less) of assets or voting securities of an acquired person will need to be reported.

Under the "size of person" test, one party will have to have sales or assets in excess of $126.2 million and the other $12.6 million (up from $119.6 million and $12.0 million, respectively).

Filing Fees

Along with notifying the agencies, parties must pay premerger filing fees. The fees are based on the size of the transaction. Under the revised thresholds, a filing fee of $45,000 will be required for transactions valued at less than $126.2 million (up from $119.6 million); transactions valued at at least $126.2 million but less than $630.8 million will be subject to a $125,000 filing fee; and a $280,000 filing fee will be assessed on the largest transactions.

The notice of the "Revised Jurisdictional Thresholds for Section 7A of the Clayton Act" appears here on the FTC web site.

Experts Weigh In on Presidential Candidates’ Prospective Antitrust Enforcement Policies

This posting was written by John W. Arden.

One of the relatively few issues not discussed in the scores of debates already conducted by presidential candidates is antitrust enforcement. Thus, we are reduced to speculation of the type put forth by “antitrust experts” in a January 13 Reuters article entitled “Most presidential hopefuls antitrust moderates.”

Democrats Hillary Clinton and Barack Obama would be “marginally more active” in enforcing antitrust laws, while Republicans Mike Huckabee and John McCain are harder to predict, the article said.

At least the Clinton assessment is based on her Senate activities—which included co-sponsoring a bill to restore per se illegal treatment of vertical price fixing agreements (S. 2261)—in addition to the antitrust record of her husband’s administration.

There was a split in the opinions about Senator Obama’s prospective position on federal antitrust enforcement. One expert speculated that Obama’s experience teaching law at the University of Chicago would push his views to the “pro-market” side, while another expert opined that Obama’s Harvard Law School background would encourage a moderate viewpoint.

John Edwards was considered likely to be the most aggressive on antitrust, based on his populist, anti-corporate campaign themes. On the other hand, Governor Huckabee is portrayed as “the biggest wild card” because of his lack of a track record on antitrust. Although Senator John McCain “talks tough on business issues,” he is more concerned with corporate fraud and waste than competition issues, the experts say.

In Their Own Words

Those interested in what the candidates actually have to say on these issues can peruse statements prepared by Obama and Edwards for the American Antitrust Institute (AAI).

In his statement, Obama promised 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.

“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.”

Edwards declared in an October 2 statment 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.”

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.

The AAI asked all of the presidential candidates to submit statements. However, only Obama and Edwards have done so.

NASCAR’s Refusal to Let Racetrack Hold Premium Event Was Not Unlawful

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

North American Stock Car Auto Racing (NASCAR), that sport's governing body and promoter, did not engage in attempted monopolization or an unlawful conspiracy with a national racetrack management company by denying an independent racetrack's applications to host a premium stock car race, the federal district court in Covington, Kentucky, has held.

The complaining racetrack, located in northern Kentucky, failed to prove a valid relevant market, an antitrust injury, or any actionable anticompetitive behavior, according to the court. Therefore, summary judgment in favor of the defendants was granted.

Proposed Relevant Markets

The complaining track's expert testimony as to two proposed relevant markets—a sanctioning market and a hosting market for a "NEXTEL Series" race—was insufficiently reliable to be admitted into evidence, the court found at the outset.

The NEXTEL Series is a set of 36 races that represents NASCAR's premier circuit. The testimony failed to include an analysis of cross-elasticity of demand under the Justice Department's "merger guidelines test," the accepted means of analyzing the interchangeability of a product and its substitutes.

The expert's own version of the test, which was produced solely for the litigation, had not been subjected to peer review and publication, was not controlled by any accepted standards, and was not shown to have enjoyed general acceptance within the scientific community. Moreover, the expert's comparison of the market for two automotive racing circuits was flawed, and he made no attempt to compare those markets with the markets for other professional sporting events in the area.

Market Not “Readily Apparent”

The exclusion of the unreliable expert testimony left the complaining racetrack with no evidence in support of its relevant market assertions, the court noted, and proof of relevant market was required for a Sherman Act claim. An argument by the racetrack that it did not need to prove the relevant markets because it had adduced "significant evidence of competitive harm" was rejected. The principle was not applicable, as the relevant market was not "readily apparent." Even if it could apply, the track's evidence of competitive harm was not significant enough to have triggered the principle.

Antitrust Injury

In addition, the racetrack did not suffer antitrust injury from the alleged conspiracy, the court ruled. Any preference that the sanctioning body showed for favoring the management company's tracks was vertical in nature, rendering the excluded independent track a "jilted distributor."

An agreement between a producer and a distributor to prevent a competitor of the distributor from expanding its business and competing with the preferred distributor was per se legal, because a manufacturer had a right to select its customers and refuse to sell its goods to anyone, for reasons sufficient to itself, the court concluded.

The January 7 decision is Kentucky Speedway, LLC v. National Association of Stock Car Auto Racing, Inc., Docket No. 05-138 (WOB), Eastern District of Kentucky, 2008-1 Trade Cases ¶75,995.

New York State Attorney General Opens Investigation of Intel

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

Intel Corporation, the world's largest maker of computer microprocessors, is the subject of an antitrust investigation launched by New York State Attorney General Andrew M. Cuomo, according to a January 10 announcement.

The state is investigating whether Intel violated state and federal antitrust laws by coercing customers to exclude its main rival, Advanced Micro Devices (AMD), from the worldwide market for x86 computer processing units (CPU). Modern x86 CPUs are currently the industry-wide standard for a majority of desktops, laptops, notebooks, servers, and workstations.

Use of Monopoly Power to Exclude Competitor

"After careful preliminary review, we have determined that questions raised about Intel's potential anticompetitive conduct warrant a full and factual investigation," said Attorney General Cuomo. "Our investigation is focused on determining whether Intel has improperly used monopoly power to exclude competitors or stifle innovation," he added. "We will also look at whether Intel abused its power to remove competitive threats or harm competition in violation of New York and federal antitrust laws."

European, Asian Actions

Similar antitrust allegations have been examined by authorities in Europe and Asia and resulted in formal actions, including a cease and desist order, against Intel, according to the announcement. In July 2007, the European Commission and the Korean Fair Trade Commission separately reached preliminary conclusions that Intel violated competition law. In 2005, the Japanese Fair Trade Commission concluded that Intel violated its competition laws, and Intel agreed to cease and desist, it was noted.

Absence of Federal Action

New York’s action was hailed by the American Antitrust Institute (AAI), which had urged the Federal Trade Commission to undertake a similar investigation in an August 29, 2007 letter. To date, the FTC has not responded.

“This is an example of the wisdom of having state antitrust laws that replicate the federal law,” said Albert Foer, President of the AAI. “When there is a competitive problem that affects consumers, and the federal government is slow to act, the states have the ability—and responsibility to their citizens—to fill the vacuum.”

Although the allegations against Intel are unproven at this point, “the Intel case has become the landmark monopolization case of the Twenty-First Century,” Foer said. “It is significant because the market is global and there are only two competitors, with no anticipation of new entry.”

While applauding New York and any other states that might join the invstigation, Foer thought it strange “that the U.S. government has not taken a more active role.”

The New York Attorney General’s press release appears here on the attorney general’s web site. The AAI response to the action appears here on the Instutite’s site.

EC Announces Two New Antitrust Investigations into Microsoft

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

The European Commission (EC) has opened two formal antitrust investigations into Microsoft Corporation for the computer software maker's alleged abuse of its dominant market position. The investigations follow complaints from the European Committee for Interoperable Systems (ECIS) and Opera Software ASA, according to a January 14 announcement.

In response to the complaint filed by ECIS, a Brussels-based international non-profit association whose members include information and communications technology hardware and software providers, the EC will probe Microsoft's alleged refusal to disclose interoperability information for a broad range of products.

The EC noted that the September 2007 decision of the European Court of First Instance, which essentially upheld the EC's 2004 decision against Microsoft for abusing its dominant market position, confirmed the principle that dominant companies must respect interoperability disclosure obligations.

Tying of Internet Browser to Operating System

The EC is also investigating whether Microsoft engaged in the illegal tying of its Internet Explorer product to its dominant Windows operating system. The investigation follows a December 2007 complaint from Opera, a software company headquartered in Oslo, Norway.

Based on the allegations of Opera, which develops Internet browser technology for various platforms, the EC is looking into whether Microsoft has introduced proprietary technologies in its browser that would reduce compatibility with open Internet standards and hinder competition. In addition, allegations of tying of other separate software products by Microsoft, including desktop search and Windows Live, were brought to the EC's attention.

The EC intends to consider allegations that a range of products have been unlawfully tied to sales of Microsoft's dominant operating system.

Text of the EC press release appears here on the European Union web site.

Sears Website Allegedly Compromised Personal Information

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

A Sears web-based system designed to allow customers to view their purchase history at www.managemyhome.com compromised personal information by allowing anyone to access customers’ private purchase histories, according to a class action complaint filed in the Circuit Court of Cook County, Illinois.

Marketing companies allegedly can mine the “Managemyhome” website for data about Sears customers in order to transmit detailed advertisements for additional products and/or warranties, according to the complaint.

The complaint includes claims for breach of contract, breach of fiduciary duty, and violation of the Illinois Consumer Fraud Act. Sears is alleged to have breached a good faith and fair dealing provision implicit in its contracts by failing to make required disclosures and by failing to take reasonable steps to insure that private information was not easily accessible to the public.

Damages are asserted on the theory that the value of the products and services purchased from Sears was diminished because Sears made publicly available personal information connected to those purchases.

The case is DeSantis v. Sears Roebuck and Co., Docket No. 08CH00448, filed January 4, 2008.

High Court to Review Reliance Requirement for Mail Fraud-Based Civil RICO Claims

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

The U.S. Supreme Court will review the question of whether a person asserting a civil RICO claim predicated on acts of mail fraud must plead and prove reliance on alleged misrepresentations.

At issue is a holding by the U.S. Court of Appeals in Chicago that purchasers of a tax lien had standing to bring a RICO claim against a competitor who defrauded a county treasurer's office by engaging in a scheme to circumvent the treasurer's bidding rules during a tax lien auction. (Phoenix Bond & Indemnity Co. v. Bridge, No. 06-1160, decided February 20, 2007)

The treasurer's office promulgated a bidding rule whereby a “tax buying entity” was required to submit bids in its own name, and no “related entity” may bid. A “related entity” was any other person or firm that (1) had a shareholder, partner, principal, or officer in common with the “tax buying entity” or (2) had a contractual relationship with the “tax buying entities.”

The purchasers claimed that the competitor violated the rule by arranging for related firms to bid and that, as a result, the competitor obtained an extra portion of profitable liens. They alleged that the competitor had engaged in the operation of an enterprise through a pattern of racketeering activity (namely, mail fraud) in violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S. C. §§1961, et seq.). The asserted mail fraud was based on mailings undertaken in the tax-sale process, which did not involve the purchasers.

The federal district court in Chicago ruled that the purchasers lacked standing to assert RICO claims because they “were not the recipients of the alleged misrepresentations and, at best, were indirect victims of the alleged fraud.” The purchasers were not “in the class of individuals protected by the mail fraud statute, and therefore [were] not within the ‘zone of interests’ that the RICO statute protects.”

The appellate court reversed the district court, concluding that the purchasers had standing because they sustained an injury in fact, the injury was proximately caused by the defendant, and the injury could be redressed by damages. Extra bids submitted by the related firms reduced the purchaser's chance of winning any given auction, and the loss of a valuable chance was a real injury.

Although the purchasers were not the recipients of the competitors' misrepresentations, the purchasers were direct victims of the fraudulent representations and would be within the zone of interests protected by the RICO statute, the appeals court ruled. The court followed its own previous decisions and those of three other circuits that “the direct victim may recover through RICO whether or not it is the direct recipient of the false statements.”

The appeals court also rejected a contention that the purchasers were not in the zone of interest protected by the mail fraud statute because they were not “taken in” by any false statement. “That’s just a different take on proposition that only recipients of the untruth have a remedy.” The zone of interest test requires that the injury must be direct, rather than derivative. A requirement that the plaintiff must rely on a false statement is not supported by the text of either the federal mail fraud statute or RICO, the appeals court ruled.

In its petition for review, the defendants challenged this last point, asserting (1) that the majority of the Circuits that have addressed the issue have held that a plaintiff asserting a civil RICO claim predicated on mail fraud must plead and prove reliance; (2) that the reliance question was directly at issue in the case; (3) that requiring a showing of reliance was consistent with the civil RICO remedy; and (4) that a reliance requirement is an appropriate limitation on the application of civil RICO statute.

The Supreme Court review is limited to the following question: “Whether reliance is a required element of a RICO claim predicated on mail fraud and, if it is, whether that reliance must be by the plaintiff.”

The petition is Sabre Group, LLC v. Phoenix Bond & Indemnity Co., US S.Ct. Dkt. 07-210, cert. granted January 4, 2008.

Ticketmaster Canada Found to Violate Alberta Privacy Law

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

Ticketmaster Canada violated the Alberta Personal Information Protection Act (PIPA) by requiring online customers to consent to the use of personal information for event providers’ marketing purposes, as a condition of a ticket sales transaction, according to the Office of the Information and Privacy Commissioner (OIPC).

The PIPA regulates the collection, use, and disclosure of personal information by private sector organizations in the Canadian Province of Alberta.

The OIPC’s investigation determined that Ticketmaster’s online opt-out process neither allowed customers to make an informed decision about consent nor offered customers a reasonable opportunity to decline or object to the use of their personal information for event providers’ marketing purposes. In addition, Ticketmaster’s online privacy policy was found to be complex and ambiguous.

Consent to Use of Personal Information

A customer went on Ticketmaster’s website (www.ticketmaster.ca) to purchase tickets to an event. The customer was unable to proceed with his online purchase unless he consented to Ticketmaster’s “Use of Personal Information” privacy statement, according to the OIPC.

The customer was particularly concerned with the contents of this privacy statement, which authorized Ticketmaster to share his e-mail address with event providers for their marketing purposes.

Investigators’ Recommendations

Ticketmaster agreed to implement the OIPC Investigator’s recommendations, which included (1) ceasing to require customers to consent to the use of their personal information for marketing purposes; (2) providing online customers with a reasonable opportunity to opt-out of the use of their personal information by event providers; (3) amending agreements with event providers to ensure that they reflect the appropriate use of customers’ personal information, and (4) revising the website privacy policy to allow easy navigation and comprehension of Ticketmaster’s role in the ticketing process and its collection, use, and disclosure of customers’ personal information.

On October 8, 2007, Ticketmaster launched—across Canada—a new online and telephone opt-in mechanism for event providers’ marketing communications. This mechanism offers online and telephone customers the opportunity to opt-in to receiving marketing materials from event providers by checking a box during the online ticket purchasing process.

In conjunction with the new online opt-in mechanism, Ticketmaster posted a revised online privacy policy, with an easily navigable table of contents linking to appropriate sections of the policy. The complaining customer was satisfied with the outcome, according to the OIPC.

The December 17 report on this matter (Investigation Report #P2007-IR-007) appears at CCH Privacy Law in Marketing ¶60,150.

FTC Victory Against “Ionized” Bracelet Marketers Upheld

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

Marketers of the “Q-Ray Ionized Bracelet” violated the FTC Act by claiming that tests proved the therapeutic claims they made about the product, the U.S. Court of Appeals in Chicago has decided. An order barring the marketers from making most of their old claims for the bracelet's efficacy and requiring them to pay $16 million into a fund for consumer redress (2006-2 CCH Trade Cases ¶75,424) was affirmed.

The appellate court ruled that it was not clear error or an abuse of discretion to conclude that the defendants set out to bilk unsophisticated persons who found themselves in pain from arthritis and other chronic conditions. The marketers' claims that the bracelet enhanced the flow of bio-energy and other therapeutic claims were “blather,” according to the court.

The statement that the bracelet's efficacy had been test-proven was misleading because the tests the marketers relied on were “bunk.” The marketers did not have to conduct placebo-controlled, double-blind studies, the court explained. However, they offered no proof of the bracelet's efficacy.

Placebo Effect?

The marketers unsuccessfully argued that a placebo effect of the bracelet vindicated their claims. Even if the bracelet had caused a placebo effect among users, the claims would have violated the Federal Trade Commission Act, which condemns material falsehoods in promoting consumer products and lacks an exception for “beneficial deceit.”

The court noted that the possibility that a vague claim—along the lines of “this bracelet will reduce your pain without the side effects of drugs”—could be rendered true by the placebo effect. But the defendants advanced claims beyond those that could be supported by a placebo effect. They made statements that “they knew to be poppycock.”

Remedies

The defendants questioned the proof offered by the FTC with respect to the remedy. However, the FTC produced a reasonable estimate, and the defendants had the burden of showing that the estimate was inaccurate. The defendants also complained that the lower court failed to separate ill-gotten gains from legitimate profits; however, they offered no reason to believe that any of their profits were legitimate.

Money-Back Guarantee

The appellate court also rejected the marketers' objection to a requirement that they refund the purchase price to anyone who bought from their Web sites and returned the merchandise within 30 days. The defendants honored a 30-day money-back guarantee made in their infomercials for consumers who purchased by telephone but not for those who purchased bracelets from their Web sites.

Internet purchasers were allowed only 10 days to return their bracelets. The Web sites disclosed the 10-day refund period; however, the disclosure of this shorter period was buried several clicks away in the Web site and the infomercials suggested that customers purchase online.

Details of the January 3, 2008, decision in FTC v. QT, Inc, No. 07-1662, will appear in the CCH Trade Regulation Reporter.

State Antitrust Enforcers Targeted Insurance Sector, Mergers, Microsoft in 2007

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

As in 2006, state antitrust enforcers continued to target alleged anticompetitive conduct in the insurance industry in 2007. The result was a number of multi-state settlements with insurers.

As the year came to a close, nine states and the District of Columbia reached a $6 million settlement with Travelers Companies, Inc. regarding its role in an alleged nationwide bid rigging scheme devised by insurance broker Marsh & McLennan. Earlier in the year, Hartford Financial Services Group, Inc. agreed to pay $115 million to settle allegations by Connecticut, Illinois, and New York that it faked bids and allowed illegal trading in some mutual funds.

Individual states also brought enforcement actions in the sector. Texas announced in April that a large commercial casualty insurance company agreed to pay $2.1 million to settle allegations that it conspired to avoid competition with the same companies that were its own original investors. Connecticut announced in October an antitrust lawsuit against one of the world's largest reinsurance brokers for conspiring to fix prices and manipulate markets. One month later, Louisiana filed suit against major insurance companies for violating the Louisiana Monopolies Act by using damage-estimating software programs to engage in horizontal price fixing following Hurricanes Katrina and Rita.

Mergers and Acquisitions

Concerns over competition in local private school bus markets prompted a multi-state antitrust enforcement action challenging the combination of the two largest school bus contractors in the nation. A consent decree resolved a civil suit brought by the states of 11 states (2007-2 Trade Cases ¶75,931).

In another multi-state challenge to an acquisition, Rite Aid Corporation—the nation's third largest retail drug store chain—agreed to divestitures to clear the way for its acquisition of the drug store assets of Jean Coutu Group, Inc.—the owner of Eckerd and Brooks drug stores. The FTC also reached an agreement with Rite Aid that required the sale of 23 stores.

Microsoft Final Judgments

As portions of the antitrust final judgments against Microsoft Corporation were set to expire in November 2007, ten states and the District of Columbia asked the federal district court in Washington, D.C. for an extension of the decrees, which prohibit the computer software company from abusing its monopoly in the PC operating system market. “The decree has not lived up to its goal of increasing market competition,” California Attorney General Jerry Brown said

In June, Microsoft Corporation agreed to make significant changes in the design of its desktop search feature in the Windows Vista operating system to satisfy state antitrust concerns.

DOJ’s 2007 Antitrust Enforcement Focused on Anti-Cartel, Merger Activity

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

Thomas O. Barnett, Assistant Attorney General in charge of the Department of Justice Antitrust Division, has stated that the “detection, prosecution, and deterrence of cartel offenses . . . continue to be the highest priority of the Antitrust Division.”

During Fiscal Year (FY) 2007, the Antitrust Division identified a number of milestones in anti-cartel enforcement, including: (1) the highest total number of jail days (31,391) imposed in any given year; (2) the second highest amount of total criminal fines ($630 million) obtained by the Antitrust Division in a single year; and (3) the highest number of pending grand jury investigations (135) since 1992. FY 2007 ran through September.

The year also saw record jail sentences imposed on foreign nationals for violating U.S. antitrust laws. In December 2007, the Antitrust Division announced that three United Kingdom nationals agreed to serve record-setting prison sentences for participating in a conspiracy to rig bids, fix prices, and allocate market shares of marine hose—the flexible rubber hose that is used to transport oil between tankers and storage facilities and buoys.

Since FY 2007 ended in September, the Antitrust Division has announced 10 additional cases in industries or sectors where investigations into anticompetitive activity were already ongoing, such as marine hose, air transportation, and government contracts with the U.S. Navy, Department of Defense, and public schools.

Merger Enforcement

In the past year, the Assistant Attorney General was forced to defend the Antitrust Division's enforcement efforts on Capitol Hill. In a March antitrust subcommittee hearing, Senator Herb Kohl (Wisconsin) contended that there has been an “alarming decline” in antitrust enforcement under the Bush administration, particularly in the area of mergers.

One of the most notable mergers of 2007—the proposed acquisition of CBOT Holdings Inc. by Chicago Mercantile Exchange Holdings Inc.—was cleared by the Antitrust Division without conditions. The two exchanges accounted for most financial futures (and in particular, interest rate futures) traded on exchanges in the United States.

Commentators questioned whether the Antitrust Division went far enough in seeking relief against other transactions. Last summer, the Antitrust Division approved Monsanto's $1.5 billion proposed merger with Delta and Pine Land Co. after requiring divestiture of a seed company, multiple cottonseed lines, and other assets (CCH Trade Regulation Reporter ¶50,944).

The Antitrust Division challenged proposed combinations in the telecommunications industry in 2007, including AT&T Inc.'s $2.8 billion acquisition of Dobson Communications Corporation (CCH Trade Regulation Reporter ¶50,948) and CommScope Inc.'s $2.6 billion acquisition of Andrew Corporation ( CCH Trade Regulation Reporter ¶50,950).

Also in 2007, the federal district court in Washington, D.C. finally approved two separate consent decrees resolving Antitrust Division concerns over the mergers that consolidated four of the nation's largest telecommunications companies—SBC Communications, Inc., AT&T Corp.,Verizon Communications, Inc., and MCI, Inc—into two firms. The deals were announced in 2005.

Notable Setbacks

Two notable setbacks for the Antitrust Division in 2007 were the acquittal of Stora Enso North America Corporation of charges that it conspired to fix magazine paper prices and the 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.

FTC Enforcement: 2007 Highlights

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

In 2007, the FTC continued to focus its enforcement efforts on sectors of the economy that it believed had the greatest impact on consumers, including health care, energy, retail, technology, and real estate.

Health Care

The FTC ended some long-running administrative proceedings in the health care industry. The agency issued an order ending litigation arising out of Chicago-area Evanston Northwestern Healthcare Corp.'s acquisition of Highland Park Hospital in 2000 and rejecting an administrative law judge's decision that divestiture was the appropriate remedy. The Commission instead imposed an injunctive order requiring Evanston Northwestern Healthcare to establish two separate and independent teams for negotiating contracts with managed care organizations (2007-2 Trade Cases ¶75,814).

The South Carolina State Board of Dentistry agreed in June to settle FTC charges brought in September 2003 that it unlawfully restrained competition by adopting a rule that required a dentist to examine every child before a dental hygienist could provide preventive care (Trade Regulation Reporter ¶16,023). The agency also resolved a federal court action filed in November 2005 against Barr Laboratories for conspiring with Warner Chilcott to delay market entry of a generic drug (Trade Regulation Reporter ¶16,081).

Among the numerous merger challenges brought in the sector, the FTC challenged an alleged agreement between two dialysis clinic operators under which one of the operators agreed to acquire some of the competitor's clinics in one market and to pay the competitor to exit another (CCH Trade Regulation Reporter ¶16,045).

Energy

The FTC suffered two defeats in the energy sector. The agency dismissed administrative litigation challenging Western Refining, Inc.'s acquisition of Giant Industries, Inc., after a federal district court in Albuquerque, New Mexico, denied preliminary injunctive relief (2007-1 Trade Cases ¶75,725).

The FTC's challenge to the proposed combination of Equitable Resources Inc. and The People's Natural Gas Co.—natural gas suppliers serving Allegheny County, Pennsylvania—on state action immunity grounds was dismissed in May (2007-1 Trade Cases ¶75,702). The agency is appealing that decision to the Third Circuit.

Retail

The agency faced another setback when a federal district court refused to block the combination of Whole Foods Market, Inc. and Wild Oats Markets, Inc. in August. The agency is appealing the matter to the U.S. Court of Appeals in Washington, D.C. Also in the retail sector, the agency conditioned the Great Atlantic & Pacific Tea Company, Inc.'s $1.3 billion acquisition of Pathmark Stores, Inc. on divestitures (CCH Trade Regulation Reporter ¶16,080).

Technology

The Commission's decision not to challenge Google Inc.'s $3.1 billion acquisition of Internet advertising server DoubleClick Inc. (Trade Regulation Reporter ¶16,092) was the leading development on the technology front. A Commission order requiring Rambus Inc. to refrain from making misrepresentations or omissions to standard-setting organizations and to adhere to licensing obligations ended administrative litigation against the developer and licensor of computer memory technologies (CCH Trade Regulation Reporter ¶15,979).

Real Estate

In addition to bringing actions in 2007 against groups of real estate agents for restricting competition, the agency issued a May joint report with the Department of Justice, entitled “Competition in the Real Estate Brokerage Industry.”