Kovacic Replaces Majoras As FTC Chairman

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

FTC Commissioner William E. Kovacic assumed the role of Chairman at the agency on March 31, following the departure of Deborah Platt Majoras from the position last week.

Although there was much speculation about Kovacic's succession to the post, the move was cemented on March 26, when President George W. Bush announced his intention to designate Kovacic to serve in the role.

Kovacic has served as a Commissioner at the agency since January 2006, following his nomination by the President and confirmation by the U.S. Senate. Prior to his appointment as a Commissioner, Kovacic taught law at George Washington University Law School in Washington, D.C.

His ascent to the Chairmanship is the culmination of years of service with the Commission. Previously, Kovacic served as the FTC general counsel from 2001 through 2004. He also has worked as a staff attorney in the FTC Bureau of Competition and as an attorney-advisor to former FTC Commissioner George W. Douglas. Kovacic's term at the Commission is set to end in 2011.

The news release announcing the move appears here on the FTC website.

Listerine Purchasers Did Not Show Similar Injury from “Effective as Floss” Ads

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


Certification of a class of all Massachusetts consumers who purchased Listerine mouthwash during an allegedly unfair and deceptive “effective as floss” advertising campaign was vacated because the purchasers failed to assert a similar injury to all class members, a Massachusetts appellate court has ruled.

The purchasers alleged that Listerine's manufacturer, Pfizer, violated the Massachusetts Consumer Protection Act. The advertising campaign included four different television advertisements, print advertising, and labels and tags attached to some bottles of Listerine.

The two would-be class representatives both had used Listerine for at least ten years before the advertising campaign. They testified to seeing television commercials, but not print advertisements, bottle labels, or neck tags. Neither could remember the specific television commercials they saw. Essentially all they remembered from the commercials was that Listerine was described as being as effective as floss. Neither testified that the commercials expressly stated that they should stop flossing, according to the court.

Class Action Injury Requirement

The case faltered on the Act's class action requirement that the use of an unfair or deceptive act or practice must have caused similar injury to numerous other persons similarly situated, the court determined. The proposed class included some consumers with exposure and some without exposure to a variety of different advertisements, some deceptive, for at least a category of consumers, others adequately informative for any reasonable consumer.

The proposed class would include those who purchased the product for reasons related to the deceptive aspects of the advertising and those who purchased it for reasons totally unrelated. In these circumstances, the court found it difficult to conclude that the proposed class consisted of consumers similarly situated and similarly injured by a common deceptive act or practice.

There were too many different reasons why consumers purchased the products, too many different types of advertisements, too much variation in exposure to the advertisements, too fine a line between permissible puffery and actionable deception in the different advertisements, and too little information on the market impact of the deceptive aspects of the advertising campaign to support a conclusion that the consumers in the class certified were similarly situated and similarly injured by a common deceptive act or practice, in the court’s view.

The case was remanded for further proceedings.

The February 29 decision in Kwaak v. Pfizer is reported at CCH Advertising Law Guide ¶62,896

Enforcement of NHL Internet Policy Not Barred on Antitrust Grounds

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

The owner of the New York Rangers was properly denied a preliminary injunction blocking efforts of the National Hockey League to ban the Rangers from continuing to operate a team website independent from the NHL website, according to the U.S. Court of Appeals in New York City. The Rangers failed to demonstrate a likelihood of success or a serious question on the merits of its claim that the NHL’s Internet policy constituted a restraint of trade.

A decision of the federal court in New York City (2007-2 Trade Cases ¶75,929) was upheld in a summary order issued March 19 by the appeals court.

“Illegal Cartel”

Madison Square Garden, L.P. (MSG), the owner of the Rangers, had argued that the NHL had “become an ‘illegal cartel’ in its attempts to prevent off-ice competition between and among the NHL member clubs.” Under the NHL’s New Media Strategy, each team’s website was to be migrated onto a common technology platform, serviced by a single content management system (CMS).

Under the plan, the individual teams were responsible for supplying local content and advertising, while the league would retain space for national advertising and league news. The league saw a single CMS as an essential part of the New Media Strategy and believed that the CMS would ensure minimum quality standards and facilitate fan navigation.

MSG filed a complaint for injunctive relief in September 2007, after the NHL informed the team that it would be fined $100,000 each day that it operated its own website outside of the league platform.

“Quick Look” v. “Rule of Reason”

MSG failed to demonstrate a likelihood of success or a sufficiently serious question going to the merits of its restraint of trade claim challenging the NHL ban on independent team websites under either a “quick look” or a “rule of reason” analysis, according to the appeals court. The procompetitive benefits of the New Media Strategy precluded application of “quick look” analysis.

In light of the procompetitive justifications, the lower court properly proceeded to a full-blown rule of reason analysis and correctly determined that MSG did not show that the NHL’s website ban had an actual adverse effect on competition in the relevant market. Nor did the team demonstrate that the procompetitive benefits of the NHL’s restriction could be achieved through an alternative means that was less restrictive of competition.

Remaining Substantive Issues

The appellate court noted that there remained “substantive issues for the district court to address on the merits.” The court would have to consider “how the antitrust laws apply to the NHL as a sports league, and what the relevant market is in this case.”

The March 19, 2008, summary order in Madison Square Garden, L.P. v. National Hockey League, et al., 07 4927, will appear at 2008-1 CCH Trade Cases ¶76,079.

Justice Department Will Not Challenge Satellite Radio Merger

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

The proposed merger of XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. will not face an antitrust challenge from the Department of Justice Antitrust Division.

The Antitrust Division announced on March 24 that it closed its investigation into the proposed merger of the satellite radio companies because the evidence did not demonstrate that the proposed merger was likely to substantially lessen competition. The transaction remains subject to Federal Communications Commission approval.

The Antitrust Division said that the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers. The Justice Department cited a lack of competition between the parties in important segments even without the merger and the competitive alternative services available to consumers as reasons for the parties' inability
to increase prices.

In addition, technological change is expected to make the alternative services increasingly attractive over time. The Justice Department also noted the existence of efficiencies that could benefit consumers.

The Antitrust Division “found that the evidence did not support defining a market limited to the two satellite radio firms that would exclude various alternative sources for audio entertainment, and similarly did not establish that the combined firm could profitably sustain an increased price to satellite radio consumers”

Two Distribution Channels

According to the announcement, XM and Sirius sell satellite radios and service primarily through two distribution channels: (1) car manufacturers and (2) mass-market retailers. XM and Sirius have entered into sole-source contracts with all the major automobile manufacturers through 2012 or beyond.

XM, identifies itself as the leader in satellite-delivered entertainment and data services for the automobile market through partnerships with General Motors, Honda, Hyundai, Nissan, Porsche, Ferrari, Subaru, Suzuki and Toyota is available in 140 different vehicle models for 2008. The Antitrust Division concluded that, as a result, there is not likely to be significant competition between XM and Sirius for satellite radio equipment and service sold through
the car manufacturer channel for many years.

While XM and Sirius would have competed with one another for the foreseeable future in the retail channel, the Antitrust Division determined that the market was not limited to the two satellite radio firms. Thus, the combined firm could not profitably sustain an increased price to satellite radio consumers.

The parties had contended that they competed with a variety of other sources of audio entertainment, including traditional AM/FM radio, HD Radio, MP3 players, and audio offerings delivered through wireless telephones. The Antitrust Division also explained that efficiencies flowing from the transaction likely would undermine any concern that the combined firm might be able profitably to increase prices in the mass-market retail channel.

The March 24 announcement appears here on the Department of Justice website.

South Dakota Enacts New Franchise Disclosure/Registration Law

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

South Dakota has enacted a new franchise disclosure/registration law and has repealed its Franchises for Brand-Name Goods and Services Act.

The new law provides procedures and requirements for notice filing of franchises prior to the sale of a franchise in South Dakota, including the filing of a disclosure document as set forth in the FTC franchise rule—2007.

Exemptions

The statute specifies exemptions for franchises covered by the Petroleum Marketing Practices Act, franchises with no written document describing any material term or aspect of the relationship, fractional franchises, any leased department, franchises with required payments of less than $500 within six months after commencing the franchise's operation, and any franchise covering farm machinery, motor vehicles, or recreational vehicles.

Similar to the repealed statute, an anti-waiver provision renders void certain provisions in franchise agreements seeking to waive the provisions of the law, and the employment of any device, scheme, or artifice to defraud in the offer or sale of a franchise is prohibited.

Business Opportunity Law Amendments

In addition to providing a new franchise law, the enactment amends the South Dakota Business Opportunities Law to conform with the new disclosure/registration law and to the FTC business opportunities rule—2007.

Approved by the Governor March 17, 2008, the enactment (Senate Bill No. 52) becomes effective July 1, 2008. Text of the law appears here on the website South Dakota legislature. Further details regarding the legislative action appear here.

Class Certified in Windows Vista Marketing Case

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

A class of personal computer purchasers was certified by the federal district court in Seattle in an action alleging that Microsoft unfairly and deceptively marketed its Windows Vista operating system.

The purchasers alleged that Microsoft authorized original equipment manufacturers (such as Dell, Sony, etc.) to place a sticker on personal computers indicating that the PCs had been certified by Microsoft as “Windows Vista Capable.” Washington law was held applicable to the purchasers’ claims despite Microsoft’s contention that the laws of all 50 states were relevant and that application of only Washington law would run afoul of the U.S. Constitution.

Price Inflation

The purchasers were allowed to bring class claims on a “price inflation” theory—that purchasers paid more than they would have for their PCs had Microsoft’s “Windows Vista Capable” marketing campaign not created artificial demand for and/or increased prices of PCs only capable of running Vista Home Basic. Analyzing the purchasers’ claims through the lens of the “price inflation” theory, common issues were held to predominate. Those common issues, in terms of causation under the Washington Consumer Protection Act, were whether Vista Home Basic, in truth, could fairly be called “Vista” and whether Microsoft’s “Windows Vista Capable” marketing campaign inflated demand market-wide for “Windows Vista Capable” PCs, the court determined.

Unjust Enrichment

The purchasers were allowed to pursue an unjust enrichment claim on the theory that Microsoft’s marketing campaign artificially inflated the demand for and price of “Windows Vista Capable” PCs. Common issues—whether Microsoft retained a benefit (increased or sustained XP operating system license sales), whether Microsoft knew of that benefit, and whether purchasers paid more than they should have—would predominate, according to the court.

The class action was superior to other methods of adjudication, the court held. Individual interest in litigating the claims would be low. The size of the class was potentially very large and class members’ damages presumably varied, but the theory of the case had been limited such that only a few common liability issues would need to be decided, the court said.

The class would not include members who claimed injuries based on participation in Microsoft’s “Express Upgrade_ program, unless the complaint was amended to add a named plaintiff who had participated in the program (which purportedly allowed PC purchasers to upgrade to Vista for little or no cost). In addition, the purchasers could not pursue claims on the theory that Microsoft’s deceptive advertising induced consumers to purchase PCs that they would not otherwise have purchased.

Choice of Law

In choosing to apply Washington law, the court noted that a forum state’s substantive law may be applied in a class action if the forum state has a significant contact or significant aggregation of contacts to the claims asserted by each member of the class. Although actual conflicts existed between Washington’s Consumer Protection Act (CPA) and common law of unjust enrichment and the laws of other states, Washington had the most significant relationship to the case, the court found.

The allegedly unfair and deceptive marketing scheme originated in Washington at the headquarters of one of the state’s largest corporate citizens, the court pointed out. The CPA targeted all unfair trade practices originating from Washington businesses. Similarly, the law of unjust enrichment primarily deterred misconduct and punished unfair practices; it was not merely compensatory, according to the court.

The February 22 decision in Kelley v. Microsoft Corp. will be reported at CCH Advertising Law Guide ¶62,872.

On March 7, Microsoft filed a petition for an immediate appeal to the U.S. Court of Appeals for the Ninth Circuit. The Petition for Permission to Appeal appears here—along with other information about the case—on Microsoft’s website.

FTC Seeks Comments on New Proposal for Business Opportunities Rule

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

The Federal Trade Commission has approved the publication of a Federal Register notice seeking comments on a revised proposal for a new trade regulation rule government business opportunities.

In April 2006, the Commission proposed a business opportunity rule separate from the FTC franchise disclosure rule. Part of the proposal was to expand coverage to business arrangements that were not formerly covered by the franchise rule and to streamline disclosure obligations. Currently, business opportunities formerly covered by the franchise rule remain covered under an interim business opportunity rule.

According to a March 18, 2008 announcement, the revised notice of proposed rulemaking (RNPR) will modify the April 2006 proposal for the business opportunity rule. The RNPR will be published soon and is available here on the FTC website, along with directions for providing comments.

The RNPR is more narrowly focused than the April 2006 proposal, according to the FTC. As now proposed, the business opportunity rule would continue to cover those schemes currently covered by the interim business opportunity rule and would expand coverage to include work-at-home schemes. The revised proposal, however, would not reach multi-level marketing companies or certain companies that could have been swept inadvertently into the scope of the April 2006 proposal.

It also streamlines the requirement to disclose material information by eliminating requirements to disclose the number of cancellations and refund requests that a business that a business opportunity seller receives or the litigation history of sales personnel.

The Commission will accept comments on the RNPR through May 27, 2008. Rebuttal comments may be made through June 16, 2008. A news release on the proposal appears on the FTC website.

High Court Will Not Review Antitrust, False Advertising Rulings

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

The U.S. Supreme Court on March 17 denied review of the following trade regulation decisions:

 Antitrust standing. Microsoft Corporation requested review of whether a plaintiff who does not participate in a market where competition was allegedly restrained can suffer an antitrust injury. As a result of the denial of review, a decision of the U.S. Court of Appeals in Richmond, Virginia (2007-2 Trade Cases ¶75,901), holding that a developer of business software applications had standing to sue Microsoft for allegedly engaging in anticompetitive conduct in the PC operating system market, will remain standing. The petiton is Microsoft Corporation v. Novell, Inc., Docket No. 07-924, filed January 9, 2008.

 Termination of physician staff privileges. A physician whose staff privileges had been terminated asked for Supreme Court review of a ruling by the U.S. Court of Appeals in Philadelphia (2007-2 Trade Cases ¶75,905), affirming dismissal of his antitrust claims against two hospitals, several health systems, and numerous other persons and entities. The petition questioned (1) whether state action applies to private conduct undertaken pursuant to mandatory government statues; (2) whether the Civil Rights Act protects against discrimination by natural origin; and (3) whether the issuance of judicial opinions as “non-precedential” violates the Constitutional guarantee of equal protection of the laws. The petition is Untracht v. Fikri, Docket No. 07-932, filed January 11, 2008.

 Lanham Act false advertising. A fast food franchisee asked the Supreme Court to review the question of whether a company suffering a competitive injury caused by the false advertising of its primary competitor could nevertheless lack prudential standing to bring Lanham Act, Section 43(a) false advertising claims against the competitor. Left standing was a holding by the U.S. Court of Appeals in Atlanta (2007-1 Trade Cases ¶75,751) that the franchisee lacked standing because the causal chain linking the competitor’s misrepresentations to the franchisee’s injuries was too tenuous. The petition is Phoenix of Broward, Inc. v. McDonald’s Corp., Docket No. 07-659, filed November 19, 2007.

Gift Card Purchaser Not Bound by “Agreement” Terms Inside Package

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

A gift card issuer (American Express) could not compel arbitration of a card purchaser’s class action claims for breach of contract, unjust enrichment, and statutory fraud, the federal district court in Chicago has ruled.

The true contract between the parties was formed at the point-of-sale and did not include an arbitration clause and a choice-of-law provision in a “cardholder agreement” included inside the gift card package, the court determined.

Cardholder Agreement

After buying a $50 gift card, the purchaser used it for two transactions totaling $36.70, but allegedly was unable to use the card again to spend down the remaining $13.30 because of restrictions on “split tender” transactions in which a retailer accepts cash for a balance on a purchase when the gift card available balance is insufficient. Those and other restrictions on card use were contained in a “cardholder agreement” printed on a six-page leaflet inside the gift card package.

The cardholder agreement, which was five-pages of approximately six-point narrow typeface, included disclosures that (1) value could not be added to the gift card; (2) American Express charged $5.95 for a replacement card, $10.00 to issue a check refunding available funds on the card after its expiration date, and $2 per month in “service fees” from any balance remaining twelve months from issuance (where allowed by law); and (3) retailers had discretion to accept a “split tender.”

Class Action—$5 Million-Plus in Controversy

The purchaser’s class claims were subject to federal jurisdiction under the Class Action Fairness Act (CAFA), the court found. American Express filed a notice for removal to federal court within 30 days of the purchaser's initial complaint in state court.

American Express asserted that the amount in controversy exceeded $5 million. CAFA authorized the aggregation of class members' claims to satisfy the jurisdictional minimum amount-in-controversy requirement. An American Express vice president of finance stated that the company's national revenue from gift card purchase fees totaled more than $5 million, as did the monthly service fees collected.

Choice of Law

American Express unsuccessfully contended that New York law applied to questions of whether and under what terms a contract was formed. The choice-of-law rules of Illinois, the forum state, were applied to determine which state's law applied in deciding the contract formation issues.

Packaging Notice

In order for the terms of the cardholder agreement to be considered part of the contract between the parties, American Express had to provide the purchaser with clear notice on the outside of the packaging that additional terms were included inside, the court said.

The outside of the package informed the purchaser of additional “information for the recipient.” Inside the package was a one-page insert, which instructed readers to “see Terms and Conditions,” a term likely to be afforded more weight than “information” by the average consumer. The package contained no document actually entitled “Terms and Conditions.”

The cardholder agreement, referred to on the outside of the package, was not easy to find either, the court noted. The six-page leaflet containing the agreement was called “Using the American Express® Gift Card.” The cardholder agreement began half-way down page two, after a page and a half of “information” about how to use the card.

Although the problems identified might be mere editorial and design oversights on American Express’s part, they were crucial to the issue of notice, according to the court. In light of the inconsistency of terms and relative obfuscation of documentation, the court questioned the effectiveness of the notice to the purchaser.

Use of Card

Contrary to American Express's contention, the purchaser did not accept the cardholder agreement by using the gift card, the court held. His use did not constitute acceptance because he did not have a meaningful opportunity to reject the agreement.

The purchaser contended that he could not return the card without paying a $10.00 fee to refund the available balance and without forfeiting the $4.95 fee he paid to the store that sold the card. American Express provided no information on how to obtain a refund (or that a cardholder was allowed to do so without cost), provided no suggestion that returns were allowed if a consumer rejected the agreement, enclosed documentation that suggested a charge for returning a gift card, and admitted to numerous discretionary hurdles to obtaining a refund.

The burden was not on the consumer to figure out whether he was allowed to return the card and obtain a refund in the absence of a single sentence in the agreement informing him that this was even an option. The contract between the parties was formed at the point-of-sale and did not include the arbitration agreement or the choice-of-law provision, the court concluded.

The March 7, 2008 decision in Kaufman v. American Express Travel Related Services Co., Inc. will be reported at CCH Advertising Law Guide ¶62,861.

EC Clears Google’s Acquisition of DoubleClick

This posting was written by John W. Arden.

Google’s proposed acquisition of Internet advertising server DoubleClick, Inc. did not impede effective competition within the European Economic Area or a significant part, according to a March 11 announcement by the European Commission.

An in-depth investigation initiated by the Commission in November 2007 found that the transaction would be unlikely to have harmful effects on consumers, in either ad serving or intermediation in online advertising markets within the European Economic Area or a significant part of it.

Google, a leading Internet search engine provider, offers online advertising space on its sites and provides intermediation services to Internet publishers and advertisers for the sale of online advertising space on partner websites through its “AdSense” network.

DoubleClick sells ad serving, management, and reporting technology to website publishers and to advertisers and ad agencies. “Such technology allows Internet publishers and advertisers to ensure that advertisements are posted on the relevant websites and to report on the performance of such advertisements,” the EC noted.

Competitors?

The Commission’s market investigation concluded that Google and DoubleClick could not be considered competitors because they were not exerting major competitive constraints on each other’s activities.

Even if DoubleClick could become an effective in online intermediation services, it was likely that other competitors would continue to exert sufficient competitive pressure after the merger. Therefore, the elimination of DoubleClick as a potential competitor would not have an adverse impact on competition in the online intermediation advertising services market.

Non-Horizontal Relationships

Third parties raised concerns about potential effects of non-horizontal relationships between Google and DoubleClick in the ad serving market. These concerns included (1) whether Google’s control of DoubleClick’s ad serving tools could raise the cost of ad serving for rival intermediaries and (2) whether Google could require purchasers of search advertising space or intermediation to purchase DoubleClick’s tools.

However, the merged entity would not have the ability to engage in strategies aimed at marginalizing Google’s competitors because of the presence of credible ad serving alternatives to which customers could switch, such as Microsoft, Yahoo!, and AOL, according to the EC.

A press release on the EC decision appears here at the Europa web site.

FTC Investigation

The EC’s clearance of the transaction followed the FTC’s decision to close its own eight-month antitrust investigation into the acquistion on December 20, 2007.

Mistrial Declared in DRAM Price Fixing Suit Against Executive

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

The federal district court in San Francisco on March 6 declared a mistrial in a Department of Justice Antitrust Division action against an executive for Hynix Semiconductor America Inc. The mistrial was declared after the jury informed the court on two occasions that it was unable to reach a unanimous verdict and that it was hopelessly deadlocked.

2006 Indictment

On October 18, 2006, a federal grand jury indicted Gary Swanson and two executives from another producer of dynamic random access memory (DRAM)—Samsung Electronics Ltd.—for their alleged participation in a global conspiracy to fix DRAM prices. DRAM is a commonly used semiconductor memory product.

At the time of the alleged conspiracy, Swanson was senior vice president of memory sales and marketing for Hynix America, the U.S.-based subsidiary of Hynix Semiconductor Inc., which is headquartered in Korea. Swanson is a U.S. citizen.

The two other executives charged in the indictment are Korean citizens. One of them, Il Ung Kim, who was vice president of marketing for the memory division at Samsung, agreed in 2007 to plead guilty to a single count of price fixing, to serve jail time, to pay a criminal fine, and to assist prosecutors in the ongoing investigation.

Charges against a third defendant, Young Bae Rha, who was vice president of marketing for the memory division at Samsung at the time of the indictment, remain pending.

The case is U.S. v. Gary Swanson, CR-06-0692 PJH.

U.S. Antitrust Chief Points to Recent Acquisition Approval as Sign of U.S., EC Cooperation

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

The U.S. Department of Justice Antitrust Division and the European Commission (EC) have approved the combination of two U.K.-based companies that are suppliers to the foundry and steel making industries. Approval of Cookson Group plc’s proposed $1 billion acquisition of Foseco plc was conditioned on divestitures.

“This resolution by the Antitrust Division and the European Commission is an example of effective cooperation in global competition enforcement,” said Thomas O. Barnett, Assistant Attorney General in charge of the Antitrust Division.

Divestiture of U.S. Business

The Justice Department will require Cookson and Foseco to divest Foseco's U.S. carbon bonded ceramic (CBC) business, under the terms of a proposed consent decree. The Justice Department said that the transaction, as originally proposed, would have substantially lessened competition in the United States for certain CBCs used in the continuous casting steelmaking process, resulting in increased prices and reduced service and innovation.

Cookson and Foseco are two of only three competitors that produce CBCs in North America, according to the Justice Department. CBCs are products made of carbon-bonded alumina graphite that control the flow of molten steel during the continuous casting of steel.

The U.S. alleged in its complaint, filed in the federal district court in Washington, D.C., that the transaction would have eliminated competition between Cookson and Foseco for two types of CBCs—stopper rods and ladle shrouds—sold to customers in the United States.

EC Competition Concerns

To resolve EC competition concerns, the parties agreed to divest most of Foseco's business of isostatically pressed products (IPP) and to divest Cookson's Hi-Tech foam filter business. Without the divestitures, Cookson would have become the leader in the IPP market after the merger, and the limited number of remaining competitors would not have been able to counter the new entity's market power. With respect to the filters business, an area where Foseco has a strong market position, the merger would have combined the existing market leaders and closest competitors in terms of quality, service, and innovation.

Due to insufficient pressure from competitors, the proposed transaction would have threatened to impede effective competition in this market, according to the EC.

The settlements were announced March 4. An EC press release appears here on the Europa.eu website. The Department of Justice complaint and proposed consent decree can be found on the Department of Justice website.

The text of the proposed U.S. consent decree will appear in the CCH Trade Regulation Reporter at ¶50,955.

Trade Regulation Tidbits

This posting was written by John W. Arden.

News, updates, and observations:

 Those pursuing corporate acquisitions and mergers should try to complete them before the November election, since such deals may draw more antitrust scrutiny from a prospective Democratic administration, according to the March 5 edition of the Wall Street Journal. In his “Business” column, George Anders writes that “Both Sens. Barack Obama and Hillary Clinton cranked up populist, anti-business themes in the just-finished Democratic primary battles in Ohio and Texas.” David Robbins of Bingham McCutchen remarked that either candidate “might take a more aggressive approach towards antitrust. Democrats traditionally are seen as more of the trustbusters than Republicans.” Clearing mergers and acquisitions may be difficult even if Republican John McCain is elected. “Mr. McCain is known for his willingness to break with party orthodoxies, particularly when it comes to business,” according to Anders. “On many issues, he has taken a harder line against corporations than President Bush and the Republican leadership in Congress.”

 On March 5, the House Judiciary Antitrust Task Force approved a resolution to extend its term for an additional six months. The task force, which was established early last year, is designed to examine antitrust and competition matters. Unlike a subcommittee, the task force does not have legislative authority, but does have oversight authorization. The task force has held hearings on a number of issues, including the recommendations of the Antitrust Modernization Commission, rising gasoline prices, and railroad antitrust enforcement.

 President Bush, on February 15, signed into law two bills that make permanent the federal “do-not-call” registry for residential telephone subscribers who do not wish to receive telemarketing calls. Both bills (H.R. 3541, S. 781) require the Federal Trade Commission to issue reports to Congress on the accuracy and impact of the do-not-call registry. Further details regarding the bills appear in a February 7, 2008 posting on Trade Regulation Talk. The text of the Do-Not-Call Implementation Act appears at CCH Trade Regulation Reporter ¶27,670, CCH Advertising Law Guide ¶10,350, and CCH Privacy Law in Marketing ¶25,110.

 Judge Mark R. Filip of the federal district court in Chicago was confirmed as Deputy Attorney General by the U.S. Senate on March 3. As second-in-command to Attorney General Michael Mukasey, Filip will function as the Justice Department's Chief Operating Officer. Filip has served as a U.S. District Court Judge for the Northern District of Illinois since March 2004. He also teaches criminal procedure at the University of Chicago Law School. Filip will replace Acting Deputy Attorney General Craig Morford in the position.

Regulators List Top Ten Errors in New Franchise Disclosure Documents

This posting was written by John W. Arden.

State franchise examiners have put together a list of the “top ten” common errors they have noted in franchise disclosure documents prepared by franchisors under the new FTC franchise rule and the NASAA interim guidelines, according to Dale E. Cantone, Chair of the Franchise and Business Opportunity Project group for the North American Securities Administrators Association (NASAA).

At a recent NASAA training session on the new franchise disclosure regime, state franchise examiners reported on the errors that applicants should try to avoid. Here is the list, as interpreted by Mr. Cantone, who serves as the Maryland franchise administrator:

1. Combining the FTC cover page and the state cover page. “Keep them separate.”

2. Using “legalese” or legal antiques in the disclosure document. “The new FTC Rule still requires that [Franchise Disclosure Documents] be prepared in Plain English.”

3. Going into detail about total investment required to begin operation of the franchise on the FTC cover page. “The new FTC Rule requires a simple statement of the total amounts . . . not a narrative.”

4. Ignoring requirements that specific elements or headings be in bold or capital letters.

5. Using the old Uniform Franchise Offering Circular sample answers when there are no bankruptcies to disclose in Item 4. “You could state simply ‘No bankruptcies are required to be disclosed in this franchise disclosure document.”

6. Overlooking the alternative channels of distribution when disclosing all territories in Item 12. “The new FTC Rule requires disclosures about whether a franchisor reserves the right to use other channels of distribution within the franchisee’s territory, outside the territory, and any restriction on the franchisee to solicit or accept orders outside the territory.”

7. Varying or limiting the language of the new FTC preambles in Item 19. “Franchisors not making Item 19 financial performance representations can’t add disclaimers or limiting language beyond the negative disclosure prescribed by the new FTC Rule.”

8. Not following the new FTC Rule format for charts, with the 3-year headings along the side.

9. Ignoring the two new FTC legends in Item 20. “[D]isclose whether franchisees signed any confidentiality clauses during the last three fiscal years and if so, include the required legend language. In addition, include in Item 20 the statement ‘If you buy this franchise, your contact information may be disclosed to other buyers when you leave the franchise system.’"

10. When filing in a state that still has a 10 business day or “first personal meeting” disclosure requirement, neglecting to reference state specific delivery requirements and deleting references to the FTC’s 14-day requirement. “For multistate documents, feel free to follow the sample receipt page included in NASAA’s proposed 2008 Franchise Registration and Disclosure Guidelines.”

Caremark Settles State Accusations of Drug Switching

This posting was written by Jeffrey May.

Caremark Rx, L.L.C., one of the nation's largest pharmacy benefits management companies, has agreed to settle charges brought by 28 states and the District of Columbia that it violated state consumer protection statutes by encouraging doctors to switch patients from originally prescribed brand drugs to different brand name prescription drugs.

As part of the settlement, Caremark will pay $38.5 million to the states and up to $2.5 million in reimbursement to patients who incurred expenses related to certain switches between cholesterol-controlling drugs. The settlement would also require Caremark to change its business practices.

Caremark allegedly represented to doctors that switching drugs would save money; however, it failed to adequately inform doctors of the actual effect this switch would have on costs to patients and health plans. Caremark did not clearly inform its clients that money Caremark earned from the drug-switching process would be retained by Caremark and not passed directly to the client plan, according to the states.

In addition, Caremark purportedly restocked and re-shipped previously dispensed drugs that had been returned to Caremark's mail order pharmacies and failed to disclose to plan participants the practice.

Under the settlement, Caremark has agreed to refrain from soliciting drug switches when the net cost of the proposed drug exceeds the net cost of the originally-prescribed drug or the cost to the patient will be greater than the cost of the originally prescribed drug.

Soliciting drug switches would also be prohibited when the originally prescribed drug has a generic equivalent and the proposed drug does not or when the patient was switched from a similar drug within the last two years. The settlement would also require Caremark to inform patients and prescribers about the effects of a drug switch.

Complaints and consent decrees were filed in state courts across the country on February 14, 2008. The states participating in the settlement are: Arizona, Arkansas, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, and Washington, and the District of Columbia.

Drug Maker’s “Market Switching” Did Not Constitute Monopolization

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

Pharmacies and drug wholesalers failed to state monopolization claims based on a drug maker’s purported “market switching,” the federal district court in Washington, D.C. has ruled.

The drug maker would not have engaged in exclusionary conduct prohibited by Section 2 of the Sherman Act by “switching the market” from one of its heartburn drugs that faced generic competition to a virtually identical drug, which did not have generic competition. The drug maker’s motion to dismiss was granted.

The drug maker’s conduct did not eliminate any consumer choices, the court ruled. Rather, it added choices. The drug maker aggressively marketed a newer drug to compete with already-established drugs—both its own and others’—and with generic substitutes for at least one of the established drugs.

Fraud in Sales of New Drug

Moreover, the drug maker did not engage in fraud. The pharmacies and drug wholesalers alleged that the drug maker used distortion in its efforts to persuade doctors and other medical professionals that the new drug offered advantages over the older one. They further alleged distortions in advertising directed to lay persons. However, they did not identify any antitrust law that prohibited market switching through sales persuasion short of false representations or fraud.

Antitrust Injury

The pharmacies and drug wholesalers failed to identify an antitrust injury as a result of the drug maker’s alleged monopolistic efforts, according to the court. They claimed that the drug maker’s conduct cost them sales of their generic substitutes. However, the fact that a new product siphoned off some of the sales from the old product—and, in turn, depressed sales of the generic substitutes for the old product—did not create an antitrust cause of action, the court reasoned.

The complaint reflected little reason for the plaintiff’s circumscribed ability to realize sales other than the drug marker’s introduction of a new competitive product and successful competition in marketing the new product. This was not an antitrust injury, according to the court.

The February 25 decision is Walgreen Co. v. Astrazeneca Pharmaceuticals L.P., , 2008-1 Trade Cases ¶76,060.