Trade Regulation Tidbits

This posting was written by John W. Arden.

News, updates, and observations:

 The U.S. Supreme Court failed to “rein in” potentially expansive use of mail-and-wire-fraud based civil RICO claims when it unanimously refused to require that a RICO plaintiff asserting a claim predicated on mail fraud plead and prove that it relied on the alleged misrepresentations, Robert A. Schwinger wrote in an August 18 “Outside Counsel” column in the New York Law Journal. In Bridge v. Phoenix Bond & Indemnity Co., the Supreme Court held that a showing of “first party reliance” is not an element of a civil RICO claim predicated on mail fraud. Although a RICO plaintiff may need to show “that someone relied on the defendant’s misrepresentations” to satisfy the causation element of a Civil RICO claim, “third-party reliance” can suffice. Thus, civil RICO remedies “may be available in a broader range of circumstances than some had hoped,” according to Schwinger. Challenges to RICO causation when a third-party relied on the fraud are likely to be fact intensive and may be left to the trier of fact. Schwinger characterized Bridge as the latest in a series of decisions in which the Court refused to narrow RICO to make it conform to notions of what Congress intended it to be. Those who “would seek to rein in the statute would be better served by focusing their persuasive efforts not on courts through the inventive arguments of counsel, but rather on lobbying and the legislative process.” Text of the article appears here.

 Whether it’s to protect an online operating manual, other confidential information, or customer credit and debit card numbers, franchisors need to address data security issues before they “blow up in their faces,” according to an article by Henfree Chan and Bruce S. Schaeffer appearing in the August 2008 issue of Franchising World. Although information security was once considered just a technical problem, it is now “everybody’s problem.” The authors of the article (“Penetration Testing: Why Franchise Systems Need Information Security”) provide five basic tips: (1) protect information stored on laptops through the use of passwords and full-disk encryption; (2) always use passwords and change them regularly; (3) classify and encrypt all sensitive information, especially personal, identifiable information; (4) develop a vulnerability/patch management process for managed software; and (5) conduct regular penetration checks for all Internet-facing applications and the corporate network perimeter to ensure that the proper mitigating controls are in place. The article appears here on the International Franchise Association website.

 “Antitrust Advice for the New Administration” is the theme of the Summer issue of Antitrust, the magazine of the ABA Section of Antitrust Law. In his “Editor’s Note” column, Mark D. Whitener, a former Deputy Director of the FTC Bureau of Competition, gives six “suggestions”: (1) appoint agency heads who are good managers, (2) devote more resources to measuring the effects of merger policy, (3) don’t let up on international advocacy, (4) build a domestic policy agenda that recognizes the Supreme Court’s central role, (5) minimize the differences between the FTC and the Department of Justice, and (6) keep antitrust focused on law enforcement, not regulations, and minimize substantive “agendas.” In an introduction to an edited transcript of roundtable discussion held during the Spring Meeting in March, Larry Fullerton noted a widespread agreement on the value of the DOJ’s cartel program, the Supreme Court’s recent engagement in antitrust issues, the risk of “untethering” FTC Act Section 5 from the Sherman Act, and the need for a more formal clearance agreement between the DOJ and FTC. Disagreements included the value of keeping the current emphasis on cartel and horizontal merger enforcement at the DOJ. Most panelists seemed to believe that the new administration should not make new legislation a priority.

Former FTC Chairman Tim Muris set out three principles for running the agencies: play an active role in promoting the market economy, focus resources on conduct that poses the greatest threat to consumers, and use all policy instruments to address competition and consumer protection problems. Another former FTC Chairman, Robert Pitofsky, said he believed that “for the last four or five years the antitrust laws have been underenforced.” The current administration does not bring actions alleging resale price maintenance, exclusive dealing, tie-ins, or vertical mergers. “That doesn’t seem to be adequate enforcement.” R. Hewitt Pate, former Assistant Attorney General in the Antitrust Division, disagreed, declaring the “the state of American antitrust enforcement is very good indeed.” There has been broad acceptance of the hierarchy of enforcement in the U.S. and around the world. “[C]hange is not what we need in antitrust. Things are working pretty well.” A. Douglas Melamed, former Acting Assistant Attorney General in the Antitrust Division, said that the antitrust agencies "are in very good shape and are getting better.” He did observe that the FTC and DOJ have to engage the courts more. “I think they have to bring more cases so that they can actually influence the development of the law.” Finally, Mario Monti, former Commissioner for Competition for the European Union, recommended that the U.S. “reconsider the justification for dual federal enforcement and the levels of enforcement between the federal and state” and called on Congress to reduce the number of exemptions and immunities from antitrust.

The Summer issue also contains brief essays on the future of antitrust by figures such as Bert Foer, Eleanor Fox, Senator Herb Kohl, and Janet McDavid.