Friday, February 27, 2009





New Jersey Consumer Class Claims to Proceed Despite Waiver in Arbitration Clause

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

A class-arbitration waiver agreed to by holders of the American Express “Blue Cash” credit card would be invalid against “low-value” claims asserted on behalf of New Jersey cardholders in a class complaint under the state’s Consumer Fraud Act, the U.S. Court of Appeals in Philadelphia has ruled.

American Express allegedly violated the Act by misrepresenting its cash rewards program in promoting the card and by failing to award the promised amounts of cash back.

Federal Arbitration Act

The waiver of class claims was contained in an arbitration clause in the “Blue Cash” cardmember agreement. The Federal Arbitration Act provides that written arbitration agreements are enforceable unless grounds exist for revocation of the contract. The U.S. Supreme Court has held that state law may be applied in order to resolve questions of enforceability.

Choice of Law

The cardmember agreement contained a Utah choice-of-law provision. A Utah statute expressly allowed class action waivers in consumer credit agreements.

The Utah statute conflicted with a fundamental policy of New Jersey, the court found. The New Jersey Supreme Court, in Muhammad v. County Bank of Rehoboth Beach, Del., 912 A.2d 88 (N.J. 2006), held unconscionable a class-arbitration waiver in a consumer contract between a customer and a bank that gave out “pay day loans.”

American Express contended that Utah law should be applied because the cards were issued by its bank subsidiary located in Utah. The court disagreed, finding that New Jersey had the most significant contacts with the litigation, as the only claims asserted were violations of the state’s Consumer Fraud Act.

The court decided that, under Muhammad, if the claims of individual cardholders are for small sums, both the Utah choice-of-law provision and the class-arbitration waiver are unenforceable. Dismissal of the class complaint was reversed, and the case was remanded for further proceedings.

The February 24, 2009, opinion in Homa v. American Express Co. will be reported in CCH Advertising Law Guide and CCH State Unfair Trade Practices Law.

Thursday, February 26, 2009





Promoting Season Ticket Deals While Relocating Team Not Consumer Protection Act Violation

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices.

An NBA team owner’s promotion of multi-year season ticket deals, while working to relocate the team, did not violate the Washington Consumer Protection Act, absent proof that complaining season ticket holders suffered injury that could be compensated by the Act, according to the federal district court in Seattle.

After the Professional Basketball Club, LLC bought the Seattle Supersonics franchise in 2006, rumors began to circulate that the new ownership would move the team to Oklahoma City. In order to curb uncertainty over the team’s future in Seattle, the owners created a benefit program for season ticket holders named the “Emerald Club.”

Commitment Through 2010

Advertising for the Emerald Club offered an “unprecedented commitment to provide three-year cost certainty through the 2009-10 season,” guaranteeing that 2006-2007 season ticket holders could purchase tickets for the next three seasons with no price increases.

The complaining parties, who were 2007-2008 season ticket holders, enrolled in the Emerald Club and bought season tickets for the 2008-09 season. Nearly 1,400 other season ticket holders made the same decision. Nevertheless, the Professional Basketball Club moved the Supersonics to Oklahoma City after the 2007-2008 season ended.

A number of season ticket holders filed a class action under the Consumer Protection Act (CPA) against PBC for “impliedly representing that the team would remain in Seattle through the 2010 season in order to entice season ticket holders to renew, while simultaneously making undisclosed efforts to move the Sonics from Seattle.” The ticket holders sought class certification and a full refund for the final season at the Seattle arena, plus attorney fees and costs.

Compensable Injury

However, the ticket holders failed to state a CPA action because they did not present evidence of a compensable injury that arose from the Professional Basketball Club’s allegedly deceptive conduct, the court held. A cognizable injury under the CPA is the diminishment of a plaintiff’s property interest or money because of unlawful conduct.

Although there was sufficient evidence to conclude that the ownership was working to relocate the Sonics even as it promoted the Emerald Club and future seasons in Seattle, the season ticket holders did not suffer an injury that could be remedied by the CPA.

The ticket holders alleged that they would not have bought tickets for the 2008-2009 season had the owner been upfront with its plan to move the team to Oklahoma City. Nevertheless, the ticket holders fully appreciated their season tickets and went to every game. They did not present a loss that could be compensated. Furthermore, the ticket holders presented no evidence to demonstrate that the value of their 2007-2008tickets decreased as a result of the PBC’s deception.

Although the ticket holders’ CPA claims and request for class certification failed, the ticket holders’ breach of contract claims survived summary judgment.

The decision is Brotherson v. The Professional Basketball Club, L.L.C, February 23, 2009. It will appear at CCH State Unfair Trade Practices ¶31,771.

Wednesday, February 25, 2009





“Price Squeeze” Theory Insufficient to Support Monopoly Claims: High Court

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

In an opinion by Chief Justice John Roberts, the U.S. Supreme Court today rejected an independent “price-squeeze” theory under Section 2 of the Sherman Act.

The Court ruled that AT&T—the telecommunications company that owns much of the infrastructure and facilities needed to provide digital subscriber line (DSL) services in California—would not have engaged in monopolization of the retail DSL market by engaging in a price squeeze vis-à-vis competing independent Internet service providers (ISPs), in the absence of an antitrust duty to deal at the wholesale level or predatory pricing at the retail level.

A decision of the U.S. Court of Appeals in San Francisco (2007-2 Trade Cases ¶75,875), holding that the price squeeze claim was potentially valid, was reversed. The Justice Department had contended that the appellate court erred in allowing the ISPs to proceed on their claims in the absence of an antitrust duty to deal or predatory pricing allegations.

The complaining independent ISPs filed an antitrust suit in 2003, claiming that AT&T engaged in a price squeeze in violation of Section 2 of the Sherman Act, which prohibits monopolization.

The ISPs—which received wholesale DSL transport service from AT&T and sold DSL directly to consumers in competition with AT&T—contended that the company did not leave them with a “fair” or “adequate” margin between the wholesale price and the retail price to compete.

Predatory Pricing

As a general rule, businesses are free to choose the parties with whom they deal, as well as the prices, terms, and conditions of that dealing, the Court explained. However, a dominant firm might incur antitrust liability for purely unilateral conduct by charging “predatory” prices—below-cost prices that drive rivals out of the market and allow the monopolist to raise its prices later and recoup its losses—or by refusing to deal where it has an antitrust duty to deal with its competitors.

The ISPs contended that AT&T squeezed their profit margins by setting a high wholesale price for DSL transport and a low retail price for DSL Internet service. This purportedly allowed AT&T to “preserve and maintain its monopoly control of DSL access to the Internet.” But the complaining ISPs did not allege a predatory pricing claim at least in their original complaint.

They did not contend that: (1) the challenged retail prices were below an appropriate measure of AT&T’s costs and (2) there was a dangerous probability that the AT&T would be able to recoup its investment in below-cost prices.

In rejecting an independent theory of liability based on a price squeeze, the Court said that recognizing a price squeeze in the absence of predatory pricing could lead firms to raise their retail prices or refrain from aggressive price competition to avoid potential antitrust liability.

Duty to Deal

While AT&T had a regulatory obligation to provide wholesale DSL service to the ISPs, it had no antitrust duty to deal, the Court noted. If AT&T had simply stopped providing DSL transport service to the complaining ISPs, it would not have run afoul of the Sherman Act.

The Court pointed to its recent decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP (2004-1 Trade Cases ¶74,241) for the proposition that “if a firm has no antitrust duty to deal with its competitors at wholesale, it certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous.”

Thus, only to the extent that a monopolist engages in a duty-to-deal violation at the wholesale level or predatory pricing at the retail level do plaintiffs have a remedy under existing antitrust law.

Remand

The matter was remanded to the district court to determine whether the ISPs' amended complaint, which was not before the Court, stated a claim in light of current pleading standards and whether the ISPs were entitled to leave to amend their complaint to bring a claim under the predatory pricing theory of the Supreme Court's 1993 decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (1993-1 Trade Cases ¶70,277).

Unusual Procedural Posture

The Court noted at the outset that it would consider the matter, even though the case had “assumed an unusual posture.” The case was not rendered moot by the petitioning ISPs' request that the Supreme Court vacate the federal appellate court's decision in its favor and remand with instructions that they be given leave to amend their complaint to allege a Brooke Group claim. The ISPs—“no longer pleased with their initial theory of the case”—determined that a dissenting opinion by Judge Ronald M. Gould in the appellate court stated the correct position that price squeeze claims must meet the Brooke Group requirements for predatory pricing.

The Supreme Court decided that it was appropriate to address the question presented. The parties continued to be adverse not only in the litigation as a whole, but also in the specific proceedings before the Supreme Court. AT&T asked the Supreme Court to reverse the judgment of the appellate court and remand with instructions to dismiss the complaint. The ISPs asked that the Supreme Court vacate the judgment and remand with instructions that they be given leave to amend their complaint.

It was not clear that the ISPs had unequivocally abandoned their price-squeeze claims addressed in the petition for certiorari. Further, in the absence of a Supreme Court decision on the merits, the appellate court’s decision would presumably have remained binding precedent in that circuit and a conflict among the circuits would have persisted, the Court reasoned.

Concurring Opinion

A concurring opinion, authored by Justice Stephen G. Breyer and joined by three other justices, would have remanded the case to the district court to determine whether the ISPs may proceed with their predatory pricing claim as set forth in Judge Gould’s dissenting Ninth Circuit opinion. The dissent also would have “accept[ed] respondents’ concession that the Ninth Circuit majority’s “price squeeze” holding is wrong.”

The February 25 opinion, Pacific Bell Telephone Co. v. linkLine Communications, Inc., appears here on the U.S. Supreme Court website. It will appear at 2009-1 Trade Cases ¶76,500.




Responses to Marketing List Compilers Not Consent to Receiving Fax Ads

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

A facsimile advertiser did not have consent under the Telephone Consumer Protection Act to send ads to companies that had provided information to marketing list compilers from whom the advertiser purchased lead lists, the federal district court in Chicago has ruled. Over $3.8 million in class action damages were awarded based on the faxing of 7,725 unsolicited advertisements.

Companies providing information to list compilers could not be assumed to have consented to receive faxes from any entity, the court found. The most striking aspect of the communications described by representatives of the list compilers was their careful avoidance of any language that would clearly convey to companies that the fax numbers they provided would in turn be provided to third parties who sought to broadcast advertisements by fax.

The Federal Communication Commission had concluded that express permission to receive a faxed ad requires that a person providing a fax number understand that he or she is agreeing to receive faxed advertisements. No reasonable trier of fact could find, consistent with the law, that the plaintiffs consented to receive the fax ads, the court determined.

Damages Award

There was evidence that more than 20,000 fax transmissions were sent in five “blasts.” The court declined to award damages for the first three blasts because recipients did not produce a copy of each of the three faxes sent. While the recipients provided some evidence that those faxes constituted advertisements, their evidence was insufficient to prove their claims under the TCPA.

Damages were awarded for the last two blasts because copies of the fax ads were available and plainly constituted advertisements of the commercial availability of services, the court concluded.

The January 27, 2009 opinion in Hinman v. M and M Rental Center will be reported at CCH Advertising Law Guide ¶63,282.

Tuesday, February 24, 2009





Use of Cow Bone in Dental Procedure Did Not Violate Consumer Protection Act

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices.

A dental patient who had cow bone grafted into her mouth against her expressed wishes did not state a Washington Consumer Protection Act (CPA) claim against the dentist and dental office that performed the procedure, according to the Washington Supreme Court.

The patient required a bone graft as part of a dental surgerical procedure. She specified to the dentist that she did not want any animal bone used in the graft. However, during the procedure, the dentist ran out of human bone and used cow bone to finish the graft. While recovering, the patient learned about the cow bone and brought CPA claims against the dentist and the dental office, alleging that the use of the cow bone was an unfair or deceptive act.

Trade or Commerce

The CPA claims failed because the bone graft did not occur in the course of trade or commerce that caused the injury, according to the court.

The patient argued that the dental office engaged in trade or commerce because it solicited and retained patients by representing that human bone could be used for bone grafting procedures. However, the court found no evidence that the dental office advertised or marketed the availability of human bone or solicited patients based on the availability of human bone.

The CPA defines trade and commerce as the sale of assets or services and any commerce directly or indirectly affecting the people of the State of Washington. Those terms refer only to the entrepreneurial or commercial aspects of professional service and do not cover the substantive quality of services rendered.

In this case, the dentist's use of cow bone was not an entrepreneurial activity, the court held. It did not relate to billing, obtaining, or retaining patients; it simply related to the dentist's judgment and treatment of a payment. There was no evidence that cow bone was used to increase profits or the number of patients.

According to the court, the patient's claims stemmed from the quality of the dental procedure rather than how the dentist and dental office conducted business. Thus, the conduct was not actionable under the CPA.

Public Interest

Furthermore, the patient's claims did not serve the broader public interest, as required by the CPA, the court found.

When private disputes are alleged to be unfair or deceptive practices, four factors are used to determine whether the claim is in the public interest: (1) whether the alleged acts were committed in the course of the defendant’s business; (2) whether the defendant advertised to the public in general; (3) whether the defendant actively solicited this particular plaintiff, indicating potential solicitation of others; and (4) whether the plaintiff and defendant have unequal bargaining positions.

Although the complained-of conduct occurred in the course of business, there was no evidence that the dentist and dental office advertised to the public in general or actively solicited the patient’s business.

After evaluating all four factors, the court held that the lawsuit would not serve the public interest because it was unlikely that other people would be injured in the same way as the patient in this case.

The February 5 decision is Michael v. Mosquera-Lacy, CCH State Unfair Trade Practices Law ¶31,759.

Monday, February 23, 2009





FTC Denied High Court Review of Standard-Setting Case

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

The U.S. Supreme Court will not review a federal appellate court decision that set aside a Commission opinion finding that Rambus, Inc. had engaged in monopolistic conduct in violation of the FTC Act.

Left standing is a decision of the U.S. Court of Appeals in Washington, D.C. (2008-1 Trade Cases ¶76,121), holding that the FTC failed to demonstrate that Rambus Inc.'s actions before a standard-setting organization amounted to exclusionary conduct.

The appellate court also set aside the Commission's remedy order. According to the court, the agency did not prove that the developer of computer memory technologies unlawfully acquired its monopoly power in the relevant markets for four technologies that had been incorporated into industry standards for dynamic random access memory (DRAM) chips.

Agency Petition

The FTC had sought review pursuant to Sec. 16(a)(3) of the FTC Act. This provision permits the agency to represent itself before the high court if the Solicitor General declines to file a petition for certiorari. The Commission noted in its petition that it has exercised this authority on only three prior occasions.

The petition for review is FTC v. Rambus, Inc., Docket No. 08-694, filed November 24, 2008, denied February 23, 2009.

The FTC’s petition asked whether, in an action against a developer of computer memory technologies for engaging in monopolization by abusing the standard-setting process, (1) deceptive conduct that significantly contributes to a defendant's acquisition of monopoly power violates Sec. 2 of the Sherman Act, and (2) deceptive conduct that distorts the competitive process in a market, with the effect of avoiding the imposition of pricing constraints that would otherwise exist because of that process, is anticompetitive under Sec. 2 of the Sherman Act.

Horizontal Price Fixing

The Commission was on the right side of a denial of review, when the Supreme Court declined to consider a decision of the U.S. Court of Appeals in New Orleans (2008-1 Trade Cases ¶76,146), upholding an FTC opinion and order finding that an organization of independent physicians and physicians groups engaged in unlawful horizontal price fixing.

The petition for review is North Texas Specialty Physicians v. FTC, Docket No. 08-515, filed October 16, 2008, denied February 23, 2009.

In its petition, the organization of independent physicians and physicians groups asked (1) whether conduct that allegedly encourages physician price-fixing collusion, but undisputedly does not result in that collusion, violates Section 1 of the Sherman Act; (2) whether conduct that allegedly encourages physician price-fixing collusion, but undisputedly does not result in that collusion, can be an "obvious anticompetivie effect on customers and markets" so as to be the basis for an antitrust violation under a "quick-look" analysis as set forth in California Dental Ass'n v. FTC, 526 U.S. 756, 1999-1 Trade Cases, ¶72,529 (1999); and (3) whether a court must define a relevant market to find an antitrust violation under a "quick-look" analysis as set forth in California Dental Ass'n.

The February 23 order list appears here.

Friday, February 20, 2009





Beef Packer Abandons Acquistion Challenged on Antitrust Grounds

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

Nearly a year after JBS S.A. announced its intention to acquire National Beef Packing Company LLC, the parties have decided to abandon the transaction, which had been challenged on antitrust grounds by federal and state enforcers. JBS is the world’s largest beef producer and exporter. National Beef is a leading U.S. beef processor.

Termination of the acquisition process is effective February 23, according to statements issued by the companies on February 20. The Department of Justice announced its intention to terminate the pending litigation.

The Antitrust Division welcomed this decision, stating that the acquisition would have combined two of the top four U.S. beef packer and resulted in lower prices paid to cattle suppliers and higher beef prices to consumers.

“The decision to abandon the transaction will preserve competition in the purchase of cattle that has been critical to ensuring competitive prices to the nation’s thousands of producers, ranchers and feedlots,” the Justice Department said in a February 20 announcement. “It will also preserve competition in the sale of boxed beef to grocers, food service companies and ultimately American consumers.”

Enforcement Action

On October 20, 2008, the U.S. Department of Justice Antitrust Division and 13 state attorneys general filed an action challenging the transaction in the federal district court in Chicago. The suit alleged that the proposed transaction would have led to a fundamental restructuring of the U.S. beef packing industry, by combining two of the top four U.S. beef packers.

Four more states were later added as plaintiffs. The parties were granted to stay of the litigation in December to explore the possibility of a settlement.

The Justice Department said that JBS's acquisition of National Beef would have placed more than 80 percent of domestic fed cattle packing capacity in the hands of three firms: JBS, Tyson Foods Inc., and Cargill Inc. The acquisition allegedly would have lessened competition among packers in the production and sale of USDA-graded boxed beef nationwide.

The action further alleged that JBS's acquisition of National would have lessened competition among packers for the purchase of cattle ready for slaughter in the High Plains, centered in Colorado, western Iowa, Kansas, Nebraska, Oklahoma and Texas, and the Southwest.

Decision to Terminate Acquisition

“JBS endeavored to encounter a solution with the parties involved but in the absence of satisfactory conditions decided not to follow on with the acquisition,” the Brazil-based company said in a statement.

In October 2008, JBS completed its acquisition of the beef unit of the Smithfield Group, headquartered in Wisconsin, as well as the company's feedlot operations known as Five Rivers, based in Colorado. Smithfield was the fifth-largest beef packer in the United States.

In announcing its proposed acquisition of National Beef in March 2008, the company said the transaction "represent[ed] the building of a sustainable beef’s slaughtering, producing and trading platform in the United States of America and Australia, which began with the acquisition of Swift & Co. in July, 2007.” When JBS acquired U.S.-based Swift, it claimed that the transaction created the world’s largest company in the beef sector.

The company’s statement on the termination of the acquisition appears here. The Department of Justice news release appears here.

Thursday, February 19, 2009





Franchisor Could Terminate Franchise Without Providing Notice, Opportunity to Cure

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

Under Pennsylvania law, a franchisor of freight forwarding businesses was entitled to terminate its agreement with a franchisee without providing the franchisee with advance notice and an opportunity to cure its breach, despite an express contractual provision granting such rights, the Pennsylvania Supreme Court has decided.

Irreparable Damage to Relationship

Termination without notice and an opportunity to cure was permitted because the franchisee’s breach of the parties’ agreement went directly to the essence of the contract, irreparably damaging the trust between the parties. By its own admission, the franchisee had breached the agreement by deliberately diverting business to a subsidiary in order to hide profits and avoid paying royalties to the franchisor.

There was no Pennsylvania caselaw directly governing whether a party’s conduct in breaching a contract could justify its immediate termination where the contract had an express requirement of notice and an opportunity to cure, the court observed.

However, courts from other jurisdictions appeared to agree that a termination clause affording a franchisee the right to notice and cure provided merely a cumulative remedy that did not bar the non-breaching party from exercising other remedies in the event of a breach going directly to the heart of the contract and destroying the fundamental trust between the parties.

"Exclusive" Means of Termination?

The franchisee argued that the instant agreement was unique for offering an unqualified right to cure, citing the use of the term “shall” in the sentence requiring the franchisor to provide the franchisee with 90 days’ written notice and an opportunity to cure. However, a reading of the entire agreement indicated that the sentence was not the exclusive means by which the agreement could be terminated, the court held. To the contrary, another provision stated: “[Franchisor’s] election to exercise any remedy available by law or contract shall not be deemed a waiver of nor preclude exercise of any other remedy.”

That provision could be fairly read as an express reservation by the franchisor of the right to exercise all remedies available to it after a breach by the franchisee, including its inherent power under Pennsylvania law to terminate the contract without notice in the event of a vital and essential breach. The sentence requiring notice and an opportunity to cure was therefore a cumulative remedy and not an exclusive one, according to the court.

Breach Not Subject to Cure

Requiring notice and an opportunity to cure under the instant circumstances would be a useless gesture, since the franchisee’s breach could not reasonably be cured. The breach was so fundamentally destructive, it caused the trust underlying the parties’ contractual relationship to evaporate, the court reasoned.

Thus, a ruling of a Pennsylvania appellate court, upholding a trial court’s grant of summary judgment to the franchisor, was affirmed.

The decision is LJL Transportation, Inc. v. Pilot Air Freight Corp. It is reported at CCH Business Franchise Guide ¶ 14,058.

Wednesday, February 18, 2009





CVS Caremark Settles Charges of Dumping Sensitive Financial, Medical Information

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

CVS Caremark Corporation has agreed to settle FTC charges that it failed to take reasonable and appropriate security measures to protect the sensitive financial and medical information of its customers and employees from unauthorized access and that it misrepresented the measures that it took.

In a separate but related agreement, the company’s pharmacy chain agreed to pay $2.25 million to resolve Department of Health and Human Services (HHS) allegations that it violated the Health Insurance Portability and Accountability Act (HIPAA).

CVS Caremark, the largest U.S. pharmacy chain, operates more than 6,300 retail outlets and online and mail-order pharmacies.

According to the FTC's complaint, CVS pharmacies discarded materials containing personal information (such as prescriptions, prescription bottles, credit card receipts, and employee records) in unsecured, publicly-accessible trash dumpsters. Thus, the company's representations in its privacy policy that it took seriously maintaining the privacy of customers’ health information were false or misleading, the agency alleged.

Further, the company allegedly engaged in unfair practices by failing to employ reasonable and appropriate measures to prevent unauthorized access to personal information.

A proposed FTC consent order would require CVS Caremark to maintain a comprehensive information security program designed to protect the personal information it collects from consumers and employees. It also would require the company to obtain, every two years for the next 20 years, an audit from a qualified, independent, third-party professional. Finally, the settlement would bar future misrepresentations of the company’s security practices.

The HHS settlement requires CVS pharmacies to establish and implement procedures for disposing of protected health information, implement a training program for handling and disposing of such patient information, conduct internal monitoring, and engage an outside independent assessor to evaluate compliance. CVS also will pay HHS $2.25 million to settle the matter.

The FTC complaint and proposed consent order, In the Matter of CVS Caremark Corp., appear here on the FTC website. Further details appear at CCH Trade Regulation Reporter ¶16,266.

Tuesday, February 17, 2009





Civil RICO Ineffective Against Conspiracy to File Malicious Claims

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

Allegations that attorneys conspired to harm individual and corporate plaintiffs by maliciously filing a counterclaim, in a previous action, based on false representations were insufficient to maintain a civil RICO action, the U.S. Court of Appeals in Cincinnati has ruled.

The attorneys, their law firms, and various individuals had conspired to prevent an anticipated settlement in the earlier action, according to the plaintiffs.

The plaintiffs alleged that the attorneys had tampered with a witness and engaged in mail, wire, and bankruptcy fraud in an effort to further a scheme to deceive and defraud them. However, a close examination of the pleadings revealed that the plaintiffs were actually claiming that the attorneys had used the mails and wires to file a counterclaim and a bankruptcy petition, the court explained.

Malicious Prosecution, Abuse of Process

These acts constituted malicious prosecution and abuse of process rather than RICO violations. Accordingly, to the extent that their filings were overly zealous or malicious, a proper remedy could be sought in the state law claims of malicious prosecution and abuse of process. The trial court's dismissal of the RICO claim was therefore affirmed.

The dismissal of claims that were asserted against nonmoving defendants was affirmed because the failure of those defendants to file their own motion to dismiss did not cure the defects that were present in the complaint, the court observed.

Because the same RICO claims were asserted against all parties, a finding of a failure to state a valid claim against the moving parties would logically extend to the nonmoving parties, as well.

The not-for-publication decision in Melton v. Blankenship appears at CCH RICO Business Disputes Guide ¶11,613.

Monday, February 16, 2009





Trade Regulation Tidbits

This posting was written by John W. Arden.

News, updates, and observations:

 In trying to predict the enforcement agenda of the new administration, it may be instructive to examine remarks made by Christine Varney, the nominee for Assistant Attorney General in charge of the Antitrust Division, at a conference last June. Speaking at the American Antitrust Institute’s annual conference on the topic “Re-energizing Section 2 of the Sherman Act,” Varney said she expected a Democratic administration to step up enforcement overall, warned that Section 2 enforcement would depend on the government’s creating the proper political climate, observed that she was “deeply troubled” by Google’s acquisition of DoubleClick and the potential use of its lawfully acquired monopoly power, spoke of the difficulty in enforcing Section 2 in the area of intellectual property, and indicated that the government’s failure to take an active role in dealing with dominant firms might result in ceding the territory to the Europeans. “What the next administration needs to do is to find the right cases to begin to push back on some of the doctrines that may have gotten too extreme in the last decade,” said Varney. She admitted that it is “very hard” to enforce Section 2 in a meaningful way in the current economy. An audio recording of Varney’s remarks are available here on the American Antitrust Institute’s web site. Launch “Audio from the 6.19 2:00 p.m. panel: Re-energizing Sec. 2 of the Sherman Act.” Varney’s presentation starts about 45 minutes into the session.

 The recently announced merger of Pfizer Pharmaceuticals and Wyeth Laboratories is not likely to benefit the public and will threaten the future competitiveness and creativity of the domestic pharmaceutical industry, according to a memorandum written by two former Directors of the FTC Bureau of Economics on behalf of the American Antitrust Institute (AAI). Authors William S. Comanor and F. M. Scherer find that (1) from a macroeconomic analysis, the deal is not likely to create the level of employment or increase consumer spending as if the financing were used for commercial bank loans for businesses; (2) the merger will cause anticompetitive effects in the markets for companies’ overlapping products; (3) pharmaceutical innovation will decline, as it has after other mergers in the industry; (4) health-enhancing drugs will be lost as a consequence of the increasing amalgamation of decision-making authority among the companies; (5) there are grounds for skepticism about the presence of appreciable synergies; and (6) “scant reason” supports the belief that the proposed merger is likely to improve their R&D productivity. The report concludes that “there is ample reason to believe that [the merger] will make an unsatisfactory bureaucratic situation even worse, while it enriches the company managers and the banks that allocate funds to support the merger—funds for which American taxpayers bear ultimate responsibility. There is also evidence supporting an inference of more traditional anti-competitive effects.” The authors assert that a “careful and skeptical investigation by the responsible antitrust agency is very much in the national interest.”

The memorandum was sent to Attorney General Eric Holder and the FTC Commissioners, with copies to Secretary of the Treasury Tim Geithner, EC Commissioner Neelie Kros, and Congressional leaders. Text of the memorandum and a letter from AAI President Albert A. Foer is available here on the AAI website.

Friday, February 13, 2009





FTC Staff Report Reaffirms Self Regulation of Online Behavioral Advertising

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

The Federal Trade Commission staff has issued a report seeking to encourage meaningful self regulation of online behavioral advertising—the practice of tracking an individual’s online activities in order to deliver advertising tailored to the individual’s interests.

The agency is calling on marketers that collect information about consumers’ online activities to refrain from engaging in conduct that raises genuine consumer privacy concerns. At the same time, the FTC seeks to avoid interfering with practices—or stifling innovation—where privacy concerns are minimal.

The February 12 report, available here on the FTC website, is part of an ongoing examination of online behavioral advertising by the FTC. In December 2007, the agency issued a set of proposed principles to encourage and guide industry self regulation for public comment.

The four principles provide for transparency and consumer control and reasonable security for consumer data, according to the agency. Further, they call on companies to obtain consent from consumers before they use behavioral data in a manner that is materially different from promises made when the information was collected and before they collect and use sensitive consumer data for behavioral advertising.

In response to the request for comments on the proposed principles, 63 comments were received. The staff has now revised some of the principles and narrowed their scope in light of the comments.

Transparency and Consumer Control

Under the first principle—transparency and consumer control—Web sites are expected to provide clear and prominent notice regarding behavioral advertising, as well as an easily accessible way for consumers to choose whether to have their information collected for such purpose. The report encourages firms to design creative and effective disclosure mechanisms that are separate from their privacy policies. The revised principle recommends that, for data collection outside the traditional website context, companies should develop alternative methods of disclosure and consumer choice.

Reasonable Security, Limited Data Retention

The second proposed principle calls upon companies to provide reasonable security for, and limited retention of, consumer data collected for behavioral advertising purposes. The protections should be based on the sensitivity of the data and the nature of a company's business operations, the types of risks a company faces, and the reasonable protections available to a company. The principle was amended to specify that companies should not retain data longer than necessary to fulfill legitimate business needs.

Consent for Changes to Privacy Promises

The third principle calls upon companies to obtain affirmative express consent before they use data in a manner that is materially different from the promises the company made at the time of collection. The staff revised the material change principle to make clear that it applies to retroactive changes only.

Consent to Use of Sensitive Data

The fourth principle states that companies should collect sensitive data only for behavioral advertising after they obtain affirmative express consent from the consumer to receive the advertising. Despite feedback from a number of commenters, the staff continues to believe that affirmative express consent is warranted, according to the report.

“First-Party” and “Contextual” Advertising

The staff agreed with comments that the principles should be narrowed to exclude “first-party” and “contextual” advertising from the scope of the principles. First party behavioral advertising involves a Web site’s collection of consumer information to deliver targeted advertising at its site without sharing of information with third parties. Contextual advertising is advertising based on the Web page a consumer is viewing or a search query the consumer has made, and involves little or no data storage.

According to the staff report, fewer privacy concerns are associated with first-party and contextual advertising than with other behavioral advertising. Thus, it is not necessary to include such advertising within the scope of the principles.

Compliance with Existing Privacy Laws

The report cautioned, however, that companies must still comply with all applicable privacy laws, some of which may impose requirements that are similar to those established by the principles. A number of the agency’s actions raising consumer privacy issues have involved companies’ alleged failures to live up to promises they made regarding the privacy and confidentiality of the consumer information they collect.

Most recently, the FTC issued a complaint and proposed consent order against geeks.com, an online seller of computer supplies and other consumer electronics, for allegedly failing to provide reasonable security to protect sensitive customer data, despite claims that it took reasonable and appropriate measures to protect personal information from unauthorized access (CCH Trade Regulation Reporter ¶16,260).

Separate Concurring Statements

Both Commissioners Jon Leibowitz and Pamela Jones Harbour voted in favor of issuing the staff report. However, they issued concurring statements.

Commissioner Leibowitz cautioned that the report's endorsement of self-regulation should not be viewed as a regulatory retreat by the agency or an imprimatur for current business practice. He said: “this could be the last clear chance to show that self-regulation can—and will—effectively protect consumers' privacy in a dynamic online marketplace.”

Commissioner Harbour said that she had hoped that the Commission would take a more comprehensive approach to privacy and evaluate behavioral advertising within that broader context. She suggested that the staff complete by Summer 2010 a report that evaluates the efficacy of self-regulation in the realm of behavioral advertising. In light of a number of unanswered questioned and the need for a comprehensive approach, Commissioner Harbour said that “a legislative approach to behavioral advertising is not prudent at this time.”

The staff report on Self-Regulatory Principles for Online Behavioral Advertising and the separate commissioner statements appear at CCH Trade Regulation Reporter ¶50,240.

Wednesday, February 11, 2009





Bill Would Prohibit Agreements to Delay Generic Drug Competition

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

Brand name drug makers would be prohibited from using pay-off agreements to delay the marketing of cheaper generic equivalents under the proposed federal “Preserve Access to Affordable Generics Act.”

The measure (Senate Bill No. 369) was introduced by Senator Herb Kohl (D- Wis.) on February 3, one day after the FTC filed its latest challenge to agreements among pharmaceutical companies (see Trade Regulation Talk, Feburary 10, 2009).

“Pay-for Delay” Patent Settlements

“It’s time to stop these drug company pay-for-delay deals that only serve the profits of the companies involved and deny consumers access to affordable generic drugs,” said Senator Kohl in proposing the bill. “With this legislation, we can end a practice seriously impeding generic drug competition—competition that could save American families and taxpayers billions of dollars in health care costs.

The legislation would make unlawful provisions in patent infringement settlements that involve anticompetitive payments from the brand name drug maker to the generic company in return for an agreement by the generic to keep its drug off the market.
The proposal would not ban any settlement that does not involve an exchange of money. Despite the opposition of the FTC to so-called "pay-for-delay" patent settlements, recent federal appellate court decisions have sanctioned the practice, leading to an increase in their use.

Exemption for Beneficial Agreements

A measure similar to Senate Bill No. 369 was introduced in the last Congress, but was ultimately unsuccessful. The latest version of the legislation includes a new provision that would permit the FTC to exempt from this amendment's ban certain agreements that the FTC determines would benefit consumers, according to Senator Kohl.

The bill was referred to Senate Committee, read twice and referred to the Committee on the Judiciary on February 3. Further information, including full text of the bill, appears here at the Thomas Library of Congress website.

Tuesday, February 10, 2009





FTC, California Sue Drug Makers for Delaying Generic Competition

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

The FTC and the California Attorney General filed a complaint in the federal district court in Los Angeles, challenging agreements in which Solvay Pharmaceuticals, Inc. paid generic drug makers Watson Pharmaceutical Companies, Inc. and Par Pharmaceutical Companies, Inc. to delay generic competition to Solvay’s branded testosterone-replacement drug AndroGel.

According to the complaint, Watson and Par, via its partner Paddock Laboratories, each had sought regulatory approval from the Food and Drug Administration (FDA) to market generic versions of AndroGel.

In their FDA filings, both companies certified that their products did not infringe the only patent Solvay had relating to AndroGel, and that the patent was invalid.

The complaint charged that Solvay agreed to pay the generic companies to abandon their patent challenges and agree not to bring a generic AndroGel product to market for nine years, until 2015. The defendants allegedly cooperated on the sale of AndroGel and shared the monopoly profits, rather than competing, according to the FTC.

It is alleged that the agreements violate the Sherman Act, the FTC Act, the California Cartwright Act, and the California Unfair Competition Act. The complaint seeks an order permanently enjoining the defendants from engaging in similar conduct in the future.

In addition, the complaint seeks an order requiring that the defendants pay $2,500 for each violation of the California Unfair Competition Act and to pay the state’s attorney fees and costs.

The action is FTC v. Watson Pharmaceuticals, Inc., CCH Trade Regulation Reporter ¶16,258. A news release and civil complaint appear at the FTC website.

Watson Response

Watson issued a statement in response to the action. “We are disappointed that that FTC has decided to challenge our patent settlement, as we believe the agreement fully complies with both the spirit and the letter of antitrust and consumer protection laws, as interpreted by numerous appellate courts throughout the U.S.,” said Paul Bisaro, Watson’s President and Chief Executive Officer.

“Importantly, our settlement promotes competition and confers a meaningful benefit to consumers by providing for, among other things, the entry of a genetic version of AndroGel five years prior to the expiration of the AndroGel patents. We intend to vigorously defend ourselves in this matter.”

Monday, February 09, 2009





Antitrust Enforcement Can Help Solve Economic Crisis: FTC Commissioner

This posting was written by John W. Arden.

Addressing the apparent conflict between attempting to stimulate the economy and enforcing the antitrust and consumer protection laws, FTC Commissioner J. Thomas Rosch told a bar group that “[a]ntitrust enforcement is part of the solution to the economic crisis, rather than the problem.”

In remarks made January 29 at the New York Bar Association Annual Dinner, Commissioner Rosch criticized the Chicago School of economic theory, which has “predominantly influenced antitrust for the past four-plus decades”; outlined how antitrust can be applied to the current financial crisis; and discussed how consumer protection may be affected by the financial crisis.

Chicago School “Dead”?

Rosch declared “the orthodox and unvarnished Chicago School of economic theory is on life support, if it is not dead.” The underlying principle that markets essentially take care of themselves without the need for regulation has been called into question by the recent crisis, perhaps replaced by the Keynesian view that “there can be situations where it is necessary for governments to stimulate growth and improve stability in the private sector.”

“Alan Greenspan and former Secretary of the Treasury Henry Paulson both fully subscribed to the Chicago School theory before the crisis. But in his testimony before Congress last October, Alan Greenspan recanted his faith in the market and the rationality of business people; he testified that more government regulation of the financial section was both necessary and proper. Although Secretary Paulson was not so specific about market imperfections and irrational behavior, he has intervened repeatedly to try to deal with perceived imperfections in that market . . . In short, two of my fellow Republicans whose opinions I respect a great deal have declared emphatically by their words and deeds that in the real world—as opposed to the worlds of political and economic theory—markets are not perfect; that imperfect markets do not always correct themselves; and that business people do not always behave rationally.”

Merger Review

Rosch took issue with predictions made by antitrust attorney David Boies last November (see Trade Regulation Talk, November 12, 2008) that the antitrust agencies would not block any mergers and acquisitions while the country is embroiled in the financial crisis, since the government would have to worry more about saving jobs than about anticompetitive mergers and other practices.

“Contrary to Mr. Boies, I think antitrust laxity during an economic recession can result in a deepening of economic contraction. Competition spurs innovation, productivity, growth and cost effectiveness. Increased prices are almost always (if not always) accompanied by reduced output. Thus, reduced antitrust enforcement could result in increased prices and reduced output, and in turn more unemployment. Put differently, if anticompetitive mergers and other business practices are permitted during an economic crisis, it is likely to cause reduced innovation and output, and consumers will lose the benefits of lower prices. Thus, I would suggest that competition laws need to be implemented at least as strictly during a time of economic crisis as they are otherwise.”

Boies may be right in predicting that political and societal forces may pressure the government to either block or allow a merger that will prevent job losses or plant closures, Rosch said. He cited the United Kingdom’s alteration of its regulatory framework for financial sector mergers to enable public interest concerns to “trump” competition review.

“I hope that the Administration here resists the temptation to emulate the UK in this respect,” he said. “I think it will: if the antitrust agencies take into consideration the financial condition of the merged entity, that is likely to help solve the current financial crisis.”

Unilateral Conduct, Cartel Activity

The FTC and Antitrust Division should be willing to challenge any unilateral conduct when there is direct evidence of predation or a purpose and effect to “eliminate or cripple rivals whose competition could operate to constrain a firm with monopoly power from exercising that power.” Rosch observed.

Extra vigilance may be needed to protect consumers and others from cartel activity, which may increase during a recession or depression.

Consumer Protection

Consumers struggling with financial difficulties are even more vulnerable to scams involving mortgage foreclosure rescue, debt settlement offers, credit repair counseling, debt collection, and subprime lending.

In addition to pursuing enforcement and regulatory efforts to protect consumers from these practices, the FTC continues to educate consumers about the potential harms from unfair and deceptive acts in these areas, according to the Commissioner.

“These are uncertain times, and many of the predictions I’ve made are uncertain,” Rosch concluded. “But one thing is certain, it is that the FTC has much to learn from the financial crisis. And, if we don’t learn from it, we are foolish.”

The Commissioner’s written remarks—“Implications of the Financial Meltdown for the FTC”—appear here on the FTC website.

Friday, February 06, 2009





Dumping Paper Tax Returns Did Not Violate Louisiana Breach Notification Law

This posting was written by Thomas A. Long, Editor of CCH Privacy Law Guide.

An individual's claims against Jackson Hewitt Tax Service and one of its Louisiana franchisees (Jackson Hewitt) for negligence, breach of contract, and violations of the Louisiana Database Security Breach Notification Act and Unfair Trade Practices Act by mishandling her personal information have been dismissed without prejudice by the federal district court in New Orleans. The individual could go forward, however, with her claim that Jackson Hewitt's conduct constituted common-law invasion of privacy.

The individual alleged that she visited the Jackson Hewitt franchise in 2006 to have her 2005 federal and state tax returns prepared and electronically filed. She signed Jackson Hewitt's privacy policy, which stated that it had physical, electronic, and procedural safeguards in place to protect customers' private information.

Sometime in 2008, Jackson Hewitt allegedly disposed of the individual's tax returns in a public dumpster. A third party found the returns, as well as those of more than 100 other people, and contacted the police and a local television station. The returns were in readable form and had not been burned, shredded, or pulverized.

Security Breach Notification

The individual's claims under the Louisiana Database Security Breach Notification Law failed because that law only applied to computerized data, the court ruled. The individual did not allege that computerized records were compromised, only that her paper tax returns were thrown in the dumpster and that they had not been rendered unreadable.

Furthermore, she failed to allege an actual injury from any breach. She could not base her claim on the speculative injury of increased risk of identity theft, the court said.

Negligence

The speculative damages asserted by the individual could not support negligence claims. She did not allege that any third party accessed her information and stole her identity. The mere possibility that her personal information was placed at risk by Jackson Hewitt did not constitute actual injury.

In addition, she could not seek general damages for anxiety, embarrassment, and other forms of emotional distress because Louisiana law did not allow recovery in negligence cases for emotional damage absent physical injury.

Breach of Contract

Breach of contract claims against Jackson Hewitt also failed because of the lack of actual damages. The individual asserted that she had relied on the company's privacy policy in deciding to turn over her information to the service. She did not, however, allege that she sustained a pecuniary loss as a result of this reliance.
Emotional damages could not be recovered because the contract to prepare the individual's taxes was not intended to gratify a nonpecuniary interest. Although the individual alleged that Jackson Hewitt intentionally breached the contract and acted in bad faith, she did not allege that the motivating factor behind the breach was the desire to aggrieve her feelings.

She was not entitled to seek damages for the cost of credit monitoring and credit insurance because expenses related to guarding against the risk of future identity theft were not compensable damages. The asserted expenditures were not the result of a present injury but, rather, the anticipation of future injury that had not materialized, in the court's view.

Unfair Trade Practices

The individual stated a sufficient injury to pursue claims under the Louisiana Unfair Trade Practices Act, according to the court. Jackson Hewitt's allegedly deceptive act was its misrepresentation of its privacy policy, and the fees the individual paid in reliance on the misrepresentation could constitute actual damages. However, the pleadings lacked the requisite specificity for fraud claims under Federal Rule of Civil Procedure 9(b). The individual did not allege how or why Jackson Hewitt’s alleged statements were misleading. Thus, the claims were dismissed without prejudice, with leave to amend.

Invasion of Privacy

In the context of a motion to dismiss, the individual adequately stated a claim that Jackson Hewitt had engaged in invasion of privacy under Louisiana common law, the court decided. She asserted that the improper disposal of her tax returns constituted an unreasonable disclosure of private facts.

The decision is Pinero v. Jackson Hewitt Tax Service Inc., CCH Privacy Law in Marketing ¶60,286.

Thursday, February 05, 2009





Department of Justice Antitrust Amnesty Letters Released

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

The Department of Justice Antitrust Division has made available on its website redacted copies of amnesty letters issued between August 10,1993, and November 18, 2008, under its leniency program.

The Antitrust Division had agreed to release 100 letters entered into between August 1993 and October 14, 2005, under a settlement resolving a Freedom of Information Act (FOIA) action brought against the Department of Justice by Stolt-Nielsen.

The settlement resolved a dispute over a FOIA request made by Stolt-Nielsen—a supplier of parcel tanker shipping services that was indicted for antitrust violations after its conditional leniency was revoked. The indictment was subsequently dismissed after it was determined that the revocation of the immunity was improper (2007-2 Trade Cases ¶75,962). The settlement also required the government to pay $40,000 in fees to Stolt-Nielsen's law firm White & Case.

A January 27, 2009, order of the federal district court in Washington, D.C., dismissing the case pursuant to the settlement agreement appears at 2009-1 Trade Cases ¶76,472. Last July, the U.S. Court of Appeals in Washington, D.C. vacated a lower court’s decision concluding that the Justice Department was justified in withholding from disclosure the amnesty agreements (2008-2 Trade Cases ¶76,232).

The redacted letters appear here on the Antitrust Division's website.




FTC Extends Suspension of Proceedings on Whole Foods/Wild Oats Merger

This posting was written by John W. Arden.

The Federal Trade Commission’s temporary halt to its administrative proceedings challenging the combination of specialty grocers Whole Foods Market Inc. and Wild Oats Markets, Inc. has been extended by 30 days, to Friday, March 6.

At the request of Whole Foods, the Commission on January 28 withdrew the matter from adjudication for five business days—until February 5—for the purpose of considering a proposed consent agreement.

“We look forward to continuing our discussions with Whole Foods to determine whether we can reach a mutually agreeable settlement that would be in the best interest of consumers,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition, in a February 4 announcement.

The statement by Wales appears here and the Commission’s order extending withdrawal of the matter from adjudication appears here on the FTC website.

Further information regarding the original suspension of proceedings and the controversy itself appears in a January 29, 2009 posting on Trade Regulation Talk.

Wednesday, February 04, 2009





Why Is Minneapolis Home to So Many Franchise Law Firms?

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

Perhaps it has something to do with attorney fee rates. For example, in an attorney's fee dispute, the federal district court in Minnesota recently held as follows:

A reasonable hourly rate is the prevailing market rate in the relevant legal community for similar services provided by lawyers of comparable skill, experience, and reputation. Blum v. Stenson, 465 U.S. 886, 895 & n. 11 (1984). "Generally, when determining a reasonable hourly rate, the relevant legal community is the forum in which the district court sits." Camacho v. Bridgeport Fin., Inc., 523 F.3d 973, 979 (9th Cir. 2008); accord Fish v. St. Cloud State Univ., 295 F.3d 849, 851 (8th Cir. 2002). Here, Dominos seeks reimbursement for work performed, inter alia, by lawyers from the Washington, D.C. office of the law firm Latham & Watkins, many of whom charge rates substantially out of line with rates charged in the Twin Cities area. For example, an associate at Latham & Watkins with 5 years' experience, Alexander Maltas, charged $480 per hour, while Dominos' lead local counsel --Quentin Wittrock, a partner with the law firm Gray, Plant, Mooty, Mooty & Bennett who has over 20 years' experience, specializing in franchise disputes --billed no more than $425 per hour over the course of this case. In some instances Dominos seeks reimbursement for Latham & Watkins lawyers charging over $800 per hour, nearly double that charged by local counsel. (See Graziani Decl. at 12-13.) Dominos also seeks reimbursement for work performed by lawyers in the Chicago office of DLA Piper and the Dallas office of Haynes and Boone, often at well over $500 per hour. (See id. at 5, 10.)

Although parties may be reimbursed for work performed by out-of-town lawyers charging out-of-town rates, generally this is permitted only when in-town counsel with expertise in a particular area cannot be located. See, e.g., Avalon Cinema Corp. v. Thompson, 689 F.2d 137, 140-41 (8th Cir. 1982); Howard Johnson Int'l, Inc. v. Inn Dev., Inc., Civ. No. 07-1024, 2008 WL 2563463, at *1 (D.S.D. June 23, 2008). Dominos has made no attempt to justify the use of out-of-town counsel (with very high rates) to assist it in this matter. See Avalon, 689 F.2d at 140-41 (burden rests with party seeking fees to show why out-of-town counsel was necessary). Nor does the Court believe that these hourly rates are in line with those charged by lawyers of similar skill and experience in the Twin Cities area.


The decision is Bores v. Domino's Pizza (October 27, 2008), CCH Business Franchise Guide ¶14,011.

Tuesday, February 03, 2009





Trade Regulation Tidbits

This posting was written by Jeffrey May, Darius Sturmer, and John W. Arden.

News, updates, and observations:

 The nomination of Christine Varney as Assistant Attorney General in charge of the Antitrust Division on January 22 “seems to confirm expectations that corporate mergers and marketing practices will be more closely scrutinized under the Obama administration than they were under that of George W. Bush,” according to a February 2 article in Financial Week. The article (“Obama’s pick for antitrust boss signals tougher stance on deals”) quotes antitrust attorneys stating that Varney was an especially aggressive enforcer of antitrust law as an FTC Commissioner during the Clinton administration. “Ms. Varney will likely bring change in both merger and non-merger antitrust enforcement,” focusing on mergers that affect innovation, produce vertical integration, and involve privacy issues, wrote Sean Gates and Tej Srimushnam of Morrison and Foerster in a letter to clients. Carl Hittinger of DLA Piper noted that the Varney nomination was very much in line with President Obama’s campaign promise to “reinvigorate antitrust enforcement.” Hittinger predicted that the unprecedented appointment of a former FTC Commissioner to the Justice Department post would help settle “turf wars” between the two federal antitrust enforcement entities.

 Two of the top officials at the FTC Bureau of Consumer Protection will be leaving the agency. Bureau of Consumer Protection Director Lydia Parnes will be leaving, after 27 years, to return to private practice. Wilson Sonsini Goodrich & Rosati announced that Parnes will join the firm in March as a partner in its consumer regulatory practice. Eileen Harrington, one of the two deputy directors, was to assume the role of Acting Director of the bureau upon Parnes’ departure. Mary Beth Richards, also a deputy director at the Bureau of Consumer Protection, will be leaving the agency to return to the Federal Communications Commission. Mary K. Engle, currently Associate Director in the Bureau’s Division of Advertising Practices, will serve as Acting Deputy Director.

 The 57th Annual Spring Meeting of the American Bar Association Section of Antitrust Law, will be held March 25-27, 2009 at the J.W. Marriott Hotel in Washington, D.C. The meeting will feature more than 40 sessions, covering all aspects of U.S. antitrust law, as well as providing substantial coverage of consumer protection law and non-U.S. competition law issues. Once again, the program will present key agency enforcers from the Federal Trade Commission, Department of Justice Antitrust Division, State Attorneys’ General offices, and the European Commission. Further information on the program and speakers is available here from the ABA Section of Antitrust Law.

 The Federal Trade Commission has extended—from January 30 to March 2, 2009—the deadline for public comments related to proposed revisions of its Guides Concerning the Use of Endorsements and Testimonials in Advertising. The comment period was extended in response to requests from a number of trade associations. In November 2008, the Commission proposed revising its guides for endorsement and testimonial advertising practices to state that non-typical testimonials on a key aspect of the advertised product should be accompanied by clear and conspicuous disclosure of generally expected results when the advertiser does not possess adequate substantiation for the representation. The agency also proposed changes to its guidance with respect to expert endorsements. The Guides appear at CCH Trade Regulation Reporter ¶39,038. Comments on the proposed revisions should refer to “Endorsement Guides Review, Project No. P034520” and should be delivered to the Federal Trade Commission, Office of the Secretary, Room H-135 (Annex S), 600 Pennsylvania Avenue, N,W., Washington, D.C. Comments may be filed in electronic form here at https://secure.commentworks.com/ftc-endorsements/

Monday, February 02, 2009





AmEx Ban on Class Actions in Arbitration Clause Held Unenforceable

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

California and New York merchants that accepted American Express (AmEx) charge cards were not barred from proceeding as a class to assert an antitrust action against the charge card issuer by a class action waiver contained in the mandatory arbitration clause of their commercial contracts, the U.S. Court of Appeals in New York City has ruled.

The class action waiver “cannot be enforced in this case because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs only reasonably feasible means of recovery,” the court explained.

The appellate court reversed a lower court's decision (2006-1 Trade Cases ¶75,198), which held that the enforceability of the class action waiver provision was a question for the arbitrator. The matter was remanded to the district court. The plaintiffs expressed a willingness to proceed to arbitration; however, AmEx would be given an opportunity to withdraw its motion to compel arbitration in light of the appellate court's decision.

Initially, the appellate court decided that the district court erred in holding that the question of the class action waivers’ enforceability was a matter for the arbitrator. It then went on to conclude that enforcement of the ban on class claims would deprive the merchants of substantive rights under the federal antitrust statutes. The merchants demonstrated that their antitrust claims against Amex could be pursued only through the aggregation of individual claims, either in class action litigation or in class arbitration.

The appellate court was troubled by the effective negation of a private suit under the antitrust laws. The appellate court noted the U.S. Supreme Court's 1985 decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985-2 Trade Cases ¶66,669), allowing arbitration of a Sherman Act claim so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum . . . ”

Class Action Waivers in the Antitrust Context

The appellate court noted that it did not rule that class action waivers in arbitration agreements were per se unenforceable. Nor did it hold that they were per se unenforceable in the context of the antitrust action. Rather, the court held that the question of the enforceability of a class action waiver in an arbitration agreement must be considered “on its own merits.”

Underlying Antitrust Claims

The merchants asserted tying claims against AmEx. They contended that an “Honor All Cards” provision in their card acceptance agreements forced them to accept new revolving credit cards offered by AmEx at rates that exceeded those for comparable Visa, MasterCard, or Discover products.

The January 30, 2009, decision, In re American Express Merchants' Litigation, appears at CCH Trade Regulation Reporter ¶76,478.