Nexium Advertising Did Not Violate State Unfair Trade Practice Laws

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

After deciding that the laws of the home state of each plaintiff applied to consumer protection claims filed by health care benefit plans, plan members, and third party payors against the manufacturer of acid-reflux prescription drug Nexium, the federal district court in Wilmington, Delaware dismissed each claim.

Massive Advertising Campaign

The employee trust funds and other public interest groups alleged that the manufacturer engaged in a massive advertising campaign to boost the sales of Nexium, while misleadingly suppressing or omitting information demonstrating that Nexium was not more effective at equivalent doses than Prilosec, which had become available as the generic drug omeprazole.

By the year 200, Prilosec—the "purple pill" for treatment of heartburn and gastroesophageal reflux disease—had become the most widely prescribed drug in world. The trust funds asserted that the Nexium advertising campaign resulted in billions of dollars of unnecessary drug expenditures for third-party payors.

Choice-of-Law

The Delaware choice-of-law rules required the court to compare the laws of the competing jurisdictions to determine whether the laws actually conflict on a relevant point and then which state had the most significant relationship to the claims.

Looking at the consumer protection laws of the home states of the plaintiffs—Pennsylvania, New York, and Michigan—the court found a conflict existed between each of those laws and the Delaware Consumer Fraud Act. After applying the most significant relationship test, the court determined that the law of the home state of each plaintiff would apply to that plaintiff’s claim.

Pennsylvania

A plaintiff asserting a cause of action under the Pennsylvania Unfair Trade Practices and Consumer Protection Law must prove justifiable reliance on the unlawful conduct and not merely that the unlawful conduct occurred.

In this case, the complaint did not even present evidence that the plaintiffs had seen the advertising in question. Thus, the claim was dismissed.

New York

Although justifiable or reasonable reliance need not be shown in order to establish a New York General Business Law claim, a party must allege some awareness of a defendant’s misrepresentations prior to purchasing the product in order to establish the element of causation.

The complaint lacked evidence that the purchaser bought Nexium in response to the manufacturer’s representations concerning the quality of Nexium in relation to Prilosec.

Michigan

In order to state a Michigan Consumer Protection Act (CPA) claim, a payor was required to show that it was a consumer that purchased the prescription drug for personal use. To determine whether a purchase is for business or personal use for purposes of the MCPA, the focus is on the use to which the goods would be put, rather than the characterization of the ultimate purchaser as a consumer.

The complaint lacked any explanation of the role that the payor played as a purchaser of Nexium.

The decision is Pennsylvania Employee Benefit Trust Fund v. Zeneca, Inc. CCH State Unfair Trade Practices Law ¶32,057.

Congress Passes Extension of Limits on Antitrust Damages for Leniency Program Participants

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

Legislation to extend for ten years the Antitrust Criminal Penalties Enforcement and Reform Act (ACPERA) of 2004 was approved by Congress yesterday. ACPERA limits the civil liability of cartel participants who are accepted into the Department of Justice Antitrust Division's leniency program.

Under ACPERA, leniency program participants are liable in private antitrust lawsuits for the actual damages caused by the company, rather than the treble damages usually available.

As a result, a significant disincentive to participating in the leniency program—the prospect of treble damages in a civil suit despite immunity from criminal prosecution--is removed. The law was amended in 2009 to extend the detrebling provision for one year, until June 22, 2010.

The current legislation (H.R. 5330), if signed by the president, will extend the de-trebling provision until 2020. A Senate version of the bill (S. 3259) would have provided for a permanent extension of ACPERA.

Senator Kohl’s Views

"This 10-year extension will offer the Department of Justice Antitrust Division the resources and authority necessary to protect consumers from price-fixing cartels," said Senator Herb Kohl (Wisconsin) in a May 28 statement.

"The program has proven successful in uncovering and punishing price-fixing crimes, and it is my hope that this extension will usher in another decade of detection and prosecution."

Comptroller General Study

The legislation also calls on the Comptroller General to submit a report to Congress on the effectiveness of the ACPERA, both in criminal investigation and enforcement and in private civil actions. The report is to consider the addition of qui tam proceedings to the antitrust leniency program and the creation of anti-retaliatory protection for employees who report illegal anticompetitive conduct.

United, Continental Heads Address Antitrust Concerns over Proposed Merger

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

The heads of United Airlines and Continental Airlines Inc. told a Senate panel yesterday that their proposed merger would not reduce industry competition due to the small number of overlapping routes and the abundance of low cost carriers (LCCs), which maintain downward pressure on prices.

The two airlines announced earlier this month that they would join forces in a partnership that would be completed, pending regulatory clearance, by the fourth quarter of 2010.

Senate Subcommittee Hearing

At a hearing of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, Chairman Herb Kohl (D, Wis.) acknowledged the airlines’ position that the merger was “built to pass” antitrust scrutiny because their routes do not substantially overlap and LLCs “will constrain their ability to raise prices.”

However, he pointed out that the merger will reduce the number of national networked airlines. “Two years ago, we had six, after this merger we’ll have four. So we need to ask the question—at what point do we reach a tipping point for competition?”

Kohl framed the issue as balancing the difficulties faced by the airline industry in recent years with problems faced by travelers today—including frequent delays, puzzling prices, and a decline in service.

“So we must ask the critical questions—how will the loss of competition between these two national systems impact airfares and service? Will a combined United/Continental be a stronger competitor to the previously merged Delta/Northwest or will the large, networked airlines that remain dominate the airline industry across the country and internationally? Will the low cost carriers be able to step in and fill the competitive void or will they feel less competitive pressure to keep fares low or compete by offering things like free checked bags? And how will small and medium sized cities fare after this merger, at the very time that they most need frequent and inexpensive air service for their economic health?”

Airline Responses

United chairman and CEO Glenn Tilton, responding to questioning, said “I don’t think there’s any worry here that competition is going to be lessened by the combination of two companies who do not overlap in the main and are committed to using the combined network to increase frequency of service rather than reducing it.”

Continental chairman and CEO Jeffery Smisek, meanwhile, told subcommittee members that his airline is “eking out a hand-to-mouth existence and, as far out as I can see, we’ll continue to eke out a hand-to-mouth existence.”

By merging with United, “we can create a carrier that will have a future and a future profitability which is good for communities and good for us to be able to continue air service.”

Asked about the likely future of its domestic hubs, Tilton said they are “extraordinarily important markets” with significant business travel demand, “so I don’t think there’s any jeopardy whatsoever to those hubs.”

Low Cost Carrier Alternative

In a joint statement Tilton and Smisek noted that more than 85 percent of passengers traveling non-stop on either Continental or United have an LCC alternative.

“There once was an assumption that LCCs would have difficulty competing at the hubs of network carriers. This assumption has long since been disproven,” the airline chiefs said.

Tilton noted in questioning that low-cost-carrier Southwest Airlines, the largest carrier in the U.S., would still be the largest carrier after the merger.

“In sharp contrast to legacy carriers, they have shown a steady, steady pattern of growth,” Tilton said. “They have shown an ability to accommodate change in their strategy. They’re building a more complex proposition to customers which includes frequent flyer schemes and even connections to international carriers both north and south.”

Darren Bush, an associate professor at the University of Houston Law Center, argued that while some LCCs have managed to penetrate major hubs, generally “the larger the network the easier it is to drive out low cost carrier competition.”

Bush also questioned the real reason behind the United/Continental merger. “It should not be presumed that the merger’s purpose is profit maximization and efficiencies,” Bush said. “[I]t is difficult to see how two organizations in the same dire straits will, when combined, produce a better airline.”

Text of Senator Kohl’s introductory statement appears here on the Senator’s website.

Failure to Grant Franchise to Arab Not Discrimination Under California Law

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

A restaurant franchisor’s failure to award a franchise to an Arab from the Middle East was not discrimination in violation of a California franchise anti-discrimination statute, a California appellate court has determined. Thus, the franchisor was entitled to summary judgment on the claim, and a ruling by a California state trial court was affirmed.

The prospective franchisee based his allegation of discrimination, in part, on the fact that the franchisor changed its position about granting him a franchise following the September 11, 2001, attacks on the World Trade Center.

Anti-discrimination Statute

Section 51.8 of the California Civil Code (CCH Business Franchise Guide ¶4051) prohibited discrimination in the granting of franchises solely because of the race, color, religion, sex, national origin, or disability of the prospective franchisee, the court noted.

The trial court found that the prospective franchisee established a prima facie claim of discrimination. In rebuttal, the franchisor presented evidence that the franchise application was rejected because the franchisor never received a completed site submittal package to review.

An officer of the franchisor, who was Lebanese, submitted a declaration stating, "At no time did I have any discriminatory motives” based on the prospective franchisee’s race, ethnicity, religion, or heritage when he rejected the franchise application.

In addition, the franchisor provided evidence of numerous franchisees of Middle Eastern descent, including franchises awarded after September 11, 2001. The prospective franchisee disputed that claim.

According to the prospective franchisee, the franchisor identified a total of 84 franchises owned or operated by persons that it identified as within the broad category "Mideast." Of those 84 franchises, 55 were owned or operated by persons identified as being Mideast-Indian; 23 persons were identified as being Mideast-Iranian; 4 persons were identified as being Mideast-Egyptian; and 2 persons were identified as being Mideast-Lebanese.

None was identified as being Mideast-Palestinian. The prospective franchisee "was an Arab and a Palestinian." He argued that Indians and Iranians were not ethnic Arabs; therefore, only six franchises were owned by ethnic Arabs. However, that claim was without merit, according to the appellate court.

Untrue or Pretextual Reasons

The prospective franchisee was required to demonstrate a triable issue by producing substantial evidence that the reasons stated by the franchisor were untrue or pretextual, or that it acted with discriminatory animus. In order to raise an issue regarding credibility, the prospective franchisee was required to set forth specific facts showing weakness in the reasons proffered by the franchisor such that a reasonable fact finder could rationally find them not credible.

His challenge to the statistics the franchisor provided regarding ethnic franchisees did not establish a reasonable inference that its explanation—that he failed to submit a completed site submittal package—lacked credibility, the court held.

The decision is Halloum v. DFO, Inc., California Court of Appeals, Third District, CCH Business Franchise Guide ¶14,362.

FTC Closes Investigation into Google-AdMob Merger

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

The FTC will not challenge Google’s proposed acquisition of mobile advertising network company AdMob under federal antitrust law. After thoroughly reviewing the deal, the agency decided that it was unlikely to harm competition in the emerging market for mobile advertising networks.

Mobile ad networks, such as those provided by Google and AdMob, sell advertising space for mobile publishers, who create applications and content for websites configured for mobile devices, primarily Apple Inc.’s iPhone and devices that run Google’s Android operating system.

By "monetizing" mobile publishers’ content through the sale of advertising space, mobile ad networks play a vital role in fueling the rapid expansion of mobile applications and Internet content.

Apple’s Market Entry

In a May 21 statement issued in conjunction with the closing of its investigation into the transaction, the Commission said that, although combination of the two leading mobile advertising networks raised serious antitrust issues, the agency’s concerns ultimately were overshadowed by recent developments in the market, most notably the move by Apple to launch its own, competing mobile ad network.

In addition, a number of firms appear to be developing or acquiring smartphone platforms to better compete against the iPhone and Android systems. These firms would have a strong incentive to facilitate competition among mobile advertising networks, according to the FTC.

"As a result of Apple’s entry [into the market], AdMob’s success to date on the iPhone platform is unlikely to be an accurate predictor of AdMob’s competitive significance going forward, whether AdMob is owned by Google or not," the Commission’s statement explained.

Questions about Transaction

According to the FTC’s statement, evidence gathered by the agency raised important questions about the transaction. Google and AdMob have competed head-to-head for the past few years, with a notable increase in intensity during the past year. This competition has spurred innovation and allowed mobile publishers to keep a large share of the revenue generated from the sale of their ad space. The companies also have economies of scale that give them a major advantage over smaller rivals in the business, the statement says.

These concerns, however, were outweighed by recent evidence that Apple is poised to become a strong competitor in the mobile advertising market, having recently acquired Quattro Wireless and used it to launch its own iAd service.

In addition, Apple could leverage its close relationships with application developers and users, its access to a large amount of proprietary user data, and its ownership of iPhone software development tools and control over the iPhone developers’ license agreement to compete effectively.

The FTC announcement appears here on the Commission’s website, along with a statement, a closing letter to counsel for Google, Inc. and a closing letter to counsel for AdMob, Inc. These documents appear at CCH Trade Regulation Reporter ¶16,453.

Concerns About Combination

The Commission made its decision, despite public expressions of concerns that the combination would allow Google to leverage its dominance of the search advertising market into the emerging mobile advertising market.

On April 6, Senator Herb Kohl (D, Wis.) sent a letter to FTC Chariman Jon Leibowitz, urging the agency to closely scrutinize the acquisition. (See Trade Regulation Talk, April 8, 2010 posting).

Senator Kohl cautioned that the combination could result in higher mobile advertising prices and lower revenues for applications developers. The stakes were high in an emerging market where revenues are predicted to increase from $416 million in 2009 to $1.56 billion in 2013.

Kohl urged the Commission to safeguard consumer privacy if the deal were approved, since the combined company would gain access to “a treasure trove of data on millions of consumers’ behavior, search and product preferences.”

Infomercial Pitchman’s Criminal Contempt Order, Prison Sentence Vacated

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

Notorious infomercial producer and marketer Kevin Trudeau should not have been held in direct criminal contempt of court and sentenced to prison for conduct related to ongoing civil contempt proceedings against him in connection with an FTC consumer protection suit, the U.S. Court of Appeals in Chicago has held.

The federal district court in Chicago overstepped its authority when it summarily punished Trudeau for exhorting the audience of his radio program to send e-mails supporting him to the district judge overseeing the civil contempt action, the court found. The district court’s decision was therefore vacated and remanded.

Trudeau—who was first sued by the FTC in 1998 over his marketing of hair growth, memory, and weight loss products, and has been in near-constant litigation against the agency ever since—was found by the district court in 2007 to have acted in civil contempt of a 2004 FTC consent order by making numerous false claims about the weight loss program described in his book, The Weight Loss Cure "They" Don't Want You to Know About. He was ordered to pay a $37.6 million monetary sanction and was enjoined from appearing in infomercials (2007-2 Trade Cases ¶75,949).

Solicitation of E-mails

In the course of appealing that decision—which was later partially vacated for insufficient explanation (2009-2 Trade Cases ¶76,718) but restored on remand (2010-1 Trade Cases ¶76,992)—Trudeau allegedly encouraged listeners to send e-mails to the judge’s
court address.

After receiving several hundred e-mails, some of which contained “threatening overtones,” the district judge notified Trudeau’s counsel of a possible criminal contempt charge, ordered him to appear, and instructed his counsel to ensure that Trudeau made the e-mails stop.

Though Trudeau did then implore his listeners to stop sending the judge e-mails, the judge nevertheless summarily found Trudeau guilty of criminal contempt and imposed the prison sentence.

“Presence” Requirement

The conviction was defective on procedural grounds, in the appellate court’s view. A finding of direct contempt was only appropriate if the criminal conduct occurred in the presence of the judge, the court noted. The “presence” requirement of Federal Rule of Criminal Procedure 42, which outlines the ordinary procedures necessary for a finding of criminal contempt, was not satisfied by virtue of the judge being able to read the e-mails on the court’s computers and on his own personal digital assistant device. That the effects of an act were felt by the district judge was insufficient to justify summary disposition.

The justification for summary process was that because a judge personally witnessed the contemptuous conduct, he knew all he needed in order to punish the defendant, the appellate court explained. However, the district judge had to do research to learn why he was getting the e-mails. The judge’s fact-finding belied the notion that the contemptuous act was committed in the judge’s presence. This rendered summary disposition improper.

The judge’s questioning of Trudeau about the e-mails showed that relevant facts had to be determined before Trudeau could be found in contempt—precisely because the conduct had occurred outside the judge’s presence, the appellate court reasoned.

Urgency of Threat

An argument offered by amicus curiae that summary punishment was justified by the urgency of the threat to the court was rejected. “[T]he need to preserve the court’s security and the need to punish Trudeau summarily were not closely linked,” the appellate court said.

The need for punishment was not so urgent as to warrant the disregarding of procedural safeguards. The record in the case “was devoid of any suggestion that Trudeau’s summary punishment was necessary to restore the court’s ability to resume its duties,” in the appellate court’s view.

To find in favor of Trudeau on the matter was “not to say that there should be consequence for Trudeau’s actions,” the appellate court clarified, only that “absent a compelling reason for summary disposition, Trudeau was entitled to the normal array of procedures under Rule 42(a).”

Further details concerning the May 20 decision in FTC v. Trudeau, will appear in CCH Trade Regulation Reporter.

High Court Allows Antitrust Claims over Exclusive Licensing to Proceed Against NFL

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

An arrangement among the 32 separately-owned member teams of the National Football League (NFL) to license their intellectual property collectively through their jointly-owned licensing affiliate—National Football League Properties (NFLP)—constituted concerted activity under Section 1 of the Sherman Act, a unanimous U.S. Supreme Court has decided.

The High Court today reversed a decision of the U.S. Court of Appeals in Chicago (2008-2 Trade Cases ¶76,259) holding that the NFL and its members did not engage in an illegal antitrust conspiracy by granting an exclusive trademark license to Reebok International for purposes of producing and selling trademarked headwear for all 32 teams.

Prior to granting an exclusive 10-year license to Reebok, the NFL had granted nonexclusive licenses to a number of vendors, including American Needle, Inc., permitting the companies to manufacture and sell apparel bearing team insignias.

After the NFL declined to renew American Needle’s nonexclusive license, the vendor brought antitrust claims challenging the exclusive licensing arrangement.

American Needle argued before the Court that under Nat'l Collegiate Athletic Assn. v. Bd. of Regents (1984-2 Trade Cases ¶66,139), agreements among sports teams about whether and how they will participate in the marketplace are subject to scrutiny under the Sherman Act, Section 1. The NFL asked the Court to establish a uniform rule recognizing the single-entity nature of the NFL as a highly integrated joint venture.

Functional Analysis

In an opinion authored by Justice John Paul Stevens, the Court explained that the issue of concerted action did not turn simply on whether the parties involved were legally distinct entities. The focus was on substance rather than legal form.

Under a ‘’functional analysis,’’ the key was whether the conduct joined together separate decisionmakers. If the agreement joins together separate decisionmakers, then the entities are capable of conspiring under Section 1, and the court must decide whether the restraint of trade is an unreasonable and therefore illegal one, the Court explained.

Applying this analysis, the Court concluded that the NFL teams did not possess the unitary decision-making quality or the single aggregation of economic power characteristic of independent action. Each of the teams was a substantial, independently owned, and independently managed business.

While the NFL teams might have been similar in some sense to a single enterprise that owned several pieces of intellectual property and licensed them jointly, they were not similar in the relevant functional sense. The teams' interests in licensing team trademarks were not necessarily aligned.

The Court also addressed the fact the NFLP was a separate corporation with its own management and that most of the revenues generated by NFLP were shared by the teams on an equal basis. It decided that that the NFLP’s actions also were subject to Section 1, at least with regards to its marketing of property owned by the separate teams, for the same reasons the teams’ conduct was covered by Section 1.

Rule of Reason Analysis

On remand, the challenged agreement was to be reviewed under a flexible rule of reason analysis, the Court ruled. While the interests of the teams in promoting NFL football did not justify treating them as a single entity for purposes of Section 1 of the Sherman Act when it came to the marketing of the teams’ individually owned intellectual property, it could justify a variety of collective decisions made by the teams.

Rule of reason analysis would enable the NFL to offer justifications for its collective decisions. “Football teams that need to cooperate are not trapped by antitrust law,” the Court noted.

Government Position

The Court did not pass upon the position taken by the federal antitrust agencies in their 2009 friend-of-the-court brief. In its brief, the government suggested that it was taking a middle ground between the parties' arguments.

The government contended that ‘’single-entity treatment for the teams and the league was appropriate if the teams and the league have effectively merged the relevant aspect of their operations, thereby eliminating actual and potential competition among the teams and between the teams and the league in that operational sphere . . . and the challenged restraint [does] not significantly affect actual or potential competition among the teams or between the teams and the league outside their merged operations.”

The May 24 decision in American Needle Inc. v. National Football League, No. 08-661, appears at 2010-1 Trade Cases ¶77,019.

Dentists, Dental Association Failed to Allege Fraud in RICO Claim Against Insurers

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

Three dentists and the American Dental Association (ADA) failed to assert a plausible class-action RICO claim against five insurance companies that allegedly engaged in a scheme to defraud dentists by reducing payments for dental services through improper bundling, automatic downcoding, and the manipulation of dental procedure codes, the U.S. Court of Appeals in Atlanta has held. The dismissal of the plaintiffs’ RICO claims was therefore affirmed.

Bundling and Downcoding Procedures

The plaintiffs complained that they performed multiple procedures worthy of larger benefit payments, but that the insurers had bundled and “downcoded” those procedures into fewer claims worthy of small payments.

The plaintiffs also alleged that the fraudulent scheme would work only if the insurers had agreed to employ the same devices and tactics.

According to the plaintiffs, the insurers sent out letters and e-mails stating that dental procedures submitted as multiple claims would be grouped together as a single procedure for the purpose of benefits payments.

The plaintiffs failed, however, to (1) identify any specific misrepresentations in the letters and e-mails; (2) connect the allegedly fraudulent communications to particular acts of downcoding or bundling; or (3) allege how the insurers had agreed to employ these procedures as part of a long-term criminal enterprise predicated on mail and wire fraud, the court observed.

Conspiracy

Because the allegations in the plaintiffs’ complaint did not support an inference of an agreement to the overall object of the conspiracy—or an agreement to commit at least two predicate acts—the complaint failed to assert a valid RICO conspiracy claim. In the court’s view, the allegations contained only conclusory statements and unwarranted deductions of fact.

Plaintiffs, for example, attempted to bolster their conspiracy claim by describing the defendants’ “collective” or parallel actions, from which they inferred the existence of an agreement. The court noted, however, that the U.S. Supreme Court has stated that “when allegations of parallel conduct are set out . . . they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action (Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 2007-1 Trade Cases ¶75,709).

Lawful, Independent Conduct

In this case, there existed—for each of the collective actions alleged—an “obvious alternative explanation” that suggested lawful, independent conduct, the appellate court determined. The allegation that the insurers had downcoded and bundled claims, for example, could be attributed to the use of computers, which could process claims efficiently. Downcoding and bundling may be proper in a competitive market, the court reasoned, in order to decrease physicians’ costs and increase corporate profits.

The argument that a conspiracy could be inferred from the insurers’ participation in trade associations and other professional groups was unavailing. According to the court, it was “well settled before Twombly” that participation in trade organizations “provides no indication of a conspiracy.”

The May 14 decision, American Dental Association v. Cigna Corp., appears at CCH RICO Business Disputes Guide ¶11,843.

Marketing of “Original Formula” Classic Coke Was Not Unfair or Deceptive

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

Coca-Cola’s marketing of “Classic,” “Original Formula” Coke with high fructose corn syrup (HFCS) substituted for sucrose was not an unfair practice under the Illinois Consumer Fraud Act, the federal district court in East St. Louis, Illinois has ruled.

Claims that the marketing was a deceptive practice failed for either lack of causation of injury or time limitations, the court held.

Three factors are to be considered in determining whether a trade practice is unfair:

(1) whether the practice offends public policy;

(2) whether it is immoral, unethical, oppressive, or unscrupulous; and

(3) whether it causes substantial injury to consumers.

No public policy of Illinois proscribed the used of HFCS. Because a purchaser was unaware of Coca-Cola’s use of “Original Formula” to market the product, he was not oppressed by the practice. Finally, there was no substantial injury because the purchaser or any other consumer could have drunk a different beverage, according to the court.

Causation

Because the purchaser never saw the words “Original Formula” on containers of Classic Coke, his deceptive practices claim necessarily foundered on the issue of causation, according to the court. An unjust enrichment claim based on the deceptive practices theory also failed.

Time Limitations

Another purchaser’s claims were time-barred because she reasonably knew or could have known in the 1990s of her alleged injury from Coca-Cola’s marketing but failed to bring suit until well into the next decade. The consumer fraud statute of limitations was three years, and the limitation for unjust enrichment was five years.

The April 27 opinion in Kremers v. Coca-Cola Co. is reported at CCH Advertising Law Guide ¶63,835 and CCH State Unfair Trade Practices Law ¶32,051.

FTC Approves Combination of Scientific Equipment Manufacturers

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

Agilent Technologies Inc., a supplier of scientific measurement instruments, closed it acquisition of medical device and software maker Varian, Inc. on May 14, after the parties entered into a proposed FTC consent order.

Under the terms of the proposed consent order, the companies agreed to sell three product lines in order to resolve FTC antitrust concerns over their combination.

According to the FTC's complaint, with the divestitures, Agilent's acquisition of Varian would have violated U.S. antitrust laws by reducing competition for three types of scientific measurement instruments in which the companies competed with one another.

The companies competed in the markets for the production and sale of micro gas chromatography instruments (Micro GCs), triple quadrupole gas chromatography-mass spectrometry instruments (3Q GC-MS), and inductively coupled plasma-mass spectrometry (ICP-MS) instruments.

The FTC contended that in each market, without the proposed divestitures, the acquisition would have allowed Agilent to raise prices, decrease innovation, or reduce customer service. According to the complaint, Agilent and Varian were the only two competitors producing Micro GCs, and the acquisition would leave Agilent with a monopoly in that market.

Similarly, in the 3Q GC-MS and ICP-MS markets, there are currently only four competing firms. Eliminating the competition between Agilent and Varian would leave Agilent with a post-merger market share of nearly 50 percent in each market.

With the closing of the deal, which "brings together two Silicon Valley pioneers," Agilent was now positioned as a leading provider of analytical instrumentation to the applied and life sciences markets, the company said in a May 14 statement.

The complaint and proposed consent order, In the Matter of Agilent Technologies, Inc., FTC File No. 0910135, announced May 14, 2010, are available on the FTC website. Further details will appear in CCH Trade Regulation Reporter.

Inventory Requirement, Control of Supplies Might Be “Franchise Fee” Under Washington Law

This posting was written by John W. Arden.

A supplier’s requirement that distributors maintain a particular level of inventory and its control over the supplies sent to the distributors might constitute a “franchise fee” within the Washington Franchise Investment Protection Act, according to the U.S. Court of Appeals in San Francisco.

Summary dismissal of the distributors' franchise law claims (CCH Business Franchise Guide ¶13,338 and ¶13,437)—based on its failure to establish that it paid a “franchise fee”—was reversed, and the claim was remanded to the federal district court in Spokane, Washington.

Mandatory Purchases

Payments for “the mandatory purchase of goods or services” are considered franchise fees under the Washington Franchise Investment Protection Act’s definition of “franchise.” (Wash. Rev. Code §19.100.010 (12)), the appeals court held.

The complaining distributors claimed that their supplier (Pepperidge Farm) effectively required them to purchase goods by mandating inventory levels and controlling pallet shipments “and then requiring [them] to pay for some product that went stale prior to sale.”

While the district court ruled that the distributors were never required to purchase a set quantity of Pepperidge Farm products, the distributors “submitted evidence to support their claim to the contrary,” the appeals court said, finding a genuine dispute of material fact that precluded summary judgment.

Business Opportunity Law

The appellate court upheld the summary dismissal of other claims brought by the distributors—including claims brought under the Washington Business Opportunity Fraud Act and negligent misrepresentation. It was not apparent that a distributorship was a “business opportunity” under the statute, and the distributors offered no counter argument, the court held.

The negligent misrepresentation claim was rejected on the ground that the distribution agreement specifically required the distributor to remove stale Pepperidge Farm products from store shelves and provided that Pepperidge Farm had no obligation to accept stale goods.

Commercially Reasonable Sale

The district court’s finding that Pepperidge Farm’s sale of the distributorship to the complaining distributor was commercially reasonable under the Washington Uniform Commercial Code (CCH Business Franchise Guide ¶14,145) was upheld on appeal.

“Pepperidge Farm undertook efforts in excess of ordinary procedures for marketing a distributorship, easily satisfying the standard for a commercially reasonable sale,” the Ninth Circuit ruled.

The May 14 not-for-publication opinion is Atchley v. Pepperidge Farm Inc., No. 09-35275. Text of the decision will appear in the CCH Business Franchise Guide.

Advertisers Can Pursue Suit Against Facebook for “Invalid Click” Charges

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

Advertisers that entered into “cost per click” arrangements for ads posted on Facebook stated claims that Facebook breached its agreement to charge only for “legitimate clicks” and violated the California Unfair Competition law, the federal district court in San Jose has ruled.

The advertisers’ class action complaint alleged that Facebook charged for “invalid clicks” and “fraudulent clicks” on ads posted on its social networking website.

Disclaimer—Click Fraud

The court agreed with Facebook’s argument that the advertisers failed to state a claim for breach of contract based on fraudulent clicks because the contract expressly waived liability for third-party click fraud.

The contract disclaimer provided that “Facebook shall have no responsibility or liability to me in connection with any third party click fraud or other improper action that may occur.” The term “click fraud” directly followed the disclaimer’s reference to “clicks or other actions affecting the cost of the advertising” that are generated by third parties for “fraudulent or improper purposes.”

Invalid Clicks

However, the advertisers stated a claim for breach of contract at least as to “invalid clicks” resulting from Facebook’s own conduct, the court held.

The advertisers alleged that “invalid clicks” can result from deficiencies in Facebook’s system as a result of “(a) technical problems; (b) system implementation errors; (c) various types of unintentional clicks; (d) incomplete clicks that fail to open the advertiser’s web page; and (e) improperly recorded or unreadable clicks originating in some cases from an invalid proxy server or unknown browser types.”

“Invalid clicks” arguably need not be fraudulent, improper, or the result of the actions of third parties. The language of the contract was reasonably susceptible to this interpretation, the court determined.

Unfair Competition Law

The advertisers had standing to assert California Unfair Competition Law claims, according to the court. The allegation of a systematic breach of contract was sufficient for a claim under the statute predicated on unlawful business practices.

Although the advertisers failed to allege the element of reliance required to pursue a claim based on fraud, they succeeded in stating a claim that they reasonably could not have avoided the injury because of the ambiguities in the disclaimer, the court concluded.

The opinion in Facebook PPC Advertising Litigation will be reported at CCH Advertising Law Guide ¶63,836

Public Workshop Will Focus on Intersection of Patent, Competition Policy

This posting was written by John W. Arden.

The Federal Trade Commission, Department of Justice, and the Department of Commerce’s U.S. Patent and Trademark Office (USPTO) will hold a joint public workshop on Wednesday, May 26, on the intersection of patent policy and competition policy and its implications for promoting innovation.

In recent years, federal agencies and the courts have recognized that patents and competition share the overall purpose of promoting innovation and enhancing consumer welfare, according to the Commission.

The competitive drive of a dynamic marketplace fosters the introduction of new and improved products and processes, and high-quality patents promote investment in innovation. Delay, uncertainty, or poor patent quality can stifle innovation—as can unclear or inappropriate antitrust standards, said the FTC announcement.

Program Schedule

Opening remarks for the morning session will be delivered by Assistant Attorney General for the Department of Justice Antitrust Division Christine Varney; Under Secretary of Commerce for Intellectual Property and Director of the USPTO David J. Kappos; and U.S. Chief Technology Officer Aneesh Chopra. FTC Commissioner Edith Ramirez will open the afternoon session with introductory remarks.

The program will address (1) The Patent Backlog: The Competitive Challenges for Innovators; (2) Permanent Injunctions in the District Courts and the International Trade Commission; and (3) Standard Setting, Patent Rights, and Competition Policy.

A wrap-up discussion will be lead by Carl Shapiro, Deputy Assistant Attorney General for Economic Analysis at the Department of Justice Antitrust Division; Joseph Farrell, Director of the Bureau of Economics, Federal Trade Commission; and Stuart Graham, Chief Economist for the USPTO.

The all-day workshop will convene at 9 a.m. at the USPTO’s campus at 600 Dulany Street, Madison Building Auditorium, Alexandria, Virginia. Details appear here on the FTC website.

Trade Regulation Tidbits

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

News, updates, and observations:

 House Transportation Committee Chair James L. Oberstar (D, Minn.) announced his opposition to the proposed merger between United Airlines and Continental Airlines in a conference call with reporters on May 6. Rep. Oberstar sent a letter on May 5 to Christine A. Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, urging the agency’s disapproval of the proposed merger. "If United and Continental merge, another domino in a chain of mergers will fall, and there will be strong pressure for further consolidation, " Oberstar’s letter reads. "As I predicted when I wrote your predecessor in 2008 on the Delta-Northwest merger, approval of that merger created conditions that have persuaded Delta’s competitors to pursue their own combinations. The United-Continental transaction is the latest, but it likely will not be the last." The text of the letter is available here on the website of the U.S. House of Representatives Transportation and Infrastructure Committee.

 Former FTC Chairman Timothy J. Muris is the 2010 recipient of the Miles W. Kirkpatrick Award for Lifetime FTC Achievement. The award was announced on May 5. “Tim Muris provided inspired service to the Federal Trade Commission and to the American public,” FTC Chairman Jon Leibowitz said, citing Muris’s contributions and the agency’s mission to protect consumers and encourage competition. “He understood the value of combining economic and legal analyses with common sense, and the measures he advanced to realize this vision, such as the National Do Not Call Registry, raised the FTC’s stature among public institutions throughout the world and among our nation’s consumers.” Muris served as FTC Chairman from 2001 through 2004. Earlier, he held other key positions at the Commission, including Director of the Bureau of Competition, Director of the Bureau of Consumer Protection, and Assistant Director of the Planning Office. Currently, Muris is of counsel at the law firm of O’Melveny & Myers and is Co-Chair of the firm's Antitrust/Competition Practice. Further details appear here on the FTC website.

 Four current and former British Airways executives have been acquitted of price fixing charges by a jury in London, the United Kingdom Office of Fair Trading (OFT) announced in a May 10 press release. The OFT said that it asked the jury to acquit the defendants in the U.K.'s first criminal competition law trial following "the discovery last week of a substantial volume of electronic material, which neither the OFT nor the defence had previously been able to review." The OFT said: "Given that the trial had already begun and the volume of material involved, the OFT accepts that to continue with the trial in light of this unforeseen development would be potentially unfair to the defendants." The OFT "acknowledge[d] responsibility for its part in this oversight, which occurred at a time when the UK criminal cartel regime was still relatively new and the OFT's approach to the handling of leniency applications in the context of parallel criminal and civil investigations was still evolving." The OFT also said that it would review the role played by Virgin Atlantic Airways and its advisers in light of the airline's obligations, as a leniency applicant, to cooperate with the OFT. The previously-undisclosed electronic material included e-mails sent or received by a former Virgin Atlantic employee. In an August 7, 2008 press release, the OFT announced that it had charged four individuals with cartel offenses, in connection with its criminal investigation into price-fixing of fuel surcharges for long-haul passenger flights. The individuals were alleged to have dishonestly agreed with others to make or implement arrangements that directly or indirectly fixed the price for the supply of passenger air transport services by British Airways and Virgin Atlantic Airways in the United Kingdom. The charges related to a period between July 2004 and April 2006, when the defendants were employed by British Airways.

False Tooth Makers’ Claims Against Monopolist Cleared for Trial, Leading to Settlement

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

Artificial tooth maker Dentsply International, Inc. could have engaged in unlawful monopolization through practices that included tooth swaps with dental product dealers and the offering of loyalty rebates to exclusive dealers, the federal district court in Harrisburg, Pennsylvania, has ruled.

The two dental supply manufacturers asserting the claim, Univac Dental Company and Lactona Corporation, presented sufficient evidence of damages from the tooth swaps and dealer exclusivity policies—which included Dentsply’s maintenance and enforcement of a policy prohibiting the dealers from adding competitors’ artificial teeth to their product lines—to survive summary judgment, the court stated.

At the outset, the court noted that the complaining manufacturers were not entitled to a preclusive finding that Dentsply’s actions injured them based upon an appellate court’s determination—in a government enforcement action, U.S. v. Dentsply Int’l, Inc.—that the tooth maker’s actions harmed all of its competitors, including the corporate predecessor of both Univac and Lactona, Universal Dental Company (2005-1 Trade Cases ¶74,706).

Causation and Damages

Collateral estoppel did not operate to resolve the issues of causation and damages in the case because, in the prior action, the issues—as they related to Univac and Lactona—were not fully litigated. Moreover, the determination of any issues related to them was not essential to that prior judgment. Thus, they were required to prove damages in the present case.

The court rejected Dentsply’s argument that Univac and Lactona would not be able to show that Dentsply’s actions foreclosed a sufficiently significant portion of the market because they were still able to maintain access to dealers through a grandfather exception to the exclusivity policy.

No legal authority required an individual competitor to prove that its own access to the market had been foreclosed in order to make a showing that it was injured or that the challenged practices severely restricted the market’s ambit, the court explained.

Anticompetitive, Injurious Actions

The complaining manufacturers did not fail to meet their burden of showing that Dentsply took action that was both anticompetitive and injurious to them within the statute of limitations period. Although the evidence was not conclusive, it was sufficient to present the issue to a finder of fact, the court said.

A contention that it would be improper to consider evidence of actions directed not only toward Univac and Lactona specifically, but also that infringed competition in the relevant market generally, was without merit.

Evidentiary Matters

In the same opinion, the court also ruled on several evidentiary matters intended to clear the path to trial. It confirmed that a magistrate judge’s refusal to grant preclusive effect to several proposed factual findings was proper. In addition, the court declined to reject several of the magistrate’s recommended findings regarding the effects of Dentsply’s conduct on the basis that they were allegedly inapplicable or misleading. Any potential for one particular finding to mislead the jury could be alleviated by the defendant’s evidence and arguments, in the court’s view.

The fact that several other findings referred to competitors other than Univac and Lactona did not render those findings misleading, inaccurate, or immaterial. A reference to events occurring outside the limitations period applicable to the suit did not warrant another finding’s rejection.

Amount of Damages

In a separate ruling issued on April 27, the court found that expert testimony offered to establish the amount of damages suffered by the complaining manufacturers was sufficiently reliable and fit to the facts to be admitted into evidence. Objections by the defendant to the testimony were more directly related to its probative value than to its admissibility.

he testimony was based upon a proper foundation, the court said, and the expert’s calculation of an estimated amount of damages without regard to causation or any other elements of liability was “perfectly acceptable.”

Settlement

One day after the latter ruling on expert testimony, the parties reportedly reached an agreement to avoid going to trial. On April 29, the presiding judge in the matter, Christopher Conner of the U.S. District Court for the Middle District of Pennsylvania, signed a dismissal order allegedly acknowledging that the matter had been settled.

None of the involved companies has issued a statement divulging the terms of the settlement, but the dismissal order purportedly noted that either side could reinstate the action within 60 days if the settlement does not get consummated.

The March 31 and April 27 rulings in Univac Dental Co. v. Dentsply International, Inc., Civil Action No. 1:07-CV-0493, appears at 2010-1 Trade Cases ¶76,998 and ¶76,999.

Comment Period on Proposal to Revise Merger Guidelines Extended

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

The FTC has extended the period for submitting public comments on a proposed revision of the Horizontal Merger Guidelines. At the request of several organizations that plan to submit comments, the agency has agreed to accept comments through June 4, 2010.

The updated guidelines, which outline how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law, are being revised jointly by the FTC and Department of Justice.

The proposed Guidelines were issued on April 20, 2010, and the original comment period was set to expire on May 20, 2010.

Text of the proposed revised guidelines appear at CCH Trade Regulation Reporter ¶50,252 and here on the FTC website.

Details on the issuance of the guidelines appear in an April 20, 2010 posting on Trade Regulation Talk.

FTC Alleges Merger-to-Monopoly in Market for Education Marketing Information

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

Dun & Bradstreet Corporation’s 2009 acquisition of the assets of Quality Education Data (QED), a division of Scholastic, Inc., “is in practical effect a merger-to-monopoly” in the market for kindergarten through twelfth grade educational marketing data, the Federal Trade Commission alleged in an administrative complaint announced today. The agency is seeking divestitures of assets necessary to restore the competition that allegedly was lost as a result of the acquisition.

Prior to the transaction, Dun & Bradstreet's Market Data Retrieval and QED were the only two significant competitors in the K-12 data market, according to the agency. As a result of the acquisition, Market Data Retrieval, which describes itself as “the market’s first choice for marketing information and services for the K-12, higher education, library, early childhood, and related education markets,” allegedly holds over 90 percent of the K-12 data market.

Educational marketing data includes contact, demographic, and other information relating to teachers, administrators, schools, and individual school districts, that is sold or leased to customers, the FTC explained. The data sold by these companies is used to sell books, education materials, and other products to teachers and other educators nationwide.

Low-Dollar-Value Transaction

Dun & Bradstreet acquired the QED assets for approximately $29 million. Because the transaction fell below the threshold for premerger notification filings under the Hart-Scott-Rodino (H-S-R) Act, the federal antitrust agencies did not have had an opportunity to require the parties to wait to consummate the transaction while its potential competitive effects were considered pursuant to the H-S-R program. Nevertheless, the FTC ultimately discovered the transaction.

“Despite its relatively low dollar value, this transaction dramatically decreased competition in the marketplace,” said FTC Bureau of Competition Director Richard Feinstein. “When Dun & Bradstreet acquired QED, it bought its closest competitor and created a monopoly. That’s going to get the FTC’s attention every time.”

The Commission vote approving the administrative complaint was four-to-one, with Commissioner J. Thomas Rosch voting against. The complaint, In the Matter of The Dun & Bradstreet Corporation, FTC Docket No. 9342, will appear at CCH Trade Regulation Reporter ¶16,445.

Draft of Proposed Federal Privacy Legislation Released

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

A discussion draft of legislation to protect the privacy of information about individuals both on the Internet and offline was released by Representatives Rick Boucher (D, Virginia) and Cliff Stearns (R, Florida) on May 4.

Privacy Policy

The measure would require companies that collect personally identifiable information about individuals to conspicuously display a clear, understandable privacy policy that explains how such information is collected, used, and disclosed to third parties.

General Rule for Collecting Information

According to Boucher and Stearns, the proposed legislation would set forth a general rule that companies are permitted to collect information about individuals unless an individual affirmatively opted out of that collection. No consent would be required to collect and use operational or transactional data—such as session cookies—or to use data that was rendered anonymous.

Opt-In Consent Requirement

The legislation would require companies to obtain express opt-in consent before collecting sensitive information about an individual, including medical data, financial account information, Social Security numbers, sexual orientation, government-issued identifications information, and precise geographic location data.

Affirmative opt-in permission would have to be obtained before a company could share an individual’s personally identifiable information with unaffiliated third parties, other than for an operational or transactional purpose.

The draft bill would create an exception to this opt-in consent requirement by applying opt-out consent to the sharing of information with a third-party ad network, as long as there is a clear, easy-to-find link to a webpage for the ad network that allows a person to edit his or her profile and to opt out of having a profile.

FTC Implementation, Enforcement

The Federal Trade Commission would be directed to adopt rules to implement and enforce the measure. States could also enforce the FTC’s rules through state attorneys general or state consumer protection agencies. The legislation would not create a private right of action.

The law would preempt any state law that included requirements regarding the collection, use, or disclosure of information covered by the federal statute.

A news release and full text of the discussion draft appears on Representative Boucher’s website.

Antitrust Enforcers Reportedly Set to Probe Apple’s License Agreement

This posting was written by John W. Arden.

According to published reports, the Federal Trade Commission and Department of Justice are negotiating to determine which agency will pursue an antitrust inquiry of Apple Computer Inc.’s new license agreement, which requires software developers to use Apple programming tools to create applications for the iPhone and iPad.

Apple’s license agreement would prevent developers from employing other tools—such as Adobe Systems Inc.’s Flash format—used to create web videos, games, and other interactive features.

Antitrust enforcers will address the issue of whether this policy injures competition by forcing developers to choose between designing applications that can run only on the iPhone and iPad and creating applications that are “platform neutral” and can run on operating systems produced by Google, Microsoft, and others.

A story ("An antitrust app") in Monday’s New York Post said that federal antitrust enforcers are “days away from making a decision about which agency will launch the inquiry,” which could lead to a full fledged investigation.

None of the players in the scenario—the FTC, the Department of Justice, or Apple Computer Inc.—has publicly commented on the news reports. However, Apple CEO Steve Jobs posted a piece (“Thoughts on Flash”) on the company website, explaining “why we do not allow Flash on iPhones, iPods and iPads.”

Rather than being “primarily business driven,” the decision was “based on technology issues,” according to Jobs. Contrary to Adobe’s claims, Flash is actually “a closed system,” while Apple has adopted “open standards” like HTML5, CSS and JavaScript, Jobs wrote.

While Adobe contends that Apple mobile devices cannot access “the full web” because 75% of the video on the web is in Flash, Jobs maintained that “almost all this video is also available in a more modern format, H.264, and viewable on iPhones, iPods and iPads.”

Jobs further cited reliability, security, and performance issues, arguing that Flash has a poor security record, causes Macs to crash, and does not perform well on mobile devices. In addition, Jobs criticized Flash for using too much battery power, for not being designed for “touch” screens, and for having “major technical drawbacks.”

The Wall Street Journal (“Apple Attracts Scrutiny From Regulators”) pointed out that the “growing interest in Apple’s activities by antitrust authorities shows the extent to which the Cupertino, Calif., company has become a powerful player in mobile devices like smartphones, which many people see as the next dominant computing platform after personal computers.”

The article compares Apple’s conduct with the tactics by Microsoft Corp. that drew attention from antitrust enforcers in the 1990s.

“Apple is playing right out of Microsoft’s playbook—and it’s one they complained about a lot,” said David Balto, a senior fellow at the Center for American Progress and former attorney for the FTC and Department of Justice.

Trade Regulation Tidbits

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

News, updates, and observations:

 Senator Herb Kohl (D, Wis.), chairman of the Senate Antitrust Subcommittee, said his subcommittee was likely to hold a hearing to examine whether the merger of Continental and United Airlines will lead to higher prices or lower quality of service. Continental and United announced a difinititve merger agreement on May 3. The carriers said that the combination would “bring together the two most complementary networks of any U.S. carriers, with minimal domestic and no international route overlaps.” In a May 3 statement, Senator Kohl commented that the merger “would create the nation’s largest airline and will no doubt affect the travel choices for millions of consumers across the nation.” While voicing concern that the major airlines face competitive pressures and high costs, Kohl spoke of a “need to insure that airline consolidation does not diminish the competitive choices for air travelers.”

 Legislation to extend permanently the Antitrust Criminal Penalties Enforcement and Reform Act (ACPERA) of 2004 was introduced in the Senate on April 27. Senator Herb Kohl (D, Wis.), sponsor of the measure, said “permanent extension of ACPERA would encourage participation in the Antitrust Division’s leniency program.” ACPERA limits the civil liability of leniency participants to the actual damages caused by that company, rather than treble damages usually available in civil antitrust lawsuits. The law was amended in 2009 to extend the de-trebling provision for one year. Without amendment, it would expire in June. The measure (S. 3259), which was co-sponsored by Senator Orrin Hatch (R, Utah), also calls for the Comptroller General to submit a report to the Committees on the Judiciary of the House of Representatives and the Senate on the effectiveness of the Antitrust Criminal Penalties Enforcement and Reform Act of 2004.

 The FTC told congressional lawmakers that the rapid-fire pace of technological change, including an explosion in children’s use of mobile devices and interactive gaming, has led the agency to accelerate its review of the Children’s Online Privacy Protection Rule (COPPA Rule) to make sure that it is still adequately protecting children’s privacy. Although the FTC reviews most of its rules every 10 years, the COPPA Rule is being reviewed only five years after its last review, in 2005. The comments were made in agency testimony, prepared for delivery by Jessica Rich, Deputy Director of the FTC Bureau of Consumer Protection, before the Senate Commerce, Science and Transportation Committee's Subcommittee on Consumer Protection, Product Safety, and Insurance on April 29. The FTC’s COPPA Rule, which took effect in 2000, requires operators of Web sites and online services that target children under age 13 to obtain verifiable parental consent before they collect, use, or disclose personal information from children. The operators must give parents the opportunity to review and delete personal information their children have provided.

States Keep Passing Franchise and Distribution Laws, but Focus on Special Industries

This posting was written by John W. Arden.

State legislatures continue to pass a significant number of statutes regulating franchise and distribution arrangements, but have turned their focus to enacting special industry laws rather than generally-applicable laws, according to Richard H. Casper, speaking April 29 at Foley & Lardner’s 19th annual Law of Product Distribution and Franchise Seminar in Milwaukee.

In 2009, the states passed 65 laws enacting or amending distribution statutes. There are currently more than 100 bills affecting the field pending in the legislatures.

Themes of Legislation

Casper identified several themes of legislation, including the enactment of laws (1) increasing restrictions on suppliers, (2) tweaking protections afforded motor vehicle dealerships, (3) focusing on specific industries, and (4) expanding anti-termination measures provided to dealers of motor vehicles and farm and construction equipment to watercraft, recreational vehicle, and lawn and garden equipment dealers.

In contrast, the states generally have shied away from further legislation covering independent sales representatives and farm equipment dealerships. The redraft of Uniform Commercial Code Article 2—proposed by the National Conference of Commissioners on Uniform States Laws in 2003—has not been adopted in any state, Casper said.

Three states and the federal government have adopted statutes requiring restaurant chains to disclose the nutritional content of menu items. This year, New Jersey has amended its Franchise Practices Act to govern franchisees maintaining virtually any kind of location within the state. Previously, the law applied to franchisees that maintained a retail location within New Jersey.

Maryland has expanded the scope of its Equipment Dealer Contract Act to cover heating, ventilation, and air conditioning dealers in the business of selling “on commission or at retail.”

Product Distribution Law Guide

The attorneys in the Foley & Lardner Distribution & Franchise Practice group have authored a one-volume treatise based on the firm’s annual Product Distribution and Franchise seminar. CCH Product Distribution Law Guide, Second Edition discusses distribution issues from both the legal and business perspective, providing practice tips, checklists, and a solutions-oriented approach. Further details about the Guide appear here on the CCH/Wolters Kluwer online store.