Tuesday, May 31, 2011

Improperly Defined Relevant Markets Doom Private Merger Challenges

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

Recently, the U.S. Court of Appeals in San Francisco rejected two appeals in private merger challenges based on improper relevant market definitions.

Air Travel

A private suit for a preliminary injunction blocking the merger of United Airlines and Continental Airlines was properly dismissed, the federal appellate court ruled in a May 23 not-for-publication decision.

The plaintiffs—airline travelers and travel agents—failed to define a valid relevant market for purposes of evaluating the competitive effects of the transaction. Denial of the plaintiffs’ motion for preliminary injunction (2010-2 Trade Cases ¶77,187) was affirmed.

Defining and proving the relevant market for antitrust analysis was a “necessary predicate” to the plaintiffs’ success on the merits of their Clayton Act claim, the court explained. The court rejected the plaintiffs’ assertions that the district court erred in rejecting their proposed national market in air travel. The transaction would be more appropriately evaluated using a "city-pair" market. The city-pair market, which was endorsed by the district court, could satisfy the reasonable interchangeability standard.

According to the court, in defining the outer bounds of a relevant antitrust market, “the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it” was considered. To meet this standard, products did not have to be perfectly fungible. However, they had to be sufficiently interchangeable that a potential price increase in one product would be defeated by the threat of a sufficient number of customers switching to the alternate product.

A national market in air travel did not satisfy this standard. A flight from San Francisco to Newark was not interchangeable with a flight from Seattle to Miami, the court noted. No matter how much an airline raised the price of the San Francisco-Newark flight, a passenger would not respond by switching to the Seattle-Miami flight.

The court noted that the Department of Justice endorsed the city-pair market. The Justice Department closed its investigation into the merger after United Airlines and Continental Airlines agreed to transfer takeoff and landing slots and other assets at Newark Liberty Airport to Southwest Airlines (CCH Trade Regulation Reporter ¶50,258).

The Justice Department’s investigation determined that the merger would result in overlap on a limited number of routes where United and Continental offered competing nonstop service. The largest of those routes were between United’s hub airports and Continental’s hub at the Newark airport.

The May 23 decision in Malaney v. UAL Corp., No. 10-17208, appears at 2011-1 Trade Cases ¶77,463.

Pharmaceutical Industry

Just a few days earlier, the same three-judge panel of the Ninth Circuit rejected another private merger challenge. On May 19, dismissal (2010-1 Trade Cases ¶76,988) of a challenge to the 2009 merger of pharmaceutical companies Pfizer Inc. and Wyeth was affirmed. Independent retail pharmacies failed to sufficiently allege a relevant product market to support their challenge, the appellate court ruled.

The failure to allege a product market consisting of reasonably interchangeable goods rendered their complaint “facially unsustainable,” the appellate court explained.

The complaining pharmacies proposed a relevant product market consisting of “the pharmaceutical industry,” including the “manufacture, sale, and innovation of all pharmaceutical products, prescription pharmaceutical products, non-prescription pharmaceutical products, brand name pharmaceutical products and particular pharmaceutical products and therapies specifically noted and identified by Pfizer and Wyeth in their annual reports.”

While the market did not have to be pled with specificity, the complaining pharmacies failed to state any facts indicating that all pharmaceutical products were interchangeable for the same purpose, the court noted.

Pfizer, Inc.’s $68 billion acquisition of Wyeth was approved by the FTC in October 2009. Under the terms of an FTC consent order (CCH Trade Regulation Reporter ¶16,376), the combination was permitted to proceed, subject to divestitures aimed at preserving competition in multiple U.S. markets for animal pharmaceuticals and vaccines.

The May 19 decision in Golden Gate Pharmacy Services, Inc. v. Pfizer, Inc., appears at 2011-1 Trade Cases ¶77,455.

Friday, May 27, 2011

Facebook Users’ Privacy Claims Dismissed

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

The federal district court in San Jose has dismissed claims filed by a putative class of Facebook users who alleged that the social networking website unlawfully transmitted their personal information to third-party advertisers without their consent.

The users’ California Legal Remedies Act (CLRA), Unfair Competition Law (UCL), and unjust enrichment claims were dismissed with prejudice, but the users were granted leave to amend claims alleging that Facebook violated its privacy policy, the federal Wiretap Act and Stored Communications Act (SCA), and the California computer crimes and civil fraud statutes.

The users alleged that, during a four or five month period in early 2010, a redesign of Facebook’s website caused it to transmit to a “referral header” to third-party advertisers when a user clicked on a banner advertisement. The referral header allegedly reported the user ID or username of the user who clicked on an advertisement, as well as information identifying the webpage the user was viewing prior to clicking on the ad.

Federal Wiretap and SCA Claims

The Wiretap Act prohibits electronic communication services providers from divulging the contents of a communication to any person or entity “other than an addressee or intended recipient of such communication.” The SCA provides that an electronic communication service provider “shall not knowingly divulge to any person or entity the contents of a communication while in electronic storage by that service.”

Under both statutes, an electronic communication service provider may divulge the contents of a communication to an addressee or intended recipient of such communication.

The court discerned that the users’ allegations were subject to two interpretations. Under the first view, when a Facebook user clicked on a banner advertisement, that click constituted an electronic communication from the user to Facebook. The contents of the communication were a request for Facebook to send the electronic communication to the advertiser. Under the second interpretation, clicking on an advertisement constituted an electronic communication from the user directly to the advertiser.

According to this interpretation, Facebook served merely as a conduit for transmitting the communication to its intended recipient, the advertiser. Neither scenario would support a violation of the SCA or the Wiretap Act, according to the court.

California Computer Crimes Law

The court also held that the Facebook users failed to state a claim under California’s computer crimes statue. To state a violation under most subsections of Cal. Penal Code §502, a plaintiff must show that the defendant’s actions were taken “without permission.” A defendant may only be subjected to liability for acting “without permission” under §502 if the plaintiff can prove that the defendant “circumvented…technical barriers” that had been put in place to block the defendant’s access to the plaintiff’s website.

The users did not allege that Facebook circumvented technical barriers to gain access to a computer, computer network, or website. To the contrary, they alleged that Facebook caused “nonconsensual transmissions” of their personal information as a consequence of Facebook’s “re-design” of its website.

Facebook could not have acted “without permission” as there were no technical barriers blocking access to its own website. To the extent the users’ §502(c) claims alleged that Facebook acted “without permission,” they were dismissed with prejudice.

The court noted that Cal. Penal Code §502(c)(8) created liability for any person who “knowingly introduces any computer contaminant into any computer, computer system, or computer network.” Unlike the other sections of Cal. Penal Code §502(c), subsection (8) does not require that a defendant act “without permission.” Although the users failed to state a claim under §502(c)(8), they were granted leave to amend their claim.

California CLRA, UCL Claims

To assert an unfair competition claim under the California UCL, a private plaintiff must have “suffered injury in fact and . . . lost money or property as a result of the unfair competition.” A violation of the CLRA can only be alleged by an individual consumer who “purchases or leases any goods or services for personal, family, or household purposes.”

The users did not allege that they lost money as a result of Facebook’s conduct. Nor did they allege that they paid fees for Facebook’s services. The users only alleged that Facebook unlawfully shared their “personally identifiable information” with third-party advertisers.

An alleged loss of personal information did not constitute a loss of “property” that could form the basis for a UCL claim, the court held. With regard to their CLRA claim, the users failed to provide any legal support for their assertion that their personal information constituted a form of “payment” to Facebook for its services.

Breach of Contract Claim

To maintain an action for breach of contract under California law, an aggrieved party is required to show “appreciable and actual damage.” Allegations of nominal damages and speculative harm did not amount to legally cognizable damages. The users’ unsupported conclusory statement that they “suffered injury” as a result of Facebook’s breach of its privacy policy was insufficient.

The court advised the users to allege “specific facts showing appreciable and actual damages in support of their claim.” Because the users alleged the existence of a valid contract with Facebook, they could not maintain a claim for unjust enrichment.

The decision is In re Facebook Privacy Litigation., CCH Guide to Computer Law ¶50,183.

Further information about CCH Guide to Computer Law is available here.

Thursday, May 26, 2011

Trade Regulation Tidbits

This posting was written by the editorial staff of the CCH Trade Regulation Reporter.

News, updates, and observations:

U.S. Senator Herb Kohl (D, Wis.) has announced that he will not seek another term in 2012. Kohl, who is the chairman of the Senate Judiciary Committee’s Antitrust Subcommittee, is currently serving his fourth term in the U.S. Senate, which will expire at the end of the 112th Congress on January 3, 2013. "I have decided that the time has come to give someone else the opportunity to serve," he said in a May 13 statement.

H&R Block Inc.’s proposed acquisition of 2SS Holdings, Inc., the maker of TaxACT do-it-yourself tax preparation software, has been challenged by the Department of Justice Antitrust Division. Citing a number of internal H&R Block documents, the government’s May 23 complaint—seeking to block the proposed acquisition—contends that the transaction would substantially lessen competition in the growing U.S. digital do-it-yourself tax preparation software market by combining the second and third-largest providers of such products. One H&R Block document cited “Elimination of competitor,” according to the Justice Department. H & R Block believes the transaction is procompetitive. “Contrary to the DOJ’s position, the synergies and enhanced functionalities realized from this merger would create a more competitive landscape for tax preparation,” said William C. Cobb, H&R Block’s president and CEO.

Further information regarding United States v. H&R Block Inc. and 2SS Holdings Inc., Case No. 1:11-cv-00948 (DC D. of C.) appears at CCH Trade Regulation Reporter ¶45,111.

 The on-again, off-again injunction against the National Football League's “lockout” of its players went back off-again on May 16, when the Eighth Circuit reversed a federal district court’s refusal to stay the injunction pending appeal. In a 2-1 decision, the appellate court disagreed with the lower court’s determination that the players—who claimed that the lockout constituted a concerted refusal to deal in violation of Sec. 1 of the Sherman Act—had demonstrated a likelihood of prevailing on the merits of an antitrust claim based specifically upon the lockout. It was the league—not the players—that best demonstrated such a likelihood of success, the appeals court held. The league made a strong showing that the Norris-LaGuardia Act—which restricts the authority of federal courts to issue injunctive relief in labor disputes—applied to the case, in the appellate court’s view. This created serious doubts as to whether the trial court had jurisdiction to enjoin the league’s lockout. The appellate court expressed skepticism toward the reasoning of the trial court that the case did not involve or grow out of a labor dispute, for purposes of the Norris-LaGuardia Act, since the players were no longer part of a union, having decertified it immediately after negotiations for a new collective bargaining agreement broke down. In addition, the players had not established that they would suffer irreparable harm from the lockout that would outweigh any harm suffered by the league and team owners.

The decision is Brady v. National Football League, 2011-1 Trade Cases ¶77,456.

Wednesday, May 25, 2011

Youth Hockey League’s Exclusive Participation Rule Could Be Anticompetitive

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

A for-profit youth hockey program adequately alleged monopolization and attempted monopolization claims against a local district of USA Hockey, the national governing board for amateur hockey, the federal district court in Minneapolis has ruled.

The complaining youth program challenged the local district's adoption of an "outside league rule," which prohibited players from participating in competing hockey leagues. The local district's motion to dismiss the monopoly claims was denied; however, the court rejected conspiracy claims.


The complaining program pled sufficient facts to state facially plausible monopoly claims that the defendants engaged in anticompetitive behavior under either an actual exclusion or market power test, according to the court.

The complaining program provided numerous affidavits of parents who withdrew their children from its programming as a result of the outside league rule. It also noted decreased enrollment in its leagues, losing up to 40 players as a result of the rule.

While these events might have been attributable to other factors, such as the downturn in the economy, along with the withdrawal of players already registered and who forfeited deposits, these facts alleged detrimental effects sufficient to survive a motion to dismiss, the court ruled.

Attempted Monopolization

Dismissal of the attempted monopolization claim was also denied. In order to state a claim of attempted unlawful monopolization, a plaintiff had to allege (1) a specific intent by the defendant to control prices or destroy competition; (2) predatory or anticompetitive conduct undertaken by the defendant directed to accomplishing the unlawful purpose; and (3) a dangerous probability of success.

Regarding specific intent, the complaining program alleged that the motive behind the rule was to prevent it from “taking” players from the defendants. Although the defending league’s stated purpose for the rule was to avoid scheduling conflicts and to prevent player fatigue, certain organizations that arguably would have caused such issues were exempted from the rule. Finally, the withdrawal of players from the complaining program, citing the rule, adequately alleged a dangerous probability of success.


Conspiracy claims were not adequately alleged, however. The court found that the defendants should be considered part of a “unilateral actor.” The associations within the district did not compete and were deemed a “single economic actor.” Moreover, Minnesota Hockey, the state arm of the national hockey governing board, and the local district were incapable of conspiring.

The May 12 decision, Minnesota Made Hockey, Inc. v. Minnesota Hockey, Inc., is reported at 2011-1 Trade Cases ¶77,453.

Tuesday, May 24, 2011

Monopoly Claims Were Adequately Alleged Against Diaper Maker Kimberly-Clark

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

Last week, the federal district court in Harrisburg, Pennsylvania, refused to dismiss monopoly claims against Kimberly-Clark brought by competitor First Quality Baby Products, LLC. First Quality—a manufacturer of “private label” or store-brand diapers and training pants—adequately alleged that Kimberly-Clark used its more than 300 patents to disrupt competitors and to maintain a monopoly in the disposable baby diaper and training pants market.

First Quality claimed that Kimberly-Clark:

(1) Maintained a 35 percent share of the market for disposable baby diapers and a 75 percent share in the training pants market and

(2) Engaged in anticompetitive conduct to maintain its monopoly.
Sham Patent Litigation

Kimberly-Clark allegedly threatened patent lawsuits and then engaged in sham litigation to drain the resources of “private label” or store brand manufacturers, thereby reducing their ability to compete.

According to First Quality, Kimberly-Clark enforced patents that it knew to be invalid, procured through fraud on the Patent and Trademark Office (PTO), or not infringed. Further, Kimberly-Clark allegedly misrepresented the nature of the litigation in order to threaten retail outlets to make it the exclusive supplier of store-brand training pants.

Product Disparagement

First Quality also contended that Kimberly-Clark engaged in product disparagement through false claims and coercively acquired licensing agreements through settlements of secret arbitration proceedings.

Each of these acts in isolation might not itself not rise to the level of anticompetitive conduct, but in the aggregate it represented anticompetitive activity tied to the relevant markets that raised a plausible claim for relief, the court decided.

Conspiracy Claims

The court rejected Kimberly-Clark's contention that it was immune from antitrust liability under the Noerr-Pennington doctrine. The doctrine immunizes from antitrust liability those who petition the government. While prosecuting a patent infringement action was the type of activity protected by Noerr-Pennington, exceptions existed for activities that were mere “sham” and conduct before the PTO that was fraudulent.

Kimberly-Clark's conduct could fall within the exception for fraud on the PTO, also known as Walker Process fraud, according to the court. First Quality alleged that Kimberly-Clark deliberately and intentionally withheld material prior art in connection with the prosecution of a patent-in-suit, and, as a result, the PTO issued a patent that was invalid.

The text of the May 17 decision in Kimberly-Clark Worldwide, Inc v. First Quality Baby Products, LLC, appears at 2011-1 Trade Cases ¶77,452.

Monday, May 23, 2011

Whirlpool Not Enjoined From Advertising “Steam Dryers”

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

LG Electronics U.S.A., Inc. was denied injunctive relief against Whirlpool Corporation in an Illinois Consumer Fraud and Deceptive Business Practices Act (CPA) and Uniform Deceptive Trade Practices Act (DTPA) claim alleging Whirlpool’s advertisements of “steam dryers” were false and misleading.

Both companies manufacture steam dryers but use different methods for creating steam. The case concerned the definition of “steam” and whether the Whirlpool dryer actually created steam.

A jury in the federal district court in Chicago rejected the CPA claim, but found that Whirlpool violated the DTPA by representing its dryers as having characteristics it did not have and creating a likelihood of confusion for consumers. LG sought a nationwide injunction barring Whirlpool from using the word “steam” in describing the dryers, or requiring Whirlpool to make clear how the dryers worked.

Irreparable Harm

LG failed to establish conduct by Whirlpool that was likely to result in damage, according to the court. In its request for injunctive relief, LG argued that the jury’s finding of a violation of the DTPA created a presumption of irreparable harm, such that an injunction should follow, and that the four-factor injunction test was satisfied.

Injunctive relief is awarded upon a finding of a likelihood of harm by the conduct found to have violated the DTPA. However, LG did not have to prove harm to establish a violation of the DTPA, and the jury verdict did not establish that LG faced a likelihood of harm sufficient for an injunction.
The verdict was general and did not specify which practices it found to create a likelihood of confusion for consumers. Further, the jury did not find that Whirlpool’s practice were likely to damage LG.

Injunctive relief was inappropriate in this case because LG could not establish that it was likely to be damaged by Whirlpool’s marketing of its steam dryers, according to the court.

Use of Steam

Contrary to LG’s assertions, the Whirlpool steam dryer did, in fact, use steam. Thus, the advertising neither violated the DTPA nor was likely to harm LG in a manner cognizable under the CPA.

This finding was consistent with the jury verdict because the jury had found Whirlpool engaged in conduct that created a likelihood of confusion. Because Whirlpool’s advertising for its steam dryers did not violate the CPA or DTPA and was not likely to harm LG, injunctive relief was denied.

The May 9 decision in LG Electronics USA, Inc. v. Whirlpool Corp. appears at CCH State Unfair Trade Practices Law ¶32,254.

Further details regarding CCH State Unfair Trade Practices Law appear here.

Friday, May 20, 2011

Gasoline Station Franchisor’s Market Withdrawal Did Not Violate PMPA

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

A gasoline station franchisor did not violate the Petroleum Marketing Practices Act (PMPA) in connection with its withdrawal from the Puerto Rico market because its successor did not fail to comply with the PMPA’s requirement to offer franchises to the franchisees of the withdrawing franchisor in "good faith," according to the U.S. Court of Appeals in Boston.

No evidence suggested that the successor devised the franchise agreements it offered to the franchisees in the hope that they would be rejected. The federal district court ruling in favor of the franchisor (CCH Business Franchise Guide ¶14,248) was affirmed.

Unlawful Contract Provisions

Although the lower court found several provisions of the offered agreements to be unlawful under Puerto Rico law, the successor could easily have believed that the agreements would be accepted by franchisees, old and new, the appellate court observed.

The offered agreement was the successor’s standard model for renewing franchises for its own dealers, and it was buying out the original franchisor of the franchisees to expand its business.

Good Faith Requirement

The argument by the franchisees that any term violating a state law in any respect comprised a violation of the PMPA’s good faith requirement was rejected. Such a per se rule would put at risk a vast number of market withdrawals.

Moreover, the offered franchise agreements—comprising interrelated contracts spanning about 100 pages—included hundreds of clauses, of which the lower court invalidated only five in part, the court noted.

The decision is Santiago-Sepulveda v. Esso Standard Oil Co. (Puerto Rico), Inc., CCH Business Franchise Guide ¶14,604.

Further information about CCH Business Franchise Guide appears here.

Thursday, May 19, 2011

NCAA Has No Comment for Justice Department Probe of Football Championship Series

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

Earlier this month, U.S. Attorney General Eric Holder confirmed at a Senate Judiciary Committee oversight hearing that the Department of Justice was looking into college football's Bowl Championship Series (BCS) system. In response to questioning from Sen. Orrin Hatch (R-Utah) at the May 4 hearing, the attorney general disclosed that the Justice Department had sent a letter to the National Collegiate Athletic Association (NCAA) seeking feedback on the BCS system.

Yesterday, the NCAA released a letter from Mark Emmert, its president, to the Justice Department, stating that the association could not comment on the BCS. The May 18 letter suggested that questions about the BCS system and to what extent an alternative system could better serve the interests of fans, colleges, universities, and players would be best directed at the BCS and the group of institutions that operate the BCS system.

"Inasmuch as the BCS system does not fall under the purview of the NCAA, it is not appropriate for me to provide views on the system," Emmert said in the letter. The letter went on to say that the NCAA had no plans for an NCAA Football Bowl Subdivision (FBS) football championship, unless the association's membership "decides to discontinue the existing BCS systems and formally proposes creation of a championship for FBS institutions." While Emmert has in the past expressed a willingness to help create a championship, he noted that "without membership impetus for a postseason playoff, the NCAA has no mandate to create and conduct an FBS football championship."

The disclosure of the inquiry into BCS comes after years of calls for an investigation into the legality and fairness of the BCS from Sen. Hatch and other congressional lawmakers. Sen. Hatch has suggested that the BCS violates the Sherman Act. At the May 4 oversight hearing, the senator called the BCS "a mess."

The BCS is described as "a five-game showcase of college football . . . designed to ensure that the two top-rated teams in the country meet in the national championship game, and to create exciting and competitive matchups among eight other highly regarded teams in four other bowl games." Some argue, however, that has not always been the case and have called for a single elimination post-season playoff system.

Under the current BCS system, there are five bowl games are the Tostitos Fiesta Bowl, the Discover Orange Bowl, the Rose Bowl, the Allstate Sugar Bowl, and the BCS National Championship Game that is played at one of the bowl sites.

Tuesday, May 17, 2011

Justice Department Sues to Block Acquisition of Payment Terminal Seller

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

The Department of Justice Antitrust Division filed a civil antitrust lawsuit in Washington, D.C. on May 12 to block point-of-sale (POS) terminal seller VeriFone Systems Incorporated’s proposed $485 million acquisition of Hypercom Corporation, a competitor.

The Antitrust Division said that the proposed deal would substantially lessen competition in the sale of POS terminals in the United States, resulting in higher prices and reduced innovation, quality, product variety, and service.

POS terminals are used by retailers and other firms to accept electronic payments such as credit cards and debit cards. According to the government, VeriFone and Hypercom together control more than 60 percent of the domestic market for the POS terminals used by the largest retailers, and they are two of only three substantial sellers of other types of POS terminals.

Proposed Divestiture

A proposal by VeriFone and Hypercom to resolve the government’s antitrust concerns with the merger by divesting Hypercom’s U.S. business to Ingenico S.A. did not adequately lessen those concerns, the government said. Ingenico is the largest provider of POS terminals worldwide and the only other significant competitor to VeriFone and Hypercom in the United States, the government noted.

According to the Antitrust Division’s complaint, the planned spinoff would not improve the competitive landscape raised by the VeriFone/Hypercom transaction because the assets are to be sold to another significant competitor in the market in a manner that does not create a new, independent, long-term competitor.

In addition, the structure of the agreements between Ingenico and VeriFone, the only two significant POS sellers in the United States post-merger, enhances VeriFone and Ingenico’s ability to coordinate pricing for all POS terminals.

The complaint is U.S. v. VeriFone Systems Inc., Case: 1:11-cv-00887, May 12, 2010. Text of the complaint appears here. A press release on the action appears here.

Further details will appear at CCH Trade Regulation Reporter ¶45,111.

Monday, May 16, 2011

Constitutional Attack on False Patent Marking Enforcement Rejected

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

The qui tam enforcement provision of the false patent marking statute was constitutional, contrary to a pharmaceutical manufacturer's contention that it violated the Take Care Clause of the U.S. Constitution, the federal district court in Chicago has ruled.

The statute (1) made it unlawful to mark a product with, or use in advertising, a patent number in connection with products that are not patented and (2) authorized private, qui tam enforcement suits for awards of up to $500 for every violation.

Take Care Clause

The manufacturer argued that the false marking statute transferred law enforcement authority to private persons without retaining sufficient control for the Executive Branch to satisfy the provision of Article II of the U.S. Constitution that the President “shall take Care that the Laws be faithfully executed.”

The manufacturer relied on Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (ND Ohio 2011) CCH Advertising Law Guide ¶64,196, ¶64,242, which held the false marking qui tam enforcement provision unconstitutional.

Government Control

Contrary to the ruling in Unique Product Solutions, however, the direct-control test articulated by the U.S. Supreme Court in Morrison v. Olson, 487 U.S. 654 (1988) was not the deciding factor in a civil action for qui tam enforcement of the false marking statute, the court determined.

The fact that the false marking statute is a criminal statute did not make a qui tam suit a “criminal action” requiring direct government control. The better view of the false marking statute was that it is a criminal statute with a parallel civil enforcement mechanism, the court said.

The government maintained sufficient control because the statute requires the district court clerk to apprise the Director of the Patent and Trademark Office of a qui tam false marking action, and the government may request intervention in false marking cases, the court concluded.

Pending Legislation

The battle in the courts over the constitutionality of qui tam false marking enforcement would be mooted if The America Invents Act, Senate Bill 23, is enacted. The measure was passed by the Senate on March 8.

The legislation would strike the qui tam enforcement provision of the false patent marking statute (35 U.S.C. Sec. 292(b)) and replace it with a new Sec. 292(b) providing that “[a]ny person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.”

Sec. 2(k) of S. 23 also would provide that only the United States may sue for the statutory penalty of $500 per offense authorized by Sec. 292(a) of the false marking law.

The effective date provision of Sec. 2(k) of S. 23 would make the false marking amendments applicable “to all cases, without exception, pending on or after the date of the enactment of this Act.”

The April 28 opinion in Simonian v. Allergan, Inc. will appear at CCH Advertising Law Guide ¶64,274. Further legislative developments in the area of patent marking and other topics of advertising law will be reported in the Guide.

Further information about CCH Advertising Law Guide appears here.

Friday, May 13, 2011

Price Fixing Claims Against Transpacific Air Carriers Dismissed

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

Although a federal district court in San Francisco has determined that a conspiracy to fix the prices of transpacific air passenger travel was plausibly alleged, a motion to dismiss the Sherman Act claims based on the Foreign Trade Antitrust Improvements Act (FTAIA) was granted.

The action was brought on behalf of a class of individuals who purchased air transportation services from one or more of the 26 defending airlines that included at least one flight segment between the United States and Asia/Oceania.

The plaintiffs alleged that, beginning around January 2000, the airlines agreed, and began, to impose air passengers air fare increases, including fuel surcharge increases, that were in substantial lockstep both in their timing and amount. They sought to recover overcharges associated with flights originating in Asia.

Plausible Conspiracy

The plaintiffs specifically alleged that the defending airlines reached various agreements to coordinate pricing. They detailed certain communications between the airlines which supported an inference of conspiracy.

Among other things, the plaintiffs alleged that

(1) The defendants participated in various code-sharing agreements and professional alliances “reinforce and facilitate the conspiracy”;

(2) There was a “pattern of identical or virtually identical pricing by [D]efendants’ closest competitors on routes between the United States and Asia and Oceania”;

(3) The defending airlines charged “identical fuel surcharges for passenger traffic from Hong Kong, including to the United States”; and

(4) The U.S. Department of Justice, the European Commission, and other competition authorities were investigating price fixing of passenger and cargo fares.

Foreign Trade Antitrust Improvements Act

The court ruled that it lacked subject matter jurisdiction over the claims of foreign injury. The FTAIA limited a court’s subject matter jurisdiction over Sherman Act claims involving foreign commerce, according to the court. Under the FTAIA, the Sherman Act does not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless the conduct had a direct, substantial, and reasonably foreseeable effect on domestic commerce, and such effect gives rise to the plaintiff's claim.

The challenged conduct did not fall within the “import trade or commerce” or “domestic effects” exception to the FTAIA. The plaintiffs' price fixing claims (1) did not involve import commerce; and (2) did not have domestic effects that give rise to the complaining individuals’ foreign claims.

The term “import” generally denoted a product or service that had been brought into the United States from abroad. It was too great a leap to equate air passenger travel with the importing of people, or to characterize air passengers as a product or service.

Domestic Effect, Harm

Moreover, the complaining individuals' allegations of domestic effect and, indeed, their overall theory of harm, were insufficient, the court decided. While a direct effect on U.S. trade or commerce could be based on the fact that U.S. residents and citizens paid more for air passenger transportation as a result of the alleged conspiracy, the complaining individuals could not establish that the domestic effect actually caused the foreign injury.

The foreign injury was the result not of the domestic effect, but of the global price fixing conspiracy that caused the domestic effect. The domestic effects exception required proximate causation. The plaintiffs contended that “the prices for travel originating in foreign countries and travel originating in the U.S. are inextricably bound up with and dependent on each other”; however, “bound up” was not proximate causation.

The fact that the plaintiffs' foreign injuries were not caused by the domestic effect of the global conspiracy also prevented them from establishing standing. Their claims for foreign injuries were not the type of injury Congress intended to prevent through the Sherman Act, in the court's view.

The airlines, individually and jointly raised a number of other bases for dismissal. The court rejected assertions that the act of state doctrine, state action doctrine, and the implied preclusion doctrine barred the price fixing claims.

The May 9 decision, In Re Transpacific Passenger Air Transportation Antitrust Litigation, will appear at 2011-1 Trade Cases ¶77,446.

Tuesday, May 10, 2011

Novell Can Proceed with Antitrust Claim Against Microsoft

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

Novell, Inc. did not assign to a third party an antitrust claim based on alleged harm to office-productivity applications resulting from Microsoft Corporation’s alleged anticompetitive conduct, the U.S. Court of Appeals in Richmond, Virginia, has ruled.

The court reversed summary judgment in favor of Microsoft (2010-1 Trade Cases ¶76,983) on Novell’s claim that Microsoft “engage[d] in anticompetitive conduct to thwart the development of products that threatened to weaken the applications barrier to entry” to the operating systems market. Specifically, Novell contended that Microsoft’s conduct had damaged Novell’s WordPerfect word processing applications and its other office productivity applications in violation of Section 2 of the Sherman Act.

Statute of Limitations

Unlike other claims asserted by Novell, this count was not time-barred, because the statute of limitations was tolled during the pendency of the government’s case against Microsoft for antitrust violations in the operating systems market.

A 1996 Asset Purchase Agreement (APA), under which Novell sold its various DOS products to Caldera, Inc. and assigned the rights to any antitrust litigation related to those products, did not assign claims related to office-productivity applications, the court ruled.

The term “DOS Products” was defined in the APA to include Novell’s PC operating systems DR DOS and Novell DOS, among other products. The APA conveyed claims “associated” with an expressly enumerated body of property that did not include Novell’s office productivity applications. The mere existence of a possible conceptual link between the DOS products and those applications did not mean that the agreement divested Novell of the claim based on harm to related to office-productivity applications, the court explained.

Claim Preclusion

The court also rejected Microsoft’s res judicata defense. Nonmutual claim preclusion was generally disfavored, but Microsoft still argued that Novell’s assignment of some of its claims to the third part was sufficient to establish a substantive legal relationship between them that fell within exceptions to that principle.

Microsoft also contended that the claims arose out of the same basic core of operative facts. However, Caldera’s suit addressed a distinct set of harms from those addressed in the present dispute. While both suits implicated Microsoft’s desire to control the operating system market, overlapping motivation for separate harms was insufficient to render those harms identical for purposes of claim preclusion. Moreover, Caldera likely would not have served as an adequate representative of the complaining company’s interests. As a practical matter, only Novell had the incentive to recover for damages to its office productivity applications.


A dissent contended that because Novell’s claim was premised on Microsoft’s anticompetitive conduct in the operating systems market, the claim was “associated directly or indirectly with” DR DOS. According to the dissent, “the majority ignore[d] the plain, patently broad language in the APA, choosing instead to craft its own narrow reading of the phrase.”

The decision is Novell Inc. v. Microsoft Corp., 2011-1 Trade Cases ¶77,434.

Monday, May 09, 2011

U.S. Approves Unilever, Alberto-Culver Combination, with Divestitures

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

To resolve U.S. antitrust concerns over its proposed $3.7 billion acquisition of Alberto-Culver Co., Unilever N.V. has agreed to divestures intended to preserve competition for value shampoo, value conditioner, and hairspray sold in retail stores.

The Department of Justice Antitrust Division filed a civil antitrust lawsuit on May 6 in the federal district court in Washington, D.C. to block the proposed transaction between three Unilever entities—Unilever N.V., Unilever PLC, and Conopco, Inc.—and Alberto-Culver.

At the same time, the government filed a proposed consent decree that, if approved by the court, would resolve the competitive concerns alleged in the lawsuit. The acquisition was expected to close on May 10.

Lessening of Competition

The government alleged that the transaction, as originally proposed, would have substantially lessened competition in three product markets—value shampoo, value conditioner, and hairspray sold in retail stores. According to the government’s complaint, the proposed acquisition would have eliminated substantial head-to-head competition between Unilever’s Suave Naturals and Alberto-Culver’s Alberto VO5 brands and would have given Unilever a near monopoly in the sale of value shampoo and conditioner in the United States with shares of approximately 90 percent in these two markets.

In addition, the proposed acquisition would have eliminated substantial head-to-head competition between Unilever and Alberto-Culver in the United States for hairspray sold in retail stores. The transaction would have made Unilever the largest seller of hairspray in the United States by increasing its market share from approximately 24 percent to over 45 percent, the complaint alleged.

The proposed acquisition would have enabled the combined firm to unilaterally raise the prices of shampoo, conditioner, and hairspray products above the per-merger price level.


Under the proposed consent decree, the companies would be required to divest Alberto-Culver’s Alberto VO5 brand and Unilever’s Rave brand, as well as associated assets. The Alberto VO5 brand consists of value shampoo and conditioner, hairspray, mousse, and other hair styling products. The Rave brand consists of hairspray and mousse products, according to the Justice Department.

International Cooperation

The Antitrust Division said that during its investigation it cooperated with the United Kingdom Office of Fair Trading, the Federal Competition Commission in Mexico, and South Africa’s Competition Commission. Both Unilever and Alberto-Culver provided waivers, in a timely way, to facilitate the effective international cooperation in this case, the Justice Department said.

The U.K. Office of Fair Trading announced on March 18 that Unilever had agreed to divest the bar soaps business of Alberto Culver—which includes the Cidal, Wright’s, and Simple brands—to resolve competition concerns that the acquisition would result in a substantial decrease in competition in the category of bar soaps.

Friday, May 06, 2011

Data Security Breach Supported Contract, Negligence Claims

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

An individual could have sustained an injury in fact from the failure of a publisher and developer of online services and applications for use with social networking sites (“RockYou”) to secure and safeguard its users' sensitive personally identifiable information (PII), sufficient to support contract and negligence claims brought under California common law, on behalf of himself and a purported class of similarly situated persons, according to the federal district court in Oakland.

The individual failed, however, to allege actionable injuries in support of his claims that RockYou violated the California Unfair Competition Law, Computer Crimes Law, and Consumer Legal Remedies Act. The statutory claims were dismissed with prejudice.

Collection, Storage of Personal Information

The individual—a registered user who had given RockYou his e-mail address and password in order to sign up to use a photo sharing application—asserted that RockYou collected and stored millions of users' PII in a large-scale commercial database, in “clear” or “plain” text, with no form of encryption, so that the PII was readily accessible to anyone with access to the database.

RockYou allegedly was negligent by failing to store passwords in a “hashed” form or to use any other common and reasonable method of data protection.

In December 2009, RockYou disclosed to users that one or more hackers had illegally breached its database and acknowledged that, at the time of the breach, the hacked database had not been up to date with industry-standard security protocols.

Contract and Negligence Claims

With regard to the contract and negligence claims, the individual sufficiently alleged a general basis for the requisite injury or harm by alleging that the breach of his PII caused him to lose some ascertainable but unidentified value or property right inherent in the PII, the court said.

The claims were not automatically precluded by a provision of RockYou's privacy policy, which stated that RockYou assumed no liability for third-party breaches of its secure servers. The individual asserted that RockYou's servers were not, in fact, secure.

The individual's allegations did not, however, rise to the level of stating a breach of the implied covenant of good faith and fair dealing, the court decided. The alleged misconduct did not involve conscious or deliberate actions by RockYou.

Unfair Competition Law

Although the breach of his PII could constitute a general form of “harm,” the individual failed to allege any loss of money or property as a result of RockYou's conduct, as required for a claim under the California Unfair Competition Law, the court determined.

The individual's contention that his PII constituted “currency” strained the acceptable boundaries of injury under the Act. To the extent that the individual claimed that his PII was “property,” he could not establish that his PII was “lost,” for purposes of the Act. His e-mail login and password did not cease to belong to him or pass beyond his control.

Computer Crimes Law

RockYou’s alleged failure to secure and safeguard its users' sensitive personally identifiable information (PII) would not violate California’s Computer Crimes law, in the court’s view. The statute prohibited any person from knowingly and without permission accessing or providing a means for another to access a computer system or network.

RockYou was not a proper defendant under this provision, the court said. RockYou's alleged failure to utilize reasonable data security methods did not constitute “providing a means” for third-party hackers to illegally access RockYou's database.

Consumer Legal Remedies Act

The individual failed to allege that he was a “consumer” within the meaning of the California Consumer Legal Remedies Act. He did not “purchase or lease” any goods or services from RockYou, as required for CLRA standing. There was no authority supporting the individual's contention that the CLRA covered intangible forms of payment, such as the individual's PII, the court said.

The decision is Claridge v. RockYou. Inc., CCH Privacy Law in Marketing ¶60,620.

Thursday, May 05, 2011

Web Users Fail to Allege Injury in Fact from Installation of “Flash Cookies”

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

A purported class of web users bringing claims against online third-party advertising network Specific Media for installing “Flash cookies” on their computers without their knowledge or consent failed to allege an “injury in fact” resulting from Specific Media’s conduct, the federal district court in Los Angeles has ruled.

The users brought claims under the federal Computer Fraud and Abuse Act and California’s Computer Crimes law, invasion of privacy statute, Unfair Competition Law, and Consumer Legal Remedies Act.

The term “Flash cookies” refers to data called “local shared objects,” which are stored on a user’s computer and used by Adobe Flash Player media software. Such data files allegedly circumvent the privacy and security controls of users who had set their web browsers to block or to periodically delete conventional cookie files.

Economic Loss?

The complaining users asserted that Specific Media’s placement of Flash cookies on their computers caused them to sustain economic loss, in that their personal information had “discernible value.”

However, the users did not allege that Specific Media actually tracked their online activity, the court said. They asserted only that they believed the Flash cookies could be used as substitutes for previously deleted standard cookies and to “re-spawn” previously deleted cookies. Therefore, the users did not allege that they were specifically injured by Specific Media’s practices.

Even if they could allege that they were affected by Specific Media’s installation of Flash cookies, the users made only conclusory allegations of harm, according to the court. The argument that Specific Media’s practices caused the users to sustain damage to the economic value of their personal information was potentially valid in the abstract. However, the users would have to provide particularized details of the harm suffered.

For example, the users would have to explain how Specific Media’s conduct deprived them of the opportunity to engage in a “value-for-value exchange” for their information and how that deprivation caused the economic value of the information to be diminished.

Harm to Computers

To the extent that the users alleged that the Flash cookies caused harm to their computers, such harm would be de minimis and insufficient to confer Article III standing, the court said.

The court also expressed skepticism that the users could allege an injury involving the requisite $5,000 minimum in economic damages to support a Computer Fraud and Abuse Act claim, even in the aggregate.

Specific Media’s motion to dismiss the complaint was granted, with leave to amend.

The April 28 decision in La Court v. Specific Media Inc. will appear in CCH Privacy Law in Marketing.

Wednesday, May 04, 2011

Interagency Group Proposes Principles for Marketing Food to Children

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

In an effort to combat childhood obesity, a working group of four federal agencies on April 28 released for public comment a set of proposed voluntary principles that can be used by industry as a guide for marketing food to children. The text of the interagency proposal and a related FTC statement appear at CCH Trade Regulation Reporter ¶50,266.

Congress directed the Federal Trade Commission—together with the Food and Drug Administration, the Centers for Disease Control and Prevention, and the U.S. Department of Agriculture—to establish an Interagency Working Group of federal nutrition, health, and marketing experts.

Congress tasked the Working Group with developing a set of principles to guide industry efforts to improve the nutritional profile of foods marketed directly to children ages 2-17 and to tap into the power of advertising and marketing to support healthful food choices.

The proposal is designed to encourage children, through advertising and marketing, to choose foods that:
 Make a meaningful contribution to a healthful diet; and

 Contain limited amounts of nutrients that have a negative impact on health or weight (saturated fat, trans fat, added sugars, and sodium).

Template for Uniform Principles

The proposal seeks to advance current voluntary industry efforts by providing a template for uniform principles that could dramatically improve the nutritional quality of the foods most heavily marketed to children—and the health status of the next generation.

The agencies recognize that the goals for industry are ambitious, and that adopting the principles will require phased implementation over a reasonable time. Indeed, marketing that shifts from focusing on foods of little or no nutritional value—like cookies, candy and sugar-sweetened soda—to foods that are more healthy—like whole grain cereals, low-fat yogurt, and peanut butter—can have a significant impact on public health.

The agencies believe the proposed principles can help guide the food industry in determining which foods would be appropriate and desirable to market to children to encourage a healthful diet—and which foods the industry should voluntarily refrain from marketing to children.

According to the proposal, by the year 2016, all food products within the categories most heavily marketed directly to children and adolescents ages 2-17 should meet two basic nutrition principles. As industry develops new products and reformulates existing products, it should focus its efforts on foods most heavily marketed to children. These include breakfast cereals; snack foods; candy; dairy products; baked goods; carbonated beverages; fruit juice and non-carbonated beverages; prepared foods and meals; frozen and chilled deserts; and restaurant foods.

Principle A: Meaningful Contribution to a Healthful Diet

Foods marketed to children should provide a meaningful contribution to a healthful diet, with contributions from at least one of the following food groups:
 Fruit

 Vegetables

 Whole grain

 Fat-free or low-fat (1%) milk products

 Fish

 Extra lean meat or poultry

 Eggs

 Nuts and seeds

 Beans

Principle B: Nutrients with Negative Impact on Health or Weight

Foods marketed to children should be formulated to minimize the content of nutrients that could have a negative impact on health or weight. With the exception of nutrients naturally occurring in food contributions under Principle A (for example, the saturated fat and sodium naturally occurring in low-fat milk would not be counted), foods marketed to children should not contain more than the following amounts of saturated fat, trans fat, sugar, and sodium.

 Saturated Fat: 1 g or less per Reference Amount Customarily Consumed (RACC) and 15% or less of calories

 Trans Fat: 0 g per RACC

 Added Sugars: No more than 13 g of added sugars per RACC

 Sodium: No more than 210 mg per serving

The summarized goals are for individual foods. The RACC, established by federal regulation, is not necessarily the same as the labeled serving size. The proposal includes additional recommendations for foods with a small serving size and for main dishes and meals. The proposal also calls for additional reductions in sodium by the year 2021.

FTC Statement

In an April 28 statement, the FTC expressed its belief that "voluntary industry adoption of the Working Group’s proposal will produce tangible benefits by shifting children’s food marketing away from foods of little or no nutritional value toward more healthful foods." The FTC "also believes that the voluntary approach continues to be preferable to government-imposed restrictions on food marketing to children."

FTC Chairman's Remarks

“To their credit, some of the leading companies are already reformulating products and rethinking marketing strategies to promote healthier foods to kids,” said FTC Chairman Jon Leibowitz. “But we all have more work to do before we can tip the scales to a healthier generation of children. This proposal encourages all food marketers to expand voluntary efforts to reduce kids’ waistlines.”

Request for Comments

Interested parties may submit comments electronically or in paper form through June 13, 2011. Comments filed in electronic form should be submitted here.

Comments filed in paper form should include the appropriate reference—either “Interagency Working Group on Food Marketed to Children: Proposed Nutrition Principles: FTC Project No. P094513,” or “Interagency Working Group on Food Marketed to Children: General Comments and Proposed Marketing Definitions: FTC Project No. P094513” both in the text and on the envelope.

Submissions should be mailed or delivered to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex W), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

Tuesday, May 03, 2011

Appellate Court Temporarily Stays Order Lifting NFL Lockout

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

The U.S. Court of Appeals in St. Louis has granted the National Football League and its 32 separately-owned teams a temporary administrative stay of a federal court order preliminarily enjoining a league “lockout” of current and prospective players.

The ruling, handed down by a divided court on April 29, was not a determination on the merits of the league’s motion to stay the April 25 decision lifting the lockout (2011-1 Trade Cases ¶77,427), but is intended to give the appellate court sufficient opportunity to consider the merits of that motion.

The federal district court in St. Paul had refused to grant the motion because a stay would reimpose on the players the irreparable harm that the court found the NFL lockout to be likely inflicting on them and because the balance of equities tilted indisputably in favor of the players’ interests (2011-1 Trade Cases ¶77,428).

A dissenting opinion by Judge Bye argued that the matter did not constitute the type of “emergency situation” for which such temporary stays had been procedurally created. True emergency situations—imminent deportation or execution, for example—were marked by the impossibility or near impossibility of reversing the
consequences of allowing a district court order to take effect.

In this instance, was little practical need for granting an emergency temporary stay, according to the dissent. Based on the materials presented in the case so far, the NFL had not even shown that it would suffer any irreparable harm from allowing the district court’s order to take effect.

The April 29 Eighth Circuit decision is Brady v. National Football League.

Monday, May 02, 2011

Franchisee’s Contract Breaches Caused Franchisor Future Damages

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

A motor vehicle repair shop franchisee’s breach of its four agreements with a franchisor—not the subsequent termination of those agreements by the franchisor—proximately caused the franchisor’s lost profits damages under North Carolina law, the U.S. Court of Appeals in Richmond, Virginia, has decided in a not-for-publication opinion.

A federal district court erred by concluding that the franchisor’s termination of the four agreements caused the franchisor’s lost profits.
The lower court’s ruling (CCH Business Franchise Guide ¶14,212) was reversed in part. In addition to the issue of proximate cause, the appellate court determined that the district court erred in several respects in assessing the franchisor’s entitlement to damages.

The dispute began when the franchisee closed each of its four shops well before the end of their contractual 15-year terms. The franchisor responded by sending termination letters to the franchisee and filing suit. The district court granted the franchisee partial summary judgment as to the franchisor’s claim for future damages for any prospective royalties and advertising fund contributions for periods after termination of the franchise agreements.

The issue on appeal was that portion of the district court ruling granting judgment to the franchisee on the franchisor’s claim for future damages.

Proximate Cause

The district court cited no legal authority directly supporting its conclusion about the cause of the franchisor’s damages, and the federal appellate court found none, noting that most of the relevant discourse appeared in various federal district court and state court opinions.

The proper approach to the issue was a straightforward application of the relevant North Carolina law concerning damages recoverable following a breach of contract, according to the appellate court. North Carolina law permitted a non-breaching party to recover damages that were the proximate consequence of a breach of contract and dictated that all damages must flow directly and naturally from the wrong.

The franchisee’s breach of the agreements was so comprehensive as to constitute a de facto abandonment of the agreements, resulting in the franchisor’s loss of royalties and advertising fund revenue that it was entitled to receive under the agreements.

The franchisor’s subsequent decision to terminate the agreements had certain legal consequences, but it did not cause the franchisee to stop operating its shops and generating revenues. Those events had already occurred, the court observed.

Lack of Contractual Authorization

In the absence of an express contractual provision barring future damages, the franchise agreements did not prohibit the recovery of those damages if they were otherwise recoverable under North Carolina law, the court determined. To the extent that the district court required the agreements to specifically provide for prospective damages as a mandatory condition precedent to preserve a non-breaching party’s right to recover such damages, it erred.

Although the agreements established that the franchisee was required to make payments of royalties and advertising fund contributions under the agreements, the contracts made no provision for the franchisor to recover amounts from the franchisee subsequent to the termination of the agreements. However, nothing in the agreements precluded future damages either. No principle of North Carolina contract law suggested that a contract must specifically provide for recovery of future damages in order to preserve a party’s right to recover them.

Calculation Method

The methodology employed by the franchisor to calculate its amount of future damages and the time period for which they were collectible was not unreasonably speculative, hypothetical or the result of conjecture, the appellate court ruled. The district court held that the franchisor's "generic calculation for lost profits" did not assess the specific profitability of each shop and therefore failed to measure the asserted lost profits with reasonable certainty. However, the calculations were not speculative simply because the franchisor used the same formula to calculate lost future royalties for each of the four shops, the court reasoned.

The franchisor used data specific to each shop to calculate the damages it sought from the closure of that shop. By using the shops’ actual past performance to calculate projected future royalties and advertising fund contributions, the analysis was not the sort North Carolina courts rejected as being too remote.

The decision is Meineke Car Care Centers, Inc. v. RLB Holdings, LLC, CCH Business Franchise Guide ¶14,586.