Wednesday, August 31, 2011

Department of Justice Seeks to Block AT&T’s Acquisition of T-Mobile

This posting was written by John W. Arden.

The U.S. Department of Justice filed a civil antitrust lawsuit today to block AT&T’s proposed $39 billion acquisition of T-Mobile USA Inc. from Deutsche Telekom AG.

The deal would combine the second and fourth largest providers of mobile wireless service, substantially lessen competition for wireless telecommunications services across the U.S., and result in higher prices, poorer quality of services, fewer choices, and less innovation for millions of American consumers, according to the Department of Justice news release.

Currently, four nationwide providers of mobile wireless services—Verizon, AT&T, Sprint, and T-Mobile—account for more than 90 percent of the national market. T-Mobile has historically challenged the top three competitors by providing value, innovation, and aggressive pricing, the Justice Department said.

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Attorney General in charge of the Department of Justice Antitrust Division. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”

The complaint, filed in the federal district court in Washington, D.C., alleges that “AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market” and “substantially reduce competition.”

The relevant product market was alleged as mobile wireless telecommunications services and, alternatively, mobile wireless telecommunications services provided to enterprise and government customers. The relevant geographic market was defined as local areas approximating cellular market areas (CMAs) identified by the Federal Communications Commission to license providers for certain spectrum bands. According to the Justice Department, AT&T and T-Mobile compete in approximately 97 of the nation’s top 100 CMAs. Each of these 97 CMAs was alleged to constitute a relevant geographic market.

The case is U.S. v. AT&T Corp., T-Mobile USA, Inc., and Deutsche Telekom AG, 1:11-cv-01560.

In a statement released today, AT&T expressed surprise at the filing of the lawsuit and declared an intention to ask for an expedited hearing, “so the enormous benefits of this merger can be fully reviewed.” The company plans to “vigorously contest this matter in court.”

Further analysis of this development (“AT&T’s Planned Acquisition of T-Mobile Challenged by Justice Department” by Jeffrey May) appears here on the AntitrustConnect blog.

Tuesday, August 30, 2011

Certification of Cable TV Subscriber Class in Antitrust Action Was Proper

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

Certification of a class of approximately two million non-basic cable television programming services customers in the Philadelphia area—alleging that cable provider Comcast engaged in unlawful monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements—was a proper exercise of discretion, the U.S. Court of Appeals in Philadelphia has ruled.

The trial court satisfied the "rigorous analysis" standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3). Certification (2010-1 Trade Cases ¶76,869) was therefore affirmed.

The trial court’s finding that the plaintiffs established by a preponderance of evidence that they would be able to prove, through common evidence, not only class-wide antitrust impact in the form of higher costs for programming but also a common methodology to quantify damages on a class-wide basis was not clearly erroneous, the appellate court decided.

In granting certification, the lower court had limited the class’s theories of class-wide impact to the theory that Comcast’s clustering conduct through the swaps and acquisitions had deterred competition from overbuilders in the Philadelphia market.

Relevant Geographic Market, Antitrust Impact

Arguments that the trial court had failed to apply the correct legal standard for determining the relevant geographic market and had made clearly erroneous factual findings by relying on the plaintiffs' expert for proof of class-wide antitrust impact were rejected by the appellate court.

Comcast’s contention that the relevant geographic market was each complaining individual’s household would have set a market so small as to be impractical and inefficient, whereas the class’s market definition capturing the whole of the Philadelphia area was based on record evidence showing that customers throughout the aggregated area faced similar competitive choices.

Moreover, the trial court had carefully considered the plaintiffs’ theories of class-wide impact before concluding that the class met its burden of demonstrating that the anticompetitive effect of clustering on overbuilder competition was capable of proof through evidence common to the class.

The econometric analysis of the plaintiffs’ damages expert demonstrating that the alleged antitrust impact was class-wide and utilizing a “but-for” pricing model to reach a final conservative estimated overcharge value was sufficiently sound, the appellate court also concluded. The damages model provided a methodology that could establish damages on a class-wide basis using common proof.

Attacks by the cable provider on the merits of the model were premature and missed the point, the court said. Some variation of damages among class members did not defeat certification, the court noted.

Finally, the trial court did not lack any legal authority to certify a per se claim based on the class’s allegations, the appellate court held. Comcast’s request to have the appellate court declare on the merits that the plaintiffs could not establish a per se antitrust violation was beyond the scope of the certification decision from which it appealed, the court explained.

Partial Dissent

A separate opinion partially dissenting from the majority’s conclusion argued that damages could not be proven using evidence common to the entire class. According to the partial dissent, the damages expert’s testimony was incapable of identifying any damages caused by reduced overbuilding in the Philadelphia area—the plaintiffs’ only viable theory of antitrust impact—and thus did not fit the case. Therefore, it was irrelevant and should be deemed inadmissible at trial, leaving the class with no evidence of class-wide proof of damages.

Because of this, the partial dissent stated, the certification order should have been vacated to the extent that it provided for a single class as to proof of damages and remanded to the lower court to consider whether the class could be divided into subclasses for the purpose of proving damages.

The decision in Behrend v. Comcast Corp. will be reported at 2011-2 Trade Cases ¶77,575.

Monday, August 29, 2011

Drug Wholesaler Must Defend RICO Claims of Conspiracy to Artificially Inflate Prices

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

The State of Utah could pursue civil RICO claims against a prescription drug wholesaler that allegedly conspired to artificially inflate the average wholesale price (AWP) of hundreds of prescription drugs, the federal district court in San Francisco has ruled.

The wholesaler allegedly conspired with a publisher of AWPs to raise the wholesale markup on over 400 brand-name drugs from 20 percent above the wholesale acquisition cost (WAC) to 25 percent above the WAC.

Pattern of Racketeering

The wholesaler’s argument that the RICO claim was deficient—because it involved a single scheme, with a single purpose, based on a single core falsehood—was rejected. Utah successfully argued that a multi-year pattern of racketeering was present because the wholesaler had engaged in a separate but related predicate act each time it increased, under false pretenses, the markup on a prescription drug.

The fact that the alleged activities could be described as having a single overarching goal, and as being fraudulent for a single overarching reason, did not warrant the dismissal of the State’s claims.


Utah sufficiently alleged that the wholesaler’s conspiracy to inflate the AWP of more than four hundred brand-name drugs had proximately caused an injury to the State’s Medicaid program.

The complaint included assertions that:

(1) The reimbursement rates for prescription drugs covered under Utah’s Medicaid program were directly tied to the drugs’ AWPs;

(2) The wholesaler had committed fraud in order to increase those reimbursement rates;

(3) The wholesaler’s fraudulent activity actually caused the AWPs (and thus the reimbursement rates) to increase; and

(4) Based on the wholesaler’s fraud, the State of Utah continued to tie its prescription drug reimbursement rates to the AWP of each drug.

The wholesaler argued that Utah’s allegations of proximate cause were deficient because the State failed to proffer an alternate course of conduct that it would have taken had it known the true reason for the cost increases. The State was not, however, required to allege what measures it would have taken had the wholesaler disclosed the true basis for its “unilateral” actions.

Utah alleged that the wholesaler’s fraud, rather than any other factor, had caused its reimbursement rates to increase, and that was sufficient.
The decision is State of Utah v. McKesson Corp., CCH RICO Business Disputes Guide ¶12,088.

Further information about CCH RICO Business Disputes Guide appears here.

Friday, August 26, 2011

FTC Increases Fees for Telemarketers Accessing Do Not Call Registry

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

The fees charged to telemarketers and other entities accessing the National Do Not Call Registry will increase October 1, the Federal Trade Commission (FTC) announced today. The maximum fee for obtaining access will increase from $15,058 to $15,503. The fee for accessing an additional area code above the first five will increase by one dollar to $56. There is no charge for accessing the first five area codes of data.

First Increase Since 2009

This is the first fee increase since October 2009. Because the consumer price index (CPI) increased by less than one percent for the 12-month period since the last adjustment, no fee change was required last year. The increase is authorized by the Do-Not-Call Registry Fee Extension Act of 2007.

In addition to allowing the FTC to continue to maintain and operate the do-not-call program, the 2007 law eliminated the automatic removal of telephone numbers from the do-not-call registry. As a result, consumers are not required to re-register their numbers. When the FTC established the registry in 2003, consumers were permitted to list their phone numbers for a five-year period.


While most businesses that engage in telemarketing must comply with the FTC’s Telemarketing Sales Rule and pay the fees, there are three types of entities that are outside of the jurisdiction of the FTC and need not comply with the FTC rule. The three types of entities that are not subject to the FTC’s jurisdiction and not covered by the rule are:

• banks, federal credit unions, and federal savings and loans.
• common carriers — such as long-distance telephone companies and airlines — when they are engaging in common carrier activity.
• non-profit organizations — those entities that are not organized to carry on business for their own, or their members’, profit.

It is important to note, however, that any other individual or company that contracts with one of these three types of entities to provide telemarketing services must comply with the FTC rule.

The amendments to the FTC’s Telemarketing Sales Rule (16 CFR Part 310), increasing the fees, will be published in the August 29 Federal Register. A notice regarding the amendments appears on the FTC website here.

Thursday, August 25, 2011

Online Ticket Buyers Get Another Try at Class Certification in “Rewards” Cases

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

Class certification was improperly denied in cases brought by online ticket purchasers asserting California consumer protection law claims that Ticketmaster participated in a deceptive Internet scheme to lull and induce ticket purchasers into unwittingly signing up for a fee-based “rewards” program, the U.S. Court of Appeals in San Francisco has ruled.

The operator of the Entertainment Rewards program, Entertainment Publications LLC, allegedly charged amounts to the ticket purchasers’ credit cards or directly deducted amounts from their bank accounts, all without specific authorization. Members of the program can download printable coupons for discounts at retail establishments.

Unfair Competition Law

Class certification was improperly denied on the theory that individualized proof of reliance and causation would be required to establish California Unfair Competition Law (UCL) claims, the court held. Relief under the UCL was available without individualized proof of deception, reliance, and injury, according to the court.

Each member of the proposed class would have suffered a concrete and particularized injury by being relieved of money in the alleged transactions, and the alleged loss was traceable to the actions of the defendants, the court determined. The denial of class certification as to the UCL claims was reversed and remanded. A ruling that two individuals who were not deceived into joining the rewards program could not act as class representatives was affirmed.

Consumers Legal Remedies Act

California Consumers Legal Remedies Act (CLRA) claims were improperly dismissed because the statutory 30-day notice provided by ticket purchasers setting forth the nature of the dispute and intent to seek damages did not expressly state that class action relief would be sought. The statute did not state that the threat of class action must be set forth, according to the court.

Dismissal of the CLRA claims was affirmed in two of the actions on appeal in which the proposed class of ticket purchasers was so broadly defined that material misrepresentations to the whole class could not be shown.

The August 22 opinion in Stearns v. Ticketmaster Corp. appears at CCH Advertising Law Guide ¶64,386.

Wednesday, August 24, 2011

New York City’s Antitrust Challenge to Health Insurance Merger Fails

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

An action brought by the City of New York, seeking to block the merger of health insurance providers, was properly dismissed for failure to define a legally sufficient product market, the U.S. Court of Appeals in New York City has ruled.

Summary judgment in favor of the merging parties—Group Health Incorporated (GHI) and HIP Foundation, Inc. and Health Insurance Plan of Greater New York (HIP) (2010-1 Trade Cases ¶77,053)—was affirmed.

In September 2005, GHI and HIP announced their intent to merge. The U.S. Department of Justice and the New York State Attorney General investigated the antitrust implications of the proposed merger and decided not to challenge it.

In November 2006, the city filed an action under federal and New York State antitrust laws to block the transaction. The city alleged that because plans by GHI and HIP covered a vast majority of city employees, the merger would substantially reduce competition and would result in a monopoly. Moreover, the transaction would allegedly result in an increase in the premiums that the city was required to pay.

Relevant Market

The city’s complaint defined the relevant market as the "low-cost municipal health benefits market." The market included only those insurance plans that were inexpensive and that the city selected for inclusion in its health benefits program.

The city’s proposed market definition was legally insufficient, according to the appellate court, because it was defined by the city’s preferences, not according to the rule of reasonable interchangeability and cross-elasticity of demand.

The city ignored the competition existing among insurance providers for the city’s business, as well as the health insurance market for other large employers in the region. The city did not allege any factor that would prevent insurance companies other than those it selects for the health benefits program from proposing competitive products were the merged firm to raise its premiums to supracompetitive prices.

Despite the city’s argument that the insurance plans it approves constitute a unique market because they reflect its "sound policy choices," it was held that a single purchaser's preferences could not define a market.

Motion to Amend Complaint

The appellate court also ruled that it was not an abuse of discretion for the district court to deny the city’s motion for leave to amend its complaint to add alternative market definitions. The city’s January 2010 motion exhibited undue delay, in the court’s view. Moreover, the proposed amendment would have prejudiced the merging parties by requiring additional discovery on a broader market.

The city sought to add two additional market definitions:

(1) All insurance plans the city selected for inclusion in its health benefits program, not only the inexpensive plans; and

(2) The market for all commercial medical benefits in downstate New York.
The city waited more than three years to seek the amendment and that was only after being confronted with a motion for summary judgment challenging its market definition, the court noted. Although the city’s delay in seeking amendment might not have been evidence of bad faith, it was not an abuse of discretion for the district court to find that the delay, together with the prejudice that would result from the amendment, warranted denial of the city’s motion to amend.

“Upward Pricing Pressure Test”

The appellate court also upheld the lower court’s decision not to permit the city to add the "Upward Pricing Pressure Test." According to the appellate court, “the applicable case law requires plaintiffs asserting a claim under the Sherman Act, the Clayton Act, or the Donnelly Act to allege a market in which the challenged merger will impair competition.”

The city failed to explain how the "Upward Pricing Pressure Test" could substitute for a definition of the relevant market in the pleadings.

The decision is City of New York v. Group Health Incorporated, 2011-2 Trade Cases ¶77,569.

Tuesday, August 23, 2011

Product Market Rejected in FTC Merger-to-Monopoly Case

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

The U.S. Court of Appeals in St. Louis has upheld dismissal of an action brought by the FTC and the State of Minnesota against global pharmaceutical company Lundbeck, Inc., challenging a 2006 acquisition. Judgment in favor of the drug company (2010-2 Trade Cases ¶77,160), based on the government’s failure to identify a valid relevant product market, was affirmed.

In December 2008, the FTC and Minnesota filed a complaint against Ovation Pharmaceuticals, Inc., which was later acquired by Lundbeck. The suit challenged the company’s 2006 acquisition of the rights to market NeoProfen (injectable ibuprofen)—a drug used to treat premature infants with a heart condition known as patent ductus arteriosus (PDA)—as a merger to monopoly.

The transaction purportedly resulted in a single firm’s control of the “practicable alternatives” for the treatment of PDA. According to the government, the drug company began charging “dramatically higher prices” for its PDA drugs following the acquisition.

The district court determined that the FTC and state failed to identify a relevant market. It concluded that the government did not meet its burden to prove that NeoProfen was in the same product market with the acquiring company’s drug Indocin IV.

In its fact-findings, the district court concluded that neonatologists “ultimately determine the demand for Indocin IV and Neoprofen,” and that these treatment decisions were made “without regard to price.” Thus, an increase in the price of Indocin IV would not have driven a hospital to purchase NeoProfen, and vice versa.

Considering these facts, as well as testimony by Lundbeck's expert whom the court found “persuasive,” the district court ruled that there was low cross-elasticity of demand between Indocin IV and Neoprofen, and thus the drugs were not in the same product market.

Although the government contended that the district court relied too much on the testimony of the neonatologists and that hospitals—not the neonatologists—were the consumers, it offered no evidence that hospitals would disregard the preferences of the neonatologists and make purchasing decisions based on price, according to the appellate court.

Standard of Review

The appellate court rejected the government’s argument that the district court’s judgment should be reviewed de novo. The government was really challenging the district court’s weighing of the relevant market factors, in the appellate court’s view. Thus, the determination was reviewed for clear error. The district court did not commit clear error in rejecting the proposed relevant market, the appellate court ruled.

The August 19 decision in Federal Trade Commission v. Lundbeck appears at 2011-2 Trade Cases ¶77,570.

A commentary on the decision (“FTC v. Lundbeck: Why, God, Why?” by Christopher Sagers) appears here on AntitrustConnect blog.

Monday, August 22, 2011

Franchisor Was Not “Employer” of Unit Franchisee of Its Master Franchisee

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

A franchisor of regional janitorial business master franchisees was not the "employer" of a unit franchisee of one of the master franchisees under the meaning of the Massachusetts Independent Contractor Statute (MICS), a Georgia appellate court has decided.

Reversed was a ruling by a Georgia trial court, granting summary judgment to the franchisee on his claim that he was the employee of the franchisor.

Independent Contractor Statute

Under the statute (M.G. L. c 149, s.148B), an individual performing a service was considered an employee unless:

"(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(2) the service is performed outside the usual course of the business of the employer; and

(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed."
Control by Franchisor

The franchisee was sufficiently free from control by the parent franchisor as to satisfy the first prong of the MICS analysis, the court held.

The franchisee performed work pursuant to a contract with the regional master franchisee, which was a separate entity from the franchisor, created by persons unaffiliated with the franchisor. The master franchisee made its own hiring and firing decisions without control by the franchisor.

Although the franchisor had the ability to enforce that contract to protect the franchise brand, its status as a third-party did not make it a party to that agreement in the sense of having control over the franchisee’s work.

Service Outside Usual Course of Business

The second prong was satisfied because the service provided by the franchisee was not in the same scope of business conducted by the parent franchisor.

The parent franchisor’s usual business was establishing a trademark and cleaning system that was then licensed to regional franchisors. The franchisee argued that language on the parent franchisor’s website demanded a finding that the parent’s usual business was providing cleaning services. However, such labels did not overcome the facts that the parent did not market cleaning services and did not invoice or collect payment for cleaning services, the court reasoned.

Independent Businesses

The third prong was satisfied because the nature of the three-layer franchise arrangement necessarily meant that the franchisor and the unit franchisee were engaged in operating independent businesses, the court determined. The franchisor did not limit or control the scope of the franchisee’s services or the continuation of his business.

The decision, Jan-Pro Franchising Int’l, Inc. v. Depianti, appears at CCH Business Franchise Guide ¶14,643.

Friday, August 19, 2011

Class Certified in False Labeling Action Against Sunscreen Manufacturer

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

A trial court erred by refusing to certify a sunscreen purchaser’s California Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) claims against a sunscreen manufacturer for false labeling, according to a California appellate court.

The purchaser sought to certify a class of all California residents who purchased sunscreen from the manufacturer in the class period based on alleged misrepresentations of the sunscreen’s UVA protection and waterproof properties.

Specifically, the purchasers claimed:

(1) The sunscreen was labeled as “UVA/UVB sunblock” but provided insignificant protection from the sun’s UVA rays;

(2) The sunscreen claimed to be waterproof but was not impenetrable to or unaffected by water; and

(3) The sunscreen was not “ultra sweatproof” as labeled.

The trial court found that the class was ascertainable and the purchaser’s UCL claims were typical of the class, but that individual issues predominated because all class members would need to prove they relied upon, were deceived by, and suffered damages as a result of the manufacturer’s conduct.

With regard to the CLRA claims, the trial court also found that individualized issues concerning reliance, causation, and damages predominated. Specifically, the trial court declined to presume reliance because the alleged misrepresentations were uniform but not material.

The UCL does not require individualized proof of deception, reliance, or injury, and the purchaser need only show that members of the public were likely to be deceived by the false labeling, the appellate court held.

To establish common damages, the purchaser may establish the measure of restitution to which class members are entitled by use of survey evidence and expert testimony. In this case, damages would be based on the difference between what was paid and the value of what was actually received.

Courts should presume reliance where a reasonable man would have relied on the misrepresentations and the misrepresentations were significant in the consumer’s purchase decision, according to the court. The label claims were material to a reasonable person because the protection provided by sunscreen is extremely important to a purchaser. Because the same labeling misrepresentations were made to all class members, the misrepresentations were material and a presumption of reliance should have been applied.

The August 9 decision is Gaston v. Schering-Plough Corp., CCH State Unfair Trade Practices Law ¶32,301.

Thursday, August 18, 2011

Failure to Disclose Earnings of Franchised Store Was Not Fraud, Franchise Law Violation

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

A convenience store franchisor did not commit common law fraud or violate either the Illinois Franchise Disclosure Act (IFDA) or Illinois “little FTC Act” by failing to provide material information on the historical performance of a store to a prospective franchisee that had requested such information in connection with her consideration and purchase of the franchise for the store, according to a federal district court in Chicago.

After terminating the franchisee for failing to meet the franchise’s minimum net worth requirement, the franchisor brought suit seeking a preliminary injunction forcing the franchisee to surrender the store premises and meet her other post-termination obligations.

The franchisee counterclaimed, alleging that the franchisor was required to disclose financial information concerning the particular store she was considering and eventually purchased because the store’s financial performance was supposedly “below average” for the region. The franchisor had refused to provide the franchisee with sales figures for the store, which had been operating for less than one year.

The franchisor was not required by either the FTC Franchise Rule or the North American Securities Administrators Association’s Uniform Franchise Offering Circular (UFOC) Guidelines to disclose earnings information for any of its stores, let alone the store that the franchisee decided to purchase, the court determined.

Earnings Claim

Although the franchisor elected to include an earnings claim in its UFOC, that was a specific disclosure of “the most recently available annual averages of the actual sales, earnings and other financial performance” in each market area in the state, the court noted.

The franchisor specifically disclosed in its UFOC that it was not providing information related to stores that had been opened for less than 12 months, such as the store in question, and informed the franchisee that it would not provide such information, the court noted.

The franchisee argued that she should have been provided with information on the store’s “historical poor performance” in order to correct a misimpression created by the earnings claim. However, a logical fallacy of the franchisee’s argument was that the earnings claim was not offered as indicative of the actual performance of the store, the court reasoned.

Duty to Make Further Representations

While admitting that the information provided by the franchisor might not have been false, the franchisee maintained that the franchisor was under a duty to make further representations in order to prevent the provided information from being misleading. However, the earnings claim made by the franchisor was only “misleading” if the franchisee ignored the express terms of the earnings claim and made projections based upon her own assumptions concerning historical information of other stores, the court decided. The franchisee could not have done so consistent with the disclaimers in her franchise agreement and in the UFOC.

The franchisee contended that the disclaimers in the franchise agreement and UFOC were somehow inoperative because the information, or lack thereof, was material to her investment decision. However, the franchisor was not under an obligation to disclose every piece of information that could have been material to the franchisee’s investment decision, the court held.

Because the franchisor had no duty to disclose the historical financial performance of the store, the franchisee’s common law fraudulent omission claim, as well as her IFDA and “little FTC Act” claims, failed.

The decision in 7-Eleven, Inc. v. Spear appears at CCH Business Franchise Guide ¶14,644.

Wednesday, August 17, 2011

Insurance Agent Could Be Connecticut “Franchisee”

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

An insurance agent plausibly alleged that the relationship between himself and an insurance company was a “franchise” under the meaning of the Connecticut Franchise Act (CFA) for purposes of the company’s motion to dismiss, a federal district court in Hartford, Connecticut has ruled.

Thus, the agent’s claims that the company violated the CFA by terminating the parties’ Agent Agreement without adequate notice and “good cause” could proceed.

The insurance company moved to dismiss the agent’s CFA claims on the ground that the relationship was a traditional agency relationship and that “the financial realities of the business relationship between an insurance agent and an insurance company are inconsistent with such a franchise relationship.”

The agent cited another case decided in the federal district court for the District of Connecticut for support for his contention that the CFA applied to insurance agents, Charts v. Nationwide Mutual Insurance Co. (CCH Business Franchise Guide ¶ 13,200).

At most, the Charts court concluded that the Connecticut Insurance Code did not preempt the CFA and acknowledged that an insurance agency relationship could possibly meet the test for a franchise relationship, the court noted.

The insurance company countered the agent’s arguments by pointing to courts in other jurisdictions that concluded that an insurance agency relationship was not a franchise relationship within other state franchise laws.

As there was no direct case law on point, this was a matter of first impression, the court observed.


The Connecticut Supreme Court established a two-step inquiry for determining whether a “franchise” existed under the CFA:

(1) The franchisee must have the right to offer, sell, or distribute goods or services; and

(2) The franchisor must substantially prescribe a marketing plan for the offering, selling, or distributing of goods or services.
Right to Offer, Sell, or Distribute

The terms of the Agent Agreement suggested that the agent did have the right to offer, sell, or distribute the insurance company’s goods and services, in the court’s view. Paragraph 4 of the agreement provided in relevant part: “[i]t is agreed and understood that you will represent us exclusively in the sale and service of insurance.”

Marketing Plan

The agreement also suggested that there was a marketing plan or system prescribed in substantial part by the insurance company and that the plan or system was substantially associated with the insurance company’s trademark, the court decided. For example, the agent agreed to use the company name and logo in any material which could directly or indirectly lead to the sale of the company’s product, in accordance with the company policies and procedures.

Further, the agreement expressly granted the agent “a personal, non-exclusive, non-transferable, limited license to use the trademarks, service marks and names . . . in connection with the business conducted pursuant to this Agreement.” The agent agreed that all materials bearing the company’s marks shall be maintained at a high-quality standard acceptable to the company.

In another paragraph, the parties agreed that “the Company will prescribe rules, regulations, price and terms under which it will insure risks” and that those rules were subject to change by the company at any time.

Although the agent plausibly pled a relationship entitled to protection under the CFA, whether the nature of the relationship in practice met the statutory definition for a “franchise” was a question best left for summary judgment or trial after the parties conducted discovery into the issue, the court held. The larger question of whether the CFA was intended to extend to such a relationship also was left for a later stage of the proceedings.

The decision in Garbinski v. Nationwide Mutual Insurance Co. appears at CCH Business Franchise Guide ¶14,655.

Tuesday, August 16, 2011

Nuclear Power Meter Maker May Recast Antitrust Claims Against Rival

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

A manufacturer of ultrasonic flow meters (UFMs)—devices used to measure the flow of feedwater and the level of thermal power generated at nuclear power plants—was entitled to further amend its complaint in a long-standing antitrust and false advertising suit against a competitor and its affiliate, the federal district court in Pittsburgh has ruled.

The proposed amendments would redefine the relevant market and add a charge of conspiracy to monopolize to the antitrust allegations in the suit.

The complaining manufacturer filed the suit nearly seven years ago, alleging that the competitor—a dominant power within the industry—misrepresented the accuracy of its own devices and disparaged the complaining company and the company's apparently superior products in order to capture all of its potential and actual customers.

A motion to dismiss the claims was denied in 2007 (2007-1 Trade Cases ¶75,758), and the parties have been embroiled in discovery disputes ever since.

The complaining manufacturer now seeks to recast the conflict as taking place not in the market for the UFM devices, but in the “measurement uncertainty recapture uprate” market. That market consists of the increase in the power limit that a nuclear plant is permitted to generate as a consequence of implementing improved techniques for measuring its output—namely, by using devices that measure more precisely, allowing a plant to operate far closer to the maximum level authorized by the Nuclear Regulatory Commission (NRC) without risk of crossing the line.

While the output increase at issue (1.7%) appears slight, every 0.1% equates to $200,000 in sales for every 1000 megawatts of power that a facility generates, the court explained.

Undue Delay, Prejudice

The motion to amend could not be denied on the basis that it was unduly delayed and therefore highly prejudicial, the court held. The court rejected an argument by the competitor and affiliate that the proposed amended complaint improperly offered a new theory of liability from that asserted in the original complaint. The complaining manufacturer's theory of liability based upon "fraud on the NRC" was not novel, notwithstanding the earlier complaint's focus on false statements the defendants made to customers and potential customers about the accuracy of their UFMs. Rather, the court said, it amounted to a more detailed allegation pertaining to an issue underlying the original complaint: the defendants' communications to the NRC.

The defendants' own motion to dismiss brief, submitted near the beginning of the litigation, demonstrated that they knew since the filing of the initial complaint that the communications with the NRC were a part of the case. Because the complaining manufacturer's theories regarding false statements to customers and to the NRC were similar and factually related, there was no undue prejudice to the defendants.

Even if the “fraud on the NRC” theory were completely independent, it still would not have been prejudicial to the defendants, since it arose from a common nucleus of operative facts, putting the defendants on notice that claims alleging such fraud could arise in the case. The inclusion of a new conspiracy to monopolize allegation did not create a new legal theory. Instead, it conformed to the facts that had already been pleaded since the outset of the case.

The purported delay in filing the motion also did not “severely prejudice” the defendants in the discovery process. Discovery had already been extended multiple times, and the defendants had had ample opportunity to conduct the necessary discovery. It was unlikely
that they would need to conduct significant additional discovery, given the similarity in theories of liability alleged in the original and proposed amended complaints. A change in the relevant market definition merely clarified the market and did not prejudice the defendants, the court added.


The court also rejected an assertion that the proposed amendment was futile. Contentions that state law claims in the suit were impliedly preempted by the NRC's regulatory authority were rejected. The claims did not conflict with a federal regulatory scheme the same way that state law tort claims were found by the U.S. Supreme Court to conflict with a Food and Drug Administration (FDA) scheme in Buckman Co. v. Plaintiff's Legal Committee, 531 U.S. 341 (2000).

In contrast to the FDA, the NRC's regulatory scheme consisted of a federal-state partnership and did not preempt all state tort claims. The NRC's authority was not exclusive. Nor did it have primary jurisdiction over the complaining manufacturer's Lanham Act, Sherman Act, and Connecticut state law claims such that those claims would be barred. The law of the case had already established that fraud—what the defendant was basing its current primary jurisdiction argument on—was unquestionably within the competence of the court overseeing the litigation.

Moreover, the defendants' argument with respect to the complaining manufacturer's "fraud on the NRC" theory—that the lack of a private right of action under the relevant statute (10 C.F.R. § 50.5) gave the agency alone the authority to police fraud—was irrelevant because the plaintiff was not seeking damages under § 50.5. It was merely pointing to that statute to further its claims.

The August 9 decision is DOCA Co. v. Westinghouse Electric Co., LLC., 2011-2 Trade Cases ¶77,555.

Monday, August 15, 2011

Antitrust Institute Urges Probe of Waste Management’s Acquisition of Oakleaf

This posting was written by John W. Arden.

The Justice Department Antitrust Division should investigate Waste Management’s acquisition of Oakleaf Global Holdings, the leading national broker of waste disposal and recycling services, the American Antitrust Institute (AAI) recommended in an August 10 letter to Sharis Pozen, Acting Assistant Attorney General in charge of the Antitrust Division.

As a result of 20 years of passive merger controls, the waste management industry “has now reached what should be seen as a Code Red competitive condition because of the concentration of landfill ownership in the hands of WM and Republic,” according to AAI President Albert A. Foer.

“It is therefore a matter of some urgency to investigate this latest acquisition with an elevated level of scrutiny,” Foer wrote.

Waste Management is the nation’s largest solid waste disposal company. Oakleaf “is by far the leading national broker, serving large commercial companies such as Walmart and Target,” the letter said. The broker has created a national network of relatively small local haulers, which can compete for national business against Waste Management and Republic Services, the second largest solid waste disposal firm, in terms of price and service. It has accomplished this through one-year contracts.

Although Waste Management has stated its intention to keep Oakleaf’s business model intact, acquiring companies in this industry often replace the acquired company by capturing its customers and waste streams, the letter stated. If Oakleaf is absorbed into Waste Management, “[t]he strong temptation will be to take over the local business directly.”

According to AAI, the disappearance of Oakleaf would mean that former Oakleaf clients would have to contract with Waste Management or Republic or undertake the costs of separate contracts with many local or regional haulers. A reduction in the number of horizontal competitors “is likely to deprive them of an important choice and is likely to result in increased prices and/or costs.”

An important question for an investigation would be whether an alternative national broker would be likely to emerge within a relatively short time, the letter concluded. “Are the circumstances such that Oakleaf could be replicated with relative ease and swiftness, or will this acquisition result in a prolonged consolidation in the market.”

The letter appears here on The Antitrust Institute’s website.

On July 28, Waste Management announced its acquisition of Oakleaf and its primary operations for $425 million, subject to working capital and other adjustments. The announcement appears here on the Waste Management website.

Thursday, August 11, 2011

Forum on Franchising Solicits Nominations for Annual Awards

This posting was written by John W. Arden.

The ABA Forum on Franchising is seeking nominations for its four annual awards—the Lewis G. Rudnick Award, the Chair's Award for Substantial Written Work or Presentation, the Chair's Future Leader Award, and the Chair's Explorers Award.

The Lewis G. Rudnick Award is a lifetime achievement award, honoring those who have made “substantial contributions to the development of the Forum and to franchise law as a discipline—by publishing scholarly articles; writing or editing texts; speaking at franchise law meetings; serving the Forum as an officer, committee chair or member, or journal editor; and/or recognized accomplishments as a practicing franchise lawyer—while comporting themselves in accordance with Lew Rudnick's high standards of professionalism, decency and collegiality.”

Since its inception in 2009, the Rudnick Award has been presented to longtime franchise practitioners and Forum leaders John R.F. Baer of the Greensfelder firm in Chicago, Rupert Barkoff of Kilpatrick Stockton in Atlanta, and Andrew Selden of Briggs and Morgan in Minneapolis.

The Chair's Award for Substantial Written Work or Presentation will recognize a young and/or diverse lawyer who has published a scholarly article in ABA The Franchise Law Journal or The Franchise Lawyer newsletter, or prepared a paper and presented a workshop at a Forum annual meeting.

The Chair's Future Leader Award will be presented to a young and/or diverse Forum member who has demonstrated a substantial commitment to the Forum by undertaking significant leadership efforts, such as mentoring other Forum members or law students; working on membership marketing or other outreach efforts; assisting with special projects undertaken by the Forum Governing Committee or a Forum Division; or assisting with the Forum's annual meeting.

Last year, the Future Leader Awards were given to Dawn Newton of Fitzgerald Abbott & Beardsley LLP in Oakland, California and Jane Edmonds of Cassels Brock in Toronto.

The Chair's Explorers Award is designed for newcomers to the Forum who have demonstrated an interest in pursuing a career in franchise law. Any Forum member who is or has been a Governing Committee member or ad hoc member is ineligible to receive a Chair's Award.

Nominations for these awards should be sent by September 1 to Forum Chair-Elect, Joe Fittante at: Fittante and Ron Gardner will choose the recipients, subject to the approval of the Forum Governing Committee, and the awards will be presented during the 34th Annual Forum on Franchising, October 19-21, in Baltimore.

Wednesday, August 10, 2011

Labeling Puerto Rican Rum as “Havana Club” Not False Advertising

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

A liquor distributor (Bacardi U.S.A.) did not engage in false advertising under the Lanham Act by labeling a rum not produced in Cuba as “Havana Club,” the U.S. Court of Appeals in Philadelphia has ruled.

Pernod Ricard USA filed a false advertising suit under Section 43(a)(1)(B) of the Lanham Act, asserting that the labeling of Bacardi’s bottle, particularly the use of the words “Havana Club,” misleads consumers to believe that the rum is produced in Cuba. In a three-day trial, Pernod presented unrebutted survey evidence that approximately 18 percent of consumers who looked at the Havana Club rum bottle were left thinking that the rum was made in Cuba or from Cuban ingredients.

The trial court ruled in favor of Bacardi (CCH Advertising Law Guide ¶63,805).

Geographic Origin

The phrase “Havana Club™” appears in large letters on the front of the rum bottle at issue, the court noted. Below that, in letters of prominent though smaller size and in a different font, the words “PUERTO RICAN RUM” appear. “Havana Club™” appears elsewhere on the bottle, including a statement that the product “is a premium rum distilled and crafted in Puerto Rico using the original Arechabala family recipe … [d]eveloped in Cuba …”

In order to determine whether advertising was false or misleading, the court looked at the words “Havana Club” in the context of the entire advertisement—the label of the rum. Viewed in that context, any thought a consumer might have that the words “Havana Club” indicate the geographic origin of the rum must certainly be dispelled by the plain and explicit statements of geographic origin on the label, according to the court.

Survey Evidence

The trial court properly disregarded the survey evidence as immaterial, because the Lanham Act does not forbid language that reasonable people would have to acknowledge is not false or misleading, the court concluded.

The August 4 opinion in Pernod Ricard USA, LLC v. Bacardi U.S.A.,LLC will be reported in CCH Advertising Law Guide.

Tuesday, August 09, 2011

City Not Immune from Electrical Cooperative's Antitrust Claims

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

The City of Newkirk, Oklahoma was not shielded under the state action doctrine from a rural electrical cooperative's claims that the city engaged in unlawful tying and attempted monopolization, the U.S. Court of Appeals in Denver has decided. The challenged conduct was not a foreseeable result of state legislation authorizing anticompetitive conduct.

Dismissal of the cooperative's antitrust claims (2010-2 Trade Cases ¶77,138) was reversed, and the case was remanded for further proceedings on the allegations of unlawful tying and attempted monopolization of electricity services.

Thwarting Cooperative’s Ability to Compete

When a new jail was proposed outside the city limits in an area traditionally serviced by the complaining cooperative, the city annexed the area, allegedly thwarting the cooperative’s ability to operate there.

Then, the city—the only provider of sewage services in the area—allegedly refused to provide any sewage services to the new jail, unless the jail also bought the city's electricity. The operators of the jail went with the city's package deal over the cooperative's offer.

While the city cited a number of general enabling statutes conferring on the city the authority to do business, none authorized the kind of anticompetitive conduct alleged by the complaining cooperative, the court noted. Moreover, the Oklahoma legislature had expressed a clear preference for competition for electricity services in annexed areas.


Oklahoma's Rural Electric Cooperative Act foreseeably sought to preserve competition after annexation by constraining municipalities from using their considerable regulatory powers to harm rival rural electricity providers.

In addition, Oklahoma's Electric Restructuring Act expressed an unmistakable policy preference for competition in the provision of electricity, according to the court.

The decision is Kay Electric Cooperative v. The City of Newkirk, Oklahoma, 2011-2 Trade Cases ¶77,550.

Monday, August 08, 2011

Office Equipment Firm Not Liable for Failing to Disclose Storage of Personal Information

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

A bank could not go forward with purported class action claims against an office equipment company for failing to make certain disclosures regarding the storage of information on printers and other machines, the federal district court in Bridgeport, Connecticut has decided.

The company allegedly failed to tell customers that its leased printers, copiers, and other equipment contained digital data storage devices that automatically saved copies of documents that had been faxed, printed, or scanned and that the company did not destroy the images when the equipment was returned to the company and then sold or leased to others.

The bank contended that the company knew or should have known that the equipment would be used to fax, print, or scan documents containing private financial and identifying information, including Social Security numbers, birth dates, medical records, and business data. The company’s conduct allegedly put its customers at risk of identity theft and caused them to incur expenses to monitor their credit and to destroy saved images on storage devices inside the equipment currently in their possession.

The bank brought claims for negligence, negligence per se, negligent misrepresentation, and violations of the Connecticut Unfair Trade Practices Act and the Connecticut data breach notification statute.

Duty to Disclose

According to the court, the company did not have a duty to disclose anything regarding the storage devices in the office equipment. There was no allegation that the company owned, licensed, or maintained personal information, so the duty to disclose imposed by the breach notification statute did not apply. The bank also did not allege that a breach of security had occurred.

There were no allegations of bad faith by the company; nothing suggested that the company purposely excluded information regarding the storage devices from the lease agreements because it hoped that the bank would become a victim of identity theft. The company lacked a duty to exercise reasonable care to make disclosures about the storage devices because it was not foreseeable that the bank’s use of the equipment to fax, print, or scan documents containing private information would result in harm, the court said.

The essence of the transactions between the bank and the company was the lease of office equipment, not the protection of data that would be stored on the equipment. The bank did not allege that the company knew about the bank’s apparent lack of familiarity with digital storage devices or that there was a custom or other objective circumstance that would cause the bank to believe that data security would be covered by the leases.

In addition, the bank could not pursue breach of contract claims because the lease agreements were silent as to data security, and there was no allegation that the parties discussed the issue or did anything to suggest that the issue was included in the lease agreements.

The decision is Putnam Bank v. Ikon Office Solutions, Inc., CCH Privacy Law in Marketing ¶60,658.

Friday, August 05, 2011

Pozen Named Acting Head of Antitrust Division

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

With Assistant Attorney General Christine Varney scheduled to step down as head of the Department of Justice Antitrust Division today, the Department of Justice has named Deputy Assistant Attorney General Sharis Arnold Pozen as Acting Assistant Attorney General.

“Sharis is a highly experienced antitrust enforcer and I am confident that she will continue to lead the Antitrust Division in its mission to vigorously enforce the antitrust laws,” said Attorney General Eric Holder.

Pozen has played a lead role in a number of civil merger and non-meger enforcement matters since joining the Antitrust Division. Pozen was also involved in the federal antitrust agencies’ update of the Horizontal Merger Guidelines and the Antitrust Division’s revision of its Merger Remedy Guidelines.

Prior to coming to the Antitrust Division, Pozen was a partner in the Antitrust, Competition and Consumer Protection Group of Hogan & Hartson (now Hogan Lovells). She also worked for five years at the Federal Trade Commission as an attorney advisor, as assistant to the Bureau of Competition Director, and as a staff attorney.

The appointment was announced in an August 4 news release.

Varney announced her departure from the Antitrust Division, effective as of August 5, on July 6. For further details regarding Varney’s move, see the July 7 posting on Trade Regulation Talk (“Antitrust Chief to Leave Justice Department for Private Practince”).

Thursday, August 04, 2011

Gas Distributor Failed to Show Actual Injury from Alleged Price Discrimination

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

In a long-running dispute between natural gas supplier Dynegy Marketing and Trade and a natural gas distributor, the U.S. Court of Appeals in Chicago today upheld summary judgment in favor of Dynegy on the distributor’s price discrimination counterclaim under Sec. 2 (a) of the Robinson-Patman Act.

The distributor failed to offer evidence that it suffered an actual injury as a result of Dynegy’s purported price discrimination to support treble damages, the court held.

The distributor alleged that the supplier charged it more for gas than it charged one of the distributor’s competitors. The distributor pointed to price differentials of up to ten cents per therm and contended that it was injured by them.

On appeal, the distributor argued that it had established a prima facie violation of the Robinson-Patman Act. The appellate court suggested that the distributor should have focused on establishing an actual injury resulting from the alleged price discrimination. Mere demonstration of a “competitive injury” was not sufficient to recover treble damages.

The distributor dedicated a mere five sentences to the issue of injury between its opening and reply briefs, the court noted. In those five sentences, the distributor contended that it had “identified evidence of lost sales and profits resulting from Dynegy’s price discrimination” and evidence of lost sales and profits resulting from the alleged price discrimination. However, there was no indication of what that evidence was, or how it tied to the supplier’s actions.

The August 4 decision in Dynegy Marketing and Trade v. Multiut Corporation, No. 10-2811, will appear at CCH 2011-2 Trade Cases ¶77,554.

Wednesday, August 03, 2011

Privacy Claims Proceed Against Google for “Street View” Data Interception

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

Putative class action plaintiffs could pursue federal wiretapping claims against Google, Inc. for allegedly intercepting data from their wireless home networks during the course of its “Street View” mapping project, the federal district court in San Francisco has held.

The court, however, dismissed claims under various state wiretapping statues as preempted and under the California Unfair Competition Law for lack of standing.

Capture of Streamed Data

Google Street View featured panoramic views of various positions along streets using photos taken by vehicles equipped with nine directional cameras to capture 360 degree views of the streets and 3G/GSM/Wi-Fi antennas with custom-designed software for the capture and storage of wireless signals and data, commonly known as “wireless sniffers.”

Google’s wireless sniffers secretly captured data packets as they streamed across Wi-Fi connections, stored them on digital media, and later decoded them using crypto-analysis or a similarly complicated technology. The content of the captured data packets (payload data) included SSID information (Wi-Fi network names), MAC addressed (Wi-Fi network hardware ID numbers), usernames, passwords, and personal e-mails.

Federal Wiretapping Claim

The Wiretap Act, enacted as Title I of the Electronic Communications Privacy Act (ECPA) of 1986, establishes a private right of action against interceptors of an “electronic communication,” but creates an exception for interceptions of communications that are “readily accessible to the general public.” It also exempts an enumerated list of “radio communications,” none of which applied in the instant case.

While the statute does not define the term “radio communication,” an unrelated provision of statute stated that “readily accessible to the general public” with regard to a “radio communication” included a communication that was not “scrambled or encrypted.”

Google argued that its conduct was an exempt radio transmission because the plaintiffs did not plead that their Wi-Fi networks were scrambled or encrypted, and therefore their transmissions were “readily accessible to the general public.” The court disagreed. Both the various provisions within the ECPA, when read together, and the statute’s legislative history evidencing Congressional intent in passing the statute in 1986 supported the conclusion that the exemption for “radio communications” did not include wireless Internet networks.

Unlike traditional radio services transmissions, communications sent via Wi-Fi technology were not designed or intended to be accessible to the general public. Wi-Fi transmissions were more akin to private cellular telephone communications, a radio communication technology that existed in 1986 and purposely was left out of the ECPA’s radio communications exemption, according to the court.

State Wiretapping Claims

The court also held that the federal Wiretap Act preempted various state wiretapping statutes. While the ECPA contained no express preemptive statement, the statute was intended to comprehensively regulate the interception of electronic communications such that the scheme left no room for further regulation by the states, in the court’s view. The statute struck a balance between the right to the privacy of one’s electronic communications against the ability of radio technology users to inadvertently intercept communications.

Additional state regulation could upset that balance and could obscure the legislative scheme surrounding innovative communications technologies that Congress intended to clarify through the Act, the court reasoned. Further, the ECPA’s civil and criminal penalties provided broad protections for unlawful interceptions.

California Unfair Competition Law

The plaintiffs’ Unfair Competition Law claims were dismissed for failure to allege cognizable injury. The plaintiffs' allegations that they “suffered injury in fact and lost property as a result of the unfair and unlawful business practices” failed to meet minimal standing requirements.

Allegations of loss of personal information and invasion of privacy were insufficient to establish standing, according to the court. Intercepted data packets did not qualify as “lost property” for purposes of UCL standing. Attorneys’ fees and expenses incurred in litigation also could not be used to invoke standing.

Stay Pending Appeal

In a separate order, the court granted Google’s motion to stay the case pending immediate interlocutory appeal of the court’s interpretation of the term “radio communication” in the Wiretap Act; specifically, whether the term encompasses data packets transmitted from a wireless home network.

Certification was justified because the issue presented a novel question of statutory interpretation, involved a controlling question of law as to which there is a credible basis for a difference of opinion, and its resolution would materially advance the ultimate outcome of the litigation.

Two recent decisions in the case—In re Google, Inc. Street View Electronic Communications Litigation—are reported at CCH Guide to Computer Law ¶50,215 and ¶50,221. The decisions also will appear in CCH Privacy Law in Marketing.

Tuesday, August 02, 2011

Medical Patent Licensee Could Have Violated Antitrust Laws

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

A Florida hospital sufficiently alleged that the exclusive licensee of two patents involving the administration of adenosine to patients undergoing cardiac stress tests engaged in tying, exclusive dealing, and attempted monopolization, the federal district court in Tampa has ruled. Adenosine is a naturally-occurring compound that induces the dilation of blood vessels. A motion to dismiss was denied.

After disposing of a challenge to the hospital’s standing, the court rejected the defendant’s argument that the tying claims should be dismissed for failure to allege plausible relevant markets, two separate and distinct product markets, or anticompetitive
effects in the tied product market.

A further contention that the exclusive dealing allegations were “simply a re-packaging of its defective tying theory” was unavailing, given that the tying claims were not found to be defective with respect to their relevant market description or under a rule of reason analysis.

Attempted Monopolization

The hospital’s assertion that the licensee engaged in attempted monopolization prohibited by federal or state antitrust law was well supported by the charge that the licensee charged customers 450 percent more for its adenosine than customers would pay for adenosine from alternative providers.

The complaining hospital sufficiently alleged that the defendant was able to control the cost for adenosine and was able to foreclose competitors from customers of adenosine, the court added.

In addition, the hospital submitted factual allegations that the licensee possessed a dangerous probability of successfully attaining and retaining monopoly power in the relevant market.

There was an alleged perception in the health care community that use of the process patent for administering adenosine was the medically accepted standard of care, which created barriers to entry.

Further, the licensee allegedly used threats and misleading communications regarding its process patent and extended the patent to its branded product.

The July 25 decision is Lakeland Regional Medical Center, Inc. v. Astellas US LLC, 2011-2 Trade Cases ¶ 77,544.

Monday, August 01, 2011

Secondary Market Sales of Yankees’ Tickets Not Deceptive Practices

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

Purchasers of New York Yankees tickets failed to state a deceptive practices claim under New York General Business Law against online ticket marketer StubHub; its parent, eBay; and the New York Yankees for StubHub’s failure to identify the individual seller and face value of tickets, the federal district court in New York City has ruled.

The putative class representative alleged that the Yankees’ website directed purchasers to the retailers’ website and that StubHub deceptively failed to identify the seller and the face value of the tickets.

Standing to Sue

Since none of the members of the proposed class purchased tickets through an eBay auction, the sole basis for the purchaser’s standing to sue eBay was the company’s parent/subsidiary relationship with StubHub. However, a parent corporation is not liable for the actions of its subsidiary absent facts sufficient to pierce the corporate veil, the court stated. In this instance, the purchaser did not plead facts that would justify piercing the corporate veil.

Deceptive Practices

To state a claim for deceptive practices under New York General Business Law §349, the purchaser needed to show the defendants engaged in a deceptive act that was directed at consumers, was misleading to reasonable consumers, and caused an injury.

The purchaser argued that—because the Yankees’ website links to StubHub and StubHub sellers are anonymous—the “least sophisticated consumer” would likely believe that he or she is purchasing tickets directly from the Yankees and StubHub’s practice of not printing the face value of a ticket reinforces the misconception that the tickets were purchased from the Yankees.

The court pointed out (1) that the applicable legal standard is whether a reasonable consumer—not the “least sophisticated consumer”—would be misled by the defendants’ actions and (2) that the link on the Yankees’ site led to an entirely new website with a different URL and offers of tickets to non-Yankee events. The tickets printed from the linked website included a StubHub customer number and StubHub confirmation number.

In addition, the purchaser pleaded no facts establishing that the alleged deceptive acts caused any injury. The purchaser claimed two injuries:
(1) lack of information about pricing, and

(2) that consumers were “forced” to pay higher ticket prices because of the failure to include face value of the tickets.

Lack of information is not an injury, but the factual underpinning of the deceptive practices claim, the court held. As to higher prices, the purchaser was willing to pay $33 per ticket to see the Yankees. There was no claim that she would not have made the purchase had she known that the face value of the tickets was $20 apiece.

Because the purchaser could not show that a reasonable person would believe that the tickets were being sold by the Yankees or a measurable injury, the court dismissed the claim.

Liability for Third-Party Sales

A contrary ruling would make the Yankees liable for every sale of tickets by a third party, according to the court.

There was no evidence that declining to inform consumers of the face value of the tickets caused consumers to overpay or that any deceptive conduct was undertaken by any of the parties. Consumers could always compare the ticket price to prices listed on the Yankees' website.

The decision is Weinstein v. eBay, Inc., CCH State Unfair Trade Practices Law ¶32,295.

Further information about CCH State Unfair Trade Practices Law appears here.