Monopolization Scheme to Manipulate Crude Oil Market Adequately Alleged

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

The federal district court in New York City has refused to dismiss monopoly claims against related entities that traded in physical and futures contracts for crude oil, including West Texas Intermediate grade (WTI) crude oil, for manipulating futures prices (In re Crude Oil Commodity Futures Litigation, December 21, 2012, Pauley, W.).

Individuals and corporate entities that traded NYMEX WTI futures contracts—agreements for the purchase or sale of WTI on a fixed date in the future in Cushing, Oklahoma—and calendar spreads in 2008 adequately alleged a “complex price manipulation and monopolization scheme” to profit from tightness in WTI supply in Cushing during that period. Commodities Exchange Act claims also were sufficiently alleged.

Monopoly Power

The plaintiffs adequately alleged the possession of monopoly power through direct evidence of the defendants' ability to control prices and by defining a relevant market to demonstrate excess market share. The plaintiffs offered as direct evidence the abrupt shifts in the market, which happened only twice between January 2006 and January 2011 when the defendants allegedly dumped their accumulated WTI supply as part of the manipulation scheme. The defendants offered extrinsic evidence and fact-based arguments to refute the plaintiffs' allegations of market power. However, the court ruled that reliance on extrinsic evidence was premature.

The defendants also argued that the market was improperly defined because it contained inconsistencies, should have not been limited geographically to Cushing, and should have included alternate grades of crude oil that were acceptable substitutes for WTI. According to the court, the plaintiffs' relevant market was not so implausible as to warrant dismissal, especially where they pleaded the defendants' ability to control prices.

In addition, the defendants attempted to refute monopoly power by arguing that their alleged ability to control prices was short-term and sporadic. They argued that monopoly power is not actionable unless it causes a structural alteration of the market, or is of a certain temporal duration. While the duration of a monopoly may be "one measure" in determining whether a defendant possessed monopoly power, it is not dispositive.

“[C]ourts have recognized the potential for monopolization of month-long commodities markets in factually similar actions,” the court noted. “[A] month-long monopolization could be of sufficient duration to cause anti-competitive effects.”

The plaintiffs also adequately alleged the willful acquisition of monopoly power, the court held. Rejected were the defendants' assertions that the complaint offered only conclusory allegations. The complaint described a willful scheme in which the defendants acquired a dominant position in physical WTI for the purpose of manipulating the prices of WTI derivatives. The defendants allegedly acquired a dominant share of physical WTI despite having no commercial need for it, only to sell it at an uneconomic time. This supported an inference of anticompetitive conduct.

The court did not dismiss attempted monopolization and conspiracy to monopolize claims, even though the plaintiffs did not include a recital of each element of these causes of action. The detailed allegations regarding the manipulative scheme were sufficient.

Antitrust Injury

The plaintiffs alleged “a quintessential antitrust injury—losses stemming from artificial prices caused by anticompetitive conduct,” the court also ruled. The plaintiffs alleged losses in the WTI derivatives market, caused by artificial market conditions that were spawned by the defendants' dominant share of the physical WTI market. The defendants argued that the plaintiffs could not establish antitrust injury because they did not trade in the physical market that was allegedly monopolized. However, the defendants cited no authority for the proposition that an antitrust injury cannot extend beyond the bounds of the monopolized market, according to the court.

The case is No. 11 Civ. 3600 (WHP).

Bernard Persky (Labaton Sucharow, LLP) for Stephen E. Ardizzone. Brigitte T. Kocheny (Winston & Strawn LLP) for Parnon Energy, Inc.

Toyota Agrees to $1.3 Billion Settlement of Unintended Acceleration Litigation

This posting was written by John W. Arden.

Toyota Motor Corp. has agreed to pay more than $1.3 billion to settle a class action alleging unlawful marketing and sales practices, as well as product liability, relating to the unintended acceleration of its vehicles (In re: Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices, and Product Liability Litigation).

The settlement agreement and plaintiff’s memorandum in support of the class action settlement were filed December 26 in the federal district court in Los Angeles. The parties will seek a preliminary approval order from the district court within 14 days of the execution of the agreement.

The class action complaint alleged that Toyota designed, manufactured, distributed, advertised, and sold automobiles containing defects that would allow sudden, unintended acceleration to occur and that caused economic losses to class members.

In order to avoid burden, expense, risk, and uncertainty of continuing to litigate the claims, Toyota agreed to:

(1) deposit $250 million into an escrow account to compensate class members for the alleged diminished value of their vehicles;


(2) install brake override systems (BOS) on approximately 2.7 million eligible vehicles at no cost;

(3) deposit $250 million in the escrow account for payment in lieu of BOS installation;

(4) offer class members a customer support program, providing prospective coverage for repairs and adjustments needed to correct defects in the engine control modules, accelerator pedal assembly, stop lamp switch, and throttle body assembly of eligible vehicles; and

(5) contribute $30 million to fund automobile safety research and education related to the issues in the litigation. In addition, Toyota has agreed to fund the cost of the settlement notice and claims administration.

In addition, Toyota has agreed to fund the cost of the settlement notice and claims administration.

Class Notice, Exclusions, Objections

Under the agreement, class notice will be accomplished through a combination of short form notices, summary settlement notices, notices posted on a settlement website, long form notices, and other applicable notices. Class members wishing to be excluded from the class must mail a written request to the class action administrator. Those class members wishing to object to the fairness, reasonableness, or adequacy of the agreement or to the award of attorney fees and expenses must file a written notice. They may appear and argue at a fairness hearing.

The class action settlement administrator will use best efforts to begin to pay timely, valid, and approved claims, starting 180 days following the close of the claim period or the occurrence of the final effective date, whichever is later.

The parties agree to a release and waiver, which will fully and finally release, relinquish, discharge, and hold harmless the released parties from all claims, demands, suits, petitions, and liabilities.

Attorney Fees and Expenses

Toyota agreed to pay $200 million in attorney fees and $27 million in expenses. If the court awards less than that amount, Toyota will pay the remainder to the Automobile Safety and Education Program Fund. The fees and expenses will be allocated among the 25 law firms and 85 attorneys who worked on this litigation, as approved by the court.

“Landmark” Settlement

In the Plaintiffs’ memorandum in support of their application for certification of the settlement, the class members estimated the settlement as a whole at more than $1.3 million—“a landmark, if not a record, settlement in automobile defect class action litigation in the United States.”

Arguing for certification of the proposed class, the plaintiffs asserted the typicality of the claims arising from a common course of conduct and legal theory. “They have asserted during this litigation that Toyota engaged in false advertising in violation of consumer protection laws and breached express and implied warranties to Class Members by selling vehicles with defects, failing to inform consumers of the defects, and failing to properly repair the defects pursuant to its warranties.”

The case is No. 8:10ML2151 JVS (FMOx).

Steve W. Berman (Hagens Berman Sobol Shapiro LLP); Frank M. Pitre (Cotchett, Pitre & McCarthy, LLP); and Marc M. Seltzer (Susman Godfrey LLP) for the Plaintiffs’ Class. Christopher P. Reynolds, Chief Legal Officer, for Toyota North America.

Exclusive Electronic Game Distributorship Was Not a Hawaii “Franchise”

This posting was written by John W. Arden.

An exclusive Hawaii distributorship of electronic games that was not substantially associated with its supplier’s trademarks and did not pay a franchise fee to its supplier was not a “franchise” within the Hawaii Franchise Investment Law, the federal district court in Honolulu has ruled (Prim Limited Liability Co. v. Pace-O-Matic, Inc., December 13, 2012, Mollway, S.). Thus, the supplier’s termination of the exclusive distributorship, allegedly without cause, could not be held to violate the statute.

In November 2008, electronic game supplier Pace-O-Matic entered into an agreement making Prim Limited Liability Co. an exclusive distributor of “amusement devices” in an area that included Hawaii. In October 2010, Pace-O-Matic sent Prim a letter, alleging it was in default and terminating the exclusivity portion of the agreement. Shortly thereafter, Prim filed a lawsuit, asserting breach of contract, tortious interference with prospective business advantage, unfair methods of competition in violation of the Hawaii “little FTC Act,” violation of the Hawaii Franchise Investment Act, breach of express warranty, breach of implied warranty, and a right to indemnification.

Pace-O-Matic filed a motion for partial summary judgment on the unfair competition, franchise law, and implied warranty claims. The court granted summary judgment on the franchise law and implied warranty claims, but denied summary judgment on the unfair competition claims.

“Franchise” Definition

In its motion, Pace-O-Matic argued that it was entitled to summary judgment on the franchise law claim because the parties never had a franchise relationship as defined by the Hawaii Franchise Investment Law. Under the statute, a “franchise” is an agreement “in which a person grants to another person, a license to use a trade name, service mark, trademark, logotype or related characteristic … and in which the franchisee is required to pay, directly or indirectly, a franchise fee.” Haw. Rev. Stat. §482E-2. However, Prim failed to show that there was a triable issue regarding the existence of a franchise between Prim and Pace-O-Matic.

Association with trademark. Prim’s claim that the distributorship agreement allowed it to use Pace-O-Matic’s name, trademarks, and proprietary software was at odds with the language of the agreement. The agreement did not suggest that Prim was authorized to use Pace-O-Matic’s trademarks or software. Rather, the agreement made clear that Pace-O-Matic was only authorizing Prim to “purchase games and fills from Pace and exercise its best efforts to develop markets for the games and distribute the games.”

A distributorship is different from a franchise, the court observed. The distribution agreement allowed Prim to distribute Pace-O-Matic’s products; it did not “substantially associate” Prim with Pace-O-Matic’s trademarks.

“The very essence of a franchise relationship is that the franchisee represents the franchise to the public; a franchise is not created whenever one company purchases and distributes another company’s products.”

Franchise fee. Similarly, Prim failed to provide evidence that it paid Pace-O-Matic a franchise fee. It contended that its payment for “fills” constituted a franchise fee because the price of the fills far exceeded the cost of a few keystrokes to generate a fill. However, Pace-O-Matic’s profit margin is not proof that Prim’s payment for fills constituted a franchise fee, the court held.

“Hawaii law does not provide that a distributor’s profit on a distributorship agreement transforms a relationship into a franchise,” the court noted. “Moreover, there is no evidence that the cost of the fills constituted an ‘unrecoverable investment’ in Pace.”

“Little FTC Act”

Prim’s claim that Pace-O-Matic committed unfair competition in violation of the Hawaii “little FTC Act” raised genuine issues of fact. Prim’s pleadings alleged that Pace-O-Matic’s conduct caused injury to Prim’s business or property and was likely to result in damages exceeding $75,000. Prim also alleged that it was injured by the termination of its exclusive distributorship and the direct sale of fills to one of its customers. Pace-O-Matic did not dispute the termination or the direct sales.

“When the supplier itself takes on the role of competitor and seeks to do business with the exclusive distributor’s customer, it may indeed be . . . an aggravating circumstance sufficient to support a claim” under the Hawaii “little FTC Act,” the court found. Thus, the claim survived the motion for summary judgment.

The case is Civil No. 10-617 SOM/KSC.

Dean L. Franklin (Thompson Coburn) for Prim Limited Liability Co. Effie Ann Steiger for Pace-O-Matic.

Dow Chemical Denied Summary Judgment on Urethane Price Fixing Conspiracy Claims

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

Dow Chemical Company could have violated federal antitrust law through its alleged participation in a conspiracy with other manufacturers to fix prices of certain urethane products from 1999 to 2003, the federal district court in Kansas City, Kansas, has ruled. A motion by Dow for summary judgment in its favor on class claims related to purchases of polyether polyol-based products was, therefore, denied (In re: Urethane Antitrust Litigation, December 18, 2012, Lungstrum, J.).

Dow is the last remaining defendant in the case, as the class and opt-out plaintiffs have settled their claims against competing manufacturers Bayer, BASF, Huntsman, and Lyondell.

The plaintiffs in the case provided sufficient direct and indirect evidence of a price fixing conspiracy involving Dow to allow a reasonable jury to find that such a conspiracy existed, the court held. Direct evidence included testimony by Dow employees about meetings between the company and its competitors at which agreements were reached to set prices and to make price increases stick, as well as testimony by employees of competing manufacturers confirming those agreements.

The direct evidence was also supported by circumstantial evidence of conspiracy, the court added. This evidence consisted of: (1) testimony by additional witnesses that at least supported the inference of a price fixing agreement; (2) simultaneous or near-simultaneous identical price increase announcements; (3) communications, meetings, and joint vacations among executives of the competing manufacturers that involved pricing; and (4) apparent efforts undertaken by the alleged conspirators to maintain the secrecy of their communications, particularly those involving pricing. Further factors suggesting a conspiracy were evidence that: the executives allegedly in communication with each other were high-ranking officers of the company with the authority to set pricing, the structure of the market was conducive to price fixing and provided a motive to enter into an illegal agreement, various actions by the conspirators that were contrary to their own interests absent a conspiracy, and expert opinion evidence suggested that prices were supracompetitive during the conspiracy period.

The court rejected an argument by Dow that the alleged meetings and communications were justified by legitimate business reasons. Dow’s contention that the class failed to exclude the possibility that the conspirators acted competitively instead of collusively in communicating with each other did not merit serious consideration because the plaintiffs’ evidence was not limited to circumstantial evidence of parallel conduct coupled with mere communications between competitors, the court said. The plaintiffs’ evidence included direct evidence of conspiracy and was not ambiguous.

Additionally rejected was a narrower argument by Dow that it was entitled to summary judgment for claims arising from the period of the alleged conspiracy prior to the dates in 2000 on which several key witnesses began their employment for allegedly conspiring manufacturers. The plaintiffs’ evidence of conspiracy went beyond these witnesses’ testimony, the court explained. The class pointed to two specific series of evidence in 1999 to support a conspiracy period extending back to that year. Further, the evidence of a conspiracy existing in 2000 at least allowed for the reasonable inference that the conspiracy was ongoing at that point. “Assuming the existence of a conspiracy,” the court remarked, “its duration is a question of fact for the jury.”

Claims for the period within the alleged conspiracy prior to November 24, 2000, were not time-barred because the class introduced sufficient evidence of fraudulent concealment to toll the limitations period, the court also decided.

The case is MDL No. 1616, No. 04-1616-JWL.

George A. Hanson (Stueve Siegel Hanson LLP - KC) for plaintiffs. Brian R. Markley (Stinson Morrison Hecker LLP) for The Dow Chemical Company.

FTC Announces Departure of Vladeck and Harrington, Appointment of Successors

This posting was written by John W. Arden.

David C. Vladeck, Director of the FTC Bureau of Consumer Protection, and Eileen Harrington, FTC Executive Director, will both leave the agency on December 31, 2012, according to a December 17 announcement by FTC Chairman Jon Leibowitz.

As reported previously, Vladeck—who has served as Bureau Director since 2009—will return to a faculty position at Georgetown University Law Center.

“David has been an extraordinarily effective advocate for American consumers,” said Leibowitz. “Under his leadership, the Bureau of Consumer Protection has worked tirelessly to respond to, and anticipate, the risks consumers face in a rapidly changing marketplace.”

Among his top priorities at the Commission has been stopping fraud targeting financially distressed consumers. During Vladeck’s tenure, the agency has brought more than 100 cases against scammers trying to take advantage of consumers’ last dollar with false promises of mortgage assistance, debt relief, jobs or other money-making opportunities, government grants, and health insurance. It has taken decisive actions against scams on the Internet, including stopping nearly $1 billion in online marketing fraud by shutting down “free trial” offer schemes.

Under Vladeck’s leadership, the agency developed a comprehensive framework for privacy protection and brought a number of landmark enforcement actions to protect consumer privacy, including cases against Google and Facebook.

Succeeding Vladeck as Director of the Bureau of Consumer Protection is Charles A. Harwood, who has served as Deputy Director of the Bureau since 2009 and previously spent 20 years as Director of the FTC Northwest Regional Office in Seattle. In the latter position, he led law enforcement and consumer protection efforts involving a wide range of antitrust and consumer protection issues. In 2001, Harwood received the FTC Chairman’s Award for his service to the agency and the public. He joined the Commission in 1989, after six years as counsel to the U.S. Senate Committee on Commerce, Science, and Transportation.

Harrington, who has served as the agency’s Executive Director, will retire at the end of the year. She has served in that capacity since November 2010, following 15 months as Chief Operating Officer at the U.S. Small Business Administration. She previously served at the FTC for 25 years, starting as a staff attorney and assuming a variety of senior management positions in the Bureau of Consumer Protection, including Deputy Director and Acting Director. Harrington received the Service to America Medal in 2004 for leading the team that created the National Do Not Call Registry.

“Eileen has made invaluable contributions to the FTC, not only in leading the Office of the Executive Director, but also during her previous service at the agency,” Leibowitz said. “We will miss her strong management skills, her enthusiasm, her creativity, and, of course, her drive.”

Pat Bak, the current Deputy Executive Director, will serve as Acting Executive Director. Bak has served in a number of positions at the agency, including Acting CIO, Associate Executive Director, and Counsel to the Director of the Bureau of Consumer Protection.

Bakery Distributorships Were Not “Franchises” Within the Washington Franchise Investment Protection Act

This posting was written by John W. Arden.

Pepperidge Farm bakery distributorships were not “franchises” within the Washington Franchise Investment Protection Act because Pepperidge Farm did not exercise the level of control over the distributors to satisfy the “marketing plan” requirement, the distributors were not substantially associated with the Pepperidge Farm trademarks, and the distributors did not pay a franchise fee, according to the federal district court in Richland, Washington (Atchley v. Pepperidge Farm, Incorporated, December 6, 2012, Shea, E.).

Since Pepperidge Farm was not a franchisor doing business within Washington, it was not required to register a franchise disclosure document or provide a disclosure document prior to entering a distributorship agreement.

Pepperidge Farm entered into consignment agreements with third-party independent contractors, granting them geographically exclusive distributorships. In 2003, Michael Gilroy purchased an existing distributorship from David Spangler for $299,550. In 2004, John Atchley purchased a distributorship from Jason Godwin for $225,000. For both purchases, payment was nominally made to Pepperidge Farm, which facilitated the transactions. Pepperidge Farm credited the payments to outstanding loans or other financial obligations owed by the selling distributors and then furnished all remaining monies directly to the selling distributors.

Each distributor voluntarily entered into a separate consignment agreement with Pepperidge Farm and received an exclusive right to distribute Pepperidge Farm products in retail stores within their territories. The distributors received commission payments for the sale of Pepperidge Farm goods or a percentage of the net proceeds, depending on the products. Despite the territorial exclusivity provision of the agreements, Pepperidge Farm retained the right to sell and deliver its products to customers in the distributors’ territories.

After business reversals, the distributors brought separate claims against Pepperidge Farm, alleging violation of the Washington Franchise Investment Protection Act and negligent misrepresentation. Both cases were eventually assigned to Senior Judge Fred Van Stickle, who granted partial summary judgment for Pepperidge Farm and then consolidated the cases. Judge Van Stickle granted summary judgment on the remaining negligent misrepresentation claims and held a trial on Pepperidge Farm’s counterclaim for Gilroy’s failure to repay the loan that enabled him to purchase the distributorship. The court found that factual issues regarding whether the forced sale of Gilroy’s distributorship was commercially reasonable precluded summary judgment.

After a three-day trial in February 2009, the court entered a finding that the sale of the distributorship was commercially reasonable. The distributors appealed to the Ninth Circuit, which largely affirmed the district court rulings, but reversed the decision with respect to the Franchise Investment Protection Act, concluding that there was a genuine issue of material fact about whether the distributors paid franchise fees. The appeals court remanded the case for further proceedings.

On remand, the district court dismissed the Franchise Investment Protection Act claims on the ground that the distributorships were not “franchises” within the meaning of the Act. Under the statute, a “franchise” is an agreement by which (i) a person is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan prescribed in substantial part by the grantor; (ii) the operation of the business is substantially associated with a trademark, trade name, or other commercial symbol owned by or licensed by the grantor; and (iii) the person pays or is required to pay a franchise fee.

Marketing Plan

Although Pepperidge Farm controlled pricing of products directly sold and provided pricing schedules for the purpose of calculating commissions, it did not exercise control over many other factors used to determine the existence of a marketing plan, the court found. These factors included: (1) hours and days of operations; (2) advertising; (3) retail environment; (4) employee uniforms; (5) trading stamps; (6) hiring; (7) sales quotas; and (8) management training. While Pepperidge Farm provided the distributors with financial support by guaranteeing the initial loan to finance purchases of the distributorships, it was not show to provide any other financial support.

Thus, the distributors failed to satisfy the marketing plan element of the “franchise” definition of the Washington Franchise Investment Protection Act.

Association with Trademark

To satisfy the “substantial association” element of the “franchise” definition, the distributors were required to show a substantial association with Pepperidge Farm trademarks or trade names beyond the act of distributing the Pepperidge Farm products. Although Atchley used the Pepperidge Farm logo on his business card and on one business form and his delivery trucks, such association was limited and incidental, the court ruled. The use of the Pepperidge Farm trademarks did not rise to the level of “substantial association.”

Payment of Franchise Fee

A “franchise fee” is a payment for the right to enter into a business under a franchise agreement and does not include “any payment for the mandatory purchase of goods or services or any payment for goods or services available only from the franchisee.” Also excluded from the definition are payments for purchases at a bona fide wholesale price. Ordinary business expenses are not “franchise fees” because they are paid during the regular course of business and not for the right to do business.

Thus, the distributors did not pay, agree to pay, or were required to pay a “franchise fee” within the meaning of the Washington Franchise Investment Protection Act, in the court’s view.

The case is No. CV-04-452-EFS.

Howard R. Morrill (Simburg Ketter Sheppard Purdy) for John R. Atchley. Forrest A. Hainline, III (Goodwin Procter LLP) for Pepperidge Farm Inc.

Real Estate Investors Plead Guilty to Bid-Rigging and Mail Fraud

This posting was written by Jody Coultas, Contributor to Antitrust Law Daily.

Robert M. Brannon, son Jason R. Brannon, and their company pleaded guilty to their roles in a conspiracy to rig bids at auctions and commit mail fraud following an indictment returned by the federal district court in Mobile, Alabama, the Department of Justice announced on December 12.

The Brannons and J & R Properties LLC conspired with others not to bid against one another at public real estate foreclosure auctions in southern Alabama. The scheme involved a designated bidder buying property at a public auction, while the conspirators held a secret, second auction, at which each participant would bid the amount above the public auction price he or she was willing to pay. The highest bidder at the secret, second auction won the property.

From October 2004 until at least August 2007, the Brannons and their company also conspired to use the U.S. mail to carry out a fraudulent scheme to acquire title to rigged foreclosure properties sold at public auctions at artificially suppressed prices, to make and receive payoffs to co-conspirators, and to cause financial institutions, homeowners, and others with a legal interest in rigged foreclosure properties to receive less than the competitive price for the properties.

Eight individuals have pleaded guilty in the U.S. District Court for the Southern District of Alabama in connection with this ongoing investigation.

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and fines of $1 million for individuals and $100 million for companies. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine. Conspiracy to commit mail fraud charges carry a maximum penalty of 20 years in prison and fines of $250,000 for individuals and $500,000 for companies. The fine may be increased to twice the gross gain the conspirators derived from the crime or twice the gross loss caused to the victims of the crime by the conspirators.

The investigation into fraud and bid rigging at real estate foreclosure auctions was conducted by the Antitrust Division’s Atlanta Field Office and the FBI’s Mobile Office, with the assistance of the U.S. Attorney’s Office for the Southern District of Alabama.

Second Circuit Refuses to Hear Expedited Appeal of Preliminary Settlement Approval in Credit Card Swipe-Fee Case

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

The U.S. Court of Appeals in New York City has denied a request for expedited review of the preliminary approval of a settlement that would resolve an antitrust action against Visa, MasterCard, and major U.S. financial institutions, resolving merchants' allegations that credit card issuers conspired to fix swipe fees, or charges that retailers pay to accept credit cards (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, December 10, 2012).

The court denied the motion by Home Depot U.S.A., Inc. for expedited briefing, oral argument, and decision. An appeal will have to wait until after the federal district court in Brooklyn grants final approval to a settlement or has otherwise entered a final judgment.

On November 9, the federal district court granted preliminary approval of the proposed settlement. It also denied Home Depot's motion for certification for interlocutory appeal.

The settlement would provide an estimated $7.25 billion to the merchants who accepted Visa and MasterCard credit cards and debit cards in the United States since 2004. It would resolve the merchants’ claims that the payment card networks violated federal antitrust law by artificially inflating the interchange fees that the merchants paid on payment card transactions. The settlement is considered to be the largest ever in a private antitrust case.

The motion for preliminary approval was filed by mostly smaller merchants supporting the agreement. The National Retail Federation and a number of large retailers had asked the district court to reject the settlement. The trade group has said that the settlement is “unfair” and “does virtually nothing” to protect customers and address retailers’ concerns about credit card swipe fees charged by Visa and MasterCard.

The case is 05-MD-1720 (Docket Nos. 12-4671(L), 12-4708(Con), 12-4765(Con)).

Baseball, Hockey Fans Can Pursue Antitrust Claims over Restricted Availability of Game Telecasts

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

Subscribers to Internet services or television services offering live telecasts of “out-of-market” hockey and baseball games adequately alleged separate antitrust conspiracies involving the National Hockey League (NHL) and Major League Baseball (MLB), the federal district court in New York City has ruled (Laumann v. National Hockey League, December 5, 2012, Scheindlin, S.).

These sports fans alleged that, as a result of black-out or noncompete agreements, they were required to purchase all “out-of-market” hockey or baseball games even if they were only interested in viewing a particular game or games of one particular team located outside of their local markets. With the limited exception of nationally televised games, standard cable and satellite TV packages only offered “in-market” games (i.e., games played by the team in whose designated home territory the subscriber resided). A consumer interested in obtaining out-of-market games had two options: (1) television packages—such as NHL Center Ice and MLB Extra Innings—and (2) Internet packages—such as NHL Game Center Live and MLB.tv—which were controlled by the leagues.

The subscribers alleged a conspiracy involving the NHL, MLB, various clubs within the leagues, multichannel video programming distributors (MVPDs)—such cable distributor Comcast and satellite distributor DirecTV—and regional sports networks (RSNs). The RSNs are local television networks that negotiate contracts with individual NHL or MLB clubs to broadcast the majority of the local club’s games within that club’s telecast territory and to sell to the MVPDs. Some of the RSNs are owned by Comcast and DirecTV; however, two are independent of the MVPDs, but share ownership with an individual club. For example, Yankees Entertainment and Sports Networks, LLC is an RSN for New York Yankees that is co-owned with the New York Yankees.

Standing

The defendants challenged the television subscriber plaintiffs’ standing to sue on the grounds that they were indirect purchasers of the product in question and that their injuries were too remote from the alleged conduct. The television subscribers successfully argued that their claims fell within an exception to the Illinois Brick indirect purchaser doctrine, the court ruled. The middlemen were alleged to be co-conspirators.

The court, however, dismissed for lack of standing the plaintiffs who merely subscribed to Comcast and DirecTV, but did not subscribe to an out-of-market sports package. These plaintiffs did not allege that they were prevented from viewing games as a result of the black-out agreements or that they were charged supracompetitive prices for games that they wished to view. Rather, their claims were based on some unidentified increased price of their overall cable package allegedly stemming from the absence of competition from out-of-market baseball clubs and their RSNs. Their alleged injuries were both speculative and difficult to identify and apportion, the court ruled.

Conspiracy Allegations

Finding that at least some of the plaintiffs had standing, the court went on to find that an agreement between the MVPDs and the RSNs and league defendants to restrain trade was adequately alleged. While the plaintiffs did not allege that the MVPDs entered into horizontal agreements, they plausibly alleged vertical agreements that not only facilitated, but also were essential to the horizontal market divisions and the agreement to cede control over out-of-market games to the leagues.

The plaintiffs adequately alleged harm to competition resulting from the market division agreements. The court rejected the defendants' argument that, because the NHL and MLB were legitimate joint ventures and some cooperation with respect to the production of games was necessary, their conduct—the production and distribution of live telecasts of games —was “core activity” immune from antitrust scrutiny. “Making all games available as part of a package, while it may increase output overall, does not, as a matter of law eliminate the harm to competition wrought by preventing the individual teams from competing to sell their games outside their home territories,” the court explained.

In addition, the subscribers to Internet services adequately alleged reduced choice, insofar as in-market games were not available from any seller over the Internet. The Internet packages were available directly through the leagues and also required the purchase of all out-of-market games. Neither local games nor nationally televised games were available through these packages. The alleged purpose of the limitation on Internet programming was to protect the RSNs’ regional monopolies and to insulate MVPDs that carried them from Internet competition, the court explained. As a result, the Sherman Act, Sec. 1 claim could proceed against all defendants.

Monopoly Claims

Lastly, the court refused to dismiss claims against the NHL and MLB for conspiracy to monopolize the markets for video presentations and Internet streaming of major league hockey or baseball games. However, the plaintiffs did not support Sherman Act, Sec. 2 claims against the RSNs or MVPDs in the market for production of baseball and hockey games. Thus, the conspiracy to monopolize claim was dismissed against the RSN and MVPD defendants, but could proceed against the remaining defendants.

FTC Nominee Faces Questioning from Senate Commerce Committee

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

George Mason University Law Professor Joshua D. Wright faced tough questions from members of the Senate Commerce, Science, and Transportation Committee yesterday afternoon as the committee considered his nomination to serve on the FTC. If confirmed, Wright would replace Commissioner J. Thomas Rosch—a fellow Republican—who remains at the Commission although his term expired in September.

Wright, an economist, has written extensively on antitrust law and economics and is a regular contributor to the Truth on the Market blog. Some of those writings have raised concerns among committee members that Wright might not be right for the FTC.

“I profoundly respect the Federal Trade Commission as an institution, its role in protecting consumers, and its mission in ensuring the effective operation of markets,” Wright said in his prepared testimony. “The Commission has earned its reputation as the world’s premiere competition and consumer protection agency.”

However, Senator Barbara Boxer (D-California) said that some of Wright's writings gave her pause. She questioned why Wright would want to be a member of a Commission that he recently described as having “a history and pattern of appointments evidencing a systematic failure to meet expectations.”

Wright explained that he was not talking about the entire mission of the FTC. His criticism stemmed from the Commission's enforcement record under its FTC Act, Sec. 5 unfair methods of competition authority, as opposed to its consumer protection authority. Wright said that he believed greatly in the FTC's fundamental mission of protecting consumers.

Senator Frank Lautenberg (D-New Jersey) also wondered how Wright’s apparent anti-regulatory stance squared with serving as a regulator. “How do you protect the safety of consumers without rules?” the senator asked.

“I do believe in rules and regulation,” said Wright, in response to the questioning. He added that regulations can harness markets to work for consumers but can also operate to the detriment of consumers.

Commerce committee members also sought assurances from Wright that he would recuse himself from FTC proceedings involving companies for which the nominee had authored reports. Wright stated that he would recuse himself from law enforcement matters pertaining to Google and other appropriate cases where potential conflicts called for recusal for a period of two years.

Noting that the FTC can “sometimes move at a glacial pace,” Senator Maria Cantwell (D-Washington) pressed on the adequacy of the two-year period of recusal.

Wright said that he would check with ethics officials at the FTC about his obligations and would recuse himself if appropriate, but the pledge did not seem to satisfy Cantwell.

Wright also said that, if confirmed, he would look into oil market manipulation. Senators Boxer and Cantwell both believe that the FTC should do more to determine whether market manipulation or false reporting by oil refineries contributed to near-record gas prices in Western states this year. Cantwell wants the agency to take a more aggressive role in policing potential oil market manipulation.

Boxer said that she was not happy with the Commission because it “has never so much as scolded” the oil companies.

Wright also pledged support for the FTC’s efforts to develop a “Do Not Track” mechanism for protecting consumer privacy on the Internet. He said that he supported the Commission’s view in favor of Do Not Track and the FTC privacy report's inclusion of notice and choice obligations.

Grass Seed Sellers Could Not Enjoin Each Other’s Allegedly False Ads

This posting was written by E. Darius Sturmer, Editor of CCH Business Franchise Guide.

Competing sellers of grass seed and plant food products—Scotts and Pennington—were not entitled to preliminary injunctive relief against each other’s allegedly false advertising, the federal district court in Richmond, Virginia has held (The Scotts Co., LLC v. Pennington Seed, Inc., November 30, 2012, Gibney, J.).

Neither could show that it was likely to prevail on the merits of its claims, that it suffered irreparable harm, that the balance of equities tipped in its favor, or that injunction would serve the public interest, the court decided. The companies’ cross-motions for preliminary injunctions were denied, as were Pennington’s motions to strike supplemental filings submitted by Scotts.

The present dispute between the competitors arose in early March, when Scotts filed suit against Pennington over its claim that Pennington’s Smart Seed grass seed products contain “twice the seed” as Scotts’ Turf Builder products. By the end of the month, the court had dismissed Scotts’ Lanham Act and state law false advertising claims, as well as its common law unfair competition claims, finding that the advertising claims at issue were covered under the terms of a confidential settlement agreement previously entered into by the parties. That settlement agreement mandated that the parties attempt alternative dispute resolution before such an action could be filed. The parties completed this procedure in April without success, and Scotts again pursued an injunction against Pennington’s advertising.

In the interim, however, Pennington had fired back with its own lawsuit, asserting false advertising under federal and state law, common law unfair competition, and violation of the Georgia Uniform Deceptive Trade Practices Act stemming from Scotts’ descriptions of Pennington’s “1 Step Complete” combination grass seed products as “a bunch of ground-up paper” and Scotts’ superiority claims with respect to its own EZ Seed products.

“Twice the Seed” Claims

Scotts was unable to show a likelihood of success on its Lanham Act suit based on Pennington’s “twice the seed” claims, the court found. Whether Pennington’s ads were literally false was debatable. While Pennington’s products did not contain twice the number of seeds as Scotts’ grass seed products, the claim was literally true on a weight basis, which Pennington attested was the industry standard to measure seed count. A consumer survey produced by Scotts, however, suggested that, even if literally true, the ads misled potential purchasers.

On the other hand, Pennington established that the equitable doctrine of laches could apply to prevent Scotts from obtaining relief, given that Scotts had waited until Pennington’s promotional materials had been public for over a year before challenging them.

Scotts also failed to make a necessary showing of irreparable harm, the court added. As most consumers purchase their products at the beginning of the brief spring grass seed season, the need for urgency had already been removed. There was “no reason that a full trial on the merits [could not] be had prior to the time the parties’ claims could again become crucial,” the court said.

Considering the balance of the equities, the court observed from the parties’ “tit-for-tat” litigation strategy that each party’s hands appeared “slightly soiled, which weigh[ed] against injunctive relief.”

Finally, the court stated, while the public interest was “undoubtedly served by a marketplace fee of consumer confusion as to the nature, quality, and characteristics of companies’ products,” Scotts had not made a clear showing that Pennington’s claims were “likely to substantially cause consumer confusion such that the public interest factor decidedly tips in Scotts’ favor.”

1 Step Complete vs. EZ Seed

The likelihood of success on the merits of Pennington’s claims against Scotts was similarly uncertain, the court determined. Pennington failed to show that Scotts’ “bunch of ground-up paper” claim was literally false, in light of undisputed evidence that the mulch component in 1-Step Complete contained paper. Further, it could hardly be argued that a reasonable consumer seeking to buy a grass seed product would understand Scotts’ claim to convey the message that Pennington’s 1 Step Complete was comprised entirely of a bunch of ground-up paper. Consumer survey evidence did not support Pennington’s argument that Scotts’ advertising deceived consumers into believing that 1 Step Complete was made entirely of a bunch of ground-up paper.

As to Scotts’ superiority claims, preliminary assessment of product testing conducted by a Scotts research specialist led the court to conclude that the testing reasonably supported Scotts’ germination and seedling establishment claims.

Because Pennington failed to show that Scotts’ claims were false, misleading, and thus likely to harm Pennington’s sales, reputation, or goodwill, it could not establish that it would suffer irreparable harm from their continuation, the court held. Likewise, Pennington’s failure to show false or misleading claims, or resultant competitive harm, precluded a finding that the balance of equities or public interest tipped in its favor.

The case is Civil Action No. 3:12-CV-168.

Cassandra Carol Collins (Hunton & Williams LLP) for Scotts Company LLC. Charles Bennett Molster, III (Winston & Strawn LLP) for Pennington Seed, Inc.

Hovenkamp Appointed to ABA Task Force to Advise President on Antitrust Issues

This posting was written by Tobias J. Gillett, contributor to Antitrust Law Daily.

University of Iowa law professor Herbert Hovenkamp will advise President Obama on antitrust policy as part of the American Bar Association Section of Antitrust Law’s Transition Report Task Force. The Task Force, like ABA Task Forces established in other areas of law, provides incoming presidents with the ABA’s positions on antitrust policy issues.

Hovenkamp—author of the landmark antitrust treatise Antitrust Law: An Analysis ofAntitrust Principles and Their Application (CCH Incorporated)—works with approximately 40 other Task Force members, mostly comprising antitrust scholars and lawyers. Douglas Melamed, General Counsel of Intel Corp., and Donald Klawiter, a partner in Sheppard Mullins’s Washington, D.C. office, co-chair the group. The Task Force seeks to promote innovation, stronger markets, and competitiveness.

Hovenkamp believes the Task Force’s report would have taken the same form regardless of the candidate elected in November, and that it will not demand many changes from the Obama Administration, although it may be more detailed than the Task Force’s 2008 report.

“I don’t think anything in the report will prompt Obama to change direction,” Hovenkamp observed. “Even the Republicans on the committee felt that not a lot of changes were needed, which is a credit to the current administration’s policies of the last four years.”

The report will be reviewed by the White House, and likely by the director of the Department of Justice Antitrust Division and the chairman of the Federal Trade Commission. The Task Force’s 2008 report can be found here on the ABA website. 

U.S. Lawyers Should Not Draft Canadian Franchise Documents Without Consulting Local Counsel: Ontario Bar Association Group

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

The Ontario Bar Association Franchise Law Section posted a message on the ABA Forum on Franchising email listserv yesterday, warning U.S. franchise lawyers not to prepare Canadian franchise agreements, ancillary documents, and franchise disclosure documents without consulting Canadian counsel.

With the permission of the Chair of the ABA Forum, the 24-lawyer Executive group of the Ontario Bar Association Franchise Law Section sent an email to the Forum on Franchising membership, “so as to caution ABA Forum members on the inadvisability and risk of this practice.”

“While many U.S. lawyers will directly retain or arrange for their clients to retain qualified Canadian counsel to prepare or at least review these franchise documents, that is not always the case,” the message explained.

“We assume that most of the members of the ABA Forum are aware of the growing complexity involved in Canadian franchise documents, especially disclosure documents, as a result of various articles, papers, presentations at Forum programs, and messages on the Listserv,” it continued. “Courts in the Canadian provinces are regularly interpreting the provisions of provincial franchise laws and regulations, and making decisions that affect substantive provisions of franchise documents. Now with five separate provincial franchise laws, the preparation of Canadian disclosure documents has become even more complicated.”

Nevertheless, U.S. lawyers who are often highly qualified specialist in their own jurisdictions are preparing Canadian franchise documents containing significant errors or omissions, according to the group. “These lawyers are not professionally qualified to prepare Canadian franchise documents or give advice in respect of the laws of a foreign jurisdiction.”

The group expressed concerns about the risks to franchisors being advised on Canadian (and particularly, Ontario) franchise matters by lawyers not trained or qualified to practice law in the jurisdiction. “The statutory remedy of rescission for non disclosure or incomplete disclosure is very harsh, and has elevated the potential risk to lawyers who are not qualified to undertake this work. Unfortunately, this impact and risk can extend to those who sign disclosure document certificates and those involved in the sale and granting of franchises. Further, it may constitute the unauthorized practice of law in a particular province.”

U.S. franchise lawyers should consider whether their insurance provides coverage for professional negligence in preparing documents or giving advice on Canadian law, the group advised.

The message concluded with an invitation to contact any member of the Section Executive group, whose names and email addresses were included. All or most of the members are associate members of the ABA Forum on Franchising, according to Section Chair Larry Weinberg, who sent the message.

Tobacco Firms’ Obligatory Corrective Statements for Cigarette Harm, Addiction Claims Approved

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

The federal district court in Washington D.C. yesterday finalized the text of corrective messages that most of the major domestic tobacco firms must publish on each of five topics on which the tobacco firms made false and deceptive statements about the health effects and addictive properties of their cigarettes. (U.S. v. Philip Morris USA, Inc., November 27, 2012, Kessler, G.)

The companies were required to publish the comments as part of a series of injunctive measures imposed by the court in 2006, upon a ruling that they had participated in a long-running RICO conspiracy to conceal the true hazards of smoking.

In association with this finding, the court determined that the tobacco firms had engaged in the scheme by making false and fraudulent statements, representations, and promises in advertising to consumers. These statements concerned: (1) the adverse health effects of smoking; (2) the addictiveness of smoking and nicotine; (3) the lack of any significant health benefit from smoking low tar, light, mild, or natural cigarettes; (4) the firms’ manipulation of cigarette design and composition to ensure optimum nicotine delivery; and (5) the adverse health effects of exposure to secondhand smoke.

The tobacco firms continue to engage in conduct “materially indistinguishable” from their previous unlawful actions “to this day,” the court noted.

The corrective statements are “necessary to prevent and restrain the defendants from continuing to disseminate fraudulent public statements and marketing messages,” according to the court. The court noted a decision by the U.S. Court of Appeals for the District of Columbia Circuit upholding its earlier determination that corrective statements targeted at revealing the previously hidden truth about cigarettes would prevent and restrain future RICO violations. The approved statements read as follows:

A. Adverse Health Effects of Smoking

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about the health effects of smoking, and has ordered those companies to make this statement. Here is the truth:

• Smoking kills, on average, 1200 Americans. Every day.

• More people die every year from smoking than from murder, AIDS, suicide, drugs, car crashes, and alcohol, combined.

• Smoking causes heart disease, emphysema, acute myeloid leukemia, and cancer of the mouth, esophagus, larynx, lung, stomach, kidney, bladder, and pancreas.

• Smoking also causes reduced fertility, low birth weight in newborns, and cancer of the cervix and uterus.

B. Addictiveness of Smoking and Nicotine

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about the addictiveness of smoking and nicotine, and has ordered those companies to make this statement. Here is the truth:

• Smoking is highly addictive. Nicotine is the addictive drug in tobacco.

• Cigarette companies intentionally designed cigarettes with enough nicotine to create and sustain addiction.

• It's not easy to quit.

• When you smoke, the nicotine actually changes the brain—that's why quitting is so hard.

C. Lack of Significant Health Benefit from Smoking “Low Tar,” “Light,” “Ultra Light,” “Mild,” and “Natural” Cigarettes

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public by falsely selling and advertising low tar and light cigarettes as less harmful than regular cigarettes, and has ordered those companies to make this statement. Here is the truth:

• Many smokers switch to low tar and light cigarettes rather than quitting because they think low tar and light cigarettes are less harmful. They are not.

• “Low tar” and filtered cigarette smokers inhale essentially the same amount of tar and nicotine as they would from regular cigarettes.

• All cigarettes cause cancer, lung disease, heart attacks, and premature death—lights, low tar, ultra lights, and naturals. There is no safe cigarette.

D. Manipulation of Cigarette Design and Composition to Ensure Optimum Nicotine Delivery

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about designing cigarettes to enhance the delivery of nicotine, and has ordered those companies to make this statement. Here is the truth:

• Defendant tobacco companies intentionally designed cigarettes to make them more addictive.

• Cigarette companies control the impact and delivery of nicotine in many ways, including designing filters and selecting cigarette paper to maximize the ingestion of nicotine, adding ammonia to make the cigarette taste less harsh, and controlling the physical and chemical make-up of the tobacco blend.

• When you smoke, the nicotine actually changes the brain—that's why quitting is so hard.

E. Adverse Health Effects of Exposure to Secondhand Smoke

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about the health effects of secondhand smoke, and has ordered those companies to make this statement. Here is the truth:

• Secondhand smoke kills over 3,000 Americans each year.

• Secondhand smoke causes lung cancer and coronary heart disease in adults who do not smoke.

• Children exposed to secondhand smoke are at an increased risk for sudden infant death syndrome (SIDS), acute respiratory infections, ear problems, severe asthma, and reduced lung function.

• There is no safe level of exposure to secondhand smoke.

In selecting from among the parties’ submissions of proposed corrective statements, the District Judge Gladys Kessler stated that the court had “broad discretion to formulate corrective statements.” After reviewing the Supreme Court’s development of the commercial speech doctrine and in light of more recent precedent, the court concluded that the statements passed Constitutional muster.

The statements were “purely factual and uncontroversial,” in the court’s view, and were therefore subject to the standard of review established by the Supreme Court in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985). Under Zauderer, challenged disclosures survive constitutional scrutiny if they are reasonably related to the government interest in preventing consumer deception and not otherwise unjust or unduly burdensome, the court explained.

Citing the massive “scope of the consumer fraud at issue here,” the court found that the preamble language provided important and necessary context for the consumer, and was therefore reasonably related to correcting and preventing future consumer deception. Furthermore, the court observed, the defending tobacco firms’ failure to point to any “burden” or “chill” that the statements would have on their speech precluded their argument that the statements imposed “far greater burdens” on their speech than “necessary to further the Government’s anti-fraud interest.”

The court added that even if the Zauderer requirements had not been met, the statements still would satisfy First Amendment scrutiny under another, lower standard of acceptable commercial speech.

The case is Civil Action No. 99-2496 (GK).

House Lawmakers Call on FTC to Avoid Overstepping in Google Investigation

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

Two Democratic members of the House of Representatives have sent a letter to FTC Chairman Jon Leibowitz, expressing concerns over apparent leaks of information regarding the agency’s investigation into Google, Inc. and asking the agency to act within its statutory authority in pursuing the matter.

Rep. Anna G. Eshoo (California), Ranking Member of the House Energy and Commerce Committee's Communications and Technology Subcommittee, and Rep. Zoe Lofgren (California) suggested in the November 19 letter that the purported release of sensitive details from an internal draft FTC report was "irresponsible” and that it “potentially compromises an investigation that has yet to be voted on by the full Commission.”

The congresswomen stressed the need for the agency to “remain fair and impartial” and to protect “the confidentiality of internal discussions among the parties involved.”

In June 2011, Google announced that the FTC was conducting a formal review its business practices. Google did not disclose details of the investigation.

Recent reports have suggested that an FTC enforcement action will soon be announced. The European Commission has already announced an in-depth antitrust investigation into whether Google’s Internet search display practices were designed to shut out competitors.

The letter also questioned the Commission’s use of its authority under Section 5 of the FTC Act to reach allegedly anticompetitive conduct that might not be found illegal under Section 2 of the Sherman Act.

“Expanding the FTC’s Section 5 powers to include antitrust matters could lead to overbroad authority that amplifies uncertainty and stifles growth,” according to the representatives. “If the FTC intends to litigate under this interpretation of Section 5, we strongly urge the FTC to reconsider.”

Hesse Appointed Acting Chief of Antitrust Division

This posting was written by John W. Arden.

In the wake of Joseph Wayland’s resignation last week, Renata B. Hesse has been appointed Acting Assistant General in charge of the Department of Justice Antitrust Division.

She is the third acting antitrust chief appointed since Christine Varney left the position of Assistant Attorney General in charge of the Antitrust Division on August 5, 2011. Sharis A. Pozen served as Acting Assistant Attorney General through April 2012, when Wayland took over. William J. Baer was nominated as antitrust chief in February 2012, but the nomination has been stalled.

Hesse has served as Deputy Assistant Attorney General for Criminal and Civil Operations in the Antitrust Division since August 2012. Previously, she was a Special Advisor to the Assistant Attorney General for Antitrust, chief of the Division’s Network & Technology Enforcement Section, and an attorney in its Merger Task Force and Transportation Energy & Agriculture Section. She received the Attorney General’s Distinguished Service Award in 2005.

She served as Senior Counsel to the Chairman for Transactions at the Federal Communication Commission, where she oversaw the Commission’s investigation of AT&T’s proposed acquisition of T-Mobile. Before joining the Commission, Hesse was a partner in the Washington, D.C. office of Wilson, Sonsini Goodrich & Rosati. She received her Bachelor of Arts degree in Political Science from Wellesley College in 1986 and her Juris Doctor from the University of California, Berkley, in 1990.

FTC General Counsel Leaves Agency, Acting General Counsel Appointed

This posting was written by John W. Arden.

Federal Trade Commission General Counsel Willard K. Tom has left the agency to return to the private sector, FTC Chairman Jon Leibowitz announced today. Tom led the Office of General Counsel for more than three years, serving as the Commission’s top legal officer and advisor, representing the agency in court, and providing legal counsel to the Commission, it bureaus, and its offices.

“Will served this agency with great distinction,” said Leibowitz. “His leadership helped bring significant antitrust and consumer protection victories on behalf of American consumers, and we will miss his thoughtfulness, wise counsel, and extraordinary writing skills.”

David Shonka, the FTC’s Principal Deputy General Counsel since April 2008, was appointed Acting General Counsel, according to the agency. He joined the Commission as a staff attorney in 1977 and later became Assistant General Counsel for Litigation. Shonka oversees the Office of General Counsel’s Litigation, Legal Counsel, and Policy Studies units and chairs the agency’s e-Discovery Steering Committee for government law enforcement investigations. He is a graduate of the University of Nebraska and the University of Maine Law School.

Chief Privacy Officer

The Commission also announced the appointment of Peter Miller as the FTC’s Chief Privacy Officer (CPO). In this position, Miller will coordinate efforts to implement and review the agency’s policies and procedures for safeguarding all sensitive information and will chair the FTC’s Privacy Steering Committee and the Breach Notification Response Team. Miller, who has been Acting CPO, has worked at the FTC for nine years, previously previously serving as Assistant Director of Regional Operations for the Bureau of Consumer Protection and as a staff attorney for the Division of Advertising Practices. He received his B.A. from Rice University and his J.D. from the University of Texas.

EC Approves Procter & Gamble Acquisition of Teva OTC Business

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

The European Commission (EC) announced on November 12 that it has cleared Procter & Gamble Company's proposed acquisition of the over-the-counter (OTC) business of the generic pharmaceutical company Teva Pharmaceutical Industries, Ltd. of Israel. The OTC assets had been acquired by Teva from U.S.-based Cephalon, Inc. in 2011. The EC’s investigation focused on topical anti-rheumatics and analgesics, and expectorants, sold in Latvia, Lithuania, and Estonia.

The EC concluded that the current transaction would not raise competition concerns because it would not significantly alter the market structure. According to the EC, the affected market was last examined in October 2011, when Teva acquired Cephalon's then-existing OTC business. The competitive conditions in these markets have not materially changed since then.

In September 2011, the EC cleared Procter & Gamble’s acquisition of “important parts” of Teva’s OTC business, after concluding that the proposed transaction would not raise competition concerns. In its investigation of that transaction, the EC focused on laxatives sold in the Netherlands and antitussives sold in Austria.

Procter & Gamble and Teva had issued a statement in November 2011, announcing plans to create a new partnership and joint venture in consumer health care. The parties said that the venture, PGT Healthcare, was to be headquartered in Geneva, Switzerland, and operate in essentially all markets outside of North America. The partnership between Procter & Gamble and Teva also was to develop new brands for the North American market.

High Court to Consider Enforceability of Arbitration Clause’s Class Action Waiver in Antitrust Case

This posting was written by William Zale.

In a case involving merchants’ class antitrust claims against American Express, the U.S. Supreme Court has agreed to decide whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. The Court granted the petition for certiorari in American Express Co. v. Italian Colors Restaurant, Dkt. 12-133, on November 9, 2012.

At issue is a decision of the U.S. Court of Appeals in New York holding unenforceable a class action waiver contained in the mandatory arbitration clause of their commercial contracts with American Express, In re American Express Merchants’ Litigation, 667 F.3d 204 (2nd Cir. 2012).

 If the plaintiffs could not pursue their allegations of antitrust law violations as a class, it would be financially impossible for them to seek to vindicate their federal statutory rights, according to the appeals court. American Express thus would have immunized itself against all such antitrust liability by the expedient of including in its contracts of adhesion an arbitration clause that does not permit class arbitration, irrespective of whether or not the provision explicitly prohibits class arbitration, the court observed.

The petition for certiorari appears here.

Acting Antitrust Chief to Step Down

This posting was written by John W. Arden.

After six months in the position, Joseph Wayland, Acting Assistant Attorney General in charge of the Justice of Department Antitrust Division, will step down next week, according to published reports.

Wayland became the acting antitrust chief in April 2012, following the departure of then-Acting Assistant Attorney General Sharis A. Pozen.

There has not been an Assistant Attorney General in charge of the Antitrust Division since Christine Varney left the position on August 5, 2011, to return to private practice. President Obama nominated William J. Baer as antitrust chief in February 2012, but the nomination has been stalled.

Prior to his current role, Wayland served as Deputy Assistant Attorney General for Civil Enforcement at the Antitrust Division. He joined the division in September 2010 and worked on a number of high-profile cases, including the Justice Department’s successful challenges to AT&T’s proposed acquisition of T-Mobile, USA, Inc. and H&R Block’s proposed acquisition of 2SS Holdings, the maker of TaxACT tax preparation software.

Wayland is reported to be returning to Simpson Thacher & Bartlett LLP, the firm he left to join the Antitrust Division.

No announcement has been made regarding Wayland’s successor.

EC Not Blocking Legitimate Efforts to Create Large European Companies: Competition Chief

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

At a conference on competition policy, law, and economics in Cernobbio, Italy on November 2, European Commission Vice Chair for Competition Policy Joaquin Almunia shared the latest developments in the field of merger control, placing them in the context of the recent evolution of the EC policy.

Much of his speech (“Merger review: Past evolution and future prospects”) contested the perception that the EC is “raising hurdles against the creation of large European companies” and not supporting “European champions.”

In reality, the Commission has cleared more than 4,600 deals and blocked only 22 since the EU’s merger regulation came into force in 1990. “Fewer than five in every thousand cases!” he said. Last year, the enforcement authority received 309 notifications, approved as many as 299 of them in Phase I, and blocked only one transaction, according to Alumnia.

“So let’s recognize the facts: it is simply not true that the Commission is putting the brakes on the legitimate efforts of Europe’s firms to scale up,” said the official.

Europe doesn’t lack corporate giants, he said, noting that the top 100 corporations in the world included 30 from the United States and 27 from the EU.

He further cautioned against shielding Europe’s companies from competition. “Merger control is not the place for protectionist measures,” observed the official. “The discipline imposed by a keen competition environment in the Single Market is a tonic for Europe’s companies. It prepares them to do business on the global markets and to succeed.”

Almunia cited the introduction, in the guidelines of 2004 and 2008, of strict analytical frameworks and a test for competitive harm based on economic effects. After these changes, he said, EC merger review “is now focused more on how a merger can affect the competitive dynamics of markets and less on structural aspects such as concentration levels and market shares.”

He explained that high market shares are not always problematic, while sometimes even moderate shares can impair competition, depending on the actual market conditions in which each individual deal takes place. The authority assesses the likely impact of a merger on price and other parameters—such as quality, choice, and innovation—alongside the precompetitive effects and efficiencies of a proposed deal, he said.

Almunia expressed his intent to continue streamlining the system to focus on “cases that have a real impact on competition and consumers in the internal market and require complex analyses.” He observed that there is room for improvement on one substantive point: evaluating transactions that lead to the acquisition of non-controlling minority stakes. These transactions currently escape EC scrutiny, even though they may cause significant harm to competition.

Regarding particular transactions, Almunia noted that the EC was currently reviewing Hutchison’s takeover of Orange in the Austrian mobile telephony market and the merger between UPS and TNT. “Our preliminary view is that serious competition concerns would arise in both cases, and substantial remedies are needed.” It is also analyzing Raynair’s renewed bid to acquire a controlling stake of its Irish rival, Aer Lingus.

Supreme Court Hears Oral Argument in Antitrust Class Action Against Comcast

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

As the U.S. Supreme Court heard oral argument on November 5 about the appropriate standard for class certification in a consumer antitrust action against cable provider Comcast Corporation, the justices spent much of the time trying to determine whether the parties actually had opposing views on the appropriate legal standard (Comcast Corp. v. Behrend, Dkt. 11-864).

The case could impact the ability of consumers to pursue damages class actions if the Court were to impose tougher standards on lower courts as they consider motions for class certification.

“[I]t seems to me that except for the question of how good the expert report is, none of the parties have any adversarial difference as to the appropriate legal standard,” commented Justice Elena Kagan. “And, you know, usually we decide cases based on disagreements about law, and here I can't find one.”

In deciding to take up the case, the U.S. Supreme Court “wanted to talk about . . . whether a district court at a class certification stage has to conduct a Daubert inquiry, in other words, [whether it] has to decide on the admissibility of expert testimony relating to class-wide damages,” according to Justice Kagan. Comcast's counsel had argued that the complaining cable customers’ damages model no longer fit the legal theory that remained in the case.

In June 2012, the Supreme Court agreed to review a decision of the U.S. Court of Appeals in Philadelphia (655 F.3d 182, 2011-2 Trade Cases ¶77,575), upholding the certification of a class of approximately two million cable television customers in the Philadelphia area. The customers allege that Comcast engaged in unlawful monopolization.

The appellate court ruled that the lower court satisfied the “rigorous analysis” standard established by the Third Circuit in In re Hydrogen Peroxide Antitrust Litigation (552 F.3d 305, 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).

In its petition, Comcast asked whether a district court may certify a class action without resolving “merits arguments” that bear on prerequisites for certification under Rule 23, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3).

In granting certiorari, the Court limited its review to the question: “Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”

There was some question as to whether Comcast waived its right to object to the admissibility of the expert testimony. Comcast's counsel asserted that Comcast had never said that its objection was only to the weight and not to the admissibility of the evidence.

Counsel for the customers contended that Comcast was so profoundly uninterested in Daubert, and was so focused on arguing weight and probativeness as opposed to admissibility, that it never even cited the case at the district court level. The Supreme Court's 1993 decision in Daubert v. Merrell Dow Pharmaceuticals, Inc. (509 U. S. 579), sets out certain requirements for the admission of expert testimony.

Chief Justice John Roberts suggested that the Court should answer the question presented as reformulated and send it back down to the district court to determine whether or not the parties adequately preserved the objection or not. “[T]he district court presumably can decide based on the proceedings and all that below, all the scars and mess-ups, whether or not it was adequately preserved or not,” he noted.

$19 Million Settlement Approved in ADA Class Action Against Burger King

This posting was written by Jeffrey May.

The federal district court in San Francisco has approved a $19 million settlement in an action filed on behalf of a class of approximately 620 mobility-impaired customers of 86 California Burger King restaurants against the fast food franchisor for violations of the Americans with Disabilities Act and California disabilities laws (Vallabhapurapu v. Burger King Corp., October 26, 2012, Alsup, W.).

The settlement agreement, which is purported to include the largest total recovery amount ever obtained in a disability access case, was found to be in the best interests of the class and fair, reasonable, and adequate.

According to the plaintiffs, Burger King pursued discriminatory policies or practices that resulted in unlawful architectural or design barriers at 86 California restaurants leased to franchisees. These practices allegedly denied customers who use wheelchairs or scooters access to services at these Burger King restaurants.

The action followed an action called Castaneda v. Burger King Corp., 3:08-cv-04262-WHA. In Castaneda, an order certified 10 classes, one for each of 10 restaurants at which plaintiff mobility-impaired customers had visited and encountered access barriers, and a settlement was thereafter reached concerning the 10 restaurants (CCH Business Franchise Guide ¶14,419). This case involves the remaining 86 Burger King restaurants in California for which classes were not certified in Castaneda. Counsel are the same.

The current settlement provides for a cash payment of $19 million to satisfy and settle all claims for damages, as well as any attorney fees and costs. It will provide monetary damages of over $14 million.

Monetary awards to each claimant in the settlement class will be distributed pro rata based on the total number of visits by each damages claimant to one of the 86 restaurants where he or she encountered a barrier, the court explained. The maximum number of visits for which each damages claimant can obtain recovery is six.

Attorney Fees, Costs

The court also approved a request for reimbursement of $230,776.77 in litigation costs and expenses, and $4,592,305.81 in attorney fees. Using the lodestar method for calculating attorney fees (reasonable number of hours multiplied by a reasonable hourly rate), class counsel came up with a possible award of $3,546,721.60. That figure was based on rates ranging from $335 to $825 for the attorneys, and from $225 to $275 for paralegals and other staff. On top of that amount, the court applied a multiplier of 1.29, based on the quality of representation and benefit to the class, to reach the $4,592,305.81 figure.

Injunctive Relief

In addition to monetary relief, the settlement grants injunctive relief. This would include all of the measures agreed to in the Castaneda litigation, such as agreements to eliminate all accessibility barriers and to use mandatory checklists with specific accessibility items for remodeling, alterations, repairs, and maintenance.

The court pointed out an additional remedial measure that goes beyond those imposed by the Castaneda settlement. Burger King will now include in its manual to its franchisees the recommendation that franchisees check the force required to open public exterior and restroom doors twice per month. Franchise operators will need to check that the doors do not require more than five pounds of pressure to open. Of the 86 restaurants originally at issue, the injunctive relief applies to the 77 Burger King restaurants that are still in business and are leased by Burger King to franchisees in California.

Japanese Auto Parts Maker to Plead Guilty to Price Fixing, Obstructing Justice

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

Japan-based auto parts maker Tokai Rika Co. Ltd., has agreed to plead guilty and to pay a $17.7 million criminal fine for its role in a conspiracy to fix prices of heater control panels (HCPs) installed in cars sold in the United States and elsewhere, the Department of Justice announced on October 30. HCPs are located in the center console of an automobile and control the temperature of the interior environment of a vehicle.

Tokai Rika has also agreed to plead guilty to a charge of obstruction of justice related to the investigation of the antitrust violation. A two-count felony charge was filed in the federal district court in Detroit.

Including Tokai Rika, nine companies and 11 executives have pleaded guilty or agreed to plead guilty in the Justice Department’s ongoing investigation into price fixing and bid rigging in the auto parts industry, according to the announcement.

Tokai Rika and its co-conspirators carried out the conspiracy from at least as early as September 2003 until at least February 2010, the government alleged. The company admitted to fixing prices of HCPs sold to Toyota in the United States and elsewhere, on a model-by-model basis.

The company also admitted to obstructing the government’s investigation. After learning that the FBI had executed a search warrant on Tokai Rika’s U.S. subsidiary, a company executive directed employees to delete electronic data and destroy paper documents likely to contain evidence of antitrust crimes in the United States and elsewhere, according to the Justice Department.

“The conspirators used code names and chose meeting places and times to avoid detection,” said Scott D. Hammond, Deputy Assistant Attorney General in charge of the Department of Justice Antitrust Division’s criminal enforcement program. “They knew their actions would harm American consumers, and attempted to cover it up when caught. The division will continue to hold accountable companies who engage in anticompetitive conduct and who obstruct law enforcement.”

LexisNexis Filing Fees Might Be Unconscionable Under Texas Deceptive Trade Practices Law

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

A civil litigant stated a Texas Deceptive Trade Practices—Consumer Protection Act (DTPA) claim for unconscionable conduct against LexisNexis based on its mandatory electronic filing fees charged to litigants in Texas state courts in Montgomery and Jefferson counties, according to the federal district court in Houston.

The litigant initiated this suit after LexisNexis charged her for electronically filing in Montgomery County, which was mandatory. The fees were allegedly unconscionably high and neither Montgomery County nor LexisNexis provides litigants with a list of charges levied or the nature of those charges. LexisNexis also allegedly impliedly represented that it was a government actor.

False or Misleading Acts

Because the litigant failed to allege any specific concealment by LexisNexis that she relied upon to e-file, the court dismissed the DTPA claims for false, misleading, or deceptive acts. The DTPA makes it unlawful to engage in false, misleading, or deceptive acts or practices in the conduct of any trade or commerce. A party asserting such claims must show that the acts or practices in question caused a cognizable injury.

The litigant had knowledge of the alternatives to e-filing before choosing to e-file and did not believe the charge was a filing fee. Any concealment by LexisNexis of the fees did not cause the litigant to pay the e-filing fee and failure to disclose the fees was not a DTPA violation. Also, the litigant failed to allege that she would have used an alternative method if she had known of the cost of e-filing.

Unconscionability

However, the litigant stated DTPA claims based on the unconscionability of the filing fees, according to the court. An unconscionable action is an act or practice which takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree, or results in a gross disparity between the value received and consideration paid, in a transaction involving transfer of consideration.

In Montgomery County and Jefferson County, those seeking to file lawsuits had little alternative to paying the high e-filing fee charged by LexisNexis. As the sole provider of e-filing in those counties, LexisNexis was able to take advantage of litigants by setting whatever fee it wanted. The availability of any alternatives was not sufficient to defeat a claim of unconscionability because those choices were not meaningful ones.

The decision is McPeters v. LexisNexis, CCH State Unfair Trade Practices Act ¶32,555.

Maine Franchisee Could Not Bring “Little FTC Act” Claim

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

A commercial franchisee governed by the Maine Franchise Act was not entitled to bring a claim against a franchisor under the private remedies section of the Maine "little FTC Act", the federal district court in Portland, Maine, has ruled. Thus, a heavy machinery business franchisor’s motion for judgment on the pleadings on a franchisee’s claim under the Maine "little FTC Act" was granted.


In 1993, Maine’s Legislature made significant changes to the MFA, including the enactment of a penalty provision which stated: "Violation of this chapter constitutes an unfair trade practice under the Maine Unfair Trade Practices Act, Title 5, chapter 10" (the MFA penalty section). Under the private remedies section of the "little FTC Act", a person who purchased goods, services, or property primarily for personal, family, or household use was afforded a private right of action.

The franchisee contended that the addition of the MFA penalty section signaled the legislature’s intent to open the "little FTC Act’s" private remedies to franchisees. However, the plain meaning of MFA’s Penalty Section makes a violation of the MFA a violation of "little FTC Act", but the section was silent as to whether the MFA was meant to incorporate all of "little FTC Act’s" provisions. Moreover, the statutory history accompanying the 1993 MFA amendments contained no suggestion that the MFA was meant to alter the "little FTC Act’s" clear limitation to goods purchased "primarily for personal, family or household purposes" in the case of franchisees.

When it enacted the MFA’s penalty section, the legislature was presumed to have been aware that the private remedies section of the "little FTC Act" was limited to consumer actions, yet it made no changes to that statutory section to accommodate "little FTC Act" suits by commercial franchisees.

In the face of that failure, the court was constrained to assume that the "little FTC Act" continued by its plain terms to apply only to consumers. This conclusion was reinforced by other general canons of statutory construction, the court explained.

The decision is Oliver Stores v. JCB, Inc., CCH Business Franchise Guide ¶14,913.

Court Sets Hearing on Preliminary Review of Credit Card Swipe Fee Litigation Settlement

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

The federal district court in Brooklyn, New York, has agreed to hear oral argument on a motion for preliminary approval of a proposed settlement that would resolve antitrust claims brought on behalf of approximately seven million merchants against Visa, MasterCard, and other major U.S. financial institutions over credit card swipe fees (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, October 24, 2012, Gleeson, J.).

The settlement would provide an estimated $7.25 billion to the merchants who accepted Visa and MasterCard credit cards and debit cards in the United States since 2004. It would resolve the merchants’ claims that the payment card networks violated federal antitrust law by artificially inflating the interchange fees that the merchants paid on payment card transactions. The settlement before the court is considered to be the largest ever in a private antitrust case.

Noting that he did not ordinarily schedule oral argument of preliminary approval motions, Judge John Gleeson said that there was "an expectation among some interested parties that the preliminary approval process should be more involved in this case than in the usual class action." The court said, however, that the settlement agreement "at first blush . . . appears to satisfy the threshold requirements for preliminary approval."

The court is moving swiftly in its initial review of the settlement in the seven-year-old case. Oral argument has been scheduled for November 9.

The court denied requests from a large group of retailers and merchants for the formation of an objectors’ committee or to arrange for additional discovery. "The parties seeking that relief have a great deal of sophistication and familiarity with both the terms of the Settlement Agreement and the course of the negotiations that culminated in that agreement," the court said.

In addition, the court refused to establish procedures for absent class members to intervene at this juncture. They would have ample rights to be heard before final approval of the settlement was considered, the court explained.

The National Retail Federation is among the vocal opponents of the settlement. The trade group has said that the settlement is “unfair” and "does virtually nothing” to protect customers and address retailers’ concerns about credit card swipe fees charged by Visa and MasterCard.

New Franchise Rule FAQ Clarifies “Exclusive Territory”

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

The Federal Trade Commission Staff, on October 16, answered an additional frequently asked question (FAQ) regarding the 2007 amendments to its franchise disclosure rule.

The most recently answered question FAQ 37 is:

"May a franchisor state in Item 12 that it grants an "exclusive territory" if it reserves the right to open franchised or company outlets in so-called "non-traditional venues" like airports, arenas, hospitals, hotels, malls, military installations, national parks, schools, stadiums and theme parks?"

The FTC Staff replied:

"No. Pursuant to FAQ 25, a franchisor may state in Item 12 that it grants an "exclusive territory" only if the franchisor contractually "promises not to establish either a company-owned or franchised outlet selling the same or similar goods or services under the same or similar trademarks or service marks" within the geographic area or territory granted to a franchisee. A reservation of rights to open outlets selling the same goods or services under the same trademarks or service marks within a franchisee’s territory negates any such commitment and triggers the Item 12 requirement to include a disclaimer stating that franchisees will not receive an exclusive territory."

The entire series of questions and answers is reproduced at CCH Business Franchise Guide ¶6090 and here on the FTC website.

FTC Conditions Watson’s Proposed Acquisition of Actavis on Divestitures

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

The FTC announced on October 15 that it has approved Watson Pharmaceuticals, Inc.'s proposed $5.9 billion acquisition of Actavis Inc., subject to the parties' agreement to divest the rights and assets to 18 drugs and to relinquish the manufacturing and marketing rights to three others. When the parties announced the proposed combination in April, they said that the transaction would make Watson the third largest global generics company.

According to the parties, all regulatory approvals required to close the transaction have been received. As a result, the parties anticipate consummating the acquisition in late October or early November. The European Commission cleared U.S.-based Watson's acquisition of the Swiss-based Actavis on October 5.

According to the FTC's complaint, the acquisition, if consummated as proposed, would have lessened current and/or future competition in U.S. markets for 21 generic pharmaceutical products. These products are used to treat a wide range of conditions, including hypertension, high blood pressure, diabetes, anxiety, schizophrenia, nausea, chronic and acute pain, and attention deficit hyperactivity disorder. Seven of the relevant generic drug markets involve generic drugs that are currently sold, and eight of the relevant generic drug markets involve generic drug products that either one or both of the companies currently sell or have in the pipeline. In the remaining six markets, generic drugs are not currently on the market; however, Watson and Actavis are among a limited number of likely potential suppliers of these drugs.

Under the terms of a proposed consent order, Watson and Actavis would be required to divest either Watson’s or Actavis’s rights and assets related to 18 of the 21 products. The majority of the assets in these 18 markets would be divested to Par Pharmaceutical, Inc. Par is a New Jersey-based generic pharmaceutical company selling over 60 prescription drug product families and has an active product development pipeline. Assets related to four of the markets would be divested to Sandoz International GmbH, a subsidiary of Novartis AG. Sandoz is based in Germany and has approximately 200 generic product families in the United States and an active product development pipeline.

 According to the FTC, with their experience in generic markets, Par and Sandoz are expected to replicate the competition that would otherwise be lost with the proposed acquisition. If the Commission were to determine that Par and/or Sandoz were not acceptable acquirers of the divestiture assets, it could require the parties to unwind the sales. The parties are required to maintain the viability, marketability, and competitiveness of the divestiture products.

To remedy the FTC's concerns with respect to the three remaining product markets, the combined entity would be required to amend an existing development and manufacturing agreement between Actavis and Pfizer, Inc. and transfer the manufacturing rights back to Pfizer. For two other drugs, Watson and Actavis would be required to relinquish the marketing rights to another firm.

The case is Watson Pharmaceuticals, Inc., FTC Dkt. C-4373, FTC File No. 121-0132.