This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
A federal jury in New York City on August 31 convicted three former UBS AG executives for their participation in frauds related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice has announced.
In May 2011, the Department of Justice announced that UBS had entered into an agreement to resolve anticompetitive activity in the municipal bond investments market (CCH Trade Regulation Reporter ¶50,273).
The defendants are Peter Ghavami, Gary Heinz and Michael Welty. While employed at UBS, the three participated in separate fraud conspiracies and schemes with a number of financial institutions and with a broker, between March 2001 and November 2006, according to evidence presented at trial. These financial institutions, or providers, offered a type of contract—known as an investment agreement—to state, county and local governments and agencies, and not-for-profit entities, which were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds issued to raise money for public projects.
During the trial, which began on July 30, the government presented specific evidence relating to approximately 26 corrupted bids and approximately 76 recorded conversations made by co-conspirator financial institutions, according to the Department of Justice.
Ghavami was found guilty on two counts of conspiracy to commit wire fraud and one count of substantive wire fraud. Heinz was found guilty on three counts of conspiracy to commit wire fraud and two counts of substantive wire fraud. Welty was found guilty on three counts of conspiracy to commit wire fraud. Heinz was found not guilty on one count of witness tampering and Welty was found not guilty
on one count of substantive wire fraud.
“For years, these executives corrupted the competitive bidding process and defrauded municipalities across the country out of money for important public works projects, said Scott D. Hammond, Deputy Assistant Attorney General in charge of criminal enforcement at the Antitrust Division.
“Today’s convictions demonstrate that the division is committed to holding accountable those who seek to unfairly and illegally undermine competitive markets.”
Friday, August 31, 2012
Thursday, August 30, 2012
Denny’s Could Be Liable for Attack on Franchise Patron
This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.
Under California law, the franchisor of Denny’s restaurants and several affiliated corporate entities could have been liable under a theory of ostensible agency for the injuries a patron of a franchised restaurant sustained in a beating by a group of street gang members and associates who "took over" the franchisee’s Denny’s restaurant most Saturday nights over a period of two years, a California appellate court has held.
There were three requirements necessary before recovery could be had against a principal for the act of an ostensible agent under California law:
The franchisee was required to comply with the Denny’s Brand Standards Manual, and this manual gave one of the Denny’s entities other than the franchisor some control over the franchisee’s business practices, the court determined.
The franchisee did business as "Denny’s," using the Denny’s name, logo, and other trademarks. While some Denny’s restaurants were franchisee-operated, others were corporate-operated. Thus, it was not common knowledge that all Denny’s were necessarily franchises, according to the court.
There was no signage or other indication that the particular Denny’s was actually operated by a franchisee. Moreover, the injured patron testified that he had seen advertisements identifying Denny’s as "a family style restaurant…in which a patron could enjoy a good meal in a friendly, safe, and secure environment" and that this led him to conclude that he and his friends could enjoy a meal at the particular location. These statements were sufficient evidence of reliance, the court ruled.
The Denny’s entities did not even argue that ostensible agency did not apply, the court commented. However, they did raise the following policy argument: "[I]f the law ultimately holds franchisors routinely liable for the wrongful acts of its franchisees and their employees, franchisors will either quit franchising or, at the very least, charge much higher fees." A similar argument had already been rejected by a California appellate court and was rejected here.
The decision is Ford v. Palmden Restaurants, LLC, CCH Business Franchise Guide ¶14,877.
Under California law, the franchisor of Denny’s restaurants and several affiliated corporate entities could have been liable under a theory of ostensible agency for the injuries a patron of a franchised restaurant sustained in a beating by a group of street gang members and associates who "took over" the franchisee’s Denny’s restaurant most Saturday nights over a period of two years, a California appellate court has held.
There were three requirements necessary before recovery could be had against a principal for the act of an ostensible agent under California law:
(1) The person dealing with the agent must do so with belief in the agent’s authority and this belief must be a reasonable one;The franchise agreement specified that the franchisee was an independent contractor. However, it did give the franchisor some control over the franchisee’s business practices, including vendors, uniforms, menus, signs, and advertising. The agreement required the franchisee to keep the restaurant open 24 hours a day, seven days a week. But the franchisor allowed individual franchisees to deviate from this requirement if a risk assessment showed above-normal criminal activity during late-night hours. Some 15 restaurants nationwide had been allowed to close during the late-night "bar rush" period when the patron’s injuries were sustained, the court noted.
(2) Such belief must be generated by some act or neglect of the principal sought to be charged; and
(3) The third person in relying on the agent’s apparent authority must not be guilty of negligence.
The franchisee was required to comply with the Denny’s Brand Standards Manual, and this manual gave one of the Denny’s entities other than the franchisor some control over the franchisee’s business practices, the court determined.
The franchisee did business as "Denny’s," using the Denny’s name, logo, and other trademarks. While some Denny’s restaurants were franchisee-operated, others were corporate-operated. Thus, it was not common knowledge that all Denny’s were necessarily franchises, according to the court.
There was no signage or other indication that the particular Denny’s was actually operated by a franchisee. Moreover, the injured patron testified that he had seen advertisements identifying Denny’s as "a family style restaurant…in which a patron could enjoy a good meal in a friendly, safe, and secure environment" and that this led him to conclude that he and his friends could enjoy a meal at the particular location. These statements were sufficient evidence of reliance, the court ruled.
The Denny’s entities did not even argue that ostensible agency did not apply, the court commented. However, they did raise the following policy argument: "[I]f the law ultimately holds franchisors routinely liable for the wrongful acts of its franchisees and their employees, franchisors will either quit franchising or, at the very least, charge much higher fees." A similar argument had already been rejected by a California appellate court and was rejected here.
The decision is Ford v. Palmden Restaurants, LLC, CCH Business Franchise Guide ¶14,877.
Tuesday, August 28, 2012
Arbitral Rejection of Soccer Promoter’s Antitrust Claim Confirmed, Suit Fails
This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.
An arbitral decision resolving an antitrust suit brought by a defunct soccer match promoter against the United States Soccer Federation (USSF) and Major League Soccer (MLS) in the defendants’ favor was enforceable and was, therefore, confirmed by the federal district court in Chicago. The defendants’ motions to exclude crucial expert testimony and for summary judgment on the antitrust claim also were granted.
The suit claimed that the USSF—the association recognized by the sport’s international governing body, Fédération Internationale de Football Association (FIFA), as the entity responsible for regulating men's soccer in the United States—had engaged in an unlawful antitrust conspiracy with MLS by charging excessive sanctioning fees to the promoter for soccer exhibitions involving international teams and by requiring it to obtain unreasonable performance bonds.
Arbitration
The arbitral decision, reached by a standing committee of FIFA that acted as its dispute resolution body, found that under FIFA statutes and regulations:
The court rejected arguments by the plaintiff promoter that it was unable to present its case due to alleged discovery violations by USSF, that the arbitral procedure was not in accordance with the laws of the country where the arbitration took place because review was not de novo, and that enforcement of the decision would have violated public policy.
Summary Judgment
The promoter’s antitrust claim could not survive summary judgment because it failed to introduce sufficient evidence in support of its market definition, the court determined. The plaintiff’s market definition largely rested on expert testimony that was inadmissible, the court explained. With that testimony excluded, the promoter failed to carry its burden on the threshold requirement of demonstrating a cognizable relevant market and concomitant market power in the defendants.
The promoter’s market definition expert opined that the relevant market in the case was the promotion of men’s professional, first-division, international soccer matches in the United States. However, the testimony was unreliable and unhelpful in its analysis of both its product and geographic market dimensions. Too great a gap in logic existed between the regression analysis conducted by the expert measuring the effect of a nearby soccer match on attendance at a Major League Baseball game in order to delineate the markets for those products and the conclusions the expert purported to draw from that test, in the court’s view.
As the expert himself noted, other sports and non-sport entertainment were imperfect substitutes for a particular sporting event. Given the considerably smaller size of soccer’s fan and financial base as compared to baseball’s, the expert should have tested substitutability from the perspective of soccer fans rather than baseball fans, namely by measuring whether an increase in the price of soccer match tickets would lead consumers to select other entertainment events.
Further, the expert’s identification of "practical indicia" that a separate market or submarket existed was not sufficiently thorough. It was indisputable that his market definition opinion rested almost entirely on his conclusion that MLS and its marketing affiliate, USSF, and the complaining promoter thought that MPFI match promotion was a separate market. Where an expert focused almost entirely on evidence that an industry recognized a submarket, courts had excluded their testimony as unreliable.
In addition, the geographic scope of the market alleged in the suit—the United States—was not sufficiently coherent from both the supply and demand sides, the court remarked.
The decision is ChampionsWorld, LLC v. United States Soccer Federation, Inc., 2012-2 Trade Cases ¶78,023.
An arbitral decision resolving an antitrust suit brought by a defunct soccer match promoter against the United States Soccer Federation (USSF) and Major League Soccer (MLS) in the defendants’ favor was enforceable and was, therefore, confirmed by the federal district court in Chicago. The defendants’ motions to exclude crucial expert testimony and for summary judgment on the antitrust claim also were granted.
The suit claimed that the USSF—the association recognized by the sport’s international governing body, Fédération Internationale de Football Association (FIFA), as the entity responsible for regulating men's soccer in the United States—had engaged in an unlawful antitrust conspiracy with MLS by charging excessive sanctioning fees to the promoter for soccer exhibitions involving international teams and by requiring it to obtain unreasonable performance bonds.
Arbitration
The arbitral decision, reached by a standing committee of FIFA that acted as its dispute resolution body, found that under FIFA statutes and regulations:
(1) USSF had the authority to require matches between foreign national or club teams on U.S. soil to be sanctioned by it;The arbitral award did not fall outside of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the court said, because the relevant commercial relationship was not entirely between citizens of the United States, given the necessary involvement of FIFA in the matter. Not only had FIFA issued the match agent license underlying the contracts at issue, but it also had a broad stake in the relationship, the court noted. The federal court was a proper venue in which to confirm the award, pursuant to the forum selection clause in the governing arbitration agreement.
(2) USSF had the right to charge sanctioning fees for such matches and require the posting of a bond securing those fees; and
(3) USSF had the right to notify FIFA if a FIFA-licensed match agent refused to pay its sanctioning fees or post performance bonds in connection with such games.
The court rejected arguments by the plaintiff promoter that it was unable to present its case due to alleged discovery violations by USSF, that the arbitral procedure was not in accordance with the laws of the country where the arbitration took place because review was not de novo, and that enforcement of the decision would have violated public policy.
Summary Judgment
The promoter’s antitrust claim could not survive summary judgment because it failed to introduce sufficient evidence in support of its market definition, the court determined. The plaintiff’s market definition largely rested on expert testimony that was inadmissible, the court explained. With that testimony excluded, the promoter failed to carry its burden on the threshold requirement of demonstrating a cognizable relevant market and concomitant market power in the defendants.
The promoter’s market definition expert opined that the relevant market in the case was the promotion of men’s professional, first-division, international soccer matches in the United States. However, the testimony was unreliable and unhelpful in its analysis of both its product and geographic market dimensions. Too great a gap in logic existed between the regression analysis conducted by the expert measuring the effect of a nearby soccer match on attendance at a Major League Baseball game in order to delineate the markets for those products and the conclusions the expert purported to draw from that test, in the court’s view.
As the expert himself noted, other sports and non-sport entertainment were imperfect substitutes for a particular sporting event. Given the considerably smaller size of soccer’s fan and financial base as compared to baseball’s, the expert should have tested substitutability from the perspective of soccer fans rather than baseball fans, namely by measuring whether an increase in the price of soccer match tickets would lead consumers to select other entertainment events.
Further, the expert’s identification of "practical indicia" that a separate market or submarket existed was not sufficiently thorough. It was indisputable that his market definition opinion rested almost entirely on his conclusion that MLS and its marketing affiliate, USSF, and the complaining promoter thought that MPFI match promotion was a separate market. Where an expert focused almost entirely on evidence that an industry recognized a submarket, courts had excluded their testimony as unreliable.
In addition, the geographic scope of the market alleged in the suit—the United States—was not sufficiently coherent from both the supply and demand sides, the court remarked.
The decision is ChampionsWorld, LLC v. United States Soccer Federation, Inc., 2012-2 Trade Cases ¶78,023.
Thursday, August 23, 2012
Lanham Act False Advertising Claims Stated Against “Corn Sugar” Producers
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
Producers of table sugar from cane beets stated Lanham Act false advertising claims by alleging that member companies of the Corn Refiners Association (CRA) made advertising claims that high fructose corn syrup (HFCS) is “natural” and should be referred to as “corn sugar,” as well as claims that HFCS is nutritionally and metabolically equivalent to other sugars, the federal district court in Los Angeles ruled has ruled.
The CRA member companies argued that the complaint failed to set forth individual and particular allegations against each of the member companies. Allegations as to the use of spokespersons to disseminate the advertising theme that HFCS is no different than sugar, and the use of the phrase “corn sugar” in documents and communications directed toward customers and investors, were sufficient to inform member companies Cargill, Tate & Lyle, Archer-Daniels-Midland, and Corn Products of their allegedly fraudulent conduct, the court determined.
The table sugar producers pleaded facts that supported their allegation that the CRA was the agent of the member companies such that the association’s conduct should be imputed to them under a vicarious liability theory, according to the court. The complaint described the CRA board of directors membership by listing the names and titles of the officers from each member company, as well as the number of hours the officers spent working on CRA business and the advertising campaign.
Decisions to launch and fund the multimillion dollar advertising campaign allegedly were subject to the approval of the member companies. The member companies allegedly provided the overwhelming majority of regular membership dues to the CRA. Funding allegedly totalled approximately $13 million for the false advertising campaign, during the years of 2008, 2009, 2010, and 2011.
Principal-Agent Relationship; Joint-Tortfeasor Theory
The table sugar producers argued that a principal-agent relationship existed between the CRA and the member companies based on the allegations involving the member companies’ “collective right,” “power to control,” and “domination” of the CRA. The table sugar producers also pleaded facts that would support a joint-tortfeasor theory of liability by alleging that the association, at the direction of and in concert with several of its member companies, crafted a publicity campaign to revitalize and rebrand HFCS.
The table sugar producers failed to state a claim against Roquette America by alleging only that a senior executive was a member of the CRA’s board of directors.
The July 31, 2012, decision in Western Sugar Cooperative v. Archer-Daniels-Midland Co., Case 2:11-cv-03473, will appear at CCH Advertising Law Guide ¶ 64,775 and (CCH) 2012-2 Trade Cases ¶78,019.
Producers of table sugar from cane beets stated Lanham Act false advertising claims by alleging that member companies of the Corn Refiners Association (CRA) made advertising claims that high fructose corn syrup (HFCS) is “natural” and should be referred to as “corn sugar,” as well as claims that HFCS is nutritionally and metabolically equivalent to other sugars, the federal district court in Los Angeles ruled has ruled.
The CRA member companies argued that the complaint failed to set forth individual and particular allegations against each of the member companies. Allegations as to the use of spokespersons to disseminate the advertising theme that HFCS is no different than sugar, and the use of the phrase “corn sugar” in documents and communications directed toward customers and investors, were sufficient to inform member companies Cargill, Tate & Lyle, Archer-Daniels-Midland, and Corn Products of their allegedly fraudulent conduct, the court determined.
The table sugar producers pleaded facts that supported their allegation that the CRA was the agent of the member companies such that the association’s conduct should be imputed to them under a vicarious liability theory, according to the court. The complaint described the CRA board of directors membership by listing the names and titles of the officers from each member company, as well as the number of hours the officers spent working on CRA business and the advertising campaign.
Decisions to launch and fund the multimillion dollar advertising campaign allegedly were subject to the approval of the member companies. The member companies allegedly provided the overwhelming majority of regular membership dues to the CRA. Funding allegedly totalled approximately $13 million for the false advertising campaign, during the years of 2008, 2009, 2010, and 2011.
Principal-Agent Relationship; Joint-Tortfeasor Theory
The table sugar producers argued that a principal-agent relationship existed between the CRA and the member companies based on the allegations involving the member companies’ “collective right,” “power to control,” and “domination” of the CRA. The table sugar producers also pleaded facts that would support a joint-tortfeasor theory of liability by alleging that the association, at the direction of and in concert with several of its member companies, crafted a publicity campaign to revitalize and rebrand HFCS.
The table sugar producers failed to state a claim against Roquette America by alleging only that a senior executive was a member of the CRA’s board of directors.
The July 31, 2012, decision in Western Sugar Cooperative v. Archer-Daniels-Midland Co., Case 2:11-cv-03473, will appear at CCH Advertising Law Guide ¶ 64,775 and (CCH) 2012-2 Trade Cases ¶78,019.
Tuesday, August 21, 2012
Internet Registry, ICANN Could Face Liability Over .XXX Domain
This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.
The Internet Corporation for Assigned Names and Numbers (ICANN) and an entity that won ICANN's approval of a new ".XXX" top level domain (TLD) and of its designation as the registry overseeing that domain could have violated federal antitrust law by allegedly suppressing or eliminating competing bids for the original .XXX TLD registry contract and any renewals of that contract, the federal district court in Los Angeles has determined. Though an invalid relevant market pleading required dismissal of an attempted monopolization claim, and no cause of action existed for "conspiracy to attempt to monopolize," a motion for dismissal of other claims brought under Secs. 1 and 2 of the Sherman Act was denied.
Immunity
As an initial matter, an assertion by ICANN--a non-profit public benefit corporation charged with operating the Internet's domain name system--that it was exempt from potential antitrust liability on the basis that it did not engage in trade or commerce was rejected. The transactions entered into between ICANN and the aspiring registry operator amounted to the quintessential sort of commercial activity that fell within the broad scope of the Sherman Act, the court stated. Even aside from its collection of fees under the contract, ICANN's activities played an important role in the commerce of the Internet, and its actions could exert a restraint on that commerce.
Relevant Markets
An alleged market for blocking services and defensive registrations in the .XXX TLD could constitute a valid relevant product market, the court held. The complaining companies, owners and licensors of a large portfolio of adult-oriented website domain names and trademarks, sufficiently alleged the existence of such a market, as there was no reasonable substitute for defensive registration services. The only way to block a name in the .XXX TLD was to register that name. A contention by the defendants that each domain name would be its own individual market was precluded by a precedential finding that confirmed a market of expiring domain names.
However, a second alleged market--for affirmative registrations of names within TLDs connoting or intended for adult content—did not constitute a valid relevant product market. The plaintiffs failed to allege why other currently operating TLDs were not reasonable substitutes to the .XXX TLD for hosting adult entertainment websites. Given that one of the plaintiffs' own sites, which carried a .com address, was the most popular free adult video website on the Internet, it appeared from the face of the complaint that an adult content website registered in the .com TLD was an adequate economic substitute for an adult site registered in the .XXX domain.
Sufficiency of Pleadings
The defendants engaged in anticompetitive and predatory conduct in violation of federal antitrust law through their alleged: suppression of competition for the initial .XXX registry contract and renewal of that contract, preclusion of other adult content TLDs; setting above-market prices and output restrictions, and delegating ICANN's sales and pricing authority to the defending registry. This latter delegation was allegedly carried out for the purpose of allowing the registry to institute even less competitive sales and pricing terms in the future. While competitive bidding was not required under the Sherman Act, concerted action to eliminate such bidding for a contract was an actionable harm. Likewise, concerted action to restrain trade by imposing prices higher than market rate and under conditions hostile to competition was an antitrust violation where the unilateral charging of higher prices would not have been.
Moreover, the averment that the defending entity mounted a coercive campaign to force ICANN to approve the .XXX TLD and give it the registry contract could have been unlawfully predatory. At the very least, the misrepresentation of support from adult entertainment companies, the generation of fake comments in support of .XXX, the submission of misleadingly edited videos and photos, the non-disclosure the certain celebrity supporters of .XXX were paid by the entity, and the creation of a supposedly independent sponsoring entity amounted to sufficient allegations to establish improper, anticompetitive conduct under judicial precedent, the court decided.
The August 14, 2012, decision in Manwin Licensing Int'l S.A.R. L., et al. v. ICM Registry, LLC, et al., Case 2:11-cv-09514-PSG-JCG, CD Cal., will appear at (CCH) 2012-2 Trade Cases ¶78,009.
The Internet Corporation for Assigned Names and Numbers (ICANN) and an entity that won ICANN's approval of a new ".XXX" top level domain (TLD) and of its designation as the registry overseeing that domain could have violated federal antitrust law by allegedly suppressing or eliminating competing bids for the original .XXX TLD registry contract and any renewals of that contract, the federal district court in Los Angeles has determined. Though an invalid relevant market pleading required dismissal of an attempted monopolization claim, and no cause of action existed for "conspiracy to attempt to monopolize," a motion for dismissal of other claims brought under Secs. 1 and 2 of the Sherman Act was denied.
Immunity
As an initial matter, an assertion by ICANN--a non-profit public benefit corporation charged with operating the Internet's domain name system--that it was exempt from potential antitrust liability on the basis that it did not engage in trade or commerce was rejected. The transactions entered into between ICANN and the aspiring registry operator amounted to the quintessential sort of commercial activity that fell within the broad scope of the Sherman Act, the court stated. Even aside from its collection of fees under the contract, ICANN's activities played an important role in the commerce of the Internet, and its actions could exert a restraint on that commerce.
Relevant Markets
An alleged market for blocking services and defensive registrations in the .XXX TLD could constitute a valid relevant product market, the court held. The complaining companies, owners and licensors of a large portfolio of adult-oriented website domain names and trademarks, sufficiently alleged the existence of such a market, as there was no reasonable substitute for defensive registration services. The only way to block a name in the .XXX TLD was to register that name. A contention by the defendants that each domain name would be its own individual market was precluded by a precedential finding that confirmed a market of expiring domain names.
However, a second alleged market--for affirmative registrations of names within TLDs connoting or intended for adult content—did not constitute a valid relevant product market. The plaintiffs failed to allege why other currently operating TLDs were not reasonable substitutes to the .XXX TLD for hosting adult entertainment websites. Given that one of the plaintiffs' own sites, which carried a .com address, was the most popular free adult video website on the Internet, it appeared from the face of the complaint that an adult content website registered in the .com TLD was an adequate economic substitute for an adult site registered in the .XXX domain.
Sufficiency of Pleadings
The defendants engaged in anticompetitive and predatory conduct in violation of federal antitrust law through their alleged: suppression of competition for the initial .XXX registry contract and renewal of that contract, preclusion of other adult content TLDs; setting above-market prices and output restrictions, and delegating ICANN's sales and pricing authority to the defending registry. This latter delegation was allegedly carried out for the purpose of allowing the registry to institute even less competitive sales and pricing terms in the future. While competitive bidding was not required under the Sherman Act, concerted action to eliminate such bidding for a contract was an actionable harm. Likewise, concerted action to restrain trade by imposing prices higher than market rate and under conditions hostile to competition was an antitrust violation where the unilateral charging of higher prices would not have been.
Moreover, the averment that the defending entity mounted a coercive campaign to force ICANN to approve the .XXX TLD and give it the registry contract could have been unlawfully predatory. At the very least, the misrepresentation of support from adult entertainment companies, the generation of fake comments in support of .XXX, the submission of misleadingly edited videos and photos, the non-disclosure the certain celebrity supporters of .XXX were paid by the entity, and the creation of a supposedly independent sponsoring entity amounted to sufficient allegations to establish improper, anticompetitive conduct under judicial precedent, the court decided.
The August 14, 2012, decision in Manwin Licensing Int'l S.A.R. L., et al. v. ICM Registry, LLC, et al., Case 2:11-cv-09514-PSG-JCG, CD Cal., will appear at (CCH) 2012-2 Trade Cases ¶78,009.
Monday, August 20, 2012
Mouth Guard Marketer Prohibited from Misrepresenting Health Benefits Under FTC Settlement
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The proposed settlement would prohibit the company and its president from misrepresenting that any product will reduce the risk of concussions. They also would be prohibited from misrepresenting the health benefits of mouthguards or other athletic equipment intended to protect the brain from injury. Misrepresentations regarding studies or research with respect to such equipment also would be prohibited.
The proposed consent order would prohibit the company and its president from misrepresenting that any product will reduce the risk of concussions. They also would be prohibited from misrepresenting the health benefits of mouthguards or other athletic equipment intended to protect the brain from injury. Misrepresentations regarding studies or research with respect to such equipment also would be prohibited.
Congressional Inquiry
The settlement comes after the Senate Commerce Committee held a hearing in October 2011 that examined the marketing claims of Brain-Pad as well as the claims made by other sports equipment manufacturers regarding concussions. Witnesses at the hearing testified that sports equipment manufacturers had repeatedly made claims that their equipment “prevent concussions” or “reduce the risk of concussions” without scientific evidence to prove them. Witnesses also testified that concussion-related marketing has led to a public that misunderstands the limitations of sports equipment, according to the committee.
Senate Commerce Committee Chairman John D. (Jay) Rockefeller IV (West Virginia) and Senator Tom Udall (New Mexico) in an August 16 statement commended the FTC for taking action against Brain-Pad.
“I applaud the FTC for taking action to stop Brain-Pad from making marketing claims about whether their mouth guards can reduce the risk of concussions,” Rockefeller said. “Concussions are a very serious health concern, especially for young athletes, and it is important that athletes, parents, and coaches know the truth about the limitations of sports equipment in preventing concussions. It is disturbing that certain sports equipment manufacturers could be exploiting parents’ concerns to make a profit. I hope this action by the FTC will send a message to other companies that they can’t use claims that aren’t backed by science.”
"[A]s the Brain-Pad settlement proves, some companies seem to be taking advantage of the fears of parents, coaches and athletes,” said Udall. “I want to thank Chairman Rockefeller for allowing us to bring these issues before the committee last year and Chairman Leibowitz and the Federal Trade Commission for taking a closer look at the concussion marketing claims used to sell children’s sports gear.”
The marketer of “Brain-Pad”-branded mouth guards has agreed to settle FTC charges that it misrepresented that its mouth guards reduced the risk of concussions. In its complaint, announced last week, the agency also alleged that the company and its president misrepresented that they they possessed and relied upon a reasonable basis that substantiated the representations.
The proposed settlement would prohibit the company and its president from misrepresenting that any product will reduce the risk of concussions. They also would be prohibited from misrepresenting the health benefits of mouthguards or other athletic equipment intended to protect the brain from injury. Misrepresentations regarding studies or research with respect to such equipment also would be prohibited.
The proposed consent order would prohibit the company and its president from misrepresenting that any product will reduce the risk of concussions. They also would be prohibited from misrepresenting the health benefits of mouthguards or other athletic equipment intended to protect the brain from injury. Misrepresentations regarding studies or research with respect to such equipment also would be prohibited.
Congressional Inquiry
The settlement comes after the Senate Commerce Committee held a hearing in October 2011 that examined the marketing claims of Brain-Pad as well as the claims made by other sports equipment manufacturers regarding concussions. Witnesses at the hearing testified that sports equipment manufacturers had repeatedly made claims that their equipment “prevent concussions” or “reduce the risk of concussions” without scientific evidence to prove them. Witnesses also testified that concussion-related marketing has led to a public that misunderstands the limitations of sports equipment, according to the committee.
Senate Commerce Committee Chairman John D. (Jay) Rockefeller IV (West Virginia) and Senator Tom Udall (New Mexico) in an August 16 statement commended the FTC for taking action against Brain-Pad.
“I applaud the FTC for taking action to stop Brain-Pad from making marketing claims about whether their mouth guards can reduce the risk of concussions,” Rockefeller said. “Concussions are a very serious health concern, especially for young athletes, and it is important that athletes, parents, and coaches know the truth about the limitations of sports equipment in preventing concussions. It is disturbing that certain sports equipment manufacturers could be exploiting parents’ concerns to make a profit. I hope this action by the FTC will send a message to other companies that they can’t use claims that aren’t backed by science.”
"[A]s the Brain-Pad settlement proves, some companies seem to be taking advantage of the fears of parents, coaches and athletes,” said Udall. “I want to thank Chairman Rockefeller for allowing us to bring these issues before the committee last year and Chairman Leibowitz and the Federal Trade Commission for taking a closer look at the concussion marketing claims used to sell children’s sports gear.”
Friday, August 17, 2012
Federal Antitrust Agencies to Hold Workshop on "Most-Favored-Nation" Clauses
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
If you counsel clients on the use of most-favored nations clauses in contracts, then you might want to mark your calendar for a September 10, 2012, workshop on the topic. The workshop is jointly sponsored by the Department of Justice Antitrust Division and the Federal Trade Commission.
Most-favored nations or MFN provisions guarantee a customer that it will receive prices that are at least as favorable as those provided to other buyers of the same seller, for the same products or services. They may keep a supplier from giving more favorable terms to your rivals.
"MFNs can under certain circumstances present competitive concerns," the agencies said in the workshop announcement. "This is because they may, especially when used by a dominant buyer of intermediate goods, raise other buyers’ costs or foreclose would-be competitors from accessing the market. Additionally, MFNs can facilitate collusion and stabilize coordinated pricing among sellers."
MFN clauses are back on the radar of antitrust practitioners since the U.S. Justice Department and the Michigan Attorney General filed an antitrust complaint in October 2010 against Blue Cross Blue Shield of Michigan over its use of MFN clauses in contracts with hospitals. The case was the first Justice Department challenge to enjoin the use of MFN clauses in the health care industry in more than a decade. The government alleged that Blue Cross violated Section 1 of the Sherman Act through its use of two types of MFNs, which required a hospital to provide hospital services to Blue Cross’ competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.
More recently, MFNs have come under scrutiny in the federal/state action against against Apple, Inc. and publishers for conspiring to fix the sales prices of electronic books or e-books. Under the terms of a proposed final judgment resolving the charges against three of the defending publishers, the publishers agreed to refrain from entering into MFN agreements with e-book retailers.
The agencies' all-day program will feature panels discussing economic theories concerning MFNs and why they are used, the legal treatment of MFNs, and industry experiences with MFNs, among other topics. According to the agencies, the program "will provide a forum for discussion of the evolution of economic and legal thinking on MFNs and their implications."
The workshop will take place at the FTC's satellite conference center at 601 New Jersey Ave., NW, Washington, DC from 9:00 a.m. to 5:30 p.m. ET on September 10, 2012.
The FTC and the Department of Justice also are accepting comments on MFNs until October 10, 2012. Interested parties may submit public comments to ATR.LPS-MFNPublicWorkshop@usdoj.gov.
If you counsel clients on the use of most-favored nations clauses in contracts, then you might want to mark your calendar for a September 10, 2012, workshop on the topic. The workshop is jointly sponsored by the Department of Justice Antitrust Division and the Federal Trade Commission.
Most-favored nations or MFN provisions guarantee a customer that it will receive prices that are at least as favorable as those provided to other buyers of the same seller, for the same products or services. They may keep a supplier from giving more favorable terms to your rivals.
"MFNs can under certain circumstances present competitive concerns," the agencies said in the workshop announcement. "This is because they may, especially when used by a dominant buyer of intermediate goods, raise other buyers’ costs or foreclose would-be competitors from accessing the market. Additionally, MFNs can facilitate collusion and stabilize coordinated pricing among sellers."
MFN clauses are back on the radar of antitrust practitioners since the U.S. Justice Department and the Michigan Attorney General filed an antitrust complaint in October 2010 against Blue Cross Blue Shield of Michigan over its use of MFN clauses in contracts with hospitals. The case was the first Justice Department challenge to enjoin the use of MFN clauses in the health care industry in more than a decade. The government alleged that Blue Cross violated Section 1 of the Sherman Act through its use of two types of MFNs, which required a hospital to provide hospital services to Blue Cross’ competitors either at higher prices than Blue Cross pays or at prices no less than Blue Cross pays.
More recently, MFNs have come under scrutiny in the federal/state action against against Apple, Inc. and publishers for conspiring to fix the sales prices of electronic books or e-books. Under the terms of a proposed final judgment resolving the charges against three of the defending publishers, the publishers agreed to refrain from entering into MFN agreements with e-book retailers.
The agencies' all-day program will feature panels discussing economic theories concerning MFNs and why they are used, the legal treatment of MFNs, and industry experiences with MFNs, among other topics. According to the agencies, the program "will provide a forum for discussion of the evolution of economic and legal thinking on MFNs and their implications."
The workshop will take place at the FTC's satellite conference center at 601 New Jersey Ave., NW, Washington, DC from 9:00 a.m. to 5:30 p.m. ET on September 10, 2012.
The FTC and the Department of Justice also are accepting comments on MFNs until October 10, 2012. Interested parties may submit public comments to ATR.LPS-MFNPublicWorkshop@usdoj.gov.
Wednesday, August 15, 2012
Paper Maker, Competitor Could Have Agreed to Fix Prices
This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.
Evidence of a publication paper manufacturer’s communications with a competitor, in the context of several industry-wide, parallel price increases in the publication paper industry, could establish that it participated in a price fixing conspiracy, the U.S. Court of Appeals in New York City has ruled.
Because a jury could reasonably find that the manufacturer—Stora Enso North America Corporation (SENA)—reached an unlawful agreement to raise the price of publication paper and this agreement injured a class of complaining purchasers, a trial court’s granting of summary judgment to SENA (2010-2 Trade Cases ¶77,293) was erroneous and was vacated in part.
Testimony in which a co-conspirator—an executive of a competing manufacturer—acknowledged that he understood his numerous communications with a SENA executive to reflect a price fixing agreement was strong evidence of a collusive scheme between the competitors, the appellate court decided. In addition, a finding that the companies engaged in price fixing was supported by evidence that the industry was conducive to collusion, that the two executives had shared pricing strategies in private phone calls and meetings, and that they had developed a joint strategy to conceal from the government the true nature of their communications.
From this behavior, the court said, a jury could infer that both men were aware that their communications and related pricing actions violated the law.
The evidence further sufficed for a jury to find that the agreement actually caused the price increases that occurred, the court held. The causal link could be presumed to be particularly strong, since the agreement was between executives at rival companies, each of whom had final pricing authority. There was scant evidence to support SENA’s contention that it had historically been a market follower rather than a market leader, and that any agreement was therefore of no effect. T
he alleged agreement between the executives would have been valuable to SENA because it significantly reduced the company’s risk in raising prices, by assuring that the company could follow competitors’ price increases secure in the knowledge that its rival would not undercut it.
European Entity’s Participation
A sister company based in Europe—Stora Enso Oyj (SEO)—was entitled to summary judgment, in the court’s view. The purchaser class offered testimony showing that an SEO executive met with an executive of a competitor, and that during the meeting they agreed that the competitor’s company would lead a price increase for publication paper in Europe that SEO would then match. However, the purchasers failed to offer any concrete evidence in support of their theory that the success of SEO’s price fixing efforts in Europe depended on its ability to ensure that its competitors fixed the price of publication paper in the United States.
The record also was devoid of any evidence that SEO had any direct involvement in decisions regarding the marketing, sale, or pricing of publication paper in the United States, the court concluded.
The decision is In re Publication Paper Antitrust Litigation, 2012-2 Trade Cases ¶78,000.
Evidence of a publication paper manufacturer’s communications with a competitor, in the context of several industry-wide, parallel price increases in the publication paper industry, could establish that it participated in a price fixing conspiracy, the U.S. Court of Appeals in New York City has ruled.
Because a jury could reasonably find that the manufacturer—Stora Enso North America Corporation (SENA)—reached an unlawful agreement to raise the price of publication paper and this agreement injured a class of complaining purchasers, a trial court’s granting of summary judgment to SENA (2010-2 Trade Cases ¶77,293) was erroneous and was vacated in part.
Testimony in which a co-conspirator—an executive of a competing manufacturer—acknowledged that he understood his numerous communications with a SENA executive to reflect a price fixing agreement was strong evidence of a collusive scheme between the competitors, the appellate court decided. In addition, a finding that the companies engaged in price fixing was supported by evidence that the industry was conducive to collusion, that the two executives had shared pricing strategies in private phone calls and meetings, and that they had developed a joint strategy to conceal from the government the true nature of their communications.
From this behavior, the court said, a jury could infer that both men were aware that their communications and related pricing actions violated the law.
The evidence further sufficed for a jury to find that the agreement actually caused the price increases that occurred, the court held. The causal link could be presumed to be particularly strong, since the agreement was between executives at rival companies, each of whom had final pricing authority. There was scant evidence to support SENA’s contention that it had historically been a market follower rather than a market leader, and that any agreement was therefore of no effect. T
he alleged agreement between the executives would have been valuable to SENA because it significantly reduced the company’s risk in raising prices, by assuring that the company could follow competitors’ price increases secure in the knowledge that its rival would not undercut it.
European Entity’s Participation
A sister company based in Europe—Stora Enso Oyj (SEO)—was entitled to summary judgment, in the court’s view. The purchaser class offered testimony showing that an SEO executive met with an executive of a competitor, and that during the meeting they agreed that the competitor’s company would lead a price increase for publication paper in Europe that SEO would then match. However, the purchasers failed to offer any concrete evidence in support of their theory that the success of SEO’s price fixing efforts in Europe depended on its ability to ensure that its competitors fixed the price of publication paper in the United States.
The record also was devoid of any evidence that SEO had any direct involvement in decisions regarding the marketing, sale, or pricing of publication paper in the United States, the court concluded.
The decision is In re Publication Paper Antitrust Litigation, 2012-2 Trade Cases ¶78,000.
Tuesday, August 14, 2012
FTC Files Amicus Brief in Antitrust Suit to Challenge “Pay-for-Delay” Generic Drug Deal
This posting was written by Cheryl Beise, Contributor to IP Law Daily.
The Federal Trade Commission announced yesterday that it has filed an Amicus Brief with the federal district court in Trenton, New Jersey in the Effexor XR Antitrust Litigation to challenge an agreement between Wyeth and Teva Pharmaceuticals as an illegal restraint of trade. The FTC hoped to assist the court in its analysis of the economic realities of the challenged agreement, it said.
The plaintiffs in the Effexor action allege that in 2005, Wyeth and Teva entered into a so-called “No-AG” agreement, whereby Wyeth agreed to refrain from marketing an authorized generic (“AG”) version of Effexor XR during Teva’s 180 exclusivity period under the Hatch-Waxman Act, in exchange for Teva’s agreement to delay introduction of its generic version (venlafaxine) until July 1, 2010.
In a “no-AG” agreement or commitment, the branded firm, as part of a patent settlement, agrees that it will not launch its own generic alternative when the first generic begins to compete.
The issue addressed by the FTC in Effexor is whether a branded drug company’s commitment not to launch an authorized generic drug in competition with a generic qualifies as a “reverse payment” under last month’s Third Circuit’s ruling in In Re: K-Dur Antitrust Litigation.
In K-Dur, the Third Circuit held that a court considering an antitrust challenge to a Hatch-Waxman patent settlement “must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade,” rebuttable by proof that the payment (1) was for a purpose other than delayed entry or (2) offered some pro-competitive benefit.
A court’s analysis of reverse payment antitrust cases should be based on “the economic realities of the reverse payment settlement,” not on the “labels applied by the settling parties,” the Third Circuit added. The FTC also filed an amicus brief in K-Dur, arguing that “pay-for-delay settlements” were presumptively anti-competitive.
In its Effexor brief, the FTC noted that a no-AG commitment can take a variety of forms—the brand company may explicitly agree not to compete during the first-filer generic manufacturer’s exclusivity period, or the brand company may grant the generic company the exclusive rights either to market a generic product or distribute the brand’s AG.
“Regardless of its form, however, the practical effect of the no-AG commitment is always to eliminate competition between the brand’s AG product and the first-filer generic’s product during the marketing exclusivity period and results in higher drug prices for consumers,” according to the FTC.
The FTC also argued that the economic realities of no-AG commitments mandate that such promises be analyzed under K-Dur like other forms of compensation paid to generics. At the request of Congress, the FTC conducted an empirical study on the effects of AGs on branded drug firms, on generic drug firms, and on consumers. The FTC’s 2011 report, titled Authorized Generic Drugs: Short-Term Effects and Long-Term Impact, examined more than 100 companies and found that “the presence of authorized generic competition reduces the first-filer generic’s revenues by 40 to 52 percent, on average” during the l80-day exclusivity period. A no-AG commitment financially induces the generic company to delay its entry, according to the FTC.
“This empirical evidence confirms what the pharmaceutical industry has long understood: that a no-AG commitment provides a convenient method for brand drug firms to pay generic patent challengers for agreeing to delay entry,” the FTC said.
Text of the Amicus Brief and a news release on the development appear on the FTC website.
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This story was reported in IP Law Daily, a new daily email service from Wolters Kluwer Law & Business. For further information about the service, and an opportunity to sign up for 14-day trial subscription, visit http://wolterskluwerlb.com/ip/iplawdaily/.
The Federal Trade Commission announced yesterday that it has filed an Amicus Brief with the federal district court in Trenton, New Jersey in the Effexor XR Antitrust Litigation to challenge an agreement between Wyeth and Teva Pharmaceuticals as an illegal restraint of trade. The FTC hoped to assist the court in its analysis of the economic realities of the challenged agreement, it said.
The plaintiffs in the Effexor action allege that in 2005, Wyeth and Teva entered into a so-called “No-AG” agreement, whereby Wyeth agreed to refrain from marketing an authorized generic (“AG”) version of Effexor XR during Teva’s 180 exclusivity period under the Hatch-Waxman Act, in exchange for Teva’s agreement to delay introduction of its generic version (venlafaxine) until July 1, 2010.
In a “no-AG” agreement or commitment, the branded firm, as part of a patent settlement, agrees that it will not launch its own generic alternative when the first generic begins to compete.
The issue addressed by the FTC in Effexor is whether a branded drug company’s commitment not to launch an authorized generic drug in competition with a generic qualifies as a “reverse payment” under last month’s Third Circuit’s ruling in In Re: K-Dur Antitrust Litigation.
In K-Dur, the Third Circuit held that a court considering an antitrust challenge to a Hatch-Waxman patent settlement “must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade,” rebuttable by proof that the payment (1) was for a purpose other than delayed entry or (2) offered some pro-competitive benefit.
A court’s analysis of reverse payment antitrust cases should be based on “the economic realities of the reverse payment settlement,” not on the “labels applied by the settling parties,” the Third Circuit added. The FTC also filed an amicus brief in K-Dur, arguing that “pay-for-delay settlements” were presumptively anti-competitive.
In its Effexor brief, the FTC noted that a no-AG commitment can take a variety of forms—the brand company may explicitly agree not to compete during the first-filer generic manufacturer’s exclusivity period, or the brand company may grant the generic company the exclusive rights either to market a generic product or distribute the brand’s AG.
“Regardless of its form, however, the practical effect of the no-AG commitment is always to eliminate competition between the brand’s AG product and the first-filer generic’s product during the marketing exclusivity period and results in higher drug prices for consumers,” according to the FTC.
The FTC also argued that the economic realities of no-AG commitments mandate that such promises be analyzed under K-Dur like other forms of compensation paid to generics. At the request of Congress, the FTC conducted an empirical study on the effects of AGs on branded drug firms, on generic drug firms, and on consumers. The FTC’s 2011 report, titled Authorized Generic Drugs: Short-Term Effects and Long-Term Impact, examined more than 100 companies and found that “the presence of authorized generic competition reduces the first-filer generic’s revenues by 40 to 52 percent, on average” during the l80-day exclusivity period. A no-AG commitment financially induces the generic company to delay its entry, according to the FTC.
“This empirical evidence confirms what the pharmaceutical industry has long understood: that a no-AG commitment provides a convenient method for brand drug firms to pay generic patent challengers for agreeing to delay entry,” the FTC said.
Text of the Amicus Brief and a news release on the development appear on the FTC website.
--------------------------------------------------
This story was reported in IP Law Daily, a new daily email service from Wolters Kluwer Law & Business. For further information about the service, and an opportunity to sign up for 14-day trial subscription, visit http://wolterskluwerlb.com/ip/iplawdaily/.
Monday, August 13, 2012
FTC Proposal Would Require Drug Firms to Report Acquisition of Exclusive Patent Rights to Antitrust Enforcement Agencies
This posting was written by John W. Arden.
The Federal Trade Commission is seeking public comment on proposed changes to its premerger notification rules to require pharmaceutical companies to report acquisitions of exclusive patent rights to the FTC and Department of Justice for antitrust review, the agency announced today. The proposed rulemaking is intended to clarify when a transfer of exclusive patent rights in the pharmaceutical industry constitutes a reportable asset acquisition under the Hart Scott Rodino Act.
The Hart Scott Rodino Act requires parties to mergers and acquisitions to file reports with the FTC and Assistant Attorney General in charge of the Antitrust Division and to wait a specified period of time before consummating covered transactions. The reporting and waiting period are intended to enable the enforcement agencies to determine whether a proposed merger or acquisition may violate antitrust laws and, when appropriate, to seek an injunction to prevent the transaction.
This proposal would amend the coverage of the FTC rule to “reflect the longstanding staff position that a transaction involving the transfer of exclusive rights to a patent in the pharmaceutical industry, which typically takes the form of an exclusive license, is potentially reportable” under the Hart Scott Rodino Act.
The changes would bring the transfer of exclusive patent rights in the pharmaceutical industry within the rule’s requirement of reporting of “all commercially significant rights,” the FTC stated in a Notice of Proposed Rulemaking, which will appear in the Federal Register.
Under the proposal, a license granting exclusive rights to use and sell—but not the right to manufacture—is a potentially reportable asset acquisition. The retention of co-rights in granting an exclusive license would not render the license non-exclusive, under the proposal. The rulemaking is limited to the pharmaceutical industry, where the transfer of exclusive rights to a patent is a common practice, particularly when a patentee does not have the financial resources to shepherd a new drug compound through the FDA approval process.
The Commission worked closely with the Department of Justice to develop the proposed changes to the Premerger Notification Program, which determines when industry transactions must be reported under the Hart Scott Rodino Act. The FTC believes that the changes would enhance the effectiveness of the premerger notification program. The Commission voted 5-0 to approve the Notice of Proposed Rulemaking.
Interested parties may submit comments on the proposal through October 25, 2012. Comments, labeled “HSR IP Rulemaking, Project No. P989316,” may be submitted online at https://ftcpubliccommetworks.com/ftc/hsripnprm. Hard copy comments may be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex Q), 600 Pennsylvania Avenue, NW, Washington, D.C. 20580. Details appear here on the FTC website.
Further information will be reported in CCH Trade Regulation Reporter.
The Federal Trade Commission is seeking public comment on proposed changes to its premerger notification rules to require pharmaceutical companies to report acquisitions of exclusive patent rights to the FTC and Department of Justice for antitrust review, the agency announced today. The proposed rulemaking is intended to clarify when a transfer of exclusive patent rights in the pharmaceutical industry constitutes a reportable asset acquisition under the Hart Scott Rodino Act.
The Hart Scott Rodino Act requires parties to mergers and acquisitions to file reports with the FTC and Assistant Attorney General in charge of the Antitrust Division and to wait a specified period of time before consummating covered transactions. The reporting and waiting period are intended to enable the enforcement agencies to determine whether a proposed merger or acquisition may violate antitrust laws and, when appropriate, to seek an injunction to prevent the transaction.
This proposal would amend the coverage of the FTC rule to “reflect the longstanding staff position that a transaction involving the transfer of exclusive rights to a patent in the pharmaceutical industry, which typically takes the form of an exclusive license, is potentially reportable” under the Hart Scott Rodino Act.
The changes would bring the transfer of exclusive patent rights in the pharmaceutical industry within the rule’s requirement of reporting of “all commercially significant rights,” the FTC stated in a Notice of Proposed Rulemaking, which will appear in the Federal Register.
Under the proposal, a license granting exclusive rights to use and sell—but not the right to manufacture—is a potentially reportable asset acquisition. The retention of co-rights in granting an exclusive license would not render the license non-exclusive, under the proposal. The rulemaking is limited to the pharmaceutical industry, where the transfer of exclusive rights to a patent is a common practice, particularly when a patentee does not have the financial resources to shepherd a new drug compound through the FDA approval process.
The Commission worked closely with the Department of Justice to develop the proposed changes to the Premerger Notification Program, which determines when industry transactions must be reported under the Hart Scott Rodino Act. The FTC believes that the changes would enhance the effectiveness of the premerger notification program. The Commission voted 5-0 to approve the Notice of Proposed Rulemaking.
Interested parties may submit comments on the proposal through October 25, 2012. Comments, labeled “HSR IP Rulemaking, Project No. P989316,” may be submitted online at https://ftcpubliccommetworks.com/ftc/hsripnprm. Hard copy comments may be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex Q), 600 Pennsylvania Avenue, NW, Washington, D.C. 20580. Details appear here on the FTC website.
Further information will be reported in CCH Trade Regulation Reporter.
Thursday, August 09, 2012
Google to Pay $22.5 Million to Settle FTC Charges of Misrepresenting Internet Tracking
This posting was written by John W. Arden.
Google, Inc. has agreed to pay a $22.5 million civil penalty to settle Federal Trade Commission misrepresentation charges concerning its promise not to place tracking “cookies” on the computers of users of Apple Inc.’s Safari Internet browser and not to direct targeted ads to those users, the FTC announced today.
The Commission charged Google with violating an October 2011 settlement, in which the company agreed not to misrepresent the extent that it protected the privacy and confidentiality of any information it collected from those visiting Google and partner websites and the extent to which consumers may exercise control over the collection, use, or disclosure of such information.
According to the FTC complaint, Google informed Safari Internet browser users that they did not need to take any action to be opted out of DoubleClick targeted advertisements and that it would not (1) place DoubleClick Advertising cookies on a user’s browser, (2) collect interest category information about the user, or (3) serve targeted advertisements to the user.
Despite these representations, Google overrode the Safari default browser setting and placed the cookies on Safari browsers, the FTC charged. The initial cookie enabled Google to collect, store, and transmit a user’s Google account ID. After the Safari browser accepted the initial cookie, Google set additional third-party cookies onto the user’s browser, it was alleged. Setting these cookies on users’ Safari browsers enabled Google to collect information and serve targeted advertisements to the users, the FTC said.
Besides making misrepresentations about its information collection and ad targeting practices, Google misrepresented that it adhered to the National Advertising Initiative’s Self-Regulatory Code of Conduct, which required the posting of a notice describing a company’s data collection, transfer, and use practices, the FTC claimed.
The civil penalty to be paid by Google is the largest the agency has ever obtained for a violation of an FTC consent order. In addition to the civil penalty, the consent order required Google to disable all the tracking cookies it said it would not place on consumer computers.
“The record setting penalty in this matter sends a clear message to all companies under an FTC privacy order,” said FTC Chairman Jon Leibowitz. “No matter how big or small, all companies must abide by FTC orders against them and keep their privacy promises to consumers or they will end up paying many times what it would have cost them to comply in the first place.”
The Commission voted 4-1 to authorize the staff to refer the complaint to the Department of Justice and to approve the proposed consent decree. Commissioner J. Thomas Rosch dissented.
In a statement, the Commission said that the settlement was in the public interest because there was strong reason to believe that Google violated the October 2011 consent order and the $22.5 million fine was an appropriate remedy. In his dissenting statement, Commissioner Rosch objected to Google’s denial of liability in the consent decree. Rosch saw “no reason why the more common ‘neither admits nor denies liability’ language would not adequately protect Google from collateral estoppel in [civil] lawsuits.”
The Commission strongly disagreed with the view that if it allowed a defendant to deny the complaint’s substantive allegations that the settlement would not be in the public interest.
The complaint is United States v. Google, Inc., filed yesterday by the Department of Justice in federal district court in San Jose, California. Text of the complaint and the proposed stipulated order appear on the FTC website, along with a news release on the case.
Further information will appear in CCH Trade Regulation Reporter.
Google, Inc. has agreed to pay a $22.5 million civil penalty to settle Federal Trade Commission misrepresentation charges concerning its promise not to place tracking “cookies” on the computers of users of Apple Inc.’s Safari Internet browser and not to direct targeted ads to those users, the FTC announced today.
The Commission charged Google with violating an October 2011 settlement, in which the company agreed not to misrepresent the extent that it protected the privacy and confidentiality of any information it collected from those visiting Google and partner websites and the extent to which consumers may exercise control over the collection, use, or disclosure of such information.
According to the FTC complaint, Google informed Safari Internet browser users that they did not need to take any action to be opted out of DoubleClick targeted advertisements and that it would not (1) place DoubleClick Advertising cookies on a user’s browser, (2) collect interest category information about the user, or (3) serve targeted advertisements to the user.
Despite these representations, Google overrode the Safari default browser setting and placed the cookies on Safari browsers, the FTC charged. The initial cookie enabled Google to collect, store, and transmit a user’s Google account ID. After the Safari browser accepted the initial cookie, Google set additional third-party cookies onto the user’s browser, it was alleged. Setting these cookies on users’ Safari browsers enabled Google to collect information and serve targeted advertisements to the users, the FTC said.
Besides making misrepresentations about its information collection and ad targeting practices, Google misrepresented that it adhered to the National Advertising Initiative’s Self-Regulatory Code of Conduct, which required the posting of a notice describing a company’s data collection, transfer, and use practices, the FTC claimed.
The civil penalty to be paid by Google is the largest the agency has ever obtained for a violation of an FTC consent order. In addition to the civil penalty, the consent order required Google to disable all the tracking cookies it said it would not place on consumer computers.
“The record setting penalty in this matter sends a clear message to all companies under an FTC privacy order,” said FTC Chairman Jon Leibowitz. “No matter how big or small, all companies must abide by FTC orders against them and keep their privacy promises to consumers or they will end up paying many times what it would have cost them to comply in the first place.”
The Commission voted 4-1 to authorize the staff to refer the complaint to the Department of Justice and to approve the proposed consent decree. Commissioner J. Thomas Rosch dissented.
In a statement, the Commission said that the settlement was in the public interest because there was strong reason to believe that Google violated the October 2011 consent order and the $22.5 million fine was an appropriate remedy. In his dissenting statement, Commissioner Rosch objected to Google’s denial of liability in the consent decree. Rosch saw “no reason why the more common ‘neither admits nor denies liability’ language would not adequately protect Google from collateral estoppel in [civil] lawsuits.”
The Commission strongly disagreed with the view that if it allowed a defendant to deny the complaint’s substantive allegations that the settlement would not be in the public interest.
The complaint is United States v. Google, Inc., filed yesterday by the Department of Justice in federal district court in San Jose, California. Text of the complaint and the proposed stipulated order appear on the FTC website, along with a news release on the case.
Further information will appear in CCH Trade Regulation Reporter.
Wednesday, August 08, 2012
Federal Legislation Introduced to Protect Antitrust Whistleblowers
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Bi-partisan legislation has been introduced in the U.S. Senate to protect from discrimination employees, contractors, sub-contractors, or agents who report antitrust violations to the federal government. The proposed "Criminal Antitrust Anti-Retaliation Act" (S. 3462) was introduced by Senator Patrick Leahy (D-Vermont) and Chuck Grassley (R-Iowa), chairman and ranking member of the Senate Judiciary Committee, on July 31.
The legislation would amend the "Antitrust Criminal Penalty Enhancement and Reform Act of 2004" to prohibit discrimination against a whistleblower in the terms and conditions of employment. It would allow an employee who believes that retaliation has occurred to file a complaint with the Secretary of Labor. The whistleblower could be entitled to compensation, including reinstatement, back pay, and litigation costs, expert witness fees, and reasonable attorney’s fees.
The proposed protections for antitrust whistleblowers are modeled on existing whistleblower statutes, including the protections Senators Leahy and Grassley authored as part of the Sarbanes-Oxley Act in 2002. A 2011 report and recommendation from the Government Accountability Office found widespread support for anti-retaliatory protection in criminal antitrust cases, according to the bill's sponsors.
The GAO report noted, however, that senior Antitrust Division officials neither supported nor opposed the idea of whistleblower protections for antitrust violations. The Antitrust Division currently has a leniency program that allows individuals and companies to obtain immunity for antitrust violations if they are the first to self-report the wrongdoing and meet other specified conditions.
Antitrust law violations would be limited to violations of Sec. 1 or 3 of the Sherman Act or similar state laws. Thus, reports of monopolistic conduct would not come within the scope of the protections. Moreover, whistleblowers who planned and initiated the antitrust or other law violations or attempted to obstruct a Department of Justice antitrust investigation would not be covered by the measure.
“Whistleblowers are instrumental in alerting the public, Congress, and law enforcement to wrongdoing,” said Leahy. “Congress must encourage employees with reasonable beliefs about criminal activity to report it by offering meaningful protection to those who blow the whistle rather than leaving them vulnerable to reprisals."
Grassley said “Chairman Leahy and I worked together ten years ago to establish whistleblower protections for private sector employees as part of the Sarbanes-Oxley reform effort. We updated those provisions three years ago, and today’s initiative is a further extension of our efforts. The legislation recognizes the value of whistleblowers that are willing to come forward with information about criminal antitrust violations in the private sector. Their courage will help make certain antitrust laws are enforced, and they deserve protection and recognition for their actions.”
Bi-partisan legislation has been introduced in the U.S. Senate to protect from discrimination employees, contractors, sub-contractors, or agents who report antitrust violations to the federal government. The proposed "Criminal Antitrust Anti-Retaliation Act" (S. 3462) was introduced by Senator Patrick Leahy (D-Vermont) and Chuck Grassley (R-Iowa), chairman and ranking member of the Senate Judiciary Committee, on July 31.
The legislation would amend the "Antitrust Criminal Penalty Enhancement and Reform Act of 2004" to prohibit discrimination against a whistleblower in the terms and conditions of employment. It would allow an employee who believes that retaliation has occurred to file a complaint with the Secretary of Labor. The whistleblower could be entitled to compensation, including reinstatement, back pay, and litigation costs, expert witness fees, and reasonable attorney’s fees.
The proposed protections for antitrust whistleblowers are modeled on existing whistleblower statutes, including the protections Senators Leahy and Grassley authored as part of the Sarbanes-Oxley Act in 2002. A 2011 report and recommendation from the Government Accountability Office found widespread support for anti-retaliatory protection in criminal antitrust cases, according to the bill's sponsors.
The GAO report noted, however, that senior Antitrust Division officials neither supported nor opposed the idea of whistleblower protections for antitrust violations. The Antitrust Division currently has a leniency program that allows individuals and companies to obtain immunity for antitrust violations if they are the first to self-report the wrongdoing and meet other specified conditions.
Antitrust law violations would be limited to violations of Sec. 1 or 3 of the Sherman Act or similar state laws. Thus, reports of monopolistic conduct would not come within the scope of the protections. Moreover, whistleblowers who planned and initiated the antitrust or other law violations or attempted to obstruct a Department of Justice antitrust investigation would not be covered by the measure.
“Whistleblowers are instrumental in alerting the public, Congress, and law enforcement to wrongdoing,” said Leahy. “Congress must encourage employees with reasonable beliefs about criminal activity to report it by offering meaningful protection to those who blow the whistle rather than leaving them vulnerable to reprisals."
Grassley said “Chairman Leahy and I worked together ten years ago to establish whistleblower protections for private sector employees as part of the Sarbanes-Oxley reform effort. We updated those provisions three years ago, and today’s initiative is a further extension of our efforts. The legislation recognizes the value of whistleblowers that are willing to come forward with information about criminal antitrust violations in the private sector. Their courage will help make certain antitrust laws are enforced, and they deserve protection and recognition for their actions.”
Tuesday, August 07, 2012
Little Caesar Not Likely to Prevail on Trade Dress, Trade Secret Claims Against Former Franchisee
This posting was written by John W. Arden.
Pizza shop franchisor Little Caesar Enterprises was denied a preliminary injunction against a former franchisee’s alleged use of its trade dress and trade secrets because it failed to show a likelihood of success on the merits of its trade dress and trade secret claims, according to the federal district court in Sioux Falls, South Dakota.
Sioux Falls Pizza and its sole shareholder, James Fischer, executed three separate franchise agreement, which were to expire on June 4, 2012. Immediately following the expiration of the agreements, Fischer opened a competing pizza franchise, called Pizza Patrol, at the location of one of his former Little Caesar franchises. Like Little Caesar, Pizza Patrol sells ready-to-pick-up pizza, but also sells other items not ready made or sold by Little Caesar.
Little Caesar personnel visited the new Pizza Patrol store and took photographs of claimed similarities to their stores, including the “distinctive” floor and wall tiles, the location of the ordering counter, the configuration of equipment, and the general layout encapsulating Little Caesar’s signature trade dress.
On June 25, 2012, Little Caesar filed a complaint against Sioux Falls Pizza Co. and Fischer for trade dress infringement and trade secret misappropriation. It further moved for a temporary restraining order or preliminary injunction to prevent infringement of its trade dress and misappropriation of its trade secrets.
In determining whether to issue a preliminary injunction, courts consider the following factors: (1) whether the movant is likely to prevail on the merits; (2) the threat of irreparable harm to the movant; (3) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; and (4) the public interest. The most important factor is the likelihood of success on the merits, the court noted.
Trade Secret Misappropriation
Little Caesar alleged that Sioux Falls Pizza Co. and Fischer misappropriated its “Hot-N-Ready” system, as contained in its Hot-N-Ready Implementation Guide that was distributed to all its franchisees in June 2000. This system determined what franchisees must prepare on a daily and hourly basis and how each product had to be prepared in order to facilitate “Hot-N-Ready” promotions.
The most important part of the system was what product had to be prepared on an hour-by-hour basis during the day so that there was enough product available for purchase but not so much that food was wasted, according to Little Caesar. The system had a method for calculating specific preparation requirements for each franchise location.
Little Caesar argued that this system was protected by the South Dakota Trade Secrets Act and that the system was misappropriated. Sioux Falls Pizza claimed that it was not using Little Caesar’s system and that the Hot-N-Ready system did not qualify as a trade secret, since it was the sort of information generally known in the restaurant industry.
The South Dakota Uniform Trade Secrets Act defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique or process” that (1) derives independent economic value from not being generally known or ascertainable by other persons who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts to maintain its secrecy. The burden was on Little Caesar to show that the system was a trade secret.
The district court found that Little Caesar came forward with minimal proof that its system for producing Hot-N-Ready pizza could be the type of information qualifying as a method, technique, process, or program under the broad “trade secret” definition.
“While Little Caesars’ explanation of what the system is could constitute ‘information’ because it is a process, formula, method, or technique, Little Caesars was not specific enough to meet the high burden of likelihood of success on the merits for a preliminary injunction analysis,” the court ruled.
The franchisor did not make a clear showing of which information in the system was not generally known. It never entered any projection charts or graphs of the system into evidence. Its description of what makes up the system was “too generic or general to amount to a trade secret under the evidence presented at this stage of the litigation,” the court found.
Little Caesar’s failed to prove the second factor in a misappropriation analysis—whether it established reasonable efforts to maintain the secrecy of its system. It took some steps to safeguard its proprietary information by forcing all franchisees to sign confidentiality agreements regarding the system and other business practices, but that confidentiality did not extend to all employees with direct exposure to the system.
The court held that Little Caesar had not produced any evidence that its system was any more than a conglomeration of information that was already in the public knowledge and aggregated by Little Caesar. Without more proof, it could not sustain its burden of showing it was likely to succeed on the merits of its claim.
Trade Dress Infringement
Little Caesar claimed that Sioux Falls Pizza failed to alter the trade dress of its former franchise to remove the distinctive features belonging to the franchisor. Sioux Falls Pizza argued that it remodeled the interior and exterior of the store after its franchise agreement expired.
Section 43(a) of the Lanham Act provides a federal cause of action for infringement of trade dress rights, the court said. To obtain relief for trade dress infringement, a plaintiff must show that (1) its trade dress is distinctive or has acquired a secondary meaning; (2) the trade dress is nonfunctional; and (3) the defendant’s imitation of the trade dress creates a likelihood of confusion in the consumers’ minds as to the origin of the services.
Sioux Falls Pizza removed all Little Caesar’s signs, point-of-purchase materials, menu boards, paper goods, and other marks from the location. The exterior and interior of the store was altered to incorporate the signs, menu boards, and other features of a Pizza Patrol franchise.
The court refused to analyze the three factors necessary to prove trade dress infringement because Little Caesar offered no evidence of specific trade dress that was either typical or required in each franchise and company-owned store. Little Caesar submitted no evidence of a written policy, manual, guide, or other direct proof of its standard trade dress. All that was offered was the testimony that the Pizza Patrol store looked similar to the Little Caesar franchise at that location. Evidence that some store features were similar to the look and feel of the franchise was not enough to establish that Little Caesar had a fair chance of succeeding on its trade dress infringement claim, the court found.
Irreparable Harm, Balance of Harms, Public Interest
The court held that the threat of irreparable harm factor favored Little Caesar’s request for a preliminary injunction, but that the balance of harms to Sioux Falls Pizza’s lone business would be greater than the harm to a national business like Little Caesar. The public interest factor weighed in favor of Sioux Falls Pizza. There is a public interest in both protecting a company’s property interest in trade dress and trade secrets, but also in unrestrained competition and a free market, the court observed. The fact that Little Caesar failed to show a likelihood of success on the merits resulted in the public interest favoring Sioux Falls Pizza.
The decision is Little Caesar Enterprises, Inc. v. Sioux Falls Pizza Co., Inc. It will appear in CCH Business Franchise Guide.
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This story was reported in IP Law Daily, a new daily email service from Wolters Kluwer Law & Business. For further information about the service, and an opportunity to sign up for 14-day trial subscription, visit http://wolterskluwerlb.com/ip/iplawdaily.
Pizza shop franchisor Little Caesar Enterprises was denied a preliminary injunction against a former franchisee’s alleged use of its trade dress and trade secrets because it failed to show a likelihood of success on the merits of its trade dress and trade secret claims, according to the federal district court in Sioux Falls, South Dakota.
Sioux Falls Pizza and its sole shareholder, James Fischer, executed three separate franchise agreement, which were to expire on June 4, 2012. Immediately following the expiration of the agreements, Fischer opened a competing pizza franchise, called Pizza Patrol, at the location of one of his former Little Caesar franchises. Like Little Caesar, Pizza Patrol sells ready-to-pick-up pizza, but also sells other items not ready made or sold by Little Caesar.
Little Caesar personnel visited the new Pizza Patrol store and took photographs of claimed similarities to their stores, including the “distinctive” floor and wall tiles, the location of the ordering counter, the configuration of equipment, and the general layout encapsulating Little Caesar’s signature trade dress.
On June 25, 2012, Little Caesar filed a complaint against Sioux Falls Pizza Co. and Fischer for trade dress infringement and trade secret misappropriation. It further moved for a temporary restraining order or preliminary injunction to prevent infringement of its trade dress and misappropriation of its trade secrets.
In determining whether to issue a preliminary injunction, courts consider the following factors: (1) whether the movant is likely to prevail on the merits; (2) the threat of irreparable harm to the movant; (3) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; and (4) the public interest. The most important factor is the likelihood of success on the merits, the court noted.
Trade Secret Misappropriation
Little Caesar alleged that Sioux Falls Pizza Co. and Fischer misappropriated its “Hot-N-Ready” system, as contained in its Hot-N-Ready Implementation Guide that was distributed to all its franchisees in June 2000. This system determined what franchisees must prepare on a daily and hourly basis and how each product had to be prepared in order to facilitate “Hot-N-Ready” promotions.
The most important part of the system was what product had to be prepared on an hour-by-hour basis during the day so that there was enough product available for purchase but not so much that food was wasted, according to Little Caesar. The system had a method for calculating specific preparation requirements for each franchise location.
Little Caesar argued that this system was protected by the South Dakota Trade Secrets Act and that the system was misappropriated. Sioux Falls Pizza claimed that it was not using Little Caesar’s system and that the Hot-N-Ready system did not qualify as a trade secret, since it was the sort of information generally known in the restaurant industry.
The South Dakota Uniform Trade Secrets Act defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique or process” that (1) derives independent economic value from not being generally known or ascertainable by other persons who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts to maintain its secrecy. The burden was on Little Caesar to show that the system was a trade secret.
The district court found that Little Caesar came forward with minimal proof that its system for producing Hot-N-Ready pizza could be the type of information qualifying as a method, technique, process, or program under the broad “trade secret” definition.
“While Little Caesars’ explanation of what the system is could constitute ‘information’ because it is a process, formula, method, or technique, Little Caesars was not specific enough to meet the high burden of likelihood of success on the merits for a preliminary injunction analysis,” the court ruled.
The franchisor did not make a clear showing of which information in the system was not generally known. It never entered any projection charts or graphs of the system into evidence. Its description of what makes up the system was “too generic or general to amount to a trade secret under the evidence presented at this stage of the litigation,” the court found.
Little Caesar’s failed to prove the second factor in a misappropriation analysis—whether it established reasonable efforts to maintain the secrecy of its system. It took some steps to safeguard its proprietary information by forcing all franchisees to sign confidentiality agreements regarding the system and other business practices, but that confidentiality did not extend to all employees with direct exposure to the system.
The court held that Little Caesar had not produced any evidence that its system was any more than a conglomeration of information that was already in the public knowledge and aggregated by Little Caesar. Without more proof, it could not sustain its burden of showing it was likely to succeed on the merits of its claim.
Trade Dress Infringement
Little Caesar claimed that Sioux Falls Pizza failed to alter the trade dress of its former franchise to remove the distinctive features belonging to the franchisor. Sioux Falls Pizza argued that it remodeled the interior and exterior of the store after its franchise agreement expired.
Section 43(a) of the Lanham Act provides a federal cause of action for infringement of trade dress rights, the court said. To obtain relief for trade dress infringement, a plaintiff must show that (1) its trade dress is distinctive or has acquired a secondary meaning; (2) the trade dress is nonfunctional; and (3) the defendant’s imitation of the trade dress creates a likelihood of confusion in the consumers’ minds as to the origin of the services.
Sioux Falls Pizza removed all Little Caesar’s signs, point-of-purchase materials, menu boards, paper goods, and other marks from the location. The exterior and interior of the store was altered to incorporate the signs, menu boards, and other features of a Pizza Patrol franchise.
The court refused to analyze the three factors necessary to prove trade dress infringement because Little Caesar offered no evidence of specific trade dress that was either typical or required in each franchise and company-owned store. Little Caesar submitted no evidence of a written policy, manual, guide, or other direct proof of its standard trade dress. All that was offered was the testimony that the Pizza Patrol store looked similar to the Little Caesar franchise at that location. Evidence that some store features were similar to the look and feel of the franchise was not enough to establish that Little Caesar had a fair chance of succeeding on its trade dress infringement claim, the court found.
Irreparable Harm, Balance of Harms, Public Interest
The court held that the threat of irreparable harm factor favored Little Caesar’s request for a preliminary injunction, but that the balance of harms to Sioux Falls Pizza’s lone business would be greater than the harm to a national business like Little Caesar. The public interest factor weighed in favor of Sioux Falls Pizza. There is a public interest in both protecting a company’s property interest in trade dress and trade secrets, but also in unrestrained competition and a free market, the court observed. The fact that Little Caesar failed to show a likelihood of success on the merits resulted in the public interest favoring Sioux Falls Pizza.
The decision is Little Caesar Enterprises, Inc. v. Sioux Falls Pizza Co., Inc. It will appear in CCH Business Franchise Guide.
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This story was reported in IP Law Daily, a new daily email service from Wolters Kluwer Law & Business. For further information about the service, and an opportunity to sign up for 14-day trial subscription, visit http://wolterskluwerlb.com/ip/iplawdaily.
Thursday, August 02, 2012
FTC Seeks Comments on Proposed Changes to Children’s Online Privacy Protection Act Rule
This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.
The Federal Trade Commission announced on August 1, 2012 that it is publishing a Federal Register Notice seeking public comments on proposed changes to the Children’s Online Privacy Protection (COPPA) Rule (16 CFR Part 312).
Proposed modifications to the definitions of “operator” and “website or online service directed to children” would allocate and clarify the responsibilities under COPPA when third parties—such as advertising networks and providers of downloadable software “plug-ins”—collect personal information from users through child-directed websites or services.
The Commission proposes to state within the definition of “operator” that personal information is “collected or maintained on behalf of” an operator when it is collected in the interest of, as a representative of, or for the benefit of, the operator. This change would make clear that an operator of a child-directed site or service that integrates the services of others that collect personal information should itself be considered a covered “operator” under the Rule.
The Commission also proposes to modify the definition of “website or online service directed to children” to:
Finally, the Commission proposes to modify the Rule’s definition of “personal information” to make it clear that a persistent identifier will be considered personal information when it can be used to recognize a user over time, or across different sites or services, and when it is used for purposes other than support for internal operations.
Use of such identifiers in the course of such activities as site maintenance, network communications, authentication of users, serving contextual advertisements, and protecting against fraud and theft would not be considered collection of personal information, as long as the information collected is not used to contact a specific individual, including through the use of behaviorally-targeted advertising.
Public comments will be accepted through September 10, 2012. Details are available here on the FTC website.
Further information regarding CCH Privacy Law in Marketing appears here.
The Federal Trade Commission announced on August 1, 2012 that it is publishing a Federal Register Notice seeking public comments on proposed changes to the Children’s Online Privacy Protection (COPPA) Rule (16 CFR Part 312).
Proposed modifications to the definitions of “operator” and “website or online service directed to children” would allocate and clarify the responsibilities under COPPA when third parties—such as advertising networks and providers of downloadable software “plug-ins”—collect personal information from users through child-directed websites or services.
The Commission proposes to state within the definition of “operator” that personal information is “collected or maintained on behalf of” an operator when it is collected in the interest of, as a representative of, or for the benefit of, the operator. This change would make clear that an operator of a child-directed site or service that integrates the services of others that collect personal information should itself be considered a covered “operator” under the Rule.
The Commission also proposes to modify the definition of “website or online service directed to children” to:
(1) Clarify that a plug-in provider or ad network is covered by the Rule when it knows or has reason to know that it is collecting personal information through a child-directed website or online service;“Personal Information”
(2) Allow websites with mixed audiences of children and adults to age-screen visitors in order to provide COPPA’s protections only to users under age 13; and
(3) Clarify that child-directed sites or services that knowingly target children under 13 as their primary audience or whose overall content is likely to attract children under age 13 as their primary audience must still treat all users as children.
Finally, the Commission proposes to modify the Rule’s definition of “personal information” to make it clear that a persistent identifier will be considered personal information when it can be used to recognize a user over time, or across different sites or services, and when it is used for purposes other than support for internal operations.
Use of such identifiers in the course of such activities as site maintenance, network communications, authentication of users, serving contextual advertisements, and protecting against fraud and theft would not be considered collection of personal information, as long as the information collected is not used to contact a specific individual, including through the use of behaviorally-targeted advertising.
Public comments will be accepted through September 10, 2012. Details are available here on the FTC website.
Further information regarding CCH Privacy Law in Marketing appears here.
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