Tuesday, January 31, 2012

FTC Will Not Seek Review in Lundbeck Case

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

The FTC will not petition the U.S. Supreme Court for review of a decision of the U.S. Court of Appeals in St. Louis (2011-2 Trade Cases ¶77,570), rejecting a challenge to a 2006 acquisition involving global pharmaceutical company Lundbeck, Inc.

The appellate court affirmed judgment in favor of the drug company (2010-2 Trade Cases ¶77,160), based on the government’s failure to identify a valid relevant product market.

Decision “Profoundly Wrong”

The decision was made not to pursue review, despite a determination that the result in the case “was profoundly wrong, reflecting a serious misunderstanding by the District Court of the dynamics of this market and of the competitive consequences of an acquisition that allowed one company to control the only two pharmaceutical treatments for a life-threatening medical condition and raise prices by nearly 1300 percent,” according to a statement expressing the views of Chairman Jon Leibowitz, Commissioner Edith Ramirez, and Commissioner Julie Brill.

The three commissioners decided that it would be better to “turn our energies to other enforcement priorities.”

Commissioner Rosch’s Views

In a separate statement, Commissioner J. Thomas Rosch outlined the “many reasons for seeking Supreme Court review of the Eighth Circuit’s panel and en banc decisions in the Lundbeck case, which blessed the district court’s decision.”

According to Rosch, the courts erred in determining the product market. The first error of law was that, in holding that the two drugs at issue in the case—Indocin and NeoProfen—did not compete with each other in the same relevant product market, the district and appellate courts interpreted “cross-elasticity of demand” to mean exclusively cross-price elasticity of demand. Second, by erroneously focusing only on cross-price elasticity of demand, the district court allowed an economic expert’s opinion to trump the record facts regarding how the products were being marketed, purchased, and used in the real world.

Rosch also questioned the district court’s failure to consider the parties’ own business documents, as well as a hypothetical market.

The statement on the closing of the investigation of Lundbeck, Inc., Dkt Nos. 10-3458, 10-3459, FTC No. 0810156, appears at CCH Trade Regulation Reporter ¶16,711.

Monday, January 30, 2012

Nationwide Class Certification of California Ad Claims Vacated

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

Certification of a nationwide class was vacated by the U.S. Court of Appeals in San Francisco in an action under California law asserting that Honda’s advertisements misrepresented the characteristics of a braking system.

California Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act could not be applied to the entire nationwide class, and all consumers who purchased or leased an Acura RL automobile could not be presumed to have relied on the advertisements, the court held.

Variances in State Consumer Laws

The law of multiple jurisdictions applied to any nationwide class of purchasers or lessees, according to the court. Variances in state consumer laws overwhelmed common issues and precluded predominance for a single nationwide class.

Reliance on Advertising

Even if the class was restricted only to those who purchased or leased their car in California, common issues of fact would not predominate in the class as currently defined because it almost certainly included members who were not exposed to, and therefore could not have relied on, Honda’s allegedly misleading advertising, the court determined.

Honda’s product brochures and TV commercials fell short of the “extensive and long-term [fraudulent] advertising campaign” at issue in In re Tobacco II Cases (Cal. S. Ct. 2009), CCH Advertising Law Guide ¶63,423.

In the absence of a massive advertising campaign, the relevant class had to be defined in such a way as to include only members who were exposed to advertising that was alleged to be materially misleading, the court concluded.

The decision is Mazza v. American Honda Motor Company, Inc., CCH Advertising Law Guide ¶64,536.

Friday, January 27, 2012

Involvement in Embezzlement Scheme Was Not a Civil RICO Violation

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

A federal district court erred in finding that two individuals had violated RICO by engaging in a scheme to embezzle millions of dollars from an equipment manufacturer through the fraudulent issuance and receipt of accounts payable checks, the U.S. Court of Appeals in New Orleans has ruled.

Summary judgment in favor of the manufacturer was therefore reversed and the case was remanded for further proceedings.

Operating, Managing Racketeering Enterprise

The manufacturer failed to show that the two defendants had operated or managed the alleged racketeering enterprise in violation of RICO §1962(c). The fraudulent receipt of corporate funds, by itself, was insufficient to show that the individuals had operated the scheme that stole those funds.

Investment in Enterprise

The company also failed to show that it was injured by the investment of racketeering proceeds. More specifically, it failed to proffer any facts to show how the embezzled funds were invested into an enterprise or how the company was injured by that investment. Accordingly, its claim under RICO §1962(a) was defective.

RICO Conspiracy

Finally, the company failed to show that the individuals had engaged in a RICO conspiracy under §1962(d). The district court relied on the U.S. Supreme Court’s holding in Salinas v. United States (RICO Business Disputes Guide ¶9382) to support its finding that the two individuals were liable for participating in the alleged conspiracy.

Although the Salinas court held that a defendant needed only to know of and agree to the overall objective of a RICO offense to be held criminally liable for a RICO conspiracy, the Supreme Court’s subsequent holding in Beck v. Prupis  (RICO Business Disputes Guide ¶9869) made it clear that to establish a civil RICO conspiracy, a plaintiff must “allege injury from an act that is independently wrongful under RICO.”

Therefore, to prevail on its civil RICO conspiracy claim against the two defendants, the company had to allege an injury from an act on their part that was independently wrongful under RICO. This it failed to do.

The decision is Davis-Lynch, Inc. v. Moreno, CCH RICO Business Disputes Guide ¶12,162.

Further information about CCH RICO Business Disputes Guide is available here.

Thursday, January 26, 2012

Former Comcast Subscribers Lacked Standing to Bring California Class Action

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

Putative class representatives lacked standing to bring California Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) class action claims against Comcast because they lacked the requisite injury in fact, according to the federal district court in Fresno, California.

The representatives were former subscribers to Comcast’s telephone services who alleged the company adopted deceptive policies and practices relating to post-cancellation billing of consumers who seek to port their telephone number to another service provider, provided unclear and inaccurate billing statements, and used arcane and confusing final billing statements. The class representatives received a refund of funds deducted from the representatives’ accounts via direct payments.

Injury in Fact

To have standing under the UCL, the representatives needed to show an injury in fact stemming from an unfair business practice. The CLRA required the representatives to show a tangible increased cost or burden resulting from an alleged unlawful practice. Because the representatives received refunds, there was no evidence of an injury in fact or economic loss. The representatives’ argument that the refund was inadequate was too speculative to plead a concrete injury.

None of the putative class members suffered an injury in fact, according to the court. Although class members need not submit evidence of personal standing, a class must be defined in a way that anyone within it would have standing. There was no evidence that the refund calculation was incorrect or otherwise resulted in an injury.

Common Issues

Even if the class representatives had standing to pursue the UCL and CLRA claims, the class did not meet the requirements of Federal Rule of Civil Procedure 23. Rule 23(a)(2) requires questions of law or fact common to the class. In Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011), the Supreme Court held that class representatives are required to identify how common points of facts and law will drive or resolve the litigation. The representatives failed to properly articulate common issues, according to the court.

The decision is Gonzales v. Comcast Corporation, CCH State Unfair Trade Practices Law ¶32,387.

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

Wednesday, January 25, 2012

Class Certification Improperly Denied in Hospital Merger Challenge

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

A federal district court abused its discretion when it denied certification to a class of direct purchasers of hospital services in an action challenging a hospital merger, the U.S. Court of Appeals in Chicago has ruled.

Because the denial of class certification was erroneous as a matter of both fact and law, the district court's denial of class certification (2010-1 Trade Cases ¶77,001) was vacated and the matter remanded for further proceedings.

Perfect v. Good Evidence

The degree of uniformity that the district court demanded simply was not required for class certification under Rule 23(b) (3) of the Federal Rules of Civil Procedure, the appellate court ruled. The court explained “it is important not to let a quest for perfect evidence become the enemy of good evidence.”

Antitrust Impact on Proposed Class

The central issue under Rule 23(b) (3) was whether the purchasers could show on a class-wide basis the antitrust impact of the merged entity's actions on the proposed class. Common questions clearly predominate in regard to whether the merger violated federal antitrust law, the appellate court decided. The district court incorrectly applied Rule 23(b)(3)'s predominance requirement when it made uniformity of nominal price increases following the merger a condition for class certification. The plaintiffs’ expert, an economist who specialized in the health care industry, could use common evidence and his proposed methodology to estimate the antitrust impact, if any, of the merger on the members of that class.

Admissibility of Economic Analysis

In addition, the district court failed to determine whether the defense expert's report and opinions were admissible under Federal Rule of Evidence 702 before ruling on the motion for class certification. Before the hearing on class certification, the plaintiffs moved to exclude the report of a private consulting economist. The plaintiffs argued that the expert’s “economic analyses are fundamentally defective” and that the expert’s opinion “should be stricken as a whole.”

The district court's refusal to rule on the plaintiffs' Daubert motion was an error, since the expert’s opinions were critical to the district court's decision. The expert’s report and testimony laid the foundation for the merged entity’s entire argument in opposition to class certification, and the district court relied on the expert’s reasoning when making its decision.

The decision is Messner v. Northshore University Healthsystem, 2012-1 Trade ¶77,763.

Tuesday, January 24, 2012

Pozen Resigns as Acting Chief of Antitrust Division

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

Less than six months after her appointment as Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division, Sharis A. Pozen has announced her resignation, effective as of April 30, 2012, according to a January 23 announcement.

Pozen came to the Justice Department in February 2009. She served as chief of staff and counsel and as a key deputy to former Assistant Attorney General Christine A. Varney. Upon Varney’s departure from the division, Pozen was named acting antitrust chief on August 4, 2011.

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

There was no word on who would replace the Acting Assistant Attorney General. However, there is speculation in the media that William J. Baer, head of the antitrust group at the Washington, D.C. office of Arnold & Porter, LLP., might be on the short-list of candidates. Baer has held a number of high-level positions at the Federal Trade Commission, including director of the FTC’s Bureau of Competition.

Under Pozen’s brief leadership, the Antitrust Division challenged the now-abandoned merger of AT&T Inc. and T-Mobile USA Inc. During her tenure as antitrust chief, the Antitrust Division also successfully blocked the proposed acquisition by H&R Block Inc. of TaxACT, a digital do-it-yourself tax-preparation software provider, at the government’s request (2011-2 Trade Cases ¶77,678).

Among the major accomplishments in the criminal area were the Justice Department’s first enforcement actions targeting price fixing and bid rigging in the automotive parts industry. As part of the investigation, Furukawa Electric Co. Ltd., a supplier of automotive wire harnesses and related products, has pleaded guilty and been fined $200 million fine for its involvement in the conspiracy. That investigation, among many others, is ongoing.

Monday, January 23, 2012

Gasoline Franchisor Could Have Violated PMPA’s Notice, Delivery Requirements

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

A gasoline station franchisor could have violated the Petroleum Marketing Practices Act (PMPA) by terminating its relationship with a franchisee without delivering the notice in the prescribed manner and 90 days prior to termination, a federal district court in Detroit has ruled. Contrary to the franchisor’s claims, the asserted violations of the PMPA were timely under the Act’s statute of limitations.

Method of Delivery

The PMPA required delivery of a notice of termination via certified mail or personal delivery to the franchisee. The franchisor argued that it provided the required notice and satisfied all delivery requirements, pointing to a letter it sent the franchisee.

Although the letter appeared to satisfy the PMPA’s content requirements and displayed the words "via certified U.S. mail, return receipt requested," this did not establish that the letter was actually delivered to the franchisee personally or sent via certified mail, the court determined.

The franchisee claimed that it never received the termination notice, nor did its receiver. For purposes of the franchisor’s motion to dismiss, the court was required to accept the franchisee’s claim as true.

Because the pleadings did not establish that the franchisee received the notice of termination as required by the Act, the claim for violation of the Act’s 90 days’ notice requirement also could not be dismissed.

Statute of Limitations

The two claims were brought within the PMPA’s one-year statute of limitations, the court held. The statute required a franchisee to bring its claim within one year of the later of: (1) the date of termination or (2) the date the franchisor failed to comply with the statute’s requirements.

The notice of termination was allegedly mailed June 20, 2010, and the franchise was terminated September 30, 2010. The franchisee filed its PMPA claims on June 29, 2011.

The decision is Marathon Petroleum Co. v. Future Fuels of America, CCH Business Franchise Guide ¶14,751.

Sunday, January 22, 2012

Trade Regulation Talk News App Now Available

This posting was written by John W. Arden.

A new, free mobile app allows you to receive Trade Regulation Talk postings on your iPhone, iPod touch, and iPad.

To receive information—and a free download—visit the Apple iTunes website or click here. Look for Trade Regulation Talk by Wolters Kluwer.

Friday, January 20, 2012

Commercial Based on Unreliable “Lab Test” Enjoined

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

Cat litter manufacturer Clorox was preliminarily enjoined by the federal district court in New York City from airing a television commercial making comparative claims about cat litter odor reduction.

Competitor Church & Dwight (C & D) was likely to succeed on the merits of its Lanham Act false advertising suit that the commercial made literally false claims based on an unreliable “lab test,” and was likely to suffer irreparable harm, the court held.

Clorox’s litter used carbon as an odor fighting ingredient while C & D’s litter used baking soda. In Clorox’s test, 11 panelists gave a malodor rating of zero to cat excrement treated with carbon in sealed jars but found that baking soda reduced odor only 32%—the same decrease represented in the demonstration shown in Clorox’s commercial.

Necessary Implication of Falsity

The commercial was literally false because the “jar test” could not reasonably support the necessary implication that Clorox’s litter outperformed C & D’s products in eliminating odor, the court determined. The test was unreliable because its unrealistic conditions said little, if anything, about how carbon performs in cat litter in circumstances highly relevant to a reasonable consumer, and it could not possibly support Clorox's very specific claims with regard to litter, according to the court.

Another reason given by the court for rejecting the test results was the implausible uniformity with which panelists found that cat excrement treated with carbon contained “zero” malodor. When 11 panelists stick their noses into jars of excrement and report 44 times that they smelled nothing unpleasant, the result more likely reflected flaws in their in-house training or objectivity than any reliable result, the court said.

Irreparable Harm

C & D proved a likelihood of irreparable harm. One of the beakers in Clorox's commercial bore the label “baking soda,” and C & D was the only major manufacturer of cat litter that used baking soda as a deodorizing ingredient. Consumers shopping for cat litter overwhelmingly identified baking soda with C & D’s Arm & Hammer cat litter products, according to the court.

The court concluded that the comparisons were at least as direct as those in Time Warner Cable, Inc. v. DIRECTV, Inc. (CCH Advertising Law Guide ¶62,620), where the court found that viewers of a DIRECTV commercial that disparaged “cable” in an area in which Time Warner served as the exclusive cable provider would “undoubtedly understand” that criticism to apply to Time Warner specifically.

The January 4 opinion in Church & Dwight Co. v. Clorox Co. will be reported at CCH Advertising Law Guide ¶64,533.

Thursday, January 19, 2012

Termination of Wholesaler’s Rights Did Not Violate North Carolina Wine Distribution Law

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

A wine importer’s termination of a wholesaler’s right to distribute an imported brand did not violate the North Carolina Wine Distribution Agreements Act absent an “agreement” between the parties, according to the U.S. Court of Appeals in Richmond, Virginia. The parties had neither a “commercial relationship” nor an agreement under the statute.

The wine distribution law protected a wine wholesaler in the absence of an “agreement” only in two limited circumstances: (1) in the context of the transfer of a win wholesaler’s business, and (2) when a winery had been acquired.

Because neither of those two circumstances was present in this case, the importer’s actions did not violate the statute.

The dispute began when an Argentine winery chose a new importer in the United States. The new importer subsequently began supplying the brand to its own network of wholesalers, which did not include the plaintiff wholesaler, which had been distributing the brand in North Carolina.

Noting the liberal construction that should accorded the wine distribution law in order to effectuate the law’s intent to protect wholesalers, the plaintiff wholesaler argued that the law’s protections should extend to this situation. However, accepting the wholesaler’s argument would require the court to read into the statute an exception to the default requirement of an “agreement” that was nowhere to be found, in the court’s view.

When statutory language is clear and unambiguous, North Carolina law requires courts to construe a statute using its plain meaning. In 2010, subsequent to this dispute, the North Carolina General Assembly amended the wine distribution law to grant prospectively the very type of protection that the wholesale sought in this case.

The amendment demonstrated that the General Assembly knew how to protect a wholesaler’s right to the continued distribution of a brand, yet previously chose not to do so.

The unpublished decision is Country Vintner v. E.J. Gallo Winery, CCH Business Franchise Guide ¶14,753.

Wednesday, January 18, 2012

Federal Question Jurisdiction Exists Over Telephone Consumer Protection Act Suits: Supreme Court

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

Private suits arising from automatically dialed calls to cellular telephones and other practices barred by the federal Telephone Consumer Protection Act (TCPA) may be brought in federal court under federal question jurisdiction, even though the TCPA provides for suits in state court and does not expressly authorize private suits in federal court, the U.S. Supreme Court ruled today in a unanimous opinion.

Intrusive Nuisance Calls

Congress created the TCPA in 1991, having determined that federal legislation was needed because telemarketers, by operating interstate, were escaping state law prohibitions on intrusive nuisance calls.

The Act permits a private person to seek redress for violations in an appropriate court of a state, if otherwise permitted by the laws or court rules of that state.

In this case, an individual filed a damages action in federal district court, alleging that a financial services firm, seeking to collect a debt, violated the TCPA by repeatedly using an automatic telephone dialing system or prerecorded or artificial voice to call the individual’s cellular phone without his consent.

Federal Question Jurisdiction

Holding that federal jurisdiction exists, the Supreme Court reversed a decision (CCH Advertising Law Guide ¶64,343) of the U.S. Court of Appeals in Atlanta—one of six U.S. Courts of Appeal that had held federal question jurisdiction lacking over private suits under the TCPA.

Private suits for violations of the TCPA meet the test for federal question jurisdiction as arising under the laws of the United States, it was held. The Court found unpersuasive the financial services firm’s contention that the TCPA provision for suits in state court displaced federal jurisdiction.

The firm’s argument that federal courts will be inundated by $500-per-violation TCPA statutory damages claims—or that defendants could use federal court removal to force small claims court plaintiffs to abandon suit—seemed more imaginary than real, the Court added.

The January 18, 2012 opinion in Mims v. Arrow Financial Services, LLC will be reported at CCH Advertising Law Guide ¶64,535.

Tuesday, January 17, 2012

Premium Cable Subscribers Not Allowed to Bring Tying Claim as Class

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

Subscribers to a communications company’s premium cable television programming packages who paid the company a monthly rental fee for an accompanying set-top box should not be certified as a class, for purposes of their claims that the company illegally tied and bundled the lease of the cable boxes to the ability to obtain premium cable programming services, the federal district court in Oklahoma City has determined.

Common v. Individualized Issues

While the proposed class satisfied the numerosity, commonality, typicality, and adequacy of representation requirements established by Federal Rule of Civil Procedure 23(a), it could not meet Rule 23(b)(3)’s burdens of showing that common issues would predominate over any individualized issues and that a class action was the superior method for adjudicating the action.

Federal Tying Claim

The subscribers could not prove all of the elements of a federal tying claim on a classwide basis because the determination of the company’s market power was not amenable to such proof, according to the court.

Since subscribers in different geographic areas faced different competitive alternatives to the defending company, such a determination required an evaluation of the actual competitive conditions of markets at a local—not national—level, the court explained.


Several methods introduced by the plaintiff’s expert for calculating aggregate damages suffered by the subscribers could not be utilized with common evidence, owing to the elasticity of demand and the subsequent need for individualized market data.

Moreover, a benchmark method proffered by the expert, in which he compared rental rates of set-top boxes in the United States to rates in Canada, was inappropriate given the expert’s failure to evaluate the different regulations in the countries and costs of Canadian and American cable providers.

Additionally, in light of the multiple regional analysis required to determine market power and impact, maintaining a class action would not be manageable, the court noted.

The decision is In Re: Cox Enterprises, Inc. Set-Top Cable Television Box Antitrust Litigation, 2012-1 Trade Cases ¶77,756.

Monday, January 16, 2012

County Not a Proper Plaintiff to Pursue Federal Antitrust Claims in Multi-District Suit

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

A California county lacked standing to pursue a federal antitrust claim seeking injunctive relief against producers of plasma-derivative protein therapies and a trade association that allegedly conspired to restrict out and raise prices, the federal district court in Chicago has ruled.

The federal antitrust claim was dismissed. However, the remaining issues involving state-law claims were held in abeyance, pending a determination on the court’s subject matter jurisdiction and the propriety of keeping the case as part of multi-district litigation, consisting of almost 20 actions brought on behalf of direct and indirect purchasers of plasma-derivative protein therapies.

The county was an indirect purchaser. It operated a medical center through which it administered a county-wide health care system, whose medical center indirectly purchased plasma-derivative protein therapies. The county claimed that it was forced to purchase these therapies either from distributors who had purchased the therapies from manufacturers or from group purchasing organizations (GPOs) that had negotiated contracts with manufacturers on behalf of their members, including the county.

The county alleged a core antitrust injury. It claimed that the defendants conspired to reduce output, thereby forcing the county to pay higher prices. However, it was not a “proper plaintiff” to maintain the antitrust action.

Standing was lacking based on the considerations delineated in the U.S. Supreme Court’s 1983 decision in Associated General Contractors of California, Inc. v. California State Council of Carpenters, 1983-1 Trade Cases ¶65,226, 459 U.S. 519:

(1) The causal connection between the violation and the harm;

(2) The presence of improper motive;

(3) The type of injury and whether it was one Congress sought to redress;

(4) The directness of the injury;

(5) The speculative nature of the damages; and

(6) The risk of duplicate recovery or complex damage apportionment.
Because the county, as an indirect purchaser, sought only injunctive relief, there was no threat of multiple lawsuits or duplicative recoveries. Thus, the standing analysis was limited to the presence of improper motive, the causal connection between the violation and the harm, and the directness of the injury. An improper motive was sufficiently alleged.

In addition, the county alleged a causal connection between the Sherman Act violation and its purported harm based on its alleged payment of higher prices by virtue of the conspiracy to reduce output. However, there were more direct victims of the alleged conspiracy to vindicate the public interest and they were actively pursuing their claims, seeking damages and the same injunctive relief sought by the county.

The court did not consider whether the Associated General Contractors factors applied to each of the various state antitrust claims the county sought to bring, and whether the county failed to state a claim for relief. The questions had to be put off until after the court addressed two issues: whether the court had subject matter jurisdiction, and whether the dismissal of the federal antitrust claim had any effect on whether the particular case should continue as part of the multi-district litigation.

Article III Standing

The court rejected the producers' assertions that the county failed to establish Article III standing to pursue its non-California state-law claims on behalf of indirect purchasers of plasma-derivative therapies. Thus, those claims were not dismissed for lack of Article III standing.

The county’s efforts to certify an indirect purchaser class would proceed later. Although the county did not specifically allege that it suffered a personalized injury due to the defendants’ alleged violations of other states’ laws, the county provided sufficient general allegations of its own individualized injury for its non-California state-law claims. It alleged that it was forced to purchase plasma-derivative protein therapies on the spot market, which required the county to purchase the therapies “from anyone in the nation that had a sufficient supply.”

While the complaint was silent about how and where the alleged spot market transactions took place, the allegation of spot market purchases was sufficient. Ultimately, however, the county would be required to support its standing with more than mere “unadorned speculation” at the summary judgment stage, the court noted.

The January 9, 2012, decision, In Re: Plasma-Derivative Protein Therapies Antitrust Litigation, appears at 2012-1 Trade Cases ¶77,751.

Friday, January 13, 2012

New York Allows International Franchise Expo Exhibiters to Apply for Registration Exemption

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

The New York Attorney General’s Office has created an unusual franchise registration exemption that can be utilized by franchisors at the upcoming 2012 International Franchise Expo which will take place June 15-17 in New York City.

The exemption does not grant franchisors that are unregistered in the State of New York the ability to sell franchises at the trade show or even to provide copies of its Franchise Disclosure Document (FDD) to prospective franchisees. However, the exemption would permit an unregistered franchisor to promote its franchise opportunities to attendees at the show.

Signage required to be displayed by an exempted franchisor at the show explains that if the franchisor determined to proceed with a franchise program in New York, it would apply to register its FDD with the state as required by law. Only then, could the FDD be provided to prospective franchisees.

The exemption requires a fee of $150 for each day that a franchisor intends to exhibit at the show. The exemption application requires extensive disclosure of a franchisor’s litigation and bankruptcy histories, national and international franchise sales activities, and promotional materials that will be distributed at the show.

In addition, the application includes a prescribed booth sign and a handout insert that must be included in all promotional materials.

The three-day International Franchise Expo, which moves to New York City in 2012 after being held in the nation’s capital for more than 20 years, showcases hundreds of franchisors and attracts thousands of interested attendees.

New York’s Exemption Request Form for unregistered franchisors attending the show will appear in the CCH Business Franchise Guide.

Thursday, January 12, 2012

Post-Termination Use of Franchisor’s Trademark Was Counterfeiting

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

A terminated Indiana real estate brokerage franchisee that continued to use the marks of franchisor Century 21 was liable in a default judgment for trademark infringement, dilution, and counterfeiting under the Lanham Act, the federal district court in Lafayette, Indiana has ruled.

The brokerage firm, terminated for nonpayment of fees in March 2011, also was liable for false advertising and false designation of origin under Lanham Act, common law unfair competition, and breach of the Century 21 franchise agreement.

While the brokerage firm’s trademark infringement and dilution liability was readily established, the court observed that there was a split in authority regarding whether a terminated franchisee’s continued unauthorized use of the franchisor’s mark could constitute trademark counterfeiting.

In the absence of a ruling on the issue from the Seventh Circuit, the court concluded that under a plain reading of the Lanham Act, hold-over franchisees were not excluded from counterfeiting liability.

“Identical” or “Substantially Similar” Mark

It was well settled that an entity that is unrelated to a mark owner engages in counterfeiting if it creates a mark that is “identical” to the owner’s registered mark and provides unauthorized goods or services. There was “no reason why an ex-franchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks under the former relationship and therefore did not need to reproduce an identical or substantially similar mark,” the court reasoned. In fact, the risk of confusion was greater in such cases, in the court’s opinion.

The brokerage firm’s continued unlicensed use of Century 21's trademarks in reference to services that had no connection with, nor approval from, Century 21, constituted the use of counterfeit marks, the court concluded.


Section 35 of the Lanham Act provides for recovery of treble damages and reasonable attorneys fees in cases of intentional counterfeiting. Because the franchise agreement’s liquidated damages provision already provided for lost royalty and advertising fees, the court doubled rather than tripled Century 21’s actual damages.

The brokerage firm also was enjoined from future infringement and ordered to:

(1) Remove all signs identifying itself as a Century 21 affiliate or broker;

(2) Cease using Century 21's marks on any website or in any domain name;

(3) Request third party websites, including Multiple Listing Services, to remove references associating the brokerage with Century 21; and

(4) Assign its telephone numbers to Century 21.
The decision is Century 21 Real Estate, LLC v. Destiny Real Estate Properties, CCH Trademark Law Guide ¶61,927. It will appear in CCH Business Franchise Guide.

Wednesday, January 11, 2012

Publisher Could Have Monopolized Market for Bank Rate Websites

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

A company in the business of aggregating and publishing bank rate tables listing interest rates from financial institutions could have unlawfully monopolized or attempted to monopolize the market for bank rate websites, but had not engaged in a predatory price fixing conspiracy, the federal district court in Newark, New Jersey, has ruled.

A complaining competitor adequately alleged that the company violated federal and New Jersey antitrust law by entering into exclusive dealing arrangements with online media outlets that allegedly prevented competitors from gaining necessary distribution outlets for their data, the court found.

The competitor, however, failed to offer factual allegations that the defending company acted in concert with any other entity to price below some measure of cost. Therefore, a motion to dismiss was granted as to the price fixing claim, but denied as to the other claims.

Monopoly Power

The complaining competitor sufficiently alleged that the defendant possessed monopoly power by claiming: that the defendant had reached a relevant market share of over 95%, that it had entered into agreements with more than 300 partner sites, that the prices it charged to customers had become inelastic, and that independent competitors had been pushed out or acquired as a result of the defendant's scheme.

Predatory Pricing

The allegations of anticompetitive conduct was bolstered by claims that the defendant purposefully predatorily priced its rate listings below cost, and sometimes for free, in order to acquire customers from its rivals and to drive those rivals out of the market, the court noted.
The court rejected arguments that there was no market foreclosure and that a one-year contract with partner websites was not restrictive to the extent condemned by the antitrust laws.

The complaint alleged conduct—such as an agreement with a financial media website allowing the defendant to set rates in exchange for waiving annual license fees—that would impair the opportunities of rivals for whom waiving license fees was not feasible and who were, as a consequence, excluded from doing business with those website partners, in the court’s view.

The decision is BanxCorp. v. Bankrate Inc., 2011-2 Trade Cases ¶77,750.

Tuesday, January 10, 2012

Online Ad Code Not in Compliance with European Data Protection Laws: Working Party

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

Self-regulatory standards for online behavioral marketing adopted in April 2011 by two major European industry associations are not adequate to ensure compliance with current European data protection laws, according to the Article 29 Data Protection Working Party.

The Working Party—an independent advisory body consisting of representatives from the data protection authorities of European Union member states—has issued an opinion assessing the Best Practice Recommendation on online behavioral advertising adopted by the European Advertising Standards Alliance (EASA) and the Internet Advertising Bureau Europe (IAB).

Notice of Behavioral Advertising

The EASA/IAB’s proposed framework recommends that websites use a particular icon to provide notice of behavioral advertising practices. The icon would be linked to an informational website at www.youronlinechoices.eu. On this site, users would be able to opt out of behavioral advertising by selecting specific company names from a list of advertising networks.

In the Working Party’s view, this approach does not properly inform website visitors about the use of cookies, as required by the e-Privacy Directive. Average web users would not be able to recognize the icon’s meaning without any additional description, the Working Party said. The icon should be accompanied by other forms of notice, which would include information as to what types of information are being collected and by whom.

Consent to Cookies

In addition, the Working Party noted, the e-Privacy Directive requires that consent be obtained before cookies are placed on users’ computers or information stored on the users’ computers is collected. The EASA/IAB framework, instead of seeking prior consent, was said to provide a way for users to exercise “choice”—which amounted to opting out of further data collection. This “choice” did not meet the requirements of the directive, the Working Party said.

The Working Party also expressed concern that the EASA/IAB self-regulatory code did not contain provisions on the amount of data collected and the period of time the data would be retained.

Tracking Web Surfing

Moreover, the EASA/IAB standards and website created an incorrect impression that it was possible to choose not to be tracked while surfing the web, the Working Party said. This misapprehension could be damaging to users, as well as to the advertising industry, if advertisers are led to believe that by applying the code they meet the requirements of the e-Privacy Directive.

Full text of the Working Party’s Opinion 16/2011 on EASA/IAB Best Practice Recommendation on Online Behavoural Advertising appears at CCH Privacy Law in Marketing ¶60,710 and here on the European Commission’s website.

Monday, January 09, 2012

FTC ALJ Finds Ohio Hospital Acquisition Likely Anticompetitive, Orders Divestiture

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

An FTC administrative law judge has ordered ProMedica Health System, Inc., a non-profit healthcare system headquartered in Toledo, to divest a recently-acquired hospital.

The ALJ concluded that there was a reasonable probability that ProMedica’s consummated acquisition of rival St. Luke's Hospital will substantially lessen competition in an already highly-concentrated market for the sale of general acute-care
(GAC) inpatient hospital services to commercial health plans in the Toledo area. It violated Sec. 7 of the Clayton Act.

The FTC had alleged that the transaction reduced the number of competitors from four to three in the GAC inpatient hospital services market. The agency also challenged the transaction on the ground that it reduced from three to two the number of providers in the inpatient obstetrical (OB) services market.

The ALJ concluded, however, that the FTC failed to prove a separate relevant product market for the sale of inpatient OB services—procedures relating to pregnancy, labor, and post-delivery care—to commercial health plans or managed care organizations (MCOs) in Ohio’s Lucas County. The hospital did not refute the GAC inpatient hospital services market or the geographic market limited to Lucas County.

Defenses, Efficiency Justifications

Although St. Luke's was struggling financially prior to the acquisition, the hospital could not defend the transaction based on St. Luke's weakened financial condition, the ALJ determined. Moreover, the claimed efficiencies, such as capital avoidance savings and related operating cost savings, resulting from the combination, did not support the merger.

“The hospital did not meet its burden of showing ‘extraordinary’ procompetitive benefits or of demonstrating that the asserted efficiencies offset the likely anticompetitive effects of the increase in market power produced by the joinder,” the ALJ concluded.


The ALJ ordered divestiture of St. Luke's to a willing acquirer, since the hospital failed to meet its burden of proving that an alternative remedy would be superior. The hospital contended that the anticompetitive effects could be remedied if it were permitted to retain St. Luke’s, but create a second “firewalled” negotiation team to negotiate and administer MCO contracts exclusively for St. Luke's, independent of Pro Medica's other Lucas County hospitals.

The proposed remedy was patterned after a remedy ordered by the FTC in a challenge to Evanston Northwestern Healthcare Corp.'s acquisition of Highland Park Hospital in Illinois in 2000. The ALJ explained that the conduct remedy in the Evanston matter was based largely on the long period of time between the closing of the transaction and the conclusion of the litigation. Because of a hold-separate agreement, the extensive integration that occurred in Evanston case had not occurred in this case.

The decision is In the Matter of ProMedica Health System, Inc., Docket No. 9346. Text of the decision will appear at CCH Trade Regulation Reporter ¶16,700.

Friday, January 06, 2012

Reward Service Deceived Consumers About Online Data Collection: FTC

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

The provider of a membership reward service aimed at consumers trying to save money for college has agreed to settle FTC charges that it deceived consumers by using a web-browser toolbar to collect their personal information without making adequate disclosures about the information collected, the Commission announced yesterday.

The service provided by Upromise Inc. allowed member consumers to receive rebates when they buy goods or services from Upromise partner merchants. These rebates were placed into the consumers' college saving accounts.

According to the FTC, Upromise's website offered consumers a "TurboSaver Toolbar" download that would highlight participating merchants in consumers' search results. When downloading the toolbar, consumers saw a message that encouraged them to enable the "Personalized Offers" feature of the Toolbar, which Upromise allegedly claimed would collect information about the websites they visited "to provide college savings opportunities tailored to you."

Collection, Transmission of Personal Information

This feature allegedly collected and transmitted, in clear text, the names of all websites consumers visited and which links they clicked on, as well as information they entered into some webpages, such as search terms, user names, and passwords.

In some cases, the information collected included credit card and financial account numbers, user names and passwords used to access secured websites, security codes and expiration dates, and any Social Security numbers consumers entered into the webpages. The Toolbar transmitted consumers' information without encryption.

Privacy Statement

According to the FTC, the privacy statement associated with the toolbar stated that the toolbar would collect and transmit information about websites consumers visited, and that "infrequently" the collection might "inadvertently" collect a "name, address, email address or similar information," but that any personally identifying information would be removed before the data was transmitted.

Upromise, the FTC alleged, failed to disclose the extent of information collected by the toolbar and deceptively misrepresented that it encrypted data and took reasonable data security measures. The failure to protect consumers’ data from unauthorized access was itself an unfair practice, the FTC said.


The proposed settlement order, if made final, will require Upromise Inc. to clearly disclose its data collection practices and to obtain consumers' consent before installing or re-enabling any such toolbar products. Upromise also would have to tell consumers how to uninstall the toolbars already on their computers. The settlement will bar misrepresentations about the extent to which the company maintains the privacy and security of consumers' personal information.

Destruction of Data

Upromise agreed to destroy the data collected through the Personalized Offers feature of the toolbar, to provide clear and prominent disclosures to consumers, and to receive their affirmative consent before installing any similar product. In addition, the agreement requires Upromise to establish a comprehensive information security program and to obtain biennial independent security assessments for the next 20 years.

The Commission vote to issue the administrative complaint and accept the consent agreement package containing the proposed consent order for public comment was 4-0.

The action is In the Matter of Upromise Inc., FTC File. No. 102 3116. The complaint and an agreement containing consent order appear on the FTC website. A news release appears here.

Further information will be reported in the CCH Trade Regulation Reporter.

Thursday, January 05, 2012

Settlement of Diamond Resale Price Fixing Claims Upheld

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

Approval of a proposed $295 million settlement of class action resale price fixing claims against a group of entities related to the world's principal diamond producer was proper, according to an en banc decision of the U.S. Court of Appeals in Philadelphia.

The federal district court approving the settlement did not err in granting certification of nationwide settlement classes consisting of direct purchasers of gem diamonds and indirect purchasers of rough or cut-and-polished diamonds (2008-2 Trade Cases ¶76,304), the appellate court held.

Class Certification

The proposed classes satisfied each of the four requirements enunciated in Federal Rule of Civil Procedure 23(a) as prerequisites to certification—numerosity, commonality, typicality, and adequacy of representation—as well as the predominance and superiority requirements of Rule 23(b)(3).

Predominance was easily shown based on the diamond producer’s alleged conduct and the injury it caused to each and every class member, the appellate court held. The plaintiffs also sufficiently showed that certification under Rule 23(b)(2), which applied to claims seeking injunctive or declaratory relief, was appropriate.

The appellate court rejected an argument advanced by objectors to the settlement that certification of a nationwide settlement class was improper based on differences in state law with respect to indirect purchaser standing.

Rule 23 made clear that a district court had limited authority to examine the merits of individual claims when conducting the certification inquiry. Such an inquiry was "particularly unwarranted in the settlement context" since a district court did not need to envision the form that a trial would take or consider the available evidence and methods proposed for proving the disputed element at trial, the court stated. Thus, the district court did not “inappropriately subordinate” state sovereignty in certifying the class.


The proposed settlement was fair, adequate, and reasonable, the appellate court confirmed. It was in the best interests of the settlement classes, and was the product of arm's-length, serious, and informed negotiations between experienced and knowledgeable counsel.

The lower court did not err in approving class counsel's plan of allocation. Rejected was an argument that the previously-noted differences in state law mandated a differential allocation in the percentage of recovery within the indirect purchaser consumer settlement fund.


A dissenting opinion contended that the predominance requirement for class certification was not satisfied because the lower court had not ensured that each class member possessed a viable or colorable legal claim.

By allowing indirect purchasers who had no standing to sue under their state's antitrust laws to be part of the settlement class, the appellate majority has created a “come one, come all” environment that “sets the class action ship in [the Ninth] Circuit badly adrift,” the dissent argued.

The decision is Sullivan v. DB Investments, Inc., 2011-2 Trade Cases ¶77,736.

Wednesday, January 04, 2012

Cordray to Be Installed as Head of Consumer Financial Protection Bureau

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

President Obama said he will use a recess appointment to install former Ohio attorney general Richard Cordray as head of the Consumer Financial Protection Bureau (CFPB), sidestepping protracted Republican efforts to block the nomination in the Senate. The GOP, however, questioned the legality of the move and indicated that it could be legally challenged.

Speaking at an event in Cleveland, Obama said “when Congress refuses to act and as a result hurts our economy and puts people at risk, I have an obligation as President to do what I can without them.” He added, “I will not stand by while a minority in the Senate puts party ideology ahead of the people they were elected to serve. Not when so much is at stake.”

Nomination Held “Hostage”

If Republicans were to continue to hold Cordray’s nomination “hostage,” the President said, then “more dishonest lenders could take advantage of the most vulnerable among us,” while “the vast majority of financial firms who do the right thing could be undercut by those who don’t.”

Cordray, speaking prior to the announcement, said he would begin work immediately, including expanding the CFPB’s program to non-banks, “an area we haven’t been able to touch up until now.”

“Unprecedented Power Grab”

Meanwhile, House Speaker John Boehner (R, Ohio) called the decision an “extraordinary and entirely unprecedented power grab . . . that defies centuries of practice and the legal advice of his own Justice Department.”

Boehner maintained that the move “goes beyond the President’s authority, and I expect the courts will find the appointment to be illegitimate.”

Senate Minority Leader Mitch McConnell (R, Ky.), said the recess appointment “represents a sharp departure from a long-standing precedent that has limited the President to recess appointments only when the Senate is in a recess of 10 days or longer. Breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.”

White House Press Secretary Jay Carney said the White House counsel believes that Senate pro forma sessions, used to prevent the President from exercising his constitutional authority, “do not interrupt the recess.”

Asked if the White House was prepared for a legal challenge, Carney said he would not speculate on the matter, noting that “the constitutional authority the President has is very clear.”

Tuesday, January 03, 2012

Idaho Potato Growers Could Have Conspired Through Co-op Supply Program

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

Idaho potato growers who allegedly founded statewide and national cooperatives that implemented a scheme to increase the price of potatoes through a supply management program could have engaged in an unlawful price fixing conspiracy, the federal district court in Boise has ruled.

A complaining putative class of direct and indirect purchasers failed, however, to sufficiently allege that licensors, marketers, and dehydrators associated with the growers illegally participated in the conspiracy.

Motions by numerous defendants to dismiss the claims against them for failure to state a claim were, therefore, either granted in their entirety or in part. Additionally, the indirect purchasers’ claims were dismissed without prejudice for lack of standing.

Capper-Volstead Immunity

The claims against the potato growers could not be dismissed on the basis that the defendants were exempt from antitrust attack under the Capper-Volstead Act, which provides agricultural cooperatives a limited exemption from antitrust laws.

Questions of fact remained about whether the Capper-Volstead Act applied. Allegations that the defendants entered into agreements with unprotected entities—including non-protected potato groups, non-producer partners, and a dehydration joint venture—could, if proved, preclude application of the exemption. Moreover, acreage reductions, production restrictions, and collusive crop planning were not activities protected by the Capper-Volstead Act, the court explained.

Sufficiency of Allegations

The complaint answered “the basic who-what-where-when Question” with sufficient factual detail to survive outright dismissal, the court decided. It detailed various acts undertaken by the most of the grower defendants in furtherance of the conspiracy, including yearly acreage reduction rules, a bid buy-down program, shipping holidays, flow control activities, and offloading of surplus potatoes to dehydration plants.

These defending growers’ alleged involvement in the scheme surpassed mere participation in a trade association and was sufficiently detailed to form the basis of a federal antitrust claim, the court found. They were alleged to have been directly involved in the meetings and agreements leading to the formation of the cooperatives, which were specifically aimed at stabilizing potato prices and supplies.

As such, the defendants did not merely join an extant trade association and then choose whether or not to follow guidelines, but actually agreed to the conspiracy outlined in the complaint, and then created the trade associations to formalize and implement that agreement, the court said.

Two of the potato growers, however, were not sufficiently alleged to have participated in the conspiracy, the court added. While the complaint asserted that these two growers were founding members of the cooperatives, that claim rested on an unsupported allegation that certain individuals connected with the growers’ organizations attended a meeting and signed on to the purported conspiracy.

Nothing in the pleadings indicated the individuals’ relationship to the defending entities or their ability to act—or even attend the meetings at issue—on behalf of the entities, the court observed.

Companies that licensed the right to place their branded label on certain growers’ potatoes, the marketing agent for several of the growers, and dehydrators that participated in a joint venture further down the supply chain could not be found liable under the Sherman Act for the alleged conspiracy among the growers, in the court’s view. The plaintiffs failed to sufficiently link them to the conspiracy either by direct participation or an agency relationship, the court held.

While the complaint plausibly alleged that the Idaho cooperative viewed the dehydration venture as a key part of its supply-management efforts, the plaintiffs had failed to alleged that the individual dehydrators joined the underlying conspiracy.

Claims Against Canadian Cooperative

Claims against a Canadian potato farmers’ cooperative were barred as well, the court held. The Canadian defendant was not immunized by either the Foreign Sovereign Immunities Act or the Cooperative Marketing Act. The defendant was protected from suit by the act of state doctrine because Canada had effectively granted the cooperative authority, as a member agency, to engage in the acts deemed unlawful by the purchasers.

The decision is In Re: Fresh and Process Potatoes Antitrust Litigation, 2011-2 Trade Cases ¶77,739.