Wednesday, February 29, 2012

Tobacco Firms in Master Settlement Agreement Were Immune from Competitor’s Antitrust Claims

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

The U.S. Court of Appeals in Cincinnati has rejected antitrust claims arising out of the 1998 Master Settlement Agreement (MSA)—the multi-billion dollar national tobacco settlement—on Noerr-Pennington and state action immunity grounds. Dismissal of the antitrust claims (2009-1 Trade Cases ¶76,462) was affirmed.

This latest challenge to the implementation of the MSA was brought by a tobacco company that entered the market in 2000, two years after the MSA’s execution. The company originally operated without joining the MSA. In 2004, it joined the MSA by negotiating its agreement with the state attorneys general. Dissatisfied with the agreement, the company attempted to renegotiate its position under the MSA.

In its suit, the company alleged that tobacco manufacturers engaged in a boycott that caused the attorneys general to reject the complaining company’s renegotiation efforts.

Noerr-Pennington Doctrine

The Noerr-Pennington doctrine protects private actors from liability arising from the antitrust injuries caused by their petitioning for government action. Noerr-Pennington immunity applied in this case, according to the court, because the state governments’ actions were the actual cause of the alleged antitrust violations, regardless of the explicit or implicit encouragement of the defending manufacturers.

Moreover, the defending manufacturers did not lose their immunity under the doctrine’s “sham exception.” The sham exception to the Noerr-Pennington doctrine prevented the application of immunity where a defendant’s act of “petitioning” was a mere sham. However, the defending manufacturers petitioned for a specific outcome from the government and succeeded. This was the precise situation that fell outside of the sham exception, the court explained.

State Action Doctrine

Alternatively, the defending cigarette manufacturers were shielded under the state action doctrine from the antitrust claims, the court ruled. The state attorneys general had acted in their sovereign capacities, and not their market participant capacities, in enacting and enforcing the MSA and in deciding to forgo renegotiating with the complaining company.

Although the complaining company did not raise its antitrust claims against the state attorneys general, they were protected by state-action immunity. Thus, the immunity extended to the private entities—the defending manufacturers—involved in the same course of dealing.

The decision is VIBO Corporation, Inc. v. Conway, 2012-1 Trade Cases ¶77,796.

Tuesday, February 28, 2012

Tactics to Win Cloud Computing Services Could Be Tying, Attempt to Monopolize, Exclusive Dealing

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

A computer software company could have violated federal and California antitrust law by allegedly conditioning customers’ purchasing of licenses for its popular property management back office accounting software on their agreement not to use competitors’ cloud computing services, the federal district court in Los Angeles has ruled.

Cloud computing services enable customers with multiple software applications—such as back office accounting, maintenance, leasing, revenue management, payment processing, and background screening applications—to have those applications hosted and managed in an off-site data center.

The company’s conduct was sufficiently alleged to constitute a per se illegal negative tying arrangement, an attempt to monopolize the cloud market, or at least exclusive dealing, the court found. Dismissal of a rival cloud service’s claims, which were asserted as counterclaims to the software company’s suit alleging theft of certain proprietary information from its password-protected website, was therefore denied.


An argument by the software company that no tie existed because customers were not required to use any cloud computing service at all in conjunction with the accounting software was rejected under the precedent established in Eastman Kodak Co. v. Image Technical Services, Inc. (1992-1 Trade Cases ¶69,839). Close factual parallels existed between the two cases, the court observed. The theory that customers could self-maintain their own cluster of management applications was as unavailing to the court as the notion that "equipment owners could simply self-repair their equipment" was to the Kodak court.

In addition, the court found that the complaining competitor’s definition of the relevant tied product market as "the market for vertically-integrated cloud computing services specialized to the needs of real estate owners and property managers" was not facially unsustainable, even though that market included only two participants. The definition considered and rejected multiple interchangeable substitute products with reference to the rule of reasonable interchangeability.

The competitor also sufficiently demonstrated that the defendant could have had market power over the tying market for property management back office accounting software, in the court’s view, by alleging that it had successfully coerced its accounting software customer base into signing anticompetitive amendments to their licensing agreements by threatening to terminate the licenses of those who refused to accede to the amendments.

Attempted Monopolization

The complaining competitor adequately stated a claim for attempted monopolization as well, the court determined. The competitor’s definitions of the relevant geographic and product markets were acceptable, as were its allegations showing that the company had a dangerous probability of successful monopolization. The software company’s license amendments constituted anticompetitive conduct.

The competitor’s contention that the defendant’s market share in the back office accounting software market could be imputed to its market share in the vertical cloud market created only a tenuous, "flimsy" inference of market power in the cloud market. However, allegations that the two parties were the only competitors in the cloud market and that multiple barriers to entry precluded others from entering it were more significant. Given these assertions, the court said, the competitor’s specific intent contentions were "particularly compelling."

Exclusive Dealing

Finally, the software company’s alleged scheme could have amounted to unlawful exclusive dealing, the court also ruled. Assertions that the company and the defendant were the only two participants in the vertical cloud market and that several entry barriers inhibited entry into the cloud market rendered plausible its charge that the amended license agreements foreclosed competition in a substantial share of vertical cloud services commerce.

The decision is RealPage, Inc. v. Yardi Systems,Inc. 2012-1 Trade Cases ¶77,799.

Monday, February 27, 2012

Franchise Officer’s Presale Financial Claims Could Violate Florida Franchise Law

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

An officer and part-owner of a hockey training business franchisor could have violated the Florida Franchise Act’s prohibition on intentionally misrepresenting the prospects or chances for success of a proposed franchise by allegedly misrepresenting the financial condition of the franchisor to a prospective franchisee, a federal district court in St. Paul, Minnesota has ruled. However, the franchisee failed to adequately allege that the officer committed common law fraud.

Florida Franchise Act

The owner argued that the Florida Franchise Act did not apply to him because he was not a party to the franchise agreement and was not personally selling a franchise to the franchisee. However, the Act defined a "person" as "an individual, partnership, corporation, association, or other entity doing business in Florida," the court noted.

The owner was doing business in Florida because he personally travelled to Florida to assist with the establishment of the franchisee’s franchise, and he received money for doing so. As such, the owner was a "person" under the Act.

The showing required to recover damages for a defendant’s intentional misrepresentation of the prospects or chances of success of a proposed franchise was not the same under the Florida Franchise Act as required for an action for common law fraud, according to the court.

The statute did not require proof of a deliberate and intentional false statement of material existing fact. Rather, recovery under the franchise statute required only proof of intentional words or conduct by the franchisor, concerning the prospects or chances of success of the enterprise, which were relied upon by the franchisee to his detriment and which were not in accord with the facts.

The owner argued that he had little to no knowledge of the financial circumstances of the franchisor’s existing facilities. However, a reasonable jury could find that, to a prospective franchisee, the owner, an engineer who worked with the franchisor’s facilities and as part-owner of the franchisor, was in a position to represent the financial conditions of the franchisor, the court held.

Common Law Fraud

The franchisee failed to present sufficient evidence that the officer knew that his representations were false or that he intended his representations to induce the franchisee’s reliance to support a common law fraud claim, the court determined. Thus, the owner was entitled to summary judgment on that claim.

The franchisee’s allegation that the officer made false statements concerning the financial success of its existing facilities, if true, would qualify as false statements regarding a material fact. The franchisee submitted evidence that the financial success of existing facilities, a financial projection worksheet, and the statements the officer made to the principal of the franchisee were pivotal factors in the principal’s decision to open a franchise.

However, the franchisee introduced no evidence beyond a bare assumption showing that the franchisor was in financial trouble when the negotiations leading up to the purchase of a franchise took place, or that the officer knew of this financial trouble, the court decided.

The decision is Hockey Enterprises, Inc. v. Talafous, CCH Business Franchise Guide ¶14,773.

Friday, February 24, 2012

Franchise Relationship/Termination Law Proposed in Vermont

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

Legislators in Vermont have proposed a generally-applicable law regulating the relationships between franchisors and franchisees.

Under the proposal, a franchisor shall not terminate a franchise prior to the expiration of its term except for good cause. "Good cause" is defined in the measure as "cause based upon a legitimate business reason" and includes the failure of the franchisee to comply with any material lawful requirement of the franchise agreement, provided that the termination by the franchisor is not arbitrary or capricious.

The franchisee would bear the burden of proof of showing that the actions of the franchisor were arbitrary or capricious, according to the bill.

The proposal includes provisions regulating the transfer and sale of franchises, encroachment, and sources of goods or services. In addition, it would impose a duty of good faith on parties to a franchise agreement and would prohibit restrictions on a franchisee’s right to associate with other franchisees.

The bill’s definition of "franchise" is similar to many generally applicable statutes. Under the proposal, a "franchise" is:

(1) An oral or written agreement, either express or implied, which:(a) grants the right to distribute goods or provide services under a marketing plan prescribed or suggested in substantial part by the franchisor; (b) requires payment of a franchise fee to a franchisor or its affiliate; and (c) allows the franchise business to be substantially associated with a trademark, service mark, trade name, logotype, advertisement, or other commercial symbol of or designating the franchisor; or

(2) A master franchise.

Excepted from the definition of "franchise," among other things, is an agreement regulated under the Vermont special industry laws pertaining to machinery dealerships, motor vehicle manufacturers, service station operators, oil companies, or alcoholic beverages.

House Bill No. 6934 was introduced January 30, 2012, and was referred to the Commerce and Economic Development Committee January 31, 2012.

Thursday, February 23, 2012

Coffee Retailer’s Antitrust Claims Against Supplier of “K-Cups” Fail

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

An online coffee retailer cannot proceed with federal and state antitrust claims against Green Mountain Coffee Roasters, Inc., the company behind Keurig® Single Cup brewing technology, according to the federal district court in Fort Smith, Arkansas. The retailer contended that Green Mountain violated the antitrust laws when it terminated their business relationship.


Green Mountain would not have engaged in monopolization or attempted monopolization in violation of Sec. 2 of the Sherman Act by terminating the complaining retailer, the court ruled. Green Mountain did not have a monopoly on the single-brew business as a whole. There are other products that delivered single-brew coffee, and consumers have a wide variety of Internet and non-Internet sources for single-brew coffee products and supplies.

Refusal to Deal

Moreover, the refusal to deal was plainly not violative of the antitrust laws. There was no indication that the refusal was for anticompetitive purposes or to secure untold profits. A refusal to deal can be unlawful only if a monopolist sacrifices profits today in the hope of reaping greater returns from eliminating competition in the future, according to the court. Green Mountain, however, decided to discontinue its business relationship with the online retailer because of disagreement over the complaining firm’s marketing strategies.

Green Mountain’s representative testified that the company had no contractual relationship with the complaining firm; that the complaining firm could not be licensed as an authorized distributor by virtue of the fact that it had only an online presence; and that the online retailer misused the defending company’s trademark.

The court also rejected a claim under Sec. 1 of the Sherman Act. An agreement between Green Mountain and a distributor to refuse to deal with the online retailer would not constitute a per se antitrust violation. Reviewing the claim under “rule of reason” analysis, there did not appear to be any anticompetitive market effect resulting from the refusal to deal. Because there were so many alternate suppliers of the K-cup, e-commerce consumers would not be adversely affected if they could not purchase K-cups through the complaining online retailer, in the court’s view. The court rejected a relevant product market limited to Green Mountain’s own patented and trademarked K-cups.

State Law Claims

Green Mountain would not have violated the Arkansas Unfair Practices Act by selling K-cup brewing systems at less than cost in order to increase demand for its K-cups, the court ruled. It was not illegal to sell items below cost as a “loss leader” to entice consumers to purchase products. Further, the alleged injury of a complaining operator of an e-commerce website that sold coffee and coffee-related products would have been negligible at best, if such injury occurred at all. The likelihood of competition being affected, let alone destroyed, by any alleged below-cost sales was similarly negligible. The complaining online coffee seller alleged that it was the defending company’s intent to cause it injury; however, the complaining firm benefitted when additional K-cup brewers appeared on customers’ countertops because its sale of K-cups constituted 84% of its business.

A monopolization claim brought under Arkansas state law also failed. There was no private right of action pursuant to the subchapter of the Arkansas Code relating to unfair monopolies. The monopoly statutes were to be enforced by and through the Arkansas Attorney General, the court explained.

The decision is, Inc. v. Green Mountain Coffee Roasters, Inc., 2012-1 Trade Cases ¶77,790.

Wednesday, February 22, 2012

Unable to Reach Settlement with FTC, Omnicare Drops Bid to Acquire Rival

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

Pharmaceutical services provider Omnicare Inc. announced on February 21 that it has abandoned plans to acquire rival PharMerica Corporation, in light of an FTC challenge to the deal.

The FTC issued an administrative complaint on January 27, alleging that the combination of the two largest U.S. long-term care pharmacies would harm competition and enable Omnicare to raise the price of drugs for Medicare Part D consumers and others (CCH Trade Regulation Reporter ¶16,713).

"While we continue to strongly disagree with the FTC's decision to seek to block the proposed transaction, we do not believe it is prudent to invest significant time and money in a lawsuit at this time," Omnicare said in a statement.

"Throughout this process we made a good faith effort to reach a resolution with the FTC and put forth a number of reasonable solutions,” the statement said. “After careful consideration, including the rejection of our offers to resolve the alleged concerns through a consent agreement that encompassed divestitures, and a review of Omnicare's many other compelling growth opportunities, we have concluded that it is in the best interests of Omnicare shareholders, customers and employees to allow the tender offer to expire."

The FTC case is In the Matter of Omnicare, Inc., Dkt. 9352. Further information on the case appears here on the FTC website.

Tuesday, February 21, 2012

Does Litigation Indicate Growing Rift Between Franchisees and Franchisors?

This posting was written by John W. Arden.

A recent Wall Street Journal new story, describing how difficult economic times have resulted in contentious franchise litigation, has caused a controversy about the financial health of franchising and relations between franchisees and franchisors.

The February 9 article (“Tough Time for Franchising: As Business Disputes Spark Tensions, Some Franchisees Take Franchisers to Court” by Sarah E. Needleman) stated that “[t]wo closely watched disputes now playing out in the courts are shining a light on a growing rift between franchisees and franchisors.”

The article cited:

(1) A suit brought by an association of 185 U.S. franchisees of Cold Stone Creamery Inc., claiming that the franchisor refused to provide detailed information about funds that the franchises believe should be set aside for their benefit in a marketing fund, and

(2) An action filed by a group of franchisees against Edible Arrangements, claiming that the franchisor abused it discretionary authority by mandating that all franchises be open on Sunday and an additional two hours every other day of the week. Another recent action filed by Edible Arrangements franchisees is seeking to stop the franchisor from collecting a two percent royalty on orders placed over the Internet, a fee implemented last month.

These disputes, and others like them, were attributed to financial problems, “At the end of the day, it just boils down to profitability,” said Eric Stites, managing director of a franchise market research company. “When franchisees aren’t making money, that’s when you see them form associations and sue the franchisor.”

“Litigation sends a signal to the franchisor and others that something is wrong,” said John Gordon, an independent chain-restaurant analyst.

IFA Response

In response to the article, Stephen J. Caldeira, President of the International Franchise Association (IFA), published a Letter to the Editor, charging that the article “overlooks significant economic evidence and ignores that more than 90% of franchisees renew their contracts with franchisers at the end of their terms.” The IFA is the oldest and largest trade group representing franchising.

“By focusing on litigation by a small percentage of franchisees, you cast aside the more than 2,000 franchise systems in the U.S. today that are healthy, thriving, and creating jobs and that have franchise relationships that are strong and effective.”

Caldeira asserted that the number of franchised establishments and jobs are predicted to meet pre-recession levels this year and that franchisors have focused on increased collaboration with franchisees during the economic downturned.

“Differences arise,” Caldeira concluded. “Franchise advisory councils are the best approach for addressing those issues. Working within the system is the true essence of what makes the franchise model so successful.”

Growth Predicted for 2012

After three years of decline in the number of franchises, franchising is expected to experience modest growth in the number of establishments, employment, output, and contributions to the U.S. gross domestic product (GDP) in 2012, according to a study recently released by the IFA.

The number of franchise establishements is expected to increase by 1.9%, from an estimated 735,571 to 749,499. The number of direct jobs will increase by 2.1%, from 7,934,000 jobs to 8,102,000 jobs, according to a report prepared by IHS Global Insight. The output of franchise businesses is predicted to grow by 5%, from $745 billion to $782 billion, and the growth of GDP originating in the franchise sector is expected to increase by 4.8%, from $439 billion to $460 billion.

A press release on the study appears here on the IFA website.

Friday, February 17, 2012

Consumer Financial Protection Bureau Proposes Supervision of Debt Collectors, Reporting Agencies

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

A proposed rule from the Consumer Financial Protection Bureau (CFPB)would place debt collectors and consumer reporting agencies that qualify as larger market participants within the bureau’s nonbank supervision program, marking the first time these activities would face federal supervision.

The proposed rule would cover debt collectors with over $10 million in annual receipts from debt collection activities. The CFPB estimates that approximately 175 debt collection firms would be under their supervision, accounting for 63 percent of annual receipts from the debt collection market.

Meanwhile, consumer reporting agencies with over $7 million in annual receipts would be subject to CFPB supervision, representing approximately 30 consumer reporting companies that account for about 94 percent of annual receipts.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” noted CFPB Director Richard Cordray.

The CFPB has until July 21, 2012 to issue an initial rule defining larger market participants that could come under CFPB supervision. The bureau is seeking public input as to which markets to include in the initial rule and which data sources the bureau might use to determine larger participants in nonbank markets.

The CFPB noted that as it adds new markets to monitor it will choose the best criteria for determining market participation, as well as the appropriate thresholds for individual markets.

Thursday, February 16, 2012

Developers of Mobile Apps Aimed at Children Fail to Provide Privacy Disclosures: FTC Report

This posting was written by John W. Arden.

Neither developers nor sellers of mobile applications aimed at children provide the information parents need to protect their children’s privacy, according to an FTC staff report released today.

The report (“Mobile Apps for Kids: Current Privacy Disclosures Are Disappointing”) indicated that mobile app providers did not furnish information about what data is being collected from children, how that data is being shared, and who will be given access to the data.

There are currently more than 500,000 applications in the Apple App Store and 380,000 in the Android Market. The FTC staff evaluated the types of apps offered to children, the disclosures provided to users, interactive features such as connectivity with social media, and the ratings and parental controls offered for such apps.

The FTC found that the apps can automatically capture a broad range of user information from a mobile device, including the user’s precise geolocation, telephone number, list of contacts, call logs, and unique identifiers stored on the mobile device. The report highlights “the lack of information available to parents prior to downloading mobile apps for their children and calls on industry to provide greater transparency about their data practices.”

In most instances, FTC staff was unable to determine from the information on the app store page or the developer’s landing page whether an app collected any data, let alone the type of data, the purpose of such collection, and those with access to such data.

“At the FTC, one of our highest priorities is protecting children’s privacy, and parents deserve the tools to help them do that,” said FTC Chairman Jon Leibowitz. “Companies that operate in the mobile marketplace provide great benefits, but they must step up to the plate and provide easily accessible, basic information, so that parents can make informed decisions about the apps their kids use.”

The report made several recommendations regarding the practices of app developers and app stores, including:
 All developers, stores, and third parties providing services should play an active role in providing key information to parents.

 All developers should provide data practice information in simple and short disclosures.

 App stores should take responsibility for ensuring that parents have basic information.

The FTC, which enforces the Children's Online Privacy Protection Rule, will hold a public workshop addressing the issue this year, in connection with its efforts to update the agency's "Dot Com Disclosure" guide, which describes how to provide effective online disclosures.

The 30-page FTC staff report is available here on the FTC website.

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.

Tuesday, February 14, 2012

U.S., E.C. Clear Google’s Acquisition of Motorola Mobility

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

The U.S. Department of Justice Antitrust Division and the European Commission (EC) on February 13 approved Google, Inc.’s proposed acquisition of Motorola Mobility, Inc., and its patent portfolio.

At the same time, the Antitrust Division announced that it had cleared the acquisitions by Apple Inc., Microsoft Corp., and Research in Motion Ltd. (RIM) of certain Nortel Networks Corporation patents, and the acquisition by Apple of certain Novell Inc. patents.

In its statement announcing the closing of the three investigations, the Justice Department said that the transactions were “not likely to significantly change existing market dynamics.” The agency, however, pledged to continue monitoring the use of standard essential patents (SEPs) in the wireless device industry.

“During the course of the division’s investigation, several of the principal competitors, including Google, Apple and Microsoft, made commitments concerning their SEP licensing policies,” the Justice Department said.

“The division’s concerns about the potential anticompetitive use of SEPs was lessened by the clear commitments by Apple and Microsoft to license SEPs on fair, reasonable and non-discriminatory terms, as well as their commitments not to seek injunctions in disputes involving SEPs. Google’s commitments were more ambiguous and do not provide the same direct confirmation of its SEP licensing policies.”

Google entered into an agreement to acquire Motorola Mobility in August 2011. Google is a provider of Internet search and online advertising services. Google is the developer of the Android open source mobile operating system. At the end of 2011, Google’s Android accounted for approximately 46 percent of the U.S. smartphone operating system platform subscribers.

Motorola Mobility is a manufacturer of smartphones and computer tablets. It is the holder of a portfolio of approximately 17,000 issued patents and 6,800 applications, including hundreds of SEPs relevant to wireless devices that Motorola Mobility committed to license through its participation in standard-setting organizations (SSOs).

Apple, Microsoft, and RIM also have developed mobile operating systems for smartphones and tablets. While Apple and RIM manufacture and sell the smartphones and tablets that run on their proprietary mobile operating systems, Microsoft licenses its proprietary mobile operating systems.

Through a partnership entitled Rockstar Bidco, RIM, Microsoft, Apple, and others sought to acquire patents at the June 2011 Nortel bankruptcy auction for licensing and distribution to certain partners. Nortel’s portfolio of approximately 6,000 patents and patent applications includes many SEPs that Nortel committed to license through its participation in SSOs.

Apple sought approval to acquire patents held by CPTN Holdings LLC, formerly owned by Novell, following CPTN’s acquisition in April 2011 of those patents on behalf of Apple, Oracle Corporation, and EMC Corporation.

Monday, February 13, 2012

American Antitrust Institute Rejects “Above Cost Safe Harbor” for Monopolist

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

The American Antitrust Institute (AAI) has filed a friend-of-the-court brief with the U.S. Court of Appeals in Philadelphia, asking the court not to require an antitrust plaintiff challenging a monopolist’s market-share or loyalty rebates to prove below-cost pricing.

On appeal is a decision of the federal district court in Wilmington, Delaware (2012-1 Trade Cases ¶77,789), upholding a jury’s finding that a manufacturer of heavy-duty commercial truck transmissions violated Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act through its use of multi-year contracts with truck manufacturers that amounted to de facto exclusive dealing contracts.

Multiple issues were appealed by the defending manufacturer and a complaining former rival. However, AAI addressed only one issue: the defending transmission manufacturer’s argument that “[a]n antitrust plaintiff challenging a [monopolist’s] pricing practices must prove below-cost pricing using an accepted price-cost test.”

These pricing practices include conditional, share-based rebates that the defending manufacturer argues were the central focus of plaintiffs’ theory of antitrust liability and the jury’s verdict. AAI contends that the defending transmission manufacturer urged the appellate court to “adopt a rule that a monopolist is immune from liability for using ‘market share’ rebates to create an anticompetitive exclusive dealing arrangement unless the plaintiff provides the monopolist’s prices are below cost.”

“Neither policy nor precedent supports [the defending manufacturer’s] claimed above-cost safe harbor,” according to AAI’s brief. AAI maintains that “a cost-based safe harbor for discounts linked to market-share requirements would harm competition and consumers.”

AAI’s brief in ZF Meritor LLC v. Eaton Corp., Nos. 11-3301 and 11-3426, is available here.

Friday, February 10, 2012

Intel Agrees to Settle New York Attorney General’s Antitrust Action

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

Intel Corporation announced yesterday that it had reached an agreement with the New York State Attorney General to terminate an antitrust lawsuit filed by the state in November 2009. Intel has agreed to pay $6.5 million to cover some of the costs incurred by the New York Attorney General in the litigation. The computer chip maker did not admit to any wrongdoing.

Recent Decisions

The agreement to end the litigation comes after three recent decisions of the federal district court in Wilmington, Delaware, scaling back the suit. In December 2011, the court dismissed the state’s Donnelly Act treble damages claims on behalf of New York consumers and non-state public entities; dismissed its Donnelly Act claims on behalf of non-state public entities, such as political subdivisions, local entities, and public authorities; and granted Intel’s motion for partial summary judgment on statute of limitations grounds (2011-2 Trade Cases ¶77,711, 2011-2 Trade Cases ¶77,712, 2011-2 Trade Cases ¶77,713).

The settlement agreement states that the decisions in favor of Intel “effectively eviscerated the State’s damages claims.” The settlement “releases Intel from all claims, known or unknown, including claims assigned to the State, up through the date of execution of the Settlement Agreement, that were or could have been asserted in the Action . . . .” Pursuant to the settlement, the New York Attorney General will terminate its investigation into Intel.

Exclusionary Conduct

The state filed the action in November 2009, alleging that Intel engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors, the “brains” of personal computers (PCs).

The state alleged violations of the Sherman Act and New York’s Donnelly Act and Executive Law. It sought monetary relief on behalf of the state as a purchaser of computers containing x86 microprocessors, as well as New York consumers and non-state public entities who purchased such computers. In addition, the state sought injunctive and other equitable relief.

“Following recent court rulings in Intel’s favor that significantly and appropriately narrowed the scope of this case, we were able to reach an agreement with New York to bring to an end what remained of the case,” said Doug Melamed, senior vice president and general counsel at Intel, in a February 9 news release.

“We have always said that Intel’s business practices are lawful, pro-competitive and beneficial to consumers, and we are pleased this matter has been resolved,” Melamed stated.

The case is State of New York v. Intel Corp., U.S. District Court, D. Delaware. No. 09-827-LPS. A copy of the settlement agreement appears here.

Thursday, February 09, 2012

European Commission Proposes General Privacy Regulation

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

The European Commission has released a proposed comprehensive reform of the European Union’s 1995 data protection rules. According to the EC, the proposed changes will strengthen online privacy rights and boost Europe's digital economy.

The proposals include a policy Communication setting out the Commission's objectives and two legislative proposals: a Regulation setting out a general EU framework for data protection and a Directive on protecting personal data processed for the purposes of prevention, detection, investigation or prosecution of criminal offences and related judicial activities.

Key changes in the proposed legislation include:
• There will be a single set of rules on data protection, valid across the EU.

• The new framework will increase responsibility and accountability for those processing personal data.

• Companies and organizations will be required to notify the national supervisory authority of serious data breaches as soon as possible.

• Organizations will only have to deal with a single national data protection authority in the EU country where they have their main establishment.

• Wherever consent is required for data to be processed, it is clarified that it has to be given explicitly, rather than implicitly.

• People will have easier access to their own data and will be able to transfer personal data from one service provider to another more easily.

• Under the regulation’s “right to be forgotten,” people will be able to delete their data if there are no legitimate grounds for retaining it.

• EU rules must apply if personal data is handled abroad by companies that are active in the EU market and offer their services to EU citizens.

• Independent national data protection authorities will be strengthened, with the power to issue fines of up to €1 million or up to 2% of the global annual turnover of a company.

The new data protection framework is needed to reflect technological advances and the effects of globalization on the ways information is collected, accessed, and used, the EC said. In addition, the 27 EU Member States have implemented the 1995 rules differently, resulting in divergences in enforcement.

A single law would eliminate the current fragmentation and costly administrative burdens, leading to estimated savings for businesses of around €2.3 billion a year.

“Seventeen years ago less than 1% of Europeans used the internet. Today, vast amounts of personal data are transferred and exchanged, across continents and around the globe in fractions of seconds,” said EU Justice Commissioner Viviane Reding, the Commission’s Vice-President.

“The protection of personal data is a fundamental right for all Europeans, but citizens do not always feel in full control of their personal data,” Reding said.

“My proposals will help build trust in online services because people will be better informed about their rights and in more control of their information. The reform will accomplish this while making life easier and less costly for businesses.”

The Commission's proposals will now be passed on to the European Parliament and EU Member States for discussion. They will take effect two years after they have been adopted.

The Proposed Directive can be found here.

The Proposed Regulation can be found here.

Background documents can be found here.

Wednesday, February 08, 2012

Classes Certified to Pursue Antitrust Claims Against Chinese Vitamin Makers

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

The federal district court in Brooklyn, New York, has certified two classes of vitamin C purchasers to pursue claims against Chinese manufacturers for conspiring to fix prices and limit the output of vitamin C exported to the United States.

A proposed class of at least 139 entities that purchased vitamin C directly from the manufacturers was certified to seek treble damages. In addition, a class including both direct and indirect purchasers of vitamin C was certified under Rule 23(b) (2) of the Federal Rules of Civil Procedure to seek injunctive relief.

Common Issues

The manufacturers did not deny that the alleged conspiracy's existence and effect were the chief issues in the case and could be demonstrated through generalized proof. The court rejected the manufacturers’ arguments that common issues did not predominate because a class representative—an assignee of a direct purchaser of vitamin C—had "many individual issues not shared with other members of the class."

A plaintiff’s status as an assignee did not prevent it from representing the direct-purchaser damages class. Although the assignee never bought any vitamin C, it purchased the antitrust claim from a direct purchaser for $100. Contrary to the manufacturers’ assertion, there was no rule prohibiting the assignment of class membership. Antitrust claims were generally assignable, the court noted. In addition, an assignee of an antitrust claim stood before the court ""in the shoes of" its assignor."

Although the assignee’s lawyers also represented the class seeking injunctive relief, the assignee could still represent the damages class. The interests of the two classes did not conflict, and the assignee’s lawyers would not have to choose between them. The court also rejected as irrelevant the manufacturers’ arguments that the assignee was atypical of the class because it never purchased any vitamin C and because the company whose claim it was pursuing had been out of the vitamin C business for years.

A company that purchased vitamin C from a wholly-owned subsidiary of one of the defendants rather than a defendant itself could not represent the direct-purchaser damages class, the court ruled. A class representative was not "adequate" unless it was a member of the class it purported to represent.

The fact that the subsidiary was wholly owned did not permit the plaintiffs to invoke the "ownership or control" exception to the Illinois Brick direct purchaser doctrine. In an earlier ruling, the court dismissed the claims against the subsidiary, because the subsidiary never became a party to the conspiratorial agreements at issue.

Injunctive Relief

The court rejected the manufacturers’ arguments that there were debilitating conflicts of interest that prevented certification of an injunctive relief class. The class representative’s past and prospective purchases of vitamin C at artificially inflated prices constituted antitrust injury regardless of whether it could recoup the overcharge by passing it along to remote purchasers. The artificially increased prices caused by the alleged price fixing amounted to a "common impact" to warrant certification under Rule 23(b)(2).

Membership in the Rule 23(b) (2) class did not bar the indirect purchasers' subsequent claims for damages. The right of the indirect purchasers to maintain their damages claims in subsequent proceedings was expressly reserved notwithstanding their participation in the injunction class, the court noted.

Foreign Sovereign Compulsion Defense

Because the manufacturers’ price fixing was not compelled by Chinese law, dismissal of the claims on comity grounds was not justified, the court ruled. Abstention on comity grounds may be warranted where foreign sovereign compulsion creates a true conflict. The fact that a foreign government compels certain activity ordinarily indicates that the activity implicates its “most significant interests.”

However, an assertion in an amicus brief of compulsion by the Ministry of Commerce of the People's Republic of China—the highest authority in China authorized to regulate foreign trade—appeared to be a post-hoc attempt to shield the manufacturers' conduct from antitrust scrutiny rather than a complete and straightforward explanation of Chinese law.

Although the Ministry encouraged the cartel, those policy preferences did not establish that Chinese law “required” the manufacturers to follow their anti-competitive predilections. The manufacturers did not meet the burden of proof for the foreign sovereign compulsion defense, and their motion for summary judgment based upon that defense and the related doctrines of comity and act of state were denied.

The case is In re Vitamin C Antitrust Litigation, 2012-1 Trade Cases ¶77,779; ¶77,780; ¶77,781.

Tuesday, February 07, 2012

Senator Kohl Warns FTC About Proposed Express Scripts-Medco Merger

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

The proposed combination of Express Scripts and Medco, two of the nation’s largest pharmacy benefits managers (PBMs), “has the potential to have profound effects on the ability of both community and chain drug stores to compete,” according to Senator Herb Kohl (D-Wisconsin).

Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent a letter to FTC Chairman Jon Leibowitz on February 2 expressing his concerns. The FTC is currently reviewing the merger.

The letter summarizes findings of a subcommittee investigation that included a December 6, 2011, hearing. Kohl said that the subcommittee received extensive testimony from both independently owned community pharmacies and chain drug stores regarding what they believe to be the dangers to competition from the merger.

Community pharmacies asserted that their ability to stay in business was seriously threatened by the danger of the combined Express Scripts/Medco reducing reimbursement rates. PBMs set the reimbursement rates that pharmacies receive when they dispense drugs to patients covered by health plans administered by those PBMs.

Kohl urged the FTC to carefully evaluate whether it was likely that the combined PBM would pass on to plan sponsors any reduction in reimbursements paid to pharmacies as a result of the deal.

“In brief, without reaching any final judgment as to the legality of this proposed merger under the antitrust laws, I believe this proposed merger presents serious competition concerns which should be examined carefully by the FTC, and that your agency should approve this merger only if you find that it is not likely to substantially harm competition in the markets affected,” Kohl said.

Monday, February 06, 2012

Baer to Be Nominated as Antitrust Chief

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

President Barack Obama intends to nominate Bill Baer to serve as Assistant Attorney General in charge of the Department of Justice Antitrust Division, according to a February 3 White House announcement. Baer would succeed Acting Assistant Attorney General Sharis A. Pozen, who will resign effective April 30 to return to private practice.

Currently the head of the antitrust group at the Washington, D.C. office of Arnold & Porter, LLP, Baer has held a number of high-level positions at the Federal Trade Commission, including director of the FTC’s Bureau of Competition in the 1990s.

During his tenure, the Bureau of Competition was very active in the merger enforcement area. Among the most notable cases was the FTC’s successful challenge to the merger of office supply superstores Staples and Office Depot (1997-2 Trade Cases ¶71,867, 970 F. Supp. 1066 (D.D.C. 1997)).

After earning a J.D. at Stanford Law School, Baer began his legal career in 1975 as a trial attorney for the FTC Bureau of Consumer Protection. He joined Arnold & Porter in 1980, becoming a partner at the firm in 1983. In his practice, Baer represents a broad range of companies in U.S. and international cartel investigations, mergers and acquisition reviews, and in antitrust litigation, it was noted.

Friday, February 03, 2012

Ontario Recognizes Tort Action for Invasion of Privacy

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

An employee and accountholder of a bank was entitled to an award of $10,000 (Canadian) in damages against a co-worker who, contrary to the bank’s policy, used her workplace computer to access the complaining employee’s computer at least 174 times, the Court of Appeal for Ontario, Canada has held. In the court’s view, the Province of Ontario recognized a common-law cause of action for invasion of privacy.

Intrusion Upon Seclusion

Ontario had already accepted the existence of a tort claim for appropriation of personality, the court noted. The Province at least remained open to the proposition that a tort action will lie for an intrusion upon seclusion, as asserted by the employee.

Canadian law’s protection against unreasonable search and seizure indicated that privacy was considered worthy of constitutional protection, the court said. The interests engaged by the protection against unreasonable search and seizure were not simply an extension of the concept of trespass, but rather were grounded in an independent right to privacy held by all citizens.

A specific interest in one’s informational privacy had been identified by case law, according to the court. The complaining employee’s claim to privacy in her banking records would fall within her interest in informational privacy.

The recognition of a right to privacy was also shown by the development of the common-law tort of defamation, and privacy had been declared to be a human right by various international agreements, such as the International Covenant on Civil and Political Rights, the court noted.

Interference with Federal, Provincial Legislation?

A common-law cause of action for invasion of privacy would not interfere with federal and provincial legislation, such as the federal Personal Information Protection and Electronic Documents Act (PIPEDA), in the court’s view. PIPEDA dealt with “organizations” subject to federal jurisdiction and did not speak to the existence of a civil cause of action in Ontario.

To proceed under PIPEDA, the employee would have to file a complaint against the bank—her own employer—rather than against the co-worker who accessed the records. The co-worker acted as a rogue employee, which could provide the bank with a complete defense to a PIPEDA action. Moreover, the remedies available under PIPEDA did not include damages.

Elements of Claim

The elements of the tort of intrusion upon seclusion were derived from the Restatement (Second) of Torts (2010):

“One who intentionally intrudes, physically or otherwise, upon the seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, if the invasion would be highly offensive to a reasonable person.”
When the plaintiff had suffered no provable pecuniary loss, the plaintiff could seek “symbolic” or “moral” damages. Damages awards for invasion of privacy would be analogous to damages awards for other torts, such as nuisance or trespass. Aggravated damages would be appropriate in cases involving egregious conduct.

In the current case, the court held that (1) the defending co-worker’s intrusion was intentional; (2) it amounted to an unlawful invasion of the complaining employee’s private affairs; (3) it would be viewed as highly offensive to a reasonable person; and (4) it caused distress, humiliation, and anguish.

Although the co-worker’s actions were deliberate and repeated, and the employee was upset by the intrusion, the employee suffered no public embarrassment or harm to her health or social position, and the co-worker had apologized for her misconduct. On balance, appropriate damages fell at the midpoint of the range of damages that would be reasonable for intrusions upon seclusion, or $10,000. The co-worker’s conduct was not deemed to be so exceptional as to warrant an award of aggravated or punitive damages.

The decision is Jones v. Tsige, CCH Privacy Law in Marketing ¶60,730.

Thursday, February 02, 2012

Decisive Testimony Barred in Dealership Termination Case

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

The recent case of Echo, Inc. v. Timberland Machines & Irrigation, Inc. (7th Cir. October 25, 2011, CCH Business Franchise Guide ¶14,714) evolved from the termination of a dealer by a supplier and the subsequent appointment of another. But the case is almost a compendium of franchise litigation issues.

Both federal district court and the Seventh Circuit Court of Appeals:
(1) Barred the apparently quite mundane testimony by the business owner about adjustments to financial statements as constituting “expert testimony,” even though the man was testifying about his own financial statements;

(2) Upheld prior decisions regarding the definition of “substantial association” under the Connecticut Franchise Act (i.e., that the franchisee must receive more than 50% of its revenues from the franchised product to be eligible for the CFA’s protection);

(3) Ruled that a subsequent distributor cannot tortiously interfere with a contract that has already been terminated; and

(4) Required that testimony concerning certain accounting adjustments be provided by an expert rather than the company’s president (a lay witness).

Ultimately, the decision was that without providing “admissible evidence” to meet the 50% of revenues threshold, all the alleged franchisee’s claims under the CFA and other claims that depended on it were dismissed.

Is a Franchisee an Employee or an Independent Contractor?

The Ninth Circuit Court of Appeals recently reversed a federal district court decision holding it lacked jurisdiction to decide whether drivers for a franchisor of airport passenger shuttle businesses were employees or independent contractors under California law. (Kairy v. SuperShuttle Int’l, 9th Cir., November 3, 2011, CCH Business Franchise Guide ¶14,707)

The appellate court rejected the district court’s ruling ( CCH Business Franchise Guide ¶14,288) that exercising such jurisdiction would hinder or interfere with the California Public Utilities Commission’s exercise of regulatory authority over the relationship between the drivers and the franchisor. The case was remanded.

The issue also resonates with disputes over vicarious liability. (See, e.g., Barak v. Chen, Appellate Division, Second Department, September 13, 2011, 2011 NY Slip Op 06466)

Also, in Jason Robert’s, Inc. v. Administrator Unemployment Compensation, (Conn. App. Ct. April 12, 2011, CCH Business Franchise Guide ¶14,577) after losing throughout the unemployment compensation administrative process on the issue of whether a concrete artisan who had been an employee and then became a licensed dealer was still an employee for purposes of unemployment insurance, the dealer filed a court proceeding. It lost again and then brought an appeal arguing that, in fact, the relationship was a “franchise” under the Connecticut Franchise Act and that, therefore, the relationship was exempt from the “ABC test” to determine whether or not the worker was an “employee.”

The ABC test “is conjunctive; failure to satisfy any one of the prongs will render the enterprise subject to the act …. Under the ABC test, an individual will not be considered an employee if: [A] such individual has been and will continue to be free from control and direction in connection with the performance of such service, both under his contract for the performance of service and in fact; and [B] such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and [C] such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed…” (Citation omitted; emphasis in original).

The court did not agree, saying:

“Specifically, the plaintiff argues that a finding that a franchise agreement exists between the parties exempts the relationship from the purview of the act. The plaintiff neither cites, nor does our research reveal, any legal support for this argument. On the basis of our review of the act, we find nothing that elucidates the question of whether the existence of a franchise agreement precludes application of the ABC test.”

Attorneys’ Fees: Who Is the Prevailing Party?

Frequently, the fee-shifting language used in franchise agreements and statutes says that the loser shall pay the “prevailing party’s” attorneys' fees and costs. However, often there is an issue as to who is the “prevailing party.” A party that only succeeds on an interim basis may not be considered to have prevailed. A recent example of this can be found in Kaeser Compressors, Inc. v. Compressor & Pump Repair Services, Inc. (E.D. Wis. September 2, 2011, CCH Business Franchise Guide ¶14,674), where a distributor of industrial compressors—which had prevailed on a manufacturer’s motion for a declaratory judgment brought to ensure that it would not violate the Wisconsin Fair Dealership Law (WFDL) by terminating the distributor without “good cause”—was not entitled to an award of attorneys’ fees.

The WFDL provided such payments to a dealer who sued a grantor successfully but by its plain terms, only if the grantor violated the WFDL. Since the manufacturer did not violate the WFDL, the attorneys’ fee provision did not apply.
Additional information on the issues discussed above is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.

Wednesday, February 01, 2012

Airline Passenger Lacked Standing to Bring Antitrust Challenge Against Ticket Restrictions

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

An airline customer’s claim that an airline’s “No Transfer” policy prevented him from buying a less expensive ticket for a flight by foreclosing the emergence of a secondary market of ticket resellers in violation of federal antitrust law was too speculative to support Article III standing, the U.S. Court of Appeals in Washington, D.C. has ruled.

No reasonable juror could find that the customer was overcharged as a result of the challenged policy.

The customer relied on surveys as well as the testimony of a co-founder of a former reseller of airline tickets. However, that analysis could not be used to conclude that the complaining customer would have benefited from a secondary market, the court ruled. The surveys and testimony failed to present an accurate picture of the prices that would have been negotiated in the secondary market.

The court rejected the customer’s argument that injury-in-fact in antitrust cases should be inferred when the defendant’s wrongdoing prevented more precise proof of the fact of injury. That principle applied only to the showing needed to support a damage award, not to the constitutional requirement that the plaintiff show the fact of injury.

Because the customer lacked standing to challenge the policy in federal court, the lower court should not have assumed jurisdiction to dismiss on the merits of the dispute. Even though the merits of a particular claim might have been clear, the court should not have bypassed jurisdictional issues.

Standing was a check that reinforced the constitutional principle that some disputes were beyond the authority of federal courts to resolve, the appellate court explained. The judgment of the district court was vacated, and the case was remanded with directions that the complaint be dismissed for lack of jurisdiction.

The decision is Dominguez v. UAL Corp., 2012-1 Trade Cases ¶77,773.