Thursday, May 02, 2013

Mergers Reported under HSR Act Down Slightly in FY 2012

This posting was written by Tobias J. Gillett, Contributor to Wolters Kluwer Antitrust Law Daily.

The number of mergers reported under the Hart-Scott-Rodino (HSR) Premerger Notification Program between October 1, 2011 and September 30, 2012 decreased approximately 1.4% from the previous fiscal year, according to the Hart-Scott-Rodino Annual Report for fiscal year 2012, issued on April 31 by the FTC and Department of Justice Antitrust Division.

The report states that 1,429 transactions were reported under the HSR Act during FY 2012, down from the 1,450 reported in FY 2011, but still significantly more than the 1,166 reported in FY 2010 and the 716 reported in FY 2009.

During FY 2012, the FTC brought 25 merger enforcement actions, including three in which the Commission initiated administrative litigation; 15 in which it accepted consent orders for public comment; 14 which resulted in final orders (with one still pending); and seven in which the transactions were abandoned or restructured as a result of antitrust concerns raised during the investigation.

The Antitrust Division also challenged 19 merger transactions that it concluded might have substantially lessened competition if allowed to proceed as proposed. These challenges resulted in seven consent decrees, seven abandoned transactions, two restructured transactions, and three transactions in which the parties changed their conduct to resolve Justice Department concerns. In addition, the agencies brought two actions against parties for failing to comply with the HSR notification requirements, resulting in a total of $1.35 million in civil penalties.

Other highlights of the report include a 10.9% decline from FY 2011 in the number of merger investigations in which second requests were issued, from 55 in FY 2011 to 49 in FY 2012. The number of transactions in which early termination was requested decreased from 82% (1,157) of reported transactions to 78% (1,094) of such transactions, while the number of requests granted out of the total requested increased from 77% in fiscal year 2011 to 82% in fiscal year 2012.

The report also discusses recent developments in HSR enforcement, including the FTC’s August 2012 issuance of a Notice of Proposed Rulemaking proposing changes to the premerger notification rules. The changes would revise the rules to provide a framework for determining when a transaction involving the transfer of rights to a patent in the pharmaceutical industry is reportable under the HSR Act. The FTC also published adjustments to its reporting thresholds, as required by the 2000 amendments to Section 7A of the Clayton Act, that increase the threshold from $66 million to $68.2 million.

The report contains descriptions of various FTC and Antitrust Division enforcement actions and includes appendices with tables of statistics summarizing transactions from fiscal years 2003-2012, as well as tables regarding the number of transactions reported and filings received by month during that period and data profiling Hart-Scott-Rodino premerger notification filings and enforcement interests. The report concludes that the HSR Act continues to do "what Congress intended, giving the government the opportunity to investigate and challenge those relatively large mergers that are likely to harm consumers before injury can arise."

The HSR Act requires certain proposed acquisitions of voting securities or assets to be reported to the FTC and the Antitrust Division prior to consummation. It imposes a waiting period, usually of 30 days (15 days in the case of a cash tender offer or a bankruptcy sale), before the parties may complete the transaction. The FTC and DOJ can issue second requests for more information, which will extend the waiting period for 30 days (10 days in the case of a cash tender offer or a bankruptcy sale) after compliance with the request. The FTC and DOJ may challenge the transaction in federal district court or in administrative proceedings.

Wednesday, May 01, 2013

Supreme Court Will Not Review Application of “Single Publication Rule” Barring Chuck Yeager’s Publicity Rights, Lanham Act Claims

This posting was written by John W. Arden.

The U.S. Supreme Court has refused to review the Ninth Circuit’s application of the “single publication rule” to an allegedly unauthorized endorsement posted on a website in 2003, effectively barring on statute of limitations grounds Chuck Yeager’s claims brought under California right of privacy and publicity laws and the federal Lanham Act. The high court today denied the petition for certiorari in Yeager v. Bowlin, Docket No. 12-1047, filed February 22, 2013.

In 2008, well known pilot Yeager brought an action against Connie and Ed Bowlin, claiming that statements on their “Aviation Autographs” website violated California’s common law right of privacy and right of publicity statute and that the use of his name, likeness, and identity to market memorabilia violated the Lanham Act. The federal district court in Sacramento dismissed the claims, applying the single publication rule, holding that the claims accrued in 2003, and concluding that the claims were time-barred.

In an opinion addressing the California claims, the Ninth Circuit ruled that there was no evidence in the record that the Bowlins added or changed any statements about Yeager after October 2003 and thus the right of privacy and publicity claims were barred by the two-year statute of limitations.

In a separate unpublished memorandum decision, the Ninth Circuit held that Yeager’s Lanham Act false endorsement claim also was barred by the single-publication rule. The appeals court acknowledged that it had not resolved whether a statute of limitations defense applies to claims under the Lanham Act, which are of “equitable character.” However, the court declined to address the issue on the theory that Yeager waived this argument by failing to raise it in the district court in his opposition to a defense motion for summary judgment.

The single publication rule limits tort claims premised on mass communication to the original publication date. While created to apply to print publications, the single publication rule also governs publications on the Internet, according to the appeals court. “In print and on the internet, statements are generally considered ‘published’ when they are first made available to the public.”

Under the single publication rule, the statute of limitations is reset when a statement is republished. A statement in a printed publication is republished when it is reprinted in something that is not part of the same “single integrated publication.” One general rule is that a statement is republished when it is repeated or recirculated to a new audience. As previously held by the Ninth Circuit, website operators did not republish a statement by simply continuing to host the website.

Yeager argued that the website was republished—and the statute of limitations restarted—every time the website was added to or revised, even if the new content did not reference or depict Yeager. The Ninth Circuit disagreed. “We reject Yeager’s argument and hold that, under California law, a statement on a website is not republished unless the statement itself is substantively altered or added to, or the website is directed to a new audience.”

In his petition for review, Yeager asked: “Does California’s single-publication rule govern the accrual of a Lanham Act claim arising from a web-based merchant’s refusal to remove a celebrity’s unauthorized endorsement from a merchant’s website?”

Monday, April 29, 2013

Food Distributor Not Enjoined From Selling Refined Olive Oil as “100% Pure”

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

The federal district court in New York City declined to enjoin food distributor Kangadis Food Inc. from selling refined olive oil labeled as "100% Pure Olive Oil" (North American Olive Oil Association v. Kangadis Food Inc., April 25, 2013, Rakoff, J.). However, the court ordered Kangadis to provide reasonable notice to potential consumers of its past mislabeling.

NAOOA, a trade organization that represents the olive oil industry, filed suit against Kangadis for allegedly falsely and deceptively marketing its olive oil and "100% Pure," when it actually contained an industrially-processed oil produced from olive pits, skins, and pulp called Pomace, in violation of the Lanham Act and New York General Business Law.

Kangadis admitted that its "100% Pure Olive Oil" product contained only olive-Pomace oil. On April 12, the court preliminarily enjoined Kangadis from labeling products containing Pomaceas "100% Pure Olive Oil" and from selling any product containing Pomace without including the ingredient on the label. NAOAA asked the court to enjoin Kangadis from selling 100% refined olive oil as "100% Pure Olive Oil" as Kagadis alleged it currently sold.

In order to obtain a preliminary injunction, the party must show irreparable harm and either a likelihood of success on the merits or sufficiently serous questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping toward the party requesting the injunction.

Irreparable Harm

NAOAA was able to demonstrate that it would suffer irreparable harm absent an injunction, according to the court. Under the Lanham Act, NAOAA needed to show that the parties were competitors in the olive oil market and there was a logical causal connection between the false advertising and its own sales position. The parties were clearly competitors in the olive oil market, and Kangadis’ false marketing of the cheaper Pomace oil as pure olive oil would harm other sellers. The labeling also induced consumers to purchase a lower quality product, which could lead consumers to lose faith in the olive oil market as a whole.

Likelihood of Success on Merits

The court declined to issue the requested injunction because the NAOAA could not show a likelihood of success on the merits of its Lanham Act false advertising claims. It was clear that Kangadis violated federal and state standards by selling refilled oil as "100% Pure Olive Oil." However, NAOAA failed to seek direct enforcement of the standards, which are either nonbinding or unenforceable through a private action. NAOAA also could not show that a reasonable consumer’s understanding of olive oil aligned with the standards. A consumer could view 100% Olive Oil as being silent on whether it was virgin or refined.

Balance of Hardships

There also was a lack of evidence of the balance of hardships to support NAOAA’s New York General Business Law false advertising claims, according to the court. To state a claim, NAOAA had to show that Kangadis’s act was consumer-oriented, material deceptive, and injured NAOAA. Although there was sufficient evidence to litgate whether Kangadis violated the New York law, NAOAA failed to show that the balance of hardships tipped in favor of an injunction. Althougth false advertising may hurt competitors in the market, it was unclear to what extent the market would be harmed.

The court granted NAOAA’s request for a notice to consumers regarding Kangadis’ past mislabeling of products containing Pomace. NAOAA was able to show to show that the labeling claims were literally false and actually misleading to consumers. The balance of hardships and public interest also tipped in favor of an injunction. Therefore, Kangadis was required to provide reasonable notice of its mislabeling.

NAOAA was ordered to post bond in order to adequately compensate Kangadis in the event the injunction was issued in error.

Thursday, April 25, 2013

British Columbia Law Institute Seeks Public Comment on Franchise Law Proposal

This posting was written by John W. Arden.

The British Columbia Law Institute (BCLI) is soliciting public comments on its recently-issued consultation paper recommending that the province enact franchise legislation similar to existing franchise laws in Alberta, Manitoba, New Brunswick, Ontario, and Prince Edward Island.

The BCLI intends its “Consultation Paper on a Franchise Act for British Columbia” to be “a catalyst for an informed discussion about franchise regulation in BC.” After consideration of responses received, BCLI will produce a report with final recommendations and draft legislation.

The consultation paper recommends, among other items, that:
 British Columbia should enact franchise legislation.

 Franchise legislation should be modeled generally on the Uniform Franchises Act and the Uniform Disclosure Documents Regulation.

 Franchise legislation should not provide for mandatory mediation on the demand of one party of the franchise agreement.

 Legislation should require presale disclosure of information to prospective franchisees.

 A franchisor may request and receive a fully refundable deposit before delivering a disclosure document.

 A disclosure document must state whether or not an exclusive territory is granted under the franchise.

 A disclosure document must state whether the franchisor reserves the right to directly market goods or services.

 An action for misrepresentation should extend to misleading or inaccurate financial or earnings projections.

 A franchisor should be able to use “wrap around” disclosure documents prepared in compliance with laws of another jurisdiction with additional information required by British Columbia.

 There should be a presumption of reliance by a franchisee on a disclosure document.
 The institute is requesting comment from franchisors, franchises, business and consumer organizations, and the general public.

Comments, which will be accepted through September 30, 2013, may be submitted by email at gblue@bcli.org; by fax at 604-822-0144, and by mail at British Columbia Law Institute, 1822 East Mall, University of British Columbia, Vancouver, BC, Canada V6T 1Z1.

Tuesday, April 23, 2013

Gun Dealer Failed To State Antitrust Claims Against Village, Trustees Over License Law Changes

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

A gun dealer failed to state Sherman Act, Section 1 or Lanham Act commercial disparagement claims against the Village of Norridge, Illinois, stemming from a change in an ordinance that may force the gun dealer to close up shop, according to the federal district court in Chicago (Kole v. Village of Norridge, April 19, 2013, Durkin, T.).


The gun dealer entered into an agreement with the Village in which he agreed to sell guns only over the Internet in return for a license to operate the business in the Village. A revised ordinance terminated gun store licenses altogether and bans gun stores from the Village. Once the agreement and its three-year exemption from the revised ordinance expires, the gun dealer may be forced to close up shop, or at least relocate their business outside the Village.

The gun dealer failed to allege a conspiracy, agreement, or other concerted action to restrain trade in violation of Section 1 of the Sherman Act, according to the court. The Village and its trustees were one entity. Although a single firm’s restraints may directly affect prices and have the same economic effect as concerted action might have, there can be no liability under Section 1 in the absence of agreement.

Commercial Disparagement

Statements made by a Village trustee did not run afoul of the Lanham Act commercial disparagement section, according to the court. One trustee stated to a local newspaper that "the one current Village weapons dealer licensee has agreed that it will cease doing business in the village no later than April, 30, 2013." The gun dealer argued that the statement was commercial disparagement because it false and harmed business because the statement suggested to potential customers that it would soon go out of business.

The Lanham Act section prohibiting commercial disparagement applies only to statements used in commerce and made in commercial advertising or promotion. The statement also did not support the gun dealer’s Illinois Deceptive Trade Practices Act claim.

Sunday, April 21, 2013

Brewers Resolve U.S. Concerns over Merger, Agree to Divest Modelo’s U.S. Business

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

Anheuser-Busch InBev SA/NV (ABI) has resolved Department of Justice Antitrust Division concerns over its proposed acquisition of the remaining stake in Grupo Modelo S.A.B. de C.V.

A proposed final judgment was filed in the federal district court in Washington, D.C. that, if approved by the court, would resolve a civil antitrust complaint challenging the combination, which was filed on January 31, 2013.

The Justice Department had contended that the $20.1 billion transaction would substantially lessen competition in the market for beer in the United States as a whole and in 26 metropolitan areas across the United States. ABI’s global brands include Budweiser, Bud Light, Stella Artois, and Beck’s. Modelo’s Corona Extra brand is the top-selling import in the United States.

Under the proposed final judgment, the companies would be required to divest Modelo's entire U.S. business to Constellation Brands Inc. or to an alternative purchaser if for some reason the transaction with Constellation cannot be completed. It is intended to create an independent, fully integrated and economically viable competitor to ABI, according to the Justice Department.

The divestiture assets include Modelo's newest, most technologically advanced brewery (the "Piedras Negras Brewery"), which is located in Mexico near the Texas border; perpetual and exclusive U.S. licenses of the Modelo brand beers; Modelo's current interest in Crown—the joint venture established by Modelo and Constellation to import, market and sell certain Modelo beers into the United States; and other assets, rights and interests necessary to ensure that Constellation is able to compete in the U.S. beer market using the Modelo brand beers, independent of a relationship to ABI and Modelo.

Further, Constellation was added as a defendant for purposes of settlement and would be required to expand the capacity of Piedras Negras in order to meet current and future demand for the Modelo brands in the United States.

The settlement comes after initial attempts of the parties to remedy the potentially anticompetitive aspects of the transaction were rejected by the Justice Department as inadequate. An original proposal to sell Modelo's stake in Crown to Constellation and enter into a 10-year supply agreement to provide Modelo beer to Constellation to import into the United States was rejected on the ground that it would have eliminated the Modelo brands as an independent competitive force in the U.S. beer market. The federal district court stayed proceedings in the case multiple times while the parties attempted to reach a resolution.

"This is a win for the $80 billion U.S. beer market and consumers," said Bill Baer, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "If this settlement makes just a one percent difference in prices, U.S. consumers will save almost $1 billion a year."

According to an ABI statement, with this proposed resolution of the Justice Department suit, all necessary regulatory hurdles have been cleared. The Mexican Competition Commission approved the revised transaction with Constellation earlier this month. As a result, the transaction is expected to close in June 2013.

The case is U.S. v. Anheuser-Busch InBEV SA/NV, Civil Action No. 13:127 (RWR).

Monday, April 15, 2013

Antitrust Division Will No Longer “Carve-Out” from Corporate Plea Agreements Employees Not Believed to Be Culpable: Baer

This posting was written by John W. Arden.

On April 12, the Department of Justice Antitrust Division announced a change in the Division’s "carve-out" practice regarding corporate plea agreements, stating an intent to continue to exclude (or "carve out") from plea agreements employees believed to be culpable, but not to carve out employees for reasons unrelated to culpability, such as refusal to cooperate with an investigation.

"Going forward, we are making certain changes to the Antitrust Division’s approach to corporate plea agreements," said Bill Baer, Assistant Attorney General in charge of the Antitrust Division. "In the past, the division’s corporate plea agreements have, in appropriate circumstances, included a provision offering non-prosecution protection to those employees of the corporation who cooperate with the investigation and whose conduct does not warrant prosecution. The division excluded, or carved out, employees who were believed to be culpable. In certain circumstances, it also carved out employees who refused to cooperate with the division’s investigation, employees against whom the division was still developing evidence and employees with potentially relevant information who could not be located."

"As part of a thorough review of the division’s approach to corporate dispositions, we have decided to implement two changes," the antitrust chief continued.

The first change is that the division "will continue to carve out employees who we have a reason to believe were involved in criminal wrongdoing and who are potential targets of our investigation. However, we will no longer carve out employees for reasons unrelated to culpability."

The second change is that the division "will not include the names of carved-out employees in the plea agreement itself." Those names will be listed in an appendix, which the Antitrust Division will ask to be filed under seal. "Absent some significant justification, it is ordinarily not appropriate to publicly identify uncharged third-party wrongdoers," Baer said.

These policy changes were highly anticipated by the antitrust bar and are consistent with the practice of other divisions of the U.S. Department of Justice.

Sunday, April 14, 2013

Natural Gas Act Did Not Preempt Retail Natural Gas Buyers’ State Antitrust Claims

This posting was written by William Zale, contributor to Wolters Kluwer Antitrust Law Daily.

Section 5(a) of the Natural Gas Act did not preempt retail natural gas buyers’ claims under state antitrust laws in multidistrict litigation against natural gas traders for price manipulation associated with transactions falling outside of the jurisdiction of the Federal Energy Regulatory Commission (FERC), the U.S. Court of Appeals in San Francisco has ruled (In re: Western States Wholesale Natural Gas Antitrust Litigation, April 10, 2013, Bea, C.). The court reversed and remanded the district court’s preemption decision, reversed orders dismissing American Electric Power (AEP) defendants for lack of personal jurisdiction, and affirmed in other respects.

The buyers alleged that the traders manipulated the price of natural gas by reporting false information to price indices published by trade publications and by engaging in wash sales—prearranged sales in which traders agreed to execute a buy or a sell on an electronic trading platform and then to immediately reverse or offset the first trade by bilaterally executing over the telephone an equal and opposite buy or sell.

The buyers brought claims in state and federal court beginning in 2005, and all cases were eventually consolidated into the underlying multidistrict litigation proceeding. In July 2011, the district court entered summary judgment against the buyers in most of the cases, finding that their state law antitrust claims were preempted by the Natural Gas Act (NGA), 15 U.S.C. §717 et seq.

The NGA applies to: (1) transportation of natural gas in interstate commerce, (2) natural gas sales in interstate commerce for resale (i.e., wholesale sales), and (3) natural gas companies engaged in such transportation or sale. The NGA does not apply to retail sales (direct sales for consumptive use). FERC is the agency charged with the administration of the NGA.

Preemption. The court framed the question presented on appeal as follows: Does Section 5(a) of the NGA, which provides FERC with jurisdiction over any "practice" affecting jurisdictional rates, preempt state antitrust claims arising out of price manipulation associated with transactions falling outside of FERC’s jurisdiction? The court concluded that such an expansive reading of Section 5(a) conflicts with Congress’s express intent to delineate carefully the scope of federal jurisdiction through the express jurisdictional provisions of Section 1(b) of the Act.

When Congress enacted the NGA in 1938, it expressly limited federal jurisdiction over natural gas to "the sale in interstate commerce of natural gas for resale," under Section 1(b). Since passage in 1938, Congress had further demonstrated its intent to limit the scope of federal regulation by enacting statutes removing from FERC’s jurisdiction "first sales"— sales of natural gas that are not preceded by a sale to an interstate pipeline, intrastate pipeline, local distribution company, or retail customer.

The holding that the NGA does not preempt all state antitrust claims is supported, according to the court, by its decision in E. & J. Gallo Winery v. Encana Corp., 503 F.3d 1027, 1036 (9th Cir. 2007) that the filed-rate doctrine did not bar antitrust claims that were essentially the same as those in the present case. The court found that the Gallo reasoning applies in this case with equal force: federal preemption doctrines do not preclude state law claims arising out of transactions outside of FERC’s jurisdiction.

The district court read the word "practices" in Section 5(a) of the NGA to preempt impliedly the application of state laws to the same transactions (first sales and retail sales) that Congress expressly exempted from the scope of FERC’s jurisdiction in Section 1(b) of the Act. This reading ran afoul of the canon of statutory construction that statutory provisions should not be read in isolation, and the meaning of a statutory provision must be consistent with the structure of the statute of which it is a part, the court observed. While the Ninth Circuit had not had the opportunity to define the scope of Section 5(a), the Supreme Court and other circuits had read Section 5(a) narrowly to define the scope of FERC’s jurisdiction within the limitations imposed by Section 1(b).

The court also determined that the 2003 enactment of the FERC’s Code of Conduct did not affect the conclusion that the NGA does not grant FERC jurisdiction over claims arising out of false price reporting and other anticompetitive behavior associated with nonjurisdictional sales.

Personal jurisdiction. In suits brought in Wisconsin and Missouri, the district court dismissed American Electric Power and its subsidiary AEP Energy Services (AEPES), Inc. for lack of personal jurisdiction. On appeal, the court decided that personal jurisdiction could be exercised over the state antitrust claims arising out of the nonresident AEP defendants’ alleged collusive manipulation of gas price indices in the Wisconsin case, while the Missouri case would proceed only against AEPES because the plaintiffs had waived any argument for personal jurisdiction over the parent company.

Other issues. The court affirmed the dismissal of untimely motions in four cases to add federal antitrust claims and in one case to seek treble damages under the Colorado antitrust law. The court also affirmed summary judgment holding that Wisconsin plaintiffs lacked standing to have contracts determined void under Wisconsin Statutes §133.14 because the statute applies only to plaintiffs who are direct purchasers.

Friday, April 12, 2013

Navajo Nation Stated Infringement, Dilution Claims for Using Navajo Marks and Falsely Suggesting Origin of Products

This posting was written by Jody Coultas, Editor of State Unfair Trade Practices Law and contributor to Antitrust Law Daily.

The federal district court in Albuquerque has denied in part fashion retailer Urban Outfitters, Inc.’s motion to dismiss trademark infringement and dilution claims brought by the Navajo Nation (The Navajo Nation v. Urban Outfitters, Inc., March 26, 2013, Hansen, C.). The court declined to dismiss the Navaho Nation’s claim under the Indian Arts and Crafts Act and stayed ruling on whether the Navajo Nation has standing to sue under the New Mexico Unfair Practices Act.

The Navajo Nation alleged that Urban Outfitters and its subsidiaries started a product line of items containing the NAVAJO trademark, which they sold on their website and retail stores, that evoked the Navajo Nation’s tribal patterns and resembled Navajo Indian-made patterned clothing, jewelry, and accessories.

Specifically, the Navajo Nation alleged that the product lines were likely to cause confusion and had created actual confusion in the market place, and constituted trademark infringement, trademark dilution by blurring, and willful trademark dilution by tarnishment in violation of the Lanham Act. Urban Outfitters also allegedly engaged in unfair competition and false advertising under the Lanham Act.

Trademark infringement. To state a trademark infringement claim under the Lanham Act, a plaintiff must allege that its mark is protectable, and the defendant’s use of an identical or similar mark in commerce is likely to cause confusion among consumers.

The fair use doctrine did not apply to the claims and did not warrant a dismissal because The Navajo Nation sufficiently stated trademark infringement claims, according to the court. A word that has acquired a secondary meaning still belongs to the public in its primary descriptive sense and any person may use it in such a way that does not convey the secondary meaning or deceive the public.

Urban Outfitters used the term "Navajo" in a trademark sense and did not accompany the term with marks such that a buyer exercising ordinary care would not be deceived into believing the product was produced by the Navajo Nation. There were no clarifying words that would clarify that a "Navajo" product was made by a member of the Navajo Nation. The inclusion of the manufacturer’s brand name did not eliminate confusion as to the source of the product.

Urban Outfitters’ argument that the term "Navajo" was a generic, descriptive term for a particular style of prints, clothing, and clothing accessories was better suited for a motion for summary judgment or trial, according to the court.

Trademark dilution. The court limited the Navajo Nation’s trademark dilution claims to those based on the relative qualities of the products at issue. An owner of a famous mark is entitled to an injunction against another person who uses a mark in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark. Dilution by blurring arises from the similarity between a mark and a famous mark that impairs the distinctiveness of the famous mark. Dilution by tarnishment is association arising from the similarity between a mark and a famous mark that harms the reputation of the famous mark.

The Navajo Nation argued that Urban Outfitters’ use of "Navaho" was scandalous because the Navajo Nation Code provides that the term be spelled "Navajo," and argued that products like Urban Outfitters’ "Navajo Flask" was derogatory, scandalous, and contrary to the Navajo Nation’s principles because it banned the sale and consumption of alcohol within its borders and does not use its mark in conjunction with alcohol. There was sufficient evidence that the mark was famous. However, there was evidence that the Navajo Nation had used the mark on shot glasses, and the alleged misspelling was not sufficiently scandalous to state a dilution claim.

Indian Arts and Crafts Act. Urban Outfitter’s request to dismiss the Navajo Nation’s Indian Arts and Crafts Act (IACA) claim was denied by the court. The IACA is a truth-in-advertising law that creates a cause of action "against a person who, directly or indirectly, offers or displays for sale or sells a good, with or without a Government trademark, in a manner that falsely suggests it is Indian produced, an Indian product, or the product of a particular Indian or Indian tribe or Indian arts and crafts organization." Urban Outfitters argued that the allegations did not show that it falsely suggested that their products were made by Indians, Indian products, or the products of a particular Indian or Indian tribe, and that neither clothing nor clothing accessories constitute "arts" or "crafts" within the meaning of the IACA. The Navajo Nation sufficiently alleged that the products were in a traditional Indian style, and composed of Indian motifs and Indian designs. Also, modern apparel may fall within the definition of an "art" or "craft." The court declined to rule on Urban Outfitters’ judicial estoppel argument and declined to rely on any extra-pleading evidence to make a judicial estoppel finding at this stage of the case.

New Mexico Unfair Practices Act. The court stayed ruling on whether the Navajo Nation had standing to pursue a claim under the New Mexico Unfair Practices Act (UPA). New Mexico courts would hold that a business competitor has standing to assert UPA claims where the business competitor can show that the challenged practice significantly affects the public as actual or potential consumers of the defendant’s goods or services. The briefing on whether business competitors have standing to assert UPA claims did not directly addressed whether there is a public interest component to business competitor standing and/or whether the Navajo Nation sufficiently alleged a public interest component.

Tuesday, April 09, 2013

Hair Transplant Provider Settles FTC Charges That It Exchanged Competitively Sensitive Information with Rival Hair Club

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

"For at least four years, Bosley’s and Hair Club’s chief executive officers repeatedly exchanged competitively sensitive, nonpublic information regarding aspects of their firms’ surgical hair transplantation business," the FTC alleged in a complaint announced today against Bosley, Inc. Bosley has agreed to settle the FTC charges that it engaged in unfair methods of competition in violation of Sec. 5 of the FTC Act (In the Matter of Bosley, Inc., FTC File No. 121 0184).

The complaint names Bosley, as well as Aderans America Holdings, Inc. and parent company Aderans Co., Ltd. HC (USA), Inc.—Hair Club—was not named as a respondent in the complaint because Aderans plans to acquire all of Hair Club’s stock from Regis Corporation.

Bosley provides medical and surgical hair restoration services. Hair Club provides nonsurgical hair restoration and hair therapy products. Hair Club manages medical/surgical hair restoration practices, including providing input on pricing, according to the FTC.

The FTC alleges that Bosley’s and Hair Club’s CEOs directly exchanged detailed information about future product offerings, surgical hair transplantation price floors, discounting, forward-looking expansion and contraction plans, and operations and performance. The conduct facilitated coordination and endangered competition and served no legitimate business purpose, the agency contends. Bosley purportedly provided competitively sensitive information to other competitors, as well.

A proposed FTC consent order would prohibit the respondents from communicating competitively sensitive, non-public information to a competitor or requesting, encouraging, or facilitating the communication of competitively sensitive, non-public information from a competitor. There are exemptions for legitimate information exchanges.

The consent order also would require the establishment of an antitrust compliance program. In addition, Bosley would be required to submit periodic compliance reports to the FTC.

Monday, April 08, 2013

$140 Million Jury Verdict in Favor of Kaiser in Neurontin Off-Label Marketing Case Upheld

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

The U.S. Court of Appeals in Boston affirmed verdicts of over $140 million, reached by both a jury and trial court, in favor of Kaiser Foundation Health Plan, Inc. for injuries suffered as a result of Pfizer, Inc.’s fraudulent scheme to market its epilepsy drug Neurontin for off-label uses (Kaiser Foundation Health Plan, Inc. v. Pfizer, Inc., April 3, 2013, Lynch, S.).

Neurontin was approved by the FDA as an adjunctive therapy in the treatment of partial seizures in adults with epilepsy, with a maximum dose at 1800 mg/day. Pfizer’s marketing of Neurontin for off-label uses resulted in over $2 billion in sales, with only about ten percent of Neurontin prescriptions filled for on-label uses.

Kaiser alleged that Pfizer and its subdivision Warner-Lambert Company, LLC violated the federal RICO law and the California Unfair Competition Law (UCL) by fraudulent marketing Neurontin for off-label uses. Pfizer was found to have misrepresented Neurontin's effectiveness for off-label uses directly to doctors, sponsored misleading informational supplements and continuing medical education programs, suppressed negative information about Neurontin, and published articles in medical journals that reported positive information about Neurontin's off-label effectiveness.

RICO Violation

The court found that Kaiser presented sufficient evidence of causation to support a RICO claim. Pfizer argued that Kaiser failed to show proximate causation because there were too many steps in the causal chain connecting its misrepresentations to the injury to Kaiser because the injury was based on the actions of independent actors -- the prescribing doctors.

Courts look at three factors to determine whether proximate cause exists under RICO: the less direct an injury is, the more difficult it becomes to ascertain the amount of damages attributable to the violation; claims of the indirectly injured would force courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury to avoid the risk of multiple recoveries; and the societal interest in deterring illegal conduct and whether that interest would be served in a particular case.

In cases where the plaintiffs did not receive the misrepresentations at issue, courts may still find proximate causation. Pfizer’s argument that Kaiser could not show causation because its misrepresentations went to prescribing doctors was, therefore, dismissed. Kaiser was a foreseeable victim of Pfizer's scheme to defraud, and Kaiser’s injury was a natural consequence of the scheme. Pfizer was obviously aware that doctors would not be the ones paying for the drugs they prescribed, and that its revenues stemmed from payments by insurance and health care plans such as Kaiser.

But-For Causation

Kaiser submitted sufficient evidence to demonstrate but-for causation between Pfizer’s conduct and its injury, according to the court. Pfizer argued that its evidence at trial rendered Kaiser's theories of causation false. Kaiser presented evidence that its employees directly relied on Pfizer's misrepresentations in preparing monographs and formularies, which, in turn, influenced doctors' prescribing decisions, and Pfizer's fraudulent off-label marketing directed to physicians caused PMG doctors to issue more Neurontin prescriptions than they would have absent such marketing. Pfizer's evidence did not, as a matter of law or of evidence, "falsify" Kaiser's theory of reliance upon Pfizer's misrepresentations. The testimony of some doctors who did not view Pfizer’s statements that prescribed Neurontin for off-label uses did not defeat the inference that this misinformation had a significant influence on prescribing decisions which injured Kaiser.

The statistical evidence submitted by Kaiser’s expert was sufficient and admissible, according to the court. Pfizer argued that some of the evidence Kaiser presented to prove but-for causation was inadmissible based on the methodology used. However, regression analysis, used by Kaiser’s expert, is a recognized and scientifically valid approach to understanding statistical data. Pfizer also argued that the expert failed to account for other factors that may have led doctors to prescribe Neurontin for off-label use. The court found that the district court was well within its discretion to admit Kaiser’s evidence.

Kaiser presented sufficient evidence for the jury and district court to find that Neurontin was not effective for the four off-label conditions, according to the court. Pfizer argued that the court applied an erroneous burden of proof and an erroneous medical standard in making its findings as to Neurontin's effectiveness. However, the court did not but the burden on Pfizer of proving Neurontin’s effectiveness. Kaiser presented sufficient evidence on the topic, and Pfizer was unable to overcome it.

The court also dismissed Pfizer’s challenges to the amount of damages awarded by the jury and court. The district court did not err in accepting Kaiser’s methodology for calculating damages.

Sunday, April 07, 2013

“Humanely Raised” Chicken Label Might Violate New Jersey Consumer Fraud Act

This posting was written by John W. Arden.

Allegations that Perdue "Harvestland" chicken products misled consumers regarding the "humane" treatment of chickens, a purported endorsement by the U.S. Department of Agriculture, and the difference between the treatment of "Harvestland" chickens and those of competitors stated claims for violation of the New Jersey Consumer Fraud Act, fraud in the inducement, negligent misrepresentation, and breach of express warranty, according to the federal district court in Newark (Hemy v. Perdue Farms, Inc., March 31, 2013, Shipp, M.). The court denied Perdue Farms’ motion to dismiss.

From September 2009 to the present, Perdue Farms, Inc. has labeled its Harvestland chicken products as "humanely raised" and "USDA Process Verified." These labeling claims were false and deceptive and induced the purchase the "premium priced" products, according to a lawsuit filed by a proposed class of consumers. Plaintiff Nadine Hemy alleged that she would not have purchased the products if she knew that the chickens were not in fact treated humanely or differently from other chickens on the market.

Plaintiffs alleged that Perdue’s "humanely raised" claim was based on an industry standard that necessitates inhumane treatment and allows non-compliance by way of "huge loopholes." They claimed that Harvestland chickens are shackled by their legs, upside-down, while fully conscious; electrically shocked before being rendered unconscious; cut ineffectively or partially while fully conscious; downed and scalded while conscious; stored in trucks for hours in excessive temperatures; subjected to lighting conditions that result in eye disorders; injured in the process of being removed from their shells; subjected to health problems and deformities resulting from selective breeding; and provided no veterinary care.

The industry guidelines forming the basis of the "Humanely Raised" label are followed by "virtually every other mass chicken producer in the nation" and sanction many cruel practices, the plaintiffs charged. The plaintiffs themselves believed that "Humanely Raised" meant that chickens were treated humanely throughout their lives and given a quick and painless death. These beliefs were shown to be reasonable by a survey of 209 members of an online consumer panel, they said.

Based on these claims, the plaintiffs brought an action against Perdue Farms and other parties in the New Jersey Superior Court, alleging violation of the New Jersey Consumer Fraud Act, fraud in the inducement, negligent misrepresentation, and breach of express warranty. The case was removed to the federal district court, which issued an opinion and order dismissing certain claims with prejudice but allowing the plaintiffs to replead allegations regarding the "Humanely Raised" and "USDA Process Verified" claims. Upon the filing of a third amended complaint, Perdue Farms made a motion to dismiss, and plaintiffs filed a motion to file a supplemental brief.

Motion to file supplemental brief. As a preliminary matter, the motion for leave to file a supplemental brief was denied. While plaintiffs argued that the motion was the result of their receipt of "new information" from a Freedom of Information Act request, the court found that the attempted injection of new information, or facts, runs afoul of the Third Circuit precedent holding that a complaint may not be amended by the briefs in opposition to a motion to dismiss.

New Jersey Consumer Fraud Act. In order to state a claim under the New Jersey Consumer Fraud Act, plaintiffs must demonstrate (1) unlawful conduct by Perdue Farms, (2) an ascertainable loss to the plaintiffs, and (3) a casual connection between the unlawful conduct and the ascertainable loss.

Regarding the "Humanely Raised" claims, the court held that plaintiffs pled sufficient facts that the audit checklist Perdue utilized in its PVP program was analogous to that of the industry standard; pled a plausible claim that Perdue Harvestland Chickens were treated in a similar manner as other mass produced chickens; properly limited their claims to reflect only Harvestland chicken products; and showed a plausible claim that a reasonable consumer may believe that the slaughtering process is encompassed by Perdue’s Humanely Raised label.

Plaintiffs also sufficiently alleged that the USDA Process Verified label, in concert with the "Humanely Raised" label, created the impression that an unbiased third party certified Perdue’s claims. An Internet survey referenced in the complaint supported the contention that the Havestland chickens were "approved and endorsed" by the U.S.D.A. The survey contended that 58% of consumers believed that the U.S.D.A. Process Verified shield meant that the company met standards for the treatment of chickens developed by the U.S.D.A.

Fraud in the inducement. Perdue moved to dismiss the fraud in the inducement claim, arguing that common law fraud involves a more onerous standard than a claim for fraud under the New Jersey Consumer Fraud Act. The elements of common law fraud are (1) a material misrepresentation of a present or past fact; (2) knowledge of falsity; (3) an intention that the other person rely on it; (4) reasonable reliance by the other person; and (5) resulting damages.

In this case, plaintiffs alleged that statements regarding the humane treatment of chickens were material misrepresentations, that Perdue was aware of their falsity, that Perdue intended consumers to rely on these statements and pay more for the "premium" brand; and that they themselves relied on the misrepresentations to their detriment in paying the higher price for humanely raised chickens.

For purposes of the motion to dismiss, the court held that the plaintiffs sufficiently pled fraud in the inducement.

Negligent misrepresentation. A claim for negligent misrepresentation requires a plaintiff to establish that the defendant made an incorrect statement, which was justifiably relied upon, causing economic loss. For the same reasons supporting the New Jersey Consumer Fraud Act and fraud in the inducement claims, the court found that the plaintiffs pled sufficient facts for their negligent misrepresentation claim to withstand a motion to dismiss.

Breach of express warranty. The elements of breach of express warranty are (1) a contract between the parties, (2) a breach of contract, (3) damages flowing from the breach, and (4) the party stating the claim performed its own contractual obligations. The court found that the plaintiffs sufficiently alleged that the Humanely Raised label on the Harvestland products created an express warranty; that the treatment given the chickens breached the contract; that the plaintiffs paid more for the Harvestland chicken; and that plaintiffs performed their obligations by paying the purchase price of the chicken.

Saturday, April 06, 2013

$571 Million Settlement Approved in TFT-LCD Indirect Purchaser Action

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

The federal district court in San Francisco has given final approval to a $571 million settlement on behalf of indirect purchasers of thin-film transistor liquid crystal display (TFT-LCD) panels (In Re: TFT-LCD (Flat Panel) Antitrust Litigation, March 29, 2013, Illston, S.)

The settlement resolves antitrust claims against TFT-LCD panel producers AU Optronics Corporation (AUO), Toshiba Corporation, and LG Display brought by a class of retail purchasers who bought products containing TFT-LCD panels and eight states.

The court also approved attorney fees, expenses, and incentive awards. Combined with an earlier settlement with other producers, which was approved in July 2012, the total payments exceed $1 billion.

The indirect purchaser plaintiffs alleged a “long-running conspiracy extending from at least January 1, 1999 through at least December 31, 2006, at a minimum, among defendants and their co-conspirators, the purpose and effect of which was to fix, raise, stabilize, and maintain prices for LCD panels sold indirectly to Plaintiffs and the members of the other indirect-purchaser classes . . . .” They sought equitable relief under federal antitrust law, as well as restitution, disgorgement, and damages under the antitrust, consumer protection, and unfair competition laws of 23 states.

The eight settling states—Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia, and Wisconsin—asserted claims arising from indirect purchases made by governmental entities, and/or by consumers of TVs, notebook computers, and monitors containing LCD panels under each settling state’s parens patriae authority, proprietary claims, and enforcement authority pursuant to both federal and state law.

The settlement was found to be fair, adequate, and reasonable. The settling defendants agreed to pay a total of $571 million under the approved deal. The settling states will be paid $27.5 million in resolution of their civil penalties claims. The remaining $543.5 million represents consumer redress. The breakdown of total settlement payments by the defendants is as follows: AUO—$170 million; LG—$380 million; and Toshiba—$21 million.

In addition to the monetary relief, all three producers agreed to establish an antitrust compliance program. AUO and LG also agreed, for a period of up to five years, not to engage in price fixing, market allocation, bid rigging, or other per se antitrust violations with respect to the sale of any LCD panels sold to end-user purchasers in the United States.

Objections to settlement. The court rejected objections to the settlement raised by the States of Illinois, South Carolina, and Washington. The crux of their objections was that the indirect purchaser plaintiffs were risking the class members’ recovery by pursuing injunctive but not monetary relief. Generally, a class action suit seeking only declaratory and injunctive relief does not bar subsequent individual suits for damages, the court noted. The states were not entitled to the exclusion of their citizens from the class.

In addition, the court noted that the defendants had represented that the release of the injunctive class claims would not affect damages actions by states which were not within one of the defined indirect purchaser plaintiff damages classes, even if they were included in the nationwide injunctive relief class. This included the parens patriae claims by states that were not part of an indirect purchaser plaintiff damage class.

Attorney fees, expenses. The court approved the request of indirect purchaser plaintiff (IPP) class counsel for a fee award of $308,225,250, representing 28.6% of the settlement fund, and $8,736,131.43 in expenses. According to the court, “the ultimate result achieved by IPP counsel, a settlement of approximately $1.08 billion in cash, is exceptional.” The court found the award to be “proper and fair in light of the amount and quality of the work done by the attorneys in this case.”

An award of $11,054,191 as attorney fees for the settling states also was approved. These states were entitled to a total of $1,206,479 in expenses. The court denied fees sought by attorneys representing separate objectors or groups of objectors.

Incentive awards. Lastly, the court approved a total amount of $660,000 for incentive awards. An award of $15,000 for each of the 40 court-appointed class representatives and $7,500 for each of the eight additional named plaintiffs was deemed appropriate.

The litigation is No. M 07-1827 SI (MDL. No. 1827).

Attorneys: Joseph M. Alioto, Sr. (Alioto Law Firm) for Indirect Purchaser Plaintiffs. John C. McGuire (Sedgwick, Detert, Moran & Arnold) for AU Optronics Corp.

Monday, March 25, 2013

Law School May Be Liable For Misrepresenting Employment Statistics

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

Law school alumni stated New Jersey and Delaware Consumer Fraud Act claims against an American Bar Association (“ABA”) accredited law school for misrepresenting its graduate employment rates, according to the federal district court in Newark (Harnish v. Widener University School of Law, March 2013, Walls, W.).

After having problems obtaining employment, the alumni alleged that the law school posted on its website and disseminated to third-party law school evaluators misleading and incomplete graduate employment rates in violation of consumer protection statutes. Specifically, the alumni claimed that the employment statistics were misleading because the school failed to disclose that its placement rate included full and part time legal, law-related and non-legal positions. Alumni that were not looking for work were not counted.

The alumni stated New Jersey Consumer Fraud Act (NJCFA) claims against the law school, according to the court. The NJCFA allows for claims based on advertisements that are literally, but still misleading to the average consumer. The function of the website was to persuade students to attend the school in order to receive a legal degree. A reasonable viewer of the employment statistics on the school’s website could believe that the employment statistics referred to legal jobs and did not include non law-related or part-time employment. The court differentiated this case from similar cases against other law schools in Michigan and New York that held that reasonable consumers would believe the employment statistic included all employed graduates, not just those who obtained or started full-time legal positions. While the thread of plausibility may be slight, it was still a thread, according to the court.

The claims based on alleged omissions were plausible, according to the court. The alumni alleged that the law school engaged in a pattern and practice of knowingly and intentionally making numerous false representations and omissions of material facts, with the intent to deceive and fraudulently induce reliance. The employment rate was misleading because the law school failed to include notice that the employment rate refers to all types of employment, that it did not specifically refer to law-related employment, and that the rate may have been inflated by selectively disregarding employment data.

The court found that the alumni suffered an ascertainable loss. To demonstrate a loss, a victim must simply supply an estimate of damages, calculated within a reasonable degree of certainty. The injury alleged was the difference between the inflated tuition paid based on the material representations that approximately 90-95 percent of graduates are employed within nine months of graduation and the true value of a degree. The injury was proximately caused by the law school.

The facts supporting the NJCFA also supported claims under the Delaware Consumer Fraud Act.

Monday, March 18, 2013

Publisher Could Not Base False Advertising Action on Newspaper’s Inflated Circulation Claims

This posting was written by John W. Arden.

A newspaper’s inflated circulation claims could not form the basis of a Lanham Act false advertising action brought by the publisher of a free television guide because the publisher did not begin soliciting advertisers until after the newspaper publicly acknowledged its misstatements and revised its circulation claims and because the inflated circulation figures were not part of a commercial campaign, according to the federal district court in Central Islip, New York (Conte v. Newsday, Inc., March 13, 2013, Bianco, J.).

Background. In December 2003, Anthony Conte founded I Media, which published and distributed TV Time Magazine, a free, weekly television listings publication containing articles and features relating to television, as well as crossword puzzles, cartoons, and word games. I Media was financed in large part through the sale of delivery routes to independent distributors. TV Time was published from November 2004 through May 2005.

In the summer of 2004, Conte learned, from a story on the Internet, that Newsday newspaper had misstated its circulation figures for 2002 and 2003. The newspaper issued a press release to that effect on June 17, 2004. The newspaper’s parent, Tribune Publishing, announced the revision of Newsday’s circulation figures for 2003 and 2004 on September 10, 2004. It also sent a letter informing Newsday’s advertisers of the revised figures.

Conte spoke with potential clients about paying to advertise in TV Time only after the date that he learned about Newsday’s circulation misstatements, sometime in February or March of 2005, the court found. However, he claimed to have spoken with a long list of potential clients about advertising in TV Time throughout 2003 and 2004, before he learned of the circulation misstatements.

Newsday had its own television-related publication, called TV Picks, which was published as a stand-alone magazine and distributed inside the Sunday editions of Newsday. In February 2004, Newsday started to include TV Picks in the pages of the newspaper, but later that spring resumed printing it as a stand-alone magazine.

In late May or June of 2005, some of Conte’s route distributors allegedly contacted Newsday reporter Mark Harrington, who researched and wrote stories about Conte. Newsday editors and executives testified that they did not authorize or instruct Harrington to conduct the investigation. On August 2, 2005, thirty-three route distributors filed a class action in Nassau County, alleging that I Media was a scheme perpetrated by Conte to defraud them of the money they paid for their delivery routes. Harrington received a copy of the distributors’ complaint and published an article about Conte in Newsday on September 7, 2005, along with a follow up on September 14, 2005.

In September 2006, Conte brought this action, claiming that Newsday and Conte’s distributors violated federal RICO, the Lanham Act, the Sherman Act, and the Electronic Privacy Act and committed various state law torts in attempting to monopolize and dominate the print advertising sales and pre-printed, free standing insert distribution sales markets on Long Island. The court dismissed the RICO, Sherman Act, and Electronic Privacy Act claims, as well as some state law claims in March 2010. In March 2012, the Newsday defendants filed a motion for summary judgment with respect to the Lanham Act claims.

Lanham Act False Advertising Claims

Conte had alleged that Newsday’s inflated circulation figures constituted false advertising in violation of Section 43(a) of the Lanham Act, inducing advertisers to purchase space from Newsday rather than TV Time and causing a direct loss of print advertising and insert distribution service sales. The court, however, granted Newsday’s motion for summary judgment, holding that (1) Conte lacked standing to bring the Section 43(a) claims and (2) the report of the inflated circulation figures was not commercial advertising, promotion, or commercial speech under the Lanham Act.

Section 43(a) of the Lanham Act prohibits false representations in advertising about the qualities of goods and services. To establish a false advertising claim, a plaintiff must prove that (1) the defendant made a false or misleading statement, (2) the false or misleading statement actually deceived or had the capacity to deceive a substantial portion of the intended audience, (3) the deception was material as likely to influence purchasing decisions, (4) there was a likelihood of injury to the plaintiff, such as declining sales or loss of goodwill, and (5) the goods traveled in interstate commerce.

The court noted that it was undisputed that a false or misleading statement was made by Newsday and that the inflated circulation figures were operating in the marketplace until June 17, 2004, when Newsday publicly reported that the figures were incorrect.

Standing to sue. The uncontroverted evidence indicated that I Media’s TV Time and Newsday’s TV Picks were not in competition during the period when Newsday’s inflated circulation figures were operative in the marketplace—that is, prior to June 17, 2004. Conte had not yet released TV Time to the public. Because Conte’s TV Time was not obviously in competition with Newsday’s products during the period when Newsday misstated its circulation figures, Conte was required to make a more substantial showing of injury and causation to establish standing to bring a false advertising action. While Conte’s stated injury related to his advertising efforts, the uncontroverted evidence showed that Newsday’s circulation-related misstatements were retracted before Conte started to actively solicit advertisers for TV Time.

A further claim that the inflated circulation figures were in effect during a time when Conte attempted to solicit advertisers for TV Week, a prior publication, was unavailing on the ground that Conte failed to establish a likelihood of injury and causation.

Deceptive advertising. Conte’s deceptive advertising claim—alleging that the Newsday defendants repeatedly disseminated false material statements about its business, goodwill, and reputation—failed on the ground that there was no evidence that the Newsday defendants misrepresented Conte’s goods as part of a commercial campaign. Section 43(a) of the Lanham Act imposes liability on any person who misrepresents the nature, characteristics, qualities, or geographic origin of another person’s goods or services in commercial advertising or promotion. To be actionable, the misrepresentation must occur in “commercial advertising or promotion.”

In this case, Harrington’s articles could not give rise to a Lanham Act deceptive advertising claim, since articles published by journalists are not considered “commercial advertising, commercial promotion, or commercial speech.” Such articles are traditionally granted full protection under the First Amendment, the court observed.

To survive summary judgment, Conte was required to produce sufficient evidence for a reasonable jury to conclude that the Newsday defendants made other allegedly false statements as part of an organized campaign to penetrate the market. However, he failed to identify any concrete, allegedly deceptive statements about his product or commercial activities. Even assuming that there was evidence that Newsday employees or agents made deceptive statements about Conte or his company, no rational juror could conclude that the statements were made as part of an organized campaign to penetrate the relevant market, the court concluded.

Conte’s further claim that Newsday committed trade dress infringement was rejected on a finding that TV Time’s trade dress—consisting of “a glossy paper cover,” particular fonts and font sizes, and an advertising footer—was not worthy of protection.

Thursday, March 14, 2013

New York City’s Restriction on Size of Sugary Drinks Held Unconstitutional

This posting was written by John W. Arden.

In adopting a health regulation limiting the sale of “sugary drinks” to containers no larger than 16 ounces, the New York Board of Health unconstitutionally overstepped its authority under the New York City Charter, according to the New York Supreme Court, New York County (New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, March 11, 2013, Tingling, M.). Only the New York City Council has the authority to limit or ban a legal item under the guise of “controlling chronic disease,” as the Board attempted to do in this regulation.

In addition, the regulation was invalidated for being arbitrary and capricious because it covered some food establishments but not others, excluded some beverages that have higher concentrations of sugar and calories than those regulated, and did not limit refills.

A large number of seemingly disparate parties brought a challenge to the “Portion Cap” regulation—from the Korean-American Grocers Association and the National Restaurant Association to the Soft Drink and Brewery Workers Union and the American Beverage Association. They were granted an order enjoining and permanently restraining the Board of Health and other administrative agencies from implementing or enforcing §81.53 of the new York Health Code and declaring the regulation unconstitutional in violation of the separation of power doctrine.

Background. According to the New York City Charter, the Board of Health may supervise and regulate the food supply of the city when it affects public health, but only when the city is facing imminent danger due to disease, the court ruled. Such a danger was not demonstrated in this case.

Dating back to its inception in 1698, the Board of Health has had very broad powers under the New York City Charter. However, in reviewing the history of the Charter, the intention of the legislature was clear: “It is to protect the citizens of the city by providing regulations that prevent and protect against communicable, infectious, and pestilent diseases.”

The Board may supervise and regulate the food supply of the city when it affects public health, but the Charter’s history clearly illustrates that such steps may be taken only when the city is facing imminent danger due to disease.

Separation of powers. While the Board contended that it was protected by the state constitution from the impact of any separation of powers challenge, the court disagreed. “One of the fundamental tenets of democratic governance here in New York, as well as throughout the nation, is the separation of powers. No one person, agency, department or branch is above or beyond this.” Even if the court were to entertain the position that the state legislature meant to provide a broad delegation of power to the Board, such a delegation would not pass muster under the separation of powers doctrine, the court concluded.

The seminal case in the area—Boreali v. Axelrod, 71 N.Y.2d 1 (1987)—involved the New York Public Health Council’s adoption of an ordinance banning indoor smoking in certain establishments after the state legislature had failed to pass a similar smoking ban. The legislature had already passed a measure imposing smoking restrictions in a narrow class of public locations, but the Public Health Council argued that the legislature did not preempt the field with regulation. The Court of Appeals found that the Public Health Council had entered the domain of the legislature and exceed its administrative mandates and authority.

The court in the present case applied the four Boreali factors: (1) whether the challenged regulation was based on concerns not related to the stated purpose of the regulation, such as economic, political, or social concerns; (2) whether the regulation was created on a clean slate, thereby creating its own comprehensive set of rules without the benefit of legislative guidance; (3) whether the regulation intruded on ongoing legislative debate; and (4) whether the regulation required the exercise of expertise or technical competence on behalf of the body passing the legislation.

With regard to the first factor, the court found that the regulation was “laden with exceptions based on economic and political concerns.” These included retail food stores, food processing establishments, and congregations, clubs, or fraternal organizations. The rule failed the second factor because the Board of Health was not granted the sweeping and unbridled authority to define, create, authorize, mandate, or enforce the regulation at issue. The third factor—whether the regulation intruded on legislative debate—was satisfied by the City Council’s rejection of three resolutions specifically targeting sugar sweetened beverages and the state legislature’s failure to pass three bills on the subject. Under the fourth factor, the regulation was a simple rule that was proposed by the mayor’s office and adopted by the Board without any substantive changes. Thus, the court held that the Board of Health exceeded its authority under Boreali v. Axelrod.

Arbitrary and capricious rule. The regulation was further challenged under Article 78 of the New York Code of Civil Practice Laws and Rules. An administrative regulation is upheld under this Article only if it has a rational basis and is not unreasonable, arbitrary, and capricious. In this case, the court found the regulation “fraught with arbitrary and capricious consequences,” with loopholes effectively defeating its stated purpose.

“It is arbitrary and capricious because it applies to some but not all food establishments in the City, it excludes other beverages that have significantly higher concentrations of sugar sweeteners and/or calories on suspect grounds, and the loopholes inherent in the Rule, including but not limited to no limitations on refills, defeat and/or serve to gut the purpose of the Rule,” the court observed.

Wednesday, March 13, 2013

T-Mobile/MetroPCS Merger Receives Regulatory Approval

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

The combination of T-Mobile USA Inc. and MetroPCS Communications Inc. has been approved by both the Federal Communications Commission (FCC) and the Department of Justice Antitrust Division without divestitures or similar conditions. Today, the FCC released its Memorandum Opinion and Order, finding the transaction to be in the public interest. The Antitrust Division also issued a statement, saying that it had closed its investigation after concluding that the combination was unlikely to harm consumers or substantially lessen competition.

T-Mobile is one of four nationwide providers of mobile wireless services. The three others are AT&T, Verizon, and Sprint.

MetroPCS is the fifth-largest mobile wireless telecommunications provider in the United States; however, it provides services in only certain regions of the country. Each of the markets served by MetroPCS is also served by all four of the national carriers.

Last October, Deutsche Telekom, parent of T-Mobile, and MetroPCS announced that they had signed a definitive agreement to combine T-Mobile and MetroPCS. The parties said the transaction would “create the leading value carrier in the U.S. wireless marketplace.”

The announcement of the T-Mobile/MetroPCS deal came less than a year after plans for AT&T Inc. to acquire T-Mobile from Deutsche Telekom were abandoned in the face of a Justice Department challenge. The FCC staff also had concluded that the AT&T/T-Mobile transaction raised a number of potential public interest harms.

Regulators quickly approved this latest deal. The parties announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on March 5. The wireless license transfer between T-Mobile and MetroPCS was approved before the expiration of the FCC's180-day deadline.

In its statement announcing the closure of its investigation, the Antitrust Division said that it considered whether the proposed combination might tend to lessen competition substantially in any particular local area, for instance by combining the two carriers with the best local coverage. However, it decided that the deal was not likely to lessen competition substantially at local levels.

The Justice Department also noted that many dimensions of competition in the mobile wireless industry take place at a national level, including plan pricing, device offerings, and network technology. “Like many local and regional providers, MetroPCS faces limitations, stemming from its lack of nationwide spectrum, networks and scale, and therefore exerts little influence on these aspects of mobile wireless competition,” the Justice Department said.

The Justice Department went on to say that the proposed combination of T-Mobile and MetroPCS might have a procompetitive impact in that it would improve T-Mobile’s scale and spectrum position, particularly since MetroPCS’s spectrum holdings are compatible with T-Mobile’s existing network. In any event, the Justice Department pledged to continue monitoring competition in the mobile wireless industry and to bring enforcement actions where warranted.

FCC Chairman Julius Genachowski said the agency's approval of the transaction “will benefit millions of American consumers and help the U.S maintain the global leadership in mobile it has regained in recent years.”

In a statement, T-Mobile President and CEO John Legere said that the company “look[s] forward to completing the transaction and delivering the significant customer and stockholder benefits that this combination will make possible.” A special meeting of MetroPCS stockholders to vote on matters relating to the proposed combination is set for April 12.

Friday, March 08, 2013

European Commission Fines Microsoft for Noncompliance with Browser Choice Commitments

This posting was written by William Zale, contributor to Antitrust Law Daily.

The European Commission announced on March 6 that it has imposed a €561 million fine on Microsoft for failing to comply with its commitments to offer users a browser choice screen enabling them to easily choose their preferred web browser.

In statement issued today, Microsoft said, “We take full responsibility for the technical error that caused this problem and have apologized for it. We provided the Commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake—or anything similar—in the future.”

In 2009, the Commission had made Microsoft’s browser choice commitments legally binding until 2014. The Commission found that Microsoft failed to roll out the browser choice screen with its Windows 7 Service Pack 1 from May 2011 until July 2012. 15 million Windows users in the EU did not see the choice screen during this period.

Until November 2010, 84 million browsers were downloaded through the choice screen, according to the Commission. When the failure to comply was detected and documented in July 2012, the Commission opened an investigation and, before taking a decision, notified to Microsoft its formal objections in October 2012.

Under Article 9 of the EU’s Antitrust Regulation, the Commission may conclude an antitrust investigation by making legally binding the commitments offered by the companies concerned. Such an Article 9 decision does not conclude that there is an infringement of EU antitrust rules and does not impose a sanction. However, it legally binds the companies concerned to comply with the commitments. If a company breaks such commitments, Article 23(2) of the Antitrust Regulation empowers the Commission to impose fines of up to 10% of its total turnover in the preceding business year.

Thursday, March 07, 2013

Supreme Court Considers Enforceability of Arbitration Clause’s Class Action Waiver in Antitrust Case

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

The U.S. Supreme Court heard arguments yesterday regarding whether merchants alleging an antitrust violation by American Express Company are able to vindicate their rights under the Sherman Act if they are required to pursue individual arbitration. The Supreme Court Justices appeared divided on the issue, and a unanimous decision like the Court’s recent holding in FTC v. Phoebe Putney Health System, Inc. appears unlikely (American Express Co. v. Italian Colors Restaurant, Dkt. 12-133).

At issue is a decision of the U.S. Court of Appeals in New York City (667 F.3d 204, 2012-2 Trade Cases ¶78,125), holding unenforceable a class action waiver contained in the mandatory arbitration clause of their commercial contracts with American Express. American Express had invoked the clause in response to a lawsuit by the merchants challenging a purported illegal tying arrangement requiring merchants who accepted American Express’s charge card to also accept all of American Express’s credit cards. The Court granted the petition for certiorari on November 9, 2012.

Complaining merchants had argued that the arbitration agreement would prevent them from pursuing their Sherman Act claims against American Express because they would have to pay prohibitively high costs to engage in individual arbitration when compared to their possible recoveries. It was estimated that an expert could cost as much as $300,000.

“The holding of the court of appeals is the arbitration agreement cannot be enforced because it has a class action waiver,” said Michael K. Kellogg, arguing on behalf of American Express at the February 27 proceeding. “That is clearly reversible error.”

Kellogg objected to the idea of federal district courts conducting a “free-floating inquiry . . . into the costs and benefits of each case” when determining whether to refer cases to arbitration. “The arbitrator in the first instance can deal with how to cost effectively arbitrate the claims in issue,” he added.

According to Paul D. Clement, who argued for the merchants, the problem with the arbitration agreement is that it precludes the antitrust claim from going forward. “Here it's a combination of no class arbitration, no way to shift costs, because they don't provide cost shifting, and no way to share costs because of the confidentiality,” Clement contended.

Justice Elena Kagan appeared to sympathize with the merchants. She noted that potential claimants need economic evidence to help them prove their claims. “[I]t is, of course, true in the real world that to prove a successful antitrust claim, you need economic evidence,” Justice Kagan said.

Clement pointed out that Professor Herb Hovenkamp, in a friend-of-the court brief, said that claimants, in arbitration or litigation, need a market power expert to make their antitrust case. According to Clement, it would be too costly for a single merchant to hire such an expert in individual arbitration and to effectively vindicate its claim.

Chief Justice John Roberts questioned whether the arbitration agreements permitted or prohibited the complaining merchants from pooling resources to get the expert advice they needed. He pondered whether the merchants could get together through a trade association and prepare an antitrust expert report about what American Express was doing.

“Our position is that multiple claimants in arbitration could share the costs of an expert for preparation of a report,” said Kellogg in response.

Justice Antonin Scalia suggested that the merchants faced with arbitrating their antitrust claims individually would be in the same position as plaintiffs were before class actions were permissible.

“I don't see how a Federal statute is frustrated or is unable to be vindicated if it's too expensive to bring a Federal suit,” Justice Scalia said. “That happened for years before there was such a thing as class action in Federal courts. Nobody thought the Sherman Act was a dead letter, that it couldn't be vindicated.”

“If you couldn't do it in court, you don't have to be able to do it in arbitration, it seems to me,” Justice Scalia said.

Justice Ruth Bader Ginsburg pointed out, however, that “even in the days before we had Rule 23, when you were bringing a suit in Federal court you could have multiple plaintiffs joining together.” Under the arbitration agreement at issue, the arbitration needed to be one on one. Joinder mechanisms were prohibited.

Attorneys: Michael K. Kellogg (Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC) for American Express Co. Paul D. Clement (Bancroft PLLC) for Italian Colors Restaurant.

Thursday, February 14, 2013

Insurer States RICO Claim Against Personal Injury Scammers; Counterclaim Too Bare to Survive

This posting was written by E. Darius Sturmer, contributor to Antitrust Law Daily.

A physician and a pair of physical therapy clinics, along with their principals, could have violated the federal RICO Act by orchestrating an alleged scheme to defraud State Farm Mutual Automobile Insurance Co. through the filing of claims for physical therapy services that were medically unnecessary or not actually performed, the federal district court in Ann Arbor, Michigan has decided (State Farm Mutual Automobile Insurance Co. v. Physiomatrix, Inc., February 12, 2013, O’Meara, J.).

A motion to dismiss filed by the defendants was denied, while motions by State Farm and two of its employees to dismiss the defendants’ RICO counterclaims was granted. Michigan’s Commissioner of Insurance, Kevin Clinton, and Secretary of State Ruth Johnson were also entitled to dismissal of a declaratory judgment action filed by the defendants, seeking to force them to order State Farm to cease its allegedly illegal conduct and suspend, revoke, or limit the insurer’s authority to act in Michigan.

In the suit, State Farm alleged that the defendant physician provided fraudulent diagnoses and prescriptions to patients who had been involved in motor vehicle accidents and were eligible for Personal Injury Protection (PIP) benefits under State Farm policies. These allowed them to obtain unnecessary physical therapy treatment at the defending clinics. The defendants’ counterclaims asserted that State Farm and two of its employees had violated their civil rights and federal RICO by fraudulently issuing blanket denials of legitimate PIP claims.

McCarran-Ferguson Act Preemption

At the outset, the court rejected an argument by the defendants that State Farm’s RICO claims were reverse preempted by the McCarran-Ferguson Act. The Act provides that “[t]he business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.” There was no need to undertake an analysis of whether the conduct constituted the business of insurance, the court said, because the application of RICO would not impair Michigan’s No-Fault Act.

There was no legal authority suggesting that the insurance code had abrogated a common law action for fraud. State Farm did not have an “exclusive remedy” under the Michigan Insurance Code for fraud that would conflict with the application of RICO, and there was no evidence that the application of RICO would impair the state’s regulatory scheme. To the contrary, RICO augmented Michigan’s regulatory scheme.

Adequacy of plaintiff’s RICO Claim. State Farm adequately pleaded a claim for violation of 18 U.S.C. §1962(c) of the RICO Act, the court ruled. The insurance company sufficiently alleged the existence of a RICO enterprise and the defendants’ participation in it. It described the purpose of the conspiracy, the relationships between those associated with the enterprise, and sufficient longevity (from 2007 to the present) to permit the enterprise’s purpose. Addressing the claims specifically in the context of the defending physician’s motion, the court noted State Farm’s further allegation that the physician’s role was essential to the success of the scheme, given state laws requiring prescriptions for physical therapy services.

In addition, the court rejected the defendants’ contention that State Farm failed to plead mail fraud with particularity. The insurer’s providing of attachments to the complaint listing the claims at issue, examples of the physicians’ allegedly fraudulent disability certificates, and his initial examination findings, together with its specification of the overall fraudulent scheme in the complaint, sufficed to satisfy the pleading requirements of Federal Rule of Civil Procedure 9(b).

Defendants’ RICO Counterclaim

The defendants’ RICO counterclaim against State Farm and its employees—which contended that the insurer, its employees, and purported “independent” medical examiners conspired to wrongfully issue automatic claim denials—could not similarly survive dismissal, in the court’s view. The claim, which was essentially that State Farm did not remit payment as required under its insurance policies sounded in contract, not fraud, the court noted.

The countercomplaint alleged that in 2011, the insurer and its co-conspirators commenced their predetermined pattern of activity to wrongfully deny each and every claim submitted through the two physical therapy clinics. This consisted of issuing, through the United States Mail, form ‘investigation letters’ at various stages of the claim process and then predetermined explanation-of-benefit letters, all of which contained false and misleading information and statements as to the propriety of the charges sought to be paid to the clinics.

The clinics alleged that the information contained in the investigation letters implying a basis to deny claims and the information denying such claims “was false, was false when made, and was known by the author of such letters to be false when made.” They did not specify, however, what “information” in the investigation letters or explanation of benefit letters was false. Nor did they specify the claims that State Farm had allegedly fraudulently denied. Such bare allegations of fraud did not satisfy Rule 9(b)’s particularity requirement and did not sufficiently allege predicate acts of racketeering to state a claim under RICO, the court concluded.

Further details will appear in RICO Business Disputes Guide. Further information regarding the Guide appears here.

Tuesday, February 12, 2013

Michigan Motor Dealers Act Amendments Do Not Apply Retroactively to Require Prior Notice of Opening New Dealership

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

Kia Motors may open an automobile dealer within nine miles of an existing Michigan dealership without providing notice to the dealer, despite a 2010 amendment to Michigan’s Motor Dealers Act requiring manufacturers to provide notice and an opportunity to bring a declaratory judgment action to dealers within nine miles of the new dealer, the U.S. Court of Appeals in Cincinnati has ruled (Kia Motors America, Inc. v. Glassman Oldsmobile Saab Hyundai, Inc., February 7, 2013, McKeague, D.).

Kia and the Michigan dealer entered into their dealer agreement in 1998, when the statute specified a six-mile zone requiring notice rather than a nine-mile zone, and the amendment did not apply retroactively.

Glassman Oldsmobile Saab Hyundai, Inc. is a Southfield, Michigan automobile dealer. In 1998, Kia and Glassman entered into a nonexclusive Dealer Sales and Service Agreement appointing Glassman as an authorized Kia dealer. The agreement stated that “[a]s permitted by applicable law, [Kia] may add new dealers to, relocate dealers into or remove dealers from the [Area of Primary Responsibility] assigned to [Glassman].”

In 1998, Michigan’s Motor Dealers Act required manufacturers to provide written notice to existing dealers within six miles of a proposed new dealer before establishing the dealer, and permitted the existing dealer to bring a declaratory judgment action within thirty days of receiving notice “to determine whether good cause exists for the establishing or relocating of” the proposed new dealer. In 2010, the Michigan legislature amended the Act to extend this zone to nine miles from existing dealers.

Shortly after the amendment became effective, Kia informed Glassman that it intended to establish a new dealer in Troy, Michigan, about seven miles from Glassman. Glassman protested the lack of written notice from Kia, and Kia filed an action for a declaratory judgment that the 2010 amendment did not require it to give notice to Glassman.

The district court granted summary judgment to Kia, concluding that the amendment did not operate retroactively to require Kia to give notice. Glassman appealed.

Contract Argument

On appeal, Glassman contended that the parties had intended to incorporate changes to the law, such as the 2010 amendment, by including the “as permitted by applicable law” language. The appeals court initially noted that the language might not apply to this case, since the language limited Kia’s ability to establish new dealers within Glassman’s “Area of Primary Responsibility,” a term distinct from the “relevant market area” term in the Act. Kia had stated that the new dealer would not be established within Glassman’s “Area of Primary Responsibility.”

Even if it did apply, however, the court observed that changes to the law are generally not incorporated into an agreement unless the language of the agreement clearly indicates the intent of the parties to include such changes. Since “as permitted by applicable law” could refer to the provision of the Act in effect when the contract was signed as easily as it could refer to the current provision, the language did not clearly indicate the intent of the parties to incorporate changes in the law.

Glassman also argued that the 2010 amendment should apply, since other provisions in the agreement required Glassman to comply with applicable consumer-protection, safety, and emission-control laws, and since Kia agreed that those provisions required Glassman to comply with current laws as well as those in effect when the agreement was signed. However, the court of appeals observed that those provisions referred to Glassman’s responsibilities to the general public, and did not “significantly change the parties’ bargain.” Since the dealer establishment provision “directly concern[ed] the relationship between Kia and Glassman,” it differed fundamentally from the other provisions, in the court’s view.

Statutory Argument

Having determined that the agreement did not include the 2010 amendment, the court proceeded to address whether the Michigan legislature intended the 2010 amendment to apply retroactively. The court noted that Michigan statutes are generally presumed to operate only prospectively “unless the contrary intent is clearly manifested.” However, procedural statutes that “neither create new rights nor destroy, enlarge, or diminish existing rights are generally held to operate retrospectively unless a contrary legislative intent is manifested.”

Since the legislature had not manifested a clear intent for the amendment to apply retrospectively, the only issue was whether the amendment was substantive or procedural. Glassman had argued that the amendment was procedural “because it constituted a minor change to the definition of relevant market area,” and did not “create new substantive rights.” However, the court concluded that the amendment, by requiring Kia to provide notice if it established a dealer more than six miles from an existing dealer, did impose a new duty on Kia, and “provide[d] a new substantive right that did not previously exist.”

The court also rejected an argument that, since Kia was intending to establish a new dealer after the 2010 amendment, the amendment would not have to be applied retrospectively, finding that the amendment would “affect[] Kia’s rights under a contract that predates the amendment.”

In addition, the court noted that its decision would permit it to avoid the constitutional question whether applying the 2010 amendment retroactively would violate the Contracts Clauses of the United States and Michigan Constitutions. The court therefore concluded that the 2010 amendment should not be applied retroactively to the agreement, and affirmed the district court’s grant of judgment on the pleadings to Kia.

Saturday, January 26, 2013

Subway Sued For Misrepresenting Length of “Footlong” Sandwiches

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

A Subway customer filed a nationwide class action lawsuit in the federal district court in Chicago, alleging that Subway violated the consumer protection statutes of all 50 states and the District of Columbia, after measuring a “Footlong” sandwich purchased from Subway and realizing it was less than 11 inches long (Buren v. Doctor’s Associates, Inc., No. 1:13-cv-00498, January 22, 2013).

Subway advertises and sells submarine sandwiches labeled as “Footlong” subs. The complaint alleges that, because the actual length of the sandwiches falls short of 12 inches, customers pay more than they should have in reliance on Subway’s advertising. Advertising on television, in print, on the radio, and on the Internet allegedly misleads consumers into believing that they are receiving a 12-inch sandwich when they actually receive less.

In marketing and advertising materials, Subway references the length of the “Footlong” subs by having actors or artists’ renderings hold their hands approximately one foot apart, and includes a graphic between the actors’ hands indicating that the hands are one foot apart.

The customer, Nguyen Buren, alleged a class action on behalf of “All persons in the United States who purchased SUBWAY® ‘Footlong’ submarine sandwiches that were less than 12 inches long.”

The complaint sought to enjoin Subway from using the allegedly deceptive advertising and requested restitution, actual damages, treble damages, punitive damages, attorney fees, and costs of suit.

Other Lawsuits

Similar lawsuits have been filed in the Court of Common Pleas in Philadelphia County and in New Jersey Superior Court, Burlington County.

The Pennsylvania complaint alleges a state-wide class action brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) “over identical, false, affirmative misstatements of material fact and knowing material omissions made by Subway regarding its trademarked ‘Footlong’ sandwich” starting in January 2007 and continuing to the present (Roseman v. Subway Sandwich Shops, Inc., No. 130102647, January 24, 2013).

“The discrepancy in size between the uniform statements in Subway’s signs, menus and advertising regarding the size of this sandwich and the actual size of this sandwich is not an accident nor is it the result of any variation in size among such sandwiches,” the complaint charged. “Rather, Subway has admitted in communications with the press that this sandwich is made according to exacting, uniform procedures and specifications imposed by Subway upon its franchisees and stores, all of whom are required by Subway to use specified ingredients in specified amounts.”

The action “aims at obtaining redress under the Pennsylvania UTPCPL for those persons in Pennsylvania who received less than what they were promised when they purchased a ‘Footlong’ sandwich in Pennsylvania between January 24, 2007 and the present.” It asks the court to certify the class, enter an order for injunctive and declaratory relief, assess damages and trebled damages, and award attorney fees and costs.