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.