This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.
Despite the inclusion of a provision that arbitration must be conducted “on an individual, not a class-wide, basis” in its franchise agreements, a franchisor of pharmacies and 28 of its franchisees clearly and unmistakably agreed to submit questions of arbitrability to an arbitrator by incorporating the American Arbitration Association’s (AAA’s) Rules into their arbitration agreements, a federal district court in St. Louis has decided.
Thus, the court denied the franchisor’s motion to stay a collective arbitration claim filed by the franchisees and for an order compelling the franchisees to proceed with individual, bi-lateral arbitrations.
An arbitration clause in the parties’ agreements stated that all controversies, disputes, or claims "shall be heard by one arbitrator in accordance with the then current Commercial Arbitration Rules" of the American Arbitration Association (AAA). The clause thus incorporated the AAA’s Rules, the court held. The current version of AAA Rule 7(a) provides arbitrators with the authority to determine their own jurisdiction, and so the parties agreed to submit arbitrability questions to the arbitrator.
The franchisor argued that the arbitration clause also provided that the AAA Rules will apply “except as otherwise provided in this Agreement,” and pointed out that the clause expressly stated that arbitration must be conducted “on an individual, not a class-wide, basis.”
The franchisor contended that as a result of this language, the Rules did not vest in the arbitrator the power to interpret the requirement that the respondents arbitrate on an individual basis. However, there was no exception bearing on the applicability of Section 7(a) of the AAA Rules and, therefore, on the question of whether the parties agreed to submit questions of arbitrability to the arbitrator, the court ruled.
The franchisor’s argument that an arbitrator was without power to determine whether a collective arbitration may be allowed—because the arbitration clause stated that arbitration must be conducted “on an individual, not a class-wide, basis”—was unpersuasive. Whether this provision could be construed to prohibit or permit joinder or collective arbitration was a matter of contract interpretation. It was for the arbitrator to determine whether the clause was properly construed to prohibit or permit collective arbitration, in the court’s view.
The franchisor cited a recent Eighth Circuit case, Green v. Supershuttle Int’l, Inc. (Business Franchise Guide 2010-2011 New Developments Transfer Binder ¶14,673), in which the court enforced a franchisor’s class action waivers. However, Green was distinguishable from this case on several grounds, the court determined. Here, the franchisees sought to enforce the parties’ agreement to have questions of arbitrability resolved by an arbitrator, they did not challenge the class action waiver in the agreements based on state law or otherwise, and they have not filed a class-wide arbitration.
Unlike the plaintiffs’ argument in Green, the franchisees’ argument, that the issue of whether the agreement permitted joint or collective arbitration is for an arbitrator, has not been squarely rejected by the U.S. Supreme Court as a matter of law.
The decision is Medicine Shoppe Int’l, Inc. v. Edlucy, Inc., CCH Business Franchise Guide ¶14,822.
Friday, May 25, 2012
Wednesday, May 23, 2012
South Africa Sets Out Requirements for Franchise Agreements, Disclosure Documents
This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.
South Africa has adopted franchise regulations that became effective April 1, 2011. The regulations set out detailed requirements that must be contained in franchise agreements and in disclosure documents, which must be provided to a prospective franchisee at least 14 days prior to the signing of a franchise agreement.
Among the numerous requirements, “a franchise agreement must contain provisions which prevent: (i) unreasonable or overevaluation of fees, prices or other direct or indirect consideration; (ii) conduct which is unnecessary or unreasonable in relation to the risks to be incurred by one party; and (iii) conduct that is not reasonably necessary for the protection of the business interests of the franchisor, franchisee or franchise system.”
Numerous items of specific information are required, such as the obligations of each party, the duration of terms and renewal, and the particulars of the initial training and assistance to be provided the franchisee, among many others.
The disclosure document must contain the number of outlets franchised by the franchisor; the growth of the franchisor’s turnover, net profit, and the number of outlets franchised in the prior year; a statement on the franchisor’s financial position; and written projections of potential sales, income, or profits.
The regulations appear at CCH Business Franchise Guide ¶7246.
South Africa has adopted franchise regulations that became effective April 1, 2011. The regulations set out detailed requirements that must be contained in franchise agreements and in disclosure documents, which must be provided to a prospective franchisee at least 14 days prior to the signing of a franchise agreement.
Among the numerous requirements, “a franchise agreement must contain provisions which prevent: (i) unreasonable or overevaluation of fees, prices or other direct or indirect consideration; (ii) conduct which is unnecessary or unreasonable in relation to the risks to be incurred by one party; and (iii) conduct that is not reasonably necessary for the protection of the business interests of the franchisor, franchisee or franchise system.”
Numerous items of specific information are required, such as the obligations of each party, the duration of terms and renewal, and the particulars of the initial training and assistance to be provided the franchisee, among many others.
The disclosure document must contain the number of outlets franchised by the franchisor; the growth of the franchisor’s turnover, net profit, and the number of outlets franchised in the prior year; a statement on the franchisor’s financial position; and written projections of potential sales, income, or profits.
The regulations appear at CCH Business Franchise Guide ¶7246.
Tuesday, May 22, 2012
POM Wonderful’s Disease Treatment, Prevention Claims Held Deceptive
This posting was written by Jeffrey May, Editor of CCH Trade Regultion Reporter.
POM Wonderful LLC, its principals, and an affiliate violated the FTC Act by making deceptive claims in some advertisements that their POM Wonderful 100% Pomegranate Juice and POMx supplements (POM products) would treat, prevent, or reduce the risk of heart disease, prostate cancer, and erectile dysfunction, an FTC administrative law judge (ALJ) has decided.
The ALJ explained in a 345-page initial decision that not all of the advertisements challenged by the FTC could reasonably be interpreted by consumers as making claims that the products could treat, prevent, or reduce the risk of certain diseases.
According to the initial decision, the evidence demonstrated that reasonable consumers would interpret the POM respondents’ advertisements as claiming that drinking eight ounces of POM Juice daily, taking one POMx pill daily, and/or taking one teaspoon of POMx Liquid daily treats, prevents, or reduces the risk of heart disease, prostate cancer, and/or erectile dysfunction, and/or is clinically proven to do so.
Expert testimony demonstrated that there was insufficient competent and reliable scientific evidence to support claims that POM products treat, prevent, or reduce the risk of heart disease, prostate cancer, or erectile dysfunction, or are clinically proven to do so.
Under an order issued with the initial decision, the POM respondents would be barred from making any representation about the “health benefits, performance, or efficacy” of POM products or any other food, drug, or dietary supplement unless the representation is not misleading and the POM respondents possess “competent and reliable scientific evidence . . . to substantiate that the representation is true.” They would also be barred from making unsubstantiated representations that any such product “is effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease.”
The order also would bar the POM respondents from misrepresenting “the existence, contents, validity, results, conclusions, or interpretations of any test, study, or research.”
The ALJ rejected a proposed remedy that would have prohibited the POM respondents from making any disease claims unless the claim had received prior approval from the Food and Drug Administration (FDA). In addition, the ALJ ruled that the POM respondents were not required to conduct double-blind, randomized, placebo-controlled clinical trials to substantiate implied claims for their products.
POM Wonderful Response
The FTC failed in its efforts to “create a new, stricter industry standard, similar to that required for pharmaceuticals, for marketing the health benefits inherent in safe food and natural food-based products,” said Craig Cooper, Chief Legal Officer for POM Wonderful LLC, in response to the decision.
“While we are still analyzing the ruling, it is clear that we will be able to continue to promote the health benefits of our safe, food products without having our advertisements, marketing or public relations efforts preapproved by the FDA and without having to rely on double-blind, randomized, placebo-controlled studies, the standard required for pharmaceuticals,” he added. “We consider this not only to be a huge win for us, but for the natural food products industry.”
The initial decision is In the Matter of POM Wonderful, LLC, dated May 17 and released May 21. Text of the decision is available here on the FTC website.
POM Wonderful LLC, its principals, and an affiliate violated the FTC Act by making deceptive claims in some advertisements that their POM Wonderful 100% Pomegranate Juice and POMx supplements (POM products) would treat, prevent, or reduce the risk of heart disease, prostate cancer, and erectile dysfunction, an FTC administrative law judge (ALJ) has decided.
The ALJ explained in a 345-page initial decision that not all of the advertisements challenged by the FTC could reasonably be interpreted by consumers as making claims that the products could treat, prevent, or reduce the risk of certain diseases.
According to the initial decision, the evidence demonstrated that reasonable consumers would interpret the POM respondents’ advertisements as claiming that drinking eight ounces of POM Juice daily, taking one POMx pill daily, and/or taking one teaspoon of POMx Liquid daily treats, prevents, or reduces the risk of heart disease, prostate cancer, and/or erectile dysfunction, and/or is clinically proven to do so.
Expert testimony demonstrated that there was insufficient competent and reliable scientific evidence to support claims that POM products treat, prevent, or reduce the risk of heart disease, prostate cancer, or erectile dysfunction, or are clinically proven to do so.
Under an order issued with the initial decision, the POM respondents would be barred from making any representation about the “health benefits, performance, or efficacy” of POM products or any other food, drug, or dietary supplement unless the representation is not misleading and the POM respondents possess “competent and reliable scientific evidence . . . to substantiate that the representation is true.” They would also be barred from making unsubstantiated representations that any such product “is effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease.”
The order also would bar the POM respondents from misrepresenting “the existence, contents, validity, results, conclusions, or interpretations of any test, study, or research.”
The ALJ rejected a proposed remedy that would have prohibited the POM respondents from making any disease claims unless the claim had received prior approval from the Food and Drug Administration (FDA). In addition, the ALJ ruled that the POM respondents were not required to conduct double-blind, randomized, placebo-controlled clinical trials to substantiate implied claims for their products.
POM Wonderful Response
The FTC failed in its efforts to “create a new, stricter industry standard, similar to that required for pharmaceuticals, for marketing the health benefits inherent in safe food and natural food-based products,” said Craig Cooper, Chief Legal Officer for POM Wonderful LLC, in response to the decision.
“While we are still analyzing the ruling, it is clear that we will be able to continue to promote the health benefits of our safe, food products without having our advertisements, marketing or public relations efforts preapproved by the FDA and without having to rely on double-blind, randomized, placebo-controlled studies, the standard required for pharmaceuticals,” he added. “We consider this not only to be a huge win for us, but for the natural food products industry.”
The initial decision is In the Matter of POM Wonderful, LLC, dated May 17 and released May 21. Text of the decision is available here on the FTC website.
Monday, May 21, 2012
Claims Against Apple, Publishers for "E-book" Pricing Survive Motion to Dismiss
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Purchasers of electronic books plausibly alleged that Apple, Inc. and five of the six largest U.S. publishing companies took part in a per se unreasonable conspiracy to raise prices for “e-books,” the federal district court in New York City has ruled.
It was reasonable to infer that the defending publishers had agreed among themselves to adopt a joint strategy to force an increase in the price of e-books.
The allegations of parallel conduct—including the publishers’ rapid and simultaneous switch from a wholesale or retail distribution model with e-book retailers to an agency model of distribution—raised a suggestion of preceding agreement, the court explained.
Each defending publisher’s decision to sign its particular agency agreement with Apple and to demand that online marketplace Amazon accept the agency model would have contravened the defendant’s self interest in the absence of similar behavior of its rivals. The complaining purchasers claimed that the agency agreements emerged from a horizontal agreement among the defending retailers in order to raise prices.
While allegedly coordinating a series of substantively-identical vertical agreements with the publishers, Apple purportedly made clear to its vertical partners that it was offering each of them "the first" deal. While allegedly coordinating a series of substantively-identical vertical agreements with the publishers, Apple purportedly made clear to its vertical partners that it was offering each of them a similar deal..
Although the purchasers did not claim that Apple had an interest in higher retail prices, they plausibly alleged that Apple had an interest in limiting retail competition. The agency agreements included clauses that granted Apple "most favored nation" pricing guarantees--to eliminate price competition among e-book retailers.
Even though the defendants' motive for joining the conspiracy might have been different, the complaining purchasers plausibly alleged that each of the defendants shared the twin purposes of raising the price of e-books and eliminating retail competition.
The court rejected the assertion that a hub-and-spoke conspiracy was not plausibly alleged because Apple Inc. (the alleged hub) was not a dominant firm. A hub was generally a dominant purchaser or supplier, but it did not have to be.
The court also rejected Apple's contention that its agency agreements with the publishers should be found lawful under a rule of reason analysis because they were simply agreements by a principal to set the price charged by its agent.
Regardless of the nature of the specific terms of the vertical agency agreements when examined in isolation, complaining e-book purchasers plausibly alleged a horizontal agreement among the publishers, furthered by Apple, to raise the prices of the e-books and eliminate retail competition in per se violation of the Sherman Act.
The decision is In Re: Electronic Books Antitrust Litigation, 2012-1 Trade Cases
Purchasers of electronic books plausibly alleged that Apple, Inc. and five of the six largest U.S. publishing companies took part in a per se unreasonable conspiracy to raise prices for “e-books,” the federal district court in New York City has ruled.
It was reasonable to infer that the defending publishers had agreed among themselves to adopt a joint strategy to force an increase in the price of e-books.
The allegations of parallel conduct—including the publishers’ rapid and simultaneous switch from a wholesale or retail distribution model with e-book retailers to an agency model of distribution—raised a suggestion of preceding agreement, the court explained.
Each defending publisher’s decision to sign its particular agency agreement with Apple and to demand that online marketplace Amazon accept the agency model would have contravened the defendant’s self interest in the absence of similar behavior of its rivals. The complaining purchasers claimed that the agency agreements emerged from a horizontal agreement among the defending retailers in order to raise prices.
While allegedly coordinating a series of substantively-identical vertical agreements with the publishers, Apple purportedly made clear to its vertical partners that it was offering each of them "the first" deal. While allegedly coordinating a series of substantively-identical vertical agreements with the publishers, Apple purportedly made clear to its vertical partners that it was offering each of them a similar deal..
Although the purchasers did not claim that Apple had an interest in higher retail prices, they plausibly alleged that Apple had an interest in limiting retail competition. The agency agreements included clauses that granted Apple "most favored nation" pricing guarantees--to eliminate price competition among e-book retailers.
Even though the defendants' motive for joining the conspiracy might have been different, the complaining purchasers plausibly alleged that each of the defendants shared the twin purposes of raising the price of e-books and eliminating retail competition.
The court rejected the assertion that a hub-and-spoke conspiracy was not plausibly alleged because Apple Inc. (the alleged hub) was not a dominant firm. A hub was generally a dominant purchaser or supplier, but it did not have to be.
The court also rejected Apple's contention that its agency agreements with the publishers should be found lawful under a rule of reason analysis because they were simply agreements by a principal to set the price charged by its agent.
Regardless of the nature of the specific terms of the vertical agency agreements when examined in isolation, complaining e-book purchasers plausibly alleged a horizontal agreement among the publishers, furthered by Apple, to raise the prices of the e-books and eliminate retail competition in per se violation of the Sherman Act.
The decision is In Re: Electronic Books Antitrust Litigation, 2012-1 Trade Cases
¶77,889.
Friday, May 18, 2012
Rejection of Lanham Act Juice Blend Labeling Challenge Upheld; California Law Claims Revived
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
Pom Wonderful, a seller of pomegranate juice and juice blends, was precluded from asserting Lanham Act false advertising claims based on Coca Cola's naming and labeling of “Pomegranate Blueberry Flavored Blend of 5 Juices,” the U.S. Court of Appeals in San Francisco ruled yesterday. The product contained about 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice, according to the court.
A ruling that Pom Wonderful failed to assert an injury in fact under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) was vacated and remanded for further proceedings. Not considered on Pom’s appeal from the decision of the federal district court in Los Angeles (CCH Advertising Law Guide ¶63,889) was a ruling that Pom can pursue Lanham Act claims that consumers were confused by Coca Cola's intentionally misleading marketing and advertising (apart from naming and labeling) of the pomegranate-blueberry flavored blend.
Food Labeling Regulation
Pom’s challenge to the name “Pomegranate Blueberry Flavored Blend of 5 Juices” would create a conflict with Food and Drug Administration regulations and would undermine the FDA’s apparent determination that so naming the product is not misleading, the court determined. As to labeling, Pom apparently wanted to force Coca-Cola to alter the size of the words on its label so that the words “Pomegranate Blueberry” would no longer appear in larger, more conspicuous type on Coca-Cola’s label than did the words “Flavored Blend of 5 Juices.”
Congress and the FDA had considered and spoken to what content a label must bear, and the relative sizes in which the label must bear it, so as not to deceive. Despite speaking extensively to how prominently required words or statements must appear, the FDA had not required that all words in a juice blend’s name appear on the label in the same size or that words hew to some other standard. Coca-Cola’s label presumptively complied with the relevant FDA regulations and thus accorded with the judgments the FDA had so far made, the court held.
California Law
In rejecting the claims under California law, the district court had interpreted statutory “lost money or property” language to require a plaintiff to show that it is entitled to restitution from the defendant—even if the plaintiff seeks only injunctive relief. That was error in light of California Supreme Court rulings making it clear that standing under UCL Section 17204 of the Unfair Competition Law and FAL Section 17535 did not depend on eligibility for restitution, the court concluded.
The May 17 decision in Pom Wonderful LLC v. Coca-Cola Co., No. 10-55861, will be reported at CCH Advertising Law Guide ¶64,708 and CCH 2012-1 Trade Cases ¶77,892.
Pom Wonderful, a seller of pomegranate juice and juice blends, was precluded from asserting Lanham Act false advertising claims based on Coca Cola's naming and labeling of “Pomegranate Blueberry Flavored Blend of 5 Juices,” the U.S. Court of Appeals in San Francisco ruled yesterday. The product contained about 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice, according to the court.
A ruling that Pom Wonderful failed to assert an injury in fact under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) was vacated and remanded for further proceedings. Not considered on Pom’s appeal from the decision of the federal district court in Los Angeles (CCH Advertising Law Guide ¶63,889) was a ruling that Pom can pursue Lanham Act claims that consumers were confused by Coca Cola's intentionally misleading marketing and advertising (apart from naming and labeling) of the pomegranate-blueberry flavored blend.
Food Labeling Regulation
Pom’s challenge to the name “Pomegranate Blueberry Flavored Blend of 5 Juices” would create a conflict with Food and Drug Administration regulations and would undermine the FDA’s apparent determination that so naming the product is not misleading, the court determined. As to labeling, Pom apparently wanted to force Coca-Cola to alter the size of the words on its label so that the words “Pomegranate Blueberry” would no longer appear in larger, more conspicuous type on Coca-Cola’s label than did the words “Flavored Blend of 5 Juices.”
Congress and the FDA had considered and spoken to what content a label must bear, and the relative sizes in which the label must bear it, so as not to deceive. Despite speaking extensively to how prominently required words or statements must appear, the FDA had not required that all words in a juice blend’s name appear on the label in the same size or that words hew to some other standard. Coca-Cola’s label presumptively complied with the relevant FDA regulations and thus accorded with the judgments the FDA had so far made, the court held.
California Law
In rejecting the claims under California law, the district court had interpreted statutory “lost money or property” language to require a plaintiff to show that it is entitled to restitution from the defendant—even if the plaintiff seeks only injunctive relief. That was error in light of California Supreme Court rulings making it clear that standing under UCL Section 17204 of the Unfair Competition Law and FAL Section 17535 did not depend on eligibility for restitution, the court concluded.
The May 17 decision in Pom Wonderful LLC v. Coca-Cola Co., No. 10-55861, will be reported at CCH Advertising Law Guide ¶64,708 and CCH 2012-1 Trade Cases ¶77,892.
Wednesday, May 16, 2012
Mississippi’s LCD Price Fixing Claims Remanded to State Court
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
An action brought by the State of Mississippi against companies that manufacture liquid crystal display (LCD) panels for conspiring to fix prices in violation of the Mississippi state law was remanded to state court by the federal district court in Jackson.
The companies removed the case to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA); however, remand was appropriate because the action was neither a class action nor a mass action subject to removal.
Class Action Fairness Act
To establish jurisdiction under CAFA, the companies needed to show that the parties were minimally diverse and that the action was a class action or a mass action not subject to CAFA exceptions. CAFA’s diversity requirement was met, the court ruled, because Mississippi’s consumers and local governments—the real parties in interest—but no defendant was a citizen of Mississippi. The court rejected the state’s argument that it was the real party in interest, and, therefore, there was no minimal diversity because the state was not a “citizen” for purposes of diversity jurisdiction.
Because the claims were not brought pursuant to the Federal Rule of Civil Procedure 23 or a similar state statute, the suit was not a CAFA class action, the court ruled. Mississippi had no comparable class action statute. Nor did the Mississippi Consumer Protection Act and Mississippi Antitrust Act impose class action-like requirements.
Rejected was the defending companies’ contention that legislative history supported its position that a lawsuit that resembled a purported class action should be considered a class action for the purpose of applying CAFA. Because CAFA unambiguously defined class action, it was unnecessary to consider the legislative history offered by the defendants, which was questionable in any event.
Mass Action
Although the suit was a mass action, a statutory exception for actions brought on behalf of the general public required remand. A suit brought by the Mississippi Attorney General (AG) could be defined as a mass action under CAFA, as the real parties in interest numbered at least 100 persons seeking monetary relief and the AG proposed to try the claims jointly on the grounds that they involved common questions of law or fact. However, a general public exception applied that excluded actions asserted on behalf of the general public, and not on behalf of individuals or a purported class, pursuant to state statutes.
Based on the sheer number of LCD panel products bought by consumers, the case was clearly brought on behalf of the general public and fell within the state’s quasi-sovereign interest. Also, the claims were brought under state statutes that specifically authorized these kinds of suits. Therefore, the claims fell under the general public exception, in the court’s view.
Preemption
The manufacturers could not show that the Sherman Act completely preempted the Mississippi antitrust claims. Where plaintiffs have artfully avoided any suggestion of federal issues, removal is allowed where the state law is subject to complete preemption. However, the court rejected the manufacturers’ contention that the artful pleading doctrine applied because the Sherman Act applied to the claims, which were interstate and international in nature.
The decision is State of Mississippi v. AU Optronics Corp., 2012-1 Trade Cases ¶77,883.
An action brought by the State of Mississippi against companies that manufacture liquid crystal display (LCD) panels for conspiring to fix prices in violation of the Mississippi state law was remanded to state court by the federal district court in Jackson.
The companies removed the case to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA); however, remand was appropriate because the action was neither a class action nor a mass action subject to removal.
Class Action Fairness Act
To establish jurisdiction under CAFA, the companies needed to show that the parties were minimally diverse and that the action was a class action or a mass action not subject to CAFA exceptions. CAFA’s diversity requirement was met, the court ruled, because Mississippi’s consumers and local governments—the real parties in interest—but no defendant was a citizen of Mississippi. The court rejected the state’s argument that it was the real party in interest, and, therefore, there was no minimal diversity because the state was not a “citizen” for purposes of diversity jurisdiction.
Because the claims were not brought pursuant to the Federal Rule of Civil Procedure 23 or a similar state statute, the suit was not a CAFA class action, the court ruled. Mississippi had no comparable class action statute. Nor did the Mississippi Consumer Protection Act and Mississippi Antitrust Act impose class action-like requirements.
Rejected was the defending companies’ contention that legislative history supported its position that a lawsuit that resembled a purported class action should be considered a class action for the purpose of applying CAFA. Because CAFA unambiguously defined class action, it was unnecessary to consider the legislative history offered by the defendants, which was questionable in any event.
Mass Action
Although the suit was a mass action, a statutory exception for actions brought on behalf of the general public required remand. A suit brought by the Mississippi Attorney General (AG) could be defined as a mass action under CAFA, as the real parties in interest numbered at least 100 persons seeking monetary relief and the AG proposed to try the claims jointly on the grounds that they involved common questions of law or fact. However, a general public exception applied that excluded actions asserted on behalf of the general public, and not on behalf of individuals or a purported class, pursuant to state statutes.
Based on the sheer number of LCD panel products bought by consumers, the case was clearly brought on behalf of the general public and fell within the state’s quasi-sovereign interest. Also, the claims were brought under state statutes that specifically authorized these kinds of suits. Therefore, the claims fell under the general public exception, in the court’s view.
Preemption
The manufacturers could not show that the Sherman Act completely preempted the Mississippi antitrust claims. Where plaintiffs have artfully avoided any suggestion of federal issues, removal is allowed where the state law is subject to complete preemption. However, the court rejected the manufacturers’ contention that the artful pleading doctrine applied because the Sherman Act applied to the claims, which were interstate and international in nature.
The decision is State of Mississippi v. AU Optronics Corp., 2012-1 Trade Cases ¶77,883.
Tuesday, May 15, 2012
Former Executives Convicted for Participating in Municipal Bond Conspiracy
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter
Three former executives of General Electric Co. (GE) affiliates were convicted by a federal jury in New York City on May 11 for their participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. The trial against the three began on April 16.
An initial 12-count indictment was filed in July 2010, charging the former executives with participating in wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006. A seven-count superseding indictment followed in May 2011.
The three former financial services executives participated in separate fraud conspiracies with various financial institutions and insurance companies and their representatives, according to the Justice Department. These institutions and companies, or “providers,” offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States.
The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. One of the three defendants also participated in the conspiracies while employed at Financial Security Assurance Capital Management Services LLC.
According to evidence presented at trial, the conspirators corrupted the bidding process for dozens of investment agreements to increase the number and profitability of investment agreements awarded to the provider companies where they were employed.
The three defendants deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities for various public works projects, such as for building or repairing schools, hospitals and roads. Evidence at trial established that they cost municipalities around the country millions of dollars.
According to the Department of Justice, a total of eighteen individuals have been charged as a result of the ongoing municipal bonds investigation. Including these convictions, a total of 15 individuals have been convicted and three await trial. Additionally, one company has pleaded guilty.
“The defendants corrupted the competitive bidding process and defrauded municipalities across the country for years,” said Deputy Assistant Attorney General Scott D. Hammond of the Department of Justice Antitrust Division, in response to the verdict. “Through corruption and fraud, they cheated cities and towns out of money for important public works projects. Today’s convictions reflect our determination to preserve fairness and competition in the financial services market.”
The case is United States v. Dominick P. Carollo, No. 10 CR 654 (SD N.Y.). A news release appears here on the Antitrust Division website.
Three former executives of General Electric Co. (GE) affiliates were convicted by a federal jury in New York City on May 11 for their participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. The trial against the three began on April 16.
An initial 12-count indictment was filed in July 2010, charging the former executives with participating in wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006. A seven-count superseding indictment followed in May 2011.
The three former financial services executives participated in separate fraud conspiracies with various financial institutions and insurance companies and their representatives, according to the Justice Department. These institutions and companies, or “providers,” offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States.
The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. One of the three defendants also participated in the conspiracies while employed at Financial Security Assurance Capital Management Services LLC.
According to evidence presented at trial, the conspirators corrupted the bidding process for dozens of investment agreements to increase the number and profitability of investment agreements awarded to the provider companies where they were employed.
The three defendants deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities for various public works projects, such as for building or repairing schools, hospitals and roads. Evidence at trial established that they cost municipalities around the country millions of dollars.
According to the Department of Justice, a total of eighteen individuals have been charged as a result of the ongoing municipal bonds investigation. Including these convictions, a total of 15 individuals have been convicted and three await trial. Additionally, one company has pleaded guilty.
“The defendants corrupted the competitive bidding process and defrauded municipalities across the country for years,” said Deputy Assistant Attorney General Scott D. Hammond of the Department of Justice Antitrust Division, in response to the verdict. “Through corruption and fraud, they cheated cities and towns out of money for important public works projects. Today’s convictions reflect our determination to preserve fairness and competition in the financial services market.”
The case is United States v. Dominick P. Carollo, No. 10 CR 654 (SD N.Y.). A news release appears here on the Antitrust Division website.
Wednesday, May 09, 2012
Day Care Center’s Antitrust Claims Against State, County Officials Rejected
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
A defunct Ohio day care center, which was unable to obtain a renewal license in light of its alleged failure to provide a safe environment for children, did not allege an antitrust injury to support Sherman Act, Sec. 1 claims against officials at the Ohio Department of Job and Family Services, the U.S. Court of Appeals in Cincinnati has decided.
The day care center alleged that the state agency implemented an improper process of responding to license renewal applications as a means to control the day care market and drive disfavored businesses out of the market. However, it provided no facts, beyond mere conclusory statements, to support the allegation that the state agency’s procedures harmed competition. The day care center failed to state a claim to relief that was plausible on its face. Dismissal of claims against employees of the state agency was affirmed.
Local Government Antitrust Act
The appellate court also upheld dismissal of the center’s antitrust claim against employees of a county agency. The Local Government Antitrust Act shielded the county defendants from antitrust liability for the agency’s decision to discontinue providing public assistance for the center’s child care services. The county employees were acting in their official capacity when negotiating funding contracts with the day care center. The negotiation of the funding contracts fell within the “general responsibilities and objectives” of the county defendants’ positions, the court explained.
Although the day care center contended that the county officials undertook this general responsibility with an improper motive, the defendants’ motives were irrelevant, according to the court.
The decision is Wee Care Child Center, Inc. v. Lumpkin, 2012-1 Trade Cases ¶77,881.
A defunct Ohio day care center, which was unable to obtain a renewal license in light of its alleged failure to provide a safe environment for children, did not allege an antitrust injury to support Sherman Act, Sec. 1 claims against officials at the Ohio Department of Job and Family Services, the U.S. Court of Appeals in Cincinnati has decided.
The day care center alleged that the state agency implemented an improper process of responding to license renewal applications as a means to control the day care market and drive disfavored businesses out of the market. However, it provided no facts, beyond mere conclusory statements, to support the allegation that the state agency’s procedures harmed competition. The day care center failed to state a claim to relief that was plausible on its face. Dismissal of claims against employees of the state agency was affirmed.
Local Government Antitrust Act
The appellate court also upheld dismissal of the center’s antitrust claim against employees of a county agency. The Local Government Antitrust Act shielded the county defendants from antitrust liability for the agency’s decision to discontinue providing public assistance for the center’s child care services. The county employees were acting in their official capacity when negotiating funding contracts with the day care center. The negotiation of the funding contracts fell within the “general responsibilities and objectives” of the county defendants’ positions, the court explained.
Although the day care center contended that the county officials undertook this general responsibility with an improper motive, the defendants’ motives were irrelevant, according to the court.
The decision is Wee Care Child Center, Inc. v. Lumpkin, 2012-1 Trade Cases ¶77,881.
Tuesday, May 08, 2012
Myspace Joins Social Networking Sites Whose Privacy Claims Have Been Challenged by the FTC
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Today, Myspace joined other popular social networking websites—such as Facebook, Google Buzz, and Twitter—in pledging to refrain from making false consumer privacy claims in light of a Federal Trade Commission challenge.
The operator of myspace.com has agreed to settle FTC charges that it violated Section 5(a) of the FTC Act by misleading users about what information third-party advertisers received about them. The FTC complaint alleged that Myspace made numerous promises to its users regarding the extent to which it shared consumers’ personal information with third-party advertisers.
Myspace's privacy policy allegedly promised it would not share users personally identifiable information, or use such information in a way that was inconsistent with the purpose for which it was submitted, without first giving notice to users and receiving their permission to do so. The privacy policy also promised that the information used to customize ads would not individually identify users to third parties and would not share non-anonymized browsing activity.
According to the FTC complaint, from January 2009 through June 2010, and again from October 2010 through October 2011, when Myspace displayed advertisements on its website from certain unaffiliated third-party advertisers, Myspace and/or its affiliate provided those advertisers with the Friend ID of the user who was viewing the page.
Myspace assigns a persistent unique numerical identifier, called a “Friend ID,” to each user profile created on Myspace. The Friend ID can be used to access information about the user, including location, gender, age, display name, and, in many cases, the user’s full name, according to the agency. With this information, a third-party advertiser could take simple steps to get detailed information about individual users.
In addition, Myspace allegedly certified that it complied with the U.S.-European Union Safe Harbor Framework, which provides a method for U.S. companies to transfer personal data lawfully from the European Union to the United States. As part of its self-certification, Myspace purportedly claimed that it complied with the Safe Harbor Principles, including the requirements that consumers be given notice of how their information will be used and the choice to opt out. The FTC alleged that these statements were false. The agency challenged similar claims by Facebook and Google Buzz last year.
Proposed Consent Order
A proposed consent order contains provisions designed to prevent Myspace from engaging in future practices similar to those alleged in the complaint, according to the FTC. Myspace would be prohibited from misrepresenting the privacy and confidentiality of any “covered information,” as well as the company’s compliance with any privacy, security, or other compliance program. Myspace also would be required to establish and maintain a comprehensive privacy program and to obtain biennial assessments of its privacy program by independent, third-party auditors for 20 years.
The complaint and proposed settlement, In the Matter of Myspace LLC, FTC File No. 102 3058, appear here on the FTC website.
Today, Myspace joined other popular social networking websites—such as Facebook, Google Buzz, and Twitter—in pledging to refrain from making false consumer privacy claims in light of a Federal Trade Commission challenge.
The operator of myspace.com has agreed to settle FTC charges that it violated Section 5(a) of the FTC Act by misleading users about what information third-party advertisers received about them. The FTC complaint alleged that Myspace made numerous promises to its users regarding the extent to which it shared consumers’ personal information with third-party advertisers.
Myspace's privacy policy allegedly promised it would not share users personally identifiable information, or use such information in a way that was inconsistent with the purpose for which it was submitted, without first giving notice to users and receiving their permission to do so. The privacy policy also promised that the information used to customize ads would not individually identify users to third parties and would not share non-anonymized browsing activity.
According to the FTC complaint, from January 2009 through June 2010, and again from October 2010 through October 2011, when Myspace displayed advertisements on its website from certain unaffiliated third-party advertisers, Myspace and/or its affiliate provided those advertisers with the Friend ID of the user who was viewing the page.
Myspace assigns a persistent unique numerical identifier, called a “Friend ID,” to each user profile created on Myspace. The Friend ID can be used to access information about the user, including location, gender, age, display name, and, in many cases, the user’s full name, according to the agency. With this information, a third-party advertiser could take simple steps to get detailed information about individual users.
In addition, Myspace allegedly certified that it complied with the U.S.-European Union Safe Harbor Framework, which provides a method for U.S. companies to transfer personal data lawfully from the European Union to the United States. As part of its self-certification, Myspace purportedly claimed that it complied with the Safe Harbor Principles, including the requirements that consumers be given notice of how their information will be used and the choice to opt out. The FTC alleged that these statements were false. The agency challenged similar claims by Facebook and Google Buzz last year.
Proposed Consent Order
A proposed consent order contains provisions designed to prevent Myspace from engaging in future practices similar to those alleged in the complaint, according to the FTC. Myspace would be prohibited from misrepresenting the privacy and confidentiality of any “covered information,” as well as the company’s compliance with any privacy, security, or other compliance program. Myspace also would be required to establish and maintain a comprehensive privacy program and to obtain biennial assessments of its privacy program by independent, third-party auditors for 20 years.
The complaint and proposed settlement, In the Matter of Myspace LLC, FTC File No. 102 3058, appear here on the FTC website.
Monday, May 07, 2012
Sentence for Executive’s Bid Rigging, Price Fixing Upheld
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The U.S. Court of Appeals in St. Louis has upheld a 48-month prison sentence imposed on a former ready-mix concrete executive who pleaded guilty to participating in separate bid rigging and price fixing conspiracies with three different companies in northern Iowa.
The prison sentence was not substantively unreasonable, even though it was well above the U.S. Sentencing Guidelines range of 21 to 27 months. A fine of nearly $830,000 also was upheld.
The appellate court concluded that the district court considered appropriate factors in varying from the guidelines and adequately explained its prison sentence and fine.
The district court gave two permissible reasons for varying from the guidelines: (1) a policy disagreement with the antitrust guidelines and (2) the defendant’s lack of remorse. The district court believed that, while the antitrust guidelines and the fraud guidelines attacked a similar societal harm, the antitrust guidelines were too lenient. The district court gave cogent reasons for its policy disagreement by comparing the guidelines for antitrust offenses to the guidelines for fraud, and then using the alternate calculation under the fraud guidelines.
The district court also tied its policy disagreement to the specific facts involved in the defendant’s case, the appellate court explained. According to the district court, the primary reason that the U.S. Sentencing Commission gave for increasing the levels of antitrust violations less drastically than levels of fraud cases depending on the relative amount of loss or volume of commerce involved was that, with respect to antitrust violations, the level of markup may tend to decline with the volume of commerce involved. However, the defendant’s prices for concrete did not decrease as the volume of sales increased.
The appellate court rejected at the outset the defendant’s contention that the district court abused its discretion by not accepting his initial binding plea agreement under Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure. The binding agreement, if accepted by the district court, called for the defendant to serve a sentence of 19 months and pay a fine of $100,000. However, the district court never rejected the earlier agreement. It merely deferred the decision until after reviewing the presentence report.
The defendant chose to change his plea agreement after the district court said that there was “a less than 10 percent chance” that it would accept the plea.
The new plea agreement did not preserve the defendant’s right to challenge the district court’s nonacceptance of the binding pleas agreement, and the defendant did not claim that his decision to enter the nonbinding plea agreement was unknowing or involuntary. Nor did the defendant challenge the factual basis for the plea.
The defendant’s decision to enter a nonbinding plea agreement under Rule 11 (c)(1)(b) waived the right to complain on appeal about the district court’s nonacceptance of the earlier binding plea agreement entered into with the Justice Department.
A dissent argued that the district court lacked authority to set aside the guidelines sentencing range for antitrust offenses in favor or the alternate calculation using the guidelines for offenders convicted of fraud.
The decision is U.S. v. VandeBrake, 2012-1 Trade Cases ¶77,880.
The U.S. Court of Appeals in St. Louis has upheld a 48-month prison sentence imposed on a former ready-mix concrete executive who pleaded guilty to participating in separate bid rigging and price fixing conspiracies with three different companies in northern Iowa.
The prison sentence was not substantively unreasonable, even though it was well above the U.S. Sentencing Guidelines range of 21 to 27 months. A fine of nearly $830,000 also was upheld.
The appellate court concluded that the district court considered appropriate factors in varying from the guidelines and adequately explained its prison sentence and fine.
The district court gave two permissible reasons for varying from the guidelines: (1) a policy disagreement with the antitrust guidelines and (2) the defendant’s lack of remorse. The district court believed that, while the antitrust guidelines and the fraud guidelines attacked a similar societal harm, the antitrust guidelines were too lenient. The district court gave cogent reasons for its policy disagreement by comparing the guidelines for antitrust offenses to the guidelines for fraud, and then using the alternate calculation under the fraud guidelines.
The district court also tied its policy disagreement to the specific facts involved in the defendant’s case, the appellate court explained. According to the district court, the primary reason that the U.S. Sentencing Commission gave for increasing the levels of antitrust violations less drastically than levels of fraud cases depending on the relative amount of loss or volume of commerce involved was that, with respect to antitrust violations, the level of markup may tend to decline with the volume of commerce involved. However, the defendant’s prices for concrete did not decrease as the volume of sales increased.
The appellate court rejected at the outset the defendant’s contention that the district court abused its discretion by not accepting his initial binding plea agreement under Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure. The binding agreement, if accepted by the district court, called for the defendant to serve a sentence of 19 months and pay a fine of $100,000. However, the district court never rejected the earlier agreement. It merely deferred the decision until after reviewing the presentence report.
The defendant chose to change his plea agreement after the district court said that there was “a less than 10 percent chance” that it would accept the plea.
The new plea agreement did not preserve the defendant’s right to challenge the district court’s nonacceptance of the binding pleas agreement, and the defendant did not claim that his decision to enter the nonbinding plea agreement was unknowing or involuntary. Nor did the defendant challenge the factual basis for the plea.
The defendant’s decision to enter a nonbinding plea agreement under Rule 11 (c)(1)(b) waived the right to complain on appeal about the district court’s nonacceptance of the earlier binding plea agreement entered into with the Justice Department.
A dissent argued that the district court lacked authority to set aside the guidelines sentencing range for antitrust offenses in favor or the alternate calculation using the guidelines for offenders convicted of fraud.
The decision is U.S. v. VandeBrake, 2012-1 Trade Cases ¶77,880.
Thursday, May 03, 2012
FCC Penalizes Google for “Impeding” Wi-Fi Investigation
This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.
Although the Federal Communications Commission has decided not to take action against Google, Inc. for possible violations of the Communications Act in connection with Google’s collection of data from Wi-Fi networks, the FCC on April 13, 2012 proposed a $25,000 forfeiture penalty against Google for “willfully and repeatedly” violating FCC orders to produce certain information and documents that the FCC required for its investigation. Google has agreed to pay the penalty.
"Street View" Project
Between May 2007 and May 2010, as part of its “Street View” project, Google collected data from Wi-Fi networks throughout the United States and around the world. The purpose of Google’s Wi-Fi data collection initiative was to capture information about Wi-Fi networks that could be used to help establish users’ locations and provide location-based services.
Google also collected “payload” data—the content of Internet communications—that was not needed for its location database project. This payload data included e-mail and text messages, passwords, Internet usage history, and other highly sensitive personal information.
At first, Google denied collecting payload data. After the commencement of investigations by European data protection authorities, Google publicly acknowledged that it had been “collecting samples of payload data from open (non-password-protected) WiFi networks” but stated that it likely collected only fragmented data.
Google explained that the collection of payload data was caused by code that was “mistakenly” included in its Wi-Fi data collection software. On October 22, 2010, Google acknowledged for the first time that “in some instances entire emails and URLs were captured, as well as passwords.”
Upon learning that Google had collected payload data, the FCC began examining whether Google’s conduct violated provisions of the Communications Act of 1934. In November 2010, the FCC’s Enforcement Bureau launched an official investigation into whether Google’s data collection practices violated Sec. 705(a) of the Act, which prohibits the interception of radio communications.
According to the FCC, Google “deliberately impeded and delayed” the Enforcement Bureau’s investigation for several months by failing to respond to requests for material information and to provide certifications and verifications of its responses. In a Notice of Apparent Liability for Forfeiture, the FCC stated that Google apparently willfully and repeatedly violated orders to produce information and documents required for the investigation. Based its review, the FCC found that Google was apparently liable for a forfeiture penalty of $25,000 for its noncompliance with the FCC’s information and document requests.
Closing of Investigation
At the same time, the FCC decided not to take enforcement action under Sec. 705(a) against the company for its collection of payload data and to close the investigation. There was not clear precedent for applying Sec. 705(a) to the Wi-Fi communications collected by Google, the FCC said.
Moreover, because a Google engineer permissibly asserted his constitutional right not to testify, significant factual questions bearing on the application of Sec. 705(a) to the Street View project could not be answered on the record of the FCC’s investigation.
More information is available here on the FCC’s website.
Google’s Response
Although Google agreed to pay the forfeiture, it contended that delays by the FCC slowed down the investigation, rather than Google.
“As the FCC said in their report, we provided all the materials necessary for them to conduct their investigation,” a Google spokesperson said. “We agree with the FCC's conclusion that we did not break the law, but believe that we did cooperate in their investigation, and we made that clear in our response.”
Although the Federal Communications Commission has decided not to take action against Google, Inc. for possible violations of the Communications Act in connection with Google’s collection of data from Wi-Fi networks, the FCC on April 13, 2012 proposed a $25,000 forfeiture penalty against Google for “willfully and repeatedly” violating FCC orders to produce certain information and documents that the FCC required for its investigation. Google has agreed to pay the penalty.
"Street View" Project
Between May 2007 and May 2010, as part of its “Street View” project, Google collected data from Wi-Fi networks throughout the United States and around the world. The purpose of Google’s Wi-Fi data collection initiative was to capture information about Wi-Fi networks that could be used to help establish users’ locations and provide location-based services.
Google also collected “payload” data—the content of Internet communications—that was not needed for its location database project. This payload data included e-mail and text messages, passwords, Internet usage history, and other highly sensitive personal information.
At first, Google denied collecting payload data. After the commencement of investigations by European data protection authorities, Google publicly acknowledged that it had been “collecting samples of payload data from open (non-password-protected) WiFi networks” but stated that it likely collected only fragmented data.
Google explained that the collection of payload data was caused by code that was “mistakenly” included in its Wi-Fi data collection software. On October 22, 2010, Google acknowledged for the first time that “in some instances entire emails and URLs were captured, as well as passwords.”
Upon learning that Google had collected payload data, the FCC began examining whether Google’s conduct violated provisions of the Communications Act of 1934. In November 2010, the FCC’s Enforcement Bureau launched an official investigation into whether Google’s data collection practices violated Sec. 705(a) of the Act, which prohibits the interception of radio communications.
According to the FCC, Google “deliberately impeded and delayed” the Enforcement Bureau’s investigation for several months by failing to respond to requests for material information and to provide certifications and verifications of its responses. In a Notice of Apparent Liability for Forfeiture, the FCC stated that Google apparently willfully and repeatedly violated orders to produce information and documents required for the investigation. Based its review, the FCC found that Google was apparently liable for a forfeiture penalty of $25,000 for its noncompliance with the FCC’s information and document requests.
Closing of Investigation
At the same time, the FCC decided not to take enforcement action under Sec. 705(a) against the company for its collection of payload data and to close the investigation. There was not clear precedent for applying Sec. 705(a) to the Wi-Fi communications collected by Google, the FCC said.
Moreover, because a Google engineer permissibly asserted his constitutional right not to testify, significant factual questions bearing on the application of Sec. 705(a) to the Street View project could not be answered on the record of the FCC’s investigation.
More information is available here on the FCC’s website.
Google’s Response
Although Google agreed to pay the forfeiture, it contended that delays by the FCC slowed down the investigation, rather than Google.
“As the FCC said in their report, we provided all the materials necessary for them to conduct their investigation,” a Google spokesperson said. “We agree with the FCC's conclusion that we did not break the law, but believe that we did cooperate in their investigation, and we made that clear in our response.”
Wednesday, May 02, 2012
Conspiracy Allegations Adequately Alleged Against High-Tech Firms
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Software engineers adequately alleged claims against Google, Pixar, and other high-tech companies headquartered in the San Francisco-Silicon Valley area of California for conspiring to fix and suppress employee compensation and to restrict employee mobility through bilateral “Do Not Cold Call” agreements, the federal district court in San Jose, California, has ruled.
The suit follows Department of Justice Antitrust Division civil actions against the firms, which were resolved by consent decrees ( 2011-1 Trade Cases ¶77,477, 2011-1 Trade Cases ¶77,483).
The complaining employees detailed the actors, effect, victims, location, and timing of the six bilateral agreements between the defending employers. They alleged that the employers had the means, the motive, and the opportunity to implement a conspiracy to restrain competition for employees. The defendants’ senior executives allegedly negotiated, executed, monitored, and policed the agreements.
Opportunity to Conspire
The court also noted that overlapping board membership provided an opportunity to conspire and an opportunity for transfer of the requisite knowledge and intent regarding the bilateral agreements. The fact that the identical agreements were reached in secrecy among seven defendants in a span of two years suggested that the agreements resulted from collusion, and not from coincidence.
Antitrust Injury
In addition, the employees plausibly alleged an antitrust injury resulting from the conspiracy, according to the court. Under Ninth Circuit precedent, where an employee is the direct and intended object of an employer’s anticompetitive conduct, that employee has standing to sue for antitrust injury. Thus, the defending employers’ motion to dismiss for failure to plead antitrust injury was denied.
Federal Enclave Doctrine
A California Cartwright Act claim was not dismissed based on the federal enclave doctrine. One of the defendants, Lucasfilm, has been located on the Presidio—a federal enclave ceded to the U.S. government by the State of California in 1897—since July 2005. Lucasfilm argued that the Cartwright Act claim failed because, under the federal enclave doctrine, the Act did not apply to conduct on the Presidio.
The doctrine applied to a claim when the locus in which the claim arose was the federal enclave itself, the court explained. The doctrine did not apply simply because some of the alleged events occurred on the federal enclave, as the defendants contended. The court noted that the federal enclave defense would be more appropriately addressed when class certification was considered, because the doctrine might extinguish the Cartwright Act claims of a putative subclass of plaintiffs.
The decision is In Re: High-Tech Employee Antitrust Litigation, 2012-1 Trade Cases ¶77,866.
Software engineers adequately alleged claims against Google, Pixar, and other high-tech companies headquartered in the San Francisco-Silicon Valley area of California for conspiring to fix and suppress employee compensation and to restrict employee mobility through bilateral “Do Not Cold Call” agreements, the federal district court in San Jose, California, has ruled.
The suit follows Department of Justice Antitrust Division civil actions against the firms, which were resolved by consent decrees ( 2011-1 Trade Cases ¶77,477, 2011-1 Trade Cases ¶77,483).
The complaining employees detailed the actors, effect, victims, location, and timing of the six bilateral agreements between the defending employers. They alleged that the employers had the means, the motive, and the opportunity to implement a conspiracy to restrain competition for employees. The defendants’ senior executives allegedly negotiated, executed, monitored, and policed the agreements.
Opportunity to Conspire
The court also noted that overlapping board membership provided an opportunity to conspire and an opportunity for transfer of the requisite knowledge and intent regarding the bilateral agreements. The fact that the identical agreements were reached in secrecy among seven defendants in a span of two years suggested that the agreements resulted from collusion, and not from coincidence.
Antitrust Injury
In addition, the employees plausibly alleged an antitrust injury resulting from the conspiracy, according to the court. Under Ninth Circuit precedent, where an employee is the direct and intended object of an employer’s anticompetitive conduct, that employee has standing to sue for antitrust injury. Thus, the defending employers’ motion to dismiss for failure to plead antitrust injury was denied.
Federal Enclave Doctrine
A California Cartwright Act claim was not dismissed based on the federal enclave doctrine. One of the defendants, Lucasfilm, has been located on the Presidio—a federal enclave ceded to the U.S. government by the State of California in 1897—since July 2005. Lucasfilm argued that the Cartwright Act claim failed because, under the federal enclave doctrine, the Act did not apply to conduct on the Presidio.
The doctrine applied to a claim when the locus in which the claim arose was the federal enclave itself, the court explained. The doctrine did not apply simply because some of the alleged events occurred on the federal enclave, as the defendants contended. The court noted that the federal enclave defense would be more appropriately addressed when class certification was considered, because the doctrine might extinguish the Cartwright Act claims of a putative subclass of plaintiffs.
The decision is In Re: High-Tech Employee Antitrust Litigation, 2012-1 Trade Cases ¶77,866.
Tuesday, May 01, 2012
Pharmacies Denied Temporary Relief Blocking Integration of Express Scripts, Medco
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
In a suit to block the combination of two pharmaceutical benefit management (PBM) companies—Express Scripts, Inc. and Medco Health Solutions, Inc., retail pharmacies and pharmacy trade associations were not entitled to a preliminary injunction holding separate the PBMs, the federal district court in Pittsburgh has decided.
The plaintiffs failed to establish the likelihood of immediate, irreparable harm that could be alleviated by the issuance of the preliminary injunction order holding separate Medco from Express Scripts.
Shortly after the complaint was filed on March 29, 2012, by the National Association of Chain Drug Stores, the National Community Pharmacists Association, and nine retail pharmacy companies, the PBMs consummated their merger in light of FTC approval of the transaction.
The plaintiffs alleged that the merger “would create an immediate and irreversible harm to competition by destroying two significant competitors in the relevant markets.” They argued that, unless a preliminary injunction holding the PBMs separate were issued, Express Scripts would displace Medco’s management and operations personnel, assume Medco’s administrative functions, and learn Medco’s confidential and trade secret information. However, all of the plaintiffs’ fears already had been realized, according to the court.
At the time that the merger was closed, Express Scripts terminated virtually all of Medco’s senior management, as well as its sales leadership and senior supply chain management team. Medco’s confidential and trade secret information already had been provided to Express Scripts. Thus, any hold-separate order would have been ineffective as a means to protect the plaintiffs from the asserted harm.
Furthermore, the plaintiffs did not demonstrate how, if they ultimately were successful in their cause of action, a brief delay in the divestiture of Medco would cause them any additional immediate and irreparable harm.
The April 25, 2012, decision in National Assn. of Chain Drug Stores v. Express Scripts, Inc., Civil Action No. 12-395, appears at 2012-1 Trade Cases ¶ 77,864.
In a suit to block the combination of two pharmaceutical benefit management (PBM) companies—Express Scripts, Inc. and Medco Health Solutions, Inc., retail pharmacies and pharmacy trade associations were not entitled to a preliminary injunction holding separate the PBMs, the federal district court in Pittsburgh has decided.
The plaintiffs failed to establish the likelihood of immediate, irreparable harm that could be alleviated by the issuance of the preliminary injunction order holding separate Medco from Express Scripts.
Shortly after the complaint was filed on March 29, 2012, by the National Association of Chain Drug Stores, the National Community Pharmacists Association, and nine retail pharmacy companies, the PBMs consummated their merger in light of FTC approval of the transaction.
The plaintiffs alleged that the merger “would create an immediate and irreversible harm to competition by destroying two significant competitors in the relevant markets.” They argued that, unless a preliminary injunction holding the PBMs separate were issued, Express Scripts would displace Medco’s management and operations personnel, assume Medco’s administrative functions, and learn Medco’s confidential and trade secret information. However, all of the plaintiffs’ fears already had been realized, according to the court.
At the time that the merger was closed, Express Scripts terminated virtually all of Medco’s senior management, as well as its sales leadership and senior supply chain management team. Medco’s confidential and trade secret information already had been provided to Express Scripts. Thus, any hold-separate order would have been ineffective as a means to protect the plaintiffs from the asserted harm.
Furthermore, the plaintiffs did not demonstrate how, if they ultimately were successful in their cause of action, a brief delay in the divestiture of Medco would cause them any additional immediate and irreparable harm.
The April 25, 2012, decision in National Assn. of Chain Drug Stores v. Express Scripts, Inc., Civil Action No. 12-395, appears at 2012-1 Trade Cases ¶ 77,864.
Saturday, April 28, 2012
Supplement’s “Healthy Fats” Labeling Could Be Deceptive
This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.
A supplement purchaser sufficiently alleged that a supplement manufacturer’s packaging of its protein drinks and bars was misleading in violation of the California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumer Legal Remedies Act (CLRA), the federal district court in Oakland, California, has held.
The manufacturer’s “Muscle Milk Ready-to-Drink” and “Muscle Milk Bars” were advertised as “an ideal blend of protein, healthy fats, [and] good carbohydrates.” These statements on the label were allegedly false and deceptive because the products actually contained 11 grams of total fat, 8 grams of saturated fat, almost no vitamins or minerals, and some unhealthy ingredients.
A reasonable consumer was likely to believe that the product contained healthy, unsaturated fats rather than saturated fats and was more similar to a nutritional shake, according to the court.
Deceptive Product Labeling
To state California consumer protection law claims based on deceptive product labeling, the purchaser needed to allege that a reasonable consumer was likely to be deceived by the label. The claims on the packaging went beyond claiming the supplement was healthy. Although “healthy” is difficult to define, a reasonable consumer would assume that “healthy fats” and “nutritious snack” referred to unsaturated fats rather than saturated fats. The nutrient label did not negate the finding that the labeling was misleading because the packaging contained affirmative misrepresentations, and manufacturers cannot rely of the small-print nutritional label to contradict and cure that misrepresentation.
The purchaser’s claims that other statements were misleading were denied, as they were not specific enough to meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b).
Loss of Money or Property
In order to state UCL and FAL claims, the purchaser needed to show she lost money or property as a result of the violations. The purchaser alleged that she was denied the benefit of her bargain based on paying more for the supplement than a healthier, less expensive product because of the misrepresentations.
The purchaser also needed to show that she would not have purchased the product but for the misrepresentations on the product’s label. There was sufficient evidence that the purchaser read and relied on the misleading label on the packaging and that she suffered economic harm, according to the court.
The court held that the California Supreme Court would adopt the approach to unfairness under the UCL that the consumer injury must be substantial, the injury must not be outweighed by any countervailing benefits to consumers or competition, and it must be an injury that could not have been avoided. Misleading labels may qualify as unfair business practices if found to be misleading and the injury to the consumer class was substantial.
The decision is Delacruz v. Cytosports, Inc., CCH State Unfair Trade Practices Law ¶32,442.
A supplement purchaser sufficiently alleged that a supplement manufacturer’s packaging of its protein drinks and bars was misleading in violation of the California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumer Legal Remedies Act (CLRA), the federal district court in Oakland, California, has held.
The manufacturer’s “Muscle Milk Ready-to-Drink” and “Muscle Milk Bars” were advertised as “an ideal blend of protein, healthy fats, [and] good carbohydrates.” These statements on the label were allegedly false and deceptive because the products actually contained 11 grams of total fat, 8 grams of saturated fat, almost no vitamins or minerals, and some unhealthy ingredients.
A reasonable consumer was likely to believe that the product contained healthy, unsaturated fats rather than saturated fats and was more similar to a nutritional shake, according to the court.
Deceptive Product Labeling
To state California consumer protection law claims based on deceptive product labeling, the purchaser needed to allege that a reasonable consumer was likely to be deceived by the label. The claims on the packaging went beyond claiming the supplement was healthy. Although “healthy” is difficult to define, a reasonable consumer would assume that “healthy fats” and “nutritious snack” referred to unsaturated fats rather than saturated fats. The nutrient label did not negate the finding that the labeling was misleading because the packaging contained affirmative misrepresentations, and manufacturers cannot rely of the small-print nutritional label to contradict and cure that misrepresentation.
The purchaser’s claims that other statements were misleading were denied, as they were not specific enough to meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b).
Loss of Money or Property
In order to state UCL and FAL claims, the purchaser needed to show she lost money or property as a result of the violations. The purchaser alleged that she was denied the benefit of her bargain based on paying more for the supplement than a healthier, less expensive product because of the misrepresentations.
The purchaser also needed to show that she would not have purchased the product but for the misrepresentations on the product’s label. There was sufficient evidence that the purchaser read and relied on the misleading label on the packaging and that she suffered economic harm, according to the court.
The court held that the California Supreme Court would adopt the approach to unfairness under the UCL that the consumer injury must be substantial, the injury must not be outweighed by any countervailing benefits to consumers or competition, and it must be an injury that could not have been avoided. Misleading labels may qualify as unfair business practices if found to be misleading and the injury to the consumer class was substantial.
The decision is Delacruz v. Cytosports, Inc., CCH State Unfair Trade Practices Law ¶32,442.
Thursday, April 26, 2012
Grads Could Not Pursue Action Based on Law School’s Post-Graduate Job Claims
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
Nine graduates of New York Law School (NYLS), who allegedly chose to attend the school based on its promotional statements as to hiring of graduates, could not pursue claims for damages under the New York deceptive practices statute and common law, a New York state trial court has held. The graduates sought to recover damages equal to the difference between the allegedly inflated tuition (currently $47,800 per year) and the “true value” of an NYLS degree.
The allegedly misleading information was disseminated for the classes entering 2005-2010. According to the complaint, the NYLS data allegedly omitted facts that would have given prospective students a more accurate picture of NYLS's post-graduation employment prospects.
For example, the graduates alleged that NYLS consistently reported that approximately 90-92 percent of its graduates secured employment within nine months of graduation, but did not report the percentage of graduates employed in part-time or temporary positions.
NYLS's statements in its marketing materials were not misleading in a material way to consumers acting reasonably, the court determined. Documentary evidence in the complaint identified sources of information regarding law school graduates' realistic employment prospects—sources readily available for reasonable consumers of legal education to research and compare various law schools for the purpose of seriously considering whether to enroll.
The students could not have reasonably relied on NYLS's alleged misrepresentations, in the court’s view. They had ample information from additional sources and had the opportunity to discover the then-existing employment prospects at each stage of their legal education.
The graduates’ theory of damages was too speculative, according to the court. This was especially true since a supervening event, the 2008 Great Recession and its aftermath, had wreaked havoc throughout the legal job market and upset the plans of most recent law graduates wherever they attended law school.
The decision is Gomez-Jimenez v. New York Law School, CCH Advertising Law ¶64,652
Nine graduates of New York Law School (NYLS), who allegedly chose to attend the school based on its promotional statements as to hiring of graduates, could not pursue claims for damages under the New York deceptive practices statute and common law, a New York state trial court has held. The graduates sought to recover damages equal to the difference between the allegedly inflated tuition (currently $47,800 per year) and the “true value” of an NYLS degree.
The allegedly misleading information was disseminated for the classes entering 2005-2010. According to the complaint, the NYLS data allegedly omitted facts that would have given prospective students a more accurate picture of NYLS's post-graduation employment prospects.
For example, the graduates alleged that NYLS consistently reported that approximately 90-92 percent of its graduates secured employment within nine months of graduation, but did not report the percentage of graduates employed in part-time or temporary positions.
NYLS's statements in its marketing materials were not misleading in a material way to consumers acting reasonably, the court determined. Documentary evidence in the complaint identified sources of information regarding law school graduates' realistic employment prospects—sources readily available for reasonable consumers of legal education to research and compare various law schools for the purpose of seriously considering whether to enroll.
The students could not have reasonably relied on NYLS's alleged misrepresentations, in the court’s view. They had ample information from additional sources and had the opportunity to discover the then-existing employment prospects at each stage of their legal education.
The graduates’ theory of damages was too speculative, according to the court. This was especially true since a supervening event, the 2008 Great Recession and its aftermath, had wreaked havoc throughout the legal job market and upset the plans of most recent law graduates wherever they attended law school.
The decision is Gomez-Jimenez v. New York Law School, CCH Advertising Law ¶64,652
Wednesday, April 25, 2012
Condom Maker’s Shelf Agreements with Retailers Not a Barrier to Competition
This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.
The manufacturer of Trojan condoms did not engage in exclusive dealing, monopolization, attempted monopolization, or a conspiracy to monopolize by entering into "planogram" shelf-space agreements with large chain retailers or by allegedly abusing a "category captain" position granted to it by some retailers, the federal district court in San Francisco has decided.
A complaining niche competitor failed to raise a genuine issue of material fact as to whether the agreements substantially foreclosed competition in the relevant market for male condoms sold to retailers. The competitor’s antitrust claims were therefore dismissed.
Under the planogram agreements, the manufacturer offered the retailers a percentage rebate off its wholesale price in exchange for the retailer’s commitment to devote a certain percentage of the condom shelf space to the manufacturer’s products. "Category captain" described a position to which the manufacturer was appointed by some retailers in order to assist with shelf space allocations and to give advice on how best to present the category.
Market Power
The complaining competitor failed to provide direct or circumstantial evidence that the defendant possessed market power over the relevant market, the court held at the outset. The competitor, whose market share never surpassed one-half of one percent throughout the relevant period, offered no evidence of restricted output or supra-competitive prices.
Although the defending manufacturer clearly held a dominant share—over 75 percent—of the relevant market, the complaining competitor could not demonstrate that there were significant barriers to entry into that market or that existing competitors lacked the capacity to increase their output in the short run. The rebate program at issue in the suit did not constitute a substantial barrier to entry. It was undisputed that just three major players had long dominated the condom market, and that while small players like the plaintiff had entered the market, none had seriously challenged the big three recently.
The market structure indicated that a combination of factors might have prevented the market from self-correcting in the face of anticompetitive conduct, the court stated. Even assuming significant barriers to entry, the competitor failed to produce any evidence, or even argument, as to whether existing competitors lacked the capacity to increase their output in the short run.
Market Foreclosure
The planogram program did not force retailers to give any specified amount of shelf space to the defending manufacturer over its rivals, the court observed. In addition, retailers could terminate their already-short contract agreements at any time, for any reason, with minimal enough notice to substantially negate the risk of foreclosure effects. The terminability of the contracts rendered them presumptively lawful, the court noted. Finally, the rebate program left open existing and potential alternative channels of distribution to the manufacturer’s competitors.
The program was not shown to be coercive in practice any more than in theory, the court explained. A significant number of large retailers did not participate. Even those who did were not clustered at the bottom tier of the rebate structure in the manner that the plaintiffs’ theory of coercive effect suggested they would be. The record contained qualitative evidence that retailers could, and did, reduce or eliminate their participation in the planogram program based on market forces.
Further, evidence indicated that the manufacturer’s share of sales at non-participating retailers was roughly on par with its sales at participating retailers, its shelf share system-wide seldom exceeded its market share, and its two primary competitors apparently avoided any purported anticompetitive effect of the planogram program.
The complaining company’s own competitive misfortunes had myriad causes other than the defending manufacturer’s alleged exclusionary conduct, the court explained. Moreover, even if a coercive effect had been demonstrated, there was still no evidence that competition was foreclosed from a substantial portion of the market.
Exclusionary Conduct?
The Trojan maker’s "planogram" agreements and "category captain" conduct did not amount to sufficiently exclusionary conduct to support claims of unlawful monopolization, attempted monopolization, or monopolization conspiracy, the court declared. The complaining competitor provided no evidence as to how often the manufacturer’s recommendations were adopted or whether they had the intent and/or effect of sabotaging the competitor. Undisputed evidence in the record indicated that it was commonplace in the industry for manufacturers to suggest planogram designs or provide retailers with other information to advocate for their brands, and even the complaining competitor had engaged in certain advocacy tactics in an attempt to influence retailer decisions.
The fact that the defending manufacturer was successful in achieving a degree of cooperation with retailers did not, without more, establish anticompetitive conduct. Without a showing of exclusionary conduct, no reasonable inference could be made of either general or specific intent to monopolize to support either a claim of completed or attempted monopolization, the court reasoned.
Antitrust Injury
The defending manufacturer also would not have caused a cognizable antitrust injury through the alleged conduct, the court added. While the complaining competitor sufficiently alleged harm to itself and to other small manufacturers, it failed to show that its losses were the result of the defending manufacturer’s alleged anticompetitive acts as opposed to other market forces, and further failed to demonstrate harm to competition. It offered no explanation for why other larger rivals in the industry managed to compete with the defendant despite the alleged misconduct.
The decision is Church & Dwight Co., Inc v. Mayer Laboratories, Inc., 2012-1 Trade Cases ¶77,863.
The manufacturer of Trojan condoms did not engage in exclusive dealing, monopolization, attempted monopolization, or a conspiracy to monopolize by entering into "planogram" shelf-space agreements with large chain retailers or by allegedly abusing a "category captain" position granted to it by some retailers, the federal district court in San Francisco has decided.
A complaining niche competitor failed to raise a genuine issue of material fact as to whether the agreements substantially foreclosed competition in the relevant market for male condoms sold to retailers. The competitor’s antitrust claims were therefore dismissed.
Under the planogram agreements, the manufacturer offered the retailers a percentage rebate off its wholesale price in exchange for the retailer’s commitment to devote a certain percentage of the condom shelf space to the manufacturer’s products. "Category captain" described a position to which the manufacturer was appointed by some retailers in order to assist with shelf space allocations and to give advice on how best to present the category.
Market Power
The complaining competitor failed to provide direct or circumstantial evidence that the defendant possessed market power over the relevant market, the court held at the outset. The competitor, whose market share never surpassed one-half of one percent throughout the relevant period, offered no evidence of restricted output or supra-competitive prices.
Although the defending manufacturer clearly held a dominant share—over 75 percent—of the relevant market, the complaining competitor could not demonstrate that there were significant barriers to entry into that market or that existing competitors lacked the capacity to increase their output in the short run. The rebate program at issue in the suit did not constitute a substantial barrier to entry. It was undisputed that just three major players had long dominated the condom market, and that while small players like the plaintiff had entered the market, none had seriously challenged the big three recently.
The market structure indicated that a combination of factors might have prevented the market from self-correcting in the face of anticompetitive conduct, the court stated. Even assuming significant barriers to entry, the competitor failed to produce any evidence, or even argument, as to whether existing competitors lacked the capacity to increase their output in the short run.
Market Foreclosure
The planogram program did not force retailers to give any specified amount of shelf space to the defending manufacturer over its rivals, the court observed. In addition, retailers could terminate their already-short contract agreements at any time, for any reason, with minimal enough notice to substantially negate the risk of foreclosure effects. The terminability of the contracts rendered them presumptively lawful, the court noted. Finally, the rebate program left open existing and potential alternative channels of distribution to the manufacturer’s competitors.
The program was not shown to be coercive in practice any more than in theory, the court explained. A significant number of large retailers did not participate. Even those who did were not clustered at the bottom tier of the rebate structure in the manner that the plaintiffs’ theory of coercive effect suggested they would be. The record contained qualitative evidence that retailers could, and did, reduce or eliminate their participation in the planogram program based on market forces.
Further, evidence indicated that the manufacturer’s share of sales at non-participating retailers was roughly on par with its sales at participating retailers, its shelf share system-wide seldom exceeded its market share, and its two primary competitors apparently avoided any purported anticompetitive effect of the planogram program.
The complaining company’s own competitive misfortunes had myriad causes other than the defending manufacturer’s alleged exclusionary conduct, the court explained. Moreover, even if a coercive effect had been demonstrated, there was still no evidence that competition was foreclosed from a substantial portion of the market.
Exclusionary Conduct?
The Trojan maker’s "planogram" agreements and "category captain" conduct did not amount to sufficiently exclusionary conduct to support claims of unlawful monopolization, attempted monopolization, or monopolization conspiracy, the court declared. The complaining competitor provided no evidence as to how often the manufacturer’s recommendations were adopted or whether they had the intent and/or effect of sabotaging the competitor. Undisputed evidence in the record indicated that it was commonplace in the industry for manufacturers to suggest planogram designs or provide retailers with other information to advocate for their brands, and even the complaining competitor had engaged in certain advocacy tactics in an attempt to influence retailer decisions.
The fact that the defending manufacturer was successful in achieving a degree of cooperation with retailers did not, without more, establish anticompetitive conduct. Without a showing of exclusionary conduct, no reasonable inference could be made of either general or specific intent to monopolize to support either a claim of completed or attempted monopolization, the court reasoned.
Antitrust Injury
The defending manufacturer also would not have caused a cognizable antitrust injury through the alleged conduct, the court added. While the complaining competitor sufficiently alleged harm to itself and to other small manufacturers, it failed to show that its losses were the result of the defending manufacturer’s alleged anticompetitive acts as opposed to other market forces, and further failed to demonstrate harm to competition. It offered no explanation for why other larger rivals in the industry managed to compete with the defendant despite the alleged misconduct.
The decision is Church & Dwight Co., Inc v. Mayer Laboratories, Inc., 2012-1 Trade Cases ¶77,863.
Tuesday, April 24, 2012
Antitrust Claims Against Cable Provider Pared, But Sent to Trial
This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.
Cable television programming service provider Comcast Corp. could have violated Sec. 1 or Sec. 2 of the Sherman Act by entering into swap agreements with other cable providers in the Philadelphia area and undertaking a course of action to block new entrants into its service areas, the federal district court in Philadelphia has ruled.
The complaining class of subscribers could not establish that Comcast’s swap agreements were illegal per se or that the company’s attempts to restrict access to installation contractors and to a sports network it owned constituted actionable predatory conduct. However, the class did offer enough evidence to support a claim of horizontal market allocation under the rule of reason and monopolization or attempted monopolization based on targeted price discounts to prospective customers of a new entrant into an area it served, in the court’s view. Comcast’s motion for summary judgment against the claims was granted in part and denied in part.
Per Se Illegality
Comcast’s swap agreements did not amount to a per se violation of the Sherman Act because the class failed to meet its summary judgment burden with respect to whether the swap transactions were naked market division agreements, rather than merely ancillary restraints on trade. The class did not create a genuine issue of material fact concerning whether the cable provider had anticompetitive intent in entering into the swap agreements.
Evidence that the company’s executives had a long-standing desire to "rationalize the cable industry" by consolidating positions in certain markets in exchange for giving up positions in other markets did not support the conclusion that the swap agreements were naked restraints of trade so plainly anticompetitive that no elaborate study of the industry was needed to establish their illegality. The ability of cable companies to provide new and advanced services, achieved through clustering their systems, required proof of facts that were substantially different from the classic horizontal price fixing and group boycott conspiracies generally found to be per se antitrust violations, the court said.
Allocation of Customers/Markets
Comcast was not entitled to summary judgment on the Sec. 1 claim outright on the basis that the counterparties to the swap agreements were never actual or potential competitors. For purposes of the subscribers’ Sec. 1 claim, their certification as a class (2012-2 Trade Cases ¶77,575) hinged on whether they could demonstrate that Comcast conspired with competitors to allocate markets, the court noted. The class offered sufficient evidence to create a jury issue on whether Comcast and the counterparties to the swap agreements were actual competitors.
An argument by the company that it and the counterparties were never competitors in the Philadelphia market—even though each offered cable services to subscribers in that market—because they operated cable systems in non-overlapping franchise areas and did not offer services to the same subscribers, at the same time, anywhere in the region was rejected.
Whether or not the franchise areas were overlapping was immaterial because the relevant geographic area was not limited to the individual franchise area. The class did not need to show that the defendant actually competed with the counterparties in the same franchise area. Based upon the proposed market definitions, it was sufficient that each provided cable television programming services in the Philadelphia direct marketing area.
Monopoly Claims
Comcast did not engage in unlawful monopolization or attempted monopolization by creating a Philadelphia area cluster through the use of the swap agreements to allocate the market between it and two competitors, the court found. The conduct may have been predatory, according to the court, but the class failed to show that the purportedly procompetitive justifications Comcast offered for its conduct were pretextual.
Those justifications included the realization of efficiencies in marketing, infrastructure, management, and operations, along with an ability to introduce new products such as high-speed Internet, telephone, high-definition television, and other video features and services. Evidence that it raised prices did not refute the claim of efficiency. The court rejected arguments by the class that Comcast could have achieved the same level of efficiency of clustering by overbuilding its competitors, rather than acquiring them or swapping for their assets, and that it never studied whether it was achieving its goals.
Comcast’s offering of targeted price discounts to subscribers in one county it dominated in order to convince them not to switch service to a competing cable overbuilder that was moving into the area could have violated Sec. 2 of the Act, the court decided. Because of the price freeze in areas the competitor entered, and increased prices in areas it did not, the rates paid by the company’s customers in overbuilt areas were allegedly 18 to 38 percent below the rates paid by its customers in areas where the overbuilder did not offer service. The implications of the disparate pricing policy were clear: but for the overbuilder’s failure to enter the City of Philadelphia, the defending cable provider’s customers in those areas would have enjoyed significantly lower prices.
That Comcast never offered below-cost prices to potential customers of the overbuilder did not mandate a finding that the discount program was not exclusionary conduct. Because it possessed market power, its decision to target promotional discounts to deter a new entrant could be deemed predatory and an exercise of market power to maintain its monopoly. Given that the company made no argument that the discount program had otherwise legitimate business justifications, the claim had to be submitted to a jury, the court concluded.
The decision is Behrend v. Comcast Corp., 2012-1 Trade Cases ¶77,862.
Cable television programming service provider Comcast Corp. could have violated Sec. 1 or Sec. 2 of the Sherman Act by entering into swap agreements with other cable providers in the Philadelphia area and undertaking a course of action to block new entrants into its service areas, the federal district court in Philadelphia has ruled.
The complaining class of subscribers could not establish that Comcast’s swap agreements were illegal per se or that the company’s attempts to restrict access to installation contractors and to a sports network it owned constituted actionable predatory conduct. However, the class did offer enough evidence to support a claim of horizontal market allocation under the rule of reason and monopolization or attempted monopolization based on targeted price discounts to prospective customers of a new entrant into an area it served, in the court’s view. Comcast’s motion for summary judgment against the claims was granted in part and denied in part.
Per Se Illegality
Comcast’s swap agreements did not amount to a per se violation of the Sherman Act because the class failed to meet its summary judgment burden with respect to whether the swap transactions were naked market division agreements, rather than merely ancillary restraints on trade. The class did not create a genuine issue of material fact concerning whether the cable provider had anticompetitive intent in entering into the swap agreements.
Evidence that the company’s executives had a long-standing desire to "rationalize the cable industry" by consolidating positions in certain markets in exchange for giving up positions in other markets did not support the conclusion that the swap agreements were naked restraints of trade so plainly anticompetitive that no elaborate study of the industry was needed to establish their illegality. The ability of cable companies to provide new and advanced services, achieved through clustering their systems, required proof of facts that were substantially different from the classic horizontal price fixing and group boycott conspiracies generally found to be per se antitrust violations, the court said.
Allocation of Customers/Markets
Comcast was not entitled to summary judgment on the Sec. 1 claim outright on the basis that the counterparties to the swap agreements were never actual or potential competitors. For purposes of the subscribers’ Sec. 1 claim, their certification as a class (2012-2 Trade Cases ¶77,575) hinged on whether they could demonstrate that Comcast conspired with competitors to allocate markets, the court noted. The class offered sufficient evidence to create a jury issue on whether Comcast and the counterparties to the swap agreements were actual competitors.
An argument by the company that it and the counterparties were never competitors in the Philadelphia market—even though each offered cable services to subscribers in that market—because they operated cable systems in non-overlapping franchise areas and did not offer services to the same subscribers, at the same time, anywhere in the region was rejected.
Whether or not the franchise areas were overlapping was immaterial because the relevant geographic area was not limited to the individual franchise area. The class did not need to show that the defendant actually competed with the counterparties in the same franchise area. Based upon the proposed market definitions, it was sufficient that each provided cable television programming services in the Philadelphia direct marketing area.
Monopoly Claims
Comcast did not engage in unlawful monopolization or attempted monopolization by creating a Philadelphia area cluster through the use of the swap agreements to allocate the market between it and two competitors, the court found. The conduct may have been predatory, according to the court, but the class failed to show that the purportedly procompetitive justifications Comcast offered for its conduct were pretextual.
Those justifications included the realization of efficiencies in marketing, infrastructure, management, and operations, along with an ability to introduce new products such as high-speed Internet, telephone, high-definition television, and other video features and services. Evidence that it raised prices did not refute the claim of efficiency. The court rejected arguments by the class that Comcast could have achieved the same level of efficiency of clustering by overbuilding its competitors, rather than acquiring them or swapping for their assets, and that it never studied whether it was achieving its goals.
Comcast’s offering of targeted price discounts to subscribers in one county it dominated in order to convince them not to switch service to a competing cable overbuilder that was moving into the area could have violated Sec. 2 of the Act, the court decided. Because of the price freeze in areas the competitor entered, and increased prices in areas it did not, the rates paid by the company’s customers in overbuilt areas were allegedly 18 to 38 percent below the rates paid by its customers in areas where the overbuilder did not offer service. The implications of the disparate pricing policy were clear: but for the overbuilder’s failure to enter the City of Philadelphia, the defending cable provider’s customers in those areas would have enjoyed significantly lower prices.
That Comcast never offered below-cost prices to potential customers of the overbuilder did not mandate a finding that the discount program was not exclusionary conduct. Because it possessed market power, its decision to target promotional discounts to deter a new entrant could be deemed predatory and an exercise of market power to maintain its monopoly. Given that the company made no argument that the discount program had otherwise legitimate business justifications, the claim had to be submitted to a jury, the court concluded.
The decision is Behrend v. Comcast Corp., 2012-1 Trade Cases ¶77,862.
Monday, April 23, 2012
CFO Violated RICO; Plaintiff Awarded $3.5 Million in Damages
This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.
The bookkeeper and chief financial officer (CFO) of an industrial machinery supplier violated RICO by participating in a fraudulent scheme to sell overpriced equipment to a flooring company, the federal district court in Abingdon, Virginia, has ruled. More than $3.5 million in damages, after trebling under RICO, were awarded to the flooring company.
Participation in Enterprise
The bookkeeper-CFO participated in the conduct of an association-in-fact enterprise—which consisted of the plaintiff, her husband, the supplier, and a company that appeared to be used for the sole purpose of carrying out the fraudulent scheme—by manipulating the supplier’s books and records, creating false invoices, signing kickback checks, and obstructing access to accurate data and documents, the court explained.
These actions were integral to the operation of the enterprise. Without the manipulation of the supplier’s accounting records, the issuance of false invoices, and the cutting of the kickback checks, the enterprise would have not been able to achieve its goal of defrauding a flooring company.
Pattern of Racketeering
The defendant and her co-conspirators engaged in a pattern of racketeering activity that consisted of mail fraud, wire fraud, commercial bribery, and obstruction of justice, even though those acts were perpetrated in furtherance of a single scheme to defraud a single customer (the flooring company), the court determined. Under RICO, a pattern of racketeering was present if a series of related predicate acts were committed over a substantial period of time.
In this case, the racketeering acts were related because they all were perpetrated to defraud the flooring company. The acts were sufficiently continuous, as well, because they were committed between September 2005 and 2008, which represented a substantial period of time for the purpose of RICO’s continuity requirement.
Punitive Damages; Attorney Fees
The court denied the plaintiff’s request for punitive damages because the plaintiff’s state law claims arose from the same set of facts, and were based on the same duties and injuries, as its RICO claims. A punitive damage award would thus be duplicative. The plaintiff’s request for nearly $713,000 in attorney fees was also denied.
Although the hourly rate charged by the plaintiff’s counsel was reasonable, the overall fee was not, according to the court. Therefore, the plaintiff’s fee request was reduced by 50 percent. The court awarded slightly more than $356,000 in attorney fees.
The decision is VFI Associates, LLC v. Lobo Machinery Corp., CCH RICO Business Disputes Guide ¶12,204.
Further information regarding CCH RICO Business Disputes Guide appears here.
The bookkeeper and chief financial officer (CFO) of an industrial machinery supplier violated RICO by participating in a fraudulent scheme to sell overpriced equipment to a flooring company, the federal district court in Abingdon, Virginia, has ruled. More than $3.5 million in damages, after trebling under RICO, were awarded to the flooring company.
Participation in Enterprise
The bookkeeper-CFO participated in the conduct of an association-in-fact enterprise—which consisted of the plaintiff, her husband, the supplier, and a company that appeared to be used for the sole purpose of carrying out the fraudulent scheme—by manipulating the supplier’s books and records, creating false invoices, signing kickback checks, and obstructing access to accurate data and documents, the court explained.
These actions were integral to the operation of the enterprise. Without the manipulation of the supplier’s accounting records, the issuance of false invoices, and the cutting of the kickback checks, the enterprise would have not been able to achieve its goal of defrauding a flooring company.
Pattern of Racketeering
The defendant and her co-conspirators engaged in a pattern of racketeering activity that consisted of mail fraud, wire fraud, commercial bribery, and obstruction of justice, even though those acts were perpetrated in furtherance of a single scheme to defraud a single customer (the flooring company), the court determined. Under RICO, a pattern of racketeering was present if a series of related predicate acts were committed over a substantial period of time.
In this case, the racketeering acts were related because they all were perpetrated to defraud the flooring company. The acts were sufficiently continuous, as well, because they were committed between September 2005 and 2008, which represented a substantial period of time for the purpose of RICO’s continuity requirement.
Punitive Damages; Attorney Fees
The court denied the plaintiff’s request for punitive damages because the plaintiff’s state law claims arose from the same set of facts, and were based on the same duties and injuries, as its RICO claims. A punitive damage award would thus be duplicative. The plaintiff’s request for nearly $713,000 in attorney fees was also denied.
Although the hourly rate charged by the plaintiff’s counsel was reasonable, the overall fee was not, according to the court. Therefore, the plaintiff’s fee request was reduced by 50 percent. The court awarded slightly more than $356,000 in attorney fees.
The decision is VFI Associates, LLC v. Lobo Machinery Corp., CCH RICO Business Disputes Guide ¶12,204.
Further information regarding CCH RICO Business Disputes Guide appears here.
Friday, April 20, 2012
Excluded Radiologist Lacked Antitrust Standing to Sue Hospital, Physician Groups
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
A radiologist who was excluded from two New Jersey hospitals after the hospitals’ operator selected a new exclusive radiology provider lacked antitrust standing to pursue boycott and monopoly claims, the U.S. Court of Appeals in Philadelphia decided earlier this week.
Nearly a decade ago, the radiologist filed his antitrust claims, alleging the hospital operator, its director of radiology, and two radiology physician groups conspired to boycott him in the local radiology market and used illegal tying arrangements to link radiology services to hospital services. He also alleged that exclusive radiology provider contracts were intended to monopolize the outpatient and hospital radiology markets.
The cardiologist failed to establish a nexus between his purported exclusion from the market for radiology jobs and the anticompetitive effects of the alleged conduct, the court ruled.
Because the complaining radiologist obtained a position with a nearby hospital within two weeks of his termination the original radiology group, he could not show that he was excluded entirely from the market.
The radiologist did not demonstrate that the challenged conduct was anticompetitive. He failed to show that the behavior leading to his exclusion—the change of contractor in a long-standing practice of exclusive contracting for radiology services—was the type that might lessen competition among radiology providers for the right to practice in the market.
Finally, the complaining radiologist failed to establish that his termination stemmed directly from conduct that was illegal because of its anticompetitive effects on the price, output, or quality of radiology services available to consumers. There was no indication that the radiologist’s exclusion allowed the defendants to provide substandard radiology services and reduce consumer choice, it was noted.
The April 17 non-precedential decision in Bocobo v. Radiology Consultants of South Jersey, P.A. will appear in CCH Trade Regulation Reporter.
A radiologist who was excluded from two New Jersey hospitals after the hospitals’ operator selected a new exclusive radiology provider lacked antitrust standing to pursue boycott and monopoly claims, the U.S. Court of Appeals in Philadelphia decided earlier this week.
Nearly a decade ago, the radiologist filed his antitrust claims, alleging the hospital operator, its director of radiology, and two radiology physician groups conspired to boycott him in the local radiology market and used illegal tying arrangements to link radiology services to hospital services. He also alleged that exclusive radiology provider contracts were intended to monopolize the outpatient and hospital radiology markets.
The cardiologist failed to establish a nexus between his purported exclusion from the market for radiology jobs and the anticompetitive effects of the alleged conduct, the court ruled.
Because the complaining radiologist obtained a position with a nearby hospital within two weeks of his termination the original radiology group, he could not show that he was excluded entirely from the market.
The radiologist did not demonstrate that the challenged conduct was anticompetitive. He failed to show that the behavior leading to his exclusion—the change of contractor in a long-standing practice of exclusive contracting for radiology services—was the type that might lessen competition among radiology providers for the right to practice in the market.
Finally, the complaining radiologist failed to establish that his termination stemmed directly from conduct that was illegal because of its anticompetitive effects on the price, output, or quality of radiology services available to consumers. There was no indication that the radiologist’s exclusion allowed the defendants to provide substandard radiology services and reduce consumer choice, it was noted.
The April 17 non-precedential decision in Bocobo v. Radiology Consultants of South Jersey, P.A. will appear in CCH Trade Regulation Reporter.
Thursday, April 19, 2012
Franchisor’s Airing of Provocative Commericals Did Not Breach Good Faith Duty Owed to Franchisees
This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.
Fast food franchisor, Hardee’s Food Systems, Inc., did not breach the implied covenant of good faith and fair dealing in its agreement with a franchisee by airing sexually provocative television commercials, a federal district court in St. Louis has ruled.
The franchisee alleged that the franchisor’s airing of two specific “lewd” ads on television during the franchisee’s renewal period abused its discretion its discretion in a manner that denied the franchisee the expected benefit under the agreement. The franchisee argued it received repeated complaints about the ads in its “predominantly agricultural and union oriented community” and sought lost profits and other damages.
Under Missouri law, where a contract left a decision to the discretion of one party, the issue was not whether the party made an erroneous decision, but whether the decision was made in bad faith or was arbitrary or capricious so as to amount to an abuse of discretion, the court explained.
In this instance, there was no evidence from which a jury could find that the challenged conduct of Hardee’s was arbitrary and capricious, opportunistic, or evaded the spirit of the franchise agreement to deny the franchisee the expected benefit thereof, the court held.
Instead, the evidence showed that Hardee’s made a strategic marketing decision and approved the ads at issue in what it believed was in the best interests of the Hardee’s brand, which is what the agreement contemplated that Hardee’s would do.
The decision is Hardee’s Food Systems, Inc. v. Hallbeck, CCH Business Franchise Guide ¶ 14,809.
Fast food franchisor, Hardee’s Food Systems, Inc., did not breach the implied covenant of good faith and fair dealing in its agreement with a franchisee by airing sexually provocative television commercials, a federal district court in St. Louis has ruled.
The franchisee alleged that the franchisor’s airing of two specific “lewd” ads on television during the franchisee’s renewal period abused its discretion its discretion in a manner that denied the franchisee the expected benefit under the agreement. The franchisee argued it received repeated complaints about the ads in its “predominantly agricultural and union oriented community” and sought lost profits and other damages.
Under Missouri law, where a contract left a decision to the discretion of one party, the issue was not whether the party made an erroneous decision, but whether the decision was made in bad faith or was arbitrary or capricious so as to amount to an abuse of discretion, the court explained.
In this instance, there was no evidence from which a jury could find that the challenged conduct of Hardee’s was arbitrary and capricious, opportunistic, or evaded the spirit of the franchise agreement to deny the franchisee the expected benefit thereof, the court held.
Instead, the evidence showed that Hardee’s made a strategic marketing decision and approved the ads at issue in what it believed was in the best interests of the Hardee’s brand, which is what the agreement contemplated that Hardee’s would do.
The decision is Hardee’s Food Systems, Inc. v. Hallbeck, CCH Business Franchise Guide ¶ 14,809.
Wednesday, April 18, 2012
NASAA Issues Revised Proposal for Model Franchise Exemptions
This posting was written by Pete Reap, Editor of the CCH Business Franchise Guide.
The Franchise and Business Opportunity Project Group of the North American Securities Administrators Association (NASAA) re-released for comment yesterday proposed changes to NASAA’s Model Franchise Exemptions. The proposal includes model language for states to use to promulgate exemptions from registration and disclosure provisions under current state laws.
In response to a previous solicitation for comment, NASAA received a total of six public comments regarding various provisions in the Model Exemptions.
After considering the comments, the Franchise Project Group concluded that, in general, the Model Exemptions strike the right balance between the desirability of reducing compliance burdens on franchisors and the need for prospective franchisees to review Franchise Disclosure Documents in appropriate cases in order to make informed investment decisions. The Franchise Project Group decided—in light of several comments—to propose revisions to specific Model Exemptions.
Revised Exemptions include the Fractional Franchise Exemption, the Experienced Franchisor Exemption, the Sophisticated Purchaser Exemption, and the Discretionary Exemption.
A new release, including a link to download the Revised Proposed Model Franchise Exemptions, appears here.
Comments will be accepted through May 16, 2012. They should be sent by email or in writing to:
Dale Cantone
Chair, Franchise and Business Opportunity Project Group
Office of the Maryland Attorney General
Division of Securities
200 St. Paul Place
20th Floor Baltimore, MD 21202-2020
Email: dcantone@oag.state.md.us
or
Joseph Opron
Counsel
NASAA
750 First Street, NE
Suite 1140
Washington, DC 20002
Email: jjo@nasaa.org
The Franchise and Business Opportunity Project Group of the North American Securities Administrators Association (NASAA) re-released for comment yesterday proposed changes to NASAA’s Model Franchise Exemptions. The proposal includes model language for states to use to promulgate exemptions from registration and disclosure provisions under current state laws.
In response to a previous solicitation for comment, NASAA received a total of six public comments regarding various provisions in the Model Exemptions.
After considering the comments, the Franchise Project Group concluded that, in general, the Model Exemptions strike the right balance between the desirability of reducing compliance burdens on franchisors and the need for prospective franchisees to review Franchise Disclosure Documents in appropriate cases in order to make informed investment decisions. The Franchise Project Group decided—in light of several comments—to propose revisions to specific Model Exemptions.
Revised Exemptions include the Fractional Franchise Exemption, the Experienced Franchisor Exemption, the Sophisticated Purchaser Exemption, and the Discretionary Exemption.
A new release, including a link to download the Revised Proposed Model Franchise Exemptions, appears here.
Comments will be accepted through May 16, 2012. They should be sent by email or in writing to:
Dale Cantone
Chair, Franchise and Business Opportunity Project Group
Office of the Maryland Attorney General
Division of Securities
200 St. Paul Place
20th Floor Baltimore, MD 21202-2020
Email: dcantone@oag.state.md.us
or
Joseph Opron
Counsel
NASAA
750 First Street, NE
Suite 1140
Washington, DC 20002
Email: jjo@nasaa.org
Tuesday, April 17, 2012
KEVLAR Maker’s Supply Agreements Did Not Foreclose Fiber Market
This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.
The manufacturer of "KEVLAR"-branded aramid fiber, a high-strength fiber used in ballistics applications and protective apparel, did not engage in unlawful monopolization or attempted monopolization of the para-aramid fiber market in the United States by procuring exclusive long-term supply agreements with certain high-volume customers, the federal district court in Richmond, Virginia, has held. Summary judgment against federal antitrust claims asserted by a Korean competitor was therefore granted.
The defending manufacturer, E.I. Du Pont de Nemours & Co. (DuPont), did not possess the requisite monopoly power over the para-aramid fiber market in the United States to have engaged in monopolization, the court held. The highest market share DuPont held during the relevant period was only 59 percent, and that share—which had already been in decline for decades—only further fell over the time span relevant to the suit. Thus, DuPont clearly lacked the power to control prices and exclude competition.
Even if the complaining competitor—Kolon Industries, Inc.—had been able to establish that DuPont had the requisite market power, it still failed to demonstrate illegal maintenance of such power over the relevant market, the court added. The alleged exclusive agreements were not shown to have substantially foreclosed competition in the market.
Kolon did not even attempt to quantify foreclosure of the relevant market or to show how much of the market was closed off by the supply agreements. Its evidence of the degree of foreclosure in three particular segments within the relevant markets was scant at best, but more importantly did nothing to reveal the amount of foreclosure in the market as a whole—which consisted of numerous segments of varying size, and extended well beyond the few segments addressed by the competitor.
In actuality, the degree of foreclosure—if it existed at all—was de minimus, the court determined. The agreements at issue resulted in no more than two percent of the market being foreclosed. Further, examination of the agreements themselves revealed even a two percent estimate to be greatly exaggerated, as many or most of the agreements could not be classified as the sort of exclusive or multi-year pacts at the heart of Kolon’s theory of the suit.
Given DuPont’s moderate market share during the relevant time period, the alleged anticompetitive agreements accounted for an even smaller fraction of the total revenue from para-aramid sales in the United States, the court said.
Kolon put forth no evidence demonstrating that other competitors had been shut out of the market and all the evidence in the record was to the contrary. Customers had no difficulty comparison shopping or switching sellers, and many did business with Kolon during the relevant time period, the court observed.
Attempted Monopolization
Kolon’s failure to show market foreclosure was fatal to its attempted monopolization claim, as well. Kolon failed to establish that the alleged anticompetitive acts, coupled with a presumed alleged intent to monopolize, "presented a reasonable probability that monopolization would sooner or later occur," the court concluded.
The decision is Kolon Industries, Inc. v. E.I. Du Pont de Nemours & Company, 2012-1 Trade Cases ¶77,857.
The manufacturer of "KEVLAR"-branded aramid fiber, a high-strength fiber used in ballistics applications and protective apparel, did not engage in unlawful monopolization or attempted monopolization of the para-aramid fiber market in the United States by procuring exclusive long-term supply agreements with certain high-volume customers, the federal district court in Richmond, Virginia, has held. Summary judgment against federal antitrust claims asserted by a Korean competitor was therefore granted.
The defending manufacturer, E.I. Du Pont de Nemours & Co. (DuPont), did not possess the requisite monopoly power over the para-aramid fiber market in the United States to have engaged in monopolization, the court held. The highest market share DuPont held during the relevant period was only 59 percent, and that share—which had already been in decline for decades—only further fell over the time span relevant to the suit. Thus, DuPont clearly lacked the power to control prices and exclude competition.
Even if the complaining competitor—Kolon Industries, Inc.—had been able to establish that DuPont had the requisite market power, it still failed to demonstrate illegal maintenance of such power over the relevant market, the court added. The alleged exclusive agreements were not shown to have substantially foreclosed competition in the market.
Kolon did not even attempt to quantify foreclosure of the relevant market or to show how much of the market was closed off by the supply agreements. Its evidence of the degree of foreclosure in three particular segments within the relevant markets was scant at best, but more importantly did nothing to reveal the amount of foreclosure in the market as a whole—which consisted of numerous segments of varying size, and extended well beyond the few segments addressed by the competitor.
In actuality, the degree of foreclosure—if it existed at all—was de minimus, the court determined. The agreements at issue resulted in no more than two percent of the market being foreclosed. Further, examination of the agreements themselves revealed even a two percent estimate to be greatly exaggerated, as many or most of the agreements could not be classified as the sort of exclusive or multi-year pacts at the heart of Kolon’s theory of the suit.
Given DuPont’s moderate market share during the relevant time period, the alleged anticompetitive agreements accounted for an even smaller fraction of the total revenue from para-aramid sales in the United States, the court said.
Kolon put forth no evidence demonstrating that other competitors had been shut out of the market and all the evidence in the record was to the contrary. Customers had no difficulty comparison shopping or switching sellers, and many did business with Kolon during the relevant time period, the court observed.
Attempted Monopolization
Kolon’s failure to show market foreclosure was fatal to its attempted monopolization claim, as well. Kolon failed to establish that the alleged anticompetitive acts, coupled with a presumed alleged intent to monopolize, "presented a reasonable probability that monopolization would sooner or later occur," the court concluded.
The decision is Kolon Industries, Inc. v. E.I. Du Pont de Nemours & Company, 2012-1 Trade Cases ¶77,857.
Monday, April 16, 2012
FTC Drops Suit After Healthcare System Abandons Enjoined Takeover
This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.
The FTC announced on April 13 that it has dismissed a complaint it filed against a Rockford, Illinois, healthcare system—OSF Healthcare System—seeking to block OSF's proposed acquisition of rival health care provider Rockford Health System, in light of OSF's decision to abandon the transaction.
OSF arrived at its decision to scrap the deal after the federal district court in Rockford recently granted the agency's motion to preliminarily enjoin it, pending an FTC trial (2012-1 Trade Cases ¶77,850).
The FTC issued the complaint in November 2011, alleging that OSF's proposed acquisition of Rockford Health System would reduce competition in two markets in the Rockford area: (1) general acute-care inpatient services, and (2) primary care physician services. That complaint can be found at CCH Trade Regulation Reporter ¶16,666.
In granting preliminary injunctive relief on April 5, the federal court found that the Commission had made a strong prima facie showing that the combination would have adverse competitive effects. The court rejected arguments by the companies that various competitive considerations and constraints would preclude them from being able to raise prices to supracompetitive levels following the merger, and it further noted and that the companies failed to present sufficient proof of extraordinary efficiencies that would rebut the FTC's case.
"The Federal Trade Commission is gratified by OSF Healthcare's decision to abandon its attempt to acquire rival hospital services provider Rockford Health System," said Chairman Jon Leibowitz.
"As we said in November when we filed our complaint, health care consumers and employers in Rockford would have paid a price had the deal been allowed to proceed. The FTC remains vigilant, and will not hesitate to challenge deals in the health care sector that are likely to decrease competition and lead to higher prices or fewer services."
Further information regarding In re OSF Healthcare System appears here on the FTC website. The order dismissing the FTC complaint will appear at CCH Trade Regulation Reporter ¶16,763.
The FTC announced on April 13 that it has dismissed a complaint it filed against a Rockford, Illinois, healthcare system—OSF Healthcare System—seeking to block OSF's proposed acquisition of rival health care provider Rockford Health System, in light of OSF's decision to abandon the transaction.
OSF arrived at its decision to scrap the deal after the federal district court in Rockford recently granted the agency's motion to preliminarily enjoin it, pending an FTC trial (2012-1 Trade Cases ¶77,850).
The FTC issued the complaint in November 2011, alleging that OSF's proposed acquisition of Rockford Health System would reduce competition in two markets in the Rockford area: (1) general acute-care inpatient services, and (2) primary care physician services. That complaint can be found at CCH Trade Regulation Reporter ¶16,666.
In granting preliminary injunctive relief on April 5, the federal court found that the Commission had made a strong prima facie showing that the combination would have adverse competitive effects. The court rejected arguments by the companies that various competitive considerations and constraints would preclude them from being able to raise prices to supracompetitive levels following the merger, and it further noted and that the companies failed to present sufficient proof of extraordinary efficiencies that would rebut the FTC's case.
"The Federal Trade Commission is gratified by OSF Healthcare's decision to abandon its attempt to acquire rival hospital services provider Rockford Health System," said Chairman Jon Leibowitz.
"As we said in November when we filed our complaint, health care consumers and employers in Rockford would have paid a price had the deal been allowed to proceed. The FTC remains vigilant, and will not hesitate to challenge deals in the health care sector that are likely to decrease competition and lead to higher prices or fewer services."
Further information regarding In re OSF Healthcare System appears here on the FTC website. The order dismissing the FTC complaint will appear at CCH Trade Regulation Reporter ¶16,763.
Friday, April 13, 2012
FTC Rescinds Consumer Financial Protection Rules
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
Today, the Federal Trade Commission (FTC) rescinded nine regulations because the agency's rulemaking authority with respect to them has been transferred to the Consumer Financial Protection Bureau (CFPB). These rules were republished by the CFPB, effective December 30, 2011. The FTC still has authority to bring law enforcement actions to enforce these rules.
The 2010 Dodd-Frank Act transferred to the CFPB most of the FTC’s rulemaking authority under the Fair Credit Reporting Act, as well as rulemaking authority under Sec. 43 of the Federal Deposit Insurance Act and portions of the Fair Credit Reporting Act. The Dodd-Frank Act also transferred rulemaking authority for two regulations recently issued by the FTC for services related to mortgage loans under Sec. 626 of the 2009 Omnibus Appropriations Act.
Fair Credit Reporting Act
In light of the transfer of rulemaking powers, the FTC rescinded under the Fair Credit Reporting Act:
Under the Under the Fair Credit Reporting Act, the FTC continues to have rulemaking authority for its “Identity Theft Red Flag Rules” (16 CFR 681) and its rules governing “Disposal of Consumer Report Information and Records” (16 CFR 682). The FTC also retains rulemaking authority under Fair Credit Reporting Act with respect to motor vehicle dealers.
Mortgage Rules
The FTC also rescinded two rules on mortgage loan practices: the Mortgage Acts and Practices-Advertising or “MAP-Ad” Rule (16 CFR 321) and the Mortgage Assistance Relief Services or MARS Rule (16 CFR 322).
The MARS rule, which prohibited mortgage relief companies from making false or misleading claims among other things, was issued in November 2010. On at least two occasions-once in 2011 and once in 2012--the FTC has filed court actions for violations of the MARS rule. The MARS rule has been recodified as Mortgage Assistance Relief Services (Regulation O, 12 CFR1015).
The MAP-Ad rule took effect in August 2011. It prohibited misrepresentations regarding terms of mortgage credit products in commercial advertising. To date, the FTC has not brought an action alleging a violation of this rule. The MAP-Ad rule was republished by the CFPB at 12 CFR 1014.
Federal Deposit Insurance Corporation Improvement, Federal Debt Collection Practices Acts
In addition, FTC rules governing disclosure requirements for depository institutions lacking federal deposit insurance under the Federal Deposit Insurance Corporation Improvement Act (16 CFR 320, now 12 CFR 1009) and procedures for state application for exemption from the provisions of the Federal Debt Collection Practices Act (16 CFR 901, now 12 CFR 1006) were rescinded.
Today, the Federal Trade Commission (FTC) rescinded nine regulations because the agency's rulemaking authority with respect to them has been transferred to the Consumer Financial Protection Bureau (CFPB). These rules were republished by the CFPB, effective December 30, 2011. The FTC still has authority to bring law enforcement actions to enforce these rules.
The 2010 Dodd-Frank Act transferred to the CFPB most of the FTC’s rulemaking authority under the Fair Credit Reporting Act, as well as rulemaking authority under Sec. 43 of the Federal Deposit Insurance Act and portions of the Fair Credit Reporting Act. The Dodd-Frank Act also transferred rulemaking authority for two regulations recently issued by the FTC for services related to mortgage loans under Sec. 626 of the 2009 Omnibus Appropriations Act.
Fair Credit Reporting Act
In light of the transfer of rulemaking powers, the FTC rescinded under the Fair Credit Reporting Act:
- identity theft definitions (16 CFR 603, now at 12 CFR 1022.3);
- free annual file disclosures rule (16 CFR 610, now at 12 CFR 1022.130);
- prohibition against circumventing treatment as a nationwide consumer reporting agency (16 CFR 611, now at 12 CFR 1022.140);
- duration of active duty alerts (16 CFR 613, now at 12 CFR 1022.121); and
- appropriate proof of identity (16 CFR 614, now at 12 CFR 1022.123).
Under the Under the Fair Credit Reporting Act, the FTC continues to have rulemaking authority for its “Identity Theft Red Flag Rules” (16 CFR 681) and its rules governing “Disposal of Consumer Report Information and Records” (16 CFR 682). The FTC also retains rulemaking authority under Fair Credit Reporting Act with respect to motor vehicle dealers.
Mortgage Rules
The FTC also rescinded two rules on mortgage loan practices: the Mortgage Acts and Practices-Advertising or “MAP-Ad” Rule (16 CFR 321) and the Mortgage Assistance Relief Services or MARS Rule (16 CFR 322).
The MARS rule, which prohibited mortgage relief companies from making false or misleading claims among other things, was issued in November 2010. On at least two occasions-once in 2011 and once in 2012--the FTC has filed court actions for violations of the MARS rule. The MARS rule has been recodified as Mortgage Assistance Relief Services (Regulation O, 12 CFR1015).
The MAP-Ad rule took effect in August 2011. It prohibited misrepresentations regarding terms of mortgage credit products in commercial advertising. To date, the FTC has not brought an action alleging a violation of this rule. The MAP-Ad rule was republished by the CFPB at 12 CFR 1014.
Federal Deposit Insurance Corporation Improvement, Federal Debt Collection Practices Acts
In addition, FTC rules governing disclosure requirements for depository institutions lacking federal deposit insurance under the Federal Deposit Insurance Corporation Improvement Act (16 CFR 320, now 12 CFR 1009) and procedures for state application for exemption from the provisions of the Federal Debt Collection Practices Act (16 CFR 901, now 12 CFR 1006) were rescinded.
Thursday, April 12, 2012
Maryland Legislation Would Bar Employers from Requesting Employees’ or Applicants’ Social Media Account Passwords
This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.
Maryland employers would be prohibited from asking employees or applicants to hand over the passwords for their Facebook accounts or other personal social media accounts, if a bill that has passed both houses of the Maryland legislature (Senate Bill 433 and House Bill 964) is signed by the governor. The two bills were reconciled and passed on April 6, 2012. If the law is approved, Maryland would be the first state to prohibit this practice.
The proposed law provides that employers may not take, or threaten to take, disciplinary actions against an employee for refusing to disclose social media account password and related information. Employers also may not refuse to hire an applicant as a result of the applicant’s refusal to disclose that information.
The bill also contains language prohibiting employees from uploading unauthorized employer proprietary information or financial data to their personal websites or other Internet sites. Employers would be allowed to conduct investigations for the purpose of ensuring compliance with applicable securities or financial laws or regulations, based on the receipt of information about the use of a personal website by an employee for business purposes or the uploading of employer proprietary information.
The proposed law would take effect on October 1, 2012.
Maryland employers would be prohibited from asking employees or applicants to hand over the passwords for their Facebook accounts or other personal social media accounts, if a bill that has passed both houses of the Maryland legislature (Senate Bill 433 and House Bill 964) is signed by the governor. The two bills were reconciled and passed on April 6, 2012. If the law is approved, Maryland would be the first state to prohibit this practice.
The proposed law provides that employers may not take, or threaten to take, disciplinary actions against an employee for refusing to disclose social media account password and related information. Employers also may not refuse to hire an applicant as a result of the applicant’s refusal to disclose that information.
The bill also contains language prohibiting employees from uploading unauthorized employer proprietary information or financial data to their personal websites or other Internet sites. Employers would be allowed to conduct investigations for the purpose of ensuring compliance with applicable securities or financial laws or regulations, based on the receipt of information about the use of a personal website by an employee for business purposes or the uploading of employer proprietary information.
The proposed law would take effect on October 1, 2012.
Wednesday, April 11, 2012
Publishers, Apple Conspire to Fix Prices of E-Books: State Attorneys General
This posting was written by John W. Arden.
Publishers Penguin, Simon & Schuster, and MacMillan have conspired with Apple, Inc. to fix the sales prices of electronic books, according to an antitrust lawsuit filed by 16 state attorneys general in the federal district court in Austin.
The publishers and Apple were charged with a horizontal conspiracy to raise e-book retail prices in violation of Sec. 1 of the Sherman Act and the antitrust laws of the 16 states. The complaint, filed today, seeks injunctive relief, an award of trebled damages, civil fines, and attorneys’ fess and costs.
The lawsuit was based on a two-year investigation into allegations that the defendants conspired to raise e-book prices. The investigation—led by the Texas Attorney General’s office and coordinated by the Connecticut Attorney General and the U.S. Department of Justice—revealed that Penguin, Simon & Schuster, and MacMillan conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set prices for bestsellers at $12.99 and $14.99, according to the Texas Attorney General.
The complaint charges that when Apple entered the e-book market, the publishers and Apple agreed to adopt an agency distribution model—rather than the traditional wholesale distribution model—to allow them to fix prices. Because the publishers agreed to charge the same prices, retail price competition was eliminated and customers paid more than $100 million in overcharges.
Prior to filing suit, the states reached an agreement in principle with publishers Harper Collins and Hachette on issues of injunctive relief and consumer restitution.
Text of a news release on the lawsuit appears here on the Texas Attorney General’s website. The 56-page complaint in State of Texas v. Penguin Group (USA) Inc. appears here.
Publishers Penguin, Simon & Schuster, and MacMillan have conspired with Apple, Inc. to fix the sales prices of electronic books, according to an antitrust lawsuit filed by 16 state attorneys general in the federal district court in Austin.
The publishers and Apple were charged with a horizontal conspiracy to raise e-book retail prices in violation of Sec. 1 of the Sherman Act and the antitrust laws of the 16 states. The complaint, filed today, seeks injunctive relief, an award of trebled damages, civil fines, and attorneys’ fess and costs.
The lawsuit was based on a two-year investigation into allegations that the defendants conspired to raise e-book prices. The investigation—led by the Texas Attorney General’s office and coordinated by the Connecticut Attorney General and the U.S. Department of Justice—revealed that Penguin, Simon & Schuster, and MacMillan conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set prices for bestsellers at $12.99 and $14.99, according to the Texas Attorney General.
The complaint charges that when Apple entered the e-book market, the publishers and Apple agreed to adopt an agency distribution model—rather than the traditional wholesale distribution model—to allow them to fix prices. Because the publishers agreed to charge the same prices, retail price competition was eliminated and customers paid more than $100 million in overcharges.
Prior to filing suit, the states reached an agreement in principle with publishers Harper Collins and Hachette on issues of injunctive relief and consumer restitution.
Text of a news release on the lawsuit appears here on the Texas Attorney General’s website. The 56-page complaint in State of Texas v. Penguin Group (USA) Inc. appears here.
Tuesday, April 10, 2012
Magazine Wholesaler Plausibly Alleged Boycott
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The federal district court in New York City should not have rejected allegations that a magazine wholesaler was driven out of business as a result of an antitrust conspiracy, the U.S. Court of Appeals in New York City has decided. The appellate court vacated the lower court’s judgment granting a motion to dismiss the wholesaler’s Sherman Act Sec. 1 claim for failure to state a claim and denying leave to file an amended complaint.
According to the appellate court, the lower court misapplied the plausibility standards set by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 2007-1 Trade Cases ¶75,709, and Ashcroft v. Iqbal, 129 S. Ct. 1937, 2009-2 Trade Cases ¶76,785.
The lower court should not have dismissed plausible allegations of a boycott, merely because it found a different version of events more plausible. By finding the plaintiff’s view of the events implausible, or less plausible than the possibility that the defendants acted unilaterally, the lower court improperly made factual findings, it was held.
Prior to being forced into bankruptcy liquidation, Anderson News was the second largest magazine wholesaler in the United States. After ceasing operations in 2009, Anderson brought an antitrust action against five national magazine publishers and their four distribution representatives, as well as two smaller wholesalers. Anderson alleged that, along with the country’s largest magazine wholesaler—Source Interlink Distribution, LLC—it was the target of a boycott.
Anderson contended that the boycott to eliminate the nation’s two largest magazine wholesalers followed a move by Anderson to impose a surcharge on publishers for each magazine copy it distributed, regardless of whether the copy was sold by a retailer. The surcharge was an attempt to recover costs associated with retrieving unsold magazine copies from retailers and disposing of them. Shortly after Anderson announced the surcharge, Source announced that it too would impose a similar surcharge.
The defendants, in an effort to get Anderson to drop the surcharge, allegedly invited the wholesaler to join in the elimination of Source, but Anderson declined. According to Anderson, thereafter, the defendants met or communicated with each other and agreed to reject Anderson’s proposed surcharge, to refuse any other accommodation, and to stop supplying Anderson with magazines.
Anderson’s allegations of conspiracy were plausible, in the appellate court’s view. The appellate court explained what differentiated the complaint filed by Anderson from the complaint at issue in Twombly.
Anderson alleged an actual agreement to eliminate Anderson and/or Source as wholesalers in the market and to divide the market between two smaller wholesalers. According to the appellate court, “the facts alleged in the [proposed amended complaint] are sufficient to suggest that the cessation of shipments to Anderson resulted … from a lattice-work of horizontal and vertical agreements to boycott Anderson.”
The appellate court went on to say that it had “difficulties with some of the court’s analytical constructs, including its application of Twombly’s plausibility test.” The lower court’s plausibility inquiry was “misdirected” when it ruled that Anderson did not state a plausible Sherman Act, Sec. 1 claim, simply because unilateral parallel conduct by the defendants was completely plausible.
According to the appellate court, “although an innocuous interpretation of the defendants’ conduct may be plausible, that does not mean that the plaintiff’s allegation that that conduct was culpable is not also plausible.” Moreover, on a Rule 12(b)(6) motion it was “not the province of the court to dismiss the complaint on the basis of the court’s choice among plausible alternatives.”
The appellate court also rejected the lower court’s determinations that Anderson’s conspiracy claim was implausible because the defendants had “a variety of reactions” to Anderson’s announcement of the surcharge or because Anderson’s surcharge was a nonnegotiable demand on the publishers. There was nothing implausible about coconspirators’ starting out in disagreement as to how to deal conspiratorially with their common problem.
Moreover, the presentation of a common economic offer might lend itself to independent, parallel responses, but it did not provide antitrust immunity to the publishers if they decided to get together to boycott the offeror.
The decision is Anderson News, LLC v. American Media, Inc., 2012-1 Trade Cases ¶77,843.
The federal district court in New York City should not have rejected allegations that a magazine wholesaler was driven out of business as a result of an antitrust conspiracy, the U.S. Court of Appeals in New York City has decided. The appellate court vacated the lower court’s judgment granting a motion to dismiss the wholesaler’s Sherman Act Sec. 1 claim for failure to state a claim and denying leave to file an amended complaint.
According to the appellate court, the lower court misapplied the plausibility standards set by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 2007-1 Trade Cases ¶75,709, and Ashcroft v. Iqbal, 129 S. Ct. 1937, 2009-2 Trade Cases ¶76,785.
The lower court should not have dismissed plausible allegations of a boycott, merely because it found a different version of events more plausible. By finding the plaintiff’s view of the events implausible, or less plausible than the possibility that the defendants acted unilaterally, the lower court improperly made factual findings, it was held.
Prior to being forced into bankruptcy liquidation, Anderson News was the second largest magazine wholesaler in the United States. After ceasing operations in 2009, Anderson brought an antitrust action against five national magazine publishers and their four distribution representatives, as well as two smaller wholesalers. Anderson alleged that, along with the country’s largest magazine wholesaler—Source Interlink Distribution, LLC—it was the target of a boycott.
Anderson contended that the boycott to eliminate the nation’s two largest magazine wholesalers followed a move by Anderson to impose a surcharge on publishers for each magazine copy it distributed, regardless of whether the copy was sold by a retailer. The surcharge was an attempt to recover costs associated with retrieving unsold magazine copies from retailers and disposing of them. Shortly after Anderson announced the surcharge, Source announced that it too would impose a similar surcharge.
The defendants, in an effort to get Anderson to drop the surcharge, allegedly invited the wholesaler to join in the elimination of Source, but Anderson declined. According to Anderson, thereafter, the defendants met or communicated with each other and agreed to reject Anderson’s proposed surcharge, to refuse any other accommodation, and to stop supplying Anderson with magazines.
Anderson’s allegations of conspiracy were plausible, in the appellate court’s view. The appellate court explained what differentiated the complaint filed by Anderson from the complaint at issue in Twombly.
Anderson alleged an actual agreement to eliminate Anderson and/or Source as wholesalers in the market and to divide the market between two smaller wholesalers. According to the appellate court, “the facts alleged in the [proposed amended complaint] are sufficient to suggest that the cessation of shipments to Anderson resulted … from a lattice-work of horizontal and vertical agreements to boycott Anderson.”
The appellate court went on to say that it had “difficulties with some of the court’s analytical constructs, including its application of Twombly’s plausibility test.” The lower court’s plausibility inquiry was “misdirected” when it ruled that Anderson did not state a plausible Sherman Act, Sec. 1 claim, simply because unilateral parallel conduct by the defendants was completely plausible.
According to the appellate court, “although an innocuous interpretation of the defendants’ conduct may be plausible, that does not mean that the plaintiff’s allegation that that conduct was culpable is not also plausible.” Moreover, on a Rule 12(b)(6) motion it was “not the province of the court to dismiss the complaint on the basis of the court’s choice among plausible alternatives.”
The appellate court also rejected the lower court’s determinations that Anderson’s conspiracy claim was implausible because the defendants had “a variety of reactions” to Anderson’s announcement of the surcharge or because Anderson’s surcharge was a nonnegotiable demand on the publishers. There was nothing implausible about coconspirators’ starting out in disagreement as to how to deal conspiratorially with their common problem.
Moreover, the presentation of a common economic offer might lend itself to independent, parallel responses, but it did not provide antitrust immunity to the publishers if they decided to get together to boycott the offeror.
The decision is Anderson News, LLC v. American Media, Inc., 2012-1 Trade Cases ¶77,843.
Monday, April 09, 2012
Wayland to Serve as Acting Antitrust Chief Pending Confirmation of Baer
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
With Senate confirmation of William Baer unlikely to happen any time soon, the Department of Justice has announced that Joseph Wayland will serve as the Acting Assistant Attorney General in charge of the Justice Department Antitrust Division after the departure of Sharis A. Pozen at the end of April.
Wayland is the Deputy Assistant Attorney General for Civil Enforcement at the Antitrust Division. He joined the Antitrust Division in September 2010 and has worked on a number of high-profile cases. He was the lead trial counsel in the Justice Department’s successful challenge to AT&T Inc.’s proposed acquisition of T-Mobile USA, Inc. He also headed up the trial team that stopped H&R Block, Inc.’s proposed acquisition of 2SS Holdings—the maker of “TaxACT” tax preparation software.
Prior to joining the Antitrust Division, Wayland was in private practice, as a partner with Simpson, Thacher. He joined the firm in 1988.
With Senate confirmation of William Baer unlikely to happen any time soon, the Department of Justice has announced that Joseph Wayland will serve as the Acting Assistant Attorney General in charge of the Justice Department Antitrust Division after the departure of Sharis A. Pozen at the end of April.
Wayland is the Deputy Assistant Attorney General for Civil Enforcement at the Antitrust Division. He joined the Antitrust Division in September 2010 and has worked on a number of high-profile cases. He was the lead trial counsel in the Justice Department’s successful challenge to AT&T Inc.’s proposed acquisition of T-Mobile USA, Inc. He also headed up the trial team that stopped H&R Block, Inc.’s proposed acquisition of 2SS Holdings—the maker of “TaxACT” tax preparation software.
Prior to joining the Antitrust Division, Wayland was in private practice, as a partner with Simpson, Thacher. He joined the firm in 1988.
Thursday, April 05, 2012
Leibowitz, Pozen Discuss Year’s Highlights at ABA Spring Antitrust Meeting
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
FTC Chairman Jon Leibowitz and Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division, discussed the active enforcement agendas at their agencies at the American Bar Association Section of Antitrust Law Spring Meeting on March 30 in Washington, D.C.
Acting Assistant Attorney General Pozen said that the Antitrust Division had an “amazing” year. With respect to criminal enforcement, she noted the recent conviction of AU Optronics Corporation of Taiwan, its U.S. subsidiary, and its former president and former executive vice president for conspiring to fix prices of thin-film transistor-liquid crystal display (TFT-LCD) panels.
On the civil enforcement side, Pozen mentioned two recent successes in the merger enforcement area. She called AT&T’s decision to abandon its proposed acquisition of T-Mobile USA Inc. in the face of a Justice Department challenge a “tremendous victory” and an example of federal/state cooperation. Pozen also noted a federal district decision enjoining H&R Block, Inc.’s proposed acquisition of 2SS Holdings, Inc.—the maker of “TaxACT” tax preparation software (2011-2 Trade Cases ¶77,678). She commended the decision, saying it read like a treatise. Other recommended reading, according to Pozen, is the competitive impact statement, explaining the consent decree resolving the government’s monopolization allegations against United Regional Health Care System of Wichita Falls (2011-2 Trade Cases ¶77,619).
The FTC continued to focus on the health care sector over the past year, the FTC chairman pointed out in his remarks. Leibowitz noted three hospital merger cases in litigation. First, he mentioned the Commission opinion requiring ProMedica Health System to divest rival St. Luke's Hospital in Toledo, Ohio. Second, he said that the FTC was waiting for a federal district court to rule on its request for a preliminary injunction to block OSF Healthcare System’s proposed acquisition of Rockford Health System, which would combine two of the three major hospital systems in Rockford, Illinois. Finally, the FTC chairman highlighted the U.S. Solicitor General’s Supreme Court petition questioning a decision of the U.S. Court of Appeals in Atlanta (2011-2 Trade Cases ¶77,722), holding that the proposed combination of the only two hospitals in Albany, Georgia, was immune from an FTC antitrust attack under the state action doctrine.
Looking ahead, Pozen, who is resigning effective April 30, said that she hoped for a smooth transition to her successor. William Baer—the head of the antitrust group at the Washington, D.C. office of Arnold & Porter, LLP, and a former director of the FTC Bureau of Competition—was nominated to serve as the Assistant Attorney General in charge of the Antitrust Division on February 6. The nomination is pending in the Senate Judiciary Committee.
FTC Chairman Leibowitz said that top enforcement priorities going forward would focus on technology and health care issues, as well as “last dollar fraud,” such as deceptive foreclosure rescue and bogus credit repair schemes. In the technology area, Leibowitz said the FTC was involved in a number of open investigations that he could not discuss. The chairman also noted in his remarks that, with the recent Senate confirmation of Maureen Ohlhausen, the Commission would be operating with a full five-member team.
FTC Chairman Jon Leibowitz and Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division, discussed the active enforcement agendas at their agencies at the American Bar Association Section of Antitrust Law Spring Meeting on March 30 in Washington, D.C.
Acting Assistant Attorney General Pozen said that the Antitrust Division had an “amazing” year. With respect to criminal enforcement, she noted the recent conviction of AU Optronics Corporation of Taiwan, its U.S. subsidiary, and its former president and former executive vice president for conspiring to fix prices of thin-film transistor-liquid crystal display (TFT-LCD) panels.
On the civil enforcement side, Pozen mentioned two recent successes in the merger enforcement area. She called AT&T’s decision to abandon its proposed acquisition of T-Mobile USA Inc. in the face of a Justice Department challenge a “tremendous victory” and an example of federal/state cooperation. Pozen also noted a federal district decision enjoining H&R Block, Inc.’s proposed acquisition of 2SS Holdings, Inc.—the maker of “TaxACT” tax preparation software (2011-2 Trade Cases ¶77,678). She commended the decision, saying it read like a treatise. Other recommended reading, according to Pozen, is the competitive impact statement, explaining the consent decree resolving the government’s monopolization allegations against United Regional Health Care System of Wichita Falls (2011-2 Trade Cases ¶77,619).
The FTC continued to focus on the health care sector over the past year, the FTC chairman pointed out in his remarks. Leibowitz noted three hospital merger cases in litigation. First, he mentioned the Commission opinion requiring ProMedica Health System to divest rival St. Luke's Hospital in Toledo, Ohio. Second, he said that the FTC was waiting for a federal district court to rule on its request for a preliminary injunction to block OSF Healthcare System’s proposed acquisition of Rockford Health System, which would combine two of the three major hospital systems in Rockford, Illinois. Finally, the FTC chairman highlighted the U.S. Solicitor General’s Supreme Court petition questioning a decision of the U.S. Court of Appeals in Atlanta (2011-2 Trade Cases ¶77,722), holding that the proposed combination of the only two hospitals in Albany, Georgia, was immune from an FTC antitrust attack under the state action doctrine.
Looking ahead, Pozen, who is resigning effective April 30, said that she hoped for a smooth transition to her successor. William Baer—the head of the antitrust group at the Washington, D.C. office of Arnold & Porter, LLP, and a former director of the FTC Bureau of Competition—was nominated to serve as the Assistant Attorney General in charge of the Antitrust Division on February 6. The nomination is pending in the Senate Judiciary Committee.
FTC Chairman Leibowitz said that top enforcement priorities going forward would focus on technology and health care issues, as well as “last dollar fraud,” such as deceptive foreclosure rescue and bogus credit repair schemes. In the technology area, Leibowitz said the FTC was involved in a number of open investigations that he could not discuss. The chairman also noted in his remarks that, with the recent Senate confirmation of Maureen Ohlhausen, the Commission would be operating with a full five-member team.
Wednesday, April 04, 2012
First Amendment Did Not Bar Publicity Rights Claims Against Video Game Maker
This posting was written by Thomas A. Long, Editor of Wolters Kluwer IP Law Daily.
The First Amendment did not bar claims by retired National Football League players alleging that video game developer Electronic Arts Inc. (“EA”) violated their rights of publicity under California law by using their likenesses in the EA video game, Madden NFL, without their authorization, the federal district court in San Francisco has ruled. The court also denied EA’s motion to strike the complaint pursuant to California’s Anti-SLAPP (“Anti-Strategic Lawsuit Against Public Participation”) law.
Background
The Madden NFL game featured highly realistic simulations of actual NFL stadiums, uniforms, and current team rosters, including active players’ likenesses and biographical information, which were covered by various licenses that did not cover the retired players.
Recent versions of the game allowed players to select “historical” NFL teams, with rosters that did not include the retired players’ names, but featured game “avatars” that closely resembled the retired players, in terms of height, weight, skin tone, position, years in the league, and athletic ability. For purposes of its motions to dismiss and strike, EA accepted the retired players’ allegations that it used protectable elements of their likenesses in Madden NFL.
Three retired players—Michael Davis, Vince Ferragamo, and Billy Joe Dupree—filed a putative class action lawsuit on behalf of themselves and approximately 6,000 other former NFL players whose likenesses allegedly appeared in certain editions of Madden NFL. They asserted violations of California’s statutory right of publicity under Civil Code Sec. 3344 and violations of California’s common law right of publicity.
First Amendment
EA contended that the game, as an expressive work, was protected by the First Amendment to the extent that it contained significant transformative elements, such that the value of the game did not derive primarily from the fame of the players.
However, according to the court, the “transformative use” test focuses on the reproduction of the celebrities’ likenesses, rather than on the larger work. In the Madden NFL game, the retired players’ likenesses appeared in their conventional role as football players. EA failed to articulate any expressive significance inherent in this depiction.
The game’s literal projection of the retired players’ likenesses into avatar figures was insufficient to confer constitutional protection, in the court’s view. The fact that the likenesses could be controlled or manipulated by game players did not change the analysis; the avatars were still realistic depictions of the retired players.
The court also rejected EA’s argument that its use of the players’ likenesses in Madden NFL was protected because it concerned a matter of public interest. Although the reporting and discussion of factual information about professional sports implicated the public interest, the alleged use of the retired players’ likenesses went well beyond simply reporting or publishing statements of historical fact.
There was very little in the game that resembled traditional reporting. The game play of Madden NFL did not report, or even re-create, recent or historical games. Each game was within the players’ control; the only historical aspect of the game was the retired players’ likenesses, the court said.
EA’s use of the retired players’ likenesses was not exempt from liability under the California publicity rights statute’s provision of immunity for the use of a name or likeness in connection with “public affairs.” Game play did not report on or relate “real life” occurrences, other than a minimal amount of statistical information about each player. The game was entirely fictional, the court said. Accordingly, the court denied the motion to dismiss the claims.
Anti-SLAPP Law
California’s Anti-SLAPP law provides for dismissal of any claims for relief that are primarily based on defendants’ activities in furtherance of their right to free speech relating to an issue of public concern. Once a defendant makes a prima facie showing that free speech protections are implicated, the burden shifts to the plaintiff to demonstrate a “reasonable probability” of prevailing on the underlying claims by stating and substantiating a legally sufficient claim.
Although video games were expressive works entitled to First Amendment protection, EA had conceded for purposes of its motions that Madden NFL used the retired players’ likenesses without authorization. EA had not otherwise attacked the adequacy of the allegations against it. Therefore, the court said, the retired players had satisfied their burden of stating and substantiating a legally sufficient claim. The motion to strike was denied.
The March 29 decision in Davis v. Electronic Arts, Inc. will be reported in CCH Advertising Law Guide.
Subscribe to:
Posts (Atom)
