Trade Regulation Tidbits

This posting was written by Jeffrey May and John W. Arden.

News, updates, and observations:

 On November 27, the European Commission (EC) announced the appointment of Joaquin Alumnia as the new Commissioner-designate for Competition, for a term running through October 31, 2014. Almunia, 61, previously served as the EC Commissioner for Economic and Monetary Affairs. A career politician, he was the Socialist Party candidate for prime minister of Spain in 2000. He would replace Neelie Kroes, who served as Commissioner for Competition since November 2004 and has been appointed as Commissioner-designate of the EC Digital Agenda. The appointments must be approved by the European Parliament, which is expected to hold individual hearings on the Commissioners-designate January 11-19 and to vote on the new Commission as a whole on January 26, 2010. Further details appear here on the European Union's Europa website.

 A group of 59 senators from both sides of the aisle have sent a letter to the Acting Head of the Delegation of the European Commission (EC) to the United States, requesting that the EC complete expeditiously its investigation of Oracle Corporation's proposed acquisition of Sun Microsystems Inc. Oracle announced on November 9 that the EC had issued a statement of objections (SO) concerning the proposed merger, despite U.S. approval of the transaction. The U.S. Department of Justice approved the plan in August, concluding the merger would not be anticompetitive. In a November 24 statement, Senator John Kerry (D, Massachusetts), who signed the letter, said: “The EC is within its sovereign rights to set the rules for operation in its market, but with our Department of Justice having made a compelling case that the merger does not pose a threat to competition, it is fair to ask the EC for the basis on which a delay on decision making is warranted and to make a decision one way or the other.” Orrin Hatch (R, Utah), another signatory, said “I have become increasingly concerned about the growing body of evidence that foreign regulatory agencies are unfairly using their review processes to impede the business of American corporations,” said Senator Orrin Hatch (Utah), another signatory.

 An increase in false advertising litigation and other dispute resolution might be the product of the “dismal economy,” according to a November 22 New York Times article. The number of complaints filed with the National Advertising Division of the Council of Better Business Bureaus is on track to set a record this year. The 82 formal complaints so far in 2009 follows 84 challenges in 2008, 62 challenges in 2007, and 52 challenges in 2006. Although there are no numbers available regarding the Lanham Act false advertising lawsuits filed this year, lawyers are reporting a corresponding increase. “In this economy, where margins are a bit tighter, a lot of marketing departments have decided to become more aggressive in going after their competitors in hopes that they can either protect their market position or capture an additional market share,” said John E. Villafranco, partner at Kelley, Drye & Warren and contributor to CCH Advertising Law Guide. (“Best Soup Ever? Suits Over Ads Demand Proof.)”

 A number of appointments of FTC senior staff were announced by the agency on November 30. Among them, Cecelia Prewett was named as Director of the Office of Public Affairs; Jessica Rich and Charles Harwood were named as Deputy Directors in the Bureau of Consumer Protection; and Norm Armstrong, Jr. was named Deputy Director in the Bureau of Competition. FTC Chairman Jon Leibowitz also announced a number of personnel changes within the Bureau of Consumer Protection. Joel Winston was named Associate Director of the Division of Financial Practices; Maneesha Mithal was named Associate Director of the Division of Privacy and Identity Protection; and Mark Eichorn was named Assistant Director of the Division of Privacy and Identity Protection. An announcement appears here on the FTC website. A list of senior FTC enforcement personnel appears at CCH Trade Regulation Reporter ¶9557.

Store-Brand “Compare To” Statements Could Be False Advertising

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

“Compare To” statements by a manufacturer of store brand joint care dietary supplements (Perrigo Company) were not mere puffery and could constitute false advertising under the Lanham Act and New York law, the federal district court in Central Islip New York has ruled.

The statements could convey a false message of equivalence in formulation and efficacy as compared to branded Rexall Sundown Osteo Bi-Flex products, in the court’s view.

Perrigo countered with false advertising claims against Rexall Sundown, one of which survived summary judgment review.

Product Equivalence Message

Most of Perrigo’s “Compare To” statements invited a comparison of the products’ ingredients, according to the court. The competing products were likely to be shelved near each other in stores, making it more likely that a consumer would understand the Perrigo Products to be equivalent to the national brand.

Much of the text on the side and rear panels of the Perrigo Products matched the prior packaging for Osteo Bi-Flex. Perrigo’s sponsored website stated that a comparison of the active ingredients might reveal that the only differences between the two products were the inactive ingredients, such as the colors etc. and the price.

A consumer survey commissioned by Rexall Sundown raised genuine issues of fact as to whether the “Compare To” statements created a false message of product equivalence in terms of ingredients and/or efficacy that was likely to deceive consumers, the court found.

In addition, a leading U.S. specialist in the field plant-derived drugs stated that the store brand Perrigo products and Rexall Sundown's Osteo Bi-Flex were “significantly different,” based on the higher ratio of an anti-inflammatory ingredient in Osteo Bi-Flex.

Materiality

To prove false advertising, Rexall Sundown was required to demonstrate that a false or misleading representation involved an inherent or material quality of the product. A rational trier of fact could conclude that the disputed issues related to core ingredients and/or efficacy of the supplement, according to the court. In addition, the manner in which the Compare To statements were conveyed—in prominent highlighting and in close proximity to product performance claims—contributed to their materiality.

National Brand’s Ingredient Concentration Advertising

Perrigo raised a disputed issues of fact as to whether Rexall Sundown falsely advertised the key ingredient of its Osteo Bi-Flex products as “10 times more concentrated,” the court held. A consumer survey commissioned by Perrigo concluded that the “10 times more concentrated” claim caused a meaningful proportion of prospective consumers to think that Osteo Bi-Flex provided greater performance benefits than, or was superior to, other products.

Injury and causation could be presumed from comparative superiority claims, the court noted. Perrigo created a triable issue as to whether it was “obvious” that Rexall Sundown's claim targeted Perrigo products and, thus, that injury should be presumed.

Fatal Delay

Perrigo was barred from challenging other claims that Rexall Sundown had featured on packaging and in advertising since the late 1990s.

Perrigo contended that it had no reason to know that the claims were false until the National Advertising Division issued a decision regarding the claims in 2007 (CCH Advertising Law Guide ¶62,608). However, under the doctrine of laches, the court found Perrigo’s delay in bringing suit both inexcusable and prejudicial, in light of Rexall-Sundown's substantial investments in its packaging and advertising.

The September 10 opinion in Rexall Sundown v. Perrigo Co. will be reported in CCH Advertising Law Guide and CCH Trade Regulation Reports.