iPad Data Plan Bait and Switch Class Claims Survive

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

AT&T Mobility was denied a request to strike class allegations by purchasers of 3G-enabled iPads claiming common law fraud and California consumer protection law violations by Apple and AT&T Mobility on a “bait and switch” theory with regard to the availability of a flexible unlimited data option, in a case before the federal district court in San Jose.

Flexible, Unlimited Data Plan

Apple’s and AT&T’s advertising, including statements by Apple CEO Steve Jobs, allegedly led the purchasers to believe that they would have the flexibility of switching in and out of an unlimited data plan based upon their monthly needs. Just weeks after the iPad's release, Apple and AT&T announced that they would discontinue providing the unlimited data plan.

The purchasers sought damages and injunctive relief, including an order mandating restoration of the advertised flexible, unlimited data for a reasonable period. AT&T failed to demonstrate lack of commonality and predominance, and that the proposed nationwide class and claims for injunctive relief were improper.

Common Questions

A purchaser who would be a member of the proposed AT&T non-subscriber class, not required to arbitrate claims against AT&T, identified common questions central to his claims that class members bought a 3G-capable iPad because of the unlimited data plan, according to the court. The purchaser alleged that the key misrepresentation—that purchasers of a 3G-capable iPad could later upgrade to the unlimited data plan and switch in and out of the plan—was made on a consistent basis by the defendants to the entire class. If the purchaser could prove his allegations, individualized inquiry might not be required to determine what particular channel a purchaser used to acquire his iPad, the court determined.

There was no evidence that purchasers who never activated their iPad’s for AT&T service were aware that AT&T reserved the right to change its data plans. No bar appeared to pursuing class-wide injunctive relief under the California Unfair Competition Law and False Advertising Law.

Nationwide Class

A nationwide class could not be held improper because there were too many preliminary questions that could not be resolved at this stage of the case, including whether California actually had significant contacts with the claims against AT&T, the strength of the interests those contacts would create, how many states' laws were implicated, and how many were materially different from California law, the court observed.

The opinion in Apple and AT&T iPad Unlimited Data Plan Litigation will be reported at CCH Advertising Law Guide ¶64,730.

Further information about CCH Advertising Law Guide appears here.

Apple’s Collection of iPhone Data Could Violate California Law

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

Users of mobile applications (“apps”) on Apple’s “iOS” devices (iPhone, iPad, and iPod Touch, etc., or “iDevices”) could go forward with claims under California’s Consumers Legal Remedies Act and Unfair Competition Law against Apple for violating their privacy rights by unlawfully allowing third-party apps that run on the devices to collect and make use of personal information, for commercial purposes and without users’ knowledge or consent, the federal district court in San Jose, California has ruled.

The court dismissed the users’ claims against Apple and mobile app developers for violations of the Stored Communications Act, the Wiretap Act, the Computer Fraud and Abuse Act, and California’s constitutional right to privacy.

Two Putative Classes

The users’ amended consolidated complaint asserted claims with respect to two putative classes of individuals. The first class, referred to as “the iDevice Class,” contended that Apple-approved apps created by third-party companies (Admob, Inc., Flurry, Inc., AdMarval, Inc., Google, Inc., and Medialets, Inc., collectively, “Mobile Industry Defendants”) unlawfully collected information about the users, including their addresses and current whereabouts, gender, age, zip code, time zone, and information about which functions the users performed on the app. They alleged that Apple violated its express privacy policy by allowing the Mobile Industry Defendants to design apps with the capability to track and collect data about their app use or other personal information.

The second class, referred to as the “Geolocation Class,” consisted of iDevice purchasers who alleged that they “unwittingly, and without notice or consent transmitted location data to Apple servers.” They alleged that, starting in July 2010, Apple began intentionally collecting data on their precise geographic location and storing that information on the iDevice in order to develop a database about the geographic location of cellular towers and wireless networks. They asserted that Apple continued collecting geolocation information about them even after they switched off the location services settings on their iDevices, despite the fact that Apple had represented that they could prevent the collection of such data in that way.

Article III Standing

Both the iDevice Class and the Geolocation Class users alleged sufficient injury to have standing to sue under Article III of the U.S. Constitution, the court decided. In their initial complaint, the users had relied on a theory that collection of personal information itself created a particularized issue for purposes of standing, which the court rejected (CCH Privacy Law in Marketing ¶60,676).

In their amended complaint, the users’ allegations had been significantly developed to allege particularized injury, in the court’s view. The users articulated additional theories of harm beyond their theoretical allegations that personal information has independent economic value. In particular, they alleged actual injury, including diminished and consumed iDevice resources, such as storage, battery life, and bandwidth; increased, unexpected, and unreasonable risk to the security of sensitive personal information; and detrimental reliance on Apple’s representations regarding the privacy protection given to users of iDevice apps.

In addition, the users described the specific iDevices used, the specific defendants that allegedly accessed or tracked their personal information; which apps they downloaded that accessed their personal information; and what harm resulted from the access or tracking of their information. They also identified the types of information collected, such as their home and workplace locations, gender, age, zip code, terms searched, and ID and password for specific app accounts.

The users also identified an additional basis for Article III standing, the court said. The injury required by Article III may exist by virtue of statutes creating legal rights, the violation of which creates standing. The users alleged violations of their statutory rights under the Wiretap Act and the Stored Communications Act. The alleged injuries were fairly traceable to the actions of the defendants. The Geolocation Class asserted that Apple intentionally designed its software to retrieve and transmit geolocation information located on its customers’ iPhones to Apple’s servers.

The iDevice Class alleged that Apple designed its products and App Store to allow individuals to download third-party apps and that Apple represented to users that it took precautions to safeguard their personal information. The app developers were accused of accessing personal information without users’ knowledge or consent. These allegations were sufficient to establish standing, the court concluded.

Stored Communications Act

The users’ claims under the Stored Communications Act (SCA) failed because the SCA was not applicable to the alleged conduct by Apple and the Mobile Industry Defendants, the court determined. Stating an SCA claim requires an allegation that the defendants accessed without authorization a “facility through which electronic communication service is provided.” The users’ mobile devices did not meet the SCA’s definition of “facility.” The users’ iDevices did not provide an electronic communications service simply by virtue of enabling use of electronic communication services.

In addition, the storage of real-time location information and other data on the iDevices did not qualify under the SCA as “electronic storage,” the court said. The iDevices stored location data for up a year; such storage did not constitute the type of temporary, intermediate storage of data incidental to the transmission of the data.

Wiretap Act

The users asserted that Apple’s collection of precise geographic location data from WiFi towers, cell phone towers, and GPS data on users’ devices constituted “interceptions” of data prohibited by the Wiretap Act. However, such data was not “content” covered by the Wiretap Act, the court said. Data automatically generated about a telephone call did not constitute “content” because it contained no information about the substance of the communication. The geolocation data was generated automatically and was not part of the information intentionally communicated by the users.

Computer Fraud and Abuse Act

The court also rejected the users’ Computer Fraud and Abuse Act (CFAA) claims. Apple had the authority to access iDevices and to collect geolocation data as a result of the voluntary installation of software by the users and, therefore, could not have violated the CFAA. In addition, the users failed to allege damage or “impairment” to their devices or an interruption of service.

California Constitutional Right to Privacy

Collection of the users’ data by Apple and the Mobile Industry Defendants did not violate the users’ right to privacy under the California Constitution, the court found. The alleged disclosure of device identifier numbers, personal data, and geolocation information from the users’ iDevices—even if transmitted without their knowledge or consent—was not an egregious breach of social norms, as required to state a claim for invasion of privacy. Rather, it was routine commercial behavior, according to the court.

California Consumer Legal Remedies Act

Apple could be liable for violating California’s Consumer Legal Remedies Act (CLRA), the court determined. The users sufficiently alleged that they sustained harm as a result of the alleged data collection practices. With respect to geolocation data, the users alleged that Apple had stored such data on the users’ iDevices for Apple’s own benefit, at a cost to the users, and the that if Apple had disclosed the true cost of the geolocation features, the value of the iDevices would have been materially less than what the users paid.

In addition, the users contended that because of Apple’s failure to disclose its practices with regard to collection of personal data via apps, the users overpaid for their iDevices. At the pleadings stage, the users sufficiently alleged that they were consumers under the CLRA, and their allegations related to the purchase of goods, the court said.

California Unfair Competition Law

The court also decided that the users could go forward with their claims under the California Unfair Competition Law (UCL). The users had standing under the UCL because they alleged that they paid more for their iDevices than they would have if Apple had disclosed its privacy practices. Apple’s conduct could be illegal under the Consumers Legal Remedies Act and therefore covered by the UCL. In addition, the conduct could be “unfair,” for purposes of the UCL. The users met their burden of pleading fraud with particularity, according to the court.

The decision is In re iPhone Application Litig., CCH Privacy Law in Marketing ¶60,775.

Further details regarding CCH Privacy Law in Marketing appears here.

Supreme Court to Consider State Action, Class Certification Next Term

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

On the last day of the October 2011 term, the U.S. Supreme Court granted petitions for certiorari in two closely-watched antitrust cases: (1) a Federal Trade Commission (FTC) action challenging a Georgia hospital combination, and (2) a consumer class action against cable provider Comcast Corporation.

State Action Doctrine

In the FTC action, the Court will consider the scope of the state action doctrine. At the request of the FTC, the U.S. Solicitor General in March petitioned the Court to review a decision of the U.S. Court of Appeals in Atlanta (2011-2 Trade Cases ¶77,722, 663 F.3d 1369), holding that the proposed combination of the only two hospitals in Albany, Georgia, was immune from antitrust attack under doctrine. The appellate court had upheld dismissal (2011-1 Trade Cases ¶77,508, 793 F. Supp. 2d 1356) of the Commission’s complaint for injunctive relief pending the completion of an administrative proceeding.

In April 2011, the FTC issued an administrative complaint challenging the transaction (CCH Trade Regulation Reporter ¶16,588). The FTC alleged that a local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System, Inc. (PPHS)—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Georgia’s Dougherty County and surrounding areas. The agency also sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding. Pending conclusion of the court action, the FTC stayed its administrative proceedings (CCH Trade Regulation Reporter ¶16,620).

In its petition for certiorari, the government asked the Court to consider:

(1) whether the Georgia legislature, by vesting the local government entity with general corporate powers to acquire and lease out hospitals and other property, has “clearly articulated and affirmatively expressed” a “state policy to displace competition” in the market for hospital services; and

(2) whether such a state policy, even if clearly articulated, would be sufficient to validate the alleged anticompetitive conduct, given that the local government entity neither actively participated in negotiating the terms of the hospital sale nor had any practical means of overseeing the hospital’s operation.

According to the petition, the case presents the question of whether a hospital’s acquisition of its only rival, effectuated by using a substate governmental entity’s general corporate powers, is exempt from antitrust scrutiny under the “state action doctrine.” The appellate court decision conflicts with decisions of the Fifth, Sixth, Ninth, and Tenth Circuits, the agency contends.

The petition for review, FTC v. Phoebe Putney Health System, Inc., Dkt. 11-1160, was granted on June 25, 2012.

Class Action Certification

The Court has also decided to consider a decision of the U.S. Court of Appeals in Philadelphia (2011-2 Trade Cases ¶77,575, 655 F.3d 182), upholding the certification of a class of approximately two million cable television customers in the Philadelphia area. The customers allege that Comcast engaged in monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements.

The appellate court ruled that the lower court satisfied the “rigorous analysis” standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453, 552 F.3d 305) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3).

The High Court may see things differently.

Comcast petitioned the Court for review in January. Comcast argued that the “Third Circuit’s view that ‘merits arguments’ are ‘not properly before [the court]’ at the class certification stage . . . cannot be reconciled with this Court’s decision in [Walmart Stores, Inc. v. ] Dukes and breaks sharply with the Eighth and Ninth Circuits, which have correctly recognized that such limitations on review of ‘merits’ issues at the certification stage are no longer supportable after Dukes.”

In its petition, Comcast asked: whether a district court may certify a class action without resolving “merits arguments” that bear on prerequisites for certification under Federal Rule of Civil Procedure 23, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3).

In granting certiorari, the Court limited its review to the question: “whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”

The petition for review, Comcast Corp. v. Behrend, Dkt. 11-864, was granted on June 25, 2012.

Classes Certified to Pursue Antitrust Claims Against Chinese Vitamin Makers

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

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

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

Common Issues

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

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

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

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

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

Injunctive Relief

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

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

Foreign Sovereign Compulsion Defense

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

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

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

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

Premium Cable Subscribers Not Allowed to Bring Tying Claim as Class

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

Subscribers to a communications company’s premium cable television programming packages who paid the company a monthly rental fee for an accompanying set-top box should not be certified as a class, for purposes of their claims that the company illegally tied and bundled the lease of the cable boxes to the ability to obtain premium cable programming services, the federal district court in Oklahoma City has determined.

Common v. Individualized Issues

While the proposed class satisfied the numerosity, commonality, typicality, and adequacy of representation requirements established by Federal Rule of Civil Procedure 23(a), it could not meet Rule 23(b)(3)’s burdens of showing that common issues would predominate over any individualized issues and that a class action was the superior method for adjudicating the action.

Federal Tying Claim

The subscribers could not prove all of the elements of a federal tying claim on a classwide basis because the determination of the company’s market power was not amenable to such proof, according to the court.

Since subscribers in different geographic areas faced different competitive alternatives to the defending company, such a determination required an evaluation of the actual competitive conditions of markets at a local—not national—level, the court explained.

Damages

Several methods introduced by the plaintiff’s expert for calculating aggregate damages suffered by the subscribers could not be utilized with common evidence, owing to the elasticity of demand and the subsequent need for individualized market data.

Moreover, a benchmark method proffered by the expert, in which he compared rental rates of set-top boxes in the United States to rates in Canada, was inappropriate given the expert’s failure to evaluate the different regulations in the countries and costs of Canadian and American cable providers.

Additionally, in light of the multiple regional analysis required to determine market power and impact, maintaining a class action would not be manageable, the court noted.

The decision is In Re: Cox Enterprises, Inc. Set-Top Cable Television Box Antitrust Litigation, 2012-1 Trade Cases ¶77,756.

Settlement of Diamond Resale Price Fixing Claims Upheld

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

Approval of a proposed $295 million settlement of class action resale price fixing claims against a group of entities related to the world's principal diamond producer was proper, according to an en banc decision of the U.S. Court of Appeals in Philadelphia.

The federal district court approving the settlement did not err in granting certification of nationwide settlement classes consisting of direct purchasers of gem diamonds and indirect purchasers of rough or cut-and-polished diamonds (2008-2 Trade Cases ¶76,304), the appellate court held.

Class Certification

The proposed classes satisfied each of the four requirements enunciated in Federal Rule of Civil Procedure 23(a) as prerequisites to certification—numerosity, commonality, typicality, and adequacy of representation—as well as the predominance and superiority requirements of Rule 23(b)(3).

Predominance was easily shown based on the diamond producer’s alleged conduct and the injury it caused to each and every class member, the appellate court held. The plaintiffs also sufficiently showed that certification under Rule 23(b)(2), which applied to claims seeking injunctive or declaratory relief, was appropriate.

The appellate court rejected an argument advanced by objectors to the settlement that certification of a nationwide settlement class was improper based on differences in state law with respect to indirect purchaser standing.

Rule 23 made clear that a district court had limited authority to examine the merits of individual claims when conducting the certification inquiry. Such an inquiry was "particularly unwarranted in the settlement context" since a district court did not need to envision the form that a trial would take or consider the available evidence and methods proposed for proving the disputed element at trial, the court stated. Thus, the district court did not “inappropriately subordinate” state sovereignty in certifying the class.

Settlement

The proposed settlement was fair, adequate, and reasonable, the appellate court confirmed. It was in the best interests of the settlement classes, and was the product of arm's-length, serious, and informed negotiations between experienced and knowledgeable counsel.

The lower court did not err in approving class counsel's plan of allocation. Rejected was an argument that the previously-noted differences in state law mandated a differential allocation in the percentage of recovery within the indirect purchaser consumer settlement fund.

Dissent

A dissenting opinion contended that the predominance requirement for class certification was not satisfied because the lower court had not ensured that each class member possessed a viable or colorable legal claim.

By allowing indirect purchasers who had no standing to sue under their state's antitrust laws to be part of the settlement class, the appellate majority has created a “come one, come all” environment that “sets the class action ship in [the Ninth] Circuit badly adrift,” the dissent argued.

The decision is Sullivan v. DB Investments, Inc., 2011-2 Trade Cases ¶77,736.

Prior Settlements Did Not Preclude Antitrust Suit Against Bar Review Course Provider

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

The U.S. Court of Appeals in San Francisco last week reversed the dismissal of an antitrust class action against West Publishing Corporation, its BAR/BRI subsidiary, and Kaplan, Inc., brought on behalf of law students and lawyers purchased bar review courses between August 2006 and March 2011.

Bar to Current Action?

The lower court had erred in concluding that earlier settlements barred the claims in the current action that BAR/BRI engaged in monopolistic behavior and paid Kaplan large sums of money to refrain from entering the bar review market.

The appellate court concluded that a $49 million settlement with consumers who purchased a BAR/BRI course between August 1, 1997, and July 31, 2006, (Rodriguez v. West Publishing Corp., 2009-1 Trade Cases ¶76,614) did not bar the current suit for damages and prospective relief.

The current plaintiffs’ interests in a monetary recovery were not represented by the plaintiffs in the earlier suit. In addition, the earlier settlement did not preclude the current plaintiffs from seeking injunctive relief for alleged conduct that took place before that settlement was entered.

Shared Lawyer, Interests

Although they shared a lawyer and some interests with the earlier class, the earlier settlement did not necessarily address all their potential interests, nor were those similarities sufficient for a finding of virtual representation, in the appellate court’s view.

Another antitrust suit brought in 2007 on behalf of two individual law students who intended to take the bar exam in 2010 (Schall v. West Publishing Corp.) did not bind the plaintiffs in the current action.

The plaintiffs in the current class action were not a party to this earlier action and their interests in a monetary recovery and injunctive relief were not represented in the suit. Thus, they could not be bound by the disposition of that case.

The November 7, 2011, not-for-publication decision in Stetson v. West Publishing Corp., No. 08-55818, appears at 2011-2 Trade Cases ¶77,671.

Remaining Funds in Visa Check/MasterMoney Class Action Awarded to Non-Profits

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

The American Antitrust Institute will receive half of the remaining settlement fund in a tying arrangement class action against the Visa and MasterCard payment card networks under a cy pres distribution, the federal district court in Brooklyn, New York, has decided.

Following distribution of approximately $2.6 billion from the settlement fund in the class action brought on behalf of millions of merchants against the two networks, approximately $1.5 million to $1.6 million was remaining in the fund.

The lead counsel for the plaintiffs had initially asked the court that the entire remainder be donated to the American Antitrust Institute—a non-profit organization dedicated to education, research, and advocacy concerning antitrust law. Ultimately, it was decided that the American Antitrust Institute would share the money with two other charitable organizations.

After determining that a cy pres award was a more appropriate manner for disposing of the remaining settlement funds than an additional distribution to class members, the court took up the issue of who would be granted the remaining funds. The cy pres donation amounted to roughly 0.057 percent to 0.061 percent of the total amount distributed to class members.

Distribution to Three Organizations

The funds were to be distributed as follows: 50 percent to the American Antitrust Institute; 25 percent to Consumers Union, a non-profit advocacy organization; and 25 percent to U.S. PIRG, a network of state public interest groups working on behalf of the American public on issues such as product safety, public health and health care reform, higher education, political corruption and voting rights.

The court denied a request from the Jewelers Vigilance Committee—a not-for-profit trade association for the U.S. precious metal, gem, and jewelry trade—for consideration as a recipient of the cy pres funds. The group was not an appropriate recipient. Its members who were members of the class had already benefited from the settlement.

Moreover, distribution to such narrowly-tailored interests would have had the effect of inequitably concentrating its benefit on a subset of the class as opposed to the class as a whole, in the court’s view.

The October 24, 2011 decision, In re Visa Check/MasterMoney Antitrust Litigation, appears at 2011-2 Trade Cases ¶ 77,654.

Quarterback’s Publicity Rights Claim Against Video Game Maker Rejected

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

The First Amendment barred former Rutgers quarterback Ryan Hart’s New Jersey common law right of publicity claim based on misappropriation of his likeness in the Electronic Arts video game NCAA Football, the federal district court in Trenton has ruled.

Hart asserted the right of publicity in a class action complaint on behalf of other players. The court held that the First Amendment trumped the right of publicity because EA’s use of Hart’s likeness was “transformative” and also because the use was clearly related to the game and not simply an advertisement for an unrelated product.

Transformative Test

Borrowed from the copyright fair use doctrine, the transformative test balances the competing interests of the right of publicity and the First Amendment by protecting works that add significant elements of expression beyond the mere literal depiction or imitation of a celebrity for commercial gain.

Elements of EA’s own expression found in the game justified the conclusion that its use of Hart’s image was transformative, the court held. NCAA Football contained virtual stadiums, athletes, coaches, fans, sound effects, music, and commentary, all of which were created or compiled by the game's designers. Over 100 virtual teams and thousands of virtual players were included.

Focusing on Hart’s virtual image alone, the court acknowledged that a virtual player bore resemblance to Hart and was designed with Hart’s physical attributes, sports statistics, and biographical information in mind. However, the game permitted users to alter Hart’s virtual player, control the player’s throw distance and accuracy, change the team of which the player is a part by downloading varying team names and rosters, and incorporate players from historical teams into the gameplay.

EA created the mechanism by which the virtual player could be altered, as well as the multiple permutations available for each virtual player image, the court noted.

Rogers Test

Because EA’s use of Hart’s likeness was clearly related to the game and not simply an advertisement for an unrelated product, the court determined that the right of publicity claim also was barred under the test developed in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). The Rogers test had been applied in cases when the appropriation of a celebrity likeness created a false and misleading impression that the celebrity was endorsing a product.

As explained in Seale v. Gramercy Pictures, 949 F.Supp. 331 (ED Pa. 1996), applying Rogers to a Pennsylvania right of publicity claim, if a name or likeness is used solely to attract attention to a work that is not related to the identified person, the user may be subject to liability for a use of the identity in advertising. On the other hand, the use of a person’s name and likeness to advertise a work concerning that individual does not infringe the right of publicity, according to the court.

The transformative test provided the best analysis, in the court’s view, but EA was entitled to protection under either the transformative test or the Rogers test, the court concluded.

The September 9 opinion in Hart v. Electronic Arts, Inc. will be reported at CCH Advertising Law Guide ¶64,395.

Further information regarding CCH Advertising Law Guide appears here.

Settlement Preliminarily Approved in Cathode Ray Tube Price Fixing Class Action

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

The federal district court in San Francisco has given preliminary approval to a $10 million settlement resolving price fixing claims brought on behalf of indirect purchasers of products contain cathode ray tubes (CRTs) against manufacturer Chunghwa Picture Tubes, Ltd.

A special master will hold a hearing to determine the sufficiency, fairness, reasonableness, and adequacy of the proposed settlement in March 2012.

Indirect Purchaser Claims

The indirect purchaser claims were brought on behalf of all persons or entities who or which indirectly purchased in the United States CRT products manufacture red or sold by defending CRT makers or their subsidiaries between March 1995 and November 2007. The net settlement fund will be no less than $5 million. The settlement calls for $2.5 million in attorneys’ fees and sets aside $2.5 million for costs, including costs of notice and administration of the settlement funds.

Last year, the court refused to dismiss the indirect purchasers’ claims based on an alleged failure to adequately plead a conspiracy, the Foreign Trade Antitrust Improvements Act (FTAIA), or an alleged lack of standing.

The complaint met the pleading standards articulated by the U.S. Supreme Court in 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 plaintiffs were not required to plead detailed, defendant-by-defendant allegations. It was sufficient that they made allegations that plausibly suggested that each defendant participated in the alleged conspiracy. The complaints contained allegations concerning certain defendants’ participation in alleged unlawful meetings and agreements.

Regarding the FTAIA argument, the indirect purchasers alleged a conspiracy that was carried out both in the United States and abroad, that involved a substantial amount of import and domestic commerce, and that targeted and injured American consumers.

Illinois Brick Repealer Statutes

The court also ruled that the indirect purchasers adequately alleged standing to assert state antitrust violations predicated on the Illinois Brick repealer statutes of Arizona, California, Iowa, Kansas, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, South Dakota, Tennessee, Vermont, West Virginia, and Wisconsin.

The indirect purchasers alleged that they paid higher prices for CRT products than they would have paid in the absence of the conspiracy and that prices of CRT products were directly correlated to the prices of CRTs.

CRTs purportedly account for approximately 60 percent of the cost of manufacturing computer monitors and a slightly smaller percentage of the cost of manufacturing televisions.

The decisions are Cathode Ray Tube (CRT) Antitrust Litigation, 2011-2 Trade Cases ¶77,592 and 2011-2 Trade Cases ¶77,593.

Consumers’ State Antitrust Law Claims Against Korean Air Carriers Preempted

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

Putative class action claims brought by consumers against Korean Airlines and Asiana Airlines for conspiring to fix prices in violation of the California Business and Professions Code and unfair competition laws, as well as similar laws of 19 other states and the District of Columbia, were preempted by the Airline Deregulation Act of 1978, the U.S. Court of Appeals in San Francisco has ruled. Thus, dismissal of the state law claims was upheld.

However, the appellate court vacated the lower court’s decision to deny the consumers leave to amend their complaint to assert federal antitrust claims.

Airline Deregulation Act Preemption Provision

Under the Airline Deregulation Act’s express preemption provision, a “[s]tate . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.”

The indirect purchaser plaintiffs unsuccessfully argued that the provision did not apply to foreign air carriers. They pointed to the provision’s use of the term “air carrier” as opposed to “foreign air carrier.” They contended that Congress intended the terms “air carrier” and “foreign air carrier” to refer to different entities and that it consistently employed those terms for distinct uses.

The appellate court held that Congress intended that the preemption provision apply to all air carriers and not only to domestic ones. Congress’s use of the term “air carrier” throughout the Act did not always correspond with that term’s statutory definition and that “air carrier” is sometimes used to refer generally to both domestic and foreign airlines, the court explained.

The legislative history behind the ADA also demonstrated that Congress intended to preserve its authority to regulate the airline industry by prohibiting states from regulating all air carriers, both domestic and foreign. Moreover, because the indirect purchaser plaintiffs alleged a price fixing conspiracy, their claims were plainly related to a price of an air carrier and consequently were preempted.

Sherman Act Claims

The complaining consumers in this appeal were not direct purchasers from the defending airlines. They bought their airline tickets from travel agents and consolidators. Separate claims were brought on behalf of the plaintiffs who purchased directly from Korean Air and Asiana.

Although the indirect purchasers sought to assert both federal and state antitrust law claims, the district court decided that the indirect purchaser plaintiffs could only represent those claims arising under state law. The court assigned responsibility for litigating federal antitrust claims to the direct purchaser plaintiffs in the multi-district litigation (MDL).

The appellate court concluded that the district court erred in denying the indirect purchaser plaintiffs leave to amend based on its determination that other counsel would pursue the federal antitrust claims. The lower court applied an incorrect legal standard in denying the indirect purchaser plaintiffs’ motion to amend their complaint.

“Although a district court overseeing MDL proceedings has the authority to decide which law firm should serve as lead counsel for the purposes of pretrial proceedings, MDL proceedings do not expand the grounds for disposing of individual cases,” according to the appellate court.

Details of April 18, 2011, decision in In re: Korean Air Lines Co., Ltd. Antitrust Litigation, No. 08-56385, will appear in CCH Trade Regulation Reporter.

Light Cigarette Purchasers’ Consumer Class Action Allowed to Proceed

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

A class of light cigarette purchasers could pursue Minnesota consumer protection claims against Marlboro Light manufacturer Philip Morris based on allegedly deceptive business practices and false advertising, according to a Minnesota appellate court.

The cigarette purchasers sought to recoup money they spent on Marlboro Lights under the Minnesota consumer protection statutes and to represent a class of Minnesota residents that purchased the cigarettes between 1972 and November 2004.

Light cigarettes were marketed as having less tar and nicotine than regular cigarettes and were less likely to cause lung cancer.

Benefit to Public

Minnesota allows a private person injured by a violation of a Minnesota consumer protection statute to bring a civil action and recover damages, together with costs and disbursements including attorney’s fees and other equitable relief. However, the statute only allows claims that are shown to benefit the public.

Because Philip Morris made the allegedly deceptive statements to the public at large for a long period of time, the cigarette purchasers’ claim met the benefit of the public requirement.

Philip Morris argued that the claims should be dismissed because any benefit to the public that the case could possibly confer was already distributed to the public.

The Minnesota Attorney General had already pursued the same claims based on the same alleged deceptive business practices and obtained a permanent injunction against Philip Morris. Thus, the public had already been benefited, according to Philip Morris.

Private Suits After Attorney General

However, the court was unwilling to narrow the Minnesota Duties of the Attorney General statute to prohibit consumers from bringing private suits after the Attorney General. The statute allows private citizens to recover damages in addition to other remedies available by law, including the injunction the Attorney General was awarded in the previous case.

Consumers may meet the public benefit requirement even after the government acts to address the same misrepresentations.

Finally, the court rejected Philip Morris’ argument that the consumer protection claims were barred by the Tobacco Settlement release signed after the Attorney General received the injunction. Because the purchasers were not agents or representatives of the state, they were not barred from bringing the claims.

The decision is Curtis v. Altria Group, Inc., Minn. App. Ct., CCH State Unfair Trade Practices Law ¶32,180.

Further information regarding CCH State Unfair Trade Practices Law is available here.

Best Buy “Price Match” Refusal Would Be Consumer Fraud

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

A Best Buy customer stated plausible claims that the retailer violated the Illinois Consumer Fraud Act and engaged in unjust enrichment by failing to honor its advertised “price match guarantee,” the federal district court in Chicago has ruled.

In a class action complaint, the customer alleged that he purchased a 42-inch wide-screen high definition Samsung television at a Best Buy store in Niles, Illinois. The customer stated that he “considered and relied upon Best Buy’s price match guarantee in making this shopping decision.”

Within the applicable time period, he discovered that a Circuit City store located in the same market area offered a lower price on the same television, which was in stock and available.

The customer stated that he returned to the Niles Best Buy with Circuit City’s print advertisement showing the lower price, and requested the benefit of Best Buy’s price match guarantee—refund of the price difference, plus an additional 10% of that difference. Best Buy refused to honor the request.

Internal Policy

According to the complaint, Best Buy maintains an undisclosed internal policy under which it discourages and denies customers’ proper price match requests. For example, Best Buy allegedly provides weekly bonuses to its salespeople based, in part, on their denying proper price match requests.

Pleading Fraud with Particularity

Best Buy argued that the customer did not adequately plead his Consumer Fraud Act claim because he failed to allege sufficient facts to establish that he was entitled to the price matches he requested. The parties agreed that the case was governed by the heightened standards for pleading fraud under Rule 9(b) of the Federal Rules of Civil Procedure.

The court did not find Best Buy’s argument persuasive. The customer alleged that Circuit City offered a lower price on “an available in-stock product of the same brand and model” as the 42-inch wide-screen high definition Samsung television purchased from Best Buy; that Circuit City was a retail store located in the same market area as the Best Buy store where the customer bought the Samsung television; and that the customer, armed with a print advertisement verifying the lower price, returned to the Best Buy store within the applicable 30-day time period and requested a price match.

The customer sufficiently alleged the elements of the Consumer Fraud Act claim, as well as the common law claim that Best Buy received an unjust benefit from its denial of the price match request, the court determined.

Diversity Jurisdiction

The court observed that the customer failed to plead federal diversity jurisdiction and ordered that an amended complaint be filed.

The June 3 opinion in Laff v. Best Buy Stores, L.P. will be reported at CCH Advertising Law Guide ¶63,874.