Supreme Court to Review “Light” Cigarette Advertising Case

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

The U.S. Supreme Court has agreed to consider whether smokers can pursue a suit alleging that tobacco company Philip Morris made fraudulent misrepresentations in violation of the Maine Unfair Trade Practices Act by advertising and promoting Marlboro and Cambridge Lights as “light” and having “Lowered Tar and Nicotine.”

The Court granted Philip Morris’s petition for review of a 2007 decision by the U.S. Court of Appeals in Boston (Good v. Altria Group, Inc., CCH Advertising Law Guide ¶62,656; CCH State Unfair Trade Practices Law ¶31,454).

Preemption by Federal Law

The question presented for review, according to the petition, is whether state law challenges to FTC-authorized statements regarding tar and nicotine yields in cigarette advertising are expressly or impliedly preempted by federal law.

The appellate court held that the smokers’ state law claims were not expressly preempted by the Federal Cigarette Labeling and Advertising Act (FCLAA). In addition, the court rejected Philip Morris’ contentions that the smoker’s state law claims were impliedly preempted by the FTC’s oversight of cigarette advertising and barred by the Maine statute’s exemption for actions otherwise permitted under laws as administered by any regulatory board or officer acting under the statutory authority of the United States.

Before the appellate court, Philip Morris contended that the smokers’ state law claims stood as an obstacle to the FTC’s policy, expressed in a 1971 consent order, of allowing advertising of tar and nicotine claims as long as they were substantiated with numerical results derived through testing according to the Cambridge Filter Method and the results were published in all brand advertisements.

Absence of FTC Rule

However, since its 1969 agreement with the tobacco companies, the FTC had never issued a formal rule specifically defining which cigarette advertising practices violated the FTC Act and which did not, according to the appellate court.

Section 57b(e) of the FTC Act specifically provided that state law rights of action survived the FTC’s efforts at judicial enforcement of its own federal standards: in other words, that those efforts are in addition to, and not in lieu of, other available remedies, the appellate court noted.

There appeared to be no purpose for the provision, in the appellate court’s view, other than to allow further relief from unfair or deceptive acts or practices under state law even after the Commission had already challenged them through litigation under the FTC Act.

The FTC could not preempt state law actions arising out of particular practices simply by entering into a consent order allowing them to continue, the appellate court concluded.

Petition for Review

The petition is Altria Group, Inc. v. Good, Docket No. 07-562, filed October 26, 2007, cert. granted January 18, 2008.

In its petition, Philip Morris maintained that the appellate court’s decision is at odds with Supreme Court’s decision Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992) and in conflict with the decisions of other courts.

FTC Announces Revised Thresholds for Premerger Notification Process

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

The Federal Trade Commission announced today its revised thresholds for acquisitions and mergers subject to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act. The new thresholds will likely be published officially in the Federal Register next week and become effective 30 days later.

Pursuant to the HSR Act, plans for large acquisitions and mergers must be disclosed to the Department of Justice and the FTC to enable the federal antitrust enforcement authorities to examine their competitive effects and have an opportunity to challenge them under the antitrust laws prior to consummation. Only the transactions that exceed the jurisdictional thresholds need to be reported on the Notification and Report Form.

Amendments to the HSR Act in 2000 imposed new thresholds and called for indexing of these thresholds for inflation annually beginning in Fiscal Year 2005. They have since been revised based on the change in Gross National Product in 2006 and 2007.

Original Thresholds for 2000

Between February 1, 2001, and March 2, 2005, all acquisitions that resulted in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $200 million were reportable, unless otherwise exempted. On the other extreme, no transaction resulting in an acquiring person holding $50 million or less of assets or voting securities of an acquired person needed to be reported.

The reportability of transactions falling between these boundaries is based on the "size of person" test (which generally required one side of the transaction to have sales or assets in excess of $100 million and the other $10 million).

New Thresholds for 2008

Under the revised thresholds announced today, acquisitions that result in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $252.3 million will be reportable (up from the current $239.2 million), unless otherwise exempted. And no transaction resulting in an acquiring person holding $63.1 million or less (up from $59.8 million or less) of assets or voting securities of an acquired person will need to be reported.

Under the "size of person" test, one party will have to have sales or assets in excess of $126.2 million and the other $12.6 million (up from $119.6 million and $12.0 million, respectively).

Filing Fees

Along with notifying the agencies, parties must pay premerger filing fees. The fees are based on the size of the transaction. Under the revised thresholds, a filing fee of $45,000 will be required for transactions valued at less than $126.2 million (up from $119.6 million); transactions valued at at least $126.2 million but less than $630.8 million will be subject to a $125,000 filing fee; and a $280,000 filing fee will be assessed on the largest transactions.

The notice of the "Revised Jurisdictional Thresholds for Section 7A of the Clayton Act" appears here on the FTC web site.

Experts Weigh In on Presidential Candidates’ Prospective Antitrust Enforcement Policies

This posting was written by John W. Arden.

One of the relatively few issues not discussed in the scores of debates already conducted by presidential candidates is antitrust enforcement. Thus, we are reduced to speculation of the type put forth by “antitrust experts” in a January 13 Reuters article entitled “Most presidential hopefuls antitrust moderates.”

Democrats Hillary Clinton and Barack Obama would be “marginally more active” in enforcing antitrust laws, while Republicans Mike Huckabee and John McCain are harder to predict, the article said.

At least the Clinton assessment is based on her Senate activities—which included co-sponsoring a bill to restore per se illegal treatment of vertical price fixing agreements (S. 2261)—in addition to the antitrust record of her husband’s administration.

There was a split in the opinions about Senator Obama’s prospective position on federal antitrust enforcement. One expert speculated that Obama’s experience teaching law at the University of Chicago would push his views to the “pro-market” side, while another expert opined that Obama’s Harvard Law School background would encourage a moderate viewpoint.

John Edwards was considered likely to be the most aggressive on antitrust, based on his populist, anti-corporate campaign themes. On the other hand, Governor Huckabee is portrayed as “the biggest wild card” because of his lack of a track record on antitrust. Although Senator John McCain “talks tough on business issues,” he is more concerned with corporate fraud and waste than competition issues, the experts say.

In Their Own Words

Those interested in what the candidates actually have to say on these issues can peruse statements prepared by Obama and Edwards for the American Antitrust Institute (AAI).

In his statement, Obama promised to “reinvigorate antitrust enforcement” by stepping up review of merger activity, taking aggressive action to curb the growth of international cartels, monitoring key industries to ensure that consumers realize the benefits of competition, and strengthening competition advocacy domestically and in the international community.

“At home, for more than a century, there has been broad bipartisan support for vigorous antitrust enforcement, to protect competition and foster innovation and economic growth,” the statement continued. “Regrettably, the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century.”

Edwards declared in an October 2 statment that “we desperately need strong antitrust enforcement in America” to protect small businesses, farmers, and families and to encourage innovation “in every sector of the economy.”

If elected president, the former senator pledged to launch specific initiatives to (1) protect livestock farmers who are “at the mercy of big agribusiness”; (2) help small physician groups who are “being squeezed by insurance companies”; and (3) relieve consumers from having to pay artificially high prices for gasoline from vertically-integrated oil companies.

The AAI asked all of the presidential candidates to submit statements. However, only Obama and Edwards have done so.

NASCAR’s Refusal to Let Racetrack Hold Premium Event Was Not Unlawful

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

North American Stock Car Auto Racing (NASCAR), that sport's governing body and promoter, did not engage in attempted monopolization or an unlawful conspiracy with a national racetrack management company by denying an independent racetrack's applications to host a premium stock car race, the federal district court in Covington, Kentucky, has held.

The complaining racetrack, located in northern Kentucky, failed to prove a valid relevant market, an antitrust injury, or any actionable anticompetitive behavior, according to the court. Therefore, summary judgment in favor of the defendants was granted.

Proposed Relevant Markets

The complaining track's expert testimony as to two proposed relevant markets—a sanctioning market and a hosting market for a "NEXTEL Series" race—was insufficiently reliable to be admitted into evidence, the court found at the outset.

The NEXTEL Series is a set of 36 races that represents NASCAR's premier circuit. The testimony failed to include an analysis of cross-elasticity of demand under the Justice Department's "merger guidelines test," the accepted means of analyzing the interchangeability of a product and its substitutes.

The expert's own version of the test, which was produced solely for the litigation, had not been subjected to peer review and publication, was not controlled by any accepted standards, and was not shown to have enjoyed general acceptance within the scientific community. Moreover, the expert's comparison of the market for two automotive racing circuits was flawed, and he made no attempt to compare those markets with the markets for other professional sporting events in the area.

Market Not “Readily Apparent”

The exclusion of the unreliable expert testimony left the complaining racetrack with no evidence in support of its relevant market assertions, the court noted, and proof of relevant market was required for a Sherman Act claim. An argument by the racetrack that it did not need to prove the relevant markets because it had adduced "significant evidence of competitive harm" was rejected. The principle was not applicable, as the relevant market was not "readily apparent." Even if it could apply, the track's evidence of competitive harm was not significant enough to have triggered the principle.

Antitrust Injury

In addition, the racetrack did not suffer antitrust injury from the alleged conspiracy, the court ruled. Any preference that the sanctioning body showed for favoring the management company's tracks was vertical in nature, rendering the excluded independent track a "jilted distributor."

An agreement between a producer and a distributor to prevent a competitor of the distributor from expanding its business and competing with the preferred distributor was per se legal, because a manufacturer had a right to select its customers and refuse to sell its goods to anyone, for reasons sufficient to itself, the court concluded.

The January 7 decision is Kentucky Speedway, LLC v. National Association of Stock Car Auto Racing, Inc., Docket No. 05-138 (WOB), Eastern District of Kentucky, 2008-1 Trade Cases ¶75,995.

New York State Attorney General Opens Investigation of Intel

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

Intel Corporation, the world's largest maker of computer microprocessors, is the subject of an antitrust investigation launched by New York State Attorney General Andrew M. Cuomo, according to a January 10 announcement.

The state is investigating whether Intel violated state and federal antitrust laws by coercing customers to exclude its main rival, Advanced Micro Devices (AMD), from the worldwide market for x86 computer processing units (CPU). Modern x86 CPUs are currently the industry-wide standard for a majority of desktops, laptops, notebooks, servers, and workstations.

Use of Monopoly Power to Exclude Competitor

"After careful preliminary review, we have determined that questions raised about Intel's potential anticompetitive conduct warrant a full and factual investigation," said Attorney General Cuomo. "Our investigation is focused on determining whether Intel has improperly used monopoly power to exclude competitors or stifle innovation," he added. "We will also look at whether Intel abused its power to remove competitive threats or harm competition in violation of New York and federal antitrust laws."

European, Asian Actions

Similar antitrust allegations have been examined by authorities in Europe and Asia and resulted in formal actions, including a cease and desist order, against Intel, according to the announcement. In July 2007, the European Commission and the Korean Fair Trade Commission separately reached preliminary conclusions that Intel violated competition law. In 2005, the Japanese Fair Trade Commission concluded that Intel violated its competition laws, and Intel agreed to cease and desist, it was noted.

Absence of Federal Action

New York’s action was hailed by the American Antitrust Institute (AAI), which had urged the Federal Trade Commission to undertake a similar investigation in an August 29, 2007 letter. To date, the FTC has not responded.

“This is an example of the wisdom of having state antitrust laws that replicate the federal law,” said Albert Foer, President of the AAI. “When there is a competitive problem that affects consumers, and the federal government is slow to act, the states have the ability—and responsibility to their citizens—to fill the vacuum.”

Although the allegations against Intel are unproven at this point, “the Intel case has become the landmark monopolization case of the Twenty-First Century,” Foer said. “It is significant because the market is global and there are only two competitors, with no anticipation of new entry.”

While applauding New York and any other states that might join the invstigation, Foer thought it strange “that the U.S. government has not taken a more active role.”

The New York Attorney General’s press release appears here on the attorney general’s web site. The AAI response to the action appears here on the Instutite’s site.

EC Announces Two New Antitrust Investigations into Microsoft

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

The European Commission (EC) has opened two formal antitrust investigations into Microsoft Corporation for the computer software maker's alleged abuse of its dominant market position. The investigations follow complaints from the European Committee for Interoperable Systems (ECIS) and Opera Software ASA, according to a January 14 announcement.

In response to the complaint filed by ECIS, a Brussels-based international non-profit association whose members include information and communications technology hardware and software providers, the EC will probe Microsoft's alleged refusal to disclose interoperability information for a broad range of products.

The EC noted that the September 2007 decision of the European Court of First Instance, which essentially upheld the EC's 2004 decision against Microsoft for abusing its dominant market position, confirmed the principle that dominant companies must respect interoperability disclosure obligations.

Tying of Internet Browser to Operating System

The EC is also investigating whether Microsoft engaged in the illegal tying of its Internet Explorer product to its dominant Windows operating system. The investigation follows a December 2007 complaint from Opera, a software company headquartered in Oslo, Norway.

Based on the allegations of Opera, which develops Internet browser technology for various platforms, the EC is looking into whether Microsoft has introduced proprietary technologies in its browser that would reduce compatibility with open Internet standards and hinder competition. In addition, allegations of tying of other separate software products by Microsoft, including desktop search and Windows Live, were brought to the EC's attention.

The EC intends to consider allegations that a range of products have been unlawfully tied to sales of Microsoft's dominant operating system.

Text of the EC press release appears here on the European Union web site.

Sears Website Allegedly Compromised Personal Information

This posting was written by William Zale, Editor of CCH Privacy Law in Marketing.

A Sears web-based system designed to allow customers to view their purchase history at www.managemyhome.com compromised personal information by allowing anyone to access customers’ private purchase histories, according to a class action complaint filed in the Circuit Court of Cook County, Illinois.

Marketing companies allegedly can mine the “Managemyhome” website for data about Sears customers in order to transmit detailed advertisements for additional products and/or warranties, according to the complaint.

The complaint includes claims for breach of contract, breach of fiduciary duty, and violation of the Illinois Consumer Fraud Act. Sears is alleged to have breached a good faith and fair dealing provision implicit in its contracts by failing to make required disclosures and by failing to take reasonable steps to insure that private information was not easily accessible to the public.

Damages are asserted on the theory that the value of the products and services purchased from Sears was diminished because Sears made publicly available personal information connected to those purchases.

The case is DeSantis v. Sears Roebuck and Co., Docket No. 08CH00448, filed January 4, 2008.

High Court to Review Reliance Requirement for Mail Fraud-Based Civil RICO Claims

This posting was written by Sonali Oberg, Editor of CCH RICO Business Disputes Guide.

The U.S. Supreme Court will review the question of whether a person asserting a civil RICO claim predicated on acts of mail fraud must plead and prove reliance on alleged misrepresentations.

At issue is a holding by the U.S. Court of Appeals in Chicago that purchasers of a tax lien had standing to bring a RICO claim against a competitor who defrauded a county treasurer's office by engaging in a scheme to circumvent the treasurer's bidding rules during a tax lien auction. (Phoenix Bond & Indemnity Co. v. Bridge, No. 06-1160, decided February 20, 2007)

The treasurer's office promulgated a bidding rule whereby a “tax buying entity” was required to submit bids in its own name, and no “related entity” may bid. A “related entity” was any other person or firm that (1) had a shareholder, partner, principal, or officer in common with the “tax buying entity” or (2) had a contractual relationship with the “tax buying entities.”

The purchasers claimed that the competitor violated the rule by arranging for related firms to bid and that, as a result, the competitor obtained an extra portion of profitable liens. They alleged that the competitor had engaged in the operation of an enterprise through a pattern of racketeering activity (namely, mail fraud) in violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S. C. §§1961, et seq.). The asserted mail fraud was based on mailings undertaken in the tax-sale process, which did not involve the purchasers.

The federal district court in Chicago ruled that the purchasers lacked standing to assert RICO claims because they “were not the recipients of the alleged misrepresentations and, at best, were indirect victims of the alleged fraud.” The purchasers were not “in the class of individuals protected by the mail fraud statute, and therefore [were] not within the ‘zone of interests’ that the RICO statute protects.”

The appellate court reversed the district court, concluding that the purchasers had standing because they sustained an injury in fact, the injury was proximately caused by the defendant, and the injury could be redressed by damages. Extra bids submitted by the related firms reduced the purchaser's chance of winning any given auction, and the loss of a valuable chance was a real injury.

Although the purchasers were not the recipients of the competitors' misrepresentations, the purchasers were direct victims of the fraudulent representations and would be within the zone of interests protected by the RICO statute, the appeals court ruled. The court followed its own previous decisions and those of three other circuits that “the direct victim may recover through RICO whether or not it is the direct recipient of the false statements.”

The appeals court also rejected a contention that the purchasers were not in the zone of interest protected by the mail fraud statute because they were not “taken in” by any false statement. “That’s just a different take on proposition that only recipients of the untruth have a remedy.” The zone of interest test requires that the injury must be direct, rather than derivative. A requirement that the plaintiff must rely on a false statement is not supported by the text of either the federal mail fraud statute or RICO, the appeals court ruled.

In its petition for review, the defendants challenged this last point, asserting (1) that the majority of the Circuits that have addressed the issue have held that a plaintiff asserting a civil RICO claim predicated on mail fraud must plead and prove reliance; (2) that the reliance question was directly at issue in the case; (3) that requiring a showing of reliance was consistent with the civil RICO remedy; and (4) that a reliance requirement is an appropriate limitation on the application of civil RICO statute.

The Supreme Court review is limited to the following question: “Whether reliance is a required element of a RICO claim predicated on mail fraud and, if it is, whether that reliance must be by the plaintiff.”

The petition is Sabre Group, LLC v. Phoenix Bond & Indemnity Co., US S.Ct. Dkt. 07-210, cert. granted January 4, 2008.

Ticketmaster Canada Found to Violate Alberta Privacy Law

This posting was written by William Zale, Editor of CCH Privacy Law in Marketing.

Ticketmaster Canada violated the Alberta Personal Information Protection Act (PIPA) by requiring online customers to consent to the use of personal information for event providers’ marketing purposes, as a condition of a ticket sales transaction, according to the Office of the Information and Privacy Commissioner (OIPC).

The PIPA regulates the collection, use, and disclosure of personal information by private sector organizations in the Canadian Province of Alberta.

The OIPC’s investigation determined that Ticketmaster’s online opt-out process neither allowed customers to make an informed decision about consent nor offered customers a reasonable opportunity to decline or object to the use of their personal information for event providers’ marketing purposes. In addition, Ticketmaster’s online privacy policy was found to be complex and ambiguous.

Consent to Use of Personal Information

A customer went on Ticketmaster’s website (www.ticketmaster.ca) to purchase tickets to an event. The customer was unable to proceed with his online purchase unless he consented to Ticketmaster’s “Use of Personal Information” privacy statement, according to the OIPC.

The customer was particularly concerned with the contents of this privacy statement, which authorized Ticketmaster to share his e-mail address with event providers for their marketing purposes.

Investigators’ Recommendations

Ticketmaster agreed to implement the OIPC Investigator’s recommendations, which included (1) ceasing to require customers to consent to the use of their personal information for marketing purposes; (2) providing online customers with a reasonable opportunity to opt-out of the use of their personal information by event providers; (3) amending agreements with event providers to ensure that they reflect the appropriate use of customers’ personal information, and (4) revising the website privacy policy to allow easy navigation and comprehension of Ticketmaster’s role in the ticketing process and its collection, use, and disclosure of customers’ personal information.

On October 8, 2007, Ticketmaster launched—across Canada—a new online and telephone opt-in mechanism for event providers’ marketing communications. This mechanism offers online and telephone customers the opportunity to opt-in to receiving marketing materials from event providers by checking a box during the online ticket purchasing process.

In conjunction with the new online opt-in mechanism, Ticketmaster posted a revised online privacy policy, with an easily navigable table of contents linking to appropriate sections of the policy. The complaining customer was satisfied with the outcome, according to the OIPC.

The December 17 report on this matter (Investigation Report #P2007-IR-007) appears at CCH Privacy Law in Marketing ¶60,150.

FTC Victory Against “Ionized” Bracelet Marketers Upheld

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

Marketers of the “Q-Ray Ionized Bracelet” violated the FTC Act by claiming that tests proved the therapeutic claims they made about the product, the U.S. Court of Appeals in Chicago has decided. An order barring the marketers from making most of their old claims for the bracelet's efficacy and requiring them to pay $16 million into a fund for consumer redress (2006-2 CCH Trade Cases ¶75,424) was affirmed.

The appellate court ruled that it was not clear error or an abuse of discretion to conclude that the defendants set out to bilk unsophisticated persons who found themselves in pain from arthritis and other chronic conditions. The marketers' claims that the bracelet enhanced the flow of bio-energy and other therapeutic claims were “blather,” according to the court.

The statement that the bracelet's efficacy had been test-proven was misleading because the tests the marketers relied on were “bunk.” The marketers did not have to conduct placebo-controlled, double-blind studies, the court explained. However, they offered no proof of the bracelet's efficacy.

Placebo Effect?

The marketers unsuccessfully argued that a placebo effect of the bracelet vindicated their claims. Even if the bracelet had caused a placebo effect among users, the claims would have violated the Federal Trade Commission Act, which condemns material falsehoods in promoting consumer products and lacks an exception for “beneficial deceit.”

The court noted that the possibility that a vague claim—along the lines of “this bracelet will reduce your pain without the side effects of drugs”—could be rendered true by the placebo effect. But the defendants advanced claims beyond those that could be supported by a placebo effect. They made statements that “they knew to be poppycock.”

Remedies

The defendants questioned the proof offered by the FTC with respect to the remedy. However, the FTC produced a reasonable estimate, and the defendants had the burden of showing that the estimate was inaccurate. The defendants also complained that the lower court failed to separate ill-gotten gains from legitimate profits; however, they offered no reason to believe that any of their profits were legitimate.

Money-Back Guarantee

The appellate court also rejected the marketers' objection to a requirement that they refund the purchase price to anyone who bought from their Web sites and returned the merchandise within 30 days. The defendants honored a 30-day money-back guarantee made in their infomercials for consumers who purchased by telephone but not for those who purchased bracelets from their Web sites.

Internet purchasers were allowed only 10 days to return their bracelets. The Web sites disclosed the 10-day refund period; however, the disclosure of this shorter period was buried several clicks away in the Web site and the infomercials suggested that customers purchase online.

Details of the January 3, 2008, decision in FTC v. QT, Inc, No. 07-1662, will appear in the CCH Trade Regulation Reporter.

State Antitrust Enforcers Targeted Insurance Sector, Mergers, Microsoft in 2007

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

As in 2006, state antitrust enforcers continued to target alleged anticompetitive conduct in the insurance industry in 2007. The result was a number of multi-state settlements with insurers.

As the year came to a close, nine states and the District of Columbia reached a $6 million settlement with Travelers Companies, Inc. regarding its role in an alleged nationwide bid rigging scheme devised by insurance broker Marsh & McLennan. Earlier in the year, Hartford Financial Services Group, Inc. agreed to pay $115 million to settle allegations by Connecticut, Illinois, and New York that it faked bids and allowed illegal trading in some mutual funds.

Individual states also brought enforcement actions in the sector. Texas announced in April that a large commercial casualty insurance company agreed to pay $2.1 million to settle allegations that it conspired to avoid competition with the same companies that were its own original investors. Connecticut announced in October an antitrust lawsuit against one of the world's largest reinsurance brokers for conspiring to fix prices and manipulate markets. One month later, Louisiana filed suit against major insurance companies for violating the Louisiana Monopolies Act by using damage-estimating software programs to engage in horizontal price fixing following Hurricanes Katrina and Rita.

Mergers and Acquisitions

Concerns over competition in local private school bus markets prompted a multi-state antitrust enforcement action challenging the combination of the two largest school bus contractors in the nation. A consent decree resolved a civil suit brought by the states of 11 states (2007-2 Trade Cases ¶75,931).

In another multi-state challenge to an acquisition, Rite Aid Corporation—the nation's third largest retail drug store chain—agreed to divestitures to clear the way for its acquisition of the drug store assets of Jean Coutu Group, Inc.—the owner of Eckerd and Brooks drug stores. The FTC also reached an agreement with Rite Aid that required the sale of 23 stores.

Microsoft Final Judgments

As portions of the antitrust final judgments against Microsoft Corporation were set to expire in November 2007, ten states and the District of Columbia asked the federal district court in Washington, D.C. for an extension of the decrees, which prohibit the computer software company from abusing its monopoly in the PC operating system market. “The decree has not lived up to its goal of increasing market competition,” California Attorney General Jerry Brown said

In June, Microsoft Corporation agreed to make significant changes in the design of its desktop search feature in the Windows Vista operating system to satisfy state antitrust concerns.

DOJ’s 2007 Antitrust Enforcement Focused on Anti-Cartel, Merger Activity

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

Thomas O. Barnett, Assistant Attorney General in charge of the Department of Justice Antitrust Division, has stated that the “detection, prosecution, and deterrence of cartel offenses . . . continue to be the highest priority of the Antitrust Division.”

During Fiscal Year (FY) 2007, the Antitrust Division identified a number of milestones in anti-cartel enforcement, including: (1) the highest total number of jail days (31,391) imposed in any given year; (2) the second highest amount of total criminal fines ($630 million) obtained by the Antitrust Division in a single year; and (3) the highest number of pending grand jury investigations (135) since 1992. FY 2007 ran through September.

The year also saw record jail sentences imposed on foreign nationals for violating U.S. antitrust laws. In December 2007, the Antitrust Division announced that three United Kingdom nationals agreed to serve record-setting prison sentences for participating in a conspiracy to rig bids, fix prices, and allocate market shares of marine hose—the flexible rubber hose that is used to transport oil between tankers and storage facilities and buoys.

Since FY 2007 ended in September, the Antitrust Division has announced 10 additional cases in industries or sectors where investigations into anticompetitive activity were already ongoing, such as marine hose, air transportation, and government contracts with the U.S. Navy, Department of Defense, and public schools.

Merger Enforcement

In the past year, the Assistant Attorney General was forced to defend the Antitrust Division's enforcement efforts on Capitol Hill. In a March antitrust subcommittee hearing, Senator Herb Kohl (Wisconsin) contended that there has been an “alarming decline” in antitrust enforcement under the Bush administration, particularly in the area of mergers.

One of the most notable mergers of 2007—the proposed acquisition of CBOT Holdings Inc. by Chicago Mercantile Exchange Holdings Inc.—was cleared by the Antitrust Division without conditions. The two exchanges accounted for most financial futures (and in particular, interest rate futures) traded on exchanges in the United States.

Commentators questioned whether the Antitrust Division went far enough in seeking relief against other transactions. Last summer, the Antitrust Division approved Monsanto's $1.5 billion proposed merger with Delta and Pine Land Co. after requiring divestiture of a seed company, multiple cottonseed lines, and other assets (CCH Trade Regulation Reporter ¶50,944).

The Antitrust Division challenged proposed combinations in the telecommunications industry in 2007, including AT&T Inc.'s $2.8 billion acquisition of Dobson Communications Corporation (CCH Trade Regulation Reporter ¶50,948) and CommScope Inc.'s $2.6 billion acquisition of Andrew Corporation ( CCH Trade Regulation Reporter ¶50,950).

Also in 2007, the federal district court in Washington, D.C. finally approved two separate consent decrees resolving Antitrust Division concerns over the mergers that consolidated four of the nation's largest telecommunications companies—SBC Communications, Inc., AT&T Corp.,Verizon Communications, Inc., and MCI, Inc—into two firms. The deals were announced in 2005.

Notable Setbacks

Two notable setbacks for the Antitrust Division in 2007 were the acquittal of Stora Enso North America Corporation of charges that it conspired to fix magazine paper prices and the dismissal of an indictment against London-based Stolt-Nielsen S.A., two of its subsidiaries, and two company executives for conspiring to restrain trade in the parcel tanker shipping industry.

FTC Enforcement: 2007 Highlights

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

In 2007, the FTC continued to focus its enforcement efforts on sectors of the economy that it believed had the greatest impact on consumers, including health care, energy, retail, technology, and real estate.

Health Care

The FTC ended some long-running administrative proceedings in the health care industry. The agency issued an order ending litigation arising out of Chicago-area Evanston Northwestern Healthcare Corp.'s acquisition of Highland Park Hospital in 2000 and rejecting an administrative law judge's decision that divestiture was the appropriate remedy. The Commission instead imposed an injunctive order requiring Evanston Northwestern Healthcare to establish two separate and independent teams for negotiating contracts with managed care organizations (2007-2 Trade Cases ¶75,814).

The South Carolina State Board of Dentistry agreed in June to settle FTC charges brought in September 2003 that it unlawfully restrained competition by adopting a rule that required a dentist to examine every child before a dental hygienist could provide preventive care (Trade Regulation Reporter ¶16,023). The agency also resolved a federal court action filed in November 2005 against Barr Laboratories for conspiring with Warner Chilcott to delay market entry of a generic drug (Trade Regulation Reporter ¶16,081).

Among the numerous merger challenges brought in the sector, the FTC challenged an alleged agreement between two dialysis clinic operators under which one of the operators agreed to acquire some of the competitor's clinics in one market and to pay the competitor to exit another (CCH Trade Regulation Reporter ¶16,045).

Energy

The FTC suffered two defeats in the energy sector. The agency dismissed administrative litigation challenging Western Refining, Inc.'s acquisition of Giant Industries, Inc., after a federal district court in Albuquerque, New Mexico, denied preliminary injunctive relief (2007-1 Trade Cases ¶75,725).

The FTC's challenge to the proposed combination of Equitable Resources Inc. and The People's Natural Gas Co.—natural gas suppliers serving Allegheny County, Pennsylvania—on state action immunity grounds was dismissed in May (2007-1 Trade Cases ¶75,702). The agency is appealing that decision to the Third Circuit.

Retail

The agency faced another setback when a federal district court refused to block the combination of Whole Foods Market, Inc. and Wild Oats Markets, Inc. in August. The agency is appealing the matter to the U.S. Court of Appeals in Washington, D.C. Also in the retail sector, the agency conditioned the Great Atlantic & Pacific Tea Company, Inc.'s $1.3 billion acquisition of Pathmark Stores, Inc. on divestitures (CCH Trade Regulation Reporter ¶16,080).

Technology

The Commission's decision not to challenge Google Inc.'s $3.1 billion acquisition of Internet advertising server DoubleClick Inc. (Trade Regulation Reporter ¶16,092) was the leading development on the technology front. A Commission order requiring Rambus Inc. to refrain from making misrepresentations or omissions to standard-setting organizations and to adhere to licensing obligations ended administrative litigation against the developer and licensor of computer memory technologies (CCH Trade Regulation Reporter ¶15,979).

Real Estate

In addition to bringing actions in 2007 against groups of real estate agents for restricting competition, the agency issued a May joint report with the Department of Justice, entitled “Competition in the Real Estate Brokerage Industry.”

Mortgage Company to Pay $50,000 for Tossing Loan Documents in Dumpster

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

An Illinois-based mortgage company that left loan documents with consumers' sensitive personal and financial information in and around an unsecured dumpster has agreed to pay a $50,000 civil penalty to settle FTC charges that the conduct violated federal regulations.

According to a complaint filed by the Department of Justice at the request of the FTC, the company violated the Disposal, Safeguards, and Privacy Rules by failing to properly dispose of credit reports or information taken from credit reports, failing to develop or implement reasonable safeguards to protect customer information, and failing to provide customers with privacy notices. The action marks the FTC's first Disposal Rule case, as well as its 15th challenge to the data security practices of companies that handle sensitive consumer information.

The complaint alleged that since at least December 2005, the company engaged in a number of practices that, taken together, failed to provide reasonable and appropriate security for consumers' personal information. Among other things, the company allegedly failed to implement reasonable policies and procedures requiring the proper disposal of consumers' personal information, including consumer reports; to take reasonable actions in disposing of such information; and to identify reasonably foreseeable internal and external risks to consumer information.

The company also allegedly failed to develop, implement, or maintain a comprehensive written information security program, it was alleged. As a result of these failures, on multiple occasions documents containing consumers' personal information were found in and around a dumpster near the company's office that was unsecured and easily accessible to the public.

The complaint charged specifically that in February 2006, hundreds of these documents were found, many in open trash bags, including consumer reports for 36 consumers. The FTC averred that although its staff notified the company in writing about this situation in March 2006, more such documents were found in and around the same dumpster on at least two occasions afterward.

In addition to requiring the company to pay the civil penalty for violations of the Disposal Rule, the proposed settlement would prohibit the company from further violations of the Disposal, Safeguards, and Privacy Rules. It would also require the company to obtain, every two years for the next 10 years, an audit from a qualified, independent, third-party professional to ensure that its security program meets the standards of the order.

The action is FTC v. American United Mortgage Corporation, FTC File No. 062 3103, court complaint and proposed consent decree filed December 18, 2007. Further details appear at CCH Trade Regulation Reporter ¶16,090.

Marketer Asserts Actual Controversy in Russian Vodka Advertising Dispute

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

A vodka marketer seeking to enter the U.S. market by touting the "authentically Russian" character of its product established the existence of an actual controversy for purposes of a declaratory judgment action against the marketer and U.S. importer of the well-established Stolichnaya vodka, the federal district court in New York City has ruled.

"Not Truly Russian"

The vodka marketer (Russian Standard) sought a declaration that it would not violate the Lanham Act through its advertising campaign, highlighting the distinction between its Imperia vodka and Stolichnaya—which Russian Standard had publicly claimed to be "not truly Russian" because some of its production processes occurred in Latvia.

The marketer (Pernod Ricard) and importer (Allied Domecq) of Stolichnaya had engaged in conduct indicating that there would be a controversy between the parties by sending a cease and desist letter to Russian Standard and initiating a proceeding at the National Advertising Division (CCH Advertising Law Guide ¶62,367). Although Pernod and Allied had waived their right to sue for past statements, the threat of legal action based on Russian Standard's future conduct was sufficiently immediate to create an "actual controversy."

Stay Pending NAD Decision

A motion by Pernod and Allied to stay litigation for 30 days was granted, pending resolution of the relevant issues in the National Advertising Division (NAD) proceeding. Allowing the NAD to provide its expert view on Stolichnaya's authenticity as a Russian vodka would be extremely useful in resolving the case, according to the court.

The November 19 decision is Russian Standard Vodka (USA), Inc. v. Allied Domecq, SD N.Y., CCH Advertising Law Guide ¶62,764.

Justice Department Will Not Appeal Dismissal of Stolt-Nielsen Antitrust Indictment

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

The Department of Justice announced on December 21 that it will not appeal a federal district court's dismissal of an indictment against London-based Stolt-Nielsen S.A., two of its subsidiaries, and two company executives for conspiring to restrain trade in the parcel tanker shipping industry.

On November 29, 2007, the federal district court in Philadelphia dismissed the indictment, after ruling that the Department of Justice Antitrust Division's revocation of conditional leniency under the corporate leniency program was unfair (2007-2 CCH Trade Cases ¶75,962). The Justice Department failed to meet its burden of demonstrating that Stolt-Nielsen materially breached the cooperation agreement, according to the court.

In its statement, the Justice Department said that it was “disappointed with the ruling” but “respect[ed] the role of the court in making the factual determinations that support the decision that Stolt-Nielsen, two of its subsidiaries, and two executives did not breach the conditional leniency agreement.”

The Justice Department also noted that “Stolt-Nielsen is the only company that the Antitrust Division has ever sought to remove from its Corporate Leniency Program since the policy was first adopted in 1978 and then subsequently revised in 1993.”

The announcement was made in a December 21 news release, posted on the Department of Justice Antitrust Division's web site.

Privacy Principles for Online Behavioral Advertising Proposed by FTC Staff

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

The Federal Trade Commission staff has released proposed privacy principles to guide the development of companies’ “self-regulation” in the rapidly evolving area of online behavioral advertising. The Commission vote approving issuance of the principles was 5-0.

“Behavioral advertising” is the tracking of a consumer’s activities online—including the searches the consumer has conducted, the web pages visited, and the content viewed—in order to deliver advertising targeted to the individual consumer’s interests.

Commissioner Jon Leibowitz, in a statement issued in connection with the closing of the FTC’s investigation into the Google/DoubleClick merger, called the staff's self-regulatory principles “a very useful first step” in moving forward the discussion of how the Commission should address privacy issues across industries and from multiple perspectives.

The FTC staff’s proposed privacy principles are as follows:

1. Transparency and consumer control

Every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option.

2. Reasonable security, and limited data retention, for consumer data

Security against risk of unauthorized access. Any company that collects and/or stores consumer data for behavioral advertising should provide reasonable security for that data. Consistent with the data security laws and the FTC’s data security enforcement actions, such protections should be based on the sensitivity of the data, the nature of a company’s business operations, the types of risks a company faces, and the reasonable protections available to a company.

Retention time. Companies should retain data only as long as is necessary to fulfill a legitimate business or law enforcement need. FTC staff commends recent efforts by some industry members to reduce the time period for which they are retaining data. However, FTC staff seeks comment on whether companies can and should reduce their retention periods further.

3. Affirmative express consent for material changes to existing privacy promises

As the FTC has articulated in its enforcement and outreach efforts, a company must keep any promises that it makes with respect to how it will handle or protect consumer data, even if it decides to change its policies at a later date. Therefore, before a company can use data in a manner materially different from promises the company made when it collected the data, it should obtain affirmative express consent from affected consumers. This principle would apply in a corporate merger situation to the extent that the merger creates material changes in the way the companies collect, use, and share data.

4. Affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising

Companies should only collect sensitive data for behavioral advertising if they obtain affirmative express consent from the consumer to receive such advertising. FTC staff seeks specific input on (1) what classes of information should be considered sensitive, and (2) whether using sensitive data for behavioral targeting should not be permitted, rather than subject to consumer choice.

5. Call for additional information: using tracking data for purposes other than behavioral advertising

FTC staff seeks additional information about the potential uses of tracking data beyond behavioral advertising and, in particular: (1) which secondary uses raise concerns, (2) whether companies are in fact using data for these secondary purposes, (3) whether the concerns about secondary uses are limited to the use of personally identifiable data or also extend to non-personally identifiable data, and (4) whether secondary uses, if they occur, merit some form of heightened protection.

Request for Comments

FTC staff seeks comment and discussion on the appropriateness and feasibility of the above principles for both consumers and businesses, including the costs and benefits of offering choice for behavioral advertising.

Comments should be sent by Friday, February 22, 2008, to: Secretary, Federal Trade Commission, Room H-135 (Annex N), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580, or BehavioralMarketingPrinciples@ftc.gov. The comments will be posted on the FTC’s behavioral advertising web page for possible use in the development of self-regulatory programs.

The full text of the FTC Staff Statement is available here on the FTC website and will be published in CCH Privacy Law in Marketing and CCH Advertising Law Guide.

FTC Closes Antitrust Investigation into Google/DoubleClick Combination

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

Explaining that the “sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition,” the FTC announced its decision to close its eight-month investigation into the Google Inc.’s proposed $3.1 billion acquisition of Internet advertising server DoubleClick Inc.

Although consumer groups had raised concerns about the proposed acquisition’s impact on consumer privacy, the agency limited its review to the transaction’s impact on competition. In a four-to-one vote, the Commission concluded that the proposed acquisition was unlikely to substantially lessen competition.

According to the Commission statement, Google and DoubleClick are not direct competitors in any relevant antitrust market. Google, the ubiquitous search engine provider, sells advertising space. Through its ad intermediation product—AdWords business—Google is the dominant provider of sponsored search advertising. DoubleClick does not sell any form of advertising, including sponsored search advertising. Rather, it is the leading firm in third-party ad serving markets.

While Google had been attempting to develop a third-party ad serving solution at the time of the transaction, and therefore was a potential future competitor of DoubleClick, it has not released or sold a commercially viable ad serving product in the United States.

Competitive Effects Analysis

The transaction was analyzed under three theories of potential competitive harm: (1) whether the merger threatened to eliminate direct and substantial competition between Google and DoubleClick; (2) whether the merger threatened to eliminate potential competition; and (3) whether there was any non-horizontal theory of harm, such as the possibility that Google could leverage DoubleClick’s leading position in third-party ad serving to its advantage in the ad intermediation market. Under any of these three theories, the transaction did not threaten to eliminate competition or potential competition.

Dissenting Statement

Commissioner Pamela Jones Harbour voted against the decision to close the investigation and issued a dissenting statement. “I dissent because I make alternate predictions about where this market is heading, and the transformative role the combined Google/DoubleClick will play if the proposed acquisition is consummated,” she wrote. Commissioner Harbour noted troubling horizontal overlaps that might have provided a predicate for the Commission to impose conditions on the merger. She also suggested that the Commission could have utilized the full scope of its statutory powers to not only ensure competition was not harmed, but also to address the privacy issues raised by the merger.

A news release on the Commission action, a 13-page “Statement of the Federal Trade Commission,” and the 13-page dissent appear at the FTC website. The documents will appear at CCH Trade Regulation Reports ¶16,092.

Pentium 4 Purchasers Cannot Pursue Illinois False Ad Class Action

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

A class of Illinois purchasers of Intel Pentium 4 computers cannot be certified on claims that Intel violated the Illinois Consumer Fraud Act, the Illinois Supreme Court has ruled. The suit was filed in Illinois as a nationwide class action, with alternative claims brought under Illinois and California consumer fraud laws.

The purchasers asserted deception by computer-chip manufacturer Intel in its massive advertising campaign touting the high performance of its Pentium 4 microprocessor. Intel allegedly conditioned consumers, through its marketing and naming practices, to believe that each generation of its high-performance processors was superior in speed and performance to the previous generation. The name “Pentium 4” was alleged to be an implicit representation of processor performance that deceived all consumers.

Choice of Law

Because the consumer fraud laws of California and Illinois conflicted, the choice of law was potentially outcome-determinative, the court found. While named plaintiffs were required to prove actual deception under the Illinois Consumer Fraud Act, individualized proof of deception and reliance had been held not to be required under the California Unfair Competition Law, according to the court. Although the suit implicated potential class members and consumer fraud laws of all 50 states and the District of Columbia, relief was sought only under Illinois or California law.

The Intel employees responsible for designing and marketing the microprocessor were primarily located in California, and Intel made its marketing decisions in California. Eight of the named purchaser-plaintiffs resided in Illinois, and three resided in Missouri.

The purchasers argued that Intel’s alleged injury-causing conduct occurred in California and also that the allegedly false representations emanated from California. Intel contended that Illinois possessed the more significant contacts—as the place where the majority of the named plaintiffs received the representations and where their alleged reliance and injury occurred.

Illinois law was held applicable based on court’s choice-of-law analysis favoring the place were the plaintiffs acted in reliance. While either Illinois or Missouri law could have been applicable, the purchasers did not seek relief under Missouri law. The case was limited to Illinois purchasers’ claims because the Illinois Consumer Fraud law applied to transactions that occurred primarily and substantially in Illinois.

The court noted that questions of whether California law could be applied to citizens of other states and to acts occurring outside its borders would likely be decided by California courts in a similar putative nationwide class action, Skold v. Intel Corp., Cases No. RG 04 145635 (Cal. Super. Ct. Alameda County).

Denial of Class Certification

In seeking class certification, the purchasers argued that the uniform representation implicit in the name “Pentium 4”—allegedly that this processor was the best and fastest on the market—was sufficient to afford recovery under the Consumer Fraud Act. However, this implicit representation was nothing more than mere sales “puffery” and therefore was not deceptive under the Act, in the court’s view.

The purchasers contended that Intel conditioned the market to believe that each generation of the “Pentium” processor would be better than the last. But the purchasers could only identify one statement that was communicated to the entire class—the name “Pentium 4”. This was viewed as indistinguishable from the use of the term “best,” which the court in 2005 had ruled to be nonactionable puffery (Avery v. State Farm Mutual Automobile Insurance Co, CCH Advertising Law Guide ¶61,875).

The November 29, 2007 decision in Barbara’s Sales, Inc. v. Intel Corp. will be reported at CCH Advertising Law Guide ¶62,756.

House Passes Bill to Eliminate Need to Re-Register for Do Not Call List

This posting was written by John Scorza, CCH Washington Correspondent.

The House of Representatives has passed legislation that would eliminate the automatic removal of telephone numbers from the Do Not Call registry and the need for consumers to re-register their numbers. The House also passed a related bill that would allow the Federal Trade Commission to continue to maintain and operate the Do Not Call program, which prohibits telemarketers from calling consumers who have registered their phone numbers with the agency.

The FTC established the registry in 2003 and began allowing consumers to list their phone numbers for a five-year period. As originally devised, consumers would be required to re-register after five years. However, the FTC in October announced that it would suspend the deletion of expired numbers, pending congressional action.

The House on December 11 approved the Do Not Call Improvement Act (H.R. 3541), which would eliminate the expiration of listings on the registry. The Senate Commerce, Science and Transportation Committee approved identical legislation (S. 2096) in October.

“By signing up with the National Do Not Call registry, more than 130 million Americans have told telecommuters, ‘Don’t call us—we’ll call you,’” said Representative Mike Doyle (Pennsylvania), sponsor of H.R. 3541. “Let’s save them the hassle of signing up again and again.” Doyle said he expects the Senate to move quickly to pass the legislation.

The related bill approved by the House—the Do Not Call Registry Fee Extension Act (H.R. 2601)—would give the FTC the permanent authority to continue collecting fees from telemarketers to operate the registry. The agency’s authority to collect fees and maintain the registry expired in September, the end of the fiscal year.

“I appreciate this broad bipartisan support for this legislation,” remarked Representative Cliff Stearns (Florida), sponsor of H.R. 2601. “I have heard countless expressions of gratitude for providing a means to stop these unwanted calls at home. Those who have added their numbers to the registry have seen a noticeable decrease in calls interrupting their family life.”

Chairman Majoras, FTC Reject Request for Recusal

This posting was written by John W. Arden.

FTC Chairman Deborah Platt Majoras will not recuse herself from the Commission’s review of Google’s proposed acquisition of DoubleClick Inc., based on DoubleClick’s representation by the Jones Day law firm, where her husband is a partner in the antitrust practice group.

In a December 14 statement, Chairman Majoras wrote that the relevant laws and rules “neither require nor support recusal.” Commissioner William E. Kovacic also released a statement that his wife was a member of Jones Day, but that her status did not warrant his recusal from the Google/DoubleClick matter.

Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch issued a brief statement agreeing with the analyses in the statements of Commissioners Majoras and Kovacic. “It is evident that these Commissioners have at all times taken affirmative steps to conduct themselves in complete conformity with the ethical standards that apply to their positions.”

Complaint Requesting Recusal

The Chairman issued her statement in response to a Complaint Requesting Recusal, filed with the Federal Trade Commission on December 12 by two public interest groups. The groups—the Electronic Privacy Information Center and the Center for Digital Democracy—moved for recusal based on DoubleClick’s retainer of Jones Day “to represent the company before the Federal Trade Commission in the pending merger review.”

The complaint contains “some key factual errors,” according to the Chairman, including the statement that Jones Day represented DoubleClick before the FTC. The law firm of Simpson, Thacher & Bartlett LLP actually represents the company before the FTC. Jones Day “has never appeared or even been mentioned” in DoubleClick’s meetings with the agency or submissions to the agency, she maintained.

The complaint cited a statement on the Jones Day web site that the law firm “is advising DoubleClick, Inc. the digital marketing technology provider, on the international and U.S. antitrust and competition law aspects of its planned $3.1 billion acquisition by Google Inc.”

According to Ms. Majoras, “no one at the FTC was aware that Jones Day was involved in the EC review of this transaction until the afternoon of Tuesday, December 11, 2007, at which time staff learned and contacted me. Following my customary practice when I learn that Jones Day is or may be involved in a matter, I immediately contacted the FTC’s Ethics Official, and asked him to undertake a conflict of interest analysis.”

Financial Interest

The complaint further erroneously claims that the Chairman’s spouse, John M. Majoras, “is currently an equity partner with the law firm Jones Day,” the statement asserted. As of January 1, 2006, Mr. Majoras converted to non-equity status and became a fixed participation partner. Since Mr. Majoras does not have a financial interest in the firm’s income, no financial interest could be imputed to the Chairman.

“The FTC’s Ethics Official determined that, based on the applicable facts, including those described above, no impartiality conflict exists,” the Chairman wrote.

In a separate statement, Commissioner Kovacic indicated that his wife, Kathryn Fenton, also converted from equity partner to fixed partner status on January 1, 2006. As a fixed partner, her compensation will not be affected by changes in the firm’s income. Thus, the Commissioner announced that he would not recuse himself from the Google-DoubleClick matter.

Groups Seek Majoras Recusal in FTC Review of Google-DoubleClick Merger

This posting was written by John W. Arden.

Federal Trade Commission Chairman Deborah Platt Majoras should be disqualified from the FTC’s review of the proposed merger of Google and DoubleClick because the law firm where her husband practices antitrust law is advising DoubleClick on the U.S. and international competition law aspects of the deal, according to a complaint filed with the FTC by two public interest groups.

The complaint—filed by the Electronic Privacy Information Center and the Center for Digital Democracy—moves for the recusal of Chairman Majoras based on DoubleClick’s retainer of the Washington law firm of Jones Day “to represent the company before the Federal Trade Commission in the pending merger review.”

Relationship with Law Firm

Prior to her government service, Chairman Majoras was an equity partner in Jones Day’s antitrust section. Her husband, John M. Majoras, is currently an equity partner in the antitrust section, as well as the partner-in-charge of business development in the Washington, D.C. office, according to the complaint.

The complaining groups allege that Chairman Majoras has previously recused herself in antitrust matters where there was “a similar conflict of interest” with Jones Day. These matters included Proctor & Gamble’s acquisition of Gillette, the merger of Valero Energy Corp. and Premcor, and Federated Department Stores Inc.’s acquisition of the May Department Stores Co.

Financial Interest, Question of Impartiality

According to the complaint, the Chairman is subject to disqualification in this matter, under the Standards of Ethical Conduct for Employees of the Executive Branch, because (1) the matter has a “direct and predictable financial interest” on the Chairman’s spouse; (2) a reasonable person with knowledge of relevant facts would question the Chairman’s impartiality based on her prior association with the firm, her spouse’s current association and financial interest in the firm, her spouse’s specific expertise in antitrust issues involved the client’s matter, and the spouse’s responsibility for business development in the Washington, D.C. office; and (3) the Chairman failed to give notice of this arrangement.

The complaint was filed on December 12, 2007. The Electronic Privacy Information Center (EPIC) is a public research center in Washington, D.C, established in 1994 “to focus public attention on emerging civil liberties issues and to protect privacy, the First Amendment, and constitutional values.” The Center for Digital Democracy (CDD) is a not-for-profit group, based in Washington, D.C., “dedicated to ensuring that the public interest is a fundamental part of the new digital communications landscape.”

Antitrust and Privacy Concerns

The proposed merger—which would combine the world’s largest Internet search company (Google) with the leading company that places advertising on the Internet (DoubleClick)—has raised antitrust and privacy concerns in both the U.S. and Europe.

After a September 28 hearing conducted by the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights, Senators Herb Kohl (D-Wis.) and Orrin Hatch (R-Utah) sent a letter to Chairman Majoras, asking the FTC to examine the competition and privacy issues raised by the merger. The Senators voiced concern that the deal “could cause significant harm to competition in the Internet advertising marketplace.” Privacy advocates expressed serious misgivings about DoubleClick’s data on individual’s web use preferences coming under the control of Google, which can track individuals’ search requests.

The European Commission announced on November 13 that it will investigate whether the proposed merger would significantly impede effective competition within the European Economic Area.

Web Site Operator Agrees to Settle FTC Charges Based on Sexually-Explicit Pop-Up Ads

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

The operator of a Web site that touts itself as "the World's Largest Sex & Swingers Personal Community" has agreed to settle FTC charges that it engaged in unfair practices by foisting unsolicited sexually-explicit marketing materials—including, but not limited to, online pop-up advertisements—on unwitting consumers.

According to the FTC, the Web site operator and its affiliates used pop-up ads to drive traffic to Web sites that offer consumers the opportunity to access other members’ sexually-oriented personal files, photographs, and Web cam videos, as well as a live video chat site. The agency alleged that the practice of displaying graphic pop-up ads without consumer consent was unfair in violation of Sec. 5 of the FTC Act.

Under the terms of a proposed consent decree, awaiting approval in the federal district court in San Jose, California, the Web site operator would be prohibited from displaying sexually-explicit online ads to consumers who are not seeking out sexually-explicit content.

The proposed consent decree would require the defendant to take steps to ensure that its affiliates comply with the restriction and would require the defendant to end its relationship with any affiliates who do not comply. It also would require the defendant to establish an Internet-based mechanism for consumers to submit complaints. The proposed settlement would impose bookkeeping and record-keeping requirements that would allow the Commission to monitor compliance.

The complaint and stipulated final order for a permanent injunction is FTC v. Various, Inc., FTC File No. 072-3000, December 6, 2007. Further details appear at CCH Trade Regulation Reporter ¶16,083 and here on FTC web site.

Acquisition in Drop Cable Industry Challenged by Justice Department

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

The Department of Justice Antitrust Division filed a complaint and proposed consent decree on December 6 in the federal district court in Washington, D.C. to preserve competition in the manufacture of drop cable, in light of CommScope Inc.’s proposed $2.6 billion acquisition of Andrew Corporation.

CommScope is a leading manufacturer and provider of wire and cable products, including drop cable, coaxial cable used by cable television companies. Andrew Corp., a major manufacturer and supplier of products for antenna and cable and wireless communications systems, manufactured drop cable until it sold the business in March 2007 to Andes Industries Inc. Andrew maintained a 30 percent ownership interest in Andes, as well as governance rights and the right to appoint members to Andes’ board of directors.

Interlocking Directorates

The Justice Department alleged that the transaction, as originally proposed, might have substantially lessened competition in the highly-concentrated market for drop cable in the United States and would have created interlocking directorates. The transaction would have given CommScope the ability to appoint directors to the board of Andes, a substantial competitor, in violation of Section 8 of the Clayton Act, according to the Justice Department.

Under the proposed consent decree, CommScope and Andrew must divest all of Andrew’s stock ownership and other interests in Andes. Upon completion of the divestiture, neither CommScope nor Andrew will have any rights to appoint Andes directors or otherwise control or influence the business operations of Andes.

European Commission

The European Commission (EC) announced on December 4 that CommScope’s acquisition of Andrew cleared scrutiny under the European Union Merger regulation. The EC concluded that the transaction would not significantly impede effective competition in Europe. The EC announcement noted the companies’ strong position in the U.S. and the U.S. Department of Justice review of the transactions.

The December 6 announcement of the action appears on web site of the Department of Justice Antitrust Division. Details of the complaint and proposed consent decree in U.S. v. CommScope, Inc., will appear in CCH Trade Regulation Reports.

FCC Proposes Permanent Do-Not-Call Registrations

This posting was written by William Zale, Editor of CCH Privacy Law in Marketing.

The Federal Communications Commission announced on November 27 that it has adopted a Notice of Proposed Rulemaking seeking comment on whether to require telemarketers to honor registrations with the National Do-Not-Call Registry beyond the current five-year registration period.

Under this proposal, telemarketers would be required to honor a registration indefinitely, until the registration is cancelled by the consumer or the telephone number is removed by the database administrator because it was disconnected or reassigned.

Since the opening of the National Do-Not-Call Registry was announced in June of 2003, more than 145 million telephone numbers have been placed on the Registry, according to the agency. Under the current rules, registered numbers will begin to expire in June 2008 and may be dropped from the Registry, unless consumers take steps to re-register the numbers.

The FCC proposes making registrations permanent to alleviate the inconvenience to consumers of having to re-register their preferences not to receive telemarketing calls, and to enhance consumer privacy protections.

The Federal Trade Commission announced on October 23 that it will not remove any telephone numbers from the registry, pending final Congressional or agency action regarding whether to make registration permanent. When the registry was developed, the Commission adopted a five-year re-registration mechanism under the telemarketing sales rule. The list was to be periodically purged of disconnected or reassigned numbers to ensure accuracy.

Insurers, Hospitals Could Have Conspired Against Surgical Facilities

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

Two managed care organizations (MCOs) and three hospitals in the Kansas City area could have engaged in a group boycott against physician-owned specialty surgical hospitals in violation of federal antitrust law, the federal district court in Witchita, Kansas has ruled.

Direct and circumstantial evidence that MCOs and hospitals acted to prevent such specialty hospitals from becoming part of the MCOs’ managed care plan networks sufficed to create a genuine issue of fact for a jury as to whether the defendants participated in an antitrust conspiracy.

Motions for summary judgment and partial summary judgment on the claim were, therefore, denied. However, a fourth hospital’s motion for partial summary judgment on the horizontal conspiracy claim was granted, owing to the complaining specialty hospital’s failure to demonstrate sufficient participation by the hospital in the conspiracy.

Evidence that a complaining specialty surgical hospital presented—showing the defending MCOs’ participation in an unlawful conspiracy with other health insurers and health care facilities—was sufficient to survive summary judgment, the court decided.

The evidence included a demonstration that, although one of the MCOs aggressively competed with other MCOs for members and gave good initial responses to the specialty hospital, the MCO then acted to exclude it subsequent to its attendance at meetings in which other MCOs expressed opposition to including specialty hospitals within their networks and planned to exclude them. Moreover, it could be inferred from testimony that the MCOs were part of a “gentleman’s agreement” among MCOs in the Kansas City area not to extend managed care contracts to specialty hospitals.

One of the defending MCOs also had spearheaded coordination of network hospitals’ waiver of network configuration clauses in their managed care contracts to enable the hospitals’ own majority-owned specialty hospitals to be part of the network, while at the same time not extending the same sort of waiver to independent, physician-owned facilities. The other MCO was shown to have participated in this effort, as well.

Owing to the existence of some direct evidence, a plausible economic motive, and the inferences of conspiracy that could be drawn from this circumstantial evidence, summary judgment in favor of the MCO would have been inappropriate.

The decision is Heartland Surgical Specialty Hospital, Inc., 2007-2 Trade Cases ¶75,957.

Revocation of Antitrust Immunity Held Unfair; Indictment Dismissed

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

The federal district court in Philadelphia has dismissed an antitrust indictment against London-based Stolt-Nielsen S.A., two of its subsidiaries, and two company executives for conspiring to restrain trade in the parcel tanker shipping industry.

The court ruled that the indictment followed an unreasonable and unfair decision by the Department of Justice Antitrust Division to revoke its promise of immunity granted to Stolt-Nielsen for the company's cooperation with the government's investigation into a parcel tanker shipping cartel. The Antitrust Division failed to meet its burden of demonstrating that Stolt-Nielsen materially breached the agreement, according to the court.

Conditional Leniency Agreement

In 2003, the Justice Department entered into a conditional leniency agreement with Stolt-Nielsen under the Antitrust Division's corporate leniency program. The corporate leniency program provided an opportunity and incentive for companies to cooperate with the government’s criminal investigations into violations of the antitrust laws. Under the program, the Antitrust Division would agree not to prosecute companies that report their illegal antitrust activity to the Antitrust Division and meet all of the program's conditions. Only the first company to report a cartel is eligible to qualify for leniency.

Stolt-Nielsen provided the Antitrust Division with incriminating evidence of the cartel. In exchange for the cooperation, the Antitrust Division promised not to prosecute Stolt-Nielsen or its directors, officers and employees for the reported conduct. Ultimately, the government successfully prosecuted the company's co-conspirators.

Withdrawal of Leniency

The government withdrew its grant of conditional leniency to Stolt-Nielsen in March 2004, after concluding that the defendants had not fulfilled their obligations under the leniency agreement. In January 2005, the court attempted to block the government's indictment (2005-1 Trade Cases 74,669); however, the U.S. Court of Appeals in Philadelphia ruled that the district court lacked the power to enjoin the filing (2006-1 Trade Cases 75,172). The Third Circuit instructed Stolt-Nielsen to assert the agreement as a defense after indictment. A grand jury returned the indictment on September 6, 2006.

There was “no evidence that the defendants breached the agreement by failing to cooperate,” the court held. Thus, there was no reasonable basis upon which to revoke the agreement, and fundamental fairness demanded that the indictment be dismissed.

Benefit of Bargain

The government was able to dismantle a cartel and secure guilty pleas from Stolt- Nielsen’s co-conspirators, which included prison terms and fines totaling $62 million. Thus, the Antitrust Division obtained the benefit of its bargain. The defendants, however, were not afforded the benefit of their bargain, in the court's view.

The government solicited “the cooperation of the very co-conspirators whom the defendants had reported to the Division in reliance on its promise of immunity, and used the co-conspirators’ testimony to prosecute the defendants.”

The November 29, 2007, decision in U.S. v. Stolt-Nielsen, S.A., Criminal No. 06-cr-466, will appear in CCH Trade Regulation Reports.

Trying to Disprove Franchisee Damages Without an Expert Fails Again

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

In Section 13.04 of CCH Franchise Regulation and Damages, we’ve long noted, as a cautionary tale, the case of Century 21 Real Estate Corporation v. Meraj International Investment Corp, (10th Cir. 2003) CCH Business Franchise Guide ¶12,490.

Franchisee's Testimony

In this case, a franchisor, Century 21, argued that the franchisee's testimony was too speculative to support a jury award of lost profits and disputed all of the franchisee’s underlying assumptions.

The court made clear that it shared, at least in part, Century 21's concern about the reliability of the plaintiff's testimony and felt that his projections of income and costs seemed unrealistic in light of his minimal profits prior to the termination of the franchise agreement.

The jury verdict of $700,000 was half of the franchisee's request and about 70% of his lowest projection of lost income. The court nonetheless noted that at trial the franchisor did almost nothing to dispute the assumptions on which the franchisee based his projections.

No Evidence, No Expert

The franchisor had tried to get away with presenting no evidence of its own and called no expert. But on appeal the court said, "In these circumstances, despite our concerns about the award of a windfall . . . [w]hen a litigant is knocked out after tying both its hands behind its back, a court may properly refuse to heed the litigant's plea to be given a second chance for a fair fight."

Well, it happened again in the recent case of FMS, Inc. v. Volvo Construction, (ND IL March 20, 2007), CCH Business Franchise Guide ¶13,599.

"Risky Strategy"

In that case, the court rejected Volvo’s arguments on appeal that FMS’ lost profit calculations were overly speculative, noting that Volvo had chosen the “risky strategy” of not proposing an alternative damage calculation by putting on its own expert.

Once again, this raises the question: Why do reputable litigators try to “wing it” in these areas without damages experts?