Friday, December 28, 2007





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.

Thursday, December 27, 2007





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.

Wednesday, December 26, 2007





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.

Friday, December 21, 2007





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.

Thursday, December 20, 2007





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.

Wednesday, December 19, 2007





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.

Monday, December 17, 2007





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.”

Friday, December 14, 2007





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.

Thursday, December 13, 2007





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.

Wednesday, December 12, 2007





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.

Monday, December 10, 2007





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.

Friday, December 07, 2007





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.

Wednesday, December 05, 2007





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.

Tuesday, December 04, 2007





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.

Monday, December 03, 2007





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?

Friday, November 30, 2007





False Ad Claim on Toy Safety Barred, Claim on Toy Capabilities Allowed to Proceed

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

A Lanham Act claim that a magnetic toy construction set was falsely advertised as suitable for "Ages 3 to 100," when in reality the blocks were highly dangerous to small children, was precluded by the Federal Hazardous Substances Act (FHSA), as amended by the Child Safety Protection Act to require toy labeling, the federal district court in Seattle ruled. However, a Lanham Act claim challenging advertising that "500 designs" could be built with the set was allowed to proceed.

A seller of magnetic construction toy sets (Rose Art Industries, Inc.) represented in advertising and packaging that its sets were appropriate for those “Ages 3 to 100” and that a wide variety of structures (“500 designs”) can be built by assembling the magnetic blocks in various ways.

A competing seller of magnetic construction toys (PlastWood SRL) brought a Lanham Act suit against Rose Art, alleging (1) that the “Ages 3 to 100” claim misrepresented that the toy sets, which could cause severe injury if inhaled or ingested, were safe for young children and (2) that the “500 design” claim falsely counted structures that either cannot be built or would collapse under their own weight.

Safety Claim

The federal district court dispatched the Lanham Act safety claim on the grounds that it was “precluded” by the Child Safety Protection Act, a part of the FHSA, which did not authorize private causes of action. Instead, the FHSA had to be enforced by the Consumer Product Safety Commission (COSC). Thus, the competitor's Lanham Act claim as to age suitability amounted to an improper request to enforce safety labeling that would be incongruent with the safety requirements set forth by the CPSC, in the court's view.

“500 designs” Claim

The rule that fraud must be pleaded with particularity did not apply to the allegation that the "500 designs" advertising claim overstated the toy set's capabilities, the court held. PlastWood fell short of alleging fraud or facts necessarily constituting fraud because it did not aver that the manufacturer engaged in any knowing or intentional conduct in relation to collapsing structures. Accordingly, the lower standard of a short and plain statement showing the pleader to be entitled to relief was held applicable.

The complaint’s allegations that Rose Art overstated the qualities and capabilities of its toys, in violation of the Lanham Act, provided Rose Art with fair notice of the nature of the claim. The complaint pleaded sufficient facts to state a claim that is plausible on its face, the court held.

The October 22 decision in PlastWood SRL v. Rose Art Industries, Inc. is reported at CCH Advertising Law Guide ¶62,727.

Thursday, November 29, 2007





Sandwich Shop Franchisees' Tying Claims Dismissed

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

Twelve Wisconsin Quizno's franchisees may not proceed with tying claims against their franchisor, the federal district court in Green Bay, Wisconsin, has ruled. Quizno's motion to dismiss the franchisees' federal and state antitrust claims was granted.

The franchisees claimed that Quizno's illegally tied the sale of the "essential goods" required to operate the franchises (the tied product)to the sales of its franchises (the tying product). For the tying arrangement to be actionable, Quizno's had to enjoy substantial market power in the tying product, the court explained.

Relevant Market

The franchisees alleged that Quizno's enjoyed substantial market power in the "quick service toasted sandwich restaurant franchise" market. However, the court rejected the franchisees’ relevant market definition as "patently absurd." The relevant product market should have included equivalent investment opportunities, the court said.

It could be that the franchisor held substantial market power for those investors who wished to purchase a fast food restaurant that sold toasted submarine sandwiches, but that was like saying that the seller of any franchise known for a particular product had market power over investors who were already determined to sell such a product. Such could not be the test, according to the court.

The mere fact that a particular franchise was known for a unique product and a way of doing business did not show market power over investors. Product identification was at the very core of franchising, the court explained.

Coercion of Investors

The crucial question was whether the franchisor was in a position to coerce investors not otherwise determined to purchase its franchise. Having chosen to enter into relationships with Quizno's, the franchisees were bound by the terms of their agreements. If Quizno's breached its agreement with them by charging them exorbitant prices for goods and services they were contractually required to purchase, then their remedy lay in contract, not under the antitrust laws.

The November 5 decision in Westerfield v. Quizno’s Franchise Co., LLC, appears at 2007-2 Trade Cases ¶75,942 and at CCH Business Franchise Guide ¶13,734.

Tuesday, November 27, 2007





Credit, Debit Card Issuers May Maintain Claims Against Retailer for Data Security Breach

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

Credit and debit card issuers may pursue negligent misrepresentation and state unfair trade practices claims against retailer TJX Companies, Inc. in connection with its well-publicized data security breach affecting millions of customer accounts, the federal district court in Boston has ruled. The court, however, dismissed the card issuers’ breach of contract and negligence claims against TJX.

In 2005, criminals hacked into TJX’s wireless network and downloaded personal and financial information for more than 45 million TJX customer accounts. The stolen information was then used to make fraudulent purchases. The card issuers sought to recover their costs associated with the fraudulent transactions, including replacement of the compromised cards.

Breach of Contract

The court first addressed the card issuers’ breach of contract claims, which were based on their alleged status as intended third-party beneficiaries of the merchant agreement between the retailer and its processing bank. According to the card issuers, TJX breached the merchant agreement by not safeguarding the customer data as mandated by the Visa and MasterCard Operating Regulations, which were incorporated into the merchant agreement.

However, neither the merchant agreement nor the Operating Regulations conferred third-party beneficiary rights on issuing banks, the court held. The merchant agreement expressly disclaimed the existence of any third-party beneficiaries. Likewise, the Visa Operating Regulations expressly stated that they did “not constitute a third-party beneficiary contract” and did not “confer any rights, privileges, or claims of any kind as to any third parties.”

Negligence

The court dismissed the card issuers’ negligence claims because they suffered purely economic losses, which are unrecoverable, absent personal injury or property damage, in tort and strict liability actions under Massachusetts law.

Negligent Misrepresentation

The card issuers’ negligent misrepresentation claim was based on implied representations that the retailer and its processing bank allegedly had made to the issuing banks, indicating that they took adequate security measures in accordance with industry standards to safeguard personal and financial information. The court declined to dismiss the claim, noting that nondisclosure could form the basis of a negligent misrepresentation claim if there was a duty to disclose.

Questions regarding whether the retailer and the processing bank had a duty to disclose the allegedly deficient security practices—and, if so, whether the card issuers’ ostensible reliance on the implied security assurances was justifiable—were factual issues inappropriate for resolution on a motion to dismiss, the court pointed out.

Unfair Trade Practice Claim

The court also permitted the card issuers to pursue an unfair and deceptive practices claim under Chapter 93 of Massachusetts General Laws. TJX asserted that it had an insufficient relationship with the issuing banks to support a Chapter 93A claim. The court, however, allowed the unfair trade practices claim to the extent it was based on TJX’s alleged misrepresentation regarding its security practices.

The October 12 decision is In Re TJX Companies Retail Security Breach Litigation, CCH Guide to Computer Law ¶49,420. It will also appear in CCH Privacy Law in Marketing.

Monday, November 26, 2007





Service Station Operators' Tying, Price Fixing Claims Fail

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

Tying and price fixing claims brought on behalf of a prospective class of approximately 5,000 Marathon and Speedway branded dealers throughout the United States can not proceed against Marathon Oil Corporation and its wholly-owned subsidiary Speedway SuperAmerica LLC, the federal district court in Indianapolis has ruled.

The operator of a Marathon-branded gas station failed to adequately allege the existence of an illegal tie. Moreover, claims that the defendants conspired with banks and financial institutions to fix the processing fee charged to the station operators were not sufficiently stated.

Marathon is the fourth-largest U.S.-based integrated oil and gasoline company and the fifth-largest petroleum refiner in the United States, according to the court. It markets gasoline under both Marathon and Speedway brand names to approximately 5,600 Marathon and Speedway branded, direct-served retail outlets in 17 states and sells petroleum products to independent entities supplying approximately 3,700 jobber-served retail outlets.

Lease and Dealer Supply Agreement Terms

The station operator's claims were based on an alleged requirement in its service station lease and dealer supply agreement with Marathon that it process all credit and debit card transactions through the oil company. The operator contended that, but for this requirement, Marathon and Speedway stations could purchase credit and debit card processing services through a number of other service providers on more favorable terms and conditions.

The lease itself made no mention of any particular credit and debit card processing services lessee-dealers were required to use; it only required that credit and debit card transactions be conducted in a way that conformed to the oil company's dealer handbook, the court held. According to the handbook, only transactions using the oil company's branded cards had to be processed through the oil company's credit and debit card processing services. Transactions not processed in such a manner would be assessed additional fees.

Thus, dealers could still choose to process those transactions elsewhere, albeit for an additional fee. Because the only tying theory alleged by the complaining operator was based on the lease terms, the tying claim had to be dismissed.

Two-Product Requirement

Even if the operator had sufficiently alleged the existence of an explicit tie, the operator-dealer failed to allege two separate and distinct products or services as required to state a tying claim, the court noted.

The operator claimed that it had alleged a tie between two distinct products or services—gasoline station franchises and credit and debit card processing services—because its franchise or distributorship was a tying product separate from the credit and debit card processing services. It was unlikely that a distributorship or distributorship rights could constitute a tying product, in the court's view. The credit and debit card processing services were simply a part of the standardized methods used to carry out the business of the distributorship.

Price Fixing

The operator failed to state sufficient facts to plausibly suggest the existence of a price fixing agreement between the oil company and unnamed banks and financial institutions to fix the price of the credit and debit card processing fees that the oil company charged its dealers, the court ruled. The operator asserted that Marathon received kickbacks under the agreement. However, the operator did not allege any additional facts to support its bare allegation, according to the court.

The operator failed to identify a single entity by name that was believed to have conspired with the defendants. The operator claimed only that the alleged agreement occurred at an unknown point in time within the four years prior to the filing of its complaint.

Simply because unnamed banks and financial institutions contracted with the defendants to provide processing services did not evidence an illegal agreement to fix processing fees. Such a substantial allegation required more than the mere recital of the name of the offense, the court explained.

The September 28 decision is Sheridan v. Marathon Petroleum Co., 2007-2 Trade Cases ¶75,938.

Wednesday, November 21, 2007





State Law Barring Gift Card Inactivity Fees Not Federally Preempted

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

A Connecticut law barring a gift card seller from charging inactivity fees was not federally preempted, the U.S. Court of Appeals in New York City has held, but the court gave the seller a further opportunity to show that the state's ban on gift card expiration dates was preempted. The state law did not violate the Commerce Clause of the U.S. Constitution, the court ruled.

The seller sued to prevent the Connecticut Attorney General from enforcing the statute. After the state’s enforcement action was filed in state court, the cases were consolidated in federal court.

The cards (“Simon Giftcards”) were sold in shopping malls by a subsidiary of a company that operated malls in 30 states. The cards were issued by Bank of America (BoA) and carried a Visa logo.

The cards were subject to a $2.50 monthly service fee, to be deducted from any balance remaining after six months from the date of purchase. In addition, to comply with Visa regulations, the cards carried a one-year expiration date.

Federal Banking Law, Regulations

The seller contended that applying the state statute would frustrate the purposes of the National Bank Act (NBA) and regulations of the Office of the Comptroller of the Currency (OCC), which authorized national banks to offer “electronic stored value systems.” Although BoA was the issuer of the Simon Giftcard, the seller bore the costs of administering the program and also collected and retained fees associated with the cards, the court noted. BoA, by contrast, was compensated exclusively through Visa interchange fees generated on a per-transaction basis.

The enforcement of the state law barring imposition of inactivity and other fees on consumers of the Simon Giftcard did not interfere with BoA’s ability to exercise its powers under the NBA and OCC regulations, the court determined. Rather, the enforcement of the state law affected only the conduct of card seller, which was neither protected under federal law nor subject to the OCC’s exclusive oversight.

Expiration Dates

The seller, however, did state a claim for preemption insofar as the Connecticut statute prohibited expiration dates. Unlike the various fees associated with Simon Giftcards, the seller alleged that an expiration date was necessary “to implement Visa fraud prevention and card maintenance requirements applicable to all prepaid cards bearing the VISA logo.”

Taking this allegation as true, an outright prohibition on expiration dates could have prevented a Visa member bank (such as BoA) from acting as the issuer of the Simon Giftcard, the court said.

BoA was legally entitled to use the Visa payment network, and, contrary to the Connecticut Attorney General’s suggestion, a Visa issuer benefited directly from having the cards operate on the Visa network due to the interchange fees received each time a gift card transaction was executed.

As a result, Connecticut’s attempt to prohibit expiration dates had to be analyzed separately from the ban on inactivity fees for purposes of federal preemption. The federal district court's dismissal of the seller's complaint was vacated in part and remanded for reconsideration of the preemption claim as to the state's ban on expiration dates.

Constitutionality

In upholding the statute against the seller’s challenge under the Commerce Clause, the court found that gift card seller failed to allege any facts tending to show that the law regulated commerce occurring outside of the state. The Connecticut Attorney General stipulated that the law applied only to sales of gift cards in Connecticut.

Even if the law's expiration date provisions were not federally preempted as applied to Simon Giftcards, the law would not prohibit all Visa products from being sold (or used) in Connecticut, according to the court. The law would prohibit only the sale of gift cards subject to expiration dates, and even then would apply only to sellers who were not national banks.

The fact that the cards were sold over the Internet did not present a risk that the Connecticut law would control sales of the card to anyone other than consumers with Connecticut billing addresses, the court said. That the seller might not be able to sell its gift cards on the same terms to consumers in all states did not, in itself, demonstrate a regulatory conflict sufficient to hold the law unconstitutional.

The October 19 opinion in SPGGC, LLC v. Blumenthal will be reported at CCH Advertising Law Guide ¶62,720.

Tuesday, November 20, 2007





Senators Urge Rigorous FTC Review of Google/DoubleClick Deal

This posting was written by John W. Arden.

The ranking Democratic and Republican members of the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights have asked the Federal Trade Commission to examine the competition and privacy questions raised by Google’s proposed acquisition of DoubleClick.

In a November 19 letter to FTC Chairman Deborah Platt Majoras, Senators Herb Kohl (D-Wis.) and Orrin Hatch (R-Utah) reported the results of a September 27 subcommittee hearing on the proposed transaction, which would combine the world’s largest Internet search company (Google) with the leading company that places advertising on the Internet (DoubleClick).

“The implication for the Internet advertising market—and for the Internet as a whole—are profound and potentially far reaching,” the letter said. “A core part of Google’s business is placing contextual advertising—that is, text based ads placed on third party web sites which are relevant to the content or to the likely reader of the web site. Google has a dominant market position with respect to the placing of these contextual ads. DoubleClick has a leading market position in placing another form of Internet advertising—display advertising which also resides on third party web sites.”

Harm to Competition

Industry experts raised serious concerns that combining the two firms “could cause significant harm to competition in the Internet advertising marketplace.” Although the Senators have not reached a conclusion regarding the harm to competition, they advocated that the FTC approve the merger only on a determination that the merger would not cause any lessening of competition in Internet advertising.

“After our hearing, it is plain that the issues important to this determination are: whether contextual and display advertising are interchangeable and substitutable; the extent to which Google’s services compete with DoubleClick’s ad serving services; whether there are significant barriers to entry impeding new competitors in this market; and the likely effects of this acquisition on the cost of placing Internet advertising,” the Senators wrote.

Privacy Concerns

In addition to the antitrust considerations, the acquisition may raise broader questions involving Internet privacy. “In order to be effective, Internet advertising tracks the personal preferences of Internet users and “serves” ads most suited to that individual user based on his or her history of visiting certain web sites and running particular searches.”

DoubleClick collects an enormous amount of information on individuals’ web use preferences. Privacy advocates have expressed serious misgivings about this information coming under the control of Google, which can track individuals’ search requests.

Leading Positions

The Senators voiced concern that the acquisition would provide the world’s most important Internet enterprise with a leading position in the video content, news, advertising, and other consumer activities.

“Antitrust regulators need to be wary to guard against the creation of a powerful Internet conglomerate able to extend its market power in one market into adjacent markets, to the detriment of competition and consumers,” the letter concluded.

This letter comes on the heels of a November 13 announcement that the European Commission will investigate whether the proposed acquisition would significantly impede effective competition within the European Economic Area. Details about the EC’s announcement appear in a November 13 posting on Trade Regulation Talk.

Monday, November 19, 2007





EC Competition Chief Is Among “50 Women to Watch”

This posting was written by John W. Arden.

Neelie Kroes, EC Commissioner for Competition, has been listed as number three of “The 50 Women to Watch” by the Wall Street Journal.

The European Union’s “Antitrust Chief” was cited for setting an aggressive course in competition enfocement, showing “a particular devotion to stamping out cartels—this year levying heavy fines on makers of beer, elevators, and zippers.” She was a key force behind an EU proposal to open up the region’s “monopoly-ridden energy markets,” according to today’s edition of the Journal.

Microsoft Decision

The September 17 decision of the EU Court of First Instance—holding Microsoft Corp. liable for abusing it dominant market position and imposing a € 497 million fine—“firmly established Mrs. Kroes as the most influential antitrust regulator in the world,” the article said.

The coming year may feature more “fireworks,” the Journal observed, with the Commission investigating Intel Corp., Qualcomm, Inc., and Rambus, Inc.

Sign of the Times

The inclusion of Mrs. Kroes—and the absence of FTC Chairman Deborah Platt Majoras—may be an indication of the recent direction of antitrust enforcement. Besides the accomplishments of Mrs. Kroes, her inclusion in the list may have been prompted by the growing importance of international regulation and the activism of the EC Competition Commission relative to U.S. antitrust enforcers.

Mrs. Kroes is one of only two regulators featured in the list, the other being Sheila Bair, Chairman of the Federal Deposit Insurance Corp. The remainder of the list is composed of corporate officers and directors.

The top spot is held by Angela Braly, President and CEO of WellPoint Inc., the nation’s largest health insurer. Among the other corporate leaders is our boss—Nancy McKinstry, CEO and Chairman of the Executive Board of Wolters Kluwer NV. She checks in at number 41.

Text of the list appears here at the Wall Street Journal web site.

Friday, November 16, 2007





FTC Wants Out of Cigarette Testing

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

During a November 13 hearing before the Senate Commerce, Science, and Transportation Committee, the Federal Trade Commission renewed its call to transfer its responsibility to test the tar and nicotine levels of cigarettes to an agency better suited to the task.

Meanwhile, Sen. Frank Lautenberg (D-N.J) advocated legislation that would curtail the ability of tobacco companies to market their products based on tar and nicotine levels.

The FTC testing method, first approved in 1967, uses a machine to uniformly “smoke” different brands of cigarettes. Using this method, some cigarettes appear to deliver lower tar and nicotine than others. The tobacco industry typically describes the cigarettes as “light” and “low-tar,” with the implicit suggestion that they are not as harmful as regular cigarettes. After concerns arose about the FTC’s testing method, the agency discontinued its use in 1987.

Touching on those concerns, Lautenberg and several witnesses noted that smokers often change the way they smoke light and low-tar cigarettes, inhaling deeper and longer to realize a higher dosage of nicotine.

“The Commission has been concerned for some time that the current test method may be misleading to individual consumers who rely on the ratings it produces as indicators of the amount of tar and nicotine they actually will get from their cigarettes,” FTC Commissioner William Kovacic stated.

The FTC in 1999 and 2003 recommended that Congress should transfer the responsibility to test cigarettes to a federal science-based agency. Kovacic did so again. “Although the Commission brings a strong, market-based expertise to its scrutiny of consumer protection matters, it does not have the specialized scientific expertise needed to design and evaluate scientific test methodologies.”

Lautenberg said he hoped the hearing would build legislative momentum to address the problems associated with the FTC’s nicotine cigarette rating system. The New Jersey senator, as he has in the past, called for an end to the rating system and the end of marketing based on the system.

“Big Tobacco should not be able to hide behind the FTC method to justify the claim that ‘light’ and ‘low-tar’ cigarettes are healthier,” Lautenberg said.

Thursday, November 15, 2007





Ex-Employees' Creation of Competing Business Could Be Participation in RICO Enterprise

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

Former employees of a health benefits manager could have participated in the operation or management of an alleged RICO enterprise by engaging in allegedly tortious conduct by starting a competing business, according to the federal district court in Omaha, Nebraska.

Participation in Conduct of Affairs

In order to participate in the conduct of an enterprise’s affairs, within the meaning of RICO Section 1962(c), a person must participate, to some extent, in controlling the enterprise. The “conduct of affairs” connoted more than just some relationship with the enterprise’s activities. The phrase referred to the guidance, management, direction, or other exercise of control over the course of the enterprise’s activities.

The health benefits manager’s allegations relating to the former employees’ conduct described an active involvement in the actions of others and the hands-on operation of the purported enterprise. The employees mailed letters to a group of school districts, notifying them of the creation of a competing consortium in an attempt to take over the manager’s clients. The purported enterprise had the common goals of diverting contracts and promoting its own interests at the expense of the benefits manager.

Predicate Acts

Allegations of predicate acts of mail fraud through the submission of allegedly fraudulent nonrenewal letters could constitute a pattern of racketeering activity. The clients—school districts—received the nonrenewal letters from the competitors rather than their health benefits manager.

The purportedly fraudulent mailings occurred over a four-month period. Open-ended continuity would be found only where related predicate acts occurred over a substantial period of time, and involved a distinct threat of long-term racketeering activity.

It was likely that the mails and wires would continue to be used in furtherance of the scheme to defraud, in the court’s view. The alleged predicate acts were related, as they had the same purposes—enhancing the business of the consortium at the expense of the benefits manager—that resulted in the consortium succeeding in pilfering the benefits manager’s clients.

The October 22 decision is Meccatech, Inc. v. Kiser, CCH RICO Business Disputes Guide ¶11,375.

Wednesday, November 14, 2007





Oil Companies Must Defend Artifically High Gas Price Claim

This posting was written by Mark Engstrom, Editor of CCH State Unfair Trade Practices Law.

An Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) claim could proceed against five oil companies that allegedly used their market dominance in concert to artificially inflate the price of gasoline to consumers, even though the Illinois Antitrust Act may have provided relief, the federal district court in Chicago has ruled.

The oil companies argued that an Illinois Supreme Court decision had effectively prohibited CFA actions for claims that could be brought under the Illinois Antitrust Act. However, the federal district court disagreed.

Because the high court’s decision rested on the fact that the CFA did not supplement the state’s antitrust statute (like the Clayton and Robinson-Patman Acts supplement the Sherman Act in the federal context), the decision meant only that a plaintiff could not sue under the CFA when doing so would be inconsistent with the legislative intent of the Illinois Antitrust Act. The decision was silent on whether plaintiffs could pursue a CFA remedy when the Illinois Antitrust Act also provided relief. The decision, therefore, did not bar the plaintiffs’ CFA claims.

Sufficiency of Pleading

Allegations that the oil companies controlled the nation’s gas supply, purposefully limited gasoline supply by maintaining low inventory levels, and decreased gasoline production during distribution disruptions and peak usage period, thereby achieving larger profits than they otherwise would have achieved, were sufficient to state a CFA claim under Rule 8 of the Federal Rules of Civil Procedure, the court determined.

Rule 8 required only a short and plain statement of a claim, showing that the pleader was entitled to relief. It did not require proof of an intentional misrepresentation. Based on these allegations, the court could not conclude “beyond doubt” that the plaintiff could prove no set of facts that would entitled him to relief. Indeed, facts consistent with these allegations could establish that the defendants had acted deceptively or unfairly. Several averments of fraud, however, failed to meet the heightened pleading standards of Rule 9(b).

The decision is Siegel v. Shell Oil Co., ND Ill., CCH State Unfair Trade Practices Law ¶31,497.

Tuesday, November 13, 2007





EC to Investigate Google’s Acquisition of DoubleClick

This posting was written by John W. Arden.

The European Commission will investigate whether Google’s proposed acquisition of DoubleClick would significantly impede effective competition within the European Economic Area, according to a November 13 announcement.

The Commission’s initial market investigation indicated that the proposed merger of the two U.S. firms would raise competitive concerns in the markets for intermediation and ad serving services. The Commission has 90 working days (through April 2, 2008) to make a final decision on the merger. The decision to make an in-depth inquiry does not affect the final result of the investigation.

In particular, the Commission will investigate whether, without the transaction, DoubleClick would have grown into an effective competitor of Google in the market for online ad intermediation.

It will also address whether the merger—which combines the leading providers of online advertising space and intermediation services (Google) and ad service technology (DoubleClick)—could lead to anticompetitive restrictions for competitors operating in these markets, which would harm consumers.

Google operates an Internet search engine that offers search capabilities free of charge and provides online advertising space on its own websites, according to the Commission. It also provides intermediation services to publishers and advertisers for the sale of online advertising space on partner websites through its “AdSense” network.

DoubleClick sells ad serving services, management, and reporting technology worldwide to website publishers and advertisers to ensure that advertisements are posted on relevant websites and to report on the performance of the advertisements.

The merger is currently being reviewed by U.S. Federal Trade Commission. On November 6, the American Antitrust Institute issued a white paper stating that the merger “raises serious competitive issues under several different antitrust theories.” The white paper maintained that “there is a good argument that Google and Double-Click are horizontal competitors in two relevant markets”—the market for distributing or brokering online advertising space of third-party web sites and the market for publisher “ad serving tools.”

Further details on the AAI white paper appear in a November 6 posting on “Trade Regulation Talk.”

Monday, November 12, 2007





Justice Department Opposes Extension of Microsoft Decrees

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

The U.S. Department of Justice opposes an effort by ten states and the District of Columbia to extend the antitrust final judgments against Microsoft Corporation that are set to expire in large part in November 2007.

The Justice Department's friend-of-the-court brief filed with the federal district court in Washington, D.C. on November 9 sets out in detail its earlier position that the standard for an extension had not been met by the states.

California, Connecticut, Iowa, Kansas, Minnesota, Massachusetts, and the District of Columbia asked for an extension of the final judgment obtained by the “non-settling” states (2006-2 Trade Cases ¶75,541), while Florida, Louisiana, Maryland, and New York sought extension of certain provisions of the final judgment in the federal/state action (2006-2 Trade Cases ¶75,418).

The final judgments, which prohibit the computer software company from abusing its monopoly in the PC operating system market, were to expire after five years on November 12, 2007. Last year, they were modified to extend the expiration of certain provisions related to communications protocol licensing an additional two years until November 12, 2009.

The states raised “inadequate and mutually inconsistent arguments to justify extension of the Final Judgments," according to the Justice Department. Their theories "are directly contravened by the states' own past statements and actions."

The Justice Department's three principal arguments against extension were that: (1) given the effectiveness of the final judgments, the states failed to establish any legal basis for extension of the expiring provisions; (2) it was premature to consider an additional extension of a provision in the decree that already been extended until Fall 2009; and (3) neither the previous extension of that provision nor the difficulties in the implementation of that provision justified an extension of the expiring provisions of the final judgments.

Thursday, November 08, 2007





DOJ Asks Second Circuit to Reject Visa’s Appeal of Enforcement Order in Antitrust Case

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

The Department of Justice has asked the U.S. Court of Appeals in New York City to reject an effort by Visa U.S.A., Inc. to overturn a district court’s order enforcing a final judgment in an antitrust action against Visa on the ground that the district court lacked the authority to enter the order.

Visa appealed the order of the federal district court in New York City (2007-2 Trade Cases ¶75,930), which required, among other things, that Visa repeal a by-law found to violate the final judgment (2001-2 Trade Cases 73,501). The by-law provided that if one of Visa’s 100 largest issuers moved its debit portfolio from Visa to MasterCard, that issuer had to pay Visa a settlement service fee (SSF).

In June, the district court held that the by-law effectively prevented Visa banks from switching to the MasterCard network. The SSF represented an issuer's proportionate share of Visa's remaining settlement obligation arising from a multi-billion-dollar settlement in an antitrust class action brought by retailers.

In addition to requiring repeal of the offending by-law, the district court granted “narrowly-tailored, conditional termination rights” to debit issuers that entered into certain agreements with Visa after the SSF took effect.

The decision was a victory for MasterCard International Inc. MasterCard—also a party to the final judgment—had moved to enforce the order against Visa back in 2005.

On appeal, Visa asserted that—despite the express terms of the final judgment—the district court's authority to ensure compliance with the final judgment was narrowly circumscribed, extending only to contempt proceedings.

According to the Justice Department, the district court was not required to undertake a contempt proceeding. The government contended in its November 2 appellate brief that “the character and purpose of neither MasterCard's claim nor the district court's remedy sounded in contempt.”

The government took no position on whether Visa's by-law actually had the effect of prohibiting issuers from issuing offline debit cards on MasterCard's network in violation of the final judgment. However, it urged the appellate court to “reject Visa's arguments that the district court is severely limited in its authority to interpret and enforce its Final Judgment, or remedy any violation, as necessary to fulfill its purpose of protecting the public interest in competition.”

The Justice Department’s November 2 appellate brief appears at the Department's web site.

Visa/American Express Settlement

In other news, Visa and five of its member banks have agreed to pay up to $2.25 billion to American Express to settle a lawsuit alleging that MasterCard, Visa, and their member-banks illegally blocked American Express from the bank-issued card business in the United States.

American Express filed the lawsuit in federal district court in New York City in November 2004, after the federal government successfully prosecuted its antitrust case against the payment card networks. MasterCard remains the sole defendant in the American Express case, since individual banks named in the lawsuit—J.P. Morgan Chase, Capital One, U.S. Bancorp, Wells Fargom and Providian—would also be dropped as defendants in light of the settlement. The deal is contingent upon Visa USA member approval. American Express and Visa announced the settlement in November 7 statements.

Wednesday, November 07, 2007





NHL Internet Policy Not a Naked Restraint of Trade

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

The owner of the New York Rangers was not entitled to a preliminary injunction barring the National Hockey League (NHL) from “seizing” the team’s Web site and transferring it to the league-operated technology platform, the federal district court in New York City has ruled.

Madison Square Garden, L.P. (MSG), owner of the Rangers, unsuccessfully argued that the NHL had “become an ‘illegal cartel’ in its attempts to prevent off-ice competition between and among the NHL member clubs.” MSG failed to demonstrate a likelihood of success on the merits or a sufficiently serious question going to the merits of its antitrust claim, according to the court.

In 2005, the NHL developed a New Media Strategy. Under the plan, each team’s Web site was to be migrated onto a common technology platform, serviced by a single content management system (CMS). Under the plan, the individual teams were responsible for supplying local content and advertising, while the league would retain space for national advertising and league news. The league saw a single CMS as an essential part of the New Media Strategy and believed that the CMS would ensure minimum quality standards and facilitate fan navigation.

MSG filed a complaint for injunctive relief in September 2007, after the NHL informed the team that it would be fined $100,000 each day that it operated its Web site outside of the League platform.

“Quick Look” Analysis

MSG attempted to label the New Media Strategy as a naked restraint of trade that would be subject to an abbreviated or “quick look” analysis to determine its lawfulness. However, the court “fail[ed] to perceive the nudity.”

A "quick look" analysis was appropriate only when the anticompetitive effects of the restraint were obvious, the court explained. A casual observer could not have summarily concluded that the arrangement had an anticompetitive effect on customers.

Rule of Reason

Thus, MSG had the burden of proving an actual adverse effect on competition in the relevant market under a rule of reason analysis. The team failed to carry its initial burden of showing a prima facie case of an anticompetitive restraint, since it did not demonstrate an actual adverse effect either on competition in the relevant market or market power. Rather, MSG focused on the harm the team perceived to itself.

Even if MSG had carried its initial burden, the league had shown offsetting procompetitive benefits. In light of these procompetitive benefits, the burden would have shifted back to MSG to prove either that the challenged restraint was not reasonably necessary to achieve the league’s procompetitive justifications or that those objectives might be achieved in a manner less restrictive of free competition. MSG failed to meet this burden as well, in the court’s view.

Procompetitive Effects

The league offered several procompetitive effects of the common technology platform. The increased online scale and standardized layout would attract national sponsors and advertisers interested in uniform exposure across the NHL.com network. This was a key element of the league’s new growth strategy to enhance the NHL’s “national brand” and to compete better against other sports and entertainment products and their Web sites.

The common technology platform also would enable the sponsors and advertisers to reduce transaction costs by negotiating centrally with the league. The strategy would also assure minimum quality standards across team Web sites; increase the interconnectivity across the NHL.com network; facilitate the sharing of team content; and reduce the costs of operating 30 team Web site operations.

The November 2, 2007, decision in Madison Square Garden, L.P. v. National Hockey League, et al., 07 CV 8455, will appear at 2007-2 CCH Trade Cases ¶75, 929.