Thursday, April 26, 2007

Manufacturer Did Not Have "Good Cause" to Terminate Dealer

This posting was written by Pete Reap, editor of CCH Business Franchise Guide.

A jury's determination that a manufacturer of excavators did not discontinue production of a particular model of excavator—and, thus, did not have "good cause" to terminate a dealer under the meaning of the Maine power equipment dealer law—was neither unreasonable nor against the manifest weight of the evidence, according to a federal district court in Chicago. Therefore, the manufacturer's motion for a new trial was denied.

The manufacturer acquired the original maker of the excavators and terminated the dealer one year later, informing the dealer that it intended to discontinue the model of excavator sold by the dealer.

However, the manufacturer did not stop making excavators, the court noted. Instead, it continued to manufacture an excavator based on the same platform and sold those excavators under a different brand.

The dealer brought suit against the manufacturer for wrongful termination and the Seventh Circuit, in Cromeens, Holloman, Sibert, Inc. v. AB Volvo (CCH Business Franchise Guide ¶12,746), held that a disputed issue of fact existed as to whether or not the manufacturer had good cause under the dealer law to terminate the dealer on the grounds that the manufacturer discontinued the production or distribution of the franchise goods. The dispute was tried to a jury, which awarded a $2.1 million verdict in favor of the dealer.

The manufacturer contended that no reasonable jury could have concluded that it did not discontinue the excavator line when: (1) it made a series of safety modifications before initially rebranding the excavator, or (2) it later replaced the type of engine in the excavator.

However, the dealer presented evidence that the excavator was still produced at the same factory, was largely of the same design, and, even with a different engine, and retained the same performance capabilities, the court noted.

Additionally, the dealer presented evidence that the manufacturer's changes were merely cosmetic, minor, or the result of standardizing or renaming systems. Both the manufacturer and the dealer presented credible, competing views of the import of the changes made to the excavator and the possibility that the jury could have reached a different result was not grounds for a new trial, the court ruled.

The decision is FMS, Inc. v. Volvo Construction Equip. N. A., Inc., DC Ill., filed March 20, 2007, CCH Business Franchise Guide ¶13,559.

Wednesday, April 25, 2007

Antitrust Enforcers Provide Views at ABA Spring Meeting

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

Merger review dominated the enforcement roundtable discussion at the American Bar Association Section of Antitrust Law Spring Meeting on April 20 in Washington, D.C.

Representatives from the FTC, the Department of Justice Antitrust Division, the European Commission (EC), and the states were on hand to give their perspectives on current antitrust enforcement efforts. However, much of the questions related to merger enforcement activity by the federal antitrust agencies.

Lax Merger Enforcement?

FTC Chairman Deborah Platt Majoras responded to reports of lax merger enforcement. Majoras believes the agencies are being “sufficiently aggressive.” She wondered aloud what unchallenged mergers were harming consumers.

Thomas O. Barnett, Assistant Attorney General in charge of the Department of Justice Antitrust Division, said he questioned seriously the methodology of critics who claim that merger enforcement is inadequate. Barnett said that parties were working to find the most narrow remedy to resolve the government's competitive concerns and then moving on.

Robert L. Hubbard, Chair of the National Association of Attorneys General Multistate Antitrust Task Force and Chief of Litigation in the New York Attorney General's Antitrust Bureau, contended that differences in relief required by federal and state enforcers for merger approval did not suggest that the states were applying a different standard. According to Hubbard, the fact that “reasonable minds can differ” was a better explanation for the additional relief sought by one of the reviewers.

Speaking about cooperative enforcement, EC Competition Commissioner
Neelie Kroes said “at the end of the day, we all have the same goal--competition law enforcement.” With respect to international merger review, Barnett contended that cooperation had become “routinized.”

Clearance Process

Neither Barnett nor Majoras anticipated a clearance process agreement between the federal agencies for determining which agency would conduct investigations and merger reviews for matters within their shared antitrust jurisdiction. Majoras said that it was difficult for her to imagine an agreement like the one proposed by the agencies in 2002.

The 2002 agreement (CCH Trade Regulation Reporter ¶50,185) was abandoned by FTC Chairman Timothy J. Muris and Antitrust Division chief Charles James, after Senator Ernest Hollings—a ranking member of the Senate Appropriations Committee at the time—threatened to suspend FTC funding if the agency continued with the agreement.

Majoras added that efforts to streamline the clearance process were a good idea, but she was against any proposal to send jurisdictional disputes over merger reviews to mediation.

Tuesday, April 24, 2007

Press Release Announcing Patent Lawsuit Could Be False Advertising

This posting was written by Bill Zale, editor of CCH Advertising Law Guide.

A press release issued by a gaming machine manufacturer (IGT) stating that it had filed a patent infringement lawsuit against a competitor (Bally) to stop it from “misappropriating IGT's patented innovations in the areas of bonus gaming features” could have deceived or tended to deceive the public, for purposes of Bally's Lanham Act false advertising claim against IGT, the federal district court in Las Vegas has ruled.

When evidence exists that an advertiser intentionally misled the public, there is a presumption that the statements deceived the public, the court noted.

Disputed Validity of Patents

Bally presented sufficient evidence that IGT knew some of its patents were invalid. Thus, IGT’s publication on its website of a press release—stating that Bally infringed the allegedly invalid patents—indicated that IGT intentionally misled the public, according to the court.

IGT argued that a presumption that the public was deceived would exist only if substantial funds had been expended to disseminate the allegedly false information.

However, the U.S. Court of Appeals in San Francisco had taken the position that , regardless of the money spent, the presumption should be applied in Lanham Act false advertising cases so long as there was an intent to mislead the public and the message reached the relevant consumers or competitors,.

Bally presented evidence that IGT received numerous inquiries regarding the press release and that some of Bally’s customers had called to clarify IGT’s statements. Accordingly, Bally demonstrated a material question of fact for trial as to whether IGT’s statement deceived or tended to deceive the public, the court determined.


A customer e-mail to Bally directing it to put orders on hold because of Bally's “legal issues” could establish the injury element of Bally's false advertising claim, the court held.

IGT countered by introducing evidence implying that Bally actually breached the contract with its customer and cancelled the contract unilaterally. The parties introduced contradicting evidence upon which a reasonable juror could base a decision, the court found. Thus, at the summary judgment stage of the case, Bally had presented specific facts showing that there was a genuine issue for trial. IGT’s motion for summary judgment as to Bally’s Lanham Act claim was denied.

The March 22, 2007 decision in IGT v. Alliance Gaming Corp. will be published in CCH Advertising Law Guide and in CCH Trade Regulation Reports.

Monday, April 23, 2007

Australia Considers Amending Franchise Disclosure Requirements

This posting was written by Pete Reap, editor of CCH Business Franchise Guide.

The Australian Federal Government has largely agreed with recommendations of a committee reviewing the disclosure requirements of the Australia Franchising Code of Conduct and is expected to draft amendments to the Code that could be implemented by July 1, 2007, according to an article published in the April 20 issue of the CCH Business Franchise Guide.

The article—by Peter Buberis, DLA Phillips Fox of Adelaide, Australia, and Judith Miller, DLA Phillips Fox of Sydney, Australia—appears at CCH Business Franchise Guide ¶7393.

On June 28, 2006, the Federal Government initiated a review of the disclosure provisions of the Franchising Code of Conduct. The Government appointed a Franchising Review Committee to consult with interested stakeholders and issue recommendations.

After receiving 75 submissions and consulting with the Australian Competition and Consumer Commission, franchisors and franchisees, and state and territorial government entities, the Committee issued a report in late 2006. The Committee’s recommendations included the following:

Disclosing full text of agreements. While the Code currently requires franchisors to provide prospective franchisees with a summary of conditions of the franchise agreement and any other required agreements, the Committee recommended that franchisors provide the full text of such documents. Receiving such documents would allow the prospective franchisee to seek professional advice about the documents and their ramifications. The government agreed, but indicated that related documents could be provided as they become available rather than with the disclosure document.

Registration and annual filings. The Committee recommended that the government require registration of the franchise offering and the annual filing of disclosure documents and other prescribed information with the Australian Competition and Consumer Commission (ACCC). The government disagreed with the recommendation, observing that registration (1) could be seen as adding credibility to franchisor claims and (2) would place an undue compliance burden on franchisors.

Risk statement. The Committee recommended that a franchisor provide a statement of significant risks about termination or nonrenewal of the franchise, franchisor failure, unilateral franchisor termination rights, and unilateral franchisor changes to the franchise agreement. The government disagreed that the risk statement should be provided, but agreed to ask the ACCC to include references to risks in its educational materials on franchising.

Rebates to franchisors. The current Code requires franchisors to disclose whether they or an association will receive a rebate or financial benefit from a franchise sale. The Committee recommended that the disclosure should include the amounts of such rebate or benefit. The government agreed.

Franchisee history. The Committee recommended that franchisors should be required to assist prospective franchisees to obtain information regarding past franchisees which have transferred, ceased to operate, been terminated or not renewed, or bought back by the franchisor. The government agreed.

Single franchise exception. Currently, the Code does not apply to a franchise agreement offered by a franchisor located outside the country that grants only one franchise or master franchise for operation in Australia. The Committee recommended that such a franchise agreement should be subject to the same requirements as other franchise agreements. The government agreed.

Sunday, April 22, 2007

Insufficient Presale Disclosures Violated FTC Franchise Rule

This posting was written by Pete Reap, editor of CCH Business Franchise Guide.

Two corporations and three individual officers and directors of the corporations violated the FTC franchise rule by making insufficient disclosures to prospective purchasers of public access Internet kiosks sold by the companies, a federal district court in Miami has ruled.

The defendants were jointly and severally liable to purchasers of the business, for varying portions of the more than $48 million defrauded from purchasers of the businesses.

The business ventures sold by the defendants were "franchises" under the meaning of the rule, according to the court. The defendants provided some prospective purchasers with a Franchise Disclosure Document, acknowledging in the document itself that the kiosk businesses were business opportunity ventures subject to the franchise rule.

Salespersons for the companies made material representations that, in exchange for a payment of $9,000 to $100,000 (depending on the number of kiosks purchased), consumers would receive kiosks that would each generate, at the very minimum, income from $1,000 to $2,000 per month.

In actuality, none of the 31 consumers who provided declarations in the litigation achieved even close to the earnings promised by the defendants, the court noted. There was no evidence indicating that any purchaser had recouped even his initial investment, within the first year as promised, or at all.

The disclosure documents provided by the defendants were deficient in violation of the rule in several ways, the court held. Specifically: (1) they did not include the names and business experiences of current directors and officers of the companies for the previous five years; (2) they did not disclose the range of time that had elapsed between the signing of the franchise agreement and site selection; and (3) they did not include a reasonable basis for earnings claims made to prospective purchasers during oral sales presentations, in written solicitations.

The case is FTC v. Transnet Wireless Corp., DC Fla., CCH Business Franchise Guide ¶13,563.

Saturday, April 21, 2007

Marketing of Violent Entertainment to Children Persists, FTC Study Finds

This posting was written by Cheryl Montan, CCH Writer/Analyst.

The Federal Trade Commission gave a mixed review of the entertainment industry’s self-regulatory programs and its marketing of violent entertainment products to children in a 138-page report to Congress submitted on April 12.

In “Marketing Violent Entertainment to Children: A Fifth Follow-up Review of Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries,” the Commission found that—although the movie, music, and video-game industries generally comply with their own voluntary ratings and label display standards—companies continue to market some R-rated movies, M-rated video games, and explicit-content recordings on television shows and
websites with substantial teen audiences.

In addition, the FTC determined that while video game retailers have made significant progress in limiting sales of M-rated games to children, movie and music retailers have made only modest progress limiting sales. As a result, the Commission recommended that all three industries consider adopting new, or tightening existing, target marketing standards.

“Self-regulation, long a critical underpinning of U.S. advertising, is weakened if industry markets products in ways inconsistent with their ratings and parental advisories,” said FTC Chairman Deborah Platt Majoras. “This latest FTC report shows improvement, but also indicates that the entertainment industry has more work to do.”

Virtual Marketing Trends

The FTC tracked trends in virtual marketing, including social networking sites like MySpace and virtual video sites like YouTube. Advertisers often set up profile pages with industry-generated content or uploaded videos for users to then share on their own, such as posting music to their own profile page or emailing videos to friends.

The report noted that few profile pages contain prominent rating information. Although considered general audience sites, these websites reach a large number of children under 17.

The report also flagged a new trend in gaming, mobile phone games, and noted several challenges they pose. For example, mobile phone game developers often do not seek ESRB ratings and they do not sell their products through traditional retail channels, instead licensing their products directly to wireless carriers. The report addressed industry efforts to provide some form of parental oversight in this area.


In addition to tighter marketing standards, the Commission also recommended that retailers implement and enforce point-of-sale policies restricting sales of rated or labeled material to children under 17. In particular, the report suggested that the movie industry examine whether marketing and selling of unrated or “Director’s Cut” DVD versions of R-rated movies—which may contain content that could warrant an even more restrictive rating—undermines the current self-regulatory system.

The report also suggested that the music industry provide more information on packaging and in advertising about why certain recordings receive a Parental Advisory. Finally, the report recommended that the video game industry place content descriptors on the front of product packaging and research why many parents believe that the system could do a better job of informing them about the level of violence in some games.

The report reemphasized the Commission's support of industry self-regulation in this area, especially in light of important First Amendment considerations. The Commission will continue to work with industry and others to inform and assist parents in making appropriate choices. The Commission said that it will continue to monitor this area, particularly as emerging technologies change the way entertainment products are marketed and sold. .

A copy of the report is available here on the FTC's website.

Monday, April 16, 2007

FTC Commissioners Highlight Agency’s Record at Senate Hearing

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

The Federal Trade Commission will focus its competition enforcement efforts in fiscal 2008 on the health care, energy, and high-tech industries, FTC Chairman Deborah Platt Majoras said in testimony to the Senate Commerce, Science and Transportation Committee on April 10.

The agency’s consumer-protection efforts will involve a broad range of issues, including identity theft, deceptive advertising, financial services, spam, and spyware, according to the Chairman.

“During [fiscal year] 2008, the FTC will address significant law enforcement and policy issues throughout the U.S. economy and abroad, devoting major portions of its resources to those areas in which the agency can provide the greatest benefits to consumers,” Majoras testified.

All five members of the commission, including Majoras, appeared at the hearing to highlight the agency’s recent activities.

Consumer Protection

In fiscal 2006, the FTC’s Bureau of Consumer Protection obtained 93 court orders requiring defendants to pay more than $309 million in consumer redress, obtained 24 court judgments for civil penalties totaling more than $27 million, and filed 60 complaints in federal district court to stop unfair and deceptive practices.

Merger Enforcement

The agency’s Bureau of Competition reviewed 16 mergers. In nine of those cases, the parties abandoned the mergers. The parties restructured their proposed deals in the remaining seven cases, Majoras said. The FTC’s reviews included proposed mergers in the pharmaceutical, medical devices, energy, and real estate industries.

Some lawmakers on the Commerce Committee raised concerns about the agency’s merger enforcement record, oversight of the energy and pharmaceutical industries, and issues relating to spam and spyware.

Vigorous, Effective Enforcement Program

Majoras sought to reassure the senators. “The FTC has pursued a vigorous and effective law enforcement program in a dynamic marketplace that is increasingly global and characterized by changing technologies,” she testified.

To support its activities, the agency is requesting a budget in $240 million for 2008, an increase of $17 million over its 2007 budget request.

A news release, the Prepared Statement of the Federal Trade Commission, and oral statements by Commissioner Jon Leibowitz, Commissioner William Kovacic, and Commissioner J. Thomas Rosch appear at the FTC web site.

Sunday, April 15, 2007

Government’s Role in Energy Markets Should be Limited, Officials Stress

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

While the government must encourage investment and innovation in the energy market, its role in the market is necessarily limited, said government officials speaking at an April 10 session of a Federal Trade Commission (FTC) conference on energy policy and competition.

FTC Chairman Deborah Platt Majoras stressed the need for competition in the energy markets and warned against intrusive government policies.

Ensuring Competition

In order to ensure consumer welfare, Majoras said, “[it] is our responsibility to stand up for markets and ensure competition.” Part of that effort involves advocating federal policies that “enhance consumers rather than raising barriers and preferring special interests,” she said.

In determining whether anticompetitive practices may be contributing to rising energy costs, Majoras said, the challenge for the FTC is to “distinguish between markets corrupted by anticompetitive conduct and markets that are functioning competitively, even when they’re producing results that we may not always like.”

Energy markets are “uniquely impacted by geopolitical considerations and federal and state government actions like regulation and taxation,” Majoras said, warning against government policies that could harm competition.

Similarly, Energy Secretary Samuel W. Bodman remarked that energy markets function most effectively “when they’re open, transparent, well-regulated and competitive.” And the role of governments in promoting those objectives is clear.

Efficiency Standards, Tax Incentives

Bodman cited energy efficiency standards and tax incentives for new technologies as government policies that have worked in the past.

In view of rising demands for energy, “[w]e must bet on technology,” Bodman said. “And we must signal to private investors that our policy environment supports sustained investment in renewable and alternative fuels.”

“The key to unlocking our energy future is ensuring that the innovation cycle continues at a rapid pace,” Bodman concluded.

Thursday, April 12, 2007

Utah Spam Registry Law Is Not Preempted, Unconstitutional

This posting was written by Cheryl Montan, editor of CCH Guide to Computer Law.

A Utah law designed to protect minors from receiving unwanted pornographic spam survived constitutional challenges and was not preempted by the CAN-SPAM Act, the federal district court in Salt Lake City has ruled.

The Free Speech Coalition, an association of commercial pornography producers and distributors, sought to invalidate the Utah Child Protection Registry Act (CPRA) and enjoin its enforcement on the grounds that the law was expressly preempted by the CAN-SPAM Act and that it violated both the First Amendment and the dormant Commerce Clause of the United States Constitution.

The court ruled that the CPRA was not preempted by the CAN-SPAM Act. Congress's basic purpose in enacting the CAN-SPAM Act was to create a national standard for rules governing the structure of commercial e-mail messages and the techniques used to send them.

Although CAN-SPAM generally preempts state commercial e-mail statutes, the CAN-SPAM Act limits its preemptive effect by delineating certain exemptions, including one for state laws referring to “computer crime.” The CPRA qualified for the computer crime exemption, according to the court, because it referred to the transmission of materials harmful to minors, which is a felony under Utah law.

Dormant Commerce Clause

The CPRA did not violate the dormant Commerce Clause of the United States Constitution because it neither discriminated against interstate commerce, nor unduly burdened interstate transactions, the court held. The Free Speech Coalition argued that the CPRA had an impermissible extraterritorial effect that rendered it per se invalid under the Commerce Clause because virtually everyone sending adult e-mail into Utah would be forced to use Utah's registry to ensure that they were not sending e-mail to someone listed on the registry.

By including exceptions to preemption in CAN-SPAM, Congress, which has the power to regulate interstate commerce, expressly granted states the right to regulate certain types of commercial e-mail.

The court disagreed with the Coalition's assertion that the burden CPRA placed on commerce was more substantial than the putative local benefits. The CPRA provides information that helps e-mailers to more effectively comply with existing Utah law making it a crime to distribute materials harmful to minors The small fee to “scrub” names on e-mail lists was not an excessive burden in relation to the local benefits of enabling parents to protect their children from exposure to pornographic material

First Amendment

The Coalition's arguments that the CPRA violated the First Amendment's free speech protections were found to be without merit. Compliance with the registry's “scrubbing” service in advance of dissemination did not impose a prior restraint on e-mail expression, the court held.

The remainder of the Coalition's free speech claims failed because citizens have a right to avoid unwanted e-mail communication as part of their broader right of privacy. The Coalition asserted that the CPRA interfered with their right to access adults via e-mail. In essence, the Coalition was contending that it had an unfettered right to send pornographic materials to adults, including to those who opt-out from receiving such materials.

The opt-in nature of the Utah registry required an affirmative action on the part of adults who wished to participate. Individuals who do not wish to receive sexually explicit e-mails have a right to prevent unwanted speech from entering their own homes.

“Chilling effect”

The Coalition's claim that the CPRA had a “chilling effect” on its expressive rights was inapposite because there can be no chilling effect on unwanted speech, the court observed.

The CPRA advanced the state interest in protecting minors form exposure to illegal content and the statute was narrowly tailored through its opt-in feature to prevent exactly what it was designed to prevent: unwanted, adult-oriented speech from entering the home of unwilling recipients, the court concluded.

The decision is Free Speech Coalition, Inc. v. Shurtleff, Case No. 2:05CV949DAK, March 23, 2007 (CCH Guide to Computer Law ¶49,306).

Tuesday, April 10, 2007

Consumer Group Can’t Convince Court to Review FTC Letter Concerning Funeral Rule

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

The U.S. Court of Appeals in Washington, D.C. denied a petition from a consumer Group—the Funeral Consumers Alliance—for review of a 2005 Federal Trade Commission (FTC) letter that purportedly narrowed the scope of the FTC Funeral Rule’s definition of “cash advance item” without following the proper rulemaking procedures for amending a trade regulation rule.

The group sought review under the judicial review provisions of the FTC Act. The statute provided direct appellate court review only for challenges to FTC trade regulation rules or “substantive amendments” to such rules. The group and purchasers of funeral home services contended that, in light of the letter, cash advance items were being marked up by funeral homes without proper disclosures.

"Cash Advance Item"

In the letter (CCH Trade Regulation Reports ¶15,768), the Commission rejected any interpretation of the term "cash advance item" as encompassing all goods or services purchased by a funeral provider from a third-party vendor.

According to the letter, "this interpretation sweeps far too broadly, potentially bringing within its scope every component good or service that comprise a funeral. This was not and is not the Commission's intention in the 'cash advance' provisions of the Rule."

The opinion letter further states that the term "cash advance item" in the Rule applies only to those items that a funeral provider represents expressly to be "cash advance items" or represents by implication to be procured on behalf of a particular customer and provided to that customer at the same price the funeral provider paid for them. The letter explains the analysis leading to this conclusion.

Amendment v. Interpretation

The appellate court held that the FTC did not substantively amend the Funeral Rule by interpreting the phrase “cash advance item” as applying only to items that consumers believe they will receive at cost, based on the express or implied representations of the funeral provider. The letter was—at most—an interpretation of the Funeral Rule.

Also rejected was the consumer group's contention that the letter was a substantive amendment because it was inconsistent with the Commission's previous interpretations of the Funeral Rule. Thus, the group would have to seek review in a federal district court in the first instance in accordance with the Administrative Procedure Act.

The decision is Funeral Consumer Alliance, Inc. v. Federal Trade Commission, No. 05-1351, April 10, 2007.

Monday, April 09, 2007

FTC Challenge to Gift Card Dormancy Fees Settled

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

The national restaurant company that owns the Olive Garden and Red Lobster chains, among others, has agreed to settle FTC charges that it engaged in deceptive practices in advertising and selling its gift cards.

As part of the settlement, the company will restore fees that were deducted from consumers’gift cards and disclose fees or expiration dates in future gift card sales.

This is the agency’s second law enforcement action involving allegedly deceptive gift card sales. Last month, Kmart Corporation agreed to resolve similar FTC charges (see March 13, 2007 blog posting).

At that time, Commissioners Pamela Jones Harbour and Jon Leibowitz criticized the agency's settlement with Kmart because “the order does not require Kmart automatically to restore previously deducted dormancy fees (absent consumer inquiries) or disgorge the windfall profits it made from these fees.”

In the current action, the FTC charged that the restaurant company did not disclose adequately the “dormancy fees” that would be deducted after a certain period of time. For cards sold before February 2004, after 15 months of non-use, a $1.50 dormancy fee was deducted from the card’s balance for each month of inactivity; for cards sold after February 2004, the monthly fee was deducted after 24 months of non-use.

As of October 2006, the restaurant company stopped charging a dormancy fee on its gift cards. It has already completed the process of restoring all fees on cards, according to the agency.

“The FTC works to make sure consumers have the facts they need to make smart decisions, no matter what they’re buying,” said FTC Bureau of Consumer Protection Director Lydia Parnes. “When it comes to gift cards, issuers can’t gloss over key information. They must clearly and prominently disclose fees and restrictions that affect the use of their gift cards.”

The FTC action is In the Matter of Darden Restaurants Inc., FTC File No. 062-3112, April 3, 2007 (CCH Trade Regulation Reports ¶15,996). The complaint, an agreement containing the consent order, and a news release appear at the FTC web site.

Saturday, April 07, 2007

U.S. Conditions Cement Company Acquisition on Divestitures

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

Mexico-based Cemex S.A.B. de C.V. would be required to divest 39 ready-mix concrete, concrete block, and aggregate facilities in Arizona and Florida in the event it succeeds in its hostile takeover of Australia-based Rinker Group, the Department of Justice Antitrust Division has announced.

Last October, Cemex, the largest U.S. supplier of ready mix concrete and cement and the seventh largest U.S. supplier of aggregate, announced its intention to acquire Rinker, the second largest U.S. supplier of ready mix concrete and the fifth largest U.S. supplier of aggregate—through a hostile cashtender offer.

The offer was due to expire on March 30, 2007, but Cemex extended it until April 27, 2007. The Cemex/Rinker transaction is valued at approximately $12 billion, including Rinker's debt.

Civil Suit and Proposed Consent Decree

The Antitrust Division filed a civil antitrust lawsuit in the federal district court in Washington, D.C. to block the proposed transaction. At the same time, it filed a proposed consent decree that, if approved by the court,would resolve the lawsuit and the Justice Department's competitive concerns.

Under the terms of the proposed consent decree, once Cemex obtains control of Rinker, Cemex must divest certain ready mix concrete assets to a single buyer in each of the areas of competitive concern.

The terms of the proposed consent decree also require the divestiture of all of Rinker's concrete block-related assets in the Tampa/St. Petersburg and Fort Myers/Naples areas. Cemex must divest two aggregate plants in the Tucson, Ariz., area to the same acquirer that purchases the two ready mix plants to be divested at the same locations.

Competitive Effects

The Justice Department said that without the divestitures the proposed acquisition would substantially lessen competition for ready mix concrete in certain metropolitan areas in Arizona and Florida, as well as result in increased prices for ready mix concrete, concrete block, and aggregate sold to customers handling state Department of Transportation and large building projects.

Without the divestitures required by the Justice Department, purchasers of ready mix concrete, concrete block and aggregate in these areas of Florida and Arizona, including state departments of transportation, would likely have faced higher prices if the transaction is completed said Thomas O. Barnett, Assistant Attorney General for the Department's Antitrust Division.

The Justice Department's action will ensure that these customers will continue to receive the benefits of competition.

The action is Cemex S.A.B. de C.V., U.S. No. 4864, CCH Trade Regulation Reporter ¶45,107 and ¶50,941. Text of the April 4 complaint and proposed final judgment appear on the Department of Justice Antitrust Division's web site.

Thursday, April 05, 2007

FTC Chair Congratulates Antitrust Modernization Commission on Final Report

Federal Trade Commission Chairman Deborah Platt Majoras congratulated the Antitrust Modernization Commission (AMC) on its Report and Recommendations, issued on April 3 after a three-year review of U.S. antitrust laws and policies.

Majoras commended the members of the AMC “for reaching consensus on certain core principles” including:

 The endorsement of free-market principles and recognition that free-market policies “have driven the success of the U.S. economy and will continue to fuel the investment and innovation that are essential to ensuring our continued welfare.”

 The conclusion that U.S. antitrust law is “sound” and that U.S. antitrust policy has achieved an appropriate focus.

 The finding that consistent application of antitrust principles will ensure the effectiveness of the antitrust laws, and that new or different antitrust rules are not needed for the high technology sector or other “new economy” industries.

The Chairman is in the process of reviewing the AMC’s report in detail and promises to consider carefully all of the recommendations.

Text of the AMC’s Report and Recommendations appears at the Antitrust Modernization Commission’s website. Text of the April 3 statement by Chairman Majoras appears at the FTC website.

Wednesday, April 04, 2007

FCC Restricts Disclosure of Telephone Call Records for Marketing Purposes

This posting was written by Bill Zale, editor of CCH Advertising Law Guide.

Telecommunications companies must get explicit opt-in approval from customers before the companies are permitted to disclose telephone call records to joint venture partners or independent contractors for purposes of marketing communications-related services to customers, according to tightened privacy rules announced by the Federal Communications Commission on April 2, 2007.

The new rules become effective only after they are published in the Federal Register and approved by the White House’s Office of Management and Budget.

The restrictions apply to “customer proprietary network information,” or CPNI. CPNI includes information about the type of communications services purchased (local, long distance, wireless, etc.) and about use of those services (such as the quantity, destination, and location of calls).

Prevention of “Pretexting”

In addition to the changes relating to customer consent for disclosure of CPNI for marketing purposes, the new rules are designed to prevent “pretexting”—the obtaining of a customer’s records by impersonation.

Carriers are prohibited from releasing a customer’s phone call records when a customer calls the carrier, except when the customer provides a password. If a customer does not provide a password, carriers may not release the customer’s phone call records except by sending them to an address of record or by the carrier calling the customer at the telephone of record.

Carriers are required to provide mandatory password protection for online account access. Carriers are permitted to provide all CPNI, including customer phone call records, to customers based on in-store contact with a valid photo ID.

Voice over Internet Protocol Service

All CPNI rules are extended to cover providers of interconnected voice over Internet Protocol (VoIP) service. In addition, certification rules are amended to require carriers to file with the FCC an annual certification, including an explanation of any actions taken against data brokers and a summary of all consumer complaints received in the previous year regarding the unauthorized release of CPNI

A press release, and a Report and Order and Notice of Further Proposed Rulemaking appear at the FCC website.

Tuesday, April 03, 2007

Antitrust Modernization Commission Finds Antitrust Law Sound, Flexible

After three years of study, 17 public hearings, and 16 meetings, the Antitrust Modernization Commission has concluded that federal and state antitrust enforcement is fundamentally “sound” and the antitrust laws are sufficiently flexible to account for the changing global economy. However, the Commission did make several recommendations for improvement of antitrust enforcement, including some proposals for legislative change.

The 12-member, bipartisan Commission released its Report and Recommendation to the President and Congress on April 3. A press release, a 16-page letter to the President and Congress, and the 449-page “Report and Recommendations” are available at the Antitrust Modernization Commission website.

Letter to President, Congress

In the letter to the President and Congress, the Commission states that (1) “the Report is fundamentally an endorsement of free-market principles,” (2) the antitrust laws are “sound,” but can be improved, and (3) “new or different rules” are not needed to address “new economy” issues.

The Commission does not recommend legislative change to the Sherman Act or Section 7 of the Clayton Act because “the basic legal standards that govern the conduct of firms under those laws are sound.”

However, the report did put forward some recommendations, including the following:

Repeal 1930s-era pricing legislation. The report advocates the repeal of the Robinson-Patman Act on the grounds that it discourages price discounting and “appears to be ineffective in protecting the small businesses that were intended to be its beneficiaries.”

Enact legislation allowing indirect purchasers to sue. The federal ban on suits by indirect purchasers and the state authorization of such suits “have resulted in a morass of litigation that takes money out of the pockets of injured consumers,” the Commission found.

Improve federal merger review. The Commission recommends legislation that would eliminate unnecessary regulatory delay caused by uncertainty over which agency will review a transaction. Amendments to the Hart Scott Rodino Act should (1) require that clearance occur within a short period of time, (2) mandate that mergers be treated the same regardless of whether the FTC or the Department of Justice reviews them, and (3) reduce the burden of merger review and increase the transparency of merger enforcement policy.

Increase cooperation and comity in international antitrust. The U.S. should enter into cooperation and comity agreements with more of its major trading partners, according to the Commission. These agreements should help reduce conflict in antitrust enforcement and strengthen cooperation in the fight against international price-fixing cartels.

Disfavor statutory immunity from antitrust laws. The Commission believes that statutory immunities should be granted rarely (if ever) and only when compelling evidence shows that (1) competition cannot achieve important societal goals that “trump consumer welfare” or (2) a market failure clearly requires government regulation in place of competition.

The Antitrust Modernization Commission was created pursuant to the Antitrust Modernization Commission Act of 2002 (CCH Trade Regulation Reporter ¶27,640) to examine the need to modernize the federal antitrust law, solicit public comment concerning the operation of the antitrust laws, evaluate current practices and proposals for change, and submit recommendations to the President and Congress.

The Commission—led by Deborah A. Garza (Chair) and Jonathan R. Yarowsky (Vice-Chair)—first met on July 15, 2004. It must cease operations within 60 days of the issuance of the report and recommendations.

Further information about the Commission appears at the Antitrust Modernization Commission’s web site.

Monday, April 02, 2007

FTC Testifies on Identity Theft, Social Security Numbers

An FTC official told the Senate Judiciary Committee Subcommittee on Terrorism, Technology, and Homeland Security on March 21 that “government and the private sector must continue to work together to reduce the opportunities for thieves to obtain consumers’ personal information and make it more difficult for thieves to misuse that information if they obtain it. “

Lydia Parnes, Director of the FTC Bureau of Consumer Protection, urged government and business to evaluate whether they needed to collect and maintain consumer data, better-protect the data they possess, and develop better ways to authenticate customers to keep identity thieves from using the information they steal.

Efforts to Protect Sensitive Information

According to FTC testimony, since 2001 the Commission has filed 14 actions against businesses that failed to reasonably protect sensitive consumer information. The FTC also participated in an Indentity Theft Task Force that was established by the President to develop a comprehensive national strategy for fighting identity theft.

Further, the Commission made “substantial efforts to increase consumer and business awareness of the importance of protecting data and taking other steps to prevent identity theft.” An identity theft primer was developed by the agency and was made available in print and on the agency’s web site. More than two million copies of the primer was developed by the agency. The web site version has been accessed more than 2.4 million times.

In addition, the agency has developed consumer education resources, such as “Avoid ID Theft: Deter, Detect, Defend,” and an identity theft training kit for use by businesses, community groups, and other entities.

Misuse of Social Security Numbers

The testimony noted that misuse of consumers’ social security numbers (SSNs) could facilitate identity theft. The challenge was to “find the proper balance between the necessity of keeping SSNs out of the hands of identity thieves, while giving businesses and government sufficient means to match information to the correct purpose.

Preventing the misue of SSNs could follow two paths. First, the unnecessary use and disclosure of SSNs as an identifier could be reduced. The Identity Theft Task Force was working toward this goal. Second, improved methods of authenticating consumers could be promoted so that SSNs are less valuable, even if they fell into the hands of an identity their. In furtherance of this goal, the FTC will host an authentication workshop on April 23 and 24, 2007.