Thursday, November 29, 2012

Tobacco Firms’ Obligatory Corrective Statements for Cigarette Harm, Addiction Claims Approved

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

The federal district court in Washington D.C. yesterday finalized the text of corrective messages that most of the major domestic tobacco firms must publish on each of five topics on which the tobacco firms made false and deceptive statements about the health effects and addictive properties of their cigarettes. (U.S. v. Philip Morris USA, Inc., November 27, 2012, Kessler, G.)

The companies were required to publish the comments as part of a series of injunctive measures imposed by the court in 2006, upon a ruling that they had participated in a long-running RICO conspiracy to conceal the true hazards of smoking.

In association with this finding, the court determined that the tobacco firms had engaged in the scheme by making false and fraudulent statements, representations, and promises in advertising to consumers. These statements concerned: (1) the adverse health effects of smoking; (2) the addictiveness of smoking and nicotine; (3) the lack of any significant health benefit from smoking low tar, light, mild, or natural cigarettes; (4) the firms’ manipulation of cigarette design and composition to ensure optimum nicotine delivery; and (5) the adverse health effects of exposure to secondhand smoke.

The tobacco firms continue to engage in conduct “materially indistinguishable” from their previous unlawful actions “to this day,” the court noted.

The corrective statements are “necessary to prevent and restrain the defendants from continuing to disseminate fraudulent public statements and marketing messages,” according to the court. The court noted a decision by the U.S. Court of Appeals for the District of Columbia Circuit upholding its earlier determination that corrective statements targeted at revealing the previously hidden truth about cigarettes would prevent and restrain future RICO violations. The approved statements read as follows:

A. Adverse Health Effects of Smoking

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about the health effects of smoking, and has ordered those companies to make this statement. Here is the truth:

• Smoking kills, on average, 1200 Americans. Every day.

• More people die every year from smoking than from murder, AIDS, suicide, drugs, car crashes, and alcohol, combined.

• Smoking causes heart disease, emphysema, acute myeloid leukemia, and cancer of the mouth, esophagus, larynx, lung, stomach, kidney, bladder, and pancreas.

• Smoking also causes reduced fertility, low birth weight in newborns, and cancer of the cervix and uterus.

B. Addictiveness of Smoking and Nicotine

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about the addictiveness of smoking and nicotine, and has ordered those companies to make this statement. Here is the truth:

• Smoking is highly addictive. Nicotine is the addictive drug in tobacco.

• Cigarette companies intentionally designed cigarettes with enough nicotine to create and sustain addiction.

• It's not easy to quit.

• When you smoke, the nicotine actually changes the brain—that's why quitting is so hard.

C. Lack of Significant Health Benefit from Smoking “Low Tar,” “Light,” “Ultra Light,” “Mild,” and “Natural” Cigarettes

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public by falsely selling and advertising low tar and light cigarettes as less harmful than regular cigarettes, and has ordered those companies to make this statement. Here is the truth:

• Many smokers switch to low tar and light cigarettes rather than quitting because they think low tar and light cigarettes are less harmful. They are not.

• “Low tar” and filtered cigarette smokers inhale essentially the same amount of tar and nicotine as they would from regular cigarettes.

• All cigarettes cause cancer, lung disease, heart attacks, and premature death—lights, low tar, ultra lights, and naturals. There is no safe cigarette.

D. Manipulation of Cigarette Design and Composition to Ensure Optimum Nicotine Delivery

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about designing cigarettes to enhance the delivery of nicotine, and has ordered those companies to make this statement. Here is the truth:

• Defendant tobacco companies intentionally designed cigarettes to make them more addictive.

• Cigarette companies control the impact and delivery of nicotine in many ways, including designing filters and selecting cigarette paper to maximize the ingestion of nicotine, adding ammonia to make the cigarette taste less harsh, and controlling the physical and chemical make-up of the tobacco blend.

• When you smoke, the nicotine actually changes the brain—that's why quitting is so hard.

E. Adverse Health Effects of Exposure to Secondhand Smoke

A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about the health effects of secondhand smoke, and has ordered those companies to make this statement. Here is the truth:

• Secondhand smoke kills over 3,000 Americans each year.

• Secondhand smoke causes lung cancer and coronary heart disease in adults who do not smoke.

• Children exposed to secondhand smoke are at an increased risk for sudden infant death syndrome (SIDS), acute respiratory infections, ear problems, severe asthma, and reduced lung function.

• There is no safe level of exposure to secondhand smoke.
In selecting from among the parties’ submissions of proposed corrective statements, the District Judge Gladys Kessler stated that the court had “broad discretion to formulate corrective statements.” After reviewing the Supreme Court’s development of the commercial speech doctrine and in light of more recent precedent, the court concluded that the statements passed Constitutional muster.

The statements were “purely factual and uncontroversial,” in the court’s view, and were therefore subject to the standard of review established by the Supreme Court in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985). Under Zauderer, challenged disclosures survive constitutional scrutiny if they are reasonably related to the government interest in preventing consumer deception and not otherwise unjust or unduly burdensome, the court explained.

Citing the massive “scope of the consumer fraud at issue here,” the court found that the preamble language provided important and necessary context for the consumer, and was therefore reasonably related to correcting and preventing future consumer deception. Furthermore, the court observed, the defending tobacco firms’ failure to point to any “burden” or “chill” that the statements would have on their speech precluded their argument that the statements imposed “far greater burdens” on their speech than “necessary to further the Government’s anti-fraud interest.”

The court added that even if the Zauderer requirements had not been met, the statements still would satisfy First Amendment scrutiny under another, lower standard of acceptable commercial speech.

The case is Civil Action No. 99-2496 (GK).

Tuesday, November 20, 2012

House Lawmakers Call on FTC to Avoid Overstepping in Google Investigation

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

Two Democratic members of the House of Representatives have sent a letter to FTC Chairman Jon Leibowitz, expressing concerns over apparent leaks of information regarding the agency’s investigation into Google, Inc. and asking the agency to act within its statutory authority in pursuing the matter.

Rep. Anna G. Eshoo (California), Ranking Member of the House Energy and Commerce Committee's Communications and Technology Subcommittee, and Rep. Zoe Lofgren (California) suggested in the November 19 letter that the purported release of sensitive details from an internal draft FTC report was "irresponsible” and that it “potentially compromises an investigation that has yet to be voted on by the full Commission.”

The congresswomen stressed the need for the agency to “remain fair and impartial” and to protect “the confidentiality of internal discussions among the parties involved.”

In June 2011, Google announced that the FTC was conducting a formal review its business practices. Google did not disclose details of the investigation.

Recent reports have suggested that an FTC enforcement action will soon be announced. The European Commission has already announced an in-depth antitrust investigation into whether Google’s Internet search display practices were designed to shut out competitors.

The letter also questioned the Commission’s use of its authority under Section 5 of the FTC Act to reach allegedly anticompetitive conduct that might not be found illegal under Section 2 of the Sherman Act.

“Expanding the FTC’s Section 5 powers to include antitrust matters could lead to overbroad authority that amplifies uncertainty and stifles growth,” according to the representatives. “If the FTC intends to litigate under this interpretation of Section 5, we strongly urge the FTC to reconsider.”

Saturday, November 17, 2012

Hesse Appointed Acting Chief of Antitrust Division

This posting was written by John W. Arden.

In the wake of Joseph Wayland’s resignation last week, Renata B. Hesse has been appointed Acting Assistant General in charge of the Department of Justice Antitrust Division.

She is the third acting antitrust chief appointed since Christine Varney left the position of Assistant Attorney General in charge of the Antitrust Division on August 5, 2011. Sharis A. Pozen served as Acting Assistant Attorney General through April 2012, when Wayland took over. William J. Baer was nominated as antitrust chief in February 2012, but the nomination has been stalled.

Hesse has served as Deputy Assistant Attorney General for Criminal and Civil Operations in the Antitrust Division since August 2012. Previously, she was a Special Advisor to the Assistant Attorney General for Antitrust, chief of the Division’s Network & Technology Enforcement Section, and an attorney in its Merger Task Force and Transportation Energy & Agriculture Section. She received the Attorney General’s Distinguished Service Award in 2005.

She served as Senior Counsel to the Chairman for Transactions at the Federal Communication Commission, where she oversaw the Commission’s investigation of AT&T’s proposed acquisition of T-Mobile. Before joining the Commission, Hesse was a partner in the Washington, D.C. office of Wilson, Sonsini Goodrich & Rosati. She received her Bachelor of Arts degree in Political Science from Wellesley College in 1986 and her Juris Doctor from the University of California, Berkley, in 1990.

Wednesday, November 14, 2012

FTC General Counsel Leaves Agency, Acting General Counsel Appointed

This posting was written by John W. Arden.

Federal Trade Commission General Counsel Willard K. Tom has left the agency to return to the private sector, FTC Chairman Jon Leibowitz announced today. Tom led the Office of General Counsel for more than three years, serving as the Commission’s top legal officer and advisor, representing the agency in court, and providing legal counsel to the Commission, it bureaus, and its offices.

“Will served this agency with great distinction,” said Leibowitz. “His leadership helped bring significant antitrust and consumer protection victories on behalf of American consumers, and we will miss his thoughtfulness, wise counsel, and extraordinary writing skills.”

David Shonka, the FTC’s Principal Deputy General Counsel since April 2008, was appointed Acting General Counsel, according to the agency. He joined the Commission as a staff attorney in 1977 and later became Assistant General Counsel for Litigation. Shonka oversees the Office of General Counsel’s Litigation, Legal Counsel, and Policy Studies units and chairs the agency’s e-Discovery Steering Committee for government law enforcement investigations. He is a graduate of the University of Nebraska and the University of Maine Law School.

Chief Privacy Officer

The Commission also announced the appointment of Peter Miller as the FTC’s Chief Privacy Officer (CPO). In this position, Miller will coordinate efforts to implement and review the agency’s policies and procedures for safeguarding all sensitive information and will chair the FTC’s Privacy Steering Committee and the Breach Notification Response Team. Miller, who has been Acting CPO, has worked at the FTC for nine years, previously previously serving as Assistant Director of Regional Operations for the Bureau of Consumer Protection and as a staff attorney for the Division of Advertising Practices. He received his B.A. from Rice University and his J.D. from the University of Texas.

Tuesday, November 13, 2012

EC Approves Procter & Gamble Acquisition of Teva OTC Business

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

The European Commission (EC) announced on November 12 that it has cleared Procter & Gamble Company's proposed acquisition of the over-the-counter (OTC) business of the generic pharmaceutical company Teva Pharmaceutical Industries, Ltd. of Israel. The OTC assets had been acquired by Teva from U.S.-based Cephalon, Inc. in 2011. The EC’s investigation focused on topical anti-rheumatics and analgesics, and expectorants, sold in Latvia, Lithuania, and Estonia.

The EC concluded that the current transaction would not raise competition concerns because it would not significantly alter the market structure. According to the EC, the affected market was last examined in October 2011, when Teva acquired Cephalon's then-existing OTC business. The competitive conditions in these markets have not materially changed since then.

In September 2011, the EC cleared Procter & Gamble’s acquisition of “important parts” of Teva’s OTC business, after concluding that the proposed transaction would not raise competition concerns. In its investigation of that transaction, the EC focused on laxatives sold in the Netherlands and antitussives sold in Austria.

Procter & Gamble and Teva had issued a statement in November 2011, announcing plans to create a new partnership and joint venture in consumer health care. The parties said that the venture, PGT Healthcare, was to be headquartered in Geneva, Switzerland, and operate in essentially all markets outside of North America. The partnership between Procter & Gamble and Teva also was to develop new brands for the North American market.

Saturday, November 10, 2012

High Court to Consider Enforceability of Arbitration Clause’s Class Action Waiver in Antitrust Case

This posting was written by William Zale.

In a case involving merchants’ class antitrust claims against American Express, the U.S. Supreme Court has agreed to decide whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. The Court granted the petition for certiorari in American Express Co. v. Italian Colors Restaurant, Dkt. 12-133, on November 9, 2012.

At issue is a decision of the U.S. Court of Appeals in New York holding unenforceable a class action waiver contained in the mandatory arbitration clause of their commercial contracts with American Express, In re American Express Merchants’ Litigation, 667 F.3d 204 (2nd Cir. 2012).

 If the plaintiffs could not pursue their allegations of antitrust law violations as a class, it would be financially impossible for them to seek to vindicate their federal statutory rights, according to the appeals court. American Express thus would have immunized itself against all such antitrust liability by the expedient of including in its contracts of adhesion an arbitration clause that does not permit class arbitration, irrespective of whether or not the provision explicitly prohibits class arbitration, the court observed.

The petition for certiorari appears here.

Thursday, November 08, 2012

Acting Antitrust Chief to Step Down

This posting was written by John W. Arden.

After six months in the position, Joseph Wayland, Acting Assistant Attorney General in charge of the Justice of Department Antitrust Division, will step down next week, according to published reports.

Wayland became the acting antitrust chief in April 2012, following the departure of then-Acting Assistant Attorney General Sharis A. Pozen.

There has not been an Assistant Attorney General in charge of the Antitrust Division since Christine Varney left the position on August 5, 2011, to return to private practice. President Obama nominated William J. Baer as antitrust chief in February 2012, but the nomination has been stalled.

Prior to his current role, Wayland served as Deputy Assistant Attorney General for Civil Enforcement at the Antitrust Division. He joined the division in September 2010 and worked on a number of high-profile cases, including the Justice Department’s successful challenges to AT&T’s proposed acquisition of T-Mobile, USA, Inc. and H&R Block’s proposed acquisition of 2SS Holdings, the maker of TaxACT tax preparation software.

Wayland is reported to be returning to Simpson Thacher & Bartlett LLP, the firm he left to join the Antitrust Division.

No announcement has been made regarding Wayland’s successor.

Tuesday, November 06, 2012

EC Not Blocking Legitimate Efforts to Create Large European Companies: Competition Chief

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

At a conference on competition policy, law, and economics in Cernobbio, Italy on November 2, European Commission Vice Chair for Competition Policy Joaquin Almunia shared the latest developments in the field of merger control, placing them in the context of the recent evolution of the EC policy.

Much of his speech (“Merger review: Past evolution and future prospects”) contested the perception that the EC is “raising hurdles against the creation of large European companies” and not supporting “European champions.”

In reality, the Commission has cleared more than 4,600 deals and blocked only 22 since the EU’s merger regulation came into force in 1990. “Fewer than five in every thousand cases!” he said. Last year, the enforcement authority received 309 notifications, approved as many as 299 of them in Phase I, and blocked only one transaction, according to Alumnia.

“So let’s recognize the facts: it is simply not true that the Commission is putting the brakes on the legitimate efforts of Europe’s firms to scale up,” said the official.

Europe doesn’t lack corporate giants, he said, noting that the top 100 corporations in the world included 30 from the United States and 27 from the EU.

He further cautioned against shielding Europe’s companies from competition. “Merger control is not the place for protectionist measures,” observed the official. “The discipline imposed by a keen competition environment in the Single Market is a tonic for Europe’s companies. It prepares them to do business on the global markets and to succeed.”

Almunia cited the introduction, in the guidelines of 2004 and 2008, of strict analytical frameworks and a test for competitive harm based on economic effects. After these changes, he said, EC merger review “is now focused more on how a merger can affect the competitive dynamics of markets and less on structural aspects such as concentration levels and market shares.”

He explained that high market shares are not always problematic, while sometimes even moderate shares can impair competition, depending on the actual market conditions in which each individual deal takes place. The authority assesses the likely impact of a merger on price and other parameters—such as quality, choice, and innovation—alongside the precompetitive effects and efficiencies of a proposed deal, he said.

Almunia expressed his intent to continue streamlining the system to focus on “cases that have a real impact on competition and consumers in the internal market and require complex analyses.” He observed that there is room for improvement on one substantive point: evaluating transactions that lead to the acquisition of non-controlling minority stakes. These transactions currently escape EC scrutiny, even though they may cause significant harm to competition.

Regarding particular transactions, Almunia noted that the EC was currently reviewing Hutchison’s takeover of Orange in the Austrian mobile telephony market and the merger between UPS and TNT. “Our preliminary view is that serious competition concerns would arise in both cases, and substantial remedies are needed.” It is also analyzing Raynair’s renewed bid to acquire a controlling stake of its Irish rival, Aer Lingus.

Monday, November 05, 2012

Supreme Court Hears Oral Argument in Antitrust Class Action Against Comcast

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

As the U.S. Supreme Court heard oral argument on November 5 about the appropriate standard for class certification in a consumer antitrust action against cable provider Comcast Corporation, the justices spent much of the time trying to determine whether the parties actually had opposing views on the appropriate legal standard (Comcast Corp. v. Behrend, Dkt. 11-864).

The case could impact the ability of consumers to pursue damages class actions if the Court were to impose tougher standards on lower courts as they consider motions for class certification.

“[I]t seems to me that except for the question of how good the expert report is, none of the parties have any adversarial difference as to the appropriate legal standard,” commented Justice Elena Kagan. “And, you know, usually we decide cases based on disagreements about law, and here I can't find one.”

In deciding to take up the case, the U.S. Supreme Court “wanted to talk about . . . whether a district court at a class certification stage has to conduct a Daubert inquiry, in other words, [whether it] has to decide on the admissibility of expert testimony relating to class-wide damages,” according to Justice Kagan. Comcast's counsel had argued that the complaining cable customers’ damages model no longer fit the legal theory that remained in the case.

In June 2012, the Supreme Court agreed to review a decision of the U.S. Court of Appeals in Philadelphia (655 F.3d 182, 2011-2 Trade Cases ¶77,575), upholding the certification of a class of approximately two million cable television customers in the Philadelphia area. The customers allege that Comcast engaged in unlawful monopolization.

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

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

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

There was some question as to whether Comcast waived its right to object to the admissibility of the expert testimony. Comcast's counsel asserted that Comcast had never said that its objection was only to the weight and not to the admissibility of the evidence.

Counsel for the customers contended that Comcast was so profoundly uninterested in Daubert, and was so focused on arguing weight and probativeness as opposed to admissibility, that it never even cited the case at the district court level. The Supreme Court's 1993 decision in Daubert v. Merrell Dow Pharmaceuticals, Inc. (509 U. S. 579), sets out certain requirements for the admission of expert testimony.

Chief Justice John Roberts suggested that the Court should answer the question presented as reformulated and send it back down to the district court to determine whether or not the parties adequately preserved the objection or not. “[T]he district court presumably can decide based on the proceedings and all that below, all the scars and mess-ups, whether or not it was adequately preserved or not,” he noted.

Thursday, November 01, 2012

$19 Million Settlement Approved in ADA Class Action Against Burger King

This posting was written by Jeffrey May.

The federal district court in San Francisco has approved a $19 million settlement in an action filed on behalf of a class of approximately 620 mobility-impaired customers of 86 California Burger King restaurants against the fast food franchisor for violations of the Americans with Disabilities Act and California disabilities laws (Vallabhapurapu v. Burger King Corp., October 26, 2012, Alsup, W.).

The settlement agreement, which is purported to include the largest total recovery amount ever obtained in a disability access case, was found to be in the best interests of the class and fair, reasonable, and adequate.

According to the plaintiffs, Burger King pursued discriminatory policies or practices that resulted in unlawful architectural or design barriers at 86 California restaurants leased to franchisees. These practices allegedly denied customers who use wheelchairs or scooters access to services at these Burger King restaurants.

The action followed an action called Castaneda v. Burger King Corp., 3:08-cv-04262-WHA. In Castaneda, an order certified 10 classes, one for each of 10 restaurants at which plaintiff mobility-impaired customers had visited and encountered access barriers, and a settlement was thereafter reached concerning the 10 restaurants (CCH Business Franchise Guide ¶14,419). This case involves the remaining 86 Burger King restaurants in California for which classes were not certified in Castaneda. Counsel are the same.

The current settlement provides for a cash payment of $19 million to satisfy and settle all claims for damages, as well as any attorney fees and costs. It will provide monetary damages of over $14 million.

Monetary awards to each claimant in the settlement class will be distributed pro rata based on the total number of visits by each damages claimant to one of the 86 restaurants where he or she encountered a barrier, the court explained. The maximum number of visits for which each damages claimant can obtain recovery is six.

Attorney Fees, Costs

The court also approved a request for reimbursement of $230,776.77 in litigation costs and expenses, and $4,592,305.81 in attorney fees. Using the lodestar method for calculating attorney fees (reasonable number of hours multiplied by a reasonable hourly rate), class counsel came up with a possible award of $3,546,721.60. That figure was based on rates ranging from $335 to $825 for the attorneys, and from $225 to $275 for paralegals and other staff. On top of that amount, the court applied a multiplier of 1.29, based on the quality of representation and benefit to the class, to reach the $4,592,305.81 figure.

Injunctive Relief

In addition to monetary relief, the settlement grants injunctive relief. This would include all of the measures agreed to in the Castaneda litigation, such as agreements to eliminate all accessibility barriers and to use mandatory checklists with specific accessibility items for remodeling, alterations, repairs, and maintenance.

The court pointed out an additional remedial measure that goes beyond those imposed by the Castaneda settlement. Burger King will now include in its manual to its franchisees the recommendation that franchisees check the force required to open public exterior and restroom doors twice per month. Franchise operators will need to check that the doors do not require more than five pounds of pressure to open. Of the 86 restaurants originally at issue, the injunctive relief applies to the 77 Burger King restaurants that are still in business and are leased by Burger King to franchisees in California.