Saturday, January 26, 2013

Subway Sued For Misrepresenting Length of “Footlong” Sandwiches

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

A Subway customer filed a nationwide class action lawsuit in the federal district court in Chicago, alleging that Subway violated the consumer protection statutes of all 50 states and the District of Columbia, after measuring a “Footlong” sandwich purchased from Subway and realizing it was less than 11 inches long (Buren v. Doctor’s Associates, Inc., No. 1:13-cv-00498, January 22, 2013).

Subway advertises and sells submarine sandwiches labeled as “Footlong” subs. The complaint alleges that, because the actual length of the sandwiches falls short of 12 inches, customers pay more than they should have in reliance on Subway’s advertising. Advertising on television, in print, on the radio, and on the Internet allegedly misleads consumers into believing that they are receiving a 12-inch sandwich when they actually receive less.

In marketing and advertising materials, Subway references the length of the “Footlong” subs by having actors or artists’ renderings hold their hands approximately one foot apart, and includes a graphic between the actors’ hands indicating that the hands are one foot apart.

The customer, Nguyen Buren, alleged a class action on behalf of “All persons in the United States who purchased SUBWAY® ‘Footlong’ submarine sandwiches that were less than 12 inches long.”

The complaint sought to enjoin Subway from using the allegedly deceptive advertising and requested restitution, actual damages, treble damages, punitive damages, attorney fees, and costs of suit.

Other Lawsuits

Similar lawsuits have been filed in the Court of Common Pleas in Philadelphia County and in New Jersey Superior Court, Burlington County.

The Pennsylvania complaint alleges a state-wide class action brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) “over identical, false, affirmative misstatements of material fact and knowing material omissions made by Subway regarding its trademarked ‘Footlong’ sandwich” starting in January 2007 and continuing to the present (Roseman v. Subway Sandwich Shops, Inc., No. 130102647, January 24, 2013).

“The discrepancy in size between the uniform statements in Subway’s signs, menus and advertising regarding the size of this sandwich and the actual size of this sandwich is not an accident nor is it the result of any variation in size among such sandwiches,” the complaint charged. “Rather, Subway has admitted in communications with the press that this sandwich is made according to exacting, uniform procedures and specifications imposed by Subway upon its franchisees and stores, all of whom are required by Subway to use specified ingredients in specified amounts.”

The action “aims at obtaining redress under the Pennsylvania UTPCPL for those persons in Pennsylvania who received less than what they were promised when they purchased a ‘Footlong’ sandwich in Pennsylvania between January 24, 2007 and the present.” It asks the court to certify the class, enter an order for injunctive and declaratory relief, assess damages and trebled damages, and award attorney fees and costs.

Wednesday, January 16, 2013

UPS Drops Planned Acquisition of TNT Express in Light of EC Concerns

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

United Parcel Service, Inc. (UPS) announced on January 14 that it is dropping its plans to acquire competing delivery company TNT Express N.V. in response to European Commission (EC) antitrust concerns over the deal. UPS said that the EC had informed the companies that it was working on a decision to prohibit the transaction. Upon prohibition by the EC, UPS will withdraw its offer and pay the Dutch firm € 200 million.

According to a statement from TNT released today, the EC case team investigating the proposed acquisition informed the companies that on the basis of UPS’s current remedy proposal it was working towards proposing a prohibition decision. TNT went on to say that it was informed that UPS “sees no realistic prospect that EC clearance can be obtained and that UPS will not pursue the transaction on any other basis.”

In March 2012, the parties announced the proposed transaction to “create a global leader in the logistics industry.” The parties had initially hoped to complete the acquisition by the end of 2012.

The EC disclosed in July 2012 that it had opened an in-depth investigation into the combination. At that time, the EC said that its preliminary investigation indicated potential competition concerns in the markets for small parcel delivery services, in particular international express services, in numerous member states, where the parties would have very high combined market shares.

The parties announced in October that they had received a statement of objections from the EC. The parties offered proposed remedies to resolve the EC's concerns regarding the competitive effects of the proposed merger on the international express small package market in Europe. Obviously, the commitments were not enough to resolve the antitrust concerns. The EC has until early February to issue its decision.

Monday, January 14, 2013

Joshua Wright Sworn in as FTC Commissioner

This posting was written by CCH Trade Regulation staff.

FTC Chairman Jon Leibowitz welcomed Joshua D. Wright as an FTC Commissioner at a swearing-in ceremony January 11. President Obama named Wright, a Republican, to a term that ends on September 25, 2019. He was unanimously confirmed by the U.S. Senate on January 1, 2013, and will replace J. Thomas Rosch, who served as a Commissioner beginning in January 2006.

Before joining the FTC, Wright was a Professor of Law at George Mason University School of Law. Wright previously served as the inaugural Scholar in Residence at the FTC Bureau of Competition, from January 2007 to July 2008. Prior to GMU, Wright taught at the Pepperdine University School of Public Policy and clerked for Judge James V. Selna of the U.S. District Court for the Central District of California.

He received a B.A. in Economics at the University of California, San Diego and a J.D. and a Ph.D. in Economics from the University of California, Los Angeles (UCLA), where he was Managing Editor of the UCLA Law Review. According to Truth on the Market blog, Wright would be the first J.D./Ph.D. to serve as an FTC Commissioner and only the fourth economist.

Tuesday, January 08, 2013

Dealer’s New Hampshire Law Claims Dismissed, Based on Contractual Choice of Maine Forum

This posting was written by John W. Arden.

A terminated snowplow dealer’s New Hampshire Equipment Dealership Act, Consumer Protection Act, and Antitrust Act claims against its manufacturer were dismissed without prejudice, based on a contractual choice of Maine forum, according to the federal district court in Concord, New Hampshire (Summa Humma Enterprises, LLC v. Fisher Engineering, January 3, 2013, McCafferty, L.)

Summa Humma Enterprises, a New Hampshire equipment dealer, entered into a “purchase and security agreement” with Fisher Engineering, a Maine-based snowplow manufacturer. The parties also executed a “terms of sale agreement.” The purchase and security agreement included a clause providing that the agreement shall be governed by Maine law and that the dealer consented to personal jurisdiction in the State of Maine. The terms of sale agreement included a provision in which the dealer irrevocably consented to the exclusive jurisdiction of the State of Maine for the resolution of any dispute concerning any products of the terms and conditions of sale.

After representing Fisher for four years, Summa Humma began promoting and selling an additional line of snowplows and related equipment manufactured by BOSS, one of Fischer’s competitors. On May 10, 2012, Fisher sent a letter informing Summa Humma of its intention to terminate the distribution relationship, effective September 10, 2012. The primary reason for termination was the belief that Summa Humma was not fully committed to the promotion and sale of Fisher products. It also cited the dealer’s allegedly unfavorable approach to conducting business with Fisher as a reason for termination.

Summa Humma brought this action for a declaratory judgment reinstating the dealership and claiming damages under New Hampshire Equipment Dealership Act, Consumer Protection Act, and Antitrust Act. The action was filed in New Hampshire Superior Court and removed to the federal district court in Concord. Fisher moved to dismiss the claims, arguing that Summa Humma was contractually obligated to litigate them in Maine. Summa Humma contended that (1) the forum selection clause was permissive, (2) the forum selection clause was not applicable to the claims in this case, and (3) public policy disfavored enforcement of the forum selection clause.

Forum Selection Clause

The magistrate judge held that the forum selection clause of the terms of sale agreement was mandatory rather than permissive. Rather than just consenting to the jurisdiction of the federal and state courts of Maine, the dealer irrevocably consented and submitted to the exclusive jurisdiction of the state and federal courts located in the State of Maine.

The questions remaining concerned the relationship between section 14 of the purchase and security agreement (voluntarily submitting to the jurisdiction of Maine courts) and section 13 of the terms of sale agreement (irrevocably submitting to the exclusive jurisdiction of the Maine courts). Summa Humma argued that the “permissive” forum selection clause of the purchase and security agreement conflicted with—and displaced—the mandatory forum selection clause of the terms of sale agreement. Fisher characterized the clauses as complementary rather than contradictory, allowing the enforcement of the forum selection clause of the terms of sale agreement without violating the purchase and security agreement.

The judge found Fisher’s argument more compelling, holding that the purchase and security agreement and the terms of sale agreement could be harmonized to avoid rendering any provision of either document meaningless. All parties agreed that the clause in the purchase and security agreement was permissive while the clause in the terms of sale agreement was mandatory, the court observed. But there was nothing in the dealer’s submitting to the exclusive jurisdiction of the state and federal courts of Maine in the terms of sale agreement that was inconsistent with its consenting to personal jurisdiction in the courts of Maine in the purchase and security agreement.

“Because the two forum selection clauses are not in conflict, the provision establishing that the P&S Agreement controls the Terms of Sale does not come into play,” the judge held. “Accordingly, there is nothing is the P&S Agreement to preclude the court from enforcing the forum-selection clause in the Terms of Sale.”

Applicability of Clause

Contrary to Summa Humma’s contention, the claims it asserted in this case did not fall outside of the reach of the terms of sale agreement’s forum selection clause. It argued that the purchase and security agreement governed the general relationship of the parties and that the terms of sales covered merely a subset of that relationship. “That position is somewhat difficult to square with [the dealer’s] well-supported legal argument that the two documents ‘are, in the eyes of the law, one legal instrument.’”

The court concluded that the parties entered into a single agreement for Summa Humma to purchase snowplows and accessories from Fisher, subject to the terms and conditions stated in the purchase and security and the terms of sale agreements.

Equipment Dealer Law

Summa Humma’s claim for a declaratory judgment reinstating the relationship of the parties under the New Hampshire Equipment Dealership Act was unavailing. Fisher argued that the wrongful termination claim under the Act had to be adjudicated in Maine because it concerned the terms and conditions of the agreements between the parties. Summa Humma contended that the claim related to the unlawful termination of the supplier-dealer relationship rather than the products or terms and conditions of the sale of the products.

The court found that Summa Humma offered “no convincing argument that a dispute over Fisher’s termination of the P&S agreement is not a dispute concerning the P&S Agreement.” By its express terms, the forum selection clause covers “any” dispute “concerning” the terms and conditions of Fisher’s sales to Summa Humma. The language was broad enough to cover the wrongful termination claim. Thus, the claim had to be adjudicated in Maine.

Consumer Protection Act, State Antitrust Act

Fisher contended that the New Hampshire Consumer Protection Act and Antitrust Act claims must be adjudicated in Maine because they concerned the termination of the agreement under which it sold equipment to Summa Humma. The court agreed for the same reasons as stated for the Equipment Dealer Law claim.

Since all state law claims fell within the scope of the forum selection clause in the terms of sale agreement, they were all subject to dismissal. The clause itself was enforceable, since such claims are prima facie valid and Summa Humma did not demonstrate any ground for finding it invalid.

While the Equipment Dealer Law expressed a strong public policy in favor of having arbitration proceedings take place in a city or county where a dealer is located, the law said nothing about the proper venue for litigation, according to the court. The legislature consciously chose not to include an anti-forum-selection provision in the law, the court found.

The court rejected the dealer’s citation to opinions from other jurisdictions holding that other state dealer laws expressed a strong public policy disfavoring forum selection clauses that require litigation in out-of-state courts.

Thus, Fisher’s motion to dismiss the claims was granted without prejudice to Summa Humma’s right to bring the claims in another forum in accordance with the forum selection clause in the terms of sale agreement.

Saturday, January 05, 2013

FTC Closes Investigation into Google's Search Business But Requires Commitments Regarding Standard Essential Patent Licensing

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

The FTC announced on January 3 that it has unanimously decided to close its investigation into alleged “search bias” by Internet search engine Google, Inc. without taking action after a 19-month investigation. At the same time, the agency released for public comment a proposed consent order with the company that would resolve a separate competition-related investigation into alleged misuse of patent protection (In the Matter of Motorola Mobility LLC, FTC File No. 121 0120).

“Today’s bipartisan Commission action brings to an end the Commission’s investigations of Google in a fashion calculated to bring the maximum relief to American consumers in a timely way,” said FTC Chairman Jon Leibowitz at a press conference announcing the agency's long-awaited decisions.

Search Bias Investigation

The Commission decided not to take action against Google under Sec. 5 of the FTC Act based on allegations that the company unfairly preferences its own content on the Google search results page and selectively demoted its competitors’ content from those results. Google is a “horizontal,” or general purpose, search engine, delivering a comprehensive list of results to any query, according to the FTC. Some vertical websites, which focus on narrowly defined categories of content such as shopping or travel and offer an alternative to Google for specific categories of searches, complained that Google unfairly promoted its own vertical properties through changes in its search results page. It also was alleged that Google manipulated its search algorithms in order to demote vertical websites that competed against Google’s own vertical properties.

The Commission's search bias investigation focused on whether Google's algorithm and design changes were aimed at excluding actual or potential competitors or were intended to improve the quality of its search results. “The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose,” the Commission explained in a closing statement. The evidence did “not support the allegation that Google’s display of its own vertical content at or near the top of its search results page was a product design change undertaken without a legitimate business justification.”

In a footnote, the Commission statement noted that the agency was concerned with two other practices allegedly engaged in by Google: (1) that Google unfairly “scraped,” or misappropriated, the content of competing websites, passed this content off as its own, and then threatened to delist these rivals entirely from Google’s search results when they protested the misappropriation of their content; and (2) that Google placed unreasonable restrictions on the ability of advertisers to simultaneously advertise on Google and competing search engines, or “multihome.” Google committed to refrain from this conduct in the future.

Google agreed to provide a mechanism to allow websites to opt out of being displayed in Google’s vertical search results but remain in Google’s organic search results to remedy allegations that it misappropriated, or “scraped,” the content of three rival websites that supply local information or shopping comparison services. Google also agreed to give online advertisers more flexibility to simultaneously manage ad campaigns on Google’s AdWords platform and on rival ad platforms.

In a separate statement, Commissioner J. Thomas Rosch concurred with the decision to close the search bias investigation but dissented from the Commission’s closing statement for two reasons: (1) the scraping and multihome practices do not violate the antitrust laws; and (2) the practices could be revived at any time without penalty, even if they constituted a law violation. “The Commission’s acceptance of a commitment letter to resolve an alleged violation of the antitrust laws is an unjustified and dangerous weakening of the Commission’s law enforcement authority,” Rosch noted.

Commissioner Maureen K. Ohlhausen said in her separate statement that she would have closed the investigation without imposing any remedy, no matter the form. She said that she saw no claim premised on the so-called “scraping” conduct or the terms and conditions related to Google’s AdWords application programming interface (API). “[T]here is no viable theory of harm…for bringing a case in these two areas,” Ohlhausen concluded.

Standard Essential Patents

The FTC also announced a proposed consent order with Google and its wholly-owned subsidiary Motorola Mobility LLC, resolving allegations that the companies engaged in unfair methods of competition and unfair acts or practices in violation of the FTC Act relating to the licensing of standard essential patents (SEPs) for cellular, video codec, and wireless LAN standards.

The Commission’s proposed complaint alleges that, after committing to license the SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms, Motorola sought injunctions and exclusion orders against willing licensees, undermining the procompetitive standard setting process. After purchasing Motorola for $12.5 billion in June 2012, Google allegedly continued Motorola’s anticompetitive behavior. The company pursued injunctions in federal district court and at the U.S. International Trade Commission (ITC) to block competing technology companies from using MMI standard-essential patents, according to the FTC.

Under the proposed consent order, Google has agreed to meet its prior commitments to allow competitors access—on FRAND terms—to patents on critical standardized technologies needed to make popular devices such as smart phones, laptop and tablet computers, and gaming consoles. Google would be prohibited from seeking injunctions against a willing licensee, either in federal court or at the ITC, to block the use of any SEPs that the company has previously committed to license on FRAND terms.

“We are especially glad to see that Google will live up to its commitments to license its standard-essential patents, which will ensure that companies willing to license these patents can compete in the market for wireless devices,” Leibowitz said. “This decision strengthens the standard-setting process that is at the heart of innovation in today’s technology markets.”

The Commission vote to accept the proposed consent order relating to standard essential patents for public comment was 4-1, with Commissioner Ohlhausen voting no, while the vote to issue the Commission statement in that matter was 3-0-2, with Commissioners Rosch and Ohlhausen abstaining.

In his separate statement, Commissioner Rosch said, among other things, that he did not agree with the complaint’s allegation or the majority’s assertion that an injunction enforcing SEPs would constitute “patent hold-up.”

Google Response

“The conclusion is clear: Google’s services are good for users and good for competition,” Google said in a January 3 post on its official blog, in response to the FTC's announcement. Google noted its two voluntary product changes: permitting websites to opt out of Google Search and remove content from specialized search results pages, such as local, travel and shopping; and permitting advertisers to export their ad campaigns from Google AdWords and to mix and copy ad campaign data within third-party services that use its AdWords API. “[W]e made clear when the FTC started its investigation, we’ve always been open to improvements that would create a better experience,” the company said.

Thursday, January 03, 2013

Baer Confirmed by Senate to Serve as Antitrust Chief

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

The U.S. Senate on December 30, 2012, confirmed William Baer to serve as Assistant Attorney General in charge of the Department of Justice Antitrust Division. The vote was 64 to 26.

Baer was nominated by the President on February 6. His nomination was reported by the Senate Judiciary Committee on September 20.

“Bill is a highly-skilled and well-respected antitrust lawyer who understands the importance of promoting competition in order for consumers to reap the benefits of lower prices and better quality products and services,” said Attorney General Holder in a December 30 statement welcoming the confirmation. “I have no doubt that he will lead the Antitrust Division effectively in its vigorous enforcement of the antitrust laws.”

Recently, Baer has headed the antitrust group at the Washington, D.C. office of Arnold & Porter, LLP. Baer held a number of high-level positions at the FTC, including a stint as Director of the agency's Bureau of Competition in the 1990s. After earning a J.D. at Stanford Law School, Baer began his legal career in 1975 as a trial attorney for the FTC Bureau of Consumer Protection.

Baer takes the helm from Renata B. Hesse, who was appointed Acting Assistant Attorney General for the Antitrust Division in November 2012.