Monday, March 25, 2013

Law School May Be Liable For Misrepresenting Employment Statistics

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

Law school alumni stated New Jersey and Delaware Consumer Fraud Act claims against an American Bar Association (“ABA”) accredited law school for misrepresenting its graduate employment rates, according to the federal district court in Newark (Harnish v. Widener University School of Law, March 2013, Walls, W.).

After having problems obtaining employment, the alumni alleged that the law school posted on its website and disseminated to third-party law school evaluators misleading and incomplete graduate employment rates in violation of consumer protection statutes. Specifically, the alumni claimed that the employment statistics were misleading because the school failed to disclose that its placement rate included full and part time legal, law-related and non-legal positions. Alumni that were not looking for work were not counted.

The alumni stated New Jersey Consumer Fraud Act (NJCFA) claims against the law school, according to the court. The NJCFA allows for claims based on advertisements that are literally, but still misleading to the average consumer. The function of the website was to persuade students to attend the school in order to receive a legal degree. A reasonable viewer of the employment statistics on the school’s website could believe that the employment statistics referred to legal jobs and did not include non law-related or part-time employment. The court differentiated this case from similar cases against other law schools in Michigan and New York that held that reasonable consumers would believe the employment statistic included all employed graduates, not just those who obtained or started full-time legal positions. While the thread of plausibility may be slight, it was still a thread, according to the court.

The claims based on alleged omissions were plausible, according to the court. The alumni alleged that the law school engaged in a pattern and practice of knowingly and intentionally making numerous false representations and omissions of material facts, with the intent to deceive and fraudulently induce reliance. The employment rate was misleading because the law school failed to include notice that the employment rate refers to all types of employment, that it did not specifically refer to law-related employment, and that the rate may have been inflated by selectively disregarding employment data.

The court found that the alumni suffered an ascertainable loss. To demonstrate a loss, a victim must simply supply an estimate of damages, calculated within a reasonable degree of certainty. The injury alleged was the difference between the inflated tuition paid based on the material representations that approximately 90-95 percent of graduates are employed within nine months of graduation and the true value of a degree. The injury was proximately caused by the law school.

The facts supporting the NJCFA also supported claims under the Delaware Consumer Fraud Act.

Monday, March 18, 2013

Publisher Could Not Base False Advertising Action on Newspaper’s Inflated Circulation Claims

This posting was written by John W. Arden.

A newspaper’s inflated circulation claims could not form the basis of a Lanham Act false advertising action brought by the publisher of a free television guide because the publisher did not begin soliciting advertisers until after the newspaper publicly acknowledged its misstatements and revised its circulation claims and because the inflated circulation figures were not part of a commercial campaign, according to the federal district court in Central Islip, New York (Conte v. Newsday, Inc., March 13, 2013, Bianco, J.).

Background. In December 2003, Anthony Conte founded I Media, which published and distributed TV Time Magazine, a free, weekly television listings publication containing articles and features relating to television, as well as crossword puzzles, cartoons, and word games. I Media was financed in large part through the sale of delivery routes to independent distributors. TV Time was published from November 2004 through May 2005.

In the summer of 2004, Conte learned, from a story on the Internet, that Newsday newspaper had misstated its circulation figures for 2002 and 2003. The newspaper issued a press release to that effect on June 17, 2004. The newspaper’s parent, Tribune Publishing, announced the revision of Newsday’s circulation figures for 2003 and 2004 on September 10, 2004. It also sent a letter informing Newsday’s advertisers of the revised figures.

Conte spoke with potential clients about paying to advertise in TV Time only after the date that he learned about Newsday’s circulation misstatements, sometime in February or March of 2005, the court found. However, he claimed to have spoken with a long list of potential clients about advertising in TV Time throughout 2003 and 2004, before he learned of the circulation misstatements.

Newsday had its own television-related publication, called TV Picks, which was published as a stand-alone magazine and distributed inside the Sunday editions of Newsday. In February 2004, Newsday started to include TV Picks in the pages of the newspaper, but later that spring resumed printing it as a stand-alone magazine.

In late May or June of 2005, some of Conte’s route distributors allegedly contacted Newsday reporter Mark Harrington, who researched and wrote stories about Conte. Newsday editors and executives testified that they did not authorize or instruct Harrington to conduct the investigation. On August 2, 2005, thirty-three route distributors filed a class action in Nassau County, alleging that I Media was a scheme perpetrated by Conte to defraud them of the money they paid for their delivery routes. Harrington received a copy of the distributors’ complaint and published an article about Conte in Newsday on September 7, 2005, along with a follow up on September 14, 2005.

In September 2006, Conte brought this action, claiming that Newsday and Conte’s distributors violated federal RICO, the Lanham Act, the Sherman Act, and the Electronic Privacy Act and committed various state law torts in attempting to monopolize and dominate the print advertising sales and pre-printed, free standing insert distribution sales markets on Long Island. The court dismissed the RICO, Sherman Act, and Electronic Privacy Act claims, as well as some state law claims in March 2010. In March 2012, the Newsday defendants filed a motion for summary judgment with respect to the Lanham Act claims.

Lanham Act False Advertising Claims

Conte had alleged that Newsday’s inflated circulation figures constituted false advertising in violation of Section 43(a) of the Lanham Act, inducing advertisers to purchase space from Newsday rather than TV Time and causing a direct loss of print advertising and insert distribution service sales. The court, however, granted Newsday’s motion for summary judgment, holding that (1) Conte lacked standing to bring the Section 43(a) claims and (2) the report of the inflated circulation figures was not commercial advertising, promotion, or commercial speech under the Lanham Act.

Section 43(a) of the Lanham Act prohibits false representations in advertising about the qualities of goods and services. To establish a false advertising claim, a plaintiff must prove that (1) the defendant made a false or misleading statement, (2) the false or misleading statement actually deceived or had the capacity to deceive a substantial portion of the intended audience, (3) the deception was material as likely to influence purchasing decisions, (4) there was a likelihood of injury to the plaintiff, such as declining sales or loss of goodwill, and (5) the goods traveled in interstate commerce.

The court noted that it was undisputed that a false or misleading statement was made by Newsday and that the inflated circulation figures were operating in the marketplace until June 17, 2004, when Newsday publicly reported that the figures were incorrect.

Standing to sue. The uncontroverted evidence indicated that I Media’s TV Time and Newsday’s TV Picks were not in competition during the period when Newsday’s inflated circulation figures were operative in the marketplace—that is, prior to June 17, 2004. Conte had not yet released TV Time to the public. Because Conte’s TV Time was not obviously in competition with Newsday’s products during the period when Newsday misstated its circulation figures, Conte was required to make a more substantial showing of injury and causation to establish standing to bring a false advertising action. While Conte’s stated injury related to his advertising efforts, the uncontroverted evidence showed that Newsday’s circulation-related misstatements were retracted before Conte started to actively solicit advertisers for TV Time.

A further claim that the inflated circulation figures were in effect during a time when Conte attempted to solicit advertisers for TV Week, a prior publication, was unavailing on the ground that Conte failed to establish a likelihood of injury and causation.

Deceptive advertising. Conte’s deceptive advertising claim—alleging that the Newsday defendants repeatedly disseminated false material statements about its business, goodwill, and reputation—failed on the ground that there was no evidence that the Newsday defendants misrepresented Conte’s goods as part of a commercial campaign. Section 43(a) of the Lanham Act imposes liability on any person who misrepresents the nature, characteristics, qualities, or geographic origin of another person’s goods or services in commercial advertising or promotion. To be actionable, the misrepresentation must occur in “commercial advertising or promotion.”

In this case, Harrington’s articles could not give rise to a Lanham Act deceptive advertising claim, since articles published by journalists are not considered “commercial advertising, commercial promotion, or commercial speech.” Such articles are traditionally granted full protection under the First Amendment, the court observed.

To survive summary judgment, Conte was required to produce sufficient evidence for a reasonable jury to conclude that the Newsday defendants made other allegedly false statements as part of an organized campaign to penetrate the market. However, he failed to identify any concrete, allegedly deceptive statements about his product or commercial activities. Even assuming that there was evidence that Newsday employees or agents made deceptive statements about Conte or his company, no rational juror could conclude that the statements were made as part of an organized campaign to penetrate the relevant market, the court concluded.

Conte’s further claim that Newsday committed trade dress infringement was rejected on a finding that TV Time’s trade dress—consisting of “a glossy paper cover,” particular fonts and font sizes, and an advertising footer—was not worthy of protection.

Thursday, March 14, 2013

New York City’s Restriction on Size of Sugary Drinks Held Unconstitutional

This posting was written by John W. Arden.

In adopting a health regulation limiting the sale of “sugary drinks” to containers no larger than 16 ounces, the New York Board of Health unconstitutionally overstepped its authority under the New York City Charter, according to the New York Supreme Court, New York County (New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, March 11, 2013, Tingling, M.). Only the New York City Council has the authority to limit or ban a legal item under the guise of “controlling chronic disease,” as the Board attempted to do in this regulation.

In addition, the regulation was invalidated for being arbitrary and capricious because it covered some food establishments but not others, excluded some beverages that have higher concentrations of sugar and calories than those regulated, and did not limit refills.

A large number of seemingly disparate parties brought a challenge to the “Portion Cap” regulation—from the Korean-American Grocers Association and the National Restaurant Association to the Soft Drink and Brewery Workers Union and the American Beverage Association. They were granted an order enjoining and permanently restraining the Board of Health and other administrative agencies from implementing or enforcing §81.53 of the new York Health Code and declaring the regulation unconstitutional in violation of the separation of power doctrine.

Background. According to the New York City Charter, the Board of Health may supervise and regulate the food supply of the city when it affects public health, but only when the city is facing imminent danger due to disease, the court ruled. Such a danger was not demonstrated in this case.

Dating back to its inception in 1698, the Board of Health has had very broad powers under the New York City Charter. However, in reviewing the history of the Charter, the intention of the legislature was clear: “It is to protect the citizens of the city by providing regulations that prevent and protect against communicable, infectious, and pestilent diseases.”

The Board may supervise and regulate the food supply of the city when it affects public health, but the Charter’s history clearly illustrates that such steps may be taken only when the city is facing imminent danger due to disease.

Separation of powers. While the Board contended that it was protected by the state constitution from the impact of any separation of powers challenge, the court disagreed. “One of the fundamental tenets of democratic governance here in New York, as well as throughout the nation, is the separation of powers. No one person, agency, department or branch is above or beyond this.” Even if the court were to entertain the position that the state legislature meant to provide a broad delegation of power to the Board, such a delegation would not pass muster under the separation of powers doctrine, the court concluded.

The seminal case in the area—Boreali v. Axelrod, 71 N.Y.2d 1 (1987)—involved the New York Public Health Council’s adoption of an ordinance banning indoor smoking in certain establishments after the state legislature had failed to pass a similar smoking ban. The legislature had already passed a measure imposing smoking restrictions in a narrow class of public locations, but the Public Health Council argued that the legislature did not preempt the field with regulation. The Court of Appeals found that the Public Health Council had entered the domain of the legislature and exceed its administrative mandates and authority.

The court in the present case applied the four Boreali factors: (1) whether the challenged regulation was based on concerns not related to the stated purpose of the regulation, such as economic, political, or social concerns; (2) whether the regulation was created on a clean slate, thereby creating its own comprehensive set of rules without the benefit of legislative guidance; (3) whether the regulation intruded on ongoing legislative debate; and (4) whether the regulation required the exercise of expertise or technical competence on behalf of the body passing the legislation.

With regard to the first factor, the court found that the regulation was “laden with exceptions based on economic and political concerns.” These included retail food stores, food processing establishments, and congregations, clubs, or fraternal organizations. The rule failed the second factor because the Board of Health was not granted the sweeping and unbridled authority to define, create, authorize, mandate, or enforce the regulation at issue. The third factor—whether the regulation intruded on legislative debate—was satisfied by the City Council’s rejection of three resolutions specifically targeting sugar sweetened beverages and the state legislature’s failure to pass three bills on the subject. Under the fourth factor, the regulation was a simple rule that was proposed by the mayor’s office and adopted by the Board without any substantive changes. Thus, the court held that the Board of Health exceeded its authority under Boreali v. Axelrod.

Arbitrary and capricious rule. The regulation was further challenged under Article 78 of the New York Code of Civil Practice Laws and Rules. An administrative regulation is upheld under this Article only if it has a rational basis and is not unreasonable, arbitrary, and capricious. In this case, the court found the regulation “fraught with arbitrary and capricious consequences,” with loopholes effectively defeating its stated purpose.

“It is arbitrary and capricious because it applies to some but not all food establishments in the City, it excludes other beverages that have significantly higher concentrations of sugar sweeteners and/or calories on suspect grounds, and the loopholes inherent in the Rule, including but not limited to no limitations on refills, defeat and/or serve to gut the purpose of the Rule,” the court observed.

Wednesday, March 13, 2013

T-Mobile/MetroPCS Merger Receives Regulatory Approval

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

The combination of T-Mobile USA Inc. and MetroPCS Communications Inc. has been approved by both the Federal Communications Commission (FCC) and the Department of Justice Antitrust Division without divestitures or similar conditions. Today, the FCC released its Memorandum Opinion and Order, finding the transaction to be in the public interest. The Antitrust Division also issued a statement, saying that it had closed its investigation after concluding that the combination was unlikely to harm consumers or substantially lessen competition.

T-Mobile is one of four nationwide providers of mobile wireless services. The three others are AT&T, Verizon, and Sprint.

MetroPCS is the fifth-largest mobile wireless telecommunications provider in the United States; however, it provides services in only certain regions of the country. Each of the markets served by MetroPCS is also served by all four of the national carriers.

Last October, Deutsche Telekom, parent of T-Mobile, and MetroPCS announced that they had signed a definitive agreement to combine T-Mobile and MetroPCS. The parties said the transaction would “create the leading value carrier in the U.S. wireless marketplace.”

The announcement of the T-Mobile/MetroPCS deal came less than a year after plans for AT&T Inc. to acquire T-Mobile from Deutsche Telekom were abandoned in the face of a Justice Department challenge. The FCC staff also had concluded that the AT&T/T-Mobile transaction raised a number of potential public interest harms.

Regulators quickly approved this latest deal. The parties announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on March 5. The wireless license transfer between T-Mobile and MetroPCS was approved before the expiration of the FCC's180-day deadline.

In its statement announcing the closure of its investigation, the Antitrust Division said that it considered whether the proposed combination might tend to lessen competition substantially in any particular local area, for instance by combining the two carriers with the best local coverage. However, it decided that the deal was not likely to lessen competition substantially at local levels.

The Justice Department also noted that many dimensions of competition in the mobile wireless industry take place at a national level, including plan pricing, device offerings, and network technology. “Like many local and regional providers, MetroPCS faces limitations, stemming from its lack of nationwide spectrum, networks and scale, and therefore exerts little influence on these aspects of mobile wireless competition,” the Justice Department said.

The Justice Department went on to say that the proposed combination of T-Mobile and MetroPCS might have a procompetitive impact in that it would improve T-Mobile’s scale and spectrum position, particularly since MetroPCS’s spectrum holdings are compatible with T-Mobile’s existing network. In any event, the Justice Department pledged to continue monitoring competition in the mobile wireless industry and to bring enforcement actions where warranted.

FCC Chairman Julius Genachowski said the agency's approval of the transaction “will benefit millions of American consumers and help the U.S maintain the global leadership in mobile it has regained in recent years.”

In a statement, T-Mobile President and CEO John Legere said that the company “look[s] forward to completing the transaction and delivering the significant customer and stockholder benefits that this combination will make possible.” A special meeting of MetroPCS stockholders to vote on matters relating to the proposed combination is set for April 12.

Friday, March 08, 2013

European Commission Fines Microsoft for Noncompliance with Browser Choice Commitments

This posting was written by William Zale, contributor to Antitrust Law Daily.

The European Commission announced on March 6 that it has imposed a €561 million fine on Microsoft for failing to comply with its commitments to offer users a browser choice screen enabling them to easily choose their preferred web browser.

In statement issued today, Microsoft said, “We take full responsibility for the technical error that caused this problem and have apologized for it. We provided the Commission with a complete and candid assessment of the situation, and we have taken steps to strengthen our software development and other processes to help avoid this mistake—or anything similar—in the future.”

In 2009, the Commission had made Microsoft’s browser choice commitments legally binding until 2014. The Commission found that Microsoft failed to roll out the browser choice screen with its Windows 7 Service Pack 1 from May 2011 until July 2012. 15 million Windows users in the EU did not see the choice screen during this period.

Until November 2010, 84 million browsers were downloaded through the choice screen, according to the Commission. When the failure to comply was detected and documented in July 2012, the Commission opened an investigation and, before taking a decision, notified to Microsoft its formal objections in October 2012.

Under Article 9 of the EU’s Antitrust Regulation, the Commission may conclude an antitrust investigation by making legally binding the commitments offered by the companies concerned. Such an Article 9 decision does not conclude that there is an infringement of EU antitrust rules and does not impose a sanction. However, it legally binds the companies concerned to comply with the commitments. If a company breaks such commitments, Article 23(2) of the Antitrust Regulation empowers the Commission to impose fines of up to 10% of its total turnover in the preceding business year.

Thursday, March 07, 2013

Supreme Court Considers Enforceability of Arbitration Clause’s Class Action Waiver in Antitrust Case

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

The U.S. Supreme Court heard arguments yesterday regarding whether merchants alleging an antitrust violation by American Express Company are able to vindicate their rights under the Sherman Act if they are required to pursue individual arbitration. The Supreme Court Justices appeared divided on the issue, and a unanimous decision like the Court’s recent holding in FTC v. Phoebe Putney Health System, Inc. appears unlikely (American Express Co. v. Italian Colors Restaurant, Dkt. 12-133).

At issue is a decision of the U.S. Court of Appeals in New York City (667 F.3d 204, 2012-2 Trade Cases ¶78,125), holding unenforceable a class action waiver contained in the mandatory arbitration clause of their commercial contracts with American Express. American Express had invoked the clause in response to a lawsuit by the merchants challenging a purported illegal tying arrangement requiring merchants who accepted American Express’s charge card to also accept all of American Express’s credit cards. The Court granted the petition for certiorari on November 9, 2012.

Complaining merchants had argued that the arbitration agreement would prevent them from pursuing their Sherman Act claims against American Express because they would have to pay prohibitively high costs to engage in individual arbitration when compared to their possible recoveries. It was estimated that an expert could cost as much as $300,000.

“The holding of the court of appeals is the arbitration agreement cannot be enforced because it has a class action waiver,” said Michael K. Kellogg, arguing on behalf of American Express at the February 27 proceeding. “That is clearly reversible error.”

Kellogg objected to the idea of federal district courts conducting a “free-floating inquiry . . . into the costs and benefits of each case” when determining whether to refer cases to arbitration. “The arbitrator in the first instance can deal with how to cost effectively arbitrate the claims in issue,” he added.

According to Paul D. Clement, who argued for the merchants, the problem with the arbitration agreement is that it precludes the antitrust claim from going forward. “Here it's a combination of no class arbitration, no way to shift costs, because they don't provide cost shifting, and no way to share costs because of the confidentiality,” Clement contended.

Justice Elena Kagan appeared to sympathize with the merchants. She noted that potential claimants need economic evidence to help them prove their claims. “[I]t is, of course, true in the real world that to prove a successful antitrust claim, you need economic evidence,” Justice Kagan said.

Clement pointed out that Professor Herb Hovenkamp, in a friend-of-the court brief, said that claimants, in arbitration or litigation, need a market power expert to make their antitrust case. According to Clement, it would be too costly for a single merchant to hire such an expert in individual arbitration and to effectively vindicate its claim.

Chief Justice John Roberts questioned whether the arbitration agreements permitted or prohibited the complaining merchants from pooling resources to get the expert advice they needed. He pondered whether the merchants could get together through a trade association and prepare an antitrust expert report about what American Express was doing.

“Our position is that multiple claimants in arbitration could share the costs of an expert for preparation of a report,” said Kellogg in response.

Justice Antonin Scalia suggested that the merchants faced with arbitrating their antitrust claims individually would be in the same position as plaintiffs were before class actions were permissible.

“I don't see how a Federal statute is frustrated or is unable to be vindicated if it's too expensive to bring a Federal suit,” Justice Scalia said. “That happened for years before there was such a thing as class action in Federal courts. Nobody thought the Sherman Act was a dead letter, that it couldn't be vindicated.”

“If you couldn't do it in court, you don't have to be able to do it in arbitration, it seems to me,” Justice Scalia said.

Justice Ruth Bader Ginsburg pointed out, however, that “even in the days before we had Rule 23, when you were bringing a suit in Federal court you could have multiple plaintiffs joining together.” Under the arbitration agreement at issue, the arbitration needed to be one on one. Joinder mechanisms were prohibited.

Attorneys: Michael K. Kellogg (Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC) for American Express Co. Paul D. Clement (Bancroft PLLC) for Italian Colors Restaurant.