Fashion Brand Group to Pay $550,000 for Alleged HSR Act Violation

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

Iconix Brand Group—owner of a diverse portfolio of fashion brands, such as Candie's and London Fog—has agreed to pay $550,000 in civil penalties to settle charges that it violated pre-merger notification requirements of the Hart-Scott-Rodino (HSR) Act of 1976 when it acquired hip-hop apparel company Rocawear.

According to the Department of Justice Antitrust Division, Iconix failed to submit to the antitrust enforcement agencies certain company documents with its pre-merger notification filing. The acquisition closed in April 2007.

Filing Requirements under HSR Act

In addition to imposing notification and waiting period requirements on large acquisitions, the HSR Act requires that parties to a large acquisition supply certain documents prepared or reviewed by the company’s officers and directors in connection with their evaluation or analysis of the proposed transaction.

Iconix submitted no such documents, despite the existence of such documents, including a formal presentation made to its Board of Directors about the transaction and a less formal e-mail among officers and directors, the Antitrust Division alleged. In addition, when initially asked to review whether such documents existed, the company allegedly reaffirmed that no such documents existed.

Compliance “Fundamental”

“Compliance with Hart-Scott-Rodino Act filing obligations is fundamental to the agencies’ ability quickly and accurately to evaluate a transaction’s competitive impact,” said Thomas O. Barnett, Assistant Attorney General of the Antitrust Division. “Filing parties must understand that the Division will vigorously enforce filing requirements even if we conclude that the transaction poses no threat to competition or consumers.”

The Antitrust Division filed the complaint in the federal district court in Washington, D.C., against Iconix on October 15. At the same time, it filed a proposed settlement that, if approved by the court, will settle the charges.

An October 15 news release on this development appears on the U.S. Justice Department web site.

Iconix Brand Group, based in New York City, owns fashion brands that serve retail distribution segments from the luxury market to the mass market. It “licenses its brands to leading retailers and manufacturers worldwide and specializes in marketing its portfolio of brands with innovative and creative advertising,” according to the company.

“Robust” Forum on Franchising Celebrates 30th Annual Meeting

This posting was written by John W. Arden.

The American Bar Association Forum on Franchising celebrated its 30th annual meeting on October 10-12 in Phoenix, with a record number of attendees.

Speaking before a group of approximately 850 on October 12, Forum chair Jack Dunham gave a very positive “State of the Forum” address.

“The State of the Forum is, in every way, robust,” said Dunham, a partner with the law firm of Wiggin and Dana.

An example of the group's success is the remarkable turnout at the annual meeting of 850 out of 2,100 Forum members (excluding student-members), he observed.

“No other part of the ABA comes close to the high percentage of Forum members who come, year in and year out,” according to Dunham.

The “threads” that connect the membership include (1) the extremely welcoming and collegial nature of the group “that knows how to have a good time” and (2) the dedication to “high standards of scholarship and craft” in its meetings and publications.

The group is in excellent financial shape, due to the efforts of Charles S. Modell, the Forum’s financial chief, Dunham said. The chair paid tribute to three outgoing members of the governing board (Phyllis Alden Truby, outgoing immediate past chair Steven M. Goldman, and immediate past chair Dennis E. Wieczorek), as well as ABA Forum director Kelly Rodenberg and meeting co-chairs Harris Chernow and Leslie Smith-Porter.

In a short business meeting, the membership voted in three new members of the governing committee: Kerry L. Bundy, Kathryn Kotel, and Ms. Smith-Porter.

The Forum will hold its 31st annual meeting on October 15-17, 2008 in Austin, Texas. Further information about the ABA Forum on Franchising is available from the group's web site.

Antitrust Division Web Site Touts Benefits of Competition for Real Estate Industry

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

Over the last few years, the federal antitrust agencies have kept a close watch on competition in the real estate market. In October 2005, the Department of Justice Antitrust Division and the FTC hosted a joint workshop to debate some of the issues. And, in July 2006, representatives from the agencies testified at a House subcommittee hearing about their advocacy efforts and enforcement actions in the industry.

Now, the Department of Justice Antitrust Division has launched a Web site aimed at educating consumers, policymakers, and the real estate industry about the benefits of competition. According to Thomas O. Barnett, Assistant Attorney General in charge of the Antitrust Division, the “Web site will help consumers and policymakers understand the benefits of increased competition among real estate agents."

The Web site, which was launched on October 10, includes maps identifying states with real estate laws that can inhibit competition, a calculator to help consumers tally their potential savings when brokers pursuing new business models compete for their business, and links to additional government resources.

State Restrictions

Some states have passed laws making it illegal for brokers to offer rebates or requiring them to offer a full package of traditional services regardless whether all consumers want them, according to the Antitrust Division. The Web site contains data showing that if these sorts of barriers to competition were eliminated, consumers could save thousands of dollars in real estate commissions when selling one home and buying another.

The Antitrust Division identifies 12 states that forbid buyers’ brokers from rebating a portion of the sales commission to the consumer and eight that states require consumers to buy more services from sellers’ brokers than they may want, with no option to waive the extra items.

The Web site address is: http://www.usdoj.gov/atr/public/real_estate/index.htm.

State of Illinois Was a RICO Enterprise in U.S. Action Against Former Governor

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

A sovereign state was considered a legal entity and, therefore, could be an enterprise under the RICO statute, according to the U.S. Court of Appeals in Chicago. Improprieties in awarding four leases and three contracts formed the basis of the RICO and mail fraud counts against former Illinois Governor George Ryan and state employee, Lawrence Warner, as the leases and contracts were steered improperly to entities controlled by Warner. The result was hundreds of thousands of dollars in benefits to Ryan and Warner.

The legislative history of the RICO statute was silent as to whether public entities, such as governments and states, may be considered an enterprise for purposes of RICO liability. The governor of Illinois and the state employee engaged in racketeering activity by depriving the state of proceeds by misusing state resources for their personal gain. The federal government's indictment identified the RICO enterprise, which consisted of Ryan and Warner engaging in acts of extortion, mail fraud, money laundering, and obstruction of justice.

In determining whether an enterprise should be construed to include public entities, the court observed that the definition of an "enterprise" in Sec. 1961(4) did not differentiate between public and private individuals or entities, and emphasized that the congressional statement of purpose and findings in the statute denounced racketeering activities because they subvert the democratic process. To the extent that an enterprise is merely the vehicle through which defendants conduct allegedly illegal activity, a major purpose of the RICO statute was to protect legitimate enterprises by attacking and removing those who had infiltrated them for unlawful purposes. The government provided sufficient evidence that Ryan and Warner infiltrated legitimate state government and defrauded the citizens of the state of Illinois.

The September 6, 2007, decision in U.S. v. Lawrence E. Warner, et al., No. 06-3517, will appear in the CCH RICO Business Disputes Guide.

FTC Brings First Action Resulting from Information-Sharing Powers Under U.S. SAFE WEB Act

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

The FTC has filed an action in the federal district court in Chicago seeking to block alleged spam containing false and unsubstantiated claims for hoodia weight-loss products and human growth hormone anti-aging products. The defendants--a marketing company and the company’s principals, as well as a Web site operator--were also charged with violating the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act). The case might sound like a routine FTC enforcement action; however, what makes this case of particular interest is the fact that it is the first action brought by the agency using the U.S. SAFE WEB Act to share information with foreign partners.

Neither the FTC complaint nor the corresponding press release provided detail on the information shared; however the FTC release said that the international enterprise, with defendants in the United States, Canada, and Australia, used spammers to drive traffic to Web sites selling two kinds of pills—one that was supposed to contain hoodia gordonii and cause significant weight loss—and another that was supposed to be a “natural human growth hormone enhancer” that would dramatically reverse the aging process. The FTC’s spam database received over 175,000 spam messages sent on behalf of the operation, according to the agency.

The agency also contends that the defendants violated the CAN-SPAM Act by initiating commercial e-mails that contained false “from” addresses and deceptive subject lines and failing to provide an opt-out link or physical postal address.

U.S. SAFE WEB Act

The U.S. SAFE WEB Act, which was signed into law on December 22, 2006, made a number of amendments and additions to the FTC Act in order to assist the agency in fighting illegal spam, spyware, and cross-border fraud and deception. It allows the FTC to share confidential information and investigative resources with foreign law enforcement officials in consumer protection cases. It confirms the FTC's remedial authority in cross-border cases on behalf of U.S. victims.

LAP-CNSA Meeting

FTC Chair Deborah Platt Majoras announced the action at an international meeting of government authorities and private industry about spam, spyware, and other online threats, held on October 10 in Arlington, Virginia. The meeting was the first time members of the London Action Plan (LAP) and the European Union’s Contact Network of Spam Authorities (CNSA) have come together in the United States. The LAP, created in 2004, is a global network of industry representatives and law enforcement agencies involved in the fight against spam, phishing, and other online threats. The CNSA, which the European Commission created in the same year, is a network of spam enforcement authorities from EU Member States.


Details of Federal Trade Commission v. Spear Systems, Inc., et al., Civil Action No.: 07C-5597; FTC File No.: 072-3050, appear on the FTC’s Web site.

California Tobacco Statutes Withstand Antitrust Attack

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

The State of California’s participation in the multi-billion dollar Master Settlement Agreement (MSA) of the national tobacco litigation and enactment and enforcement of California statutes implementing the MSA did not implicate federal antitrust law, the U.S. Court of Appeals in San Francisco has ruled.

The MSA and implementation statutes were not preempted by the Sherman Act, and the state and four major tobacco manufacturers that were parties to the MSA were immune from any antitrust liability stemming from the MSA or implementation statutes, the court decided.

Thus, dismissal of a cigarette purchaser’s putative class action antitrust claims against the state and tobacco manufacturers (2005-1 Trade Cases ¶74,753) was affirmed.

Output Cartel, Price Fixing Scheme

The complaining smoker alleged that the state and tobacco manufacturers had created a per se illegal output cartel and price fixing scheme through their execution of the MSA and the enactment and enforcement of the two state statutes—the “Qualifying Act” and the “Contraband Amendments.”

These laws were allegedly designed to protect the MSA’s anticompetitive provisions by (1) requiring tobacco manufacturers to become participants in the settlement or to pay a percentage of their sales to the participant and (2) authorizing the attorney general to bar noncompliant manufacturers from selling cigarettes in the state. As a result of this regulatory structure, prices “skyrocketed,” the smoker alleged.

Federal Preemption

Stating that the MSA and California statutes were not subject to preemption, the appellate court explained that, although the settlement and implementing statutes arguably created an output cartel, they did not explicitly permit tobacco manufacturers to fix prices, limit output, divide markets, or engage in any other per se illegal monopolistic behavior.

The settlement and implementing statutes did not create such high barriers to market entry and to the ability to price-compete that they placed irresistible pressure on all tobacco manufacturers to fix prices. Even though the statutes did place some pressure on new-entrant tobacco manufacturers to charge higher prices and dissuaded some potential market entrants, nothing in the laws forced those companies either to peg their prices to those of participating manufacturers or to refrain from entering the market. In fact, the new entrant could compete on price by charging a normal price.

State Action Immunity

Even if the smoker had adequately pleaded an antitrust violation, the State of California was immune from antitrust liability under the state action doctrine, the court noted. The settlement, as a sovereign act of the State of California, clearly constituted direct state action. Since the statutes were direct legislative activity resulting from the MSA, they too constituted direct state action. The state was not required to show clear articulation of state policy and active supervision, as required for state action immunity to apply to private actors.

Noerr-Pennington Immunity

The tobacco manufacturers were immune under the Noerr-Pennington doctrine from claims that they violated antitrust laws by negotiating and then operating under the provisions of the MSA and the statutes, the court ruled. The Noerr-Pennington doctrine protects from antitrust liability those who petition the government in order to secure or amend their rights. The act of negotiating a settlement with the state undoubtedly was a form of speech direct at a government entity.

The decision is Sanders v. Brown, No. 05-15676, filed September 26, 2007, 1997-2 Trade Cases ¶75,888.

Lost Future Royalties vs. Liquidated Damages in Franchise Termination Cases

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

In the recent case of Radisson Hotels v. Majestic Towers (CCH Business Franchise Guide ¶13,680, C.D. Cal., 2007), the franchisee was terminated for failure to pay royalties. The franchisor brought suit "seeking the recovery of (1) past due fees, (2) liquidated damages, and (3) attorneys' fees." The court granted "summary adjudication on the issue of past due fees and liquidated damages." There was no claim for lost future royalties, and the issue was not adjudicated by the court.

But the franchise agreement's liquidated damages clause allowed the franchisor to recover two times the royalties paid during the prior year, because the franchisor alleged that it took them, on average, two years to find a replacement franchisee.

Authorization of Future Lost Royalties

From that reference, it has been argued by many in the franchise bar that, since the decision strongly disagreed with Postal Instant Press v. Sealy (CCH Business Franchise Guide ¶10,893, Cal. Ct. App. 1996), claims for future lost royalties will now be more readily entertained.

The court in Sealy had held that (1) the franchisor's election to terminate the franchise agreement, not the franchisee's failure to pay royalties, was the proximate cause of the franchisor's lost future profits and (2) an award of lost future royalties or advertising fees to the franchisor would be unreasonable, unconscionable, and oppressive, providing the franchisor with disproportionate compensation for the franchisee's breach.

Allowing franchisors to recover lost future profits in such circumstances would improperly enable them to terminate franchise agreements upon the first material breach by the franchisees and then collect all the royalty payments they allegedly would have received from those franchisees over the course of the franchise relationship, the Sealy court reasoned.

“Mistaken” Decision

Those arguing that California courts will recognize claims for lost future royalties rely on the language in Radisson that, "this Court believes that the Sealy decision is mistaken . . . In this Court's view, the Sealy court's holding that a franchisor has no remedy but to sue the franchisee over and over again as lost royalties accrue is simply untenable."

Radisson was decided by a federal district court, which noted that it was bound only by decisions of California's highest court --and that the Sealy court was merely an intermediate appellate court.

However, this author believes expansive interpretations of Radisson may be wishful. The criticism of Sealy is clearly dicta and, in fact, is merely footnote dicta. It is not even in the body of the opinion but rather comes in footnote 10. It is only part of the discussion of a claimed defense against the liquidated damages clause in the nature of "causation."

Upholding of Liquidated Damages Claim

As noted, there was not even a claim in the Radisson complaint for lost future royalties. Accordingly, in this writer's opinion, the essence of the decision simply upheld a specifically negotiated liquidated damages clause. Future royalties were only dragged into the argument as a means of computing the liquidated damages amount.


Additional information on valuation of franchises and dealerships is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.

Bills Seek to Make Do-Not-Call Registry Permanent

This posting was written by Tom Long, Editor of CCH Privacy Law in Marketing.

Proposals to amend the Do-Not-Call Implementation Act to eliminate the automatic removal of the telephone numbers registered on the Federal Do-Not-Call Registry have been introduced in both houses of Congress.

Currently, individuals’ numbers must be deleted from the registry after five years. Thus, people have to sign up again every five years. Registrations will begin to expire in June 2008.

The proposed “Do-Not-Call Improvement Act of 2007” (H.R. 3541) was introduced by U.S. Rep. Mike Doyle (D-Pa.) on September 17. A similar bill (S. 2096) was introduced by Senator Byron Dorgan (D-N.D.) on September 26,

The automatic expiration of registrations after five years is unnecessary, Sen. Dorgan contends, because “most people who initially wanted to be rid of telemarketing calls likely still want to block these calls.”

The system in place automatically removed numbers that are disconnected and reassigned, he noted. Automatic expiration of all numbers will create “a hassle for Americans [who] start receiving calls again and the have to go through the process of re-registering,” he said.

In addition, the automatic removal and re-registering process will result in an expense for the U.S. government—which will have to launch a public awareness campaign to let people know that they need to manually sign up again.

H.R. 3541 was referred to the House Committee on Energy and Commerce. S. 2096 was read twice and referred to the Committee on Commerce, Science, and Transportation.

Edwards Endorses Stronger Antitrust Enforcement

This posting was written by John W. Arden.

In a statement released by the American Antitrust Institute on October 2, Democratic presidential candidate John Edwards declared that “we desperately need strong antitrust enforcement in America” to protect small businesses, farmers, and families and to encourage innovation “in every sector of the economy.”

“Rigged” System

“The system in Washington is rigged and our government is broken,” according to Edwards’ submission. “It’s rigged by greedy corporate powers to protect corporate profits. It’s rigged by the very wealthy to ensure they become even wealthier. At the end of the day, it’s rigged by all those who benefit from the established order of things.”

Antitrust and fair competition laws “enable the Justice Department and Federal Trade Commission to stop companies from abusing their power,” Edwards observed. “But those laws are a paper tiger without a president who is willing to stand up for regular Americans, and a government willing to enforce them. We have neither today—and the result is an economy out of line with our values.”

Specific Initiatives

If elected president, the former senator pledged to launch specific initiatives to (1) protect livestock farmers who are “at the mercy of big agribusiness”; (2) help small physician groups who are “being squeezed by insurance companies”; and (3) relieve consumers from having to pay artificially high prices for gasoline from vertically-integrated oil companies.

Steps to Vigorous Enforcement

“Vigorous implementation of antitrust laws starts with appointing officials committed to protecting fair competition, competitive pricing and innovation,” the candidate noted. “The next step is providing sufficient resources for effective enforcement. Finally, it requires nominating judges who are committed to protecting the economic rights of regular Americans.”

Edwards submitted this statement after the AAI invited all presidential candidates to submit their views on antitrust. Senator Barack Obama was the only candidate to respond within the requested time period.

In his statement, Senator Obama (D-Ill.) pledged “to reinvigorate antitrust enforcement” by stepping up review of merger activity, taking aggressive action to curb the growth of international cartels, monitoring key industries to ensure that consumers realize the benefits of competition, and strengthening competition advocacy domestically and in the international community

Edward’s statement ("Submission to the American Antitrust Institute") appears at the AAI website.

The American Antitrust Institute—an independent, non-profit education, research, and advocacy organization based in Washington, D.C.—said it would publish any additional statements submitted by candidates.

European Commission Initiates Proceedings Against Qualcomm

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

The European Commission (EC) announced on October 1 its decision to open formal antitrust proceedings against Qualcomm Incorporated, a U.S.-based chipset manufacturer, concerning an alleged breach of EC Treaty rules on abuse of a dominant position in the wireless technology market.

Qualcomm is a holder of intellectual property rights in the “code division multiple access” (CDMA) and “wideband CDMA” (WCDMA) standards under which cellular telephone service providers operate. The WCDMA standard forms part of the “3G” (third generation) standard for European mobile phone technology.

Refusal to License on Reasonable Terms

The proceeding follows complaints lodged with the EC by Ericsson, Nokia, Texas Instruments, Broadcom, NEC, and Panasonic—all cellular phone and/or chipsets manufacturers—that Qualcomm breached its commitment to the standards-determining organizations (SDO) for the mobile wireless telephony industry by refusing to license its technology on fair, reasonable, and nondiscriminatory (FRAND) terms and conditions.

More specifically, the complaints claimed that Qualcomm imposed exploitative licensing terms and royalties on patents it holds that are essential to the WCDMA standard.

Economic Principle

The economic principle underlying FRAND commitments is that essential patent holders should not be able to exploit the extra power they have gained as a result of having technology based on their patent incorporated in the standard, the EC said.

The complaints also allege that charging non-FRAND royalties could lead to final consumers paying higher handset prices, a slower development of the 3G standard, and all the related negative consequences for economic efficiency associated with inhibited growth of the standard. In addition, the complainants allege that this behavior could negatively affect the standard-setting process more generally as well as the adoption of the future 4G standard.

The EC’s initiation of proceedings does not imply that it has proof of an infringement, the EC explained. Rather, it signifies that the EC will conduct an in-depth investigation of the case as a matter of priority.

There is no strict deadline for the EC to complete inquiries into anticompetitive conduct; their duration depends on a number of factors, including the complexity of each case, the extent to which the undertakings concerned cooperate with the EC and the exercise of the rights of defense.

Similar Domestic Action

A private suit based on similar allegations that was brought against Qualcomm in the United States by Broadcom in 2005 remains before a federal district court in New Jersey, after the U.S. Court of Appeals in Philadelphia recently reversed dismissal of two of Broadcom’s Sherman Act, Section 2 claims (2007-2 Trade Cases ¶75,852).

A blog item on this domestic development (“Monopoly Claims for Abuse of Standard-Setting Process Revived”) was posted on September 12.

Administration Would “Reinvigorate Antitrust Enforcement”: Senator Obama

This posting was written by John W. Arden.

If elected president, Senator Barack Obama would direct his administration “to reinvigorate antitrust enforcement” by stepping up review of merger activity, taking aggressive action to curb the growth of international cartels, monitoring key industries to ensure that consumers realize the benefits of competition, and strengthening competition advocacy domestically and in the international community.

Senator Obama (D-Ill.) made this pledge in a statement to the American Antitrust Institute (AAI), released September 27. The AAI had invited all the presidential candidates to submit their views on antitrust. However, only Senator Obama responded within the requested time frame.

“American Way to Make Capitalism Work”

“Antitrust is the American way to make capitalism work for consumers,” according to the statement. “America has been a longtime leader in antitrust, and our antitrust rules and institutions have often served as models for other countries wanting to make capitalism work for consumers.”

“At home, for more than a century, there has been broad bipartisan support for vigorous antitrust enforcement, to protect competition and foster innovation and economic growth,” the statement continued. “Regrettably, the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century.”

Merger Enforcement

As an illustration, Senator Obama pointed out that between 1996 and 2000 the FTC and Department of Justice challenged an average of 70 mergers per year on antitrust grounds. Between 2001 and 2006, the agencies challenged only an average of 33 mergers per year. “And in seven years, the Bush Justice Department has not brought a single monopolization case.”

This “lax enforcement” has resulted in higher concentration and higher prices in industries such as health care and insurance, he indicated. “My administration will also ensure that insurance and drug companies are not abusing their monopoly power through unjustified price increases—whether on premiums for the insured or on malpractice insurance rates for physicians.”

Senator Obama’s two-page statement appears on the AAI web site.

The American Antitrust Institute—an independent, non-profit education, research, and advocacy organization based in Washington, D.C.—said it would be pleased to publish any additional candidate statements.

Right of Publicity Damages Were $750, Not $10 Million

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

A jury award to a collectibles authenticator of over $10 million in statutory damages under the California right of publicity statute was reversed by a California appellate court.

A collectibles seller's use of the authenticator's name without his consent on 14,060 certificates of authenticity (COAs)—each corresponding to a different collectible item—supported only a single statutory damages award of $750 for wrongful appropriation, the court held.

Statutory, Actual Damages

Under the statute, a person who knowingly and without authorization uses another’s name on goods, or to advertise, sell, or solicit purchases of goods or services, is liable to the injured party for statutory damages of $750 or actual damages suffered “as a result of the unauthorized use,” whichever is greater, as well as profits from the unauthorized use, discretionary punitive damages, and attorney fees and costs.

Contrary to the seller's contention, the single publication rule—that a mass communication or display of identical content supports only a single right of publicity cause of action—did not apply to the COAs here, which were issued to separate individuals to authenticate separate items. Instead, the COAs were held to support only a single statutory damage award under the “primary right” theory used in California to determine whether causes of action are identical.

Common Purpose, Common Plan

Even though the 14,060 COAs were issued to authenticate 14,060 separate items, they were all issued for a common purpose pursuant to a common plan: to use the authenticator’s name as a member of a panel of experts, the court said. The COAs were printed at the same time (only the serial numbers were different), and they were issued seriatim as authentication services were purchased by the customers.

The authenticator’s injury—the worry and uncertainty regarding his reputation and his potential liability for improperly authenticated items—occurred when the seller knowingly issued its first COA without his prior consent. The number of COAs issued might be relevant to his actual damages, if any, and to punitive damages. But with regard to his statutory damages, the issuance of subsequent improper COAs did not give rise to new causes of action, according to the court.

The judgment was reversed for retrial with directions to reinstate the authenticator's common law invasion of privacy and punitive damages claims, which he had elected not to pursue after the trial court's erroneous in limine ruling allowing multiple statutory damages awards.

The opinion in Miller v. Collectors Universe, Inc., appears at CCH Advertising Law Guide ¶62,657. Further details regarding Advertising Law Guide appear at the CCH Online Store.

EC Competition Commissioner Explains Microsoft Decision, Deflects U.S. Criticism

This posting was written by John W. Arden.

The latest volley in the battle of words between U.S. and European Union antitrust officials comes from Neelie Kroes, EC Commissioner for Competition, who published an article (“Why Microsoft Was Wrong”) in yesterday’s Wall Street Journal online edition.

In explaining last week’s European court ruling that Microsoft Corp. abused its dominant market position and the imposition of a € 497 million fine, Ms. Kroes was clearly answering criticism from the U.S. Department of Justice that the decision “may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”

Protecting Consumer Welfare

From the top, Ms. Kroes rejects the claim that, unlike U.S. antitrust law, EU competition law is not concerned with protecting consumer welfare.

“U.S. and EU antitrust laws agree on most things, not least the objective of benefiting consumers . . . This is hardly surprising. When Jean Monnet, one of the European Union’s founders, was working on antitrust rules in the draft treaties over 50 years ago, he was heavily influenced by his many U.S. friends . . . Since then, discussion among academics, practitioners and enforcers on both sides of the Atlantic have never stopped. Both in Europe and America the objective is to find the best solution for the consumers, the best way to solve competition problems so as to increase consumer welfare.”

Ms. Kroes enumerates how EU antitrust enforcement has benefited consumers by breaking up international cartels, saving consumers at least $6 billion per year, and by “pushing down” the price of international telephone calls in Europe by more than 40%.

She observes that the EU and U.S. have similar views on a number of issues: the iniquity of cartels, the circumstances when mergers between competitors bring risks to consumers, the importance of spreading the gospel of free markets around the world, and the rare instances when antitrust laws should limit unilateral action by companies, even when those companies are monopolists.

Legal Tests Largely the Same

“When looking at such conduct the legal tests set out in their respective Microsoft cases by the U.S. Court of Appeals in Washington, D.C., on one hand, and the EU Court of First Instance, on the other, is largely the same. Both require a type of rule of reason analysis, looking not just at whether the potential consumer benefits outweigh the harm in the short run, but whether incentives to innovate will be maintained in the long run.”

The DOJ comment on chilling innovation was dispatched with the following observations:

“In the Microsoft case decided last week in the EU, the court noted that not even Microsoft had argued that its incentive to innovate had been undermined by its previous practice of disclosing Windows desktop interoperability information. It is worth remembering that, in common with industry practice, Miscrosoft voluntarily used to provide information permitting interoperarability between services and its Windows desktop. Of course, this was before Microsoft wanted to push its own server software; then the provision stopped. Even after Microsoft was later forced to resume providing certain interoperability information—as part of the settlement it reached with the U.S. Department of Justice—Microsoft stated that its incentives to innovate had not been undermined.”

“Chicago School” Economics

Citing statements by FTC Commissioner J. Thomas Rosch, Ms. Kroes stated that the antitrust policies of both jurisdictions are based on the same philosophical underpinnings. Commissioner Rosch “has recently suggested that U.S. and EU antitrust policies are based, respectively, on “Chicago school” and “post-Chicago school” economics.”

There is some truth to this characterization, she noted. However, “I have difficulty seeing the real cutthroat world of business in the theoretical models of the Chicago school,” she remarked. “They remind me of Dr, Pangloss in Voltaire’s “Candide,” believing that we live in the best of all possible worlds and that all is for the best. In reality, businesses do engage in strategic behavior to undermine their rivals.”

Where a monopolist exploits his position to colonize neighboring markets, “this can scare investors from funding competitors, undermine the incentive and ability of those competitors to invest and innovate, and drive out competitors who are as efficient as the monopolist.”

A discussion of the September 17 decision in Microsoft Corp. v. Commission of the European Communities, and the Department of Justice reaction was posted on this blog on Monday, September 24.

Physician Practice Association’s Negotiations with Health Plans Should Not Be Challenged: FTC Staff

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

A multi-specialty physician practice association—serving the greater Rochester, New York, area—can proceed with its proposal to engage in joint contract negotiations with health plans on behalf of its members, after the FTC staff informed the group that it had no present intention to recommend a challenge to its proposed operation as a non-exclusive physician network joint venture.

In a 30-page letter sent September 17, the FTC Bureau of Competition staff concluded (1) that the program would involve substantial clinical integration, (2) that the joint contracting would be subordinate and reasonably related to the association’s plan to integrate, and (3) that the joint contracting would be reasonably necessary to achieve the plan's efficiency benefits.

Text of the letter (Greater Rochester Independent Practice Association, Inc., Advisory Opinion) appears on the FTC web site.

Conference Discussion Topic

The staff letter was released in time to serve as a topic of discussion for a gathering of antitrust and health care attorneys in Washington, D.C. on September 17 and 18, sponsored by the American Health Lawyers Association and the American Bar Association Sections of Health Law and Antitrust Law.

In an address entitled "Clinical Integration in Antitrust: Prospects for the Future," FTC Commissioner J. Thomas Rosch explained that "the agencies identified the concept of clinical integration to the 1996 Statements [of Antitrust Enforcement Policy in Health Care] as an additional means for physician groups to avoid antitrust liability for joint negotiation of fees."

Previous Advisory Opinions

Noting that physician groups have not made a lot of progress in establishing clinical integration, as opposed to financial integration, Rosch cited two previous letters by Commission staff addressing the topic.

In February 2002, the FTC staff notified MedSouth, Inc., a multi-specialty physician practice association in the Denver area, that its plans to operate as a nonexclusive physician network joint venture would not be challenged. Under the proposal, the association would coordinate and integrate its members' provision of medical services to patients through a clinical resource management program, then would contract for the sale of participating physicians' services to health plans on a fee-for-service basis.

Four years later, in March 2006, the FTC staff rejected a proposal by Suburban Health Organization, Inc. to serve as the exclusive bargaining and contracting agent with most insurers for 192 primary care physicians employed at Suburban Health Organization's eight member hospitals in Indiana. The Commission staff concluded that the proposal involved some potentially beneficial integration among the participants, but that the reasons given for collective bargaining did not justify that elimination of competition.

“Light” Cigarette Advertising Suit Not Barred by Federal Law, FTC Order

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

Smokers may pursue a suit alleging that tobacco company Philip Morris made fraudulent misrepresentations in violation of the Maine Unfair Trade Practices Act by advertising and promoting Marlboro and Cambridge Lights as “light” and as having “Lowered Tar and Nicotine,” the U.S. Court of Appeals in Boston has ruled.

Philip Morris unsuccessfully contended that the smokers’ claims were expressly preempted by federal law, impliedly preempted by FTC regulation, and exempted from the prohibitions of the Maine statute.

Express Preemption

The U.S. Supreme Court, in Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992), held that some—but not all—actions for damages under state law are expressly preempted by the Federal Cigarette Labeling and Advertising Act (FCLAA).

The Maine Unfair Trade Practices Act outlawed unfair or deceptive acts or practices in the conduct of any trade or commerce. The substance of the smokers’ claim was that Philip Morris had falsely represented some of its brands as “light” or having “lower tar and nicotine,” although they delivered the same quantities of these ingredients to a smoker as did “full-flavored” cigarettes.

The state law “duty not to deceive” was a general obligation falling within Cipollone’s holding that claims based on allegedly false statements of material fact made in advertisements survive FCLAA preemption, according to the court. Contrary to Philip Morris’s argument, the smokers’ claims were not failure-to-warn or warning neutralization claims subject to preemption.

The smokers’ theory was not that the advertising should have included warnings, in addition to those mandated by he FCLAA, or that the statements “light” and “lower tar and nicotine” diluted the warnings on Philip Morris’s packaging or advertising so as to make its cigarettes unreasonably dangerous or otherwise defective.

Rather, the smokers’ claims were premised on longstanding rules governing fraud, which themselves arose not from any duty based on smoking and health, but on the duty not to deceive. So, as held in Cipollone, neither the text of the FCLAA’s statement of purpose nor the preemption provision itself fairly evinced the intent to displace all potentially inconsistent state cigarette advertising regulations, only regulations that were “based on smoking and health,” the court reasoned.

Implied Preemption

Philip Morris argued that the smokers’ claims were impliedly preempted by the FTC’s oversight of cigarette advertising under the Federal Trade Commission Act. The question, as framed by the court under the established rules of conflict preemption, was whether the FTC’s oversight of tar and nicotine claims manifested a federal policy intended to displace conflicting state law.

Philip Morris contended that the smokers’ state law claims stood as an obstacle to the FTC’s policy, expressed in a 1971 consent order, of allowing advertising of tar and nicotine claims as long as they were substantiated with numerical results derived through testing according to the Cambridge Filter Method and the results were published in all brand advertisements.

However, since its 1969 agreement with the tobacco companies, the FTC had never issued a formal rule specifically defining which cigarette advertising practices violated the FTC Act and which did not, the court noted.

Section 57b(e) of the FTC Act specifically provided that state law rights of action survived the FTC’s efforts at judicial enforcement of its own federal standards: in other words, that those efforts are in addition to, and not in lieu of other available remedies. There appeared to be no purpose for the provision other than to allow further relief from unfair or deceptive acts or practices under state law even after the Commission had already challenged them through litigation under the FTC Act.

The FTC could not preempt state law actions arising out of particular practices simply by entering into a consent order allowing them to continue, the court determined.

Regulated Conduct Exemption

Finally, the smokers’ claims were not barred by the Maine Unfair Trade Practices Act’s exemption for actions otherwise permitted under laws as administered by any regulatory board or officer acting under the statutory authority of the United States. This argument, like Philip Morris’s implied preemption theory, depended largely on its characterization of FTC policy as allowing the use of the terms “light” and “lower tar and nicotine” when supported by testing under the Cambridge Filter Method.

The court declined to follow decisions holding that the FTC had “authorized” Philip Morris’s “light” and “lower tar and nicotine” claims so as to put them beyond the reach of state consumer protection statutes with exceptions similar to Maine’s: Flanagan v. Altria Group, Inc., (E.D. Mich. 2005) CCH Advertising Law Guide ¶61,878; Price v. Philip Morris, Inc (Ill. 2005) CCH Advertising Law Guide ¶61,914; and Sullivan v. Philip Morris USA, Inc., (W.D. La. 2005) CCH Advertising Law Guide ¶61,833.

The opinion is Good v. Altria Group, Inc., No. 06-1965, August 31, 2007. It will be reported in CCH Advertising Law Guide.

European Competition Decision Against Microsoft Causes International Discord

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

The buzz among members of the antitrust bar during the last week has concerned the European court decision holding that Microsoft Corp. abused it dominant market position, the response of U.S. antitrust enforcers to the decision, and the reaction of the European Competition Commission to the U.S. response.

The European Court of First Instance (CFI) essentially upheld the European Commission’s 2004 decision against Microsoft Corp. for abusing its dominant market position by leveraging its near-monopoly in the market for PC operating systems onto the markets for work group server operating systems and for media players.

On September 17, the CFI affirmed the €497 million fine against the computer software company, as well as the order requiring Microsoft (1) to disclose interoperability information to allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers and (2) to offer a version of its Windows operating system without Windows Media Player.

U.S. Response

In response to the CFI decision, Thomas O. Barnett, Assistant Attorney General in charge of the U.S. Department of Justice Antitrust Division, expressed concern “that the standard applied to unilateral conduct by the CFI, rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”

Barnett went on to say that the U.S. antitrust agencies would continue to work with their European counterparts “to develop sound antitrust enforcement policies that benefit consumers on both sides of the Atlantic.

European Reaction

European Competition Commissioner Neelie Kroes called Barnett’s remarks “totally unacceptable.” Questioning the propriety of a representative of the U.S. administration criticizing a European court, she observed that “The European Commission does not pass judgment on rulings by U.S. courts, and we expect the same degree of respect.”

The American Antitrust Institute (AAI) weighed in on September 24, questioning Barnett’s statement in light of past U.S. antitrust enforcement efforts against Microsoft and the resulting court decisions.

“The oddity of Barnett’s statement is that both Europe and the U.S. found that Microsoft was a monopolist which had acted to harm competition, and both insisted on interoperability in framing a remedy,” the AAI noted in a September 24 release. "Both jurisdictions concluded that Microsoft exercised market power in personal computer operating systems, though the specifics of its antitcompetitive conduct differed . . . And in fashioning a remedy, both required interoperability to assure that independent suppliers of application software can work with the monopoly."

The decision of the Court of First Instance is Microsoft Corp. v. Commission, Case T-201/04, September 17, 2007. The September 17 press release containing Thomas O. Barnett’s response to the decision appears at the Department of Justice Antitrust Division website.

In-Term Noncompete Pact in Trademark License Was Unenforceable

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

In a decision of great interest to the franchise bar, the U.S. Court of Appeals in San Francisco held that an arbitrator manifestly disregarded California law by enforcing an in-term restrictive covenant in a trademark license agreement to prevent a comedy club operator from opening or running any other comedy clubs in the United States until 2019 or the termination of the parties’ agreement.

Accordingly, a federal district court was ordered to vacate the arbitrator’s award of injunctive relief to trademark licensor Improv West as to any county where the operator did not currently operate an Improv West branded club. The district court was further ordered to uphold an award of injunctive relief in those counties where the operator currently had Improv West clubs.

Dramatic Geographic and Temporal Scope

As interpreted by the arbitrator, the noncompete covenant applied geographically to the contiguous United States, and did not end until the agreement expired in 2019. Thus, the covenant not to compete had dramatic geographic and temporal scope, the appellate court commented.

Combined with the arbitrator's ruling that the operator, by breaching the agreement, had forfeited its rights to use the Improv West marks license in any new location, the practical effect of the award was that, for more than 14 years, the entire contiguous United States’ comedy club market, except for the operator's seven current Improv West clubs, was off limits to the operator. Thus, the arbitrator's ruling foreclosed competition in a substantial share of the comedy club business, according to the appellate court.

Foreclosing Competition

Under California Business and Professions Code Section 16600, an in-term covenant not to compete in a franchise-like agreement was void if it foreclosed competition in a substantial share of a business, trade, or profession, the court noted. California courts were less willing to approve in-term covenants not to compete outside a franchise context because there was not a need to protect and maintain the franchisor's trademark, trade name, and goodwill.

The operator's relationship with Improv was, in essence, a franchise agreement as the operator contracted with Improv West to use its trademarks and open comedy clubs modeled on Improv West's clubs.

Weighing the operator's right to operate its business against Improv West's interest in protecting and maintaining its trademark, trade name, and goodwill, the balance tilted in favor of Improv West with regard to counties where the operator was operating an Improv West club, the court held. However, under the restraint of Section 16600, California law did not permit an arbitrator to foreclose the operator's competition in opening comedy clubs throughout the United States.

The September 7 decision in Comedy Club, Inc. v. Improv West Associates appears at CCH Business Franchise Guide ¶13,703.Petition for Rehearing

Following extensive discussion of the decision on the ABA Forum on Franchising listserv, Katherine J. Galston of Irell & Manella LLP in Los Angeles wrote to inform the franchise bar that Improv West had submitted a petition for rehearing, with a request for rehearing en banc, to the Ninth Circuit. Interested persons may submit an amicus brief in connection with the petition through October 1.

Among other points, the petition argued that “[p]rior to the Panel’s decision, every court to consider the issue had held that a franchisor can lawfully restrict a franchisee from directly competing with it and its other franchisees during the term of a franchise agreement.” The decision “will have serious consequences for California businesses,” the petition claimed.

Mukasey to Be Nominated as Attorney General

This posting was written by Paula Cruikshank, CCH White House Correspondent.

President Bush on September 17 announced his intention to nominate Michael B. Mukasey, former chief justice of the U.S. District Court for the Southern District of New York, to become U.S. Attorney General, succeeding Alberto Gonzales.

Mukasey’s rulings on terrorism-related cases and expertise in constitutional law show that "he knows what it takes to fight this war effectively and he knows how to do it in a manner that is consistent with our laws and our Constitution," the president stated.

Mukasey said the Justice Department faces “vastly different” challenges than 35 years ago when he was a U.S. attorney. “But the principles that guide the department remain the same—to pursue justice by enforcing the law with unswerving fidelity to the Constitution,” Mukasey asserted.

Senate Majority Leader Harry Reid, in a written statement, commended the president’s choice for Attorney General.

"Judge Mukasey has strong professional credentials and a reputation for independence," said Reid. "A man who spent 18 years on the federal bench surely understands the importance of checks and balances and knows how to say no to the President when he oversteps the Constitution."

Mukasey is currently a Partner in the New York law firm, Patterson Belknap Webb & Tyler, working on white collar defense and investigative matters, providing advice on corporate governance issues, and actively litigating civil and criminal cases.

President Reagan in 1987 nominated him to be judge of the U.S. District Court for the Southern District of New York, a position he held from 1988 to 2006. From 1972 to 1976, Mukasey was an assistant U.S. attorney in Manhattan. He earned his bachelor’s degree from Columbia University and his LLB from Yale Law School.

FTC Chairman Defends Record on Energy, Lending, Internet Issues

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

The chairman of the Federal Trade Commission defended her agency’s record on energy, banking, and “net neutrality” at a September 12 congressional hearing by the Senate Commerce, Science, and Transportation Subcommittee on Interstate Commerce, Trade, and Tourism.

Mergers of Oil Refiners

Subcommittee Chairman Byron Dorgan (D-N.D.) expressed concern that mergers by oil refiners have led to increased market power, higher profits, and higher consumer prices. FTC Chairman Deborah Platt Majoras responded that the FTC has not concluded that mergers of refiners have resulted in increased prices. Rather, increased demand is the driving factor, with refineries being unable to keep up with that demand.

Deceptive Practices in Lending

On the issue of subprime loans, Dorgan questioned Majoras about deceptive advertising and lending in that industry. Majoras acknowledged that the agency has concerns about deceptive practices, but suggested that borrowers also share some blame. “Consumers are just not understanding what they get in their mortgages,” she said.

Majoras noted that the agency on September 11 sent more than 200 letters to mortgage companies and media outlets, warning that some mortgage ads are potentially deceptive or in violation of the Truth in Lending Act.

“Net Neutrality”

Dorgan and Majoras respectfully agreed to disagree about “net neutrality,” the principle of keeping broadband networks free from restrictions on (1) the kinds of equipment that may be attached, (2) the modes of communication allowed, and (3) the communication streams that may degrade network communications.

Some lawmakers, including Dorgan, advocate legislation that would require broadband providers to treat all content providers equally. Essentially, broadband carriers would be barred from favoring certain Internet content providers by granting higher-speed access to their content. Dorgan said he feared we are moving toward a system where big providers “set up new roads – new highways – some tolls, some not.”

Majoras advised against legislation, warning that premature regulation could squelch technological innovation. “If we put rules in place here, there will be unintended consequences,” Majoras stated.

Consumer Protection, Competition Enforcement

In a prepared statement, Chairman Majoras discussed the Commission’s consumer protection efforts in the areas of data security and identity theft, technology, health care, financial practices, telemarketing, violence in the media, and “green marketing.”

The second section of the statement covered the Commission’s efforts at maintaining competition “in sectors of the economy that have a significant impact on consumers, such as health care, energy, technology, and real estate.”

In conclusion, the chairman expressed the agency’s commitment to maintaining the quality of its work, “despite the breadth of our mission and the challenges that have been described involving technological change and an evolving global economy.”

She pointed out that Congress has recently passed a variety of new legislation that the FTC is charged with implementing and enforcing, including the CAN-SPAM Act, the Children’s Online Privacy Protection Act, the Gramm-Leach-Bliley Act, and the U.S. SAFEWEB Act.

Text of the 49-page prepared statement appears on the FTC web site.

Monopoly Claims for Abuse of Standard-Setting Process Revived

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

The U.S. Court of Appeals in Philadelphia has remanded an antitrust dispute between rivals in the wireless technology market to permit Broadcom Corp. to assert monopolization and attempted monopolization claims against Qualcomm, Inc. for abusing the standard-setting process for mobile wireless telephony.

The appellate court reversed the dismissal of two of Broadcom's antitrust claims brought under Section 2 of the Sherman Act; however, it affirmed dismissal of two other claims that Broadcom lacked standing to assert.

In mobile wireless telephony, standards are determined privately by standards-determining organizations (SDOs). Currently, there are two paths or families of standards under which cellular telephone service providers operate: code division multiple access (CDMA) and global system for mobility (GSM).

The standard used in current-generation GSM-path networks is known as the Universal Mobile Telecommunications System (UMTS) standard. Qualcomm supplies some of the essential technology, Wideband CDMA (WCDMA), included in the UMTS standard and holds patents in this technology. Qualcomm purportedly has a 90 percent share in the market for CDMA-path chipsets.

Broadcom claimed that Qualcomm seeks to obtain a monopoly in the UMTS chipset market because Qualcomm views competition in that market as a long-term threat to its existing monopolies in CDMA technology.

“Patent Holdup”

Broadcom was permitted to proceed with its claim that Qualcomm engaged in a "patent hold-up," the court held. Broadcom alleged that Qualcomm induced the SDO to include its proprietary technology in the UMTS standard by falsely agreeing to abide by the SDO's policy requiring participants to license technology on fair, reasonable, and non-discriminatory terms.

Qualcomm allegedly "held up" SDO participants by intentionally breaching its promise, which was relied on by participants, to license fairly and reasonably essential proprietary technology adopted as part of the new standard after the lengthy standard setting process had been completed.

Rejected was Qualcomm's argument that antitrust liability could not turn on so vague a concept as whether licensing terms were "reasonable." Thus, the district court erred in dismissing the monopolization claim on the ground that abuse of a private standard-setting process did not state a claim under antitrust law.

Broadcom adequately alleged that Qualcomm attempted to obtain a monopoly in the UMTS chipset market by exploiting its monopolies in WCDMA technology and CDMA-path chipsets, according to the court. Qualcomm allegedly engaged in a variety of anticompetitive practices, acted with specific intent to obtain a monopoly in the UMTS chipset market, and had a "dangerous probability" of successful monopolization.

Standing, Antitrust Injury

The court also held that Broadcom lacked standing to sue Qualcomm for its alleged monopolization of the markets for another chipset technology standard—third-generation (3G) CDMA technology and 3G CDMA chipsets. Broadcom's theory of standing was "highly attenuated," in the court's view. Injury to Broadcom was extremely remote, and there was no apparent reason why the Qualcomm's competitors in the CDMA markets could not assert a monopoly maintenance claim.

In addition, Broadcom failed to allege an antitrust injury resulting from Qualcomm's proposed acquisition of a firm that was a leading competitive threat to CDMA technology. The claim was too speculative, the court explained. Any directly harmful effects resulting from the acquisition would be experienced by firms competing in the markets for the development of the new chipset standards, and the Broadcom did not compete in these markets. Dismissal of a claim for injunctive relief blocking the transaction was affirmed.

The September 4 decision in Broadcom Corp. v. Qualcom Inc. is reported at 2007-2 Trade Cases ¶75,852

Massachusetts, Illinois, Oregon Enact New Privacy Laws

New privacy laws recently enacted in three states address data security breaches, “phishing,” and identity theft.

Security Breach Notice Law

On August 2, Massachusetts Governor Deval Patrick approved legislation that calls for notification of data security breaches, allows residents to place a security freeze on their consumer credit reports, and establishes rules for the disposal of records containing personal information.

The statute requires that a person, business, or government agency that owns or licenses data including personal information about a Massachusetts resident must provide notice when it knows or has reason to know of a breach of security or that the information was acquired or used by an unauthorized person. The notice must be provided to the person involved, the state attorney general, and the Director of Consumer Affairs and Business Regulation. Enforcement actions may be brought by the attorney general.

The law (House Bill No. 4144, Chapter 82, codified at Massachusetts General Laws, Chapter 43H, Sec. 1 through 6) becomes effective on October 1, 2007, except for the records disposal provision, which becomes effective on February 3, 2008. Text of the law appears at CCH Privacy Law in Marketing ¶32,100.

“Phishing”

The Illinois “Anti-Phishing Act” prohibits the use of the Internet—through e-mail, websites, or other means—to represent oneself, without authority or approval, as a business in an effort to solicit or induce a person to provide identifying information. “Identifying information” under the Act includes Social Security Numbers, driver’s license numbers, bank account numbers, credit or debit card numbers, personal identification numbers (PINs), automated or electronic signatures, account passwords, or any other information that can be used to access financial accounts or to obtain goods or services.

The law provides for enforcement actions by the attorney general and state’s attorney and private suits by Internet Service Providers affect by a violation and individuals who are the ultimate targets of identity theft. ISPs may seek to recover the greater of actual damages or statutory damages of $500,000. Individual victims may seek injunctive relief and the greater of three times the amount of actual damages or $5,000 per violation.

The “Anti-Phishing Act” was approved on August 23 and becomes effective on January 1, 2008. The law appears at CCH Privacy Law in Marketing ¶31,340.


Identity Theft

The Oregon Consumer Identity Theft Protection Act requires businesses to notify residents of data security breaches, allows Oregon resident to place security freezes on their credit reports, and prohibits the printing, communicating, or otherwise making available to the public a consumer’s Social Security Number.

Any individual or business that owns or maintains data that includes a consumer’s personal information must give notice of a breach of security to any consumer whose personal information was included in the information breached. Notification must be made in the most expeditious time possible. A consumer may elect to place a security freeze on his or her consumer report by sending a written request to a consumer reporting agency. The agency must place a security freeze on the within five business days of receiving the request.

The legislation (Senate Bill No. 583, Chapter 759) was signed by Governor Theodore R. Kulongoski on July 12 and will become effective on October 1, 2007. The Consumer Identity Theft Protection Act is published at CCH Privacy Law in Marketing ¶33,700.

CCH Privacy Law in Marketing publishes 138 privacy laws from 46 states and the District of Columbia, in addition to U.S. federal privacy laws, and privacy laws from 35 foreign jurisdictions. Further information regarding Privacy Law in Marketing is available at the CCH Online Store.

$16 Million Antitrust Award in Favor of Oregon Hospital Vacated

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

A jury's verdict and $16.2 million award in favor of the operator of a 114-bed hospital in Springfield, Oregon, in an antitrust action against a larger competitor, has been vacated by the U.S. Court of Appeals in San Francisco. The appellate court reversed findings that the competitor, PeaceHealth, engaged in attempted monopolization and price discrimination.

PeaceHealth operated three facilities in the area, including a 432-bed operation that offered primary, secondary, and tertiary care in Eugene, Oregon. The complaining firm operated McKenzie-Willamette Hospital, which provided only more standard, primary and secondary acute care. The lower court's grant of summary judgment in favor of PeaceHealth on McKenzie's tying claims prior to trial was also reversed. The case was remanded for further proceedings.

Attempted Monopolization

In its attempted monopolization claim, McKenzie alleged that PeaceHealth offered insurers discounts of 35 to 40 percent on tertiary services if the insurers made PeaceHealth their sole preferred providers for all services—primary, secondary, and tertiary. McKenzie argued that, although it could provide primary and secondary services at a lower cost than PeaceHealth, it was frozen out of the market because it did not provide tertiary services. Thus, it could not match the discount that PeaceHealth offered insurers.

A multi-product bundled discount would be anticompetitive if the discount excluded a rival who was equally efficient at producing the competitive product simply because the rival did not sell as many products as the bundled discounter, the appellate court explained. However, McKenzie could not base its attempted monopolization claim on the fact that PeaceHealth offered a discount that it could not match, according to the appellate court.

PeaceHealth convinced the appellate court to reverse the attempted monopolization claim on the ground that the district court incorrectly instructed the jury about when bundled discounting can amount to anticompetitive conduct for purposes of a Sherman Act, Sec. 2 claim.

In order to prove that PeaceHealth's bundled or package discounts to insurers constituted exclusionary conduct, McKenzie had to establish that, after allocating the discount given by the defending hospital operator on the entire bundle of products to the competitive product or products, PeaceHealth sold the competitive product or products below its average variable cost of producing them. The exclusionary conduct element of a claim arising under Sec. 2 of the Sherman Act could not be satisfied by reference to bundled discounts, unless the discounts resulted in prices that were below an appropriate measure of the defending firm's costs—average variable cost.

Primary-Line Price Discrimination

The appellate court also reversed the jury's finding of primary-line price discrimination in violation of the Oregon price discrimination statute.

McKenzie argued that PeaceHealth violated the state law by charging a higher reimbursement rate to an insurer with whom it had an exclusive arrangement than it charged an insurer with whom it did not have an exclusive arrangement.

In order to state a primary-line price discrimination claim, McKenzie had to prove that PeaceHealth priced below cost. Because the jury instructions did not require the jury to find that PeaceHealth priced below cost, the jury's verdict in favor McKenzie had to be vacated.

Tying Arrangements

Before trial, the district court granted PeaceHealth summary judgment on McKenzie's claim that PeaceHealth illegally tied primary and secondary services to its provision of tertiary services in violation of Sec. 1 of the Sherman Act.

The lower court incorrectly concluded that McKenzie had not presented any evidence that PeaceHealth coerced insurers into purchasing primary and secondary services from it in order for the insurers to obtain tertiary services, the appellate court held. PeaceHealth's practice of giving a larger discount to insurers who dealt with it as an exclusive preferred provider might have coerced some insurers to purchase primary and secondary services from it rather than from McKenzie.

There were genuine factual disputes about whether PeaceHealth forced insurers either as an implied condition of dealing or as a matter of economic imperative through its bundled discounting, to take its primary and secondary services if the insurers wanted tertiary services.

Moreover, PeaceHealth's substantial market power, as a result of being the exclusive provider of tertiary services in the market, created a possibility that it was able to force unwanted purchases of primary and secondary services. Thus, summary judgment on McKenzie's tying claim was inappropriate.

The September 4, 2007, opinion in Cascade Health Solutions v. PeaceHealth, will appear at 2007-2 Trade Cases ¶75,846.

“Network Neutrality” Regulations Might Deter Investment in Internet, Limit Consumer Choice

This posting was written by John W. Arden.

Proposals for FCC regulations—offered by companies and organizations in the name of “net neutrality”—might deter broadband Internet providers from upgrading and expanding their networks to reach more Americans, according to a Department of Justice filing submitted in response to an FCC Notice of Inquiry regarding broadband practices.

The term “net neutrality” encompasses a variety of proposals that seek to regulate how broadband Internet providers transmit and deliver Internet traffic over their networks, the Department said.

Shifting of Costs

Proposals that preclude broadband providers from charging content and application providers directly for faster or more reliable service “could shift the entire burden of implementing costly network expansions and improvements onto consumers.” If the average consumer is unwilling or unable to pay more for broadband Internet access, the result could be to reduce or delay critical network expansion and improvement, the Department said in its filing.

It may make economic sense for content providers who want a higher quality of service to pay for the Internet upgrades necessary to provide such service, since any regulation that prohibits charging content and application providers “may leave broadband providers unable to raise the capital necessary to fund these investments.”

“Consumers and the economy are benefitting from the innovative and dynamic nature of the Internet,”said Thomas O. Barnett, Assistant Attorney General in charge of the Department’s Antitrust Division. “Regulators should be careful not to impose regulations that could limit consumer choice and investment in broadband facilities.”

Absence of Widespread Problems

Despite the FCC’s call for specific information on harmful broadband activities, the Department noted that comments filed in response to this Notice of Inquiry did not provide evidence that would suggest the existence of a widespread problem that needs to be addressed. In addition, there is no consensus on what “net neutrality” means or what should be prohibited in the name of “neutrality.”

“The FCC should be highly skeptical of calls to substitute special economic regulation of the Internet for free and open competition enforced by the antitrust laws,” the Department said in its filing. “Marketplace restrictions proposed by some proponents of ‘net neutrality’ could in fact prevent, rather than promote, optimal investment and innovation in the Internet, with significant negative effects for the economy and consumers.”

Internet Regulation v. Antitrust Enforcement

While cautioning against premature regulation of the Internet, the Department noted its authority to enforce the antitrust laws. “Anticompetitive conduct about which the proponents of regulation are concerned will remain subject to the antitrust laws and enforcement actions by government as well as private plaintiffs, and the Department will continue to monitor developments, taking enforcement action where appropriate to ensure a competitive broadband Internet access market,” the Department stated.

The Department of Justice’s ex parte filing and a news release are available from the Department of Justice on the Antitrust Division’s web site.

Microsoft Final Judgments Benefit Competition, Consumers: Antitrust Division

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

Final judgments entered in the federal/state antitrust enforcement action against Microsoft Corporation in 2002 have benefited competition and consumers, according to the Department of Justice Antitrust Division.

"The judgment has protected the development and distribution of middleware --including web browsers, media players, and instant messaging software --that has increased choices available to consumers," the Justice Department stated.

In an August 30 joint filing with the federal district court in Washington, D.C., the Justice Department and the states of New York, Louisiana, Maryland, Ohio, and Wisconsin submitted a review of the Microsoft final judgments (2006-2 CCH Trade Cases ¶75,418; 2006-2 CCH Trade Cases ¶75,541), which resulted from federal/state allegations that the computer software company "unlawfully maintained its monopoly in PC-based operating systems by excluding competing software products known as middleware that posed a nascent threat to the Windows operating system."

"The final judgments have been successful in protecting the development and distribution of middleware products and in preventing Microsoft from continuing the type of exclusionary behavior that led to the original lawsuit," said Thomas O. Barnett, Assistant Attorney General in charge of the Department of Justice Antitrust Division. "The Antitrust Division has made enforcement of the final judgments an important priority and will continue to vigorously enforce the antitrust laws in computer software markets."

According to the August 30 court filing, there have been "a number of developments in the competitive landscape relating to middleware and to PC operating systems generally that suggest that the Final Judgments are accomplishing their stated goal of fostering competitive conditions among middleware products ..." The report cites:

 Increased competition facing Microsoft's Internet Explorer from other Web browsers;

 The popularity of Apple's iTunes and Adobe's Flash for handling multimedia content;

 The increasing use of Web-based services for e-mail and other applications that historically would have been handled by local applications; and

 The decisions by computer manufacturers to offer the option of computers pre-loaded with a Linux operating system rather than Windows.

Since Microsoft was never found to have acquired or increased its monopoly market share unlawfully, the final judgments were not designed to eliminate Microsoft's Windows monopoly or reduce Windows' market share by any particular amount, the court filing noted.

Rather, the final judgments were designed to re-invigorate competitive conditions that Microsoft had suppressed so that the market could determine the success of these software products. The final judgments are succeeding in that goal, according to the Justice Department.

The Microsoft final judgments are scheduled to expire in November 2007. The Department concluded that it was necessary to extend certain provisions of the final judgments relating to protocol licensing until November 2009. Microsoft agreed to that extension, which was approved by the federal district court in 2006. Microsoft has also agreed that the Department and state antitrust enforcement agencies may, at their discretion, apply to the court in fall 2009 for an additional extension to all or part of the extended provisions of the final judgments for a period of up to three additional years, through November 2012.

A news release on the filing appears at the U.S. Department of Justice Antitrust Division web site.

High Court Review Sought in Driver Privacy Class Action

This posting was written by William Zale, Editor of CCH Privacy Law in Marketing.

Officials of the Florida Department of Highway Safety & Motor Vehicles, who face potential liability of billions of dollars for selling drivers’ personal information to mass marketers, have asked the U.S. Supreme Court to review the drivers’ putative class action.

The officials seek review of a decision by the U.S. Court of Appeals in Atlanta that they were not entitled to qualified immunity.

Driver’s Privacy Protection Act

The appellate court held that, although the officials’ alleged sale of drivers’ personal information to mass marketers did not violate a constitutional right, a statutory right to privacy in motor vehicle information was clearly established by the federal Driver’s Privacy Protection Act, giving fair notice that the alleged conduct violated federal law.

The plain language of the Act clearly, unambiguously, and expressly created a statutory right enforceable by enabling aggrieved individuals to sue persons who obtain, disclose, or use their personal information in violation of the Act.

Private Suit Authorization

The Act’s private suit provision (18 U.S.C. Sec. 2724(a)) states:

“A person who knowingly obtains, discloses or uses personal information, from a motor vehicle record, for a purpose not permitted under this chapter shall be liable to the individual to whom the information pertains, who may bring a civil action in a United States district court.”

The remedies provision (18 U.S.C. Sec. 2724(a)) states:

“The court may award—(1) actual damages, but not less than liquidated damages in the amount of $2,500; (2) punitive damages upon proof of willful or reckless disregard of the law; (3) reasonable attorneys’ fees and other litigation costs reasonably incurred; and (4) such other preliminary and equitable relief as the court determines to be appropriate.”

The appellate court noted that, in Reno v. Condon, 528 U.S. 141 (2000), the U.S. Supreme Court had determined that, under the statute as amended in 1999:

“States may not imply consent from a driver’s failure to take advantage of a state-afforded opportunity to block disclosure, but must rather obtain a driver’s affirmative consent to disclose the driver’s personal information for use in surveys, marketing, solicitations, and other restricted purposes.”

Petition for Review

In their petition for Supreme Court review, the Florida officials contend that the appellate court’s decision that the DPPA created a private cause of action for damages against state officials for complying with state law is wrong and will have disastrous consequences for the states. The officials further contend that the suit for damages solely for compliance with or implementation of state law is barred by the Eleventh Amendment. Finally, the officials argue that they did not violate clearly established law and were entitled to qualified immunity.

Further developments relating to the petition for certiorari filed August 13, 2007, in Dickinson v. Collier, U.S. S.Ct. Dkt. 07-197, will be reported at CCH Privacy Law in Marketing ¶20,000.

The February 12, 2007, decision of the U.S. Court of Appeals for the Eleventh Circuit in Collier v. Dickinson, No. 06-12614, will be reported at CCH Privacy Law in Marketing ¶60,109.

Details regarding recently-issued CCH Privacy Law in Marketing appear at the CCH Online Store.

Advertising Claims on Insurance Referral Website Not Puffery

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

Advertising claims on insurance referral website operated by MostChoice—stating that the referral service was “Better Than NetQuote.com” and “All the leads are . . . customers requested”—were not mere puffery, the federal district court in Denver has ruled.

Thus, competitor NetQuote sufficiently alleged a Lanham Act Section 43(a) false advertising claim against MostChoice, the court determined.

Factual Statements

Although a simple statement that one’s products are better than a competitor’s likely would be nonactionable puffery, NetQuote correctly characterized the bulk of MostChoice’s alleged statements as factual, according to the court.

NetQuote argued that the claims deceived existing and potential customers by contending that NetQuote sold an inferior product based in large part on bad leads.

In fact, NetQuote alleged that MostChoice hired Brandon Byrd in order to submit false leads to NetQuote. Both MostChoice and employee Byrd admitted that the latter submitted at least 394 fictitious leads.

Coverage of Lanham Act

Implied falsities fall within Lanham Act Section 43(a), the court noted. The statute encompassed more than literal falsehoods. Otherwise, clever use of innuendo, indirect intimation, and ambiguous suggestions could shield an advertisement from scrutiny precisely when protection against sophisticated deception was most needed, the court observed.

In this case, the complaint fairly could be construed to allege that MostChoice’s advertising claims implied that NetQuote’s leads generally were of poor quality. Nothing in the advertisements would have notified the readers that the reason NetQuotes leads were of poor quality was because of the false leads submitted by MostChoice. Thus, the allegations supported a claim for false advertising under the Lanham Act.

The decision is NetQuote, Inc. v. Byrd, Civil Action No. 07-cv-00630-DME-MEH, filed August 15, 2007. The opinion appears at CCH Advertising Law ¶62,627 and will appear at CCH 2007-2 Trade Cases ¶75,837.