Source: http://traderegulation.blogspot.com/2011/07/
Timestamp: 2019-04-26 07:44:24+00:00

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Antitrust claims against Internet search engine Google, Inc. brought by an operator of a business-to-business (B2B) website participating in Google’s “AdWords” search engine advertising platform were properly dismissed based on a forum selection clause in an agreement between the parties, the U.S. Court of Appeals in New York City decided recently.
Taking issue with the prices Google charged for its participation in the AdWords program, the website operator brought antitrust claims in the federal district court in New York City. Google sought dismissal pursuant to Federal Rules of Civil Procedure 12(b)(1) and (3) for lack of subject matter jurisdiction and improper venue. It argued that the complaining website operator had accepted the terms and conditions associated with participation in its AdWords program, which included the forum selection clause. The federal district court granted Google’s motion to dismiss based on the forum selection clause ( (CCH) 2010-1 Trade Cases ¶76,941).
Google was entitled to seek enforcement of the forum selection clause in its agreement with the complaining website operator through a Rule 12(b) motion to dismiss, the appellate court held. The appellate court rejected the argument that a district court may only enforce a forum selection clause by transferring the case pursuant to 28 U.S.C. § 1404, when the clause specifies that claims must be brought in a forum other than the one in which they have been brought, yet permits those claims to be brought in a different federal forum. A motion to transfer pursuant to 28 U.S.C. § 1404(a) was not the only appropriate vehicle for enforcing the forum selection clause.
In a separate summary order, the appellate court rejected the complaining website operator’s arguments against enforcement of the forum selection clause. The complaining website operator accepted the terms of the agreement. Moreover, the forum selection clause broadly included any claim arising under or related to the “Google Programs,” irrespective of whether it arose prior to or subsequent to the acceptance of the agreement. The court did not agree with the website operator’s contention that the district court erred by “retroactively” applying the agreement containing the clause to Google’s alleged anticompetitive conduct. Lastly, enforcement of the forum selection clause would not have been unconscionable or against public policy. Because Google held a “special interest” in making sure that it was not subject to suit in numerous different fora for claims arising from its agreements with over a million advertisers, a reasonable forum selection clause was permissible. Moreover, the mere existence of a federal antitrust claim did not void a forum selection clause as against public policy, the appellate court held.
The July 26, 2011, published decision and summary order in TradeComet.com LLC v. Google, Inc., No. 10-911-cv, will be published at (CCH) 2011-2 Trade Cases ¶77,537 and (CCH) 2011-2 Trade Cases ¶77,538, respectively.
Labels: forum selection clause, Google Ad Words program, SourceTool.com, TradeComet.com LLC v. Google Inc.
Advertising Nutella® hazelnut spread as a “tasty yet balanced breakfast” was not mere puffery, and purchasers satisfied the reasonable consumer test under California consumer protection statutes in a suit against the food manufacturer Ferrero U.S.A., Inc., the federal district court in San Diego has ruled.
In a class action complaint, the purchasers alleged that Ferrero misleadingly labeled and advertised Nutella as healthy and beneficial to children, when in fact it contained dangerous levels of fat and sugar.
The purchasers’ complaint provided detailed lists of the challenged representations, the sections of the Consumers Legal Remedies Act (CLRA) that Ferrero allegedly violated, and a statement of how each section was violated. The purchasers stated a claim of unlawful conduct under the Unfair Competition Law (UCL) based on alleged violations of the False Advertising Law and the CLRA. The purchasers stated a claim of unfair conduct under the UCL by alleging that the misleading labeling of Nutella was immoral, unscrupulous, and offensive to public policy, and that the utility of the advertising and labeling was outweighed by the harm suffered by the purchasers.
Federal law preempted an allegation that Ferrero deceptively omitted from its Nutella labeling the fact that it contained artificial flavoring, the court held. Food labeling was governed by the federal Food, Drug, and Cosmetic Act, as amended by the Nutrition Labeling and Education Act. Because Nutella’s label stated the fact that it contained vanillin, an artificial flavor, the label complied with the federal disclosure requirements, the court said.
Ferrero did not argue that the purchasers’ allegations regarding statements from its television advertisements were preempted.
The purchasers lacked standing to challenge statements on the Nutella website because, according to the purchasers’ allegations, they did not actually rely on the website statements before making their purchases, the court decided. The purchasers alleged that they only relied on representations from Nutella’s label and television advertisements in purchasing the product, and they admitted in their briefing that they had not visited the website.
The purchasers argued that they did not have to rely on individual website misrepresentations because the representations were part of a long-term, multifaceted advertising campaign, but the purchasers did not allege this in their complaint, the court noted. The purchasers were given 30 days to cure deficiencies in the complaint.
The June 30, 2011 opinion, In re Ferrero Litigation, 11-CV-205 H (CAB), will be reported at CCH Advertising Law Guide ¶ 64,349.
The Department of Justice Antitrust Division and the Federal Trade Commission announced today that they have entered into a cooperation agreement with China’s three antitrust agencies. The new Memorandum of Understanding was signed on July 27 in Beijing and took effect immediately.
The U.S. antitrust agencies have similar agreements with a number of other foreign counterparts. Earlier this year, the Department of Justice and FTC announced a Memorandum of Understanding with Chile.
This latest agreement sets out a framework for cooperation between the U.S. antitrust agencies and the People’s Republic of China National Development and Reform Commission, Ministry of Commerce, and State Administration for Industry and Commerce. The document calls for joint dialogue on competition policy at the senior official level. It also envisions ad hoc working groups to facilitate discussions on particular issues.
The agencies do not intend to exchange confidential information “if the communication is prohibited by the laws governing the agency possessing the information or would be incompatible with that agency’s interests.” When information is communicated, the agencies have agreed to maintain its confidentiality to the extent consistent with applicable laws.
The text of the agreement with the Chinese authorities will appear at CCH Trade Regulation Reporter ¶13,512. The Memorandum of Understanding with Chile appears at CCH Trade Regulation Reporter ¶13,511.
The Private Securities Litigation Reform Act (PSLRA) barred a RICO conspiracy claim against two financial services companies that allegedly aided and abetted a Ponzi scheme that was perpetrated by former hedge fund manager Bernie Madoff, the U.S. Court of Appeals in New York City ruled earlier this month. The ruling settled a conflict among district courts in the Second Circuit regarding the scope of the PSLRA’s bar on civil RICO claims.
The PSLRA prohibited private plaintiffs from pursuing RICO claims that were predicated on conduct that was actionable as fraud in the purchase or sale of securities. The issue in this case was whether an exception to the bar existed when an injured plaintiff lacked a cause of action sounding in securities fraud (in this case, because the plaintiff alleged only an aiding and abetting claim, which could not serve as the basis for a private right of action). When Congress stated that “no person” could bring a civil RICO action for conduct that would have been actionable as securities fraud, it did not mean “no person except one who has no other actionable securities fraud claim,” the court explained. Moreover, the legislative history of the PSLRA supported this reading.
The Conference Committee Report for the relevant PSLRA provision stated that Congress intended the provision to “eliminate securities fraud as a predicate offense in a civil RICO action,” and bar a plaintiff from “plead[ing] other specified offenses, such as mail or wire fraud, as predicate acts under civil RICO if such offenses are based on conduct that would have been actionable as securities fraud.” Congress was aware that the RICO amendment would place some claims—such as those for aiding and abetting securities laws violations—outside the reach of private civil RICO suits. It appeared, however, that the Senate was satisfied that the securities laws would “generally provide adequate remedies for those injured by securities fraud,” according to the court.
Finally, the Third, Fifth, Ninth, and Tenth Circuits each came to a similar conclusion, even though those courts were not presented with the same circumstances (aiding and abetting) that existed in this case.
The July 7, 2011, decision in MLSMK Invest. Co. v. JP Morgan Chase & Co. (2nd Cir.) will appear at CCH RICO Business Disputes Guide ¶12,069.
A motor vehicle franchisor did not violate the Massachusetts motor vehicle dealer law or breach its agreement with a dealer by failing to consider the application of a prospective purchaser of the dealership made only one week before the termination date of the parties’ agreement, the U.S. Court of Appeals in Boston has decided.
Both by statute and the parties’ agreement, the franchisor had the right to a longer period to make due diligence enquiries about the buyer than the remaining period of the franchise. Thus, a federal district court's ruling (CCH Business Franchise Guide ¶14,360), granting summary judgment to the franchisor on the dealer’s breach of contract and statutory claims, was affirmed.
The dealer law gave the franchisor at least 30 days and up to 60 days to decide whether to approve the prospective purchaser’s application to purchase the dealership. The parties’ franchise agreement allowed the manufacturer 45 days, the court noted.
The court rejected the dealer’s contention that the franchisor must exercise due diligence and come to a decision on the prospective purchase (or be bound by a default approval under the dealer law) beyond the remaining effective period of the parties’ agreement.
One week prior to the scheduled termination date of the dealer’s franchise, the dealer sent a purchase-sale agreement to the franchisor for its approval. The dealer requested that the franchisor send the prospective purchaser an application form in accordance with the franchise terms, but the franchisor declined, and the dealer filed suit.
The parties then executed a "stand-still" agreement, requiring the franchisor to continue to do business with the dealer during litigation, but expressly saving the franchisor’s rights and claims.
On appeal, the dealer argued that the district court erred in concluding that the dealer’s diminished franchise right negated the franchisor's obligation to consider a franchise application from the buyer. However, a reasonable reading of the agreement was that the franchisor must consider a dealer’s proposed successor only when the remaining duration of the franchise agreement included sufficient time for the period of enquiry by the franchisor that the statute and the agreement allowed, the court held.
The decision in South Shore Imported Cars, Inc. v. Volkswagen of America, Inc. appears at CCH Business Franchise Guide ¶14,635.
Labels: franchise termination, franchise transfers, franchisor's due diligence, prospective purcahser, South Shore Imported Cars Inc v. Volkswagen of America Inc.
A vegetarian restaurant franchisee adequately alleged common law fraud and violations of the Maryland Franchise Disclosure Law against a franchisor, based on the franchise startup cost projections in the franchisor’s Uniform Franchise Offering Circular (UFOC), a federal district court in Greenbelt, Maryland, has decided. Thus, the franchisor’s motion to dismiss the claims was denied.
The franchisor’s motion to dismiss claims alleging violation of the New York Franchise Sales Law—on the ground that the New York statute did not apply to the parties’ relationship—was also denied.
The allegations of fraud in the franchisee’s complaint were sufficiently detailed to satisfy particularity in pleading requirements, the court held. The franchisee was consistently specific regarding time, date, place, and contents of the allegedly fraudulent cost projections made by the franchisor.
The franchisee alleged that the startup cost estimates in the franchisor’s UFOC dramatically underestimated the actual startup costs for its franchise and that the franchisor knew that the representations were inaccurate at the time it made them. The franchisee’s factual averments about the franchisor’s knowledge were less specific, but heightened pleading was not required for the scienter element of fraud, according to the court.
The facts in this case made the franchisee’s claims even stronger than they were in an earlier case, Motor City Bagels, LLC v. American Bagel Co., (CCH Business Franchise Guide ¶11,654), in which the court held that a franchisor could have committed fraud by misrepresenting the initial investment costs in its UFOC, the court reasoned.
In this case, the alleged discrepancy between the UFOC and the actual startup costs was much greater than in Motor City, suggesting a potential miscalculation of 85 percent or more.
The franchisor argued that cost projections were statements of opinion and could not constitute fraud because they were not susceptible to exact knowledge at the time they are made. However, erroneous projections could supply a basis for fraud under Maryland law in some cases, the court held.
Whether projections were sufficiently concrete and material to qualify as statements of fact required a context-sensitive inquiry that could not be reduced to a single formula. An assessment of relevant factors—including the extent of the alleged discrepancy, whether the projection was based on mere speculation or on facts, and whether the projection was contrary to any facts in the franchisor’s possession—supported the conclusion that the franchisee stated a claim for fraud.
The New York Franchise Sales Act applied to the relationship between the Delaware franchisor, with its principal place of business in New York, and the franchisee’s operation of a restaurant in Washington, D.C. because the franchisor’s offer to sell the franchise originated from New York, the court ruled.
Important aspects of the franchise transaction occurred in New York. The initial in-person discussions regarding the franchisee’s potential purchase of a franchise took place there, the court noted. Both of the documents central to the parties’ franchise transaction—the franchisor’s UFOC and the franchise agreement—were mailed by the franchisor from its principal place of business in New York to the franchisee’s Maryland address.
Although neither the franchisee nor the franchised restaurant were located in New York, those facts alone were not dispositive because the New York Franchise Sales Act attempted to protect franchisees in other states where offer and/or acceptance took place in New York, according to the court.
The rationale for extending the statute to situations such as this was to protect and enhance the commercial reputation of New York by regulating not only franchise offers directed at New York from other states, but also those originating in New York, from New York-based franchisors, in the court’s view.
The July 7 opinion in A Love of Food I, LLC v. Maoz Vegetarian USA, Inc. will appear at CCH Business Franchise Guide ¶14,633.
Purchasers of 3G-enabled iPads can pursue claims of common law fraud against Apple and AT&T Mobility, but the purchasers failed to state claims under California consumer protection statutes, the federal district court in San Jose has ruled.
Apple’s and AT&T’s advertising, including statements by Apple CEO Steve Jobs, allegedly led the purchasers to believe that they would have the flexibility of switching in and out of an unlimited data plan based upon their monthly needs.
Apple began selling 3G-enabled iPads on or around April 30, 2010, and the firms’ allegedly promoted the flexible and unlimited data plan options up to June 2, 2010, when they announced that as of June 7, 2010, they would no longer provide an unlimited data plan.
Consequently, purchasers who initially opted for the limited data plan no longer have the option to switch in and out of an unlimited plan. Purchasers who had signed up for the unlimited plan were allowed to maintain it, but if they discontinued it they would not be allowed to switch back.
The purchasers asserted a classic “bait and switch” fraud scheme and claimed that they would not have purchased 3G-enabled iPads had they known that the firms would pull the flexible unlimited data option.
Contrary to AT&T’s contention, the purchasers alleged the “who, what, when, where, and how” of the fraud with the particularity required by the Rule 9(b) of the Federal Rules of Civil Procedure. The court found that the complaint set forth specific information that AT&T allegedly concealed—that it would almost immediately be canceling the unlimited plan and denying customers flexible access to such a plan, and that this was its intention all along.
The purchasers pleaded the element of reliance by repeatedly alleging that both Apple's and AT&T's statements were material to them and had they known that there would be no flexible unlimited data plan, they would not have purchased their iPad 3Gs, according to the court. The purchasers claimed that AT&T was aware of Apple's alleged misrepresentations, but did nothing to counter the statements, and even endorsed them, the court added.
The purchasers failed to allege a proper basis for restitution under the California Unfair Competition Law and False Advertising Law with regard to excess data plan charges incurred after the unlimited data plan was replaced. A damages claim under the California Consumers Legal Remedies Act was rejected because a required 30-day advance notice of violation was sent to Apple but not to AT&T. In addition, non-California residents who purchased their iPads outside of California lacked standing to assert claims under the statutes.
The purchasers’ claims under the California consumer protection statutes were dismissed with leave to amend.
The July 18 opinion in In re Apple and AT&T iPad Unlimited Data Plan Litigation will be reported at CCH Advertising Law Guide ¶64,337.
Further information regarding CCH Advertising Law Guide appears here.
This posting was written by the CCH Trade Regulation editorial staff.
Maureen K. Ohlhausen, a Washington, D.C. attorney and former Federal Trade Commission staffer, will be nominated as FTC Commissioner, according to a White House statement issued yesterday.
Ohlhausen would fill the position held by Commissioner William E. Kovacic, whose term on the FTC expires in September.
She is currently a partner at Wilkinson Barker Knauer LLP, in the firm’s privacy, data protection, and cybersecurity practice.
From 1997 to 2008, Ohlhausen served in a number of leadership roles at the FTC, including as Director of the Office of Policy Planning and, earlier, as an attorney advisor for Commissioner Orson Swindle.
A graduate of University of Virginia and George Mason University School of Law, Ohlhausen is a senior editor of the American Bar Association Antitrust Law Journal. She has taught privacy law and unfair trade practices as an adjunct professor at George Mason University School of Law.
Text of the announcement appears here at the White House website.
California's three largest grocery chains were not liable under federal antitrust law for entering into an agreement to share profits amongst themselves and with a fourth chain during, and for a short period after, an anticipated labor dispute, the U.S. Court of Appeals in San Francisco has ruled in a divided en banc opinion.
The agreement was not exempt from antitrust scrutiny under the non-statutory labor exemption. However, summary condemnation—whether as a per se violation or under a truncated “quick look” standard of analysis—was improper. Therefore, the denial of cross-motions for summary judgment by the defending grocery chains (2005-1 Trade Cases ¶74,805) and the plaintiff, the State of California, was affirmed.
While the lower court's entry of final judgment in the grocers' favor was likewise affirmed, the legality of the agreement under the rule of reason may ultimately not be determined in the case.
The parties had stipulated to the entry of final judgment for appellate purposes by narrowing their arguments. California agreed not to pursue the theory that the profit-sharing agreement violated Sec. 1 of the Sherman Act under a full rule of reason analysis, while the grocers agreed not to pursue various affirmative defenses they had pleaded, with the exception of the non-statutory labor exemption.
The profit-sharing agreement at issue was a provision within a Mutual Strike Assistance Agreement (MSAA) entered into by the three defending chains and a fourth chain. In the MSAA, the chains agreed to lock out their union employees within 48 hours of a strike against any one or more of them, a traditional tactic in labor disputes to combat the union's anticipated use of “whipsaw tactics,” in which unions strike or picket only one employer in a multiemployer bargaining unit.
The profit-sharing provision constituted an offensive weapon used by the chains to prevail in the dispute, in the court's view. It was designed to maintain each defendant's pre-labor dispute market share. Such a provision, however, was not needed to make the collective-bargaining process work. It did not relate to any core subject matter of bargaining—namely wages, hours, and working conditions--but related principally to the temporary, artificial maintenance of the grocers' revenues. Thus, it was not immunized from antitrust review by the nonstatutory labor exemption, the court decided.
Whether characterized as a profit-pooling agreement or a market allocation agreement, the profit-sharing provision was not so obviously anticompetitive to constitute an antitrust violation under a pure per se approach, the court held. In contrast to previous cases in which profit-sharing agreements were to endure for decades or permanently, the grocery chains' agreement was written to last only as long as the labor dispute, and to continue for a mere two weeks after the termination of any strike or lockout.
Unlike firms in most of the prior profit-sharing cases cited by the plaintiff—including Citizen Publishing Co. v. United States (1969 Trade Cases ¶72,730) and United States v. Paramount Pictures, Inc. (1948-1949 Trade Cases ¶62,244)—the defendants were not the only competitors in the affected areas. Thus, the agreement evaded any “easy label” of profit-pooling and could not sensibly be grouped together with or analogized to the very different arrangements described in those prior cases, the court said.
An attempt by the State of California to characterize the profit-sharing provision as a market allocation agreement was rejected because the pact did not prevent any of the defending grocers from actually making sales to consumers.
Summary condemnation under a truncated rule of reason or “quick look” analysis was also unwarranted, the court concluded. A quick look conclusion of antitrust illegality was inappropriate for many of the same reasons that per se treatment was incorrect.
The unique features of the agreement and the uncertain effect those features had on the grocers' competitive behavior and incentives during the revenue-sharing period rendered any anticompetitive effects of the agreement not obvious. To reach a confident conclusion on those effects, further development of the record was required, the court noted.
A partial dissent contended that because the majority concluded that there was no categorical antitrust violation under the quick look doctrine, the court overstepped its Article III jurisdiction in ruling on the non-statutory labor exemption. Moreover, the partial dissent expressed “doubt that the majority decide[d] the labor exemption issue correctly because it fail[ed] to grapple with the complex dynamics” of the case.
Another partial dissent argued that the defendants' profit-sharing agreement could readily be determined to violate the antitrust laws under the intermediate “quick look” standard.
The July 12 decision is State of California v. Safeway, Inc., 2011-1 Trade Cases ¶77,522.
An FTC administrative challenge to Phoebe Putney Health System, Inc.’s proposed acquisition of rival Palmyra Park Hospital, Inc. in Albany, Georgia, was stayed by the Commission on July 15.
The respondents sought the stay pending the outcome of the FTC’s appeal of a federal district court’s dismissal of the agency’s court action. In the court action, the FTC sought preliminary injunctive relief against the acquisition until the administrative trial was resolved.
The FTC staff did not did not oppose the respondents’ motion for stay of the administrative challenge. The administrative law judge had recommended that the Commission grant the stay (CCH Trade Regulation Reporter ¶16,619).
Last month, the federal district court in Albany, Georgia, denied the request for a preliminary injunction and dismissed the suits (2011-1 Trade Cases ¶77,508). (See Trade Regulation Talk, June 30, 2011). The court ruled that the challenged transaction was state action immune from the antitrust laws. The FTC made a motion for an expedited appeal, which was granted by the U.S. Court of Appeals in Atlanta on July 7 (2011-1 Trade Cases ¶77,527).
The administrative proceeding is In the Matter of Phoebe Putney Health System, Inc., Docket No. 9348. The July 15 order granting the respondents’ unopposed motion to stay the proceeding appears here. It will be reported at CCH Trade Regulation Reporter ¶16,620.
The International Franchise Association (IFA) has recently made its views known on two Massachusetts bills by submitting “testimony” concerning the proposals in letters to the state legislature’s Joint Committee on Community Development and Small Business.
In the letters, IFA’s Senior Vice President of Government Affairs and Public Policy, Judith Thorman, expresses the organization’s support for Massachusetts House Bill No. 3513, which would amend the state labor laws to clarify that franchisees are not employees, and voices the IFA’s arguments against advancement of Massachusetts Senate Bill No. 1843, a proposed franchise relationship/termination law.
"Notwithstanding the provisions of this section, an individual who owns a franchise, or is a party to a franchise agreement under which he or she is authorized to sell products and/or services (a) in accordance with prescribed methods and procedures; and (b) under service marks, trademarks, trade names and other intellectual property licensed under such agreement, shall not be considered an employee of the franchisor."
(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
“The problem from a franchising perspective—and the reason for this legislation—is that, while a rational person would think otherwise, an argument can be made that a franchise system fails all three prongs of Massachusetts’ ABC Test,” in Thorman’s view.
The proposed legislation would not absolve employers from adhering to Massachusetts law, Thorman continued. Franchisees would remain fully liable to their employees for all appropriate obligations, just as franchisors would continue to be responsible for their employees.
Furthermore, if franchisees were treated as employees under Massachusetts law, “some franchisors will seek to impose the resulting costs on the franchisee, since they are properly the costs of operating the franchisee’s business, Thorman commented.
“Other franchisors will simply stop selling franchises in a jurisdiction that finds them to be ‘employers,’ go elsewhere, and thereby reduce the opportunities for those entrepreneurs left behind.” Both results would fail to promote the legitimate state objectives and punish those who wanted to be entrepreneurs.
Moreover, the proposed language of S.B. 1843 was nothing new and had been previously proposed and rejected in Massachusetts multiple times, according to the letter.
To understand the IFA’s concerns over the proposal, Thorman referenced Iowa's enactment of similar legislation in 1992. As a result of the enactment of a relationship law, “growth of the franchising business model ground to a halt” in Iowa, especially in comparison to the strong growth rates experienced by the surrounding states of Illinois, Minnesota, Nebraska, South Dakota, and Wisconsin during the years following 1992.
The Massachusetts bill would prohibit a franchisor from terminating or failing to renew a franchise, except for “good cause showing which shall include, but not be limited to, the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement.” It also would also require written notice of termination or nonrenewal be provided to a franchisee at least 90 days in advance, along with the cause for the action.
The bill would hold any franchisor that developed a new outlet or location that had an adverse impact on the gross sales of an existing franchise liable to the affected existing franchisee for monetary damages, unless certain exceptions applied.
The proposal also imposes an inventory repurchase obligation on franchisors and prohibits franchisors from several types of actions, including: (1) prohibiting the right of free association among franchisees; (2) imposing unreasonable standards of performance on a franchisee; and (3) failing to deal in good faith with a franchisee.
The FTC has updated its regulatory review schedule for the next 10 years and has invited public comments on ways it can improve its regulatory review process to better serve consumers and businesses. The Commission’s revised regulatory review schedule for 2011 through 2020 appears here on the FTC website and at CCH Trade Regulation Reporter ¶38,005.
The notice announcing the revised review schedule appears at 76 Federal Register 41150, July 13, 2011.
The Commission schedules all rules and guides for review every ten years. The Commission’s regulatory review docket includes 13 rules and guides currentlyunder review and 10 additional rule reviews scheduled to start this year. More than a third of the Commission’s 66 rules and guides will be under review, or will have just been reviewed, by the end of 2011, according to the agency.
The agency revises the schedule annually, with adjustments in response to public input, changes in the marketplace, and resource demands. The FTC said that in recent years it has accelerated the review of six rules and guides to address changes in technology and the marketplace and to reduce burdens on industry.
For instance, in 2011, the agency will review portions of the Hart-Scott-Rodino Antitrust Improvements Act (HSR) Coverage Rule, 16 CFR Part 801, that were set for review in 2013. In addition, the Appliance Labeling Rule, 16 CFR Part 305, will be reviewed in 2012 instead of 2018.
The Commission also removed nine matters from its regulatory review schedule because authority to modify or repeal them will be transferred to the Consumer Financial Protection Bureau in 2011. Those rules deal primarily with credit reporting and debt collection.
For the first time, the FTC is seeking comment on how it can improve its regulatory review process. Comments must be submitted on or before September 6, 2011. Comments, marked “Regulatory Review Schedule, should be sent to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex N), 600 Pennsylvania Avenue, NW, Washington, DC 20580.
Comments also can be submitted electronically online here.
The FTC’s regulatory review efforts were the topic of July 7 hearing of the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations.
The testimony also noted that the Commission is in the process of identifying reports required by statute as well as statutes themselves that appear to be of limited value, but that divert business or Commission resources from more pressing work.
The two congressionally mandated reports were identified: an annual report on concentration in the ethanol market and a report, prepared by the Commission together with the Department of Justice and the Department of Education, describing actions taken to address scholarship scams.
The Federal Trade Commission and Department of Justice Antitrust Division have announced revisions to the form that parties must file when seeking antitrust clearance of proposed mergers and acquisitions under the Hart-Scott-Rodino (HSR) Act Premerger Notification Rules.
The final rules and report form will take effect 30 days after publication in the Federal Register. Text of the Federal Register Notice appears here. Text of the Amended Premerger Notification and Report Form appears here. Further information appears at CCH Trade Regulation Reporter ¶50,271.
The revisions and additions take into account feedback received from antitrust practitioners. Last August, the agency sought public comment on updates to the rules and report form. The notice of proposed rulemaking was published at 75 Federal Register 57110, September 17, 2010.
The revised HSR form deletes several categories of information that over time have proven unnecessary in a preliminary merger review. HSR filers will no longer be required to provide copies of documents—whether in hard copy or via electronic link—filed with the Securities and Exchange Commission (Item 4(a)), report economic code “base year” data (Item 5(a)), or give a detailed breakdown of all the voting securities to be acquired (Item 3(c)).
Filers, however, will have to provide the agencies “with narrowly focused additional documents that will help expedite the merger review process,” according to the announcement.
New Item 4(d) requires the submission of certain documents that have not been submitted with regularity as Item 4(c) documents, because of differing interpretations as to whether they were called for under current Item 4(c). Generally, Item 4(c) documents include studies and reports prepared by or for officers or directors—or individuals exercising similar functions in the case of unincorporated entities—for the purpose of evaluating or analyzing the competitive effects of an acquisition.
Under Item 4(d), filers will be required to include: “Confidential Information Memoranda” prepared by or for officers or directors and specifically related to the sale of the acquired entity or assets (Item 4(d)(i)); materials prepared by investment bankers, consultants, or other third party advisors for officers or directors during an engagement or for the purpose of seeking an engagement that specifically relate to the sale of the acquired entity or assets (Item 4(d)(ii)); and materials evaluating or analyzing synergies and/or efficiencies prepared by or for officers or directors for the purpose of evaluating or analyzing the acquisition (Item 4(d)(iii). Only Confidential Information Memoranda and third party materials created within one year of filing need be filed.
The required inclusion of information regarding “associates” with filings is intended to address agency concerns over the sufficiency of information about ties between acquiring investment funds and other entities that are associated with these acquiring entities, which have holdings in the same line of business as the target.
Associates are entities that are under common management with the acquiring person, but are not under the acquirer’s control within the meaning of the HSR rules. Examples include general partners of a limited partnership and other investment funds whose investments are managed by a common entity or under a common investment management agreement.
The FTC rejected a suggestion that the definition of associate be limited to master limited partnerships and private equity funds, since new types of entities that raise similar concerns may emerge in the future. The FTC estimates that this change will increase the filing burden for acquiring persons that are private equity funds and master limited partnerships.
The agencies have made changes to Item 5 to require the reporting of North American Industry Classification System (NAICS) product code information for products manufactured outside of the United States and sold into the United States. Filing parties will need to include 10- digit NAICS product codes and revenues for such foreign manufactured products only for the most recent year.
While foreign manufacturers might experience an additional burden because of their unfamiliarity with NAICS manufacturing codes, this burden is outweighed by the usefulness of the information to the agencies, according to the FTC.
Supreme Court Strikes Down Vermont Prescriber Data Privacy Law . . .
A Vermont statute regulating the collection and use of data identifying health care providers’ prescribing patterns impermissibly restricted data mining companies’ free speech rights in violation of the First Amendment, the U.S. Supreme Court has determined.
The challenged statute banned the sale, transmission, or use of prescriber-identifiable data (“PI data”) for marketing or promoting a prescription drug unless the prescriber gave consent.
The statute imposed content- and speaker-based burdens on protected expression, so it was subject to heightened judicial scrutiny, the Court said. The creation and dissemination of information were speech for First Amendment purposes.
The law forbade the sale of PI data subject to exceptions based in large part on the content of a purchaser’s speech. It then barred pharmacies from disclosing the information when recipient speakers would use that information for marketing. Finally, it prohibited pharmaceutical manufacturers from using the information for marketing.
The statute disfavored marketing—speech with a particular content. It also disfavored speech by particular speakers, according to the Court.
Specifically, it restricted the practice of “detailing” by data mining companies, which prepared reports helping pharmaceutical manufacturers to refine their marketing tactics. The law allowed PI data to be purchased, acquired, and used for other types of speech and by other speakers. Therefore, the statute went beyond mere content discrimination, to actual viewpoint discrimination.
Whether a special commercial speech inquiry or a stricter form of judicial scrutiny were applied, the statute did not advance a substantial government interest and was not narrowly tailored to serve that interest, in the Court’s view.
(2) Achieve the policy objectives of improving public health and reducing healthcare costs.
Assuming that physicians had an interest in keeping their prescription decisions confidential, the statute was not drawn to serve that interest, the Court said. Pharmacies were permitted to share prescriber-identifying information with anyone for any reason except for marketing. Vermont might have addressed physician confidentiality through “a more coherent policy,” but it did not.
Vermont’s goals of lowering the costs of medical services and promoting public health may have been proper, but the statute did not advance them in a permissible way, the Court stated. Vermont sought to achieve those objectives through the indirect means of restraining certain speech by certain speakers. Vermont did not contend that the statute would prevent false or misleading speech. The fear that people would make bad decisions if given truthful information cannot justify content-based burdens on speech, the Court concluded.
The opinion was delivered by Justice Kennedy and was joined by Chief Justice Roberts and Justices Scalia, Thomas, Alito, and Sotomayor.
The Court affirmed a decision of the U.S. Court of Appeals in New York City (CCH Privacy Law in Marketing ¶60,646). The U.S. Court of Appeals in Boston had upheld the validity of similar laws in Maine (IMS Health Inc. v. Mills, CCH Privacy Law in Marketing ¶60,527) and New Hampshire (IMS Health Inc. v. Ayotte, CCH Privacy Law in Marketing ¶60,270), rejecting constitutional challenges in both cases.
In a dissenting opinion joined by Justices Ginsburg and Kagan, Justice Breyer argued that the statute’s effect on expression was inextricably related to a lawful governmental effort to regulate a commercial enterprise. In Breyer’s view, heightened First Amendment scrutiny of such an effort was not required. In any event, Breyer said, the statute met the First Amendment standard previously applied by the Court when the government sought to regulate commercial speech.
The decision is Sorrell v. IMS Health Inc, CCH Privacy Law in Marketing ¶60,646.
The U.S. Supreme Court has granted an individual’s petition for certiorari requesting review of whether Congress divested the federal district courts of their federal-question jurisdiction under 28 U.S.C. Sec. 1331 over private actions brought under the Telephone Consumer Protection Act.
At issue is a decision of the U.S. Court of Appeals in Atlanta (CCH Privacy Law in Marketing ¶60,637) holding that the individual’s TCPA claims against a debt collection agency could be pursued only in state court.
Six U.S. Courts of Appeals (the Second, Third, Fourth, Fifth, Ninth, and Eleventh Circuits) have held that federal courts lack federal-question jurisdiction over private TCPA actions. The Sixth and Seventh Circuits have taken the contrary position, with the Seventh Circuit reasoning in Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (2005) that federal courts retained jurisdiction because the TCPA's provision authorizing private actions in state court did not declare state jurisdiction to be exclusive.
The petition for review is Mims v. Arrow Financial Services, LLC, Dkt. 10-1195, filed March 30, 2011, granted June 27, 2011.
Further information regarding CCH Privacy Law in Marketing appears here.
Consumers must be confident that their privacy will be protected if they are to take advantage of all the benefits offered by the Internet marketplace, the FTC told the Senate Committee on Commerce, Science and Transportation on June 29.
Commissioner Julie Brill delivered testimony on behalf of the FTC at a hearing examining how entities collect, maintain, secure, and use personal information in today’s economy and whether consumers are adequately protected under current law.
According to the testimony, the FTC has taken a three-pronged approach to preserving consumers’ privacy: law enforcement actions, consumer and business education efforts, and policy initiatives.
In the last 15 years, the FTC has brought more than 300 privacy-related actions, including 34 data security cases; 84 Fair Credit Reporting Act cases; 97 spam cases; 15 spyware cases; and 16 cases enforcing the Children’s Online Privacy Protection Act.
Based on roundtable discussions that involved privacy experts, business representatives, and academics, the FTC staff issued a preliminary report on December 1, 2010, proposing a privacy framework with three main concepts, the testimony stated. First, companies should adopt a “privacy by design” approach by building privacy protections into their everyday business practices, FTC staff recommended.
(5) It would not only opt consumers out of receiving targeted ads, but it also would opt them out of collection of behavioral data for all purposes other than certain commonly accepted practices.
Third, the staff report called on companies to improve their privacy notices so that consumers, advocacy groups, regulators, and others can compare data practices and choices across companies, thus promoting competition.
The Commission vote to issue the testimony was 5-0, with Commissioner J. Thomas Rosch dissenting in part and issuing a separate statement recommending that the Commission and Congress learn more about Do Not Track before proceeding.
“The root problem with the concept of ‘Do Not Track’ is that we, and with respect, the Congress, do not know enough about most tracking to determine how to achieve the five attributes identified in today’s Commission testimony, or even whether those attributes can be achieved,” Rosch said.
Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, is stepping down from her government post on August 5 to return to private practice.
Varney joined the Justice Department in April 2009, after being confirmed by the Senate. She previously served as Federal Trade Commissioner from 1994 to 1997. She is reportedly joining the law firm of Cravath, Swain & Moore LLP.
The Assistant Attorney General came to the job after the Obama administration pledged to reinvigorate antitrust enforcement. During confirmation hearings, she set out three main areas of focus: (1) the rebalance of legal and economic theories in antitrust analysis and enforcement; (2) a renewed collaboration between the Antitrust Division and the Federal Trade Commission; and (3) continued cooperation with worldwide antitrust authorities.
Soon after her confirmation, Varney made news by withdrawing the Antitrust Division’s September 2008 report (“Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act,” CCH Trade Regulation Reporter ¶50,231), which examined how specific types of single-firm conduct violate Section 2 of the Sherman Act. When issued, the report was severely criticized by three FTC Commissioners, who called it “a blueprint for radically weakened enforcement” of monopoly law.
Her desire to work in collaboration with the FTC may be seen in the agencies’ update to the Horizontal Merger Guidelines (CCH Trade Regulation Reporter ¶13,100), issued in August 2010. The joint guidelines, which hadn’t been thoroughly overhauled since 1992, were intended to outline for merging parties, courts, and antitrust practitioners how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law.
According to both the FTC and the Antitrust Division, the revised guidelines better reflected the agencies’ actual practices, providing more clarity and transparency to the process.
Just last month, the Antitrust Division issued an update to its 2004 guidance on merger remedies. The Policy Guide to Merger Remedies (CCH Trade Regulation Reporter ¶13,172) is used by Antitrust Division staff in analyzing proposed remedies in merger matters and is intended to provide transparency into the Division’s approach for the business community, antitrust bar, and the broader public.
In a June 24 speech examining “whether the Antitrust Division has been steadfast in ensuring vigorous enforcement of the antitrust law, as I promised upon confirmation," Varney highlighted the Division’s merger enforcement efforts. The Antitrust Division was committed to going to court “where the parties have been unwilling to resolve the anticompetitive aspects of their transactions,” she said.
She cited two current merger challenges: H&R Block Inc.’s proposed acquisition of the maker of TaxACT do-it-yourself tax preparation software and the combination of point-of-sale (POS) terminal sellers VeriFone Systems Incorporated and Hypercom Corporation. She also noted the recent settlement of a third matter involving the acquisition of a Tyson Foods Harrisonburg chicken processing complex by George’s, Inc.
Varney also discussed mergers that involved vertical theories, including Ticketmaster Entertainment’s acquisition of concert promoter Live Nation, Inc.; a joint venture between Comcast Corp. and General Electric Co.’s subsidiary NBC Universal Inc.; and Google’s acquisition of ITA Software Inc.
The Antitrust Division reviewed these vertical transactions "in light of their specific facts and market conditions and evaluated the competitive harms," said Varney. "In each case, we concluded that the transactions, as proposed, would give rise to competitive harm, and while we were prepared to sue, the parties agreed to consent decrees that addressed our concerns."
Varney also focused on her efforts to strengthen partnerships with other federal agencies, state agencies, and other governments, particularly those foreign countries with emerging economies. The Division worked collaboratively and provided input on competition issues with the Department of Transportation, the Federal Energy Regulatory Commission, the Securities and Exchange Commission, and the U.S. Commodities Futures Trading Commission, she said. The Division cooperated with states and foreign governments in pursuing civil and criminal investigations and in competition policy matters.
"I am grateful for my two and a half years of service as Assitant Attorney General of the Antitrust Division," said Varney. "From the start of my time here, it has been a tremendous privilege to work with the department's leadership and the dedicated professionals in the Antitrust Division."
A news release announcing the Assistant Attorney General’s departure from the Justice Department appears here on the Antitrust Division’s website.
A carpet dealer, its owner, and a manufacturer-supplier could have unreasonably restrained trade in violation of Sec. 1 of the Sherman Act by slandering and refusing to deal with a competing dealer, the U.S. Court of Appeals in Cincinnati has ruled.
Allegations of refusals to deal that took place since the execution of a settlement agreement resolving antitrust charges stemming from a conspiracy among the defendants that began nearly a decade earlier were sufficient to state a claim under the pleading standard set forth in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709). Dismissal of the competitor’s claims (2011-1 Trade Cases ¶77,504) was therefore reversed and remanded.
The lower court properly concluded that the competitor’s antitrust claims were beyond the scope of a settlement release entered into by the competitor, the defending dealer, and that dealer’s owner in March 2007, to the extent that the claims were based on conduct occurring after the date of the settlement, the appellate court held.
When the defending dealer and its owner settled with the complaining competitor, they bargained away their liability for refusals to sell occurring in 1999, 2005, and 2006. However, they did not withdraw from the conspiracy, which was presumptively ongoing, the court explained. As co-conspirators with the carpet supplier, the defendants remained liable for the supplier’s post-release actions that furthered the conspiracy, including a May 2007 refusal to sell.
The complaining dealer specifically alleged both an agreement to restrain trade and acts that furthered the conspiracy within the limitations period, the appellate court decided. The carpet supplier’s proffering of alternative explanations for its refusals to sell to the complaining dealer could not function to undo the adequacy of the dealer’s pleading.
To survive a motion to dismiss, the complaining dealer needed to allege only that the defendants’ agreement plausibly explained the refusals to sell, not that the agreement was the probable or exclusive explanation, in the court’s view.
The decision is Watson Carpet & Floor Covering, Inc. v. Mohawk Industries, Inc., 2011-1 Trade Cases ¶77,505.
Proposed Model Exemptions from state franchise laws were released for public comment on July 1 by the North American Securities Administrators Association (NASAA).
The proposal provides model language for states to use for exemptions from registration and disclosure provisions of their franchise laws.
These proposed exemptions include some elements of existing exemptions to state franchise laws, although “requirements have been updated to reflect current conditions in franchising and the U.S. economy,” according to NASAA.
The fractional franchise exemption would exempt offers and sales of franchises where the franchisee (or its officers or directors) has more than two years of experience in the same type of business and the parties have a reasonable expectation that sales arising from the franchise relationship will not exceed 20% of the franchisee’s total dollar volume in the first year of operation.
The experienced franchisor exemption would apply to franchise offers or sales where the franchisor has equity of not less than $10 million or not less than $1 million and the franchisor is owned by a corporation or entity that has equity of not less than $10 million.
A sophisticated purchaser exemption would be available under the following circumstances: (1) the offer or sale is for an additional franchise to an existing franchisee where the franchisee has been managing agent or owner for at least 24 months, the franchise is being purchased in order to operate the business, and the sale of the first franchise was lawful; (2) the offer or sale is to a franchisor insider; (3) the purchaser is a high net worth individual, a high income individual, an entity with equity exceeding $5 million, or a trust exceeding $5 million, represented by legal counsel and the franchisor reasonably believes that the prospective franchisee has sufficient knowledge and experience to evaluate the merits and risks of the investment; or (4) the offer or sale requires a substantial investment in excess of $2 million and does not exceed 20% of the franchisee’s net worth, the prospective franchisee is represented by legal counsel, and the franchisor reasonably believes that the prospective franchisee has sufficient knowledge and experience to evaluate the merits and risks of the investment.
Finally, the discretionary exemption could be claimed if the franchisor makes a written request to the franchise administrator setting forth the basis for the exemption, files a notice of exemption, and pays the exemption fee.
A Notice of Request for Public and Internal Comment appears here on the NASAA website. Text of the Proposed Model Exemptions appears here.
Further information will be reported in the CCH Business Franchise Guide.

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