Source: http://traderegulation.blogspot.com/2012/12/
Timestamp: 2019-04-26 07:41:01+00:00

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The federal district court in New York City has refused to dismiss monopoly claims against related entities that traded in physical and futures contracts for crude oil, including West Texas Intermediate grade (WTI) crude oil, for manipulating futures prices (In re Crude Oil Commodity Futures Litigation, December 21, 2012, Pauley, W.).
Individuals and corporate entities that traded NYMEX WTI futures contracts—agreements for the purchase or sale of WTI on a fixed date in the future in Cushing, Oklahoma—and calendar spreads in 2008 adequately alleged a “complex price manipulation and monopolization scheme” to profit from tightness in WTI supply in Cushing during that period. Commodities Exchange Act claims also were sufficiently alleged.
The plaintiffs adequately alleged the possession of monopoly power through direct evidence of the defendants' ability to control prices and by defining a relevant market to demonstrate excess market share. The plaintiffs offered as direct evidence the abrupt shifts in the market, which happened only twice between January 2006 and January 2011 when the defendants allegedly dumped their accumulated WTI supply as part of the manipulation scheme. The defendants offered extrinsic evidence and fact-based arguments to refute the plaintiffs' allegations of market power. However, the court ruled that reliance on extrinsic evidence was premature.
The defendants also argued that the market was improperly defined because it contained inconsistencies, should have not been limited geographically to Cushing, and should have included alternate grades of crude oil that were acceptable substitutes for WTI. According to the court, the plaintiffs' relevant market was not so implausible as to warrant dismissal, especially where they pleaded the defendants' ability to control prices.
In addition, the defendants attempted to refute monopoly power by arguing that their alleged ability to control prices was short-term and sporadic. They argued that monopoly power is not actionable unless it causes a structural alteration of the market, or is of a certain temporal duration. While the duration of a monopoly may be "one measure" in determining whether a defendant possessed monopoly power, it is not dispositive.
The plaintiffs also adequately alleged the willful acquisition of monopoly power, the court held. Rejected were the defendants' assertions that the complaint offered only conclusory allegations. The complaint described a willful scheme in which the defendants acquired a dominant position in physical WTI for the purpose of manipulating the prices of WTI derivatives. The defendants allegedly acquired a dominant share of physical WTI despite having no commercial need for it, only to sell it at an uneconomic time. This supported an inference of anticompetitive conduct.
The court did not dismiss attempted monopolization and conspiracy to monopolize claims, even though the plaintiffs did not include a recital of each element of these causes of action. The detailed allegations regarding the manipulative scheme were sufficient.
The plaintiffs alleged “a quintessential antitrust injury—losses stemming from artificial prices caused by anticompetitive conduct,” the court also ruled. The plaintiffs alleged losses in the WTI derivatives market, caused by artificial market conditions that were spawned by the defendants' dominant share of the physical WTI market. The defendants argued that the plaintiffs could not establish antitrust injury because they did not trade in the physical market that was allegedly monopolized. However, the defendants cited no authority for the proposition that an antitrust injury cannot extend beyond the bounds of the monopolized market, according to the court.
The case is No. 11 Civ. 3600 (WHP).
Bernard Persky (Labaton Sucharow, LLP) for Stephen E. Ardizzone. Brigitte T. Kocheny (Winston & Strawn LLP) for Parnon Energy, Inc.
An exclusive Hawaii distributorship of electronic games that was not substantially associated with its supplier’s trademarks and did not pay a franchise fee to its supplier was not a “franchise” within the Hawaii Franchise Investment Law, the federal district court in Honolulu has ruled (Prim Limited Liability Co. v. Pace-O-Matic, Inc., December 13, 2012, Mollway, S.). Thus, the supplier’s termination of the exclusive distributorship, allegedly without cause, could not be held to violate the statute.
In November 2008, electronic game supplier Pace-O-Matic entered into an agreement making Prim Limited Liability Co. an exclusive distributor of “amusement devices” in an area that included Hawaii. In October 2010, Pace-O-Matic sent Prim a letter, alleging it was in default and terminating the exclusivity portion of the agreement. Shortly thereafter, Prim filed a lawsuit, asserting breach of contract, tortious interference with prospective business advantage, unfair methods of competition in violation of the Hawaii “little FTC Act,” violation of the Hawaii Franchise Investment Act, breach of express warranty, breach of implied warranty, and a right to indemnification.
Pace-O-Matic filed a motion for partial summary judgment on the unfair competition, franchise law, and implied warranty claims. The court granted summary judgment on the franchise law and implied warranty claims, but denied summary judgment on the unfair competition claims.
In its motion, Pace-O-Matic argued that it was entitled to summary judgment on the franchise law claim because the parties never had a franchise relationship as defined by the Hawaii Franchise Investment Law. Under the statute, a “franchise” is an agreement “in which a person grants to another person, a license to use a trade name, service mark, trademark, logotype or related characteristic … and in which the franchisee is required to pay, directly or indirectly, a franchise fee.” Haw. Rev. Stat. §482E-2. However, Prim failed to show that there was a triable issue regarding the existence of a franchise between Prim and Pace-O-Matic.
A distributorship is different from a franchise, the court observed. The distribution agreement allowed Prim to distribute Pace-O-Matic’s products; it did not “substantially associate” Prim with Pace-O-Matic’s trademarks.
Franchise fee. Similarly, Prim failed to provide evidence that it paid Pace-O-Matic a franchise fee. It contended that its payment for “fills” constituted a franchise fee because the price of the fills far exceeded the cost of a few keystrokes to generate a fill. However, Pace-O-Matic’s profit margin is not proof that Prim’s payment for fills constituted a franchise fee, the court held.
Prim’s claim that Pace-O-Matic committed unfair competition in violation of the Hawaii “little FTC Act” raised genuine issues of fact. Prim’s pleadings alleged that Pace-O-Matic’s conduct caused injury to Prim’s business or property and was likely to result in damages exceeding $75,000. Prim also alleged that it was injured by the termination of its exclusive distributorship and the direct sale of fills to one of its customers. Pace-O-Matic did not dispute the termination or the direct sales.
“When the supplier itself takes on the role of competitor and seeks to do business with the exclusive distributor’s customer, it may indeed be . . . an aggravating circumstance sufficient to support a claim” under the Hawaii “little FTC Act,” the court found. Thus, the claim survived the motion for summary judgment.
The case is Civil No. 10-617 SOM/KSC.
Dean L. Franklin (Thompson Coburn) for Prim Limited Liability Co. Effie Ann Steiger for Pace-O-Matic.
Dow Chemical Company could have violated federal antitrust law through its alleged participation in a conspiracy with other manufacturers to fix prices of certain urethane products from 1999 to 2003, the federal district court in Kansas City, Kansas, has ruled. A motion by Dow for summary judgment in its favor on class claims related to purchases of polyether polyol-based products was, therefore, denied (In re: Urethane Antitrust Litigation, December 18, 2012, Lungstrum, J.).
Dow is the last remaining defendant in the case, as the class and opt-out plaintiffs have settled their claims against competing manufacturers Bayer, BASF, Huntsman, and Lyondell.
The plaintiffs in the case provided sufficient direct and indirect evidence of a price fixing conspiracy involving Dow to allow a reasonable jury to find that such a conspiracy existed, the court held. Direct evidence included testimony by Dow employees about meetings between the company and its competitors at which agreements were reached to set prices and to make price increases stick, as well as testimony by employees of competing manufacturers confirming those agreements.
The direct evidence was also supported by circumstantial evidence of conspiracy, the court added. This evidence consisted of: (1) testimony by additional witnesses that at least supported the inference of a price fixing agreement; (2) simultaneous or near-simultaneous identical price increase announcements; (3) communications, meetings, and joint vacations among executives of the competing manufacturers that involved pricing; and (4) apparent efforts undertaken by the alleged conspirators to maintain the secrecy of their communications, particularly those involving pricing. Further factors suggesting a conspiracy were evidence that: the executives allegedly in communication with each other were high-ranking officers of the company with the authority to set pricing, the structure of the market was conducive to price fixing and provided a motive to enter into an illegal agreement, various actions by the conspirators that were contrary to their own interests absent a conspiracy, and expert opinion evidence suggested that prices were supracompetitive during the conspiracy period.
The court rejected an argument by Dow that the alleged meetings and communications were justified by legitimate business reasons. Dow’s contention that the class failed to exclude the possibility that the conspirators acted competitively instead of collusively in communicating with each other did not merit serious consideration because the plaintiffs’ evidence was not limited to circumstantial evidence of parallel conduct coupled with mere communications between competitors, the court said. The plaintiffs’ evidence included direct evidence of conspiracy and was not ambiguous.
Claims for the period within the alleged conspiracy prior to November 24, 2000, were not time-barred because the class introduced sufficient evidence of fraudulent concealment to toll the limitations period, the court also decided.
The case is MDL No. 1616, No. 04-1616-JWL.
George A. Hanson (Stueve Siegel Hanson LLP - KC) for plaintiffs. Brian R. Markley (Stinson Morrison Hecker LLP) for The Dow Chemical Company.
David C. Vladeck, Director of the FTC Bureau of Consumer Protection, and Eileen Harrington, FTC Executive Director, will both leave the agency on December 31, 2012, according to a December 17 announcement by FTC Chairman Jon Leibowitz.
As reported previously, Vladeck—who has served as Bureau Director since 2009—will return to a faculty position at Georgetown University Law Center.
Among his top priorities at the Commission has been stopping fraud targeting financially distressed consumers. During Vladeck’s tenure, the agency has brought more than 100 cases against scammers trying to take advantage of consumers’ last dollar with false promises of mortgage assistance, debt relief, jobs or other money-making opportunities, government grants, and health insurance. It has taken decisive actions against scams on the Internet, including stopping nearly $1 billion in online marketing fraud by shutting down “free trial” offer schemes.
Under Vladeck’s leadership, the agency developed a comprehensive framework for privacy protection and brought a number of landmark enforcement actions to protect consumer privacy, including cases against Google and Facebook.
Succeeding Vladeck as Director of the Bureau of Consumer Protection is Charles A. Harwood, who has served as Deputy Director of the Bureau since 2009 and previously spent 20 years as Director of the FTC Northwest Regional Office in Seattle. In the latter position, he led law enforcement and consumer protection efforts involving a wide range of antitrust and consumer protection issues. In 2001, Harwood received the FTC Chairman’s Award for his service to the agency and the public. He joined the Commission in 1989, after six years as counsel to the U.S. Senate Committee on Commerce, Science, and Transportation.
Harrington, who has served as the agency’s Executive Director, will retire at the end of the year. She has served in that capacity since November 2010, following 15 months as Chief Operating Officer at the U.S. Small Business Administration. She previously served at the FTC for 25 years, starting as a staff attorney and assuming a variety of senior management positions in the Bureau of Consumer Protection, including Deputy Director and Acting Director. Harrington received the Service to America Medal in 2004 for leading the team that created the National Do Not Call Registry.
Pat Bak, the current Deputy Executive Director, will serve as Acting Executive Director. Bak has served in a number of positions at the agency, including Acting CIO, Associate Executive Director, and Counsel to the Director of the Bureau of Consumer Protection.
Pepperidge Farm bakery distributorships were not “franchises” within the Washington Franchise Investment Protection Act because Pepperidge Farm did not exercise the level of control over the distributors to satisfy the “marketing plan” requirement, the distributors were not substantially associated with the Pepperidge Farm trademarks, and the distributors did not pay a franchise fee, according to the federal district court in Richland, Washington (Atchley v. Pepperidge Farm, Incorporated, December 6, 2012, Shea, E.).
Since Pepperidge Farm was not a franchisor doing business within Washington, it was not required to register a franchise disclosure document or provide a disclosure document prior to entering a distributorship agreement.
Pepperidge Farm entered into consignment agreements with third-party independent contractors, granting them geographically exclusive distributorships. In 2003, Michael Gilroy purchased an existing distributorship from David Spangler for $299,550. In 2004, John Atchley purchased a distributorship from Jason Godwin for $225,000. For both purchases, payment was nominally made to Pepperidge Farm, which facilitated the transactions. Pepperidge Farm credited the payments to outstanding loans or other financial obligations owed by the selling distributors and then furnished all remaining monies directly to the selling distributors.
Each distributor voluntarily entered into a separate consignment agreement with Pepperidge Farm and received an exclusive right to distribute Pepperidge Farm products in retail stores within their territories. The distributors received commission payments for the sale of Pepperidge Farm goods or a percentage of the net proceeds, depending on the products. Despite the territorial exclusivity provision of the agreements, Pepperidge Farm retained the right to sell and deliver its products to customers in the distributors’ territories.
After business reversals, the distributors brought separate claims against Pepperidge Farm, alleging violation of the Washington Franchise Investment Protection Act and negligent misrepresentation. Both cases were eventually assigned to Senior Judge Fred Van Stickle, who granted partial summary judgment for Pepperidge Farm and then consolidated the cases. Judge Van Stickle granted summary judgment on the remaining negligent misrepresentation claims and held a trial on Pepperidge Farm’s counterclaim for Gilroy’s failure to repay the loan that enabled him to purchase the distributorship. The court found that factual issues regarding whether the forced sale of Gilroy’s distributorship was commercially reasonable precluded summary judgment.
After a three-day trial in February 2009, the court entered a finding that the sale of the distributorship was commercially reasonable. The distributors appealed to the Ninth Circuit, which largely affirmed the district court rulings, but reversed the decision with respect to the Franchise Investment Protection Act, concluding that there was a genuine issue of material fact about whether the distributors paid franchise fees. The appeals court remanded the case for further proceedings.
On remand, the district court dismissed the Franchise Investment Protection Act claims on the ground that the distributorships were not “franchises” within the meaning of the Act. Under the statute, a “franchise” is an agreement by which (i) a person is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan prescribed in substantial part by the grantor; (ii) the operation of the business is substantially associated with a trademark, trade name, or other commercial symbol owned by or licensed by the grantor; and (iii) the person pays or is required to pay a franchise fee.
Although Pepperidge Farm controlled pricing of products directly sold and provided pricing schedules for the purpose of calculating commissions, it did not exercise control over many other factors used to determine the existence of a marketing plan, the court found. These factors included: (1) hours and days of operations; (2) advertising; (3) retail environment; (4) employee uniforms; (5) trading stamps; (6) hiring; (7) sales quotas; and (8) management training. While Pepperidge Farm provided the distributors with financial support by guaranteeing the initial loan to finance purchases of the distributorships, it was not show to provide any other financial support.
Thus, the distributors failed to satisfy the marketing plan element of the “franchise” definition of the Washington Franchise Investment Protection Act.
A “franchise fee” is a payment for the right to enter into a business under a franchise agreement and does not include “any payment for the mandatory purchase of goods or services or any payment for goods or services available only from the franchisee.” Also excluded from the definition are payments for purchases at a bona fide wholesale price. Ordinary business expenses are not “franchise fees” because they are paid during the regular course of business and not for the right to do business.
Thus, the distributors did not pay, agree to pay, or were required to pay a “franchise fee” within the meaning of the Washington Franchise Investment Protection Act, in the court’s view.
The case is No. CV-04-452-EFS.
Howard R. Morrill (Simburg Ketter Sheppard Purdy) for John R. Atchley. Forrest A. Hainline, III (Goodwin Procter LLP) for Pepperidge Farm Inc.
The U.S. Court of Appeals in New York City has denied a request for expedited review of the preliminary approval of a settlement that would resolve an antitrust action against Visa, MasterCard, and major U.S. financial institutions, resolving merchants' allegations that credit card issuers conspired to fix swipe fees, or charges that retailers pay to accept credit cards (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, December 10, 2012).
The court denied the motion by Home Depot U.S.A., Inc. for expedited briefing, oral argument, and decision. An appeal will have to wait until after the federal district court in Brooklyn grants final approval to a settlement or has otherwise entered a final judgment.
On November 9, the federal district court granted preliminary approval of the proposed settlement. It also denied Home Depot's motion for certification for interlocutory appeal.
The settlement would provide an estimated $7.25 billion to the merchants who accepted Visa and MasterCard credit cards and debit cards in the United States since 2004. It would resolve the merchants’ claims that the payment card networks violated federal antitrust law by artificially inflating the interchange fees that the merchants paid on payment card transactions. The settlement is considered to be the largest ever in a private antitrust case.
The motion for preliminary approval was filed by mostly smaller merchants supporting the agreement. The National Retail Federation and a number of large retailers had asked the district court to reject the settlement. The trade group has said that the settlement is “unfair” and “does virtually nothing” to protect customers and address retailers’ concerns about credit card swipe fees charged by Visa and MasterCard.
The case is 05-MD-1720 (Docket Nos. 12-4671(L), 12-4708(Con), 12-4765(Con)).
Subscribers to Internet services or television services offering live telecasts of “out-of-market” hockey and baseball games adequately alleged separate antitrust conspiracies involving the National Hockey League (NHL) and Major League Baseball (MLB), the federal district court in New York City has ruled (Laumann v. National Hockey League, December 5, 2012, Scheindlin, S.).
These sports fans alleged that, as a result of black-out or noncompete agreements, they were required to purchase all “out-of-market” hockey or baseball games even if they were only interested in viewing a particular game or games of one particular team located outside of their local markets. With the limited exception of nationally televised games, standard cable and satellite TV packages only offered “in-market” games (i.e., games played by the team in whose designated home territory the subscriber resided). A consumer interested in obtaining out-of-market games had two options: (1) television packages—such as NHL Center Ice and MLB Extra Innings—and (2) Internet packages—such as NHL Game Center Live and MLB.tv—which were controlled by the leagues.
The subscribers alleged a conspiracy involving the NHL, MLB, various clubs within the leagues, multichannel video programming distributors (MVPDs)—such cable distributor Comcast and satellite distributor DirecTV—and regional sports networks (RSNs). The RSNs are local television networks that negotiate contracts with individual NHL or MLB clubs to broadcast the majority of the local club’s games within that club’s telecast territory and to sell to the MVPDs. Some of the RSNs are owned by Comcast and DirecTV; however, two are independent of the MVPDs, but share ownership with an individual club. For example, Yankees Entertainment and Sports Networks, LLC is an RSN for New York Yankees that is co-owned with the New York Yankees.
The defendants challenged the television subscriber plaintiffs’ standing to sue on the grounds that they were indirect purchasers of the product in question and that their injuries were too remote from the alleged conduct. The television subscribers successfully argued that their claims fell within an exception to the Illinois Brick indirect purchaser doctrine, the court ruled. The middlemen were alleged to be co-conspirators.
The court, however, dismissed for lack of standing the plaintiffs who merely subscribed to Comcast and DirecTV, but did not subscribe to an out-of-market sports package. These plaintiffs did not allege that they were prevented from viewing games as a result of the black-out agreements or that they were charged supracompetitive prices for games that they wished to view. Rather, their claims were based on some unidentified increased price of their overall cable package allegedly stemming from the absence of competition from out-of-market baseball clubs and their RSNs. Their alleged injuries were both speculative and difficult to identify and apportion, the court ruled.
Finding that at least some of the plaintiffs had standing, the court went on to find that an agreement between the MVPDs and the RSNs and league defendants to restrain trade was adequately alleged. While the plaintiffs did not allege that the MVPDs entered into horizontal agreements, they plausibly alleged vertical agreements that not only facilitated, but also were essential to the horizontal market divisions and the agreement to cede control over out-of-market games to the leagues.
The plaintiffs adequately alleged harm to competition resulting from the market division agreements. The court rejected the defendants' argument that, because the NHL and MLB were legitimate joint ventures and some cooperation with respect to the production of games was necessary, their conduct—the production and distribution of live telecasts of games —was “core activity” immune from antitrust scrutiny. “Making all games available as part of a package, while it may increase output overall, does not, as a matter of law eliminate the harm to competition wrought by preventing the individual teams from competing to sell their games outside their home territories,” the court explained.
In addition, the subscribers to Internet services adequately alleged reduced choice, insofar as in-market games were not available from any seller over the Internet. The Internet packages were available directly through the leagues and also required the purchase of all out-of-market games. Neither local games nor nationally televised games were available through these packages. The alleged purpose of the limitation on Internet programming was to protect the RSNs’ regional monopolies and to insulate MVPDs that carried them from Internet competition, the court explained. As a result, the Sherman Act, Sec. 1 claim could proceed against all defendants.
Lastly, the court refused to dismiss claims against the NHL and MLB for conspiracy to monopolize the markets for video presentations and Internet streaming of major league hockey or baseball games. However, the plaintiffs did not support Sherman Act, Sec. 2 claims against the RSNs or MVPDs in the market for production of baseball and hockey games. Thus, the conspiracy to monopolize claim was dismissed against the RSN and MVPD defendants, but could proceed against the remaining defendants.
George Mason University Law Professor Joshua D. Wright faced tough questions from members of the Senate Commerce, Science, and Transportation Committee yesterday afternoon as the committee considered his nomination to serve on the FTC. If confirmed, Wright would replace Commissioner J. Thomas Rosch—a fellow Republican—who remains at the Commission although his term expired in September.
Wright, an economist, has written extensively on antitrust law and economics and is a regular contributor to the Truth on the Market blog. Some of those writings have raised concerns among committee members that Wright might not be right for the FTC.
Wright explained that he was not talking about the entire mission of the FTC. His criticism stemmed from the Commission's enforcement record under its FTC Act, Sec. 5 unfair methods of competition authority, as opposed to its consumer protection authority. Wright said that he believed greatly in the FTC's fundamental mission of protecting consumers.
Senator Frank Lautenberg (D-New Jersey) also wondered how Wright’s apparent anti-regulatory stance squared with serving as a regulator. “How do you protect the safety of consumers without rules?” the senator asked.
“I do believe in rules and regulation,” said Wright, in response to the questioning. He added that regulations can harness markets to work for consumers but can also operate to the detriment of consumers.
Commerce committee members also sought assurances from Wright that he would recuse himself from FTC proceedings involving companies for which the nominee had authored reports. Wright stated that he would recuse himself from law enforcement matters pertaining to Google and other appropriate cases where potential conflicts called for recusal for a period of two years.
Noting that the FTC can “sometimes move at a glacial pace,” Senator Maria Cantwell (D-Washington) pressed on the adequacy of the two-year period of recusal.
Wright said that he would check with ethics officials at the FTC about his obligations and would recuse himself if appropriate, but the pledge did not seem to satisfy Cantwell.
Wright also said that, if confirmed, he would look into oil market manipulation. Senators Boxer and Cantwell both believe that the FTC should do more to determine whether market manipulation or false reporting by oil refineries contributed to near-record gas prices in Western states this year. Cantwell wants the agency to take a more aggressive role in policing potential oil market manipulation.
Boxer said that she was not happy with the Commission because it “has never so much as scolded” the oil companies.
Wright also pledged support for the FTC’s efforts to develop a “Do Not Track” mechanism for protecting consumer privacy on the Internet. He said that he supported the Commission’s view in favor of Do Not Track and the FTC privacy report's inclusion of notice and choice obligations.
This posting was written by E. Darius Sturmer, Editor of CCH Business Franchise Guide.
Competing sellers of grass seed and plant food products—Scotts and Pennington—were not entitled to preliminary injunctive relief against each other’s allegedly false advertising, the federal district court in Richmond, Virginia has held (The Scotts Co., LLC v. Pennington Seed, Inc., November 30, 2012, Gibney, J.).
Neither could show that it was likely to prevail on the merits of its claims, that it suffered irreparable harm, that the balance of equities tipped in its favor, or that injunction would serve the public interest, the court decided. The companies’ cross-motions for preliminary injunctions were denied, as were Pennington’s motions to strike supplemental filings submitted by Scotts.
The present dispute between the competitors arose in early March, when Scotts filed suit against Pennington over its claim that Pennington’s Smart Seed grass seed products contain “twice the seed” as Scotts’ Turf Builder products. By the end of the month, the court had dismissed Scotts’ Lanham Act and state law false advertising claims, as well as its common law unfair competition claims, finding that the advertising claims at issue were covered under the terms of a confidential settlement agreement previously entered into by the parties. That settlement agreement mandated that the parties attempt alternative dispute resolution before such an action could be filed. The parties completed this procedure in April without success, and Scotts again pursued an injunction against Pennington’s advertising.
In the interim, however, Pennington had fired back with its own lawsuit, asserting false advertising under federal and state law, common law unfair competition, and violation of the Georgia Uniform Deceptive Trade Practices Act stemming from Scotts’ descriptions of Pennington’s “1 Step Complete” combination grass seed products as “a bunch of ground-up paper” and Scotts’ superiority claims with respect to its own EZ Seed products.
Scotts was unable to show a likelihood of success on its Lanham Act suit based on Pennington’s “twice the seed” claims, the court found. Whether Pennington’s ads were literally false was debatable. While Pennington’s products did not contain twice the number of seeds as Scotts’ grass seed products, the claim was literally true on a weight basis, which Pennington attested was the industry standard to measure seed count. A consumer survey produced by Scotts, however, suggested that, even if literally true, the ads misled potential purchasers.
On the other hand, Pennington established that the equitable doctrine of laches could apply to prevent Scotts from obtaining relief, given that Scotts had waited until Pennington’s promotional materials had been public for over a year before challenging them.
Scotts also failed to make a necessary showing of irreparable harm, the court added. As most consumers purchase their products at the beginning of the brief spring grass seed season, the need for urgency had already been removed. There was “no reason that a full trial on the merits [could not] be had prior to the time the parties’ claims could again become crucial,” the court said.
The likelihood of success on the merits of Pennington’s claims against Scotts was similarly uncertain, the court determined. Pennington failed to show that Scotts’ “bunch of ground-up paper” claim was literally false, in light of undisputed evidence that the mulch component in 1-Step Complete contained paper. Further, it could hardly be argued that a reasonable consumer seeking to buy a grass seed product would understand Scotts’ claim to convey the message that Pennington’s 1 Step Complete was comprised entirely of a bunch of ground-up paper. Consumer survey evidence did not support Pennington’s argument that Scotts’ advertising deceived consumers into believing that 1 Step Complete was made entirely of a bunch of ground-up paper.
As to Scotts’ superiority claims, preliminary assessment of product testing conducted by a Scotts research specialist led the court to conclude that the testing reasonably supported Scotts’ germination and seedling establishment claims.
Because Pennington failed to show that Scotts’ claims were false, misleading, and thus likely to harm Pennington’s sales, reputation, or goodwill, it could not establish that it would suffer irreparable harm from their continuation, the court held. Likewise, Pennington’s failure to show false or misleading claims, or resultant competitive harm, precluded a finding that the balance of equities or public interest tipped in its favor.
The case is Civil Action No. 3:12-CV-168.
Cassandra Carol Collins (Hunton & Williams LLP) for Scotts Company LLC. Charles Bennett Molster, III (Winston & Strawn LLP) for Pennington Seed, Inc.
Labels: false advertising, Georgia Uniform Deceptive Trade Practices Act, Lanham Act Sec. 43(a), The Scotts Co. LLC v. Pennington Seed Inc.
This posting was written by Tobias J. Gillett, contributor to Antitrust Law Daily.
University of Iowa law professor Herbert Hovenkamp will advise President Obama on antitrust policy as part of the American Bar Association Section of Antitrust Law’s Transition Report Task Force. The Task Force, like ABA Task Forces established in other areas of law, provides incoming presidents with the ABA’s positions on antitrust policy issues.
Hovenkamp—author of the landmark antitrust treatise Antitrust Law: An Analysis ofAntitrust Principles and Their Application (CCH Incorporated)—works with approximately 40 other Task Force members, mostly comprising antitrust scholars and lawyers. Douglas Melamed, General Counsel of Intel Corp., and Donald Klawiter, a partner in Sheppard Mullins’s Washington, D.C. office, co-chair the group. The Task Force seeks to promote innovation, stronger markets, and competitiveness.
Hovenkamp believes the Task Force’s report would have taken the same form regardless of the candidate elected in November, and that it will not demand many changes from the Obama Administration, although it may be more detailed than the Task Force’s 2008 report.
The report will be reviewed by the White House, and likely by the director of the Department of Justice Antitrust Division and the chairman of the Federal Trade Commission. The Task Force’s 2008 report can be found here on the ABA website.
The Ontario Bar Association Franchise Law Section posted a message on the ABA Forum on Franchising email listserv yesterday, warning U.S. franchise lawyers not to prepare Canadian franchise agreements, ancillary documents, and franchise disclosure documents without consulting Canadian counsel.
“While many U.S. lawyers will directly retain or arrange for their clients to retain qualified Canadian counsel to prepare or at least review these franchise documents, that is not always the case,” the message explained.
U.S. franchise lawyers should consider whether their insurance provides coverage for professional negligence in preparing documents or giving advice on Canadian law, the group advised.
The message concluded with an invitation to contact any member of the Section Executive group, whose names and email addresses were included. All or most of the members are associate members of the ABA Forum on Franchising, according to Section Chair Larry Weinberg, who sent the message.

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