Source: http://cpg-retail-litigation.kotchen.com/2007/
Timestamp: 2019-04-20 02:36:00+00:00

Document:
McNeil Nutritionals v. Heartland Sweeteners, No. 07-2644 (3d Cir. Dec. 24, 2007).
Similarity of Packages - McNeil Nutritionals, which is the manufacturer of artificial sweetener Splenda, sued Heartland Sweeteners and Heartland Packaging Corp., which packages and distributes a generic version of Splenda as store brands for various supermarket chains, including Ahold, Food Lion, and Safeway. Heartland's private label packaging mimics Splenda-brand packaging, using the same colors, the same packaging size and shape, and similar font and design. For each supermarket, the logo of the store appeared on the product, and the design varied slightly.
Lanham Act - McNeil sought relief under the Lanham Act, 15 USC § 1125, for trade dress infringement, which requires, inter alia, that consumers are likely to confuse the source of the plaintiff's product with that of the defendant's product. The Third Circuit applied a ten-factor test to determine the likelihood of confusion, but stressed that the degree of similarity of the trade dress was the most important factor.
No Likelihood of Confusion - The court found no likelihood of confusion between Splenda and the Food Lion or Safeway private label products, as those involved distinctive design features, such as Safeway's "S" or a Food Lion vertical bar. But the court held that there may be a likelihood of confusion as to Ahold products, which did not contain such distinctive features, and the court reversed and remanded for further findings.
Thus, the McNeil Nutritionals ruling provides important guidance in determining the acceptability of private label product packaging that mimics that of a brand-name product. News stories on the decision are available here and here.
A few days ago, we reported on allegations that Christmas-tree growers conspired to fix prices. Now, there are allegations that another product considered sacred by many has been subjected to price fixing: chocolate.
Government Investigations - Hershey's, Mars, Nestle, and other chocolate makers were accused in recently unsealed Canadian court documents of secretly meeting to discuss prices at industry conventions and restaurants, several reports indicated. According to the reports, the U.S. DOJ antitrust division is also investigating. The conspiracy allegedly began in February 2002, and continued through most of 2007. While search warrants were issued in the Canadian investigation, no charges have yet been filed. An industry spokeswoman noted that candy-makers are facing higher dairy and sugar prices, as well as higher fuel costs.
Cooperation with Authorities - Employees of one company reportedly have been cooperating with Canadian authorities, providing information and documents to authorities.
DOJ Leniency Program - Under the DOJ's leniency program, and its "amnesty plus" program, companies can receive amnesty or reduced liability if they are the first to report a conspiracy or the first to report a second, unrelated conspiracy and they cooperate fully with the investigations. Lesser reductions may be available for cooperating companies that are not the first to report the conspiracy. DOJ's cooperation programs can provide substantial benefits to the companies being investigated, making it important for companies and their lawyers to learn about and report any possible violations before DOJ learns about them from another source.
Leniency Program Binding on DOJ - One recent court decision found that these agreements were binding on DOJ. In Stolt-Nielsen, DOJ entered into an amnesty agreement with a shipping company and two of its executives related to their involvement in a customer allocation conspiracy. DOJ alleged that the defendants had not met the conditions of the agreement, and indicted them. The U.S. District Court for the Eastern District of Pennsylvania dismissed the suit, finding no credible evidence that the agreement had been violated. See Memorandum & Order, United States v. Stolt-Nielsen, S.A., No. 06-cr-466 (E.D. Penn. Nov. 29, 2007).
UPDATE 1/16/08: Class-action lawsuits were filed against Hershey's, Mars, Nestle, Cadbury, Masterfoods, and other chocolate-makers in federal courts in Pennsylvania and New Jersey on behalf of direct and indirect purchasers, as reported here and here. A docket search in the Middle District of Pennsylvania reveals two cases filed. See Coffey v. Hershey Co, et al., No. 2008cv00084 (M.D. Penn. Jan. 11, 2008); Woodman v. Hershey Co. et al., No. 2007cv02336 (M.D. Penn. Dec. 28, 2007). The same search in New Jersey reveals seven filings. See Lavin v. Hershey Co., et al., No. 2008cv00259 (D.N.J. Jan. 11, 2008); D Controls, Inc., No. 2008cv00257 (D.N.J. Jan. 11, 2008); Snow, No. 2008cv00199 (D.N.J. Jan. 10, 2008); Chiger, No. 2008cv00195 (D.N.J. Jan. 10, 2008); Matsuda, No. 2008cv00191 (D.N.J. Jan. 2008); Lense, 2008cv00192 (D.N.J. Jan. 9, 2008); CNS Confectionary Prods., 2007cv06088 (D.N.J. Dec. 21, 2007). More lawsuits are likely to follow.
to the 1939 annual report of the Federal Trade Commission.
sufficient profit," the FTC said.
Update 1/28/08: Hershey's and Mars raise wholesale prices of its chocolate bars by 13 percent, citing higher costs, according to news reports. This follows a price hike of 4 to 5 percent last April. Mars also increased its prices of candy bars, by 5 percent, last week. In defending the price hike, a Hershey spokesman stated that "we have no way of knowing what others are thinking, or what their cost situation is, . . . [but] our products include far more pure milk chocolate and solid chocolate than our competitors." Considering that the price-fixing investigation was revealed so recently, the decision to raise prices was probably subjected to increased scrutiny by Hershey's lawyers, and there is presumably a strong business justification for the decision.
Ahold announced that it reached a settlement agreement with James Miller, who had been the CEO of its former subsidiary U.S. Foodservice. Miller will pay Ahold $8 million, and the litigation between the parties will be dismissed.
The $8 million constitutes a portion of the salary and bonuses Miller received as CEO during an accounting scandal, reported the Baltimore Sun and the Maryland Daily Record. Miller, who had founded U.S. Foodservice, had sued Ahold in February 2004, claiming that the company had reneged on its promises of severance pay and benefits. The company counterclaimed, alleging breach of fiduciary duties and his employment agreement.
The company exaggerated profits by $880 million over three years. Other executives were charged with securities fraud, conspiracy, and making false filings, but Miller was never charged.
Speaking of Royal Philips Electronics, which was mentioned in our last post, Philips acquisition of Genlyte Group can proceed, as the mandatory waiting period under the Hart-Scott-Rodino Act expired, according to a press release from Philips. Philips has agreed to pay around $2.7 billion for the acquisition of Genlyte, which designs, manufactures, and sells lighting fixtures. The acquisition will make Philips the biggest lighting company in North America, and will expand Philips' sales of LEDs.
Private label diaper manufacturer Arquest, a privately-held company spun off from Johnson & Johnson, filed suit in federal district court in New York against Kimberly-Clark seeking declaratory judgment, according to this Reuters article. Kimberly-Clark, which sells Huggies-brand diapers, had told Arquest that some of its products violated patents held by Kimberly-Clark for disposable diapers. The parties were unable to reach an agreement after attempting to negotiate the dispute.
According to a patent litigation survey released by Fulbright & Jaworski (and discussed here in the Patent Law Blog), most patent claims are asserted by very large companies, while most defendants are more concerned about the cost of litigation rather than a potential injunction.
For those interested in patent law, it's worth noting that Congress is currently considering the Patent Reform Act of 2007 (H.R. 1908, S. 1145). The House passed it as H.R. 1908, and the Senate may soon consider S. 1145.
Commentators supporting passage of the measure, including conservative Viet Dinh, argue, inter alia, that reform is needed to ensure innovations are properly rewarded, and to deter frivolous litigation.
Other commentators oppose the measure, responding that the number of patent lawsuits has not kept pace with the number of new patent fiings and rapid reform of patent laws is not needed. Furthermore, because injunctive relief is less certain after the Supreme Court's Ebay ruling, damages should be increased but the reforms will decrease damages, argues Richard Epstein. The Patent Reform Act will also allegedly weaken the patent system becuase it switches to a first to file rule (rather than first to invent).
Not everyone considers the consumer packaged goods ("CPG") / retail industry a high-tech industry, but technological developments and innovations are increasingly important to industry stakeholders. Last year, for example, I worked on a lawsuit involving a patent dispute over RFID tags, a technology that is increasingly being adopted by CPGs and retailers.
The increasing complexity of modern business and litigation is demonstrated by the Kimberly-Clark case. While diapers were once a rudimentary garment, they are now subject to multiple patents, and are the subject of high-stakes litigation. See Arquest, Inc. v. Kimberly-Clark Worldwide, Inc., No. 2007cv11202 (S.D.N.Y filed Dec. 12, 2007).
On Tuesday, the Ninth Circuit denied rehearing of its earlier ruling permitting certification of a class of approximately 1.5 million women. See Dukes v. Wal-Mart, Inc., No. 04-16688, __ F.3d __ , 2007 WL 4303055 (9th Cir. 2007), available here. The certified class includes women across the country who have been subjected to Wal-Mart's allegedly discriminatory pay and promotions policies.
In addition to denying rehearing, the panel took the unusual step of replacing its original opinion, 474 F.3d 1214 (9th Cir. 2007), with Tuesday's revised opinion. The new opinion addressed issues raised in Wal-Mart's brief (which is available, along with other key filings, here), and found that former employees who could not benefit from declaratory or injunctive relief should be excluded from the class.
Judge Kleinfeld dissented, stating that the majority's new opinion "does not solve the problems of its previous opinion," and stated that only the numerosity requirement of Fed. R. Civ. P. 23(a) had been met, but that there was insufficient commonality, typicality, and adequacy of representation, and that injunctive and declaratory relief did not predominate, as required by Fed. R. Civ. P. 23(b).
It was reported that Wal-Mart intends to seek rehearing en banc.
The Dukes lawsuit is one of over 70 labor lawsuits that Wal-Mart is facing, and was listed in this article as one of Inside Counsel's top 20 stories of 2007, which we mentioned in this earlier post. Dukes is the largest civil rights class action in history, and could be worth billions of dollars if the class prevails. It is the subject of at least one book.
A National Law Journal survey reported in an article posted on law.com here found that average law firm billing rates rose an average of 7.7% compared to the data reported a year ago, increasing to $348 an hour on average, compared to $321 in 2006. Firms increased their use of alternative billing methods, such as flat fees, contingency fees, and hybrid fees.
The increasing fees may lead to continuing increases in alternative billing arrangements, and may lead to an increase in matters handled in-house, along with an increase in business for small firms whose lower overhead costs allow them to keep billing costs down.
A side effect of the increasing billing rates, according to a recent article by William Gwire in The Recorder, is that clients are more likely to sue firms for malpractice. He states that "[c]lient loyalty seems to have an inverse relationship to a firm's billing rates." Gwire also reports an increase in malpractice cases in which rainmakers commit malpractice because they take on more cases than they can handle, and inadequately supervise more junior attorneys. See here for commentary on the Gwire article.
Several grocery stores and dairies in the UK agreed to pay combined maximum fines of over 116 million pounds (approximately $235 million) in fines for fixing the price of dairy products in violation of the Competition Act, according to a press release from England's Office of Fair Trading. They claim that they were supporting dairy farmers recovering from foot and mouth disease, though the Office of Fair Trading found no evidence that farmers were helped by the scheme, according to an article today in The Independent.
The OFT stated that the $235 million represents a reduction from the fines that would have been assessed absent the cooperation of the companies.
It baffles me that such egregious (alleged) racial discrimination occurs, especially in such a large company. While nobody expects their employees to engage in such conduct, preventative measures must be taken. For example, an employer may be able to avoid punitive damages in employment discrimination cases if they adopt anti-discrimination policies and conduct trainings on harassment and discrimination prevention. When an employer becomes aware of possible violations by their employees, they should exercise reasonable care to prevent and promptly correct any harassment.
The advice of an employment attorney is clearly recommended on discrimination and harassment issues, though the EEOC offers free publications with some general guidance for employers at its web site here.
75,000 current and former Wal-Mart employees in the state of Washington are receiving notices this week after class certification was affirmed on appeal. See Barnett v. Wal-Mart Stores, Inc., No. 01-2-24553-8 SEA (King County Superior Ct.). Plaintiffs allege that they were forced to work without pay during breaks and after their shifts had ended. Similar lawsuits have been filed in numerous states across the country, and are being tracked at the Wal-Mart Litigation Project website.
I recently finished reading Barbara Ehrenreich's Nickel and Dimed, an expose about conditions for low-wage workers, including those at Wal-Mart. She describes Wal-Mart management as being very stringent about not engaging in "time theft" by taking unscheduled breaks, but never indicates that she was forced to work without pay. The book provides interesting commentary on the difficulties that low-wage workers have in making ends meet.
When I mentioned the book to a friend of mine, he expressed little sympathy and pointed out that there are plenty of opportunities for those motivated enough to get ahead in this country. While I agree that there are more opportunities in the U.S. than most anywhere else, Ehrenreich's point is that it shouldn't be so hard for low-wage workers to scrape by when they're working full time. Regardless of one's beliefs on the causes of the struggles of low-wage workers, I think most people would agree about the importance of complying with laws requiring payment of workers for the actual hours worked.
The Grocery Manufacturers' Association is holding a conference in the New Orleans on February 19-21 entitled: 2008 Food Claims & Litigation Conference, Emerging Issues in Food-Related Litigation. Session topics include "Managing the Threat of Litigation," and "A Step by Step Guide to Defending Food Litigation." If nothing else, it should be warmer in New Orleans in February than it will be in most of the country. More information can be found on GMA's website.
Valassis v. News America Marketing Upcoming Trial - Valassis Communications' $1.5 billion lawsuit against News America Marketing is scheduled to go to a jury in Michigan in 2008. According to News Corp's most recent quarterly report, an April 2007 scheduling order set the jury trial date for February 5, 2008, but it is expected that a new scheduling order will soon be entered delaying the trial date.
Valassis' complaint was originally filed on January 18, 2006, alleging that "the News Defendants have created and implemented a scheme to obtain and then exploit monopoly power in the in-store advertising and promotions market with the goal of utilizing that monopolistic power to gain an unfair advantage over Valassis in the FSI market." See Complaint, Valassis Communications, Inc. v. News America Inc., et al., No. 2:2006-cv-10240 (E.D. Mich. filed Jan. 18, 2006).
Valassis alleged that News America had enhanced its monopoly position in the in-store marketing industry by using anticompetitive methods to enter into exclusive contracts with key retailers. News America then coerced CPGs into signing long-term exclusive contracts for FSIs by threatening to increase the price of in-store advertisements if the CPGs did not purchase the FSIs.
Valassis asserted causes of action for attempted monopolization of the FSI market under Section 2 of the Sherman Act, predatory pricing of FSIs in violation of Section 2, and unlawful bundling of FSIs with in-store advertising in violation of Sections 1 and 3 of the Sherman Act, along with nine state law claims.
After a motion to dismiss was granted by the magistrate in September 2006, Valassis filed an Amended Complaint in October 2006 asserting the same causes of action. News answered the federal claims, but successfully moved to dismiss the state law claims. (Download Magistrate's Report; District Court Order). Valassis subsequently filed state court cases against News America in Michigan and California, where motions to dismiss have been denied.
Effects of News' Conduct - If Valassis' allegations are true, many players in the consumer goods market may be affected besides Valassis. Retailers have allegedly been receiving supra-competitive payments from News for in-store programs, but those payments may decrease substantially given News' alleged monopoly power over in-store marketing. CPGs have also allegedly benefited in the short term from News predatory pricing of FSIs, though News presumably would expect to increase FSI pricing over the long run after it takes greater market share from Valassis. Fortunately, perhaps, for retailers and CPGs, News entered into long-term contracts with retailers for in-store marketing and with CPGs for FSIs, delaying News' opportunity to implement its alleged monopolistic pricing plans.
Valassis reported that in 2006, for example, "FSI segment profit was $65.9 million in 2006 versus $96.2 million in 2005 due primarily to pricing." For the first 9 months of 2007, Valassis reported that FSI segment profit further declined to $19 million, compared to $50.9 million for the same period in 2006.
Similar Allegations Against News America - Other companies, such as Insignia POPS and FLOORgraphics, have made similar allegations against News America, as Fortune reported in its article News Corp's Trouble in Aisle Three. Valassis, however, has previously been accused of antitrust violations itself.
Update: Valassis v. News America Marketing Lawsuit Over FSIs.

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