Source: http://traderegulation.blogspot.com/2009/01/
Timestamp: 2019-04-26 08:30:10+00:00

Document:
A credit cardholder can pursue claims that Chase Bank violated California unfair competition and false advertising laws by offering a promotional fixed rate of 4.99% on balance transfers and then applying a 28.74% rate to a transferred balance of $10,200, the U.S. Court of Appeals in San Francisco has ruled.
According to Chase, the cardholder lost eligibility for the promotional rate because of a late payment he had made to another creditor about three months before he accepted Chase’s October 2004 balance transfer offer (BTO).
In July 2004, the cardholder had made his final mortgage payment one day after the thirty-day grace period. The mortgage lender had reported that his account was “30-days delinquent” to Experian, Inc., a credit report agency.
Prior to sending the October BTO, Chase had accessed the cardholder’s Experian credit report in August and September 2004. If Chase had discovered the late payment during either of those credit reviews and elected to impose a non-preferred rate because of that late payment, Chase’s computer system would have automatically cancelled any pending offers, including the BTO. Chase, however, did not cancel the BTO before the cardholder accepted it, and his account did not reflect Chase’s knowledge of his late payment until the end of October.
Chase complied with the federal Truth in Lending Act (TILA), the court held. In its BTO and Cardmember Agreement, Chase disclosed that the cardholder could lose eligibility for the promotional interest rate if he failed to make any minimum payment to Chase or another creditor by the due date.
While Chase’s TILA compliance provided it a “safe harbor” from state law liability, the safe harbor would extend only to state law claims based on the sufficiency of Chase’s disclosures, according to the court.
If Chase knew or should have known about the cardholder’s late payment before he accepted the BTO, Chase could not rely on the TILA to bring its conduct within the safe harbor from state law liability, the court determined.
The court found that the lack of a notation in the cardholder’s Chase file about his late payment until the end of October gave rise to two possible inferences: (1) that Chase did not discover the late payment until noting it in his file in October; or (2) that Chase discovered the late payment in a prior month, but decided not to impose the 28.74% non-preferred interest rate and thereby waived its right to do so.
If Chase knew or should have known about the late payment, but waited to apply the non-preferred rate until after the cardholder accepted the BTO, Chase’s conduct may give rise to an Unfair Competition Law claim, the court held. Chase’s conduct also might give rise to claims for fraudulent unfair competition and false advertising because a cardholder receiving the BTO could likely be deceived into believing that Chase would not later apply a non-preferred rate based on a late payment it had waived.
Summary judgment rejecting the state law claims was reversed. The case was remanded for further proceedings.
The January 23 decision in Hauk v. JP Morgan Chase Bank USA, will be reported in the CCH Advertising Law Guide.
The Federal Trade Commission has temporarily halted its administrative proceedings challenging the combination of specialty grocers Whole Foods Market, Inc. and Wild Oats Markets, Inc. to consider a proposed settlement.
At the request of Whole Foods, the Commission on January 28 withdrew the matter from adjudication for five business days—until February 5—for the purpose of considering a proposed consent agreement. The proceedings can resume after that date.
It is unlikely that the settlement negotiations, if unsuccessful, will substantially delay the proceedings. The administrative trial is set to begin on April 6, 2009, and the Commission has in the past expressed its intention to keep the proceedings on schedule. Earlier requests by Whole Foods to push back the trial have been denied.
The FTC unsuccessfully attempted to block Whole Foods’ acquisition of Wild Oats in 2007. The transaction was consummated after a federal district court denied the agency’s request for a preliminary injunction pending an administrative proceeding (2007-2 Trade Cases ¶75,831). Administrative proceedings resumed after the U.S. Court of Appeals in Washington, D.C. reversed the district court’s denial of injunctive relief (2008-2 Trade Cases ¶76,233).
The terms of Whole Foods’ proposed settlement were not released. The Commission granted in part the company’s request for non-public treatment of the Agreement Containing Consent Order and proposed Decision and Order.
The order withdrawing the matter from adjudication until February 5 appears here at the FTC website.
A dry cleaner did not violate the District of Columbia Consumer Protection Procedures Act (CPPA) by posting "Satisfaction Guaranteed" and "Same-Day Service" signs in its window and then failing to satisfy a customer or clean his pants on the day they were dropped off, according to a District of Columbia appellate court.
This ruling was yet another blow to a customer who filed numerous claims against a dry cleaner for $67 million in damages, stemming from the loss of a pair of his pants.
In 2005, the customer took a pair of burgundy and blue pinstriped pants to the dry cleaners to be altered and requested a pickup date for two days later. However, the dry cleaner was unable to locate the pants when the customer tried to pick them up, and later allegedly tried to pass off a different pair as the pants that were originally dropped off.
Based on his dissatisfaction with the dry cleaner, the customer filed CPPA claims, alleging that the "satisfaction guaranteed" and "same-day service" signs constituted fraud. The trial court rejected these claims as without merit, and this appeal followed.
The customer based his CPPA claims on the fact that the dry cleaner had not lived up to the "satisfaction guaranteed" sign. The CPPA required the customer to prove by clear and convincing evidence that the dry cleaner made a false representation of a material fact with knowledge of its falsity and with the intent to deceive. Although the customer argued that the sign was an "affirmative representation of unconditional customer-determined satisfaction," the court of appeals concluded that the sign should be viewed in light of the reasonable customer standard.
As with any CPPA claim of fraud, the court looked at how the conduct at issue was viewed and understood by the average customer. In this case, other customers of the dry cleaner testified that they believed the sign to mean that the dry cleaner would try to fix any problems and would make reasonable compensation for any problems that could not be adequately resolved.
According to the court, the customer's interpretation of the sign as an unconditional and unlimited warranty was not supported by any law or reason. Moreover, the court found that the customer did not even make out the underlying factual basis for his allegation that the pants the dry cleaner tried to return were not the same pants he dropped off.
The customer also failed to state a claim that the dry cleaner violated the CPPA by posting a sign that stated it offered same-day service. Although the customer argued that the sign was fraudulent unless same-day service was always and automatically offered, he presented no evidence to support this proposition.
In situations where a customer drops off clothing just before closing, same-day service could not be reasonably expected, according to the appellate court.
The decision is Pearson v. Chung, CCH State Unfair Trade Practices Law ¶31,737.
The U.S. Court of Appeals in Washington, D.C. on January 23 denied an emergency petition filed by Whole Foods Market, Inc., seeking a writ of mandamus and injunctive relief against the FTC.
The specialty grocer had sought an order barring the agency from conducting a trial in an administrative challenge to the combination of Whole Foods and rival Wild Oats Markets, Inc. that would violate the company's due process rights. According to Whole Foods, the FTC had already publicly prejudged the case and refused to give the company enough time to prepare for the administrative trial.
Despite Whole Foods' claims, the federal appellate court ruled that the FTC did not show that it had a "clear and indisputable" right to the extraordinary remedy of mandamus.
Whole Foods sought relief from the appellate court after initially filing its challenge last December in the federal district court in Washington, D.C. The FTC challenged the jurisdiction of the federal district court to entertain the specialty grocer's request for relief. The agency contended that the U.S. Court of Appeals in Washington, D.C. had exclusive jurisdiction over the issues.
Whole Foods re-filed its case in the appellate court to sooner reach a decision on the merits. Because the FTC's administrative trial is set to begin on April 6, 2009, Whole Foods Market said that it decided not to spend time arguing the case on jurisdictional grounds and voluntarily withdrew the matter from the district court.
According to Whole Foods, the petition alleged "that companies under the jurisdiction of the FTC, like Whole Foods Market, are subjected to a different standard of justice than those under the U.S. Department of Justice, which does not engage in further litigation if it loses a preliminary injunction."
The one-page, per curiam decision, In re: Whole Foods Market, Inc., appears at CCH Trade Regulation Reporter ¶76,470.
Lewis G. Rudnick, a pioneer franchise attorney and former Chair of the American Bar Association Forum on Franchising, passed away suddenly on Saturday, January 24, at age 73.
Rudnick was a “one of the few, genuine giants of franchise law—literally in on the ground floor of this practice area as an organized discipline,” wrote Jack Dunham, Chair of the Forum on Franchising, in a notice to the group.
A founding member of the Forum on Franchising, Rudnick served on the group’s governing committee from its establishment in 1977 to 1984, including serving as chairman of the Forum from 1981 to 1983. He guided the group in establishing its excellent quarterly publication, the Franchise Law Journal.
He served as general counsel to the International Franchise Association and the International Franchise Association Educational Foundation. Among the many honors he received was the 2004 William Rosenberg Leadership Award from the International Franchise Association Educational Foundation.
In addition to being a prominent practitioner in his own right, he trained many of today’s leading franchise attorneys at the Chicago-based Rudnick & Wolfe law firm, now DLA Piper, which has had the largest franchise practice in the world.
Besides his impressive professional accomplishments, Rudnick was a beloved figure in the franchise legal and business communities. “I have never heard of anyone who did not like and respect Lew nor have I ever heard anyone make a negative statement about him,” said Lee Abrams, another former chair of the Forum.
Rudnick’s memorial service on Monday, January 26, was a testament to his life, drawing an overflow crowd to Piser Chapel in Skokie, Illinois. Among the attendees were many franchise attorneys from across the country.
A death notice and electronic guest book appears here.
Dow Chemical Company on January 23 entered into a proposed agreement with the FTC that would enable it to proceed with its planned $18.8 billion takeover of rival chemical manufacturer Rohm & Haas Company.
The agency challenged the transaction on the ground that it would be anticompetitive and would violate federal antitrust law. Under the terms of a proposed consent order that would allow the acquisition to go forward, Dow would be required to sell a range of assets to an FTC-approved acquirer, including its acrylic monomer, hollow sphere particle, and acrylic latex polymer businesses. Dow also would have to put procedures in place to ensure that it would not have access to competitively sensitive non-public information regarding any businesses it acquires from Rohm & Haas.
The Commission's complaint against Dow alleged that the company's proposed acquisition of Rohm & Haas would reduce competition in the North American markets for the research, development, manufacture, and sale of certain acrylic monomers—including glacial acrylic acid, butyl acrylate, and ethyl acrylate—as well as hollow sphere particles and acrylic latex polymers. Each of these products is made from crude acrylic acid.
Glacial acrylic acid is used in the production of super-absorbent polymers found in personal care and hygiene products. Butyl acrylate and ethyl acrylate are acrylate esters from which the latex polymers used in paints, architectural coatings, and pressure-sensitive adhesives are created. Hollow sphere particles are a type of specialty polymer used in the manufacture of coated paper to provide gloss, brightness, and opacity. Acrylic latex polymer for traffic paint is a quick-drying polymer used to mark highway traffic lines.
According to the FTC, all of these markets are already highly concentrated, and the acquisition as proposed would lead to fewer competitors in each market. Furthermore, the complaint stated, given that Dow and Rohm & Haas are currently the only two suppliers in the markets for hollow sphere particles and acrylic latex polymer for traffic paint, the proposed transaction would amount to a merger to monopoly.
The FTC claimed that the proposed pact would eliminate direct and substantial competition between the companies in the relevant market and increase Dow's ability to exercise market power unilaterally. It was also alleged that the combination would increase the likelihood of coordinated interaction for acrylic acid, buyl acrylate, and ethyl acrylate. It was unlikely that these anticompetitive effects would be counteracted by new entry or fringe expansion into the relevant markets, the agency added.
Carolina. The divestitures would include all of the technology related to these businesses. The order also would require Dow to license any intellectual property to the acquirer that is not directly related to, but is used in, those businesses and to provide certain input processes and transition services to the acquirer for a short time.
property. Dow also would be required to supply hollow sphere particles and acrylic latex polymer for traffic paint to the acquirer at its manufacturing cost, until the buyer can develop its own manufacturing processes.
The order would require Dow to put procedures in place to ensure that it does not have access to any competitively sensitive information obtained from the businesses and facilities to be divested, or to use any information it already has in an anticompetitive matter.
Further, the order would allow the FTC to appoint an interim monitor to ensure that Dow complies with its obligations. If Dow does not sell the assets it is required to divest within 240 days of when the consent order is accepted for public comment or 240 days from the acquisition date, whichever is later, a Commission-appointed divestiture trustee would be permitted to sell the assets on its behalf. Finally, the order contains reporting and record keeping requirements to ensure Dow’s compliance with its terms.
Further information, including a news release, appears here on the FTC website.
The European Commission (EC) already approved outright the deal originally proposed by the companies. According to a January 9 statement by the EC, the companies' combination would not significantly impede effective competition within the European Economic area, despite an overlap in their activities in a large number of product markets, as well as the creation of numerous vertical links between upstream and downstream product markets where one or both was present.
Focusing on two areas of overlap that it deemed most significant—(1) crude acrylic acid and its derivatives and (2) ion exchange resins—the EC's investigation of the deal found that the merged entity would continue to face a number of effective competitors in each market.
On January 23, the Canadian Competition Bureau announced that commitments made by Dow Chemical Company to the Bureau and to U.S. antitrust authorities resolved the Bureau’s competition concerns with the acquisition. Among the assets Dow agreed to divest were intellectual property rights relating to the marketing and sale of the divested products in Canada.
"After an extensive review of this transaction and given Dow Chemical’s divestitures and other commitments to the Bureau, the parties have remedied our concerns," said Melanie Aitken, Interim Commissioner of Competition.
The Bureau had concluded that the merger would likely result in a substantial lessening or prevention of competition in Canada for the supply of acrylic acid products, acrylic latex polymer products, and hollow sphere particle products. Both Dow and Rohm and Haas are large suppliers of these chemicals in Canada and the Bureau was concerned about the impact of the merger, including the potential for higher prices.
An announcement appears here on the Competition Bureau's website.
The EPA-tested claims were held literally false because the Environmental Protection Agency did not test consumer products. The EPA’s approval of the registration of the manufacturer’s disinfectant as an antimicrobial pesticide did not constitute testing or the application of a performance standard, the court found.
The “EPA approval” claims necessarily implied a false message about both the safety and efficacy of the disinfectant when used in the manufacturer’s product. In the face of tests showing that the disinfectant was an eye irritant, the manufacturer could not substantiate claims that the product was “absolutely,” “completely,” or “entirely” safe.
A competitor asserting Lanham Act false advertising was entitled to a presumption of irreparable harm because the manufacturer’s infomercial was a comparative advertisement, even though it did not mention the competitor or its line of steam cleaners by name.
The infomercial purported to dispel the “myth” and “industry deception” that “traditional steam cleaners” could “kill germs and sanitize.” Such references and comparative claims pointed, by clear implication, to the competitor—acknowledged by the manufacturer to be the market-leader—and its products—which resembled those shown as examples of “ordinary steam cleaners,” according to the court.
The decision in Euro-Pro Operating LLC v. Euroflex Americas will appear at CCH Advertising Law Guide ¶63,234.
Christine Varney, a Washington lawyer and FTC Commissioner during the Clinton Administration, has been named as Assistant Attorney General in charge of the Antitrust Division, according to an announcement issued this afternoon.
Varney was one of four Justice Department appointees announced by President Barack Obama on January 22. The other appointees are David Kris, Assistant Attorney General for National Security; Tony West, Assistant Attorney General for Civil Division; and Lanny Breuer, Assistant Attorney General for Criminal.
"I am grateful to have these distinguished individuals joining my administration, and I have the greatest confidence that their service will meet the highest standards of this department," President Obama said.
Varney has extensive antitrust and trade regulation experience, both in government and private practice. She served as FTC Commissioner from 1994 to 1997. At the FTC, she was a leading official on a wide variety of Internet issues and pioneered the application of innovation market theory analysis to transactions in both electronic high technology and biotechnology. She led the government's effort to examine privacy issues in the information age, resulting in congressional and agency hearings, proposed industry standards, and increased government enforcement of laws protecting privacy.
Most recently, Varney was a partner in the Washington office of Hogan & Hartson, heading up the firm’s Internet Practice Group, as well as practicing in the privacy and antitrust, competition, and consumer protection areas.
A graduate of the Georgetown University Law Center, she has served as Chief Counsel to the Clinton/Gore Campaign, General Counsel to the 1992 Presidential Inaugural Committee, and General Counsel to the Democratic National Committee from 1989 to 1992. A supporter of Hillary Clinton’s campaign for the Democratic presidential nomination, Varney recently served as personnel counsel on President Obama’s transition team.
Varney’s nomination will have to be confirmed by the Senate.
The national Girl Scouts organization (GSUSA) was preliminarily enjoined under the Wisconsin Fair Dealership Law (WFDL) from unilaterally removing a large portion of a local Girl Scouts council's territory, the U.S. Court of Appeals in Chicago has decided.
The Girl Scouts of Manitou Council, which was responsible for developing and managing Girl Scouting throughout eastern Wisconsin, was a “dealer” under the meaning of the WFDL, according to the court. Manitou had at least a better-than-negligible chance of succeeding on the merits of its claims that GSUSA’s attempt to reduce its jurisdiction substantially altered the competitive circumstances of the parties’ agreement and lacked “good cause” in violation of the WFDL, the court held.
The Manitou council (Manitou) satisfied the “dealership” definition of the statute, since its agreement with GSUSA granted it the right to sell or distribute goods, the right to sell or distribute services, or the right to use a trade name, trademark, or commercial symbol, according to the court.
Although any one of the three functions would suffice to satisfy the statutory requirement, Manitou satisfied all three, the court observed. First, Manitou sold and distributed goods. Manitou's primary revenue stream derived from its annual sale of Girl Scout cookies, which netted Manitou a yearly profit in excess of $1 million. During this process, Manitou's members both solicited sales and distributed the products. Second, Manitou distributed educational and community services afforded by participation in Girl Scouting. Absent Manitou's relationship with GSUSA, it would lose the ability to provide Girl Scouting services. Third, Manitou made exhaustive use of GSUSA's names and marks.
Despite these facts, GSUSA continued to argue that the WFDL was inapplicable, stating that the mission of Girl Scouts was educational and that the local councils were nonprofit entities. However, the WFDL expressed no concern for the mission or other motivation underlying the sales in question. Nor did the statute draw any distinction between for-profit and not-for-profit entities. Manitou’s activities satisfied the statute's plain language, which the Wisconsin Supreme Court had recognized was designed to encompass a diverse set of business relationships not limited to traditional franchises.
As required by the WFDL, Manitou had a “community of interest” with GSUSA, the court ruled. GSUSA and Manitou shared a continuing financial interest, and their interdependence was extensive. Manitou devoted 100 percent of its time and resources to providing Girl Scouting to its jurisdiction. It also derived virtually 100 percent of its profits from offering Girl Scouting products and services. Manitou had substantial investments in real property and goodwill within its community, all of which were made in the name of Girl Scouting.
GSUSA's argument that Manitou, as a non-profit, could not be a “dealer” under the statute was without merit. For-profit and not-for-profit were shorthand classifications, not literal labels. What distinguished a for-profit from a not-for-profit was what the company did with the excess revenues. Both GSUSA and Manitou, although non-profits, operated at a substantial surplus.
The WFDL prohibits the termination, cancellation, nonrenewal, or substantial change in the competitive circumstances of a dealership without “good cause” (CCH Business Franchise Guide ¶ ¶4490.04). Nevertheless, the GSUSA presented no objective economic need to substantially alter the competitive circumstances of the parties’ agreement by unilaterally removing a large portion of Manitou’s territory, according to the court.
The organization’s financial circumstances were a far cry from the dire economic straits confronted by grantors in other cases found to have good cause to change their relationships with dealers. There was little support for GSUSA's argument that intangible concerns—such as fading brand image and waning program effectiveness—without a tangible effect on the bottom line, presented the types of concerns Wisconsin courts had contemplated by the good cause provision of the WFDL. Even if the need for change was objectively ascertainable, the proportionality of GSUSA's response was questionable, the court reasoned.
GSUSA was attempting to reduce the number of its local councils, leaving it with fewer and larger councils. However, if GSUSA succeeded in removing 60 percent of Manitou's territory, that would not help advance GSUSA’s strategy. Because Manitou would continue to exist, albeit on a smaller scale, GSUSA would be left with the same number of local councils, at least one of which would have a reduced capacity. Therefore, chances were better than negligible that a jury could conclude that GSUSA lacked an objectively ascertainable need for its proposed change, or that it failed to respond proportionately to that need, the court determined.
There was a presumption of irreparable harm when a dealer sought to preliminarily enjoin a grantor’s alleged violations of the WFDL. Even if that presumption was rebuttable, GSUSA failed to rebut the finding that Manitou would be irreparably harmed by the change, the court ruled. Manitou, like many non-profit organizations, relied on the people comprising it to remain viable. Removing 60 percent of Manitou's territory would result in a commensurate reduction in the number of current child and adult members, prospective members, volunteers, and current and potential donors, the court noted.
Every source of Manitou's revenue was derivative of the number of members active in its council. Cookie sales, from which Manitou netted more than $1 million in profits each year, would be reduced by 60 percent. Moreover, many of Manitou's largest expenses would remain unchanged regardless of Manitou's membership level. It was clear that taking a large portion of Manitou's jurisdiction would impose severe financial stress on Manitou that could ultimately force Manitou into insolvency.
Manitou demonstrated that donors had already withheld nearly $30,000 in contributions, based on speculation regarding Manitou's forced merger with another council or loss of territory. Manitou risked the loss of property, employees, or its entire business, as well as damage to its goodwill. These harms that were both real and irreparable, the court concluded.
The opinion in Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the U.S.A., will appear at CCH Business Franchise Guide ¶14,037.
"Microsoft's tying of Internet Explorer to the Windows operating system harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice," the European Commission (EC) announced on January 17.
Just two days earlier, the EC sent a Statement of Objections (SO) to the computer software company, outlining the EC's preliminary view that Microsoft's tying of its web browser Internet Explorer to its dominant client PC operating system Windows infringed the EC Treaty rules on abuse of a dominant position.
Internet Explorer has an artificial distribution advantage that other web browsers are unable to match, according to the EC. Its availability on 90 percent of the world's PCs purportedly distorts competition on the merits between competing web browsers.
The EC expressed concern that "the ubiquity of Internet Explorer creates artificial incentives for content providers and software developers to design websites or software primarily for Internet Explorer which ultimately risks undermining competition and innovation in the provision of services to consumers."
A Statement of Objections is a formal step in EC antitrust investigations in which the Commission informs a party in writing of the objections raised against it. The party may reply in writing, setting out facts in defense of the objections, and request an oral hearing. The sending of an SO “does not prejudge the final outcome” of the investigation, according to the EC. An EC press release on this investigation appears here.
On January 16, Microsoft issued a statement in response to the SO, saying that it was committed to conducting its business in full compliance with European law. Microsoft has about two months to respond in writing to the SO. It can also request a hearing, which would take place after the submission of this response.
According to Microsoft, the SO states that the remedies put in place by the U.S. courts in 2002 following antitrust proceedings in Washington, D.C. do not make the inclusion of Internet Explorer in Windows lawful under European Union law.
Another U.S. technology giant, IBM, might face an EC inquiry into its conduct in the computer mainframe market. T3 Technologies—a privately-held, Florida-based firm that calls itself “the other mainframe company”—announced on January 20 that it had filed a formal complaint against IBM with the EC Directorate General for Competition.
According to the announcement, T3 asserts that IBM abused its monopoly power in the mainframe industry by tying the sale of its operating system to its mainframe hardware and by withholding patent licenses and certain intellectual property to the detriment of mainframe customers. The company claims that IBM has prevented the industry from having a choice in the mainframe market.
This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide, and Pete Reap, Editor of CCH Business Franchise Guide.
Three tanning salon franchisees adequately alleged that deceptive leasing practices by a franchisor's affiliated finance company constituted a pattern of racketeeering activity in support of their federal RICO claims, the federal district court in Camden, New Jersey, has ruled.
According to the franchisees’ complaint and RICO case statement, the finance company, together with the franchisor (1) induced them to enter into "deceptively vague leasing agreements" that contained little or no description of the equipment being leased and (2) mailed and faxed misleading invoices that charged the franchisees for what they did not receive and for new equipment when they received used equipment.
Because the franchisees identified the specific dates on which some of the allegedly fraudulent invoices were received—and identified specific pieces of equipment that were billed but never received—their "representative" allegations were "more than adequate" to put the defendants on notice of the particular conduct that was at issue. Therefore, the franchisees’ complaint was sufficiently pled under the Federal Rule of Civil Procedure's heightened pleading standards for fraud.
In order to establish a pattern of racketeering activity, a RICO plaintiff must assert that the acts of racketeering at issue: (1) were related and (2) amounted to, or posed a threat of, continued criminal activity. In this case, allegations that the defendants sent similarly fraudulent billings to different franchisees satisfied the relatedness requirement. Allegations that the defendants repeatedly mailed fraudulent invoices to multiple franchises over a period of 15 months were sufficient, at this stage of the litigation, to satisfy closed-ended continuity.
Charges that three unrelated franchisees in three different states were subjected to the same fraudulent leasing practices supported the franchisees' assertions that the alleged misconduct was consistent with the defendants' "regular way of operating." Therefore, open-ended continuity was sufficiently pled.
The franchisees asserted an association-in-fact enterprise that included the franchisor; its agents, officers, and employees; the assignee; and the assignee's agents, officers, and employees. The franchisees sufficiently alleged that these associates functioned as a unit in furtherance of an alleged scheme to deceive and overcharge the franchisees.
Moreover, the franchisees' allegations sufficiently specified the distinct role that each of the corporate associates had played in the alleged enterprise: the franchisor allegedly required new franchisees to use the finance company's leasing and financing services; the finance company utilized deceptive and inaccurate invoices and leasing agreements to overcharge the franchisees; and both entities collaborated to keep the franchisees at a distance from the finance company in an effort to prevent them from acquiring complete information about the nature of their loans. These allegations were more than sufficient to support a RICO enterprise.
The franchisees alleged that the franchisor and the finance company had agreed to send fraudulent invoices to three of the franchisees, and that the defendants' motive in conspiring to operate the finance company was to fraudulently obtain, through a pattern of racketeering activity, illegal profits. The latter allegation sufficiently provided the requisite mens rea: the knowing furtherance of the enterprise's affairs.
In addition, the franchisees' assertions regarding the objectives and composition of the conspiracy—and the finance company's conduct in advancing those objectives—contained sufficient information to enable the defendants to prepare an adequate responsive pleading.
Claims that the defendants fraudulently induced the franchisees into entering unconscionable franchise agreements and sent deceptive and inflated invoices were allowed to proceed. Contentions that the fraud claims were not pled with particularity and were barred by the economic loss doctrine were rejected by the court. When read together with the RICO claims, the fraud claims were pled with sufficient particularity. The economic loss rule applied only to some tort claims based on negligence, not to intentional torts such as common law fraud.
However, the franchisees’ unjust enrichment claims against the finance company were dismissed on the ground that a party cannot recover under a quasi-contractual theory where there is an express contract between the parties. In this case, express contracts government the franchisees’ relationships with the finance company.
The decision is HT of Highlands Ranch, Inc. v. Hollywood Tanning Systems, Inc., CCH RICO Business Disputes Guide ¶11,603. It also will appear at CCH Business Franchise Guide ¶14,036.
A purchaser of a 2004 Honda Civic Hybrid automobile could go to trial on his claims that Honda's advertising was deceptive or misleading under California law, a California appellate court has ruled.
The purchaser’s claims were based on statements in a Honda brochure suggesting that the vehicle could be driven in the same manner as a conventional vehicle and achieve superior fuel economy matching EPA estimates. The advertising allegedly violated California's Consumer Legal Remedies Act and Unfair Competition Law.
The Honda brochure stated that a purchaser could “Just drive the Hybrid like you would a conventional car and save on fuel bills” and that a customer need not do “anything special” in order to get “terrific gas mileage.” The purchaser claimed that the vehicle achieved only about half of the Environmental Protection Agency's fuel economy rating of 47 miles per gallon for city driving and 48 miles per gallon for highway driving.
The purchaser added that a Honda representative admitted that Hybrid vehicles are more dramatically affected by outside influences such as air conditioning, driving habits, windows up/down, and vehicle load than normal combustion engines, and that short trips penalize hybrid efficiency more so than regular cars.
Honda contended that the statement, “Just drive the Hybrid like you would a conventional car, while saving on fuel bills,” when read in the context of the brochure's “frequently asked questions” section, simply referred to the fact that the Hybrid did not have to be plugged in.
A reasonable person could understand Honda to be making a claim about the benefits of the vehicle beyond the discussion of whether the car must be plugged in, the court determined. The statement was, at best, ambiguous, and could reasonably be read as stating that one could receive the fuel economy benefits of a hybrid vehicle while driving the vehicle in the same manner as one would drive a conventional vehicle.
The purchaser maintained that he relied on Honda's representations because he would not have purchased the vehicle had he known that those representations were false. The purchaser's evidence was sufficient to raise triable issues of material fact, according to the court.
The purchaser's claims were not expressly or impliedly preempted by the federal Energy Policy and Conservation Act (EPCA) or the federal requirements that automobile manufacturers display on new vehicles “Monroney Stickers” reciting fuel use estimates, the court added.
The federal statute expressly preempted states from imposing requirements for fuel-economy disclosures not identical to the federal rules.
Contrary to Honda's characterization of the purchaser's state law claims, the purchaser was not claiming that disclosing the EPA mileage estimates was, by itself, deceptive, the court found. Rather, the purchaser maintained that Honda had voluntarily made additional assertions—beyond the disclosure of the mileage estimates—that were untrue or misleading, and that federal law did not require, or even address, those additional assertions.
In Altria Group, Inc. v. Good, CCH Advertising Law Guide ¶63,232 (2008), the U.S. Supreme Court held that the federal law did not preempt claims that tobacco company Philip Morris violated the Maine Unfair Trade Practices Act by advertising and promoting “light” cigarettes.
Honda's argument of express failed preemption failed because the EPCA, like the federal Cigarette Labeling and Advertising Act addressed in Altria Group, did not encompass a general duty not to make fraudulent or misleading statements.
State regulation of false advertising and unfair business practices might further the goals of the EPCA, as was observed in True v. American Honda Motor Co., CCH Advertising Law Guide ¶62,725 (CD Cal. 2007). Honda's implied preemption argument that California's regulation of deceptive advertising somehow acted as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress was rejected.
The January 12 decision in Paduano v. American Honda Motor Co., Inc. will be reported at CCH Advertising Law Guide ¶63,233 and at CCH State Unfair Trade Practices Law ¶31,733.
 The 111th Congress opened with the introduction of two major pieces of antitrust legislation on January 6. The proposed “Discount Pricing Consumer Protection Act” (S. 148) would restore the ban on resale price fixing that was overturned by the U.S. Supreme Count in Leegin Creative Leather Products Inc. v. PSKS, Inc., 2007-1 Trade Cases ¶75,753, 127 S. Ct. 2705 (2007). The measure would amend Sec. 1 of the Sherman Act by adding the following: "Any contract, combination, conspiracy or agreement setting a minimum price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate this Act." The bill's sponsor, Sen. Herb Kohl (D-Wisconsin), said: "Permitting manufacturers to set minimum retail price significantly harms the ability of retailers to discount, leads to higher prices for consumer goods, and damages retail competition."
A second proposal—which would repeal the antitrust exemptions protecting freight railroads—was introduced in both houses of Congress. The proposed "Railroad Antitrust Enforcement Act" (S. 146) was introduced by Sen. Kohl on January 6, 2009. The next day, Rep. Tammy Baldwin (D-Wis.) introduced the House version (H.R. 233).
 President Elect Barack Obama is expected to name FTC Commissioner Jon Leibowitz as the next FTC Chairman and to choose Harvard law professor Einer Elhauge as the new head of the Department of Justice Antitrust Division, according to a January 15 Reuters story. The story attributes the information to “antitrust sources who have been following the matter.” Leibowitz, who has served on the FTC since , is expected to succeed FTC Chairman William Kovacic, a Republican. Elhauge is reportedly on the top of the short list to head the Antitrust Division. Other top candidates are Janet McDavid of Hogan and Hartson, Douglas Melamed of WilmerHale, and William Bauer of Arnold & Porter LLP. The article appears here.
 Federal court litigation increased 9% in 2008, with antitrust filings growing by 27% over the previous year, according to the 2009 edition of the Law360 Litigation Almanac, which was released on January 13. The sharp rise in antitrust litigation extended a multi-year trend of dramatic increases “as private plaintiffs firms closely track government investigations and prosecutions,” the Almanac stated. A “slew of cases” were filed against chocolate makers, egg product processors, and packaged ice distributors soon after the government announced investigations in these industries. Class actions were found to have hit a new high in 2008, rising 8% over 2007. The publication also included law firm rankings. The largest competition/antitrust law practices were at Baker & McKenzie, Cleary Gottlieb, Kirkland & Ellis, Latham & Watkins, and Gibson Dunn. The firms retained for the most class actions were Morgan Lewis, Littler Mendelson, Greenberg Traurig, Jones Day, and Gibson Dunn.
 William Blumenthal will step down as General Counsel at the FTC, the agency announced on January 6. Blumenthal, who joined the Commission in February 2005, is leaving to join Clifford Chance US LLP as a partner in the firm's mergers and acquisitions practice and chairman of its U.S. antitrust group. "In the years ahead, Bill's thoughtful approach will provide an enduring, valuable model for FTC officials and for the larger community of competition law and consumer protection authorities," said FTC Chairman William E. Kovacic in announcing Blumenthal's departure. On January 15, it was announced that David C. Shonka will take over as Acting General Counsel for the agency. Further details about Skonka's appointment appear here.
With the Presidential Inauguration only days away, organizations and public interest groups are taking their last opportunity to influence President Elect Barack Obama—and his transition team—prior to his taking office.
Earlier blog postings have described the American Antitrust Institute’s October 6, 2008 report to the next president (“The Next Antitrust Agenda: The American Antitrust Institute’s Transition Report on Competition Policy to the 44th President of the United States”) and the ABA Antitrust Section’s November 25, 2008 paper on the state of federal antitrust and consumer protection enforcement (“2008 Transition Report”).
Two more groups have issued recommendations for the new Administration—the National Association of Attorneys General (NAAG) and the Future of Privacy Forum (FPF).
NAAG’s “Interim Briefing Paper” to the President Elect’s Transition Team asks the incoming Administration and the new Congress to “resist federal preemption of state laws, particularly in the enforcement of state banking and mortgage foreclosure laws” and to increase cooperation between federal and state agencies.
In view of the failing economy, poor housing market, and soaring foreclosure rate, “it is critical that the state Attorneys General continue to be the ’56 cops on the beat’ and be given the necessary regulatory authority to impose appropriate standards on leading institutions,” according to the briefing paper.
The attorney general group also stated “addition priorities” in antitrust, consumer protection, and other legal areas.
 Ensure that antitrust law continues to serve the interests of consumers by (1) supporting federal legislation to allow federal antitrust recovery by indirect purchasers, effectively repealing Illinois Brick v. Illinois; (2) reinvigorating federal enforcement against vertical restraints that harm consumers and supporting legislative overrule of Leegin v. PSKS; and (3) reinvigorating support for health care enforcement by bringing actions when anticompetitive conduct seeks to prevent entry of rival generic drugs.
 Resist cutting federal grant funding for state consumer protection initiatives.
The briefing paper makes further recommendations regarding environmental, cybercrime, tobacco, and world trade, among other issues.
 Establish a standard definition of "personal information,"
 Encourage accountable business models.
"By appointing a [Chief Privacy Officer], President-Elect Obama will be taking an important and necessary step to ensure that the new Administration has the leadership in place to coordinate technology policies that will improve the quality of life for all Americans," said Christopher Wolf, co-chair of the FPF.
"We are in an era where the personal use of data brings opportunities for for advancements that can improve millions of lives, but the misuse of data can also negatively impact millions of citizens."
The FPF is a privacy think tank that maintains an Advisory Board comprised of leading figures from industry, academia, law and advocacy groups. Further information about the group appears here.
In an antitrust action against chemical manufacturers for conspiring to fix prices of hydrogen peroxide and two related chemical products, a federal district court’s certification of a group of purchasers of the chemical products constituted an abuse of discretion, the U.S. Court of Appeals in Philadelphia has ruled. The predominance requirement of Federal Rule of Civil Procedure 23(b) (3) had not been met and should not have been presumed, the appellate court decided.
The trial court’s grant of class certification to a class consisting of all persons or entities that purchased hydrogen peroxide, sodium perborate, or sodium percarbonate directly from any of the defendants or affiliates during an 11-year period (2007-1 Trade Cases ¶75,569) was therefore vacated and the matter was remanded.
In finding that the proposed class satisfied the predominance requirement because the plaintiffs would have been able to use common evidence to prove antitrust impact at trial, the trial court erroneously applied too lenient a standard of proof, the appellate court stated.
The trial court also failed to consider the views of the defendants’ expert, while crediting the plaintiffs’ expert, and wrongly applied the principle described in Bogosian v. Gulf Oil Corp. (1977-2 Trade Cases ¶61,568), under which antitrust impact could be presumed in certain circumstances.
Identification by the plaintiffs’ expert of two potential approaches to estimating damages on a class-wide basis—benchmark analysis and regression analysis—did not amount to a showing common issued predominated with respect to injury and damages, the appellate court explained.
According to the expert, both methods could be used to estimate the prices the plaintiffs would have faced but for the alleged conspiracy. However, the expert had not actually conducted either analysis. Demonstration only of the intention to prove impact on a class-wide basis did not satisfy the requirement of Rule 23. A party’s assurance that it intended to meet the requirements was insufficient.
The lower court also erred in failing to consider the testimony of the defendants’ expert in addressing the Rule 23 requirements, instead deferring to the opinion of the plaintiffs’ expert. The court’s apparent assumption that it was barred from weighing the defense experts’ opinion—which was substantively rebutted many points made by the plaintiffs’ expert—for the purpose of deciding whether the requirements of Rule 23 had been met was wrong, in the appellate court’s view.
In light of Rule 23’s call for consideration of all relevant evidence and arguments, the trial court should have addressed the defense expert’s finding of substantial price disparities among similarly-situated purchasers of hydrogen peroxide—the members of the proposed class.
Finally, by adopting the Bogosian principle to the case, the trial court erroneously presumed that the predominance requirement was met. The record in the instant case was far more mixed than in earlier cases in which the principle had been applied to allow a presumption of common impact. Whereas the evidence in one such case had included an idling of production to reduce inventories to a 20-year low and to boost prices, the evidence in the instant case revealed that (1) production was increasing rather than decreasing through much of the class period and (2) prices were lower at the end of the proposed class period than they were at the beginning.
There was a fundamental dispute between the parties’ experts as to the price structure in the industry.
“Applying a presumption of impact based solely on an unadorned allegation of price fixing would appear to conflict with the 2003 amendments to Rule 23, which emphasize the need for a careful, fact-based approach, informed, if necessary, by discovery,” the court concluded.
The decision is In re Hydrogen Peroxide Antitrust Litigation, 2008-2 Trade Cases ¶76,453.
The FTC has revised its thresholds for acquisitions and mergers subject to the report-and-wait requirements of the Hart-Scott-Rodino (HSR) Act. These higher thresholds will become effective February 12, 2009.
Separately, the agency adjusted for inflation its civil penalties for violations of HSR rules as well as for violations of the FTC Act. These new civil penalties apply to violations occurring after February 9.
Amendments to the HSR Act in 2000 imposed new thresholds and called for indexing of these thresholds for inflation annually beginning in Fiscal Year 2005. They have since been revised based on changes in Gross National Product.
Between February 1, 2001 and March 2, 2005, acquisitions that resulted in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $200 million were reportable, unless otherwise exempted. On the other extreme, no transaction resulting in an acquiring person holding $50 million or less of assets or voting securities of an acquired person needed to be reported. The reportability of transactions falling between these boundaries was based on the “size of person” test (which generally required one side of the transaction to have sales or assets in excess of $100 million and the other $10 million).
Under the revised thresholds, acquisitions that result in an acquirer holding an aggregate total amount of the voting securities and assets of the acquired party in excess of $260.7 million will be reportable (up from the current $252.3 million), unless otherwise exempted. No transaction resulting in an acquiring person holding $65.2 million or less (up from $63.1 million or less) of assets or voting securities of an acquired person will need to be reported.
The “size of person” test, applied to transactions valued at more than $65.2 million but less than $260.7 million, requires one party to have sales or assets in excess of $130.3 million and the other $13.0 million (up from $126.2 million and $12.6 million, respectively). Where an acquired person is not engaged in manufacturing, only its total assets (unless its sales are at least $130.3 million) will be considered in determining its size.
Along with notifying the agencies, parties must pay premerger filing fees. The fees are based on the size of the transaction. Under the revised thresholds, a filing fee of $45,000 will be required for reportable transactions valued at less than $130.3 million (up from $126.2 million); transactions valued at at least $130.3 million but less than $651.7 million will be subject to a $125,000 filing fee; and a $280,000 filing fee will be assessed on the largest transactions.
The FTC has adjusted its civil penalty dollar amounts in accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990. Pursuant to the Act, the FTC is required to make certain regulatory adjustments to civil penalty amounts within its jurisdiction at least once every four years. The Commission last published adjustments to civil penalties in 2004.
Civil penalties for premerger filing notification violations under the HSR Act will increase from $11,000 to $16,000 per violation, effective February 9. The same increase—from $11,000 to $16,000—applies to civil penalties for unfair or deceptive acts or practices under Secs. 5(l), (m)(1)(A) and (m)(1)(B) of the FTC Act and energy conservation violations under Sec. 525(b) the Energy Policy and Conservation Act. The civil penalty for violations of cease-and-desist orders issued under section 11(l) of the Clayton Act will increase from $6,500 to $7,500.
The text of amended Commission Rule 1.98, which sets out the civil penalties, will appear at CCH Trade Regulation Reporter ¶9801.93.
The FTC has also released its annual recalculation of profits and sales thresholds applicable in determining whether an individual can serve as an officer or director of two or more competing corporations.
Under the new threshold amounts, effective January 13, 2009, interlocking management is prohibited if each of the companies has capital, surplus, and undivided profits in excess of $26,161,000 and the competitive sales of each corporation exceed $2,616,100. Under Sec. 8 of the Clayton Act, the FTC is required to recalculate the figures annually based on changes in the Gross National Product.
Details of the revised jurisdictional thresholds for Secs. 7A and 8 of the Clayton Act will appear in CCH Trade Regulation Reporter (74 Federal Register 1687, 1688, January 13, 2009).
Following a federal appellate court's remand of the FTC's action challenging the acquisition of Wild Oats Markets by Whole Foods Market, Inc., the federal district court in Washington, D.C. agreed with the FTC that the only task on remand was an evaluation of the equities to determine whether enjoining the transaction was in the public interest.
The exact issue to be decided on remand was in dispute after the appellate court reversed the lower court's denial of the agency's request for a preliminary injunction blocking the transaction (2008-2 Trade Cases ¶76,233).
Success on Merits and Balance of Equitites?
Whole Foods argued that the district court was required on remand to take additional evidence addressing both the FTC’s likelihood of success on the merits and the balance of the equities. However, it was decided that the appellate court concluded that the agency had demonstrated a likelihood of success on the merits of its claim that the acquisition restrained competition.
“The question remaining is how best to proceed to weigh the equities and, if they favor the FTC, to determine the appropriate remedies in view of the fact that the merger already has gone forward,” the court said, noting that it had the power to grant relief despite the consummation of the acquisition.
The court ordered the parties to meet and confer and file a joint report detailing their proposed method of proceeding and proposed schedule. The parties were to discuss whether they could agree on some interim relief during the pendency of the proceedings in order to ensure that any relief obtained by the FTC would be effective.
The January 8, 2009, decision in FTC v. Whole Foods Market, Inc., Civil Action No. 07-1021, will appear in CCH Trade Regulation Reporter.
Two bills proposing federal laws regulating consumer privacy were introduced in the Senate on January 6.
The proposed “Data Breach Notification Act” (S. 139), sponsored by Sen. Dianne Feinstein (D-Calif.) would require any agency or any business entity engaged in interstate commerce that is in possession of sensitive personally-identifiable information to notify the subjects of such information when security breaches are discovered.
Notifications would have to be made “without unreasonable delay” by mail, telephone, or (if consent has been given by the data subject) e-mail. If notice of a breach is given to more than 5,000 individuals, notice must also be provided to all major consumer reporting agencies.
The U.S. Attorney General and state attorneys general would be charged with enforcement of the measure. Violations would be subject to civil penalties. The proposal would not create a private right of action.
Sen. Feinstein also sponsored, with Sen. Judd Gregg (R-N.H.), legislation aimed at curbing the growing epidemic of identity theft by making it harder for criminals to steal another person’s Social Security Number.
The proposed “Protecting the Privacy of Social Security Numbers Act (S. 141) would prohibit the sale or display of Social Security Numbers to the general public without the number holder’s consent. The measure would also require government agencies to take steps to protect Social Security Numbers from being displayed or accessed.
The proposal would prohibit commercial entities from requiring an individual to provide his or her Social Security Number when purchasing a good or service, with limited exceptions, such as for purposes relating to law enforcement. Those misusing a Social Security Number would be subject to civil and criminal penalties.
The legislation would also provide a private right of action in state court to aggrieved persons. Plaintiffs would be able to seek injunctive relief, as well as actual damages or statutory damages up to $500 per violation.
A record 115 jurisdictions worldwide currently regulate mergers and acquisitions, according to Worldwide Merger Notification Requirements, a new publication from Aspen Publishers, written and edited by attorneys at White & Case LLP.
Worldwide Merger Notification Requirements reflects the 2009 survey of worldwide antitrust merger notification requirements by White & Case, a global law firm that has conducted such a survey since 1996.
The 115 jurisdictions include 110 separate countries with merger control laws, as well as regional merger control regimes, such as those in the European Commission (EC) and the Common Market for Eastern and Southern Africa (COMESA).
This number constitutes a substantial increase over the 68 jurisdictions identified in the 2004 White & Case survey. Hong Kong, Kyrgyzstan, and Paraguay are expected to adopt new competition regulations in the near future, according to the law firm.
“We have witnessed an explosion in merger regulation across the globe over the past 15 years,” said J. Mark Gidley, head of White & Case’s global antitrust practice and co-editor of the new publication.
“This mega-trend has been fueled by globalization, the rise of the so-called BRIC countries [Brazil, Russia, India, and China], outreach efforts by US and EU enforcement officials, and a desire by more and more governments to adopt antitrust laws as a means of regulating commerce,” Gidley continued.
The growth and modernization of merger control regimes has placed greater pressure on global corporations and their antitrust advisors, according to George L. Paul, a White & Case antitrust partner and co-editor of the publication. “China and India are two notable additions to the roster of active jurisdictions that will have a major impact on many international transactions,” he observed.
Worldwide Merger Notification Requirements provides a legal roadmap for parties contemplating a multi-national transaction by highlighting the disparate ways that competition authorities treat mergers, including differences in notification timing; filing fees; turnover, size, and post-merger market share thresholds; potential penalties; and volume and type of required filing information.
The resource allows professionals to determine whether parties must notify competition authorities, when to seek regulatory approval, which countries require regulatory approval, how long the approval process takes, what substantive issues will be examined by the agencies, and how much notification and review may cost.
Organized by jurisdiction, Worldwide Merger Notification Requirements provides this information in one loose-leaf volume. Further information about the publication is available here on the Aspen Publishers website.
This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law, and John W. Arden.
The Federal Trade Commission on December 17 unanimously adopted a report recommending five measures to help prevent Social Security Numbers (SSNs) from being used for identity theft.
The FTC report (“Security in Numbers: SSNs and ID Theft”) states that adopting nationwide standards for how businesses and other organizations verify the identity of new and existing customers would make it harder for identity thieves to use SSNs and other stolen information to consummate their fraud.
The first step in minimizing the use of SSNs in identity theft “is to limit the demand for SSNs by making it more difficult for thieves to use them to open new accounts, access existing accounts, or obtain other benefits or services,” according to the report.
The report also suggests that steps be taken to reduce the unnecessary display and transmission of SSNs. Such restrictions should be approached carefully, however, because a number of important functions in the U.S. economy depend on the use and access to SSNs. Overly restrictive limitations on the availability of SSNs could unintentionally curtail those important functions.
Conduct outreach to businesses and consumers. “The Commission recommends increasing education and guidance efforts as additional steps to help reduce the role of SSNs in facilitating identity thefts.” The guidance should include messages such as the importance of collecting SSNs only when necessary and storing them only when necessary, steps that businesses can take to reduce the use of SSNs as internal identifiers, the proper disposal of SSNs, the importance of securing SSNs during their transmissions, and the limiting of employee access to SSNs.
The report was based on extensive fact-finding by the FTC and other federal agencies, including public comments and a workshop the Commission conducted in December 2007. It was developed pursuant to a recommendation of the President's Identity Theft Task Force, which was established in May 2006 to develop a coordinated plan to prevent identity theft, prosecute identity thieves, and help victims recover from the crime.
A press release appears here on the FTC website. The 20-page report is available here.
The operator of the social networking website MySpace would not have engaged in unlawful exclusionary conduct or caused antitrust injury by redesigning its site to prevent users from linking to or viewing content hosted on a rival’s site, the U.S. Court of Appeals in San Francisco has ruled in an unpublished opinion.
The rival—LiveUniverse, which operates a site called “vidiLife”—alleged that MySpace’s conduct constituted an unlawful refusal to deal. Dismissal of Live Universe’s monopolization claims (2007-2 Trade Cases ¶75,782) was affirmed.
According to LiveUniverse, prior to MySpace’s redesign, users were able to link to content on vidiLife, to load and display videos from vidiLife on MySpace’s system, and to embed links to the vididLife site in their personal profiles.
Though this could indicate a prior course of dealing between MySpace and its users, nothing in the complaint suggested an agreement—or even an implicit understanding—between MySpace and LiveUniverse regarding the functionality of embedded links, the appellate court held.
Even if a voluntary course of dealing could be assumed, no allegation was made that such an arrangement was profitable to MySpace, such that the conduct of disabling those links would be contrary to its short-term business interests.
LiveUniverse’s failure to allege causal antitrust injury served as an independent basis for dismissal, the appellate court added. The allegation that MySpace’s disabling of links to other social networking sites reduced consumers’ choices in the relevant market did not describe a cognizable injury.
LiveUniverse did not explain how MySpace’s actions on its own website could reduce consumers’ choice or diminish the quality of their experience on other social networking websites, the court observed.
There was no assertion that MySpace programmatically prevented consumers outright from accessing vidiLife or any other website. All MySpace did was to prevent consumers from accessing vidiLife through MySpace.com. Consumers remained free to choose which online service to join and on which websites to upload text, graphics, and other content, the court concluded.
The December 22 not-for-publication decision, LiveUniverse, Inc. v. MySpace, Inc., will appear at 2008-2 Trade Cases ¶76,445.
State antitrust enforcers worked with the Department of Justice Antitrust Division to assert competition concerns related to a number of large mergers and acquisitions in 2008.
Seventeen states and the Antitrust Division challenged JBS S.A.'s proposed acquisition of National Beef Packing Company LLC, which would combine the third and fourth-largest U.S. beef packers.
Seven states, along with the Antitrust Division, challenged Republic Services Inc.'s proposed $4.5 billion acquisition of Allied Waste Industries Inc. A consent decree requires divestitures of commercial waste collection/disposal assets in 15 markets (CCH Trade Regulation Reporter ¶50,966).
In two separate actions challenging acquisitions by telecommunications giant Verizon Communications Corporation, states collaborated with the Antitrust Division to resolve competition concerns. The Antitrust Division, along with seven states, required Verizon to divest assets in 100 areas in 22 states in order to proceed with its planned $28 billion acquisition of Alltel Corporation under the terms of a proposed consent decree (CCH Trade Regulation Reporter ¶50,964).
Separately, the State of Vermont worked with the Antitrust Division to resolve concerns over Verizon's proposed $2.7 billion acquisition of Rural Cellular Corp. (CCH Trade Regulation Reporter ¶50,960).
States also filed parallel actions, challenging allegedly anticompetitive transactions that were the subject of federal antitrust suits. The State of Nevada filed a complaint challenging the combination of UnitedHealth Group, Inc. and Sierra Health Services Inc. A consent decree resolved the state's competition concerns over the merger of first and second largest sellers of Medicare Advantage plans in the Las Vegas area (2008-2 Trade Cases ¶76,432).
Simultaneously with the FTC, the State of Minnesota in December filed an action against Ovation Pharmaceuticals, Inc. for preserving its U.S. monopoly in drugs used to treat a potentially deadly congenital heart defect in premature babies by acquiring its only competitor in that market.
The states took particularly local concerns into their own hands in 2008. In December, boycott claims brought by the State of Illinois against Carle Clinic Association, a physicians group operating in the central part of the state, were resolved. In addition, Connecticut announced a settlement with the Independent Connecticut Petroleum Association, barring its member home heating dealers from colluding to boycott state energy assistance programs.
Lastly, Mississippi filed a lawsuit against utility provider Entergy Mississippi, charging that the company's business practices violated Mississippi antitrust and consumer protection laws.
State and government enforcers were not always in agreement. In the long-running Microsoft antitrust case, ten states and the District of Columbia sought to extend the antitrust final judgments that had been set to expire in large part in November 2007.
The U.S. Department of Justice supported the computer software maker's argument that the states had not met their burden for modification. However, in January, decree provisions were extended until November 2009 (2008-1 Trade Cases ¶76,020).

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