Antitrust and Unfair Competition Law Section
News from the Section
Antitrust and UCL in the News
February 28, 2013
Labels Do Matter -- Exploring the "All Natural" Jurisprudence
In 2011, the California Supreme Court held in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011), that product labels needed to be truthful and upheld standing to bring actions under the UCL to challenge false, deceptive and unfair labeling. Kwikset involved clams that "Made in America" product labels misrepresented the fact that the goods were manufactured abroad. Finding that plaintiffs relied on the "Made in America" label in purchasing the product, the court ruled that plaintiffs were injured when they purchased a product, even a useful product, which was not accurately labeled.
Subsequently, there has been an explosion of recent litigation that has sought to challenge products labeled "all natural" on grounds that an analysis of their ingredients shows violations of the standards set by the Court in Kwikset. Challenges to product labeling have also included deceptive or false descriptive labels. The legal claims involve alleged violations of the Unfair Competition Law (UCL), False Advertising Law (FAL) and the state Sherman Law. This brief surveys a sampling of recent cases under California law to analyze when "all natural" or similar claims may be successfully disputed and when they may be sustained. READ MORE.
We will be posting updates on a regular basis. For more, see Antitrust and UCL in the News.
Congratulations to the 2013 Antitrust Lawyer of the Year, Kathleen E. Foote
The Antitrust and Unfair Competition Law Section of the State Bar of California was pleased to honor Kathleen E. Foote as the 2013 Antitrust Lawyer of the Year. She has devoted the last 25 years of her career to public enforcement of our antitrust laws.
Senior Assistant Attorney General Kathleen Foote joined the California Department of Justice’s antitrust unit as a deputy attorney general in 1988, and has been its Antitrust Chief since 2001. Litigation brought on behalf of California Attorney General under her leadership includes successful state law challenges to tying arrangements and resale price maintenance schemes, and a ground-breaking federal challenge to asserted antitrust exemption of an employer profit-sharing agreement in California v. Safeway, for which she received California Lawyer magazine’s Lawyer of the Year award in 2011. Her team played a lead role in the Microsoft remedies case, and more recently in the TFT-LCD and DRAM Indirect Purchaser multistate cases. She has led the State’s merger enforcement efforts in numerous industries including gasoline, banking, publishing and healthcare. Her post-settlement work in Levi-Strauss established a research institute on healthcare markets, and in Hartford Fire Ins. V. California an institute on public sector risk management, and she has pioneered the development of best practices for cy pres distributions in other major consumer settlements.
Kathleen is currently chair of the multistate Antitrust Task Force of the National Association of Attorneys General, which coordinates joint multistate and state-federal investigations and litigation. She serves on the Advisory Board of the American Antitrust Institute and has been named recipient of its annual Alfred Kahn Award for Antitrust Achievement for 2013. She is co-chair of the ABA Section of Antitrust Law’s State Enforcement Committee, and is a past Executive Committee member of the California State Bar’s Antitrust and Unfair Competition Law Section.
From 1981 until 1987 Kathleen was Associate Dean at University of San Francisco School of Law. Prior to teaching, she spent three years as an associate attorney with the San Francisco law firm of McCutchen, Doyle, Brown & Enersen (now Bingham). She earned her undergraduate degree from Radcliffe in 1967 and her law degree from USF in 1975.
Kathleen has been active in community affairs, formerly serving as mayor of Mill Valley, trustee and board chair of the Marin Community Foundation, and youth soccer coach. Currently in her spare time she plays tennis and listens to Chicago blues.
For more information about the the 2013 awards and past honorees, see Antitrust Lawyer of the Year.
California Antitrust and Unfair Competition Law, Revised Edition
Cheryl Lee Johnson, Editor-in-Chief
Gain authoritative understanding of California antitrust and unfair competition statutes, policies and issues with one-volume convenience. This treatise brings you up to speed on everything from horizontal combinations and vertical restraints to public enforcement of California antitrust laws and trial considerations.
You get full coverage of The Cartwright Act along with related California consumer and unfair competition laws, and how they apply to the health industry, regulated industries, the labor market, electronic media, the internet and other fields. Additionally, there are chapters covering damages, defenses to liability including exemptions and immunities, injunctive relief, class actions, attorney’s fees and costs, insurance issues, and much more. This publication includes contributions from over 120 highly experienced antitrust practitioners in both the private and government sectors, as well as the executive members of the Antitrust and Unfair Competition Law Section of the California State Bar.
$260, 1 volume, loose-leaf, updated annually, Pub. #01577, ISBN 9780769856896
To order, call 800-223-1940 or visit the LexisNexis Store.
Summary of Recent Antitrust and Unfair Competition Law Developments
The summary below was prepared by Paul Riehle of Sedgwick LLP for the October 2012 issue of the Antitrust Section E-Brief.
United States Circuit Courts of Appeals
- Affirming dismissal of antitrust claims against foreign air carriers based on preemption by Federal Aviation Act: In re Air Cargo Shipping Services Antirust Litigation, __ F.3d __, 2012 WL 4820132 (9th Cir. October 11, 2012). Indirect purchasers of air freight shipping services brought action against foreign airlines alleging a conspiracy to fix prices in violation of state antitrust, consumer protection and unfair competition laws. The Second Circuit found that the Federal Aviation Act (“FAA”) was ambiguous as to whether foreign air carriers were “air carriers” under provision preempting state regulation of air carriers' prices. In some places, the FAA used the ordinary, everyday meaning of air carrier so to include both domestic and foreign air carriers. Elsewhere, the FAA used the statutory definition of “a citizen of the United States undertaking by any means, directly or indirectly, to provide air transportation.” In light of context and legislative history, the Court of Appeals held that the FAA's preemption of state regulation of prices of “air carriers” included both domestic and foreign air carriers.
- Affirming approval of cy pres settlement: Lane v. Facebook, __ F.3d __, 2012 WL 4125857 (9th Cir. September 20, 2012). Members of an online social network brought class action against network and operators of websites that had participated in network’s program which updated members’ personal profiles to reflect actions taken by members on participating operators’ website, alleging violations of various state and federal privacy statutes. A split Ninth Circuit rejected arguments that the district court abused its discretion in approving the parties’ $9.5 million settlement either because a Facebook employee sits on the organization distributing cy pres funds or because the settlement amount was too low. The Court of Appeals found permissible that the parties agreed to create a new grant-making entity rather than give the funds to an existing entity. The settlement agreement and the new entity spelled out how the funds would be used and provided the requisite nexus between the cy pres remedy and the interests furthered by plaintiffs’ lawsuit. The appellate court also found that the district court meaningfully accounted for the potential value of plaintiffs’ claims.
- Reversing approval of cy pres settlement: Dennis v. Kellogg Co., __ F.3d __, 2012 WL 3800230 (9th Cir. September 4, 2012). Consumers filed class action against breakfast cereal producer alleging that its marketing claims that Frosted Mini-Wheats improve children’s attentiveness by 20% constituted false advertising in violation of the UCL, CLRA and the consumer protection statutes of other states. The Ninth Circuit reversed approval of a nationwide settlement class. First, the settlement neither identified the ultimate recipients of the product and cash cy pres awards nor sets forth any limiting restriction on those recipients other than characterizing them as charities that feed the indigent. Second, feeding the indigent has nothing to do with the purposes of the lawsuit or the class of plaintiffs: the gravamen of the complaint was that defendant falsely advertised that its cereal improved attentiveness. “Thus, appropriate cy pres recipients are not charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising.” Third, the settlement was unacceptably vague in that it does not demonstrate how the $5.5 million in food will be valued (i.e., at cost, wholesale or retail) nor whether defendants can use the donation as a tax deduction or whether the donations will be in addition to or part of donations for which it was already obligated. The ambiguity in the value of the settlement, in turn, impacted an accurate measurement of attorneys’ fees in relation to the common fund created by the settlement.
- Affirming dismissal of UCL and FAL claims that defendants failed to adequately disclose credit card annual fee: Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152 (9th Cir. August 31, 2012). Plaintiff brought class action against retailer, bank and related entities claiming defendants defrauded consumers without adequately disclosing that cardholders would be subject to an annual fee. The Ninth Circuit began by clarifying that abuse of discretion is the standard of review of the district court’s decision of whether to incorporate by reference documents into the complaint. The court then held that opposing incorporation by reference because one did not review or have access to the proffered copies does not amount to a challenge to the documents’ authenticity. As to the retailer, the appellate court affirmed the district court’s ruling that no reasonable person could have been deceived by the advertisements into thinking that no annual fee would be imposed by the promise of reward certificates with the first purchase. The court rejected plaintiff’s fraudulent concealment claim because the existence of the annual fee was within plaintiff’s observation, as he conceded that he was able to discover the annual fee when he revisited the website and scrolled through the important terms and disclosure statement. The court found that disclosure statement complied with Regulation Z and therefore fell within a safe harbor as to UCL claim against both the bank and the retailer predicated on the disclosure statement. Defendant’s advertisements were not protected by the safe harbor, but nonetheless failed each UCL prong. No reasonable consumer would have been deceived by the advertisements into thinking that no annual fee would be charged: they contained a disclaimer that other terms and restrictions may apply, and alerted the reader to the disclosure statement. Moreover, the annual fee was completely refundable if the account was closed within 90 days without using the card, which meant that the alleged injuries were reasonably avoidable.
- Reversing grant of summary judgment as to manufacturer and seller defendant, affirming as to parent company: In re Publication Paper Antitrust Litigation, 690 F.3d 51 (2d Cir. August 6, 2012). After the DOJ’s investigation became public, private lawsuits were brought against manufacturers of publication paper. Defendant Stora Enso North America Corp. (“SENA”) ultimately was acquitted by a jury of criminal antitrust violations. The Second Circuit reversed summary judgment as to SENA based on private meetings and phone conversations between SENA’s president and the president of the amnesty applicant that undisputedly occurred soon before three price increase announcements. The Court of Appeals rejected the district court’s decision to treat the amnesty applicant’s president’s testimony in the criminal trial to be of limited value on the basis that English was not the native language of the two presidents. The appellate court also found that there was sufficient evidence from which a jury could conclude that the presidents’ agreement, if proven, was both a material and a “but for” cause of the price increases. The court affirmed summary judgment as to SENA’s parent, as there was no evidence that the parent had any direct involvement in decisions regarding the marketing, sale or pricing of publication paper in the United States.
- Affirming dismissal of UCL claims for failure to allege reliance on or injury from misleading announcement and dismissal of CLRA claims for failure to allege false or deceptive representations when made: Sateriale v. R.J. Reynolds Tobacco Co., 687 F.3d 1132 (9th Cir. July 13, 2012). After reversing dismissal as to unilateral contract and promissory estoppel claims, the Ninth Circuit affirmed the district court’s dismissal of UCL and CLRA claims. Plaintiff’s UCL claims and CLRA claims, in part, were predicated on the allegation that defendant announced it was terminating a coupon program in six months and represented that coupon holders could redeem the coupons for another six months. Plaintiffs’ UCL claims failed because they did not allege that they purchased additional products in reliance on the announcement or that they delayed in redeeming their coupons. Plaintiffs’ CLRA claims were also based on the allegation that defendant represented before the announcement that consumers could redeem the coupons for awards. That CLRA claim failed because plaintiffs did not assert that the representations were false or deceptive when made.
United States District Courts
- Granting motion for certification of nationwide UCL, FAL and CLRA class notwithstanding Mazza: In re Pom LLC Marketing and Sales Practices Litigation, 2012 WL 4490860 (C.D.Cal. September 28, 2012). Plaintiff alleged that pomegranate juice producer’s advertisements of health benefits are false and misleading. As defendant was located solely in California, developed its marketing strategies in California and produced its products in California, defendant did not challenge whether the application of California law to a nationwide class was constitutionally permissible. Rather, defendant relied on the Ninth Circuit’s 2012 decision in Mazza to argue that no nationwide class could be certified because of California’s governmental interest choice of law analysis. As to the first step in that analysis, the district court found that defendant failed to meet its burden of showing that foreign law, rather than California law, should apply. Defendant submitted a chart summarizing each state’s laws, but did not indicate which of those laws differ from California’s laws. As to the second and third steps, defendant did not apply the facts of the case to those laws or demonstrate, beyond citing to Mazza, that a true conflict exists. “Having failed to identify any true conflict, Pom necessarily fails to carry its burden to demonstrate that the interests of any foreign jurisdiction outweigh California’s interest in applying its own consumer protection laws to the facts of this case.” The court rejected the argument that the reliance inquiry necessarily presents predominately individualized issues on the basis that “an inference of reliance arises as to the entire class where, as here, material misrepresentations have been made to the entire class.”
- Approving settlement with three publishing companies that requires them to terminate their contracts with digital content distributor regarding alleged conspiracy to set prices for digital versions of their books: United States v. Apple, Inc., __ F.Supp.2d __, 2012 WL 3865135 (S.D.N.Y. Sept. 5, 2012). The district court gave final approval to a settlement that requires termination of three publishers’ agency agreements with Apple (and any similar agreements with other retailers) and prevents them from agreeing to new contracts that either restrict a retailer’s ability to set eBook prices (for two years) or include a “most-favored nation” clause (for five years). More than 90 percent of the 868 public comments received about the settlement were negative. The court rejected concerns that third party stakeholders, such as brick and mortar bookstores, would be harmed by the settlement, concluding that the harm was not the type that the Sherman Act was designed to prevent. It dismissed concerns that the settlement goes too far by allowing practices held to be legal on the basis that legal means were used in furtherance of a horizontal price fixing conspiracy. The court found ample foundation that the government had established a sufficient factual basis for its conclusions regarding the competitive impact of the decree. The court overruled objections that the challenged agreements had substantial pro-competitive effects by limiting the negative impact of Amazon’s monopoly on the grounds that the DOJ had not found pervasive evidence of predatory pricing by Amazon, that the true cause of the decline in Amazon’s market share was not the introduction of the agency model but investments by technology giants in the e-books and e-reader markets, and that even if Amazon was engaged in parallel pricing, that is no excuse for price fixing. The court rejected Apple’s objection that the settlement’s requirement that the publishers terminate their agency agreements with Apple punished Apple without trial on the basis that the decree imposes obligations on the settling defendants, rather than Apple, and that the agency agreements allowed for termination by the settling defendants on 30 days notice.
- Granting class certification of price fixing claims: In re Blood Reagents Antitrust Litigation, __ F.R.D.__, 2012 WL 3590269 (E.D.Pa. August 22, 2012). Defendants did not dispute the Rule 23(a) and Rule 23(b)(3) requirements. The court rejected defendant’ predominance challenge as to antitrust impact and amount of damage based on plaintiffs’ economic expert’s market structure analysis and damages models. It also repudiated defendants’ argument that individual issues regarding fraudulent concealment predominate, holding that it is the concealment that is the polestar in the fraudulent concealment analysis.
- Dismissing price fixing claims based on Twombly: In re National Association of Music Merchants, Musical Instruments and Equipment Antitrust Litigation, 2012 WL 3637291 (S.D.Cal. August 20, 2012). Plaintiffs alleged that defendants engaged in a conspiracy to stabilize or increase prices by requiring that dealers adhere to policies setting minimum advertised prices. The court found that an agreement had not been adequately alleged. Plaintiffs claimed that defendants’ representatives attended trade show and other meetings where minimum advertised prices were advocated as being good for the industry. “But unilateral advocacy, particularly in an open and public forum, is not itself an agreement or conspiracy. And independent responses to public advocacy without an agreement, even if consciously parallel to other entities’ activity, would simply be permissible parallel conduct.” After already having been granted discovery on the issue of an agreement without proof of any private meetings or communications, the complaint was dismissed with prejudice.
- Denying motion to dismiss Lanham Act claims against trade association member companies regarding high fructose corn syrup advertising campaign: Western Sugar Cooperative v. Archer-Daniels-Midland Co., 2012 WL 3101659 (C.D. Cal. July 31, 2012). Plaintiffs alleged that defendant trade association ran a campaign falsely advertising that high fructose corn syrup is natural and should be referred to as corn sugar. After noting that no Ninth Circuit case has addressed the issue, the court applied Rule 9(b) to plaintiffs’ Lanham Act claims. As to all but one of the trade association member companies, the court found that the allegations that their spokespersons were used to disseminate the advertising was sufficient to inform them of their alleged fraudulent conduct. The court further found that plaintiffs adequately alleged both a principal-agent relationship and a theory of joint tortfeasor liability.
California Courts of Appeal
- Affirming order compelling arbitration following grant of motion for reconsideration based on change in the law: Phillips v. Sprint PCS, __ Cal.App.4th __, 2012 WL 4378199 (Cal.App. 1 Dist. September 26, 2012). The trial court in 2006 denied defendants’ motion to compel arbitration, in 2008 certified a UCL class and in 2011 granted defendants’ motion for reconsideration based on change in the law as result of the Supreme Court’s opinion in Concepcion. After ruling that the order compelling arbitration was not appealable, the appellate court treated the appeal as a petition for a writ of mandate. The Court of Appeal rejected plaintiff’s claims of unconscionability as challenging not the unconscionability of the arbitration provision, an issue for the trial court, but as claiming that the contract as a whole was unconscionable, an issue for the arbitrator.
- Reversing dismissal of UCL and CLRA claims, ruling that no private right of action exists for skilled nursing facility’s alleged violation of nursing hours per patient per day (“NHPPD”) requirement and invocation of economic abstention doctrine: Shuts v. Covenant Holdco LLC, 208 Cal.App.4th 609 (August 15, 2012). The Court of Appeal held that the private right of action under Health & Safety Code § 1430(b) (allowing a skilled nursing resident to sue for violation of the Patients’ Bill of Rights and any other law or regulation) could be predicated on a violation of § 1276.5, which does not provide for a private right of action. The appellate court distinguished the 2007 decision in Alvarado, relied on by the trial court in ruling that adjudicating the decision would require the court to assume general regulatory powers over the health care industry, on the grounds that, since Alvarado, the California Department of Public Health has provided significant guidance on the NHHPPD standard and plaintiffs in Shuts are seeking damages in addition to equitable relief. In the unpublished portion of the opinion, the appellate court reversed dismissal of the UCL and CLRA claims for the reasons stated regarding the section 1430(b) cause of action.
- Affirming dismissal of UCL and CLRA class allegations, except claims for injunctive relief, based on lack of commonality: Tucker v. Pacific Bell Mobile Services, 208 Cal.App.4th 201 (August 7, 2012). Plaintiffs challenged defendants’ disclosures of the practice of billing for airtime in full minute increments with partial minutes of use rounded up. In Knapp in 2011, class certification was denied on essentially the same claim. The Court of Appeal in Tucker took judicial notice of many of the papers and appellate opinions in Knapp and another related case. Based on the allegations of the complaint, its exhibits and the judicially noticed facts, the court affirmed dismissal at the pleading stage based on lack of commonality as to causation regarding the CLRA and common law fraud claims, as well as reliance regarding the UCL fraudulent prong claim, and inability to establish a measurable amount of restitution on a class wide basis. The appellate court reversed as to the UCL claims for injunctive relief, finding that the adequacy of defendants’ disclosures and whether at least some members of the public are likely to be deceived are not issues that can be resolved as a matter of law on demurrer even with the matters judicially noticed.
- Reversing denial of petitions to compel arbitration of CLRA claim and remanding to consider unconscionability challenge: Caron v. Mercedes-Benz Financial Services USA LLC, 208 Cal.App.4th 7 (July 30, 2012). The Court of Appeal held that the FAA preempted applying the CLRA’s anti-waiver provision to class action waivers in arbitration agreements. The appellate court expressly rejected the 2010 decision in Fisher, also from the Fourth District, on the grounds that it was decided pre-Concepcion. Since the trial court reached its decision based on Fischer, it did not decide the issue of whether the arbitration clause was unconscionable. The Court of Appeal did not decide the unconscionability issue in the first instance because some of plaintiff’s arguments required factual findings and the record before it was incomplete.
- Affirming dismissal of UCL claim where alleged wrongdoing contradicted by the terms of the deed of trust: Wilson v. Hynek, 207 Cal.App.4th 999 (June 20, 2012). Borrowers brought UCL claims following initiation of foreclosure proceedings on several properties. On appeal, plaintiffs only asserted that defendants’ actions violated the unfair prong. Applying the Cel-Tech test for unfairness, the Court of Appeal affirmed dismissal on the grounds that plaintiffs’ claims were directly contradicted by the terms of the deeds of trust.
Antitrust & Unfair Competition Section
The State Bar of California
180 Howard Street
San Francisco, CA 94105-1639