Antitrust and Unfair Competition Law Section
News from the Section
Save the Date for the 2012 Golden State Institute!
The 2012 Golden State Institute and Lawyer of the Year Dinner will be held Wednesday, October 24, 2012 in San Francisco:
The Golden State Institute
The Westin St. Francis Hotel, San Francisco
The Antitrust Lawyer of the Year Award Reception and Dinner
The Palace Hotel, San Francisco
Watch this site for details.
Antitrust Treatise
The new edition of our Treatise is written by a team of leading experts-members of the Antitrust and Unfair Competition Law Section. Cheryl Lee Johnson, Editor-in-Chief and Assistant Attorney General, Antitrust Division, and Thomas S. Hixson, Vice Chair of the Section, head up the skilled and experienced team of writers.
Some of the topics deftly explored by these top-notch attorneys include health care, electronic media and the internet, consumer protection, intellectual property, mergers, etc.
The new edition is 935 pages long and is available here or call 800-833-9844.
Summary of Recent Antitrust and Unfair Competition Law Developments
The summary below was prepared by Paul Riehle of Sedgwick LLP for the October issue of the Antitrust Section E-Brief.
U.S Circuit Courts of Appeals
Parens patriae actions filed by the state are not “class actions” under CAFA: Washington v. Chimei Innolux Corp., __ F.3d __, 2011 WL 4543086 (9th Cir. Oct. 3, 2011). The Attorneys General of Washington and California filed parens patriae actions in their states’ courts alleging that Defendants engaged in a conspiracy to fix the prices of TFT-LCD panels. They sought injunctive relief, civil penalties, damages and restitution on the basis that state agencies and consumers were injured by paying inflated prices for products containing those panels. Defendants removed the actions alleging federal jurisdiction under CAFA, arguing that consumers were the real parties in interest for the monetary relief claims and, therefore, the states’ parens patriae claims were class actions. The Ninth Circuit affirmed the Northern District of California’s ruling granting plaintiffs’ motions to remand on the basis that the suits are not “class actions” within the plain meaning of CAFA.
Reversing summary judgment as to standing under UCL and FAL, affirming based on preemption: Degelmann v. Advanced Medical Optics Inc., __ F.3d __, 2011 WL 4470641 (9th Cir. Sept. 28, 2011). Plaintiffs alleged that defendant marketed a contact lens disinfectant as effective, but that in fact its users were seven times more likely than users of other contact lens solutions to suffer an infection, that defendant knew that its solution was a poor disinfectant compared to other similar products, and that defendant misled consumers into believing its product was as effective as other solutions. Relying on Kwikset, Ninth Circuit reversed summary judgment that had been granted on the grounds that plaintiffs lacked standing because they lost no money, as they necessarily would have bought some other solution instead. The class representatives “averred that they bought MoisturePlus, relying on the representation that it would disinfect their lenses, and would not have bought it had they known how poorly it actually worked. They have shown injury in fact, economic harm.”
Although the issue was not reached by the district court, the Ninth Circuit held that summary judgment was proper on the alternative grounds of preemption. The appellate court ruled that the FDA provides criteria for a contact lens solution to be labeled as a “disinfecting solution” and those criteria preempt any claim that defendant’s use of the term “disinfects” was false or misleading.
Affirming motion to dismiss under UCL, CLRA safe harbor: Alvarez v. Chevron Corp., __ F.3d __, 2011 WL 3850660 (9th Cir. Sept. 1, 2011). Plaintiffs’ alleged that the design of defendants’ retail gasoline dispensers was fundamentally flawed due to a residual fuel occurrence: when plaintiffs purchased premium grade fuel, they received between two and three-tenths of a gallon of residual fuel from the previous transaction and, therefore, were overcharged when the previous purchaser had selected mid-range or regular grade fuel. Plaintiffs sued under California consumer protection statutes and common law seeking to have Defendants remedy this situation by developing a more accurate dispenser or pricing technology, or displaying disclosures at the point of purchase. The Court of Appeals agreed with the Central District Court’s ruling that the residual fuel situation stems from the mandated design of gasoline dispensers that are certified as lawful by California regulators and that defendants may not alter their dispenser designs, price computation mechanisms, or octane disclosures without running afoul of various legal requirements. “Plaintiffs’ statutory claims under the CLRA and UCL fail because Defendants’ conduct is clearly permitted by California law, and Defendants therefore are entitled to safe harbor from liability under these broad consumer protection statutes.”
Reversing denial of certification of a UCL fraudulent prong claim: Stearns v. Ticketmaster Corp., __ F.3d __, 2011 WL 3659354 (9th Cir. Aug. 22, 2011). Plaintiffs brought lawsuits against defendants that allegedly participated in a deceptive internet scheme which induced numerous individuals to unwittingly sign up for a fee-based rewards program where amounts were charged to their credit cards or directly deducted from their bank accounts. Relying on Tobacco II, the Ninth Circuit reversed the district court’s ruling that individual issues predominated for purposes of the UCL claim because individualized proof of reliance and causation would be required. The Court of Appeals also held that the injury was concrete and particularized for Article III purposes because “[e]ach alleged class member was relieved of money in the transactions.”
Affirming class certification of antitrust claims: Behrend v. Comcast Corp., __ F.3d __, 2011 WL 3678805 (3d Cir. Aug. 23, 2011). Customers brought antitrust class action against a cable television company alleging that it obtained a monopoly via transactions with competitors for allocation of regional cable markets, and that the company engaged in conduct excluding and preventing competition. The Third Circuit held that its directives in Hydrogen Peroxide were satisfied by the district court in determining that questions of fact or law common to class members sufficiently predominated. The Court of Appeals held that the lower court did not abuse its discretion in concluding that plaintiffs established that the market structure analysis was susceptible to proof at trial through available evidence common to the class, that they would be able to prove through common evidence class-wide antitrust impact (higher cost on non-basic cable programming), and that plaintiffs established a common methodology to quantify damages on a class-wide basis. The dissent objected on the issue of whether damages could be proven using evidence common to the entire class.
Remanding for further findings regarding the fairness of the settlement terms and the attorneys' fees award: In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935 (9th Cir. Aug. 19, 2011). The Central District of California approved a class action settlement providing for $100,000 in cy pres awards and zero dollars for economic injury, up to $800,000 for class counsel, and $12,000 for the class representatives. The Ninth Circuit vacated and ordered a more searching inquiry into the fairness of the negotiated distribution of funds, as well as consideration of the substantive reasonableness of the attorneys' fee request in light of the degree of success attained.
Holding that FTAIA does not affect a court’s subject matter jurisdiction: Animal Science Products, Inc. v. China Minmetals Corp., 654 F.3d 462 (3d Cir. Aug. 17, 2011). Until recently, courts have treated the Foreign Trade Antitrust Improvements Act as a jurisdictional provision, requiring plaintiffs to prove by a preponderance of the evidence that subject-matter jurisdiction existed. The Third Circuit, however, concluded that the FTAIA does not implicate a court’s subject matter jurisdiction. Relying on the Supreme Court’s opinion in Arbaugh v. Y & Y Corp., the Court of Appeals reversed the District of New Jersey’s dismissal on the basis that it lacked jurisdiction under the FTAIA: “The FTAIA neither speaks in jurisdictional terms nor refers in any way to the jurisdiction of the district courts.” Rather, the appellate court concluded that FTAIA “delineate[s] the elements of a successful antitrust claim.”
Affirming finding of no standing under the UCL: TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820 (9th Cir. July 28, 2011). Plaintiffs sued defendants for violation of unfair competition laws by actively fostering the belief that DMV.org, defendants’ website, is affiliated or endorsed by a state DMV. After trial, the district court held that defendants violated the Lanham Act and rejected plaintiffs’ claim under the UCL. In an opinion primarily dealing with the Lanham Act claim, the Ninth Circuit affirmed. As to the UCL claim, the Court of Appeals ruled that the district court’s findings that plaintiffs “failed to prove…that they have suffered an injury in fact and lost money or property as a result of Defendants’ actions…conclusively establish that plaintiffs didn’t have standing to bring their state-law claim.” In connection with analyzing whether plaintiffs had standing under the Lanham Act, the court observed that “California’s unfair competition law defines ‘injury in fact’ more narrowly than does Article III,” noting that the UCL requires a pecuniary injury and ‘“immediate’ causation…[n]either of which is required for Article III standing.”
Finding no preemption of UCL "unlawful" prong claim predicated on violation of the Rees-Levering Act: Aguayo v. U.S. Bank, 653 F.3d 912 (9th Cir. Aug. 1, 2011). Using the UCL as a procedural vehicle, plaintiff alleged that the defendant bank’s failure to provide post-repossession notices in accordance with certain sections of the Rees-Levering Act violated the UCL. The district court granted the bank’s motion to dismiss on the basis that the National Bank Act and regulations promulgated thereunder preempt Rees-Levering Act notice provisions. The Ninth Circuit reversed on the basis that the Rees-Levering Act sections at issue are directed toward debt collection and, therefore, are not preempted by the National Bank Act.
U.S. District Courts
Denying defendants’ motion for summary judgment regarding indirect purchaser claims based on foreign sales: In re TFT-LCD (Flat Panel) Antitrust Litigation, 2011 WL 4634031 (N.D.Cal. Oct. 5, 2011). Defendants argued that the majority of their panel sales took place entirely in foreign commerce and that, to the extent they did not sell their LCD panels directly to United States consumers or companies, they may not be held liable under either federal or state law based on the FTAIA. The court rejected defendants’ contention that the motion should be heard as a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1). Relying on the Third Circuit’s recent decision in Animal Science Products, the court concluded that the FTAIA does not affect a court’s subject matter jurisdiction and so was properly heard as a motion for summary judgment. The court then concluded that plaintiffs adequately established that a material question of fact exists regarding whether defendants’ alleged conduct had a direct effect on United States commerce sufficient to invoke the domestic effect exception to the FTAIA. Because the court concluded that the conduct falls under the domestic effect exception, it did not reach defendants’ contention that the FTAIA bars plaintiffs’ state law claims.
Rejecting certification of UCL and FAL claims where not all class members have Article III standing: O’Shea v. Epson America, Inc., 2011 WL 4352458 (C.D.Cal. Sept. 19, 2011). Plaintiff alleged that she purchased a printer based on a statement on the printer box. The District Court for the Central District of California denied plaintiff’s motion for class certification, holding that absent class members must satisfy the requirements of Article III. The satisfaction of Article III by absent class members raised individual issues regarding injury and causation. Individuals who purchased from third party on-line stores were not exposed to the allegedly deceptive representation before they purchased. The court distinguished the Ninth Circuit’s decision in Stearns on the basis that “each member there had purportedly been victimized by the allegedly fraudulent scheme.”
Denying summary judgment motion that defendants were compelled by Chinese government to fix prices: In re Vitamin C Antitrust Litigation, __ F.Supp.2d __, 2011WL 3918165 (E.D.N.Y. Sept. 6, 2011). Plaintiffs sued Chinese Vitamin C manufacturers alleging that they were engaged in an illegal cartel to fix prices and limit supply for exports, including to the United States. The District Court for the Eastern District of New York denied defendants’ motion for summary judgment that they were compelled by the Chinese government to fix prices, as well as on the related doctrines of comity and state action. In finding that the Chinese law relied upon by defendants did not compel the cartel agreement, the court declined to defer to the Chinese government’s statements to the court regarding Chinese law.
Ordering in camera review of materials relating to representations to court, denying review of documents based on crime fraud exception in connection with patent litigation against generic drug manufacturer: In re Neurontin Antitrust Litigation,__ F.Supp.2d __, 2011 WL 3502370 (D.N.J. Aug. 10, 2011). Direct purchaser plaintiffs sued the brand name manufacturer of Neurontin for monopolization, including through filing sham lawsuits to delay the entry of a generic competitor and fraudulent off-label promotion. The New Jersey District Court denied plaintiffs’ motion seeking in camera review and production of privileged documents based on the crime fraud exception in connection with the manufacturer’s basis for filing and prosecuting the patent litigation. The court granted the motion for in camera review of privileged documents in connection with defendant’s off-label marketing and representations to the court in one of the generic patent cases that it had never promoted Neurontin for off-label purposes. After making the statements to the court in 1999, the defendant pled guilty in 2004 to off-label promotion of Neurontin and in a 2010 civil trial was found to have engaged in fraudulent marketing activities by promoting Neurontin for off-label uses.
Denying motion to dismiss under Twombly and as to corporate parents: In re Polyurethane Foam Antitrust Litigation, __ F.Supp.2d __, 2011 WL 3204712 (July 19, 2011, reconsideration denied Sept. 15, 2011). The District Court for the Northern District of Ohio held that plaintiffs sufficiently alleged an express conspiratorial agreement to restrain trade and conduct by defendants consistent with that agreement. Plaintiffs’ complaints relied on investigations by the DOJ and the Canadian Bureau of Competition, together with admissions from a defendant’s employees naming competitor employees with whom they engaged in conspiratorial discussions and conduct, including coordinating the amount and timing of price increases through telephone conversations, letters and in person meetings. In addition, the complaints gave examples of actions consistent with these methods of price coordination. The court also refused to dismiss the corporate parents of certain defendants, ruling that it is an issue of fact whether relations between corporate entities draws a parent into a subsidiary’s participation into an alleged conspiracy.
Granting motion to dismiss in part for lack of antitrust standing and as to corporate parents: In re Digital Music Antitrust Litigation, __ F.Supp.2d __, 2011 WL 2848195 (S.D.N.Y. July 18, 2011). Following remand after the Second Circuit’s ruling in Starr v. Sony BMG Music that the complaint stated a claim under Twombly, the District Court for the Southern District of New York evaluated two arguments that were not previously addressed. The court dismissed claims of the CD-purchaser class as not having antitrust standing because the complaint allegations involved only conduct related to the Internet music market, and not the CD market, and the complaint did not allege a sufficient linkage between the two markets. The court also dismissed all claims against the parent companies on the basis that there were no allegations that any parent did anything actionable in the alleged antitrust conspiracy.
Holding statute of limitations tolled by fraudulent concealment as to some but not all complaints: Hinds County v. Wachovia Bank N.A., __ F.Supp.2d __, 2011 WL 2636166 (S.N.D.Y. June 23, 2011). State and local governments alleged a conspiracy to rig bids and fix interest rates provided on municipal derivatives. Defendant moved to dismiss on the basis that plaintiffs should be charged with inquiry notice as of January 2005 when it was first reported in the press that the DOJ and SEC were investigating allegations of bid rigging in the municipal derivatives industry. Plaintiffs argued that they could not have been on notice until the DOJ indicted one of the defendant’s employees. The court rejected the earlier date on the grounds that the defendant was not identified as a possible target. The court found that plaintiffs should be charged with inquiry notice as of November 16, 2006, the date that FBI agents raided the office of three defendants in the MDL and the day that the DOJ issued subpoenas to more than two dozen others.
Denying motion to dismiss under Twombly and granting motion to dismiss in part based on failure to plead fraudulent concealment: In re Refrigerant Compressors Antitrust Litigation, __ F.Supp.2d __, 2011 WL 2433392 (E.D.Mich. June 13, 2011). Defendants did not dispute that the complaint sufficiently alleged a price fixing conspiracy from June 2004 through December 31, 2006, but moved to dismiss as to a conspiracy earlier, arguing that there were no allegations plausibly supporting the assertion of a conspiracy before June 2004. The Eastern District of Michigan held that “Twombly does not support such a ‘dismemberment’ or ‘carve out’ approach to assessing the sufficiency of a complaint.” The court also granted defendants’ motion to dismiss claims for damages before January 2004 as time-barred because plaintiffs failed to plead with sufficient particularity affirmative acts of concealment and due diligence. Leave to amend was denied because plaintiffs did not move to amend, submit a proposed amended complaint or address how they could file an amended complaint pleading fraudulent concealment with the requisite particularity.
California Supreme Court
Holding that the UCL claims predicated on violations of the Labor Code, but not FSLA, can be pursued against a California employer by nonresident employees who work in California and other states: Sullivan v. Oracle Corp., 51 Cal.4th 1191 (June 30, 2011). At the request of the Ninth Circuit, the California Supreme Court addressed questions about the applicability of California law to nonresident employees who work both in California and in other states for a California-based employer. The Court held that the Labor Code’s overtime provisions apply to plaintiffs’ claims for compensation for work performed in California and that the same claims can serve as predicates for claims under the UCL. However, in a ruling expressly limited to the facts of the case presented, plaintiffs’ claims for overtime compensation under the federal Fair Labor Standards Act for work performed in other states cannot serve as predicates for UCL claims.
California Courts of Appeal
Reversing order granting class certification of breach of warranty and UCL claims: American Honda Motor Co. v. Superior Court, __ Cal.App.4th __, 2011 WL 4487695 (Sept. 29, 2011; pub. ord. Oct. 18, 2011). The Second District issued a writ of mandate reversing the trial court’s order certifying a class of owners of Honda and Acuras claiming a defective mechanism for shifting the transmission into third gear. The Court of Appeal found that the breach of warranty claims were not amenable to class treatment, as plaintiffs presented no evidence that it was substantially certain the transmissions would exhibit third gear problems. At least some, if not most, of the affected vehicles sold in 2002 to 2004 were outside of the warranty period by the time plaintiff filed suit and had not reported any third gear problems, and less than four percent of the vehicles in question reported warranty claims for third gear problems by August 2008. The court concluded that this class presented too many individualized issues for class treatment: “whether each proposed class member’s third gear malfunctioned, if it will malfunction, how it malfunctioned and why it malfunctioned are individual questions not amenable to common proof.” Likewise, the Court of Appeal ruled that plaintiffs presented no substantial evidence that the UCL claim was subject to common proof. The evidence submitted in support of certification demonstrated variable representations made to class members. The court also noted that the class “may be overbroad since it appears undisputed that many class members were never exposed to the alleged misrepresentations because they never contacted Honda or its dealers about a third gear problem.”
Preliminary injunction under UCL affirmed over objection that Indian tribe has exclusive authority: People ex rel. Harris v. Black Hawk Tobacco, Inc., __ Cal.App.4th __ (July 13, 2011; pub. ord. Aug. 8, 2011). The trial court granted the California Attorney General’s motion for preliminary injunction under the unlawful prong of the UCL, thereby prohibiting defendants from selling cigarettes to non-Indians in violation of state and federal laws The Court of Appeal affirmed, rejecting defendants’ argument that the State of California cannot regulate defendants’ sale of cigarettes to non-Indians because a federally-recognized tribe has the exclusive authority to regulate tobacco sales on the reservation. When “state interests outside the reservation are implicated, States may regulate the activities even of tribe members on tribal land…No federal or tribal interest outweighs the state’s interest in collecting cigarette tax revenue or in enforcing the California tobacco directory and cigarette fire-safety laws.”
Reversing demurrer to UCL "fraudulent" and "unfair" prong claims: Boschma v. Home Loan Center, Inc., 198 Cal.App.4th 230 (Aug. 10, 2011). Plaintiffs borrowers alleged that defendant’s loan documents failed to adequately and accurately disclose the essential terms of the loans. The trial court sustained defendant’s demurrer without leave to amend, reasoning that the loan documentation adequately described the nature of Option ARMs. After exhaustively detailing the loan documents, the Court of Appeal reversed, focusing on the failure of the lender to state clearly that making payments pursuant to the disclosed payment schedule would result in negative amortization during the initial years of the loan, instead disclosing that negative amortization could occur. In addition to holding that plaintiffs adequately pled claims for common law fraud, the Fourth District ruled that plaintiffs stated a claim under each of the three UCL prongs. After citing federal cases holding similarly under TILA, the appellate court refused to rule on the question whether a lender’s strict compliance with TILA provides a safe harbor against state law claims.
Affirming denial of class certification of UCL fraudulent prong claim: Fairbanks v. Farmers New World Life Ins. Co., 197 Cal.App.4th 544 (July 13, 2011). Plaintiffs challenged under the UCL the marketing and sale of universal life insurance policies. The Second District Court of Appeal affirmed the trial court’s denial of class certification on the basis that individual issues predominated. The defendant did not use a common marketing strategy with respect to the policies. As such, individual evidence would be required to determine whether the representations at issue were actually made to each member of the class. In addition, whether any particular misrepresentation was material would depend on the particular needs of the prospective policyholder. See also Knapp v. AT & T Wireless Services, Inc., 195 Cal.App.4th 932 (Apr. 25, 2011; pub. ord. May 20,2011) (affirming order denying class certification of UCL, CLRA and fraud claims).
Affirming dismissal of UCL, FAL, and CLRA claims without leave to amend: Hill v. Roll International Corp., 195 Cal.App.4th 1295 (May 26, 2011). Consumer sued bottled water company claiming that the green drop on a bottle's label falsely represented that the water was environmentally superior to other waters and was endorsed by an environmental organization. Plaintiff alleged that she paid a price about 15 percent higher than other bottled water and that she would not have bought the water had she known the truth that the green drop was the creation of the defendant. The First District Court of Appeal held that the plaintiff's beliefs did not satisfy the reasonable consumer standard (i.e., potential deception of consumers acting reasonably under the circumstances). The green drop bore no name or recognized logo of any group, no trademark symbol, and no other indication that it was anything but a symbol of the defendant’s water. The court distinguished Kwikset as a standing case and not a challenge to whether a reasonable consumer would be misled.
Affirming dismissal of UCL claims for lack of standing; reversing dismissal of Song-Beverly Act claims: Archer v. United Rentals, Inc., 195 Cal.App.4th 807 (May 19, 2011; mod. Jun. 13, 2011) and Folgelstrom v. Lamps Plus, Inc., 195 Cal.App.4th 986 (April 29, 2011; pub. ord. May 20, 2011; mod. June 7, 2011). Following the California Supreme Court’s recent opinion in Pineda v. Williams-Sonoma, the Second District twice held that a retailer's request of customers’ ZIP codes, which were used to obtain the customers’ home addresses for marketing purposes, violated the Song–Beverly Credit Card Act. However, the customers did not suffer an economic injury and so lacked standing under the UCL.
Affirming dismissal of UCL, FAL and CLRA claims based on failure to allege injury in fact: Bower v. AT&T Mobility, LLC, 196 Cal.App.4th 1545 (June 29, 2011). The Second District affirmed the trial court’s ruling that plaintiff failed to allege injury in fact. Plaintiff claim that she was told that charging her sales tax on the full, undiscounted price of the telephone was mandatory, when it was merely discretionary. She also alleged that she was denied any opportunity to shop around for a retailer that did not charge sales tax reimbursement on the full, undiscounted price of a cellular telephone as part of a bundled transaction. The Court of Appeal ruled that the allegations constitute “at the most a conjectural or hypothetical injury…Bower did not allege that she could have obtained a bundled transaction for a new cellular telephone – the telephone that she selected – at a lower price from another source.” The appellate court distinguished Kwikset on the bases that (a) the allegations were not ones in which the defendant’s misrepresentation caused a consumer to purchase a product that he or she would not have bought but for the misrepresentation and (2) there were no allegations that the product was worth less than represented by the defendant or was different from what the consumer wanted and expected to buy. Based on the same reasoning as applied to the UCL, the appellate court affirmed dismissal of the FAL and CLRA claims.
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