Thursday, December 27, 2007

Court Examines Private Label Product Trade Dress That Mimics Name-Brand Products


Third Circuit Ruling - The Third Circuit Court of Appeals recently issued an opinion examining whether private label products could be sold in packaging that was nearly identical to name-brand products. See
McNeil Nutritionals v. Heartland Sweeteners, No. 07-2644 (3d Cir. Dec. 24, 2007).

Similarity of Packages - McNeil Nutritionals, which is the manufacturer of artificial sweetener Splenda, sued Heartland Sweeteners and Heartland Packaging Corp., which packages and distributes a generic version of Splenda as store brands for various supermarket chains, including Ahold, Food Lion, and Safeway. Heartland's private label packaging mimics Splenda-brand packaging, using the same colors, the same packaging size and shape, and similar font and design. For each supermarket, the logo of the store appeared on the product, and the design varied slightly.

Lanham Act - McNeil sought relief under the Lanham Act, 15 USC § 1125, for trade dress infringement, which requires, inter alia, that consumers are likely to confuse the source of the plaintiff's product with that of the defendant's product. The Third Circuit applied a ten-factor test to determine the likelihood of confusion, but stressed that the degree of similarity of the trade dress was the most important factor.

No Likelihood of Confusion - The court found no likelihood of confusion between Splenda and the Food Lion or Safeway private label products, as those involved distinctive design features, such as Safeway's "S" or a Food Lion vertical bar. But the court held that there may be a likelihood of confusion as to Ahold products, which did not contain such distinctive features, and the court reversed and remanded for further findings.

Thus, the McNeil Nutritionals ruling provides important guidance in determining the acceptability of private label product packaging that mimics that of a brand-name product. News stories on the decision are available here and here.

Monday, December 24, 2007

Chocolate-Makers Allegedly Fixed Prices

A few days ago, we reported on allegations that Christmas-tree growers conspired to fix prices. Now, there are allegations that another product considered sacred by many has been subjected to price fixing: chocolate.

Government Investigations - Hershey's, Mars, Nestle, and other chocolate makers were accused in recently unsealed Canadian court documents of secretly meeting to discuss prices at industry conventions and restaurants, several reports indicated. According to the reports, the U.S. DOJ antitrust division is also investigating. The conspiracy allegedly began in February 2002, and continued through most of 2007. While search warrants were issued in the Canadian investigation, no charges have yet been filed. An industry spokeswoman noted that candy-makers are facing higher dairy and sugar prices, as well as higher fuel costs.

Cooperation with Authorities - Employees of one company reportedly have been cooperating with Canadian authorities, providing information and documents to authorities.

DOJ Leniency Program - Under the DOJ's leniency program, and its "amnesty plus" program, companies can receive amnesty or reduced liability if they are the first to report a conspiracy or the first to report a second, unrelated conspiracy and they cooperate fully with the investigations. Lesser reductions may be available for cooperating companies that are not the first to report the conspiracy. DOJ's cooperation programs can provide substantial benefits to the companies being investigated, making it important for companies and their lawyers to learn about and report any possible violations before DOJ learns about them from another source.

Leniency Program Binding on DOJ - One recent court decision found that these agreements were binding on DOJ. In Stolt-Nielsen, DOJ entered into an amnesty agreement with a shipping company and two of its executives related to their involvement in a customer allocation conspiracy. DOJ alleged that the defendants had not met the conditions of the agreement, and indicted them. The U.S. District Court for the Eastern District of Pennsylvania dismissed the suit, finding no credible evidence that the agreement had been violated. See Memorandum & Order, United States v. Stolt-Nielsen, S.A., No. 06-cr-466 (E.D. Penn. Nov. 29, 2007).

UPDATE 1/16/08: Class-action lawsuits were filed against Hershey's, Mars, Nestle, Cadbury, Masterfoods, and other chocolate-makers in federal courts in Pennsylvania and New Jersey on behalf of direct and indirect purchasers, as reported here and here. A docket search in the Middle District of Pennsylvania reveals two cases filed. See Coffey v. Hershey Co, et al., No. 2008cv00084 (M.D. Penn. Jan. 11, 2008); Woodman v. Hershey Co. et al., No. 2007cv02336 (M.D. Penn. Dec. 28, 2007). The same search in New Jersey reveals seven filings. See Lavin v. Hershey Co., et al., No. 2008cv00259 (D.N.J. Jan. 11, 2008); D Controls, Inc., No. 2008cv00257 (D.N.J. Jan. 11, 2008); Snow, No. 2008cv00199 (D.N.J. Jan. 10, 2008); Chiger, No. 2008cv00195 (D.N.J. Jan. 10, 2008); Matsuda, No. 2008cv00191 (D.N.J. Jan. 2008); Lense, 2008cv00192 (D.N.J. Jan. 9, 2008); CNS Confectionary Prods., 2007cv06088 (D.N.J. Dec. 21, 2007). More lawsuits are likely to follow.
UPDATE 1/18/08: According to an article in today's Patriot News, chocolate makers were apparently engaged in anti-competitive practices back in the late 1930s:



The charges from the late 1930s arose out of arrangements to fill vending
machines in movie theaters. Hershey and a forerunner to Nestle, Peter
Cailler Kohler Swiss Chocolate Co., struck a deal to supply chocolate bars
exclusively to three of the country's largest vending companies, according
to the 1939 annual report of the Federal Trade Commission.

"The result was that competing vending-machine operators had difficulty in
getting and keeping their vending machines in theaters, because they could not
buy the Hershey and Nestle chocolate bars at a price that would permit
sufficient profit," the FTC said.

Update 1/28/08: Hershey's and Mars raise wholesale prices of its chocolate bars by 13 percent, citing higher costs, according to news reports. This follows a price hike of 4 to 5 percent last April. Mars also increased its prices of candy bars, by 5 percent, last week. In defending the price hike, a Hershey spokesman stated that "we have no way of knowing what others are thinking, or what their cost situation is, . . . [but] our products include far more pure milk chocolate and solid chocolate than our competitors." Considering that the price-fixing investigation was revealed so recently, the decision to raise prices was probably subjected to increased scrutiny by Hershey's lawyers, and there is presumably a strong business justification for the decision.

Related Posts: Investigation of Chocolate Price Fixing Goes Global;
U.K. Offers Cash Rewards for Antitrust Informants

Thursday, December 20, 2007

Ahold Receives $8 Million Settlement from Former CEO of Subsidiary


Ahold announced that it reached a settlement agreement with James Miller, who had been the CEO of its former subsidiary U.S. Foodservice. Miller will pay Ahold $8 million, and the litigation between the parties will be dismissed.


The $8 million constitutes a portion of the salary and bonuses Miller received as CEO during an accounting scandal, reported the Baltimore Sun and the Maryland Daily Record. Miller, who had founded U.S. Foodservice, had sued Ahold in February 2004, claiming that the company had reneged on its promises of severance pay and benefits. The company counterclaimed, alleging breach of fiduciary duties and his employment agreement.


The company exaggerated profits by $880 million over three years. Other executives were charged with securities fraud, conspiracy, and making false filings, but Miller was never charged.

Bah, humbug! Price Fixing of Christmas Trees

Failing to understand the holiday spirit, the Danish Christmas Tree Growers Association allegedly fixed the prices of its Nordmann firs, reported the BBC and NYT, and reported here. Prices rose about 25 percent this season after the tree-growers association sent price guidelines to its members despite warnings from Denmark's competition authority in 2001 and 2005 not to do so.

Group activities of competitors, such as trade associations, are inherently suspect under the antitrust laws as they are often a conduit for price-fixing. Trade associations and their members should be careful to avoid sharing price or price-related information with a trade association or other trade association members unless cleared with their attorneys.

Lights on for Philips’ Acquisition of Genlyte


Speaking of Royal Philips Electronics, which was mentioned in our last post, Philips acquisition of Genlyte Group can proceed, as the mandatory waiting period under the Hart-Scott-Rodino Act expired, according to a press release from Philips. Philips has agreed to pay around $2.7 billion for the acquisition of Genlyte, which designs, manufactures, and sells lighting fixtures. The acquisition will make Philips the biggest lighting company in North America, and will expand Philips' sales of LEDs.

Tuesday, December 18, 2007

Philips Alleges False Advertising of Braun Pulsonic Shaver



Philips Sues P&G - Philips Appliances filed suit on Monday against Procter & Gamble for false-advertising regarding its Braun Pulsonic electric razor in violation of the Lanham Act, 15 U.S.C. § 1125, a federal statute prohibiting material false or misleading statements of fact. See Philips Domestic Appliances & Personal Care Co. v. Braun GMBH & Procter & Gamble Co., No. 07-cv-11290 (filed Dec. 17, 2007 S.D.N.Y.).

Questionable Claims by Bruan - Braun claims that Braun shavers work better than Norelco Smart Touch razors due to innovative sonic pulses that expose and shave more hair. A Braun advertisement shows the two razors submerged in water, and the Pulsonic causing ripples but not the Smart Touch. The complaint states that there is no evidence that the ripples improve shaving, and that the technology not innovative or revolutionary as advertised. It also alleges that Braun's share of the electric shaver market declined over 15% from 2004 to Q2 2007.

Comparison to Gillette's M3 Power Razor Claims - Phillips compared the Pulsonic's claims to claims previously made by Gillette that its M3 Power vibrating razor shaved closer. A federal district court in Connecticut found that Gillette's claims were false because they exaggerated the effect of the razor's vibrations. The court also found that Schick would suffer irreparable harm, and it granted a preliminary injunction, stating that "the difficulty of accurately determining what monetary damages will compensate Schick for its harm, support a finding that any such harm is, indeed, irreparable." See Schick Mfg., Inc. v. Gillette Co., 372 F. Supp. 2d 273, 284 (D. Conn. 2005).

Men's Health Reader Survey - The advertisements also claim that the Braun Pulsonic razor was voted "best electric shaver" by 9 out of 10 people in a "Men's Health Reader Panel Survey," which the lawsuit contends was actually a sweepstakes in which Braun gave participants free $250 Pulsonic shavers.

Potential Damages - Even if Philips prevails on its claim against Braun for injunctive relief, it may have difficulty prevailing on its claim for damages. The Second Circuit, like most circuits, requires a Lanham Act plaintiff to prove that the defendant's conduct caused actual confusion or deception and caused actual harm. See Int'l Star Class Yacht Racing Ass'n v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753 (2d Cir. 1996). A plaintiff entitled to injunctive relief is not necessarily entitled to damages. Id. This standard seems overly stingy, considering that plaintiffs often spend large sums on corrective advertising campaigns and other associated costs.

Coverage about the lawsuit is available here, here, and here.

Friday, December 14, 2007

Diaper Suit Filed Against Kimberly Clark Over Patents

Private label diaper manufacturer Arquest, a privately-held company spun off from Johnson & Johnson, filed suit in federal district court in New York against Kimberly-Clark seeking declaratory judgment, according to this Reuters article. Kimberly-Clark, which sells Huggies-brand diapers, had told Arquest that some of its products violated patents held by Kimberly-Clark for disposable diapers. The parties were unable to reach an agreement after attempting to negotiate the dispute.

According to a patent litigation survey released by Fulbright & Jaworski (and discussed here in the Patent Law Blog), most patent claims are asserted by very large companies, while most defendants are more concerned about the cost of litigation rather than a potential injunction.

For those interested in patent law, it's worth noting that Congress is currently considering the Patent Reform Act of 2007 (H.R. 1908, S. 1145). The House passed it as H.R. 1908, and the Senate may soon consider S. 1145.

Commentators supporting passage of the measure, including conservative Viet Dinh, argue, inter alia, that reform is needed to ensure innovations are properly rewarded, and to deter frivolous litigation.

Other commentators oppose the measure, responding that the number of patent lawsuits has not kept pace with the number of new patent fiings and rapid reform of patent laws is not needed. Furthermore, because injunctive relief is less certain after the Supreme Court's Ebay ruling, damages should be increased but the reforms will decrease damages, argues Richard Epstein. The Patent Reform Act will also allegedly weaken the patent system becuase it switches to a first to file rule (rather than first to invent).

Not everyone considers the consumer packaged goods ("CPG") / retail industry a high-tech industry, but technological developments and innovations are increasingly important to industry stakeholders. Last year, for example, I worked on a lawsuit involving a patent dispute over RFID tags, a technology that is increasingly being adopted by CPGs and retailers.

The increasing complexity of modern business and litigation is demonstrated by the Kimberly-Clark case. While diapers were once a rudimentary garment, they are now subject to multiple patents, and are the subject of high-stakes litigation. See Arquest, Inc. v. Kimberly-Clark Worldwide, Inc., No. 2007cv11202 (S.D.N.Y filed Dec. 12, 2007).

Wednesday, December 12, 2007

9th Circuit Denies Rehearing of Dukes v. Wal-Mart Class Certification Ruling


On Tuesday, the Ninth Circuit denied rehearing of its earlier ruling permitting certification of a class of approximately 1.5 million women. See Dukes v. Wal-Mart, Inc., No. 04-16688, __ F.3d __ , 2007 WL 4303055 (9th Cir. 2007), available here. The certified class includes women across the country who have been subjected to Wal-Mart's allegedly discriminatory pay and promotions policies.

In addition to denying rehearing, the panel took the unusual step of replacing its original opinion, 474 F.3d 1214 (9th Cir. 2007), with Tuesday's revised opinion. The new opinion addressed issues raised in Wal-Mart's brief (which is available, along with other key filings, here), and found that former employees who could not benefit from declaratory or injunctive relief should be excluded from the class.


Judge Kleinfeld dissented, stating that the majority's new opinion "does not solve the problems of its previous opinion," and stated that only the numerosity requirement of Fed. R. Civ. P. 23(a) had been met, but that there was insufficient commonality, typicality, and adequacy of representation, and that injunctive and declaratory relief did not predominate, as required by Fed. R. Civ. P. 23(b).


It was reported that Wal-Mart intends to seek rehearing en banc.


The Dukes lawsuit is one of over 70 labor lawsuits that Wal-Mart is facing, and was listed in this article as one of Inside Counsel's top 20 stories of 2007, which we mentioned in this earlier post. Dukes is the largest civil rights class action in history, and could be worth billions of dollars if the class prevails. It is the subject of at least one book.

Tuesday, December 11, 2007

Law Firm Billing Rates Up Over 7 percent in 2007



A National Law Journal survey reported in an article posted on law.com here found that average law firm billing rates rose an average of 7.7% compared to the data reported a year ago, increasing to $348 an hour on average, compared to $321 in 2006. Firms increased their use of alternative billing methods, such as flat fees, contingency fees, and hybrid fees.


The increasing fees may lead to continuing increases in alternative billing arrangements, and may lead to an increase in matters handled in-house, along with an increase in business for small firms whose lower overhead costs allow them to keep billing costs down.


A side effect of the increasing billing rates, according to a recent article by William Gwire in The Recorder, is that clients are more likely to sue firms for malpractice. He states that "[c]lient loyalty seems to have an inverse relationship to a firm's billing rates." Gwire also reports an increase in malpractice cases in which rainmakers commit malpractice because they take on more cases than they can handle, and inadequately supervise more junior attorneys. See here for commentary on the Gwire article.

Monday, December 10, 2007

Inside Counsel Publishes 2007 Year in Review

Inside Counsel's December issue includes an article listing of its top 20 stories of 2007. Their top stories include the record number of general counsel charged with fraud, employment cases against Wal-Mart, amendments to the federal rules regarding e-discovery, law firm associate salary increases (which has contributed to an increase in billing rates discussed in a recent law.com article), and the indictment of plaintiffs' attorney Melvyn Weiss.

CNN, meanwhile, had a list of the weirdest work stories of 2007, which included a twist on the marketing battle between Coke and Pepsi: rival workers literally fought over shelf space in a Wal-Mart, causing a black eye and broken nose.

Sunday, December 9, 2007

UK Supermarkets Fined $235 Million for Price-Fixing Dairy Products


Several grocery stores and dairies in the UK agreed to pay combined maximum fines of over 116 million pounds (approximately $235 million) in fines for fixing the price of dairy products in violation of the Competition Act, according to a press release from England's Office of Fair Trading. They claim that they were supporting dairy farmers recovering from foot and mouth disease, though the Office of Fair Trading found no evidence that farmers were helped by the scheme, according to an article today in The Independent.

The OFT stated that the $235 million represents a reduction from the fines that would have been assessed absent the cooperation of the companies.

Image credit: FreeDigitalPhotos.net

Thursday, December 6, 2007

Appellate Court Skeptical of Securities Fraud Claims Against Coca-Cola as Involving Mere Puffery

At a recent oral argument on securities claims against Coca-Cola, the Eleventh Circuit expressed strong skepticism of the sufficiency of Plaintiffs ' allegations, according to an article posted yesterday on law.com. Plaintiffs had alleged that Coke made false and misleading statements in 2003 and 2004 giving an overly optimistic view of Coke's business in order to artificially inflate the price of the stock.

The lower court had dismissed the complaint, finding that the statements were mere "puffery," and not material statements that investors would rely on. Coke had stated, for example, that the company was poised for a strong year in 2004.

The law permits companies to make sales statements that are too vague to be relied on, and the Eleventh Circuit seemed to suggest that Coke's statements largely fell within the definition of puffery. There has been criticism that judges have been too quick to dismiss securities fraud claims on this basis. For example, some research suggests that investors actually rely on the same types of statements that courts have dismissed as non-material puffery. See, e.g., Stefan J. Padfield, "Is Puffery Material to Investors? Maybe We Should Ask Them." U. Penn. J. Bus. & Emp. L., Forthcoming Available at SSRN: http://ssrn.com/abstract=1013416. On the Eleventh Circuit panel addressing the Coca-Cola argument, Judge Carnes stated that he was "not fond of the way the law is" regarding securities regulation, "but it is that way." For now, at least, Coke and other companies are likely to escape liability for such puffery, regardless of its actual impact on investors.

Wednesday, December 5, 2007

EEOC Employment Discrimination Claims Against Albertson’s

The EEOC added four new plaintiffs to an employment discrimination lawsuit against Albertson’s, according to an article in today’s Rocky Mountain News. The employees were allegedly subjected to “racial slurs, swastikas, and pictures of lynchings.”

It baffles me that such egregious (alleged) racial discrimination occurs, especially in such a large company. While nobody expects their employees to engage in such conduct, preventative measures must be taken. For example, an employer may be able to avoid punitive damages in employment discrimination cases if they adopt anti-discrimination policies and conduct trainings on harassment and discrimination prevention. When an employer becomes aware of possible violations by their employees, they should exercise reasonable care to prevent and promptly correct any harassment.

The advice of an employment attorney is clearly recommended on discrimination and harassment issues, though the EEOC offers free publications with some general guidance for employers at its web site here.

Tuesday, December 4, 2007

75,000 Wal-Mart Class Plaintiffs Notified



75,000 current and former Wal-Mart employees in the state of Washington are receiving notices this week after class certification was affirmed on appeal. See Barnett v. Wal-Mart Stores, Inc., No. 01-2-24553-8 SEA (King County Superior Ct.). Plaintiffs allege that they were forced to work without pay during breaks and after their shifts had ended. Similar lawsuits have been filed in numerous states across the country, and are being tracked at the Wal-Mart Litigation Project website.

I recently finished reading Barbara Ehrenreich's Nickel and Dimed, an expose about conditions for low-wage workers, including those at Wal-Mart. She describes Wal-Mart management as being very stringent about not engaging in "time theft" by taking unscheduled breaks, but never indicates that she was forced to work without pay. The book provides interesting commentary on the difficulties that low-wage workers have in making ends meet.

When I mentioned the book to a friend of mine, he expressed little sympathy and pointed out that there are plenty of opportunities for those motivated enough to get ahead in this country. While I agree that there are more opportunities in the U.S. than most anywhere else, Ehrenreich's point is that it shouldn't be so hard for low-wage workers to scrape by when they're working full time. Regardless of one's beliefs on the causes of the struggles of low-wage workers, I think most people would agree about the importance of complying with laws requiring payment of workers for the actual hours worked.

Food Litigation Conference Feb. 2008



The Grocery Manufacturers' Association is holding a conference in the New Orleans on February 19-21 entitled: 2008 Food Claims & Litigation Conference, Emerging Issues in Food-Related Litigation. Session topics include "Managing the Threat of Litigation," and "A Step by Step Guide to Defending Food Litigation." If nothing else, it should be warmer in New Orleans in February than it will be in most of the country. More information can be found on GMA's website.

Valassis’ $1.5 Billion Antitrust Suit Against News America Marketing Over FSIs


Valassis v. News America Marketing Upcoming Trial - Valassis Communications' $1.5 billion lawsuit against News America Marketing is scheduled to go to a jury in Michigan in 2008. According to News Corp's most recent quarterly report, an April 2007 scheduling order set the jury trial date for February 5, 2008, but it is expected that a new scheduling order will soon be entered delaying the trial date.

Valassis' complaint was originally filed on January 18, 2006, alleging that "the News Defendants have created and implemented a scheme to obtain and then exploit monopoly power in the in-store advertising and promotions market with the goal of utilizing that monopolistic power to gain an unfair advantage over Valassis in the FSI market." See Complaint, Valassis Communications, Inc. v. News America Inc., et al., No. 2:2006-cv-10240 (E.D. Mich. filed Jan. 18, 2006).

Valassis alleged that News America had enhanced its monopoly position in the in-store marketing industry by using anticompetitive methods to enter into exclusive contracts with key retailers. News America then coerced CPGs into signing long-term exclusive contracts for FSIs by threatening to increase the price of in-store advertisements if the CPGs did not purchase the FSIs.

Valassis asserted causes of action for attempted monopolization of the FSI market under Section 2 of the Sherman Act, predatory pricing of FSIs in violation of Section 2, and unlawful bundling of FSIs with in-store advertising in violation of Sections 1 and 3 of the Sherman Act, along with nine state law claims.

After a motion to dismiss was granted by the magistrate in September 2006, Valassis filed an Amended Complaint in October 2006 asserting the same causes of action. News answered the federal claims, but successfully moved to dismiss the state law claims. (Download Magistrate's Report; District Court Order). Valassis subsequently filed state court cases against News America in Michigan and California, where motions to dismiss have been denied.

Effects of News' Conduct - If Valassis' allegations are true, many players in the consumer goods market may be affected besides Valassis. Retailers have allegedly been receiving supra-competitive payments from News for in-store programs, but those payments may decrease substantially given News' alleged monopoly power over in-store marketing. CPGs have also allegedly benefited in the short term from News predatory pricing of FSIs, though News presumably would expect to increase FSI pricing over the long run after it takes greater market share from Valassis. Fortunately, perhaps, for retailers and CPGs, News entered into long-term contracts with retailers for in-store marketing and with CPGs for FSIs, delaying News' opportunity to implement its alleged monopolistic pricing plans.

Valassis reported that in 2006, for example, "FSI segment profit was $65.9 million in 2006 versus $96.2 million in 2005 due primarily to pricing." For the first 9 months of 2007, Valassis reported that FSI segment profit further declined to $19 million, compared to $50.9 million for the same period in 2006.

Similar Allegations Against News America - Other companies, such as Insignia POPS and FLOORgraphics, have made similar allegations against News America, as Fortune reported in its article News Corp's Trouble in Aisle Three. Valassis, however, has previously been accused of antitrust violations itself.

Related Post: News America Marketing's Bullying, and Insignia Systems' Lawsuit

Update: Valassis v. News America Marketing Lawsuit Over FSIs.

 

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