Thursday, July 23, 2009

Jury Awards $300 Million to Valassis


After a lengthy trial, a jury in a Michigan state court awarded $300 million in compensatory damages to Valassis, finding that News America Marketing had engaged in unfair competition.

Valassis issued a press release on the verdict:

"We are pleased with the jury's verdict, and we look forward to moving ahead with our two other cases, including the antitrust case in the Eastern District of Michigan where any compensatory damages will be trebled," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer. "Furthermore, I am very proud of the efforts of our employees who have been competing on this uneven playing field for nearly a decade."

Valassis has additional lawsuits pending against NAM in the United States District Court, Eastern District of Michigan, asserting violations of the Sherman Act, and in the Supreme Court of the State of California for the County of Los Angeles raising claims under California's Cartwright, Unfair Competition and Unfair Practices Acts. The Eastern District of Michigan case and the California case are currently not scheduled for trial, however, Valassis intends to aggressively pursue both remaining claims.

In addition to Valassis' remaining lawsuits, News America also faces a lawsuit from Insignia Systems, which asserts that News America engaged in similar anti-competitive tactics that harmed Insignia. Given the overlap between the cases, Insignia is probably feeling confident about its prospects.

The stock prices of both Valassis and Insignia jumped on the news of the verdict.

News America's President, Chris Mixson, stated, "[w]e are disappointed with today's decision." "[W]e will appeal this decision and are confident that we will prevail." As one grounds for News America's appeal, Mixson cited the Court's ruling to exclude evidence of a Federal Trade Commission complaint against Valassis, which alleged that Valassis had publicly invited News America to collude on the pricing of FSIs in an investor conference call. Valassis entered into a consent order with the FTC to resolve the case, agreeing not to invite competitors to collude. It seems that such evidence would be more prejudicial than probative in Valassis' case against News America, and that the Court's evidentiary ruling was likley correct. Even if that evidence had been admitted, it is unclear that it would have affected the verdict. Though News America will undoubtedly raise several additional issues on appeal.

Related posts.

Tuesday, July 21, 2009

Closing Arguments Heard in Valassis v. News America Marketing

Closing arguments were heard today in a Detroit courtroom in a battle between the two giants of the Free-Standing Insert business – Valassis and News America.

Valassis has the "home court" advantage as a Livonia, Michigan company, and has benefited from colorful testimony from unhappy manufacturers, a former competitor driven out of business by News America, and a former employee who had contacted government officials about News America's anti-competitive tactics. Nonetheless, BNET insists that it "should not be a surprise" if News America Marketing prevails, citing the fact that the case has been long, complicated, dull, and sometimes counter-intuitive. As reported by BNET, "the majority of the testimony has been an unstructured waltz through the arcana of CPMs, net effective rates and per-page costs. Much of it was impossible to follow, even for someone with knowledge of the business."

Once the jury reaches its verdict, which should be in the next couple days, I'll let you know whether BNET was correct.

Wednesday, July 15, 2009

FTC Announces $500,000 Settlement with Rite Aid Over False Advertising


Rite Aid agreed to settle FTC charges that the pharmacy deceptively advertised that its Germ Defense tablets and lozenges could prevent or treat colds and the flu.

Rite Aid touted its private label "Germ Defense" products as similar to the brand name products -- Airborne, which previously settled deceptive advertising charges with the FTC last year. Rite Aid agreed to pay $500,000 in refunds to consumers, and agreed not to claim that any private label food, drug, or dietary supplement can reduce the risk or severity of colds or flu unless the claims are truthful and substantiated by reliable scientific evidence. FTC Chairman Jon Leibowitz stated, "this is one 'cold remedy' that works."

Private label products have been a growing income source for retailers in the last several years. Claims made on the packaging of retailers' private label products often mirrors claims made by name brands. Retailers should be cautious, however, about situations like this one, in which the claims made by the brand name product are unsupported. This is especially a concern for health-related claims, which have come under increased scrutiny recently.

Related post: Litigation Forces Changes to Food Marketing; Kellogg Settles FTC Complaint Over False Advertising.

Thursday, July 9, 2009

News America Whistleblower Robert Emmel’s Testimony

In the ongoing trial between News America Marketing and Valassis, former News America whistleblower Robert Emmel appeared via video deposition to provide testimony against News America.

Emmel Video Deposition - According to Jim Edwards of BNET, Emmel testified that News America paid excessive amounts to retailers for exclusive in-store advertising rights in order to exclude competitors. News America paid Eckerd drug stores substantial guarantee payments because they wanted to exclude Insignia. News America allegedly lost money on the contract, as News America was unable to sell enough ads to cover the payments.

Similarly, News America allegedly overpaid for placement rights in Ahold stores. Mr. Emmel reportedly testified that he was told by News America President Dominick Porco that excluding Insignia and Floorgraphics was a key objective that justified the huge guarantee payments.

Mr. Emmel also testified that News America falsely claimed that Insignia and Floorgraphics failed to install the majority of the ads that they contracted to place, and that News falsely claimed a dedicated sales force in excess of 10,000.

Prior Emmel Testimony - Mr. Emmel made similar statements in the Floorgraphics trial. (Transcripts of that testimony are available here). During testimony on March 5, 2009, Mr. Emmel testified that News America provided a letter to a number of retailers and manufacturers ("CPGs") falsely claiming that Floorgraphics and Insignia had a poor compliance rate, and that the letter influenced retailers to do business with News America rather than Floorgraphics.

He also testified that News America ripped Floorgraphics ads to hurt Floorgraphics' image with retailers, and that News America sometimes removed Floorgraphics' ads from stores to hurt its compliance rate.

In News America's sales materials, the company claimed to have a field force of 10,000, but Emmel testified that he was told by News America personnel that it was closer to 3,500 or 4,000.

Some of the testimony provided by Emmel in the Floorgraphics trial was not reported by BNET as being repeated at the Valassis trial, probably because the focus in the Valassis trial is on FSIs and sales to manufacturers. For example, at the Floorgraphics trial, Emmel testified that he was assigned to certain accounts that were identified as "target accounts" by News America to take away from Floorgraphics as part of a project that News America dubbed "Operation Retailer Freedom." These included smaller retailers – dubbed tier 3 and tier 4 retailers. According to e-mails introduced at the trial, Emmel was instructed to make it a top priority.

This was a reversal of the policy in place before Floorgraphics began competing with News America. Emmel testified that in 1999, News America eliminated revenue share payments to smaller "tier 4" retailers. Jeff Jensen allegedly sent a letter to a large group of small retailers stating that News America no longer possessed their contracts in the file, and that unless they responded otherwise, their revenue share rates would be reduced to zero.

In late 1999, after News America started a floor ad program to compete with Floorgraphics' program, News America demanded that retailers including BI-LO accept a bundled bid for both floor and shelf advertising programs. When BI-LO refused, News America refused to continue providing shelf programs.

Mr. Emmel also testified about colorful language used by Paul Carlucci:

One vivid comment that I recall that he said to express
his displeasure on the call was that if there were individuals
that were concerned about doing the right thing, bed wetting
liberals in particular was the description that he used, then
he could arrange for those individuals to be out-placed from
the company.

Emmel testified that News America falsely announced that they had obtained contract rights for floor ads in Kroger Atlanta before they had actually obtained such rights, and that the goal of the announcement was to undermine Floorgraphics' efforts to obtain funding for its business.

Finally, Mr. Emmel testified that News America charged CPGs for ads in grocery stores that it did not have the right to place ads in. News America's store list included, for example, Fleming stores after News America lost the right to place ads in those stores, and included an inflated number of Winn Dixie stores when a significant number of Winn Dixie stores closed. CPGs were charged for advertisements that were to be placed in these stores, but the ads were never placed.

Related posts.

Wednesday, July 1, 2009

Supreme Court to Hear Case Regarding Exclusive Sports Team Licensing: American Needle v. NFL


Supreme Court to Hear American Needle Appeal - On June 29, 2009 the Supreme Court agreed to hear an appeal of the Seventh Circuit's decision in American Needle, Inc. v. NFL, previously discussed here, in which the Seventh Circuit found that the NFL, NFL Properties, and the NFL teams could collectively negotiate an exclusive license with apparel manufacturers for the use of their individually owned trademarks without violating the antitrust laws.

Section 1 of the Sherman Antitrust Act normally prohibits groups of competing individuals or businesses from coordinating on prices or negotiating collectively, but an exception is made when the alleged competitors are all part of a "single entity." The single entity doctrine was announced in the 1984 Supreme Court case Copperweld Corp. v. Independence Tube Corp., where the Court held that a tubing company and its wholly-owned subsidiary were just one entity for antitrust purposes, reasoning that there was a "unity of interest," and that coordination between the two entities did not represent a "sudden joining of two independent sources of economic power previously pursuing separate interests."

NFL Teams Collectively Licensed Apparel Rights - In American Needle v. NFL, the issue was whether the 32 separately-owned NFL teams were independent competitors, or whether they were part of a "single entity" under the Copperweld doctrine. Plaintiff American Needle Inc. was a manufacturer of headwear, and had a non-exclusive license to produce NFL-branded headwear for over 20 years. In 2001, the 32 NFL teams authorized NFL Properties to solicit bids and enter into an exclusive 10-year license with Reebok for headwear and other apparel. American Needle filed an antitrust suit alleging that the NFL, NFL Properties, and the individual NFL teams had conspired in restraint of trade in violation of Section 1 of the Sherman Act.

The trial court and the Seventh Circuit both found that the NFL teams acted as a single entity when they made the exclusive license deal with Reebok. The Seventh Circuit pointed out that the teams "share a vital economic interest in collectively promoting NFL football," and that the NFL teams have collectively promoted NFL football since 1963 under the auspices of NFL Properties.

Supreme Court Review - Lower courts on several previous occasions had rejected attempts to extend the single entity defense to professional sports leagues, and American Needle asked the Supreme Court to hear its appeal, partly to resolve the conflict between the Seventh Circuit's decision and the other lower court decisions. The NFL Defendants also requested that the Supreme Court review the decision, which is unusual for a prevailing party. The NFL hopes that the Supreme Court will rule in its favor and grant it broad protection from future antitrust challenges to coordinated action by the 32 member NFL teams.

Commentary - The NFL is already enormously profitable, and it is unclear how joint licensing of apparel rights to manufacturers is consistent with competitive interests. Unlike the parent and wholly-owned subsidiary in Copperweld, it appears that the NFL teams do not have a "unity of interest," but are independently-owned economic entities that compete for fans and for customers of their team's apparel. Evidence provided by American Needle indicates that prices of the licensed NFL apparel increased significantly after Reebok was granted an exclusive license, to the detriment of football fans across the country.

Similarly, while manufacturers such as Coke and Pepsi have a shared economic interest in category promotion, e.g., promoting the consumption of cola products, they could not credibly invoke a Copperweld defense if they chose to jointly negotiate agreements with customers.

Thus, instead of adopting the Seventh Circuit's shared vital economic interest analysis, the Supreme Court should consider sending the case back to the trial court for a determination of whether the NFL Defendants were in fact acting as a single economic unit, or whether they competed with each other for customers of their team's apparel.

Related post: Antitrust Implications of Exclusive Deals by Groups of Sports Teams.

 

The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies


This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.