Category: Antitrust & Trade Regulation

Illinois Department of Revenue Issues Proposed Amendments to Shipping and Handling Regulations

The Illinois Department of Revenue (Department) recently proposed amendments to its regulations governing the taxability of shipping and handling charges. The Proposed Amendments to 86 Ill. Admin Code §§ 130.415 and 130.410 (Proposed Amendments) are intended “to incorporate the holding of the Illinois Supreme Court in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009) … [and to] clarif[y] when transportation and delivery charges are considered part of ‘gross receipts’ subject to the Retailers’ Occupation Tax Act or the Use Tax Act.”  The Proposed Amendments state that they are retroactive to November 19, 2009, the date of the Kean decision.

Delivery charges taxable when they are “inseparably linked” to the taxable sale of property

In Kean, the Court held that delivery charges for products purchased over the internet and shipped to Illinois customers are taxable when “an ‘inseparable link’ exists between the sale and delivery of the merchandise plaintiffs purchased.”… 235 Ill. 2d at 376.  Citing Kean, the Proposed Amendments adopt that rule (Prop. 86 Ill. Admin. Code § 130.415(b)(1)(B)(i)) and provide two examples of an “inseparable link”:

  • When delivery charges are not separately identified to the customer in the contract or invoice; or

  • When delivery charges are separately identified to the customer, “but the seller does not offer the purchaser the option to receive the tangible personal property in any manner except by delivery from the seller (g., the seller does not offer the purchaser the option to pick up the tangible personal property).”

Prop. § 130.415(b)(1)(B)(ii)

The Proposed Amendments provide that if a product can be sold without rendering the delivery service, the service is not taxable.  Prop. §130.415(b)(1)(B)(ii).  Although this language is not limited to a circumstance in which a pickup option is offered, all of the examples provided by the Department focus on that fact pattern.  Notably, the pickup option need not be at an in-state location.  This is consistent with the Department’s recent private letter rulings concluding that when a pick up option is offered, even if it is out-of-state, the delivery charges are not taxable.  ST-15-0011-PLR (7/16/15); ST-15-0012-PLR (7/27/15).

In a change from the Department’s prior practice, the Proposed Amendments provide that separately stated shipping charges not found to be inseparably linked to the sale of goods are not taxable even if they include a profit component (i.e., exceed the actual cost of shipping).  Cf. the current regulation, at 86 Ill. Admin. Code §130.415(d), with Prop. §§ 130.415(b)(1)(C) and (b)(1)(D)(iv).

Practice Note:

Sub-part (b)(1)(B)(ii) of the Proposed Amendments supports the conclusion that offering customers free standard shipping evidences that any other shipping service for which a seller charges customers (i.e., expedited shipping) are separately contracted for and thus nontaxable.  Arco Industrial Gas Division, The BOC Group, Inc. v. Department of Revenue, 223 Ill. App. 3d 386, 392 (4th Dist. 1991), which is cited in the Proposed Amendments, also supports this conclusion.  Several defendants have successfully raised this defense in response to Illinois False Claims Act litigation alleging a failure to collect tax on shipping charges.

Taxability and rate depend on the underlying property

The Proposed Amendments go on to provide that in the event delivery charges are “inseparably linked” to the sale of property, their taxability and rate depends on the taxability of the property sold:

Property Sold & Delivered

Delivery Charges

All exempt

Not taxable

Part exempt; part taxable

Not taxable if selling price of nontaxable property > selling price of taxable property

All property subject to high or low tax rate

Follows tax rate of property

Some property subject to high tax rate and some subject to low rate

Low rate if selling price of low rate property  > selling  price of high rate property

Exempt, high and low rate property

Not taxable if selling price of exempt property  > selling price of taxable property; low rate if selling price of low rate property  > selling price of high rate property

Prop. § 130.415(b)(1)(E).

Incoming transportation generally remains a taxable cost of doing business

The Proposed Amendments maintain the longstanding rule that a seller’s incoming transportation or delivery costs or costs to move property to ready for customer delivery are taxable costs of doing business.  The rule applies even if the seller passes on these costs to a buyer by separately stating them on an invoice.  86 Ill. Admin. Code § 130.415(e); Prop. § 130.415(b)(2).

Taxability of handling charges follows shipping charges

The Department also proposes similar amendments to the regulation relating to the taxation of handling charges.  Prop. § 130.410(c).

Practice Note:

To the extent the Proposed Amendments were issued by the Department to assist companies who have been named in lawsuits filed under the Illinois False Claims Act alleging an intentional failure to collect and remit tax on shipping and handling charges, it may be too late.  The Proposed Amendments come almost six years after Kean, and after hundreds of companies have been forced to defend against these claims, regardless of their audit history with the Department, and regardless of their shipping policies.  It remains to be seen whether the Department’s effort to impose the Proposed Amendments retroactively will be adopted, or whether the retroactivity will be helpful to companies who are forced to defend against this litigation.  The Proposed Amendments also are inconsistent with position that many of the Department’s auditors have taken, both before and after Kean, that taxpayers need to collect tax on separately stated shipping and handling charges only to the extent that the charges are a source of profit for the company.

Article By Mary Kay McCalla Martire, Catherine A. Battin & Lauren A. Ferrante of McDermott Will & Emery

© 2015 McDermott Will & Emery

FDA Flunks Mylan’s India Facilities, Finds cGMP Violations

When we open our medicine cabinet, we take for granted that the drugs we find there are safe and properly labeled. Many physicians privately worry, however, about the safety and efficacy of prescription drugs.

About 85% of the prescription drugs sold in the United States are manufactured offshore. Many of those offshore drugs are made by generic companies, foreign contract manufacturing companies and sometimes, offshore facilities owned by the so-called “big pharma” manufacturers themselves. Wherever manufactured, drugs distributed in the United States must meet certain current good manufacturing practices or cGMP standards.

Recently the Food and Drug Administration (FDA) began ramping up inspections of offshore manufacturing facilities and the results are shocking. Although cGMP violations have been found worldwide, experts are particularly worried about drugs made in China and India.

Earlier this month the FDA cited three facilities in Bangalore, India that manufacture drugs for Mylan. Headquartered in the U.K., Mylan is the second largest generic and specialty pharmaceutical company in the world. With approximately 30,000 employees worldwide and revenues of $7.72 billion (USD), Mylan certainly qualifies as big pharma.

The FDA says it inspected three of Mylan’s Indian plants between August of 2014 and February of this year. It found “significant” cGMP violations at all three facilities.

Worse, the FDA says that in all three instances Mylan’s response to the three inspections lacked “sufficient corrective actions.”

cGMP standards are in place throughout the manufacturing process to insure the potency and quality of the finished pharmaceuticals. The FDA wants to insure that there are no contaminants in the finished product as well as insuring the finished product is neither stronger nor weaker than advertised.

As a result of the inspections, the FDA concluded a likelihood that the finished drugs from all three plants were adulterated. Those findings are certainly bad news for consumers. It’s also bad for physicians as well. It’s hard for doctors to get dosages correct or monitor for side effects if a drug has inconsistent potency or the presence of contaminants.

In the case of Mylan’s Bangalore, India facilities, the violations were numerous and included:

  • gloves and sterile gowns for use in aseptic environments had holes and tears

  • personal sanitation violations

  • clean room violations

  • discolored injection vials

  • lots with failed assays or contaminants

At least one of the facilities had similar violations dating back to a 2013 inspection.

Overall, the FDA noted, “These items found at three different sites, together with other deficiencies found by our investigators, raise questions about the ability of your current corporate quality system to achieve overall compliance with CGMP. Furthermore, several violations are recurrent and long-standing.”

The FDA declared that continued noncompliance could result in drugs from these facilities being blocked from importation and distribution within the United States.

Mylan has had previous problems with U.S. regulators. In 2000 Mylan paid a $147 million fine to settle charges that the company raised the price of generic lorazepam by 2,6000% and generic clorazepate by 3,200%. The FTC had charged that the company raised the price of lorazepam, the generic equivalent of the brand name antianxiety medication Ativan, from $7 per bottle to $190. Although Mylan agreed to the payment of the fine, it denied any wrongdoing.

Only the FDA can punish drug companies for cGMP violations but if there is proof of an adulterated product entering the commerce stream, the federal False Claims Act can come into play. That law allows private individuals to file a lawsuit against a wrongdoer and receive a percentage of whatever is recovered by the government. Last year the Justice Department paid $635 million in whistleblower awards under the False Claims Act.

Whistleblowers in cGMP cases have received tens of millions of dollars. Dinesh Thakur, a former Ranbaxy executive, received $48 million for information about adulterated generic drugs.

To qualify for a whistleblower award, one must possess inside, “original source” information about a cGMP violation resulting in an adulterated drug or under / over potency medication being approved for sale by Medicaid, Medicare or Tricare. (Most drugs are approved.)

While we believe that contaminated drugs are relatively rare, industry sources tell us that potency issues are rampant. That means the drugs in your medicine cabinet may have little or no active ingredients.

Article By Brian Mahany of Mahany Law

© Copyright 2015 Mahany Law

Uber Ordered to Buckle Up for Litigation: Taxicab Plaintiffs Ride out (in part) Uber’s Motion to Dismiss False Advertising Claims

A group of California taxicab companies sued Uber in federal court in San Francisco for falsely advertising the safety of Uber rides and for disparaging the safety of taxi rides. Uber moved to dismiss plaintiffs’ Lanham Actclaim, contending that the safety-related statements were non-actionable puffery and were not disseminated in a commercial context. Uber also moved to dismiss plaintiffs’ California unfair competition law (“UCL”) claim for lack of standing, and moved to strike plaintiffs’ request for restitution under the UCL and California’s false advertising law (“FAL”).

Declining to put the brakes on the lawsuit in its entirety, the court granted in part and denied in part Uber’s motion. L.A. Taxi Cooperative, Inc. v. Uber Technologies, Inc., 2015 WL 4397706 (N.D. Cal. July 17, 2015).

The court agreed that some of Uber’s statements were non-actionable puffery. For example, Uber’s claim that it was “GOING THE DISTANCE TO PUT PEOPLE FIRST” was “clearly the type of ‘exaggerated advertising’ slogans upon which consumers would not reasonably rely.” It would be impossible to measure whether or how Uber was fulfilling this promise. Likewise, Uber’s statement “BACKGROUND CHECKS YOU CAN TRUST” was puffery because it made no specific claim about Uber’s services. The court therefore dismissed plaintiffs’ claims as to these non-actionable statements.

On the other hand, the court did not agree that Uber was merely puffing when it claimed it was “setting the strictest safety standard possible,” that its safety is “already best in class,” that its “three-step screening” background check process adheres to a “comprehensive and new industry standard,” or when Uber compared its background check process to the taxi industry’s background check process. These statements were not puffery because “[a] reasonable consumer reading these statements in the context of Uber’s advertising campaign could conclude that an Uber ride is objectively and measurably safer than a ride provided by a taxi . . . .”

The court also rejected Uber’s argument that, because certain advertising claims were preceded by phrases like “Uber is committed to” or “Uber works hard to” – for example, “We are committed to improving the already best in class safety and accountability of the Uber platform . . .” – that the advertising claims were merely aspirational and therefore non-actionable. The challenged statements did more than assert that Uber was committed to safety, the court found; they included statements regarding the objective safety and accountability of Uber’s service. A reasonable consumer might rely on such statements, so the court denied Uber’s motion to dismiss in this regard.

The court found that certain advertising statements Uber made to the media were non-commercial speech and therefore not actionable under the Lanham Act or California state law. These statements were made in response to journalists’ inquiries, and were “inextricably intertwined” with the journalists’ independent – and largely critical – coverage of Uber’s safety record, which was a matter of public concern. Accordingly, the court granted Uber’s motion and dismissed plaintiffs’ claims relating to these non-actionable statements.

But the court did find Uber’s statements on ride receipts to be commercial speech. Following a completed ride, Uber emails its customers a receipt that includes a $1.00 “Safe Rides Fee.” Uber explains to customers who click on a link in the receipt that the fee was intended “to ensure the safest possible platform for Uber riders,” that Uber would put the fee towards its “continued efforts to ensure the safest possible platform,” and that “you’ll see this as a separate line item on every uberX receipt.” Uber contended that such statements related to a past transaction, rather than a prospective transaction that Uber sought to induce, and therefore did not amount to commercial speech. The court disagreed, finding that “the complaint adequately allege[d] that the statements relating to the ‘Safe Rides Fee’ [were] made for the purpose of influencing consumers to use Uber’s services again.”

On the California UCL claim, the court found that the taxicab plaintiffs lacked standing because they did not allege that they relied on Uber’s allegedly false or misleading advertising. In dismissing this claim, the court explained that it was declining to join the minority of California federal courts that have permitted UCL claims to proceed where the plaintiff pled potential consumers’ reliance rather than the plaintiff’s own reliance.

Finally, the court found that plaintiffs did not have a viable claim for restitution under California’s UCL and FAL because that remedy is limited to “money or property that defendants took directly from [a] plaintiff” or “in which [a plaintiff] has a vested interest,” and the complaint failed to allege that plaintiffs had an ownership interest in Uber’s profits that they sought to disgorge.

ARTICLE BY Lawrence I Weinstein & Jeffrey H Warshafsky of Proskauer Rose LLP

© 2015 Proskauer Rose LLP.

Unlucky 13: FTC Settles Charges under International Safe Harbor Framework

Thirteen companies have agreed to settle with the Federal Trade Commission (FTC) charges relating to their participation in the U.S.–EU and U.S.–Swiss Safe Harbor Frameworks. Seven companies allegedly failed to renew their Safe Harbor self-certifications, including a sports marketing firm, two software developers, a research organization, a business information firm, a security consulting firm, and an e-discovery service provider. Another six allegedly failed to seek certification under the Frameworks, but nevertheless claimed in their privacy policies to be certified, including an amusement park, two sporting companies, a medical waste service provider, a food manufacturer, and an e-mail marketing firm. Last year, fourteen companies settled with the FTC over similar claims, and advocacy group named 30 companies in a complaint alleging that they were out of compliance with the Safe Harbor Frameworks.

The European Commission’s Directive on Data Protection prohibits the transfer of personal data to non-EU countries that do not meet the EU standard for privacy protection, so the U.S. Department of Commerce (DOC) negotiated the Safe Harbor Frameworks to allow U.S entities to receive such data provided that they comply with the Directive. To participate in the Safe Harbor Frameworks, companies must annually self-certify that they comply with seven key privacy principles for meeting EU’s adequacy standard: notice, choice, onward transfer, security, data integrity, access, and enforcement. Only appropriately self-certified companies may display the Safe Harbor certification mark on their websites, and the FTC is charged with enforcing violations.

This enforcement action is a reminder of the importance of maintaining current Safe Harbor status for those who elect to participate the program. It is also a reminder that companies must act in accordance with their published privacy policies, and periodically review their privacy policies to ensure that they remain current and reflect companies’ actual practices.

ARTICLE BY Sheila A. Millar, Tracy P. Marshall & Nathan A. Cardon of Keller and Heckman LLP

© 2015 Keller and Heckman LLP

Multistakeholder Group Seeks Comment on Draft Framework for IoT Device Manufacturers

Earlier this week, the Online Trust Alliance released a draft framework of best practices for Internet of Things device manufacturers and developers, such as connected home devices and wearable fitness and health technologies.  The OTA is seeking comments on its draft framework by September 14.

The framework acknowledges that not all requirements may be applicable to every product due to technical limitations and firmware issues.  However, it generally proposes a number of specific security requirements, including encryption of personally identifiable data at rest and in transit, password protection protocols, and penetration testing.  In addition, it proposes the following requirements:

  • A privacy policy that is readily available to review prior to product purchase, download or activation, and that discloses the consequences of declining to opt-in or opt-out of policies on key product functionality and features.

  • A privacy policy display that is optimized for the user interface to maximize readability.  The working group recommends layered privacy policies for this purpose.

  • Conspicuous disclosure of all personally identifiable data collected.

  • Data sharing is limited to service providers that agree to limit usage of data for specified purposes and maintain data as confidential or to other third parties as clearly disclosed to users.

  • Disclosure of the term and duration of the data retention policy.  In addition, the framework goes on to state that data generally should be retained only for as long as the user is using the device or to meet legal requirements.

  • Disclosure of whether the user has the ability to remove or anonymize personal and sensitive data other than purchase history by discontinuing device use.

  • Disclosure of what functions will work if “smart” functions are disabled or stopped.

  • For products and services designed to be used by multiple family members, the ability to create individual profiles and/or have parental or administrative controls and passwords.

  • Mechanisms for users to contact the company regarding various issues, transfer ownership, manage privacy and security preference.

In addition, the draft framework makes various other recommendations that go above and beyond the proposed baseline requirements, although acknowledging that the recommendations may not be applicable to every device or service.

ARTICLE BY Elizabeth H. Canter of Covington & Burling LLP

© 2015 Covington & Burling LLP

Coming to America: Foreign Manufacturers Looking to Produce in the U.S.

There’s been buzz about Keer Group lately, the Chinese textile company that opened a cotton mill this year in South Carolina.  China has long been seen as the global capital of textile manufacturing, due in part to their low production costs and seemingly endless supply of cheap labor.  But Keer Group found the rising costs in China made it difficult to grow in its hometown of Hangzhou.  Wages there have been steadily increasing, energy costs are rising, and shipping costs are growing higher.  Textile operations in China are actually starting to become unprofitable.  So production was moved to America.   And Keer Group is not alone.  JN Fibers Inc., also of China, is building a plant in South Carolina.  Indian textile manufacturer, ShriVallabh Pittie Group, is building a factory in Georgia.

Why would textile companies from traditionally low cost countries move production to the U.S.?  What’s the allure for these foreign companies?  Isn’t it expensive to operate here as opposed to low wage countries like China and India?  Well, despite the comparatively high wage rate in the U.S., several factors are at play to offset the cost of labor.  Years of low employment mean that Americans are willing to work longer hours and for suppressed wages.  The U.S. is also home to several right-to-work states where union representation is low and workers are not restricted to a single task but rather can set up, operate, and run multiple machines.   But even with a wage gap between the U.S. and low wage countries, the gap is more than compensated for by other savings.

“Except for human labor, all other production factors are cheaper in the U.S.”

“Except for human labor, all other production factors are cheaper in the U.S.”

The U.S. is a political, economic, and infrastructural oasis in an uncertain world.  America benefits from cheap, plentiful, and reliable energy ensuring production facilities can be kept running constantly.  While textile companies in the past have looked to countries such as Bangladesh and India to keep production costs low, economic volatility resulting in unreliable energy sources are disrupting production.  Many plants today are primarily automated, meaning companies rely on the constant energy supply.  What good are cheap utilities when they aren’t stable?

The U.S. has also created incentives to keep costs down for foreign companies looking to relocate.  Government at the local, state, and federal level have eagerly provided infrastructure grants, revenue bonds, and tax credits in order to bring back jobs to economically depressed areas.  Additionally, trade agreements between the U.S. and other low cost countries provide the extra incentive of keeping shipping and logistical costs low.  NAFTA has created duty free zones on imported textiles between the U.S. and several trade partners.  And should the Trans-Pacific Partnership reach an agreement, companies with production in America can take advantage of an expanded pool of countries with tariff reductions, including Vietnam.

Just how difficult is it for a foreign company to establish operations in America?  Not difficult at all.  The U.S. Small Business Administration has provided excellent guidance on the basic steps needed get started.

Businesses in the U.S. are incorporated at the state level, first by registering with the state and then establishing a registered agent with a valid state address to receive legal documents on behalf of the company.  Considerations for the foreign company include which state will be the most attractive in terms of readiness of labor force, land availability, and tax benefits.

International shipping of goods through the U.S. will be regulated at the federal level, requiring specific licenses and permits.  The Department of Commerce’s Trade Information Center and the U.S. Customs and Border Protection provide useful information on U.S. importation and exportation procedures.  Additional considerations include compliance with the Internal Revenue Service, starting by either obtaining an Employment Identification Number or an Individual Taxpayer Identification Number, depending upon the citizenship of the individual establishing the business.  Trade licensing requirements, IRS compliance, and tax credits, including incentives available to businesses through a foreign tax treaty, are all important issues to consider, and if left with any questions, it is always best to consult with a qualified attorney.

Symbol, the struggle for economic power between the United StateThere are numerous benefits for a foreign company to relocate manufacturing operations to the U.S., but there are also important considerations that should be taken into account.  However, navigating the channels of regulations and requirements shouldn’t deter manufacturers from taking advantage of all of that come from setting up shop in America.  Foreign companies are finding that operating in what were traditionally considered to be low cost countries are no longer profitable and are starting to look outside their borders.  And if companies like Keer Group are any indication, for the first time in a long time manufacturing in America is not only a consideration, it’s a serious contender.

ARTICLE BY Ayako Hobbs & Sarah K. Rathke of Squire Patton Boggs (US) LLP
© Copyright 2015 Squire Patton Boggs (US) LLP

Trans-Pacific Partnership Negotiations Face Tighter Timeline as Talks Continue

Trade ministers announced that they will continue negotiations over several unresolved provisions of the Trans-Pacific Partnership (TPP) during a four-day meeting in Maui, Hawaii that concluded July 31. Trade ministers representing the 12 Pacific Rim countries included in the free trade deal remain optimistic about negotiations and said in a joint statement that they are “more confident than ever that TPP is within reach.”

trade partnership, negotiations, trading deal, stakeholders, intellectual property

One of the major sticking points reportedly centers around intellectual property protections for biologics. The U.S. reportedly attempted to secure 12 years’ data protection for pharmaceutical companies, while Australia is insisting on five years. Observers suggest the agreement will fall somewhere between five and seven years’ data protection. U.S. stakeholders concerned with a deal that only includes five years of data protection could threaten to round up enough opposition in Congress to stymie the deal.

Other points of contention arose over agricultural issues and the auto industry. The U.S. is pushing for greater access to Canada’s dairy market, but Canada is concerned that could cause instability in its prices. Australia is seeking increased access to the U.S. sugar market, while the U.S. is trying to limit large increases in sugar imports. Meanwhile, the U.S., Canada, Mexico and Japan are hashing out “rule of origin” and other auto industry issues.

Once all 12 trade ministers agree to a deal, Congress will have 90 days to review and approve it. If talks continue beyond August, pushing the review period deep into the fall or winter, the deal is likely to become front and center in the U.S. presidential campaign. Democratic front-runner Hillary Clinton would face intense pressure from labor unions to disavow the deal, along with the 28 House Democrats who supported legislation to fast-track passage of the agreement. It could also become a problem for Canadian Prime Minister Stephen Harper, who is up for re-election in October.

The TPP will govern foreign exports, imports, and investment implicating several major sectors of the U.S. economy, including manufacturing, intellectual property, textiles and apparel, telecommunications, agriculture and others. It will also cover labor, employment, and environmental issues. The TPP will initially cover 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Collectively these countries represent 40 percent of the global economy.

ARTICLE BY Richard J. Ferris, Jr., Jennifer F. Walsh & Michelle A. Leeds of Foley & Lardner LLP

© 2015 Foley & Lardner LLP

Beer-Maker Puts an End to Brewhaha: Anheuser Busch Agrees to Settle Second of Two Class Action Lawsuits over Beer Origin Disclaimers

Anheuser Busch recently agreed to settle a consumer class action over Beck’s Beer labeling that we previously reported on with regard to the uptick in consumer class actions proceeding past the pleading stage in the Southern District of Florida. Marty et al. v. Anheuser-Busch Cos., 13-cv-23656-JJO (S.D. Fla.). Anheuser-Busch’s decision to settle the Beck’s suit is not surprising, given that the company had agreed in January of this year to settlement of a sister suit commenced in Florida state court over the labeling of Kirin beer (Suarez et al. v. Anheuser-Busch Cos. LLC, 2013-33620-CA-01 (Fla. Cir. Ct.)), as we also previously reported.

According to the motions for approval, the settlement terms appear to be almost identical. Under the terms of both deals, consumers who bought Kirin or Beck’s during the respective class periods (back to October 2009 for Kirin and May 2011 for Beck’s) are entitled to obtain partial refunds varying from ten cents a bottle to $1 for a twelve pack, with the refund capped at $50 per household for those whose reimbursements are supported by proofs of purchase and $12 per household for those without. Neither settlement is subject to a capped total settlement fund amount.

Both settlements also include five year injunctions, with Anheuser-Busch agreeing to inclusion of the phrase “Brewed Under Kirin’s Strict Supervision by Anheuser-Busch in Los Angeles, CA and Williamsburg, VA” more prominently on Kirin products, packaging and website, and Beck’s agreeing to the inclusion of either “Brewed in USA” or “Product of USA” on Beck’s products, packaging and website. (The Kirin injunction also requires Anheuser-Busch to refrain from using the term “import” or “imported” with reference to Kirin beer.) In both settlements, Anheuser-Busch agreed not to oppose seven figure motions for class counsel fees — $1,000,000 in the Kirin suit and $3,500,000 in the Beck’s suit.

What’s notable about both settlements is that the phrases Anheuser-Busch agreed to include on its products, packaging and product websites already appeared on the products. This fact was central to Anheuser-Busch’s failed motion to dismiss the Amended Complaint in the Beck’s suit, in which they argued that a reasonable consumer could not be deceived as to the beer’s origin because that fact was printed on the product itself. The judge, however, sided with Plaintiffs on the issue, finding that (1) a reasonable consumer could be deceived because the disclaimer was difficult to read and blocked by the packaging (the judge specifically noted that the statement was printed on a metallic background, which could be obscured by light, while the packaging submitted to the Alcohol Tobacco Tax and Trade Bureau (“TTB”) was printed on a matte background); (2) product statements referencing German “Purity Laws” might be misleading to the average consumer, even if true; and (3) product statements referencing German “Quality” were not “puffery” as a matter of law.

Notably, the injunction Beck’s agreed to addresses only the first of these issues, and we have to wonder whether the judge’s decision on the motion to dismiss would have been different had the disclaimers appeared more prominently or on the matte background approved by the TTB. These two settlements certainly serve as a warning for nationwide sellers to consider the more prominent display of the products’ origin on products and packaging, if the product labeling is potentially obscured.

ARTICLE BY Lawrence I Weinstein, Alexander Kaplan & Jennifer L Jones of Proskauer Rose LLP

© 2015 Proskauer Rose LLP.

Federal Trade Commission: Start with Security

On June 30, 2015, the Federal Trade Commission (FTC) published “Start with Security: A Guide for Businesses”(the Guide).

The Guide is based on 10 “lessons learned” from the FTC’s more than 50 data-security settlements. In the Guide, the FTC discusses a specific settlement that helps clarify the 10 lessons:

FTC_FederalTradeCommission-Seal

  1. Start with security;

  2. Control access to data sensibly;

  3. Require secure passwords and authentication;

  4. Store sensitive personal information securely and protect it during transmission;

  5. Segment networks and monitor anyone trying to get in and out of them;

  6. Secure remote network access;

  7. Apply sound security practices when developing new products that collect personal information;

  8. Ensure that service providers implement reasonable security measures;

  9. Implement procedures to help ensure that security practices are current and address vulnerabilities; and

  10. Secure paper, physical media and devices that contain personal information.

The FTC also offers an online tutorial titled “Protecting Personal Information.”

We expect that the 10 lessons in the Guide will become the FTC’s road map for handling future enforcement actions, making the Guide required reading for any business that processes personal information.

ARTICLE BY Julia Jacobson & Jennifer S. Geetter of McDermott Will & Emery
© 2015 McDermott Will & Emery

What Is The FTC Looking at When It Reviews Merger Agreements?

In our last post, we spoke about a proposed merger between office supply chains Office Depot and Staples. As we noted, Office Depot shareholders recently voted to go forward with the acquisition, but the Federal Trade Agreement still has to review the agreement and make a decision, which could make or break the process.

FTC_FederalTradeCommission-SealIn reviewing any merger agreement the Federal Trade Commission—or the Department of Justice, depending on which agency reviews the agreement—an important consideration is the impact the transaction will have on the market. Speaking generally, federal law prohibits mergers that would potentially harm market competition by creating a monopoly on goods or services.

According to the FTC, competitive harm often stems not from the agreement as a whole, but from how the deal will impact certain areas of business. Problems can arise when a proposed merger has too much of a limiting effect based on the type of products or services being sold and the geographic area in which the company is doing business.

With that having been said, most mergers—95 percent, according to the FTC—present no issues in terms of market competition. Those that do present issues are often resolved by tweaking the agreement so as to address any competitive threats. In cases where the reviewing agency and the businesses cannot agree on a solution, litigation may be necessary, but it often isn’t.

Any company that plans on going forward with a merger or acquisition needs to have a clear understanding of the law and the review process. This is especially the case if issues come up regarding competitive threats.

ARTICLE BY Business and Corporate Law Practice Group of McBrayer, McGinnis, Leslie and Kirkland, PLLC
© 2015 by McBrayer, McGinnis, Leslie & Kirkland, PLLC. All rights reserved.