Consumer Goods & Retail Industry Litigation Blog

News America Marketing Settles Advertiser Antitrust Claims for $280 Million

2016-03-07T00:14:00.002-05:00

News America Marketing agreed last week to pay approximately $280 million to settle claims brought by advertising customers for alleged antitrust overcharges.

The settlement was announced on the first day of trial, at which Dial Corporation, Heinz, and a class of over 550 other consumer goods manufacturers sought to recover $674 million in antitrust overcharges, which would have been automatically trebled to over $2 billion under the antitrust laws.

On February 23, News America entered into settlement agreements with a few class members – Johnson & Johnson, General Mills, Dannon, and Reckit Benckiser. A class-wide settlement on behalf of the remaining class members was announced on February 29 for $244 million, along with injunctive relief that would limit the duration of News America’s exclusive contracts with retailers. The total payments by News America were reported at $280 million.

The lawsuit accused News America of engaging in exclusive dealing and monopolizing the market for in-store advertising and free-standing inserts (“FSIs”) in violation of Section 1 and 2 of the Sherman Antitrust Act.

Several competitors previously sued News America for some of the same misconduct, and entered into sizeable settlement agreements with News America: $125 million for Insignia Systems, $500 million for Valassis, and $29.5 million for Floorgraphics.

Advertiser Class Action Against News Corp Related to In-Store Advertising Scheduled for February 29, 2016 Trial

2016-01-28T17:41:00.004-05:00

A class action lawsuit filed by Dial Corporation against News Corporation has survived multiple procedural hurdles and appears to be headed for trial on February 29.

On June 18, 2015, Dial won a motion for class certification, permitting Dial's lawsuit to proceed as a class action. The court found that Dial had satisfied the requirements of Federal Rule of Civil Procedure 23, and certified a class of "non-retailer consumer packaged goods firms . . . which have directly purchased in-store promotions from News Corp. . . . and were not subject to mandatory arbitration clauses."

News Corp. argued that class certification was inappropriate where some class members potentially benefited from decreased competition, as the lack of competition created a larger network of stores in which News Corp.'s customers could place ads. The court found that the question of potential ancillary benefits was subject to common proof at trial. The court also found that, although damages may present individualized issues, common issues predominated, as a key common issue was whether News Corp. is liable under the antitrust laws.

On January 15, 2016, Dial defeated News Corp's motion for summary judgment. The court's Order denied summary judgment on the Section One exclusive dealing claim under the Sherman Act because, "on the current record, this Court cannot conclude as a matter of law that the procompetitive benefits of the exclusive contracts are outweighed by the harm to competition."

In denying summary judgment on the Section Two monopolization count, the court found that "Plaintiffs present ample evidence that News Corp. intended to use their exclusive retailer contracts . . . to exclude rivals," and that "Plaintiffs present[ed] evidence sufficient to withstand summary judgment that News Corp.'s exclusionary acts may be anticompetitive."

Trial has been scheduled for February 29, 2016.

News Corp. previously entered into settlement agreements with competitors Floorgraphics and Insignia over related conduct, as discussed in previous posts.

Retailer Challenges Clorox’s “Club Pack” Policy as Robinson-Patman Violation

2014-11-25T14:08:00.000-05:00

Woodman’s Food Market, Inc. recently filed a lawsuit against The Clorox Company, alleging that Clorox’s policy of no longer selling “large pack” – a.k.a. “club pack” – products outside of the club channel violates the Robinson-Patman Act.

Alleged Facts

Woodman’s is a large-format grocery store that competes against Sam’s Club and Costco. Clorox’s club pack products are cheaper per unit compared to smaller pack products, and Woodman’s had been purchasing the club pack products for years. In September 2014, Clorox informed Woodman’s that, as of October 1, 2014, it would only sell its club pack products to club stores – i.e. Costco, Sam’s Club, and B.J’s. Woodman’s describes the competitive consequence of Clorox’s new policy as follows:

As a consequence of this new policy, two of Woodman’s primary competitors, Sam’s Club and Costco, will be able to buy and sell at retail special large packs of Clorox products that Woodman’s will no longer be able to sell giving a significant competitive advantage to these competitors of Woodman’s. In addition, because the unit price on these large pack items is significantly lower than the unit price charged for small packs of these same products, Sam’s Club and Costco will generally be able to buy and ultimately sell these large pack items at significantly lower unit costs than will be available to Woodman’s and ultimately its retail customers.

Complaint ¶ 36.

Alleged Robinson-Patman Act Violation and Relief Sought

Woodman’s alleges that Clorox’s new policy violates three provisions of the Robinson-Patman Act, 15 U.S.C.A. §§ 13(a), (d), and (e).

Section 13(a) of the Robinson-Patman Act prohibits selling products of “like grade and quality” at different prices, if the price differences may injure competition. Woodman’s alleges that Clorox’s new policy violates § 13(a) because Sam’s Club and Costco will be able to purchase Clorox’s products for less per unit than Woodman’s and thus resell the products for less per unit, which will diminish Woodman’s ability to compete on price.

Sections 13(d) and (e) of the Robinson-Patman Act prohibit a seller from granting advertising and promotional allowances or services to customers unless they are available to all competing customers on proportionally equal terms.[1] Woodman’s alleges that Clorox’s new policy violates these sections – primarily § 13(e) – because Clorox is now making available a special pack/package size to the club channel that is not available to Woodman’s.

Woodman’s seeks declaratory and injunctive relief that would prevent Clorox from selling its “club packs” only to the club channel and prevent Clorox from providing services and prices to the club channel that are not also proportionally made to Woodman’s. Woodman’s also filed a preliminary injunction motion at the same time as it filed its complaint, seeking an order from the Court (under §§ 13(d) and (e) of the Robinson-Patman Act) that would require Clorox to continue to sell its “club packs” to Woodman’s during the pendency of the lawsuit. On November 24, 2014, Clorox filed its response to the motion for a preliminary injunction; this response was filed under seal and therefore is not publicly available. A decision on the preliminary injunction will likely be made in the first quarter of next year. Among other things, the court will likely address in its decision the likelihood of success of Woodman’s argument that Clorox’s policy restricting the sale of club packs outside the club channel violates §§ 13(d) and (e) of the Robinson-Patman Act.

Implications of the Woodman’s Suit

Woodman’s suit raises issues of increasing importance to consumer goods manufacturers and retailers: whether a manufacturer can lawfully treat retailers operating in different channels differently, particularly club stores. Clorox’s club pack policy was not tied to any performance criteria that would at least arguably enable Woodman’s to make a business decision as to whether it would continue to sell club packs. Clorox simply informed Woodman’s (allegedly) that Clorox would no longer sell club packs outside of the club channel without giving Woodman’s an option to continue to distribute the packs. If this is true, Woodman’s suit likely has merit.

The key to legally managing channels differently is to develop viable performance criteria associated with packages (and trade programs) that allow retailers to make business decisions as to the packs they will distribute (and the trade they will receive). Clorox’s (alleged) failure to develop such performance criteria could be a fatal flaw in its new club pack policy.

Industry participants interested in viable performance criteria that avoid the pitfalls associated with Clorox’s new policy should consult with legal counsel.

[1] Section 13(d) applies to payments in connection with transactions involving “commodities”; §13(e) applies to services in connection with a “commodity.”

Court Declares That Floorgraphics Cannot Pursue Fraud Claim Against News America

2013-09-18T22:03:00.000-04:00

A federal court issued a declaratory judgment last week finding that Floorgraphics’ 2009 settlement with News America Marketing precludes Floorgraphics from pursuing fraud claims against News America based on alleged perjury by News America employee Gary Henderson falsely denying having a role in hacking into Floorgraphics’ computer systems.

In 1999, News America Marketing CEO Paul Carlucci allegedly threatened to “destroy” Floorgraphics’ business when it refused to be acquired by News America. In 2003 and 2004, News America improperly accessed Floorgraphics' password-protected web site, and reportedly engaged in other anti-competitive acts that dramatically decreased Floorgraphics’ business, including making false disparaging statements about Floorgraphics, making false statements about its own performance, coercing retailers into not doing business with Floorgraphics, bundling in-store programs, and demanding a right of first refusal from retailers for future programs. Floorgraphics filed suit against News America in 2004. During discovery and at trial, Mr. Henderson denied any involvement in the computer hacking. The lawsuit was settled during trial in 2009 for $29.5 million. As part of the settlement, News America acquired assets from Floorgraphics, and the parties signed a mutual release of claims. Floorgraphics agreed to release News America from “all claims . . . of every nature and description whatsoever, . . . whether known or unknown, concealed or not concealed.”

Not long after Floorgraphics settlement, another News America competitor, Valassis, won a $300 million judgment against News for similar anti-competitive conduct, and eventually settled that and another lawsuit against News America for $500 million. A third competitor, Insignia, settled a lawsuit making similar allegations of anti-competitive conduct against News America for $125 million. Some of the damaging evidence disclosed during the Valassis and Insignia lawsuits had not been disclosed to Floorgraphics, and Floorgraphics moved unsuccessfully to undo the settlement and reopen its lawsuit against News America based on the previously withheld information.

Meanwhile, in December 2009, News America had suedFloorgraphics for breach of contract and fraud, alleging that a substantial part of the assets that were part of the settlement were invalid, unassignable, or non-existent. In 2012, Floorgraphics sought to add counterclaims against News America for fraud and other claims based on newly discovered evidence that News America’s Gary Henderson had committed perjury when he had denied being responsible for hacking into Floorgraphics’ computers. News America responded by filing an action for declaratory judgment in federal court in New Jersey against Floorgraphics seeking a declaration that Floorgraphics is barred from pursuing its fraud claims by the 2009 Mutual Release, and seeking attorneys fees for Floorgraphics’ alleged breach of a covenant not to sue contained in the Mutual Release.

The court issued a ruling on News America’s summary judgment motion in that lawsuit on September 10. The Court found that the release agreement could only be vacated if there were “clear and convincing proof of fraud.” Far from meeting that high standard, the Court found that Floorgraphics “failed to present the Court with any facts tending to support its claim that Gary Henderson committed perjury.” The Court therefore declared that it is “barred from asserting its Fraud Claims against NAM based on the alleged perjury committed by Gary Henderson.”

Floorgraphics' purported failure to present any such evidence is somewhat puzzling in light of disclosures in a New York Magazine article in 2011 that Gary Henderson had admitted to News America staffers that he had admitted to obtaining proprietary information about future Floorgraphics ads from inside Floorgraphics’ computer system, and that he had the blessing of his bosses. While the article itself is inadmissible hearsay, presumably Floorgraphics could have procured evidence of the fraud if it had been allowed to depose the witnesses quoted in the article.

The Court rejected News America’s claim for attorneys’ fees based on Floorgraphics' alleged breach of the covenant not to sue, noting that the declaratory judgment action had been filed by News America, not Floorgraphics.

While Floorgraphics was unable to obtain any relief for Gary Henderson’s apparent perjury, News America is not entirely out of the woods, as there are two major lawsuits still pending against it: a putative class action lawsuit filed by consumer goods manufacturers for alleged overcharges they paid for advertising because of News’ anti-competitive scheme; and a shareholder lawsuit claiming that News’ improper actions cost shareholders $655 million for the Valassis, Insignia, and Floorgraphics settlements.

Canadians Indict Chocolate Companies for Price-Fixing After Lengthy Investigation

2013-06-17T00:31:00.000-04:00

Criminal price-fixing charges were recently filed against Canadian affiliates of Nestle and Mars, a network of wholesale distributors, and three individuals, alleging that they conspired to fix chocolate prices in Canada. In addition, Hershey Canada agreed to plead guilty to price-fixing related to conspiratorial communications with competitors in 2007.

According to recently unsealed documents, a price-fixing investigation of the chocolate companies began when Cadbury came forward as a whistleblower in July 2007 seeking to participate in an immunity program in return for its cooperation. The chocolate companies allegedly fixed prices during meetings in coffee shops, restaurants, and at trade conventions, and through phone calls and e-mails beginning in 2002. The conspiracy allegedly involved senior employees in both the United States and Canada.

Chocolate purchasers filed class action lawsuits in the United States against Hershey, Nestle, Mars, and Cadbury in 2008, and class certification was granted in 2012. Those suits are ongoing.

I was asked in a recent media interview why chocolate in particular was subjected to price-fixing as opposed to some other product. While a lot of other products are subject to price fixing agreements besides chocolate, products are more susceptible to collusion under certain economic conditions that are present in the chocolate industry. These include an oligopolistic market, high barriers to entry, high fixed costs, a commodity product, many small customers, and inelasticity of demand (e.g., the absence of close substitutes for the product).

As chocolate lovers (like myself) can attest, there is no close substitute for chocolate, which many people crave, and which is reported to provide certain health benefits when consumed. In other words, one of the qualities that makes chocolate susceptible to price-fixing is that people love chocolate, and will continue to purchase chocolate even if prices are artificially inflated.

Update June 21, 2013: Hershey's received a fine of almost $4 million in connection with its guilty plea. A trial date for Nestle and Mars is set for October 3.

Pension Fund Files Derivative Suit Related News America Marketing’s Anticompetitive Acts

2013-06-12T22:14:00.000-04:00

On June 7, a pension fund filed a derivative suit against News Corp and its top executives for breach of fiduciary duty, and against the executives for waste of corporate assets and unjust enrichment. These claims are based on News America Marketing’s illegal and anti-competitive business practices, including monopolizing the market for in-store promotion services and for FSIs.

News America has paid almost $655 million to settle lawsuits from three competitors related to its anti-competitive practices, and may be forced to pay millions more to resolve a lawsuit filed by customers such as Heinz and Dial, and by Foster Poultry Farms on behalf of a proposed class of customers. In addition, News America was the subject of an FBI investigation related to News America’s computer hacking, and was allegedly investigated by the DOJ for possible antitrust violations.

According to the Complaint, News Corp acquired dominance in the market for advertising and promotion services geared toward CPGs “through various wrongful acts designed to impede competition, including: (i) entering into long-term exclusive contracts with retailers; (ii) paying large economically unjustifiable cash payments to retailers to derail competitor contracts; (iii) bundling and predatorily pricing its in-store advertising and promotion products and services with its FSIs; (iv) hacking into competitors’ computer files; (v) dishonestly disparaging competitors’ compliance rates and financial viability; and (vi) defacing competitors' advertisements.”

Defendants allegedly breached their fiduciary duties by “creating a culture of lawlessness within News Corp, and/or consciously failing to prevent the Company from engaging in the unlawful acts.”

As relief, the plaintiffs seek an order: requiring News to “reform and improve its corporate governance,” requiring disgorgement of benefits obtained by the defendants, and awarding fees and other appropriate relief.

Advertisers Expanding Case Against News America to Become a Class Action

2013-04-29T22:59:00.000-04:00

An antitrust lawsuit brought by Dial Corporation and Heinz against News America Marketing is being expanded to include as Plaintiffs a proposed class of all domestic entities that purchased in-store promotions from News America.

Last December, I reported that News America Marketing had been sued for monopolization and tying by Dial Corporation. Heinz joined the suit as a Plaintiff shortly thereafter. Dial and Heinz alleged that News America engaged in a variety of exclusionary practices that allowed News America to create a monopoly and artificially inflate its prices. Plaintiffs’ allegations about News America’s conduct included a number of allegations that were the subject of previous lawsuits against News America brought by its main in-store competitors -- Floorgraphics, Valassis, and Insignia -- that resulted in aggregate settlements totaling over $650 million.

For example, Plaintiffs allege that News America hacked into Floorgraphics’ password-protected computer system, made false disparaging statements about its competitors, improperly removed competitors’ ads, secured long-term deals with retailers and staggered the expiration dates to prevent any competitor from obtaining a critical mass of retailer contracts, overpaid for contracts with retailers to shut out its competitors, and unlawfully bundled in-store advertising with FSIs. Using these exclusionary tactics, News America allegedly obtained an 84% market share of the in-store advertising market by 2009. (Given the anti-competitive components of News America’s settlements of the competitor lawsuits, that share has presumably grown).

Last week, Plaintiffs sought permission to file a proposed Second Amended Complaint that expands the case to include class allegations (as predicted), and to add Foster Poultry Farms as a proposed class representative. The proposed class is defined to include domestic entities that have “directly purchased in-store promotion services from News America” within the past four years.

News America is arguing that the relevant product market is not limited to third-party advertising in retail stores, but should be defined much more broadly to include other forms of advertising, including advertising placed by retailers.

News America counter-sued Dial and Heniz in January for allegedly breaching a forum selection clause in the parties’ contracts requiring that they litigate in New York, rather than in Michigan where the advertisers’ suit is pending. News America is also seeking declaratory judgment in the New York suit that it did not engage in monopolization or tying.

If your rights may be affected by this case, please feel free to contact me or my firm for advice.

Dial Corp. Sues News America Marketing for Monopolization and Tying

2012-12-27T14:18:00.000-05:00

Last week, Dial Corporation filed suit against News America Marketing for monopolizing the market for in-store advertising and free-standing inserts (“FSIs”) and engaging in unlawful tying in violation of the antitrust laws.

In its Complaint, Dial alleges that News America violated Sherman Act § 2 by engaging in “multifaceted and pervasive exclusionary strategies . . . over twenty years . . . [that] suppressed competitive promotion of a massive number of consumer goods in forty thousand retail stores, and scores of newspapers nationwide, to acquire and maintain two unlawful monopolies and earn large monopoly profits at the expense of its purchasers.”

Dial alleges that News America “sought to build contract barriers . . . to make it difficult for [competitors] to compete,” and engaged in other exclusionary actions, including:

Hacking into Floographics' computers to obtain customer lists and other marketing materials to solicit its accounts and lock them into News long-term and exclusive contracts;
Staggering the terms of the exclusive contracts so that in any given year a News competitor would not have any substantial opportunity to expand its competitive retail distribution network;
Enforcing aggressively contractual shelf exclusivity by removing competitors' services and telling customers that their promotions with competitors would not appear;
Using large cash guarantees unjustified by potential in-store promotional revenues to derail competitor contracts with retailers, a practice expressly designed to exclude competitors from these chains;
Disparaging and misrepresenting competitors' in-store advertising compliance rates, which are important to consumer packaged goods companies when they select a vendor;
Disparaging competitors' financial capacity and ability to pay the retail chains for necessary access; and
Defacing competitors' in-store advertisements and then disparaging the quality ofthe defaced promotions to the retail chains.

As detailed in earlier blog posts, between 2009 and 2011 News America Marketing paid over $650 million in settlements to three competitors – $500 million to FSI competitor Valassis, $29.5 million to in-store floor and shelf advertising competitor Floorgraphics, and $125 million to in-store shelf advertising competitor Insignia Systems. Valassis had won a $300 million jury verdict against News America, and also had a separate federal lawsuit pending at the time of its $500 million settlement.

The evidence against News America was strong. Consistent with Dial’s allegations, the evidence (described in earlier posts on this blog) included documents and testimony showing, for example, that:

News America hacked into Floorgraphics password-protected computer accounts at least eleven times and viewed competitively sensitive customer information.
News America's CEO Paul Carlucci admitted showing a film clip to sales staff from the movie The Untouchables, and admitted to using several mafia references. A video clip was played at trial of Mr. Carlucci telling employees that News had pushed "Valassis to what we call the brink of utter desperation," and that "Mr. Murdoch was saying now you have to really go after them."

A News America executive admitted to bundling in-store advertising with FSIs, inflating prices to CPGs for in-store advertising if they did not also purchase FSIs from News America. A video clip was played of the sales executive describing "the game plan whereby we would use the in-store products to drive FSI volume and the FSI to drive in-store depending on which particular client." Several CPG representatives testified to being upset with the bundled pricing.

News America executive Marty Garofalo, in a video clip of a sales summit that was played at trial, stated that News America intentionally sought out long-term exclusive contracts with retailers: "Our strategy is to secure long-term retail deals . . . . For instance, our current deal at Kroger is for seven years. Ahold agreement currently stands at eight years and we recently signed Safeway last year to a 10-year deal." Mr. Garofalo also stated that News America intentionally erected barriers to entry by potential competitors, stating in the same video clip that “we also staggered the deals to prevent a large percentage of our network from being vulnerable at any specific point in time. . . . [T]his method . . . means a competitor who wants to develop a critical mass for their network would have to dedicate a lot of money over a considerable period of time in order to break into the in-store game in any significant way.”

A former News America employee, Robert Emmel, testified that News America engaged in a campaign to target retail accounts to take away from Floorgraphics, and overpaid for exclusive contracts with retailers. He also testified that they made false disparaging statements about in-store competitors Floorgraphics and Insignia.

Dial’s 32-page complaint details much of this alleged misconduct, and provides other examples.

It is surprising that the Dial lawsuit was brought only on behalf of Dial, and not as class action on behalf of all affected CPGs. Given the high litigation costs of a monopolization lawsuit, the hundreds of potential class members, and the hundreds of millions of dollars that could be at stake for CPGs, a class action seems to be a more efficient vehicle for resolving the claims. As it currently stands, CPGs other than Dial will not recover any of the alleged overcharges unless they file their own separate lawsuit. On the other hand, if a class action is filed, all CPGs could be represented in a class action that would enable all affected CPGs to benefit from any recovery.

Discovery Sanctions Ordered Against Delta Air Lines

2012-02-05T10:52:00.001-05:00

On Friday, the Northern District of Georgia ordered that sanctions be imposed against Delta Air Lines, Inc. (“Delta”) for its discovery misconduct, awarding Plaintiffs certain fees and expenses related to Delta’s failure to timely locate and produce documents. The Court ordered that discovery against Delta be reopened for four months, and addressed several other miscellaneous discovery matters.

The Order and related documents follow:

Order Granting Discovery Sanctions (Feb. 2, 2012)
Plaintiffs’ Motion for Sanctions and Discovery Against Delta (July 25, 2011)
Delta’s Opposition to Plaintiffs’ Motion (Aug. 11, 2011)
Plaintiffs’ Reply (Aug. 26, 2011)
Plaintiffs’ Motion for Discovery Against AirTran (Aug. 5, 2011)
AirTran’s Opposition to Plaintiffs’Motion (Aug. 23, 2011)
Plaintiffs Reply (Aug. 30, 2011)

Update on Chocolate Price Fixing Litigation

2011-10-09T23:53:00.000-04:00

I recently received an inquiry about the status of the chocolate price-fixing litigation, In re Chocolate Confectionary Antitrust Litigation, No. 08-MDL-1935.

Background - In late 2007, it was revealed that the U.S. DOJ and Canadian authorities were investigating possible price-fixing by major chocolate manufacturers. A number of class action lawsuits were filed shortly thereafter against Hershey, Mars, Nestle, and Cadbury for alleged antitrust overcharges. Defendants allegedly engaged in a series of parallel price increases, and were involved in conspiratorial communications in Canada. While the manufacturers blamed the price increases on a rise in commodity prices, one study found that chocolate prices rose 38% between 2004 and 2008, whereas commodity prices increased less than 16% during the same time period. The class action lawsuits were consolidated in federal court in Pennsylvania. In April 2009, the Court denied the defendants’ motions to dismiss the complaint, finding that the allegations of a conspiracy were plausible.

Update – After the Court’s denial of defendants’ motions to dismiss, the case has progressed slowly. The parties have engaged in discovery, and plaintiffs filed a motion for class certification, which has not yet been decided. Most significantly, plaintiffs recently entered into proposed settlements with Cadbury. Under the terms of the proposed settlements, Cadbury will pay $1.3 million into a fund that will be used to pay expenses of the direct purchaser plaintiffs, $250,000 to be paid to indirect purchasers for resale, and $250,000 to be used to pay for class notice and administration. In addition, Cadbury has agreed to provide certain cooperation in the prosecution of the litigation against the remaining defendants. The settlement does not provide for any funds to be distributed to direct purchaser class members.

Class members have until October 21, 2011 to opt out of the settlement, and have until November 28, 2011 to object to the settlement. The Court will hold a hearing on December 12, 2011 to determine whether to approve the settlement agreement.

GAO Report Supports Antitrust Whistleblower Protection

2011-08-12T00:59:00.000-04:00

In a recent report, the Government Accountability Office (“GAO”) found wide support for legislation to protect antitrust whistleblowers from retaliation.

Specifically, the report states that “all key stakeholders who had a position on the issue . . . generally supported the addition of a civil whistleblower protection provision for those who report criminal antitrust violations.” The GAO report explained that it is good public policy to protect those who take risks to expose illegalities, and that whistleblowers may be reluctant to report wrongdoing absent such protection.

Inspired by a whistleblower client who alleges that he was subjected to an industry-wide boycott, my firm and I have engaged in a pro bono lobbying effort seeking legislation to protect antitrust whistleblowers. After I participated in a roundtable discussion on the Hill, Congress mandated that the GAO conduct this study of our proposal for antitrust whistleblower protection.

We also proposed that affirmative rewards be offered to antitrust whistleblowers, similar to the qui tam provisions of the False Claims Act, but based on any criminal fines collected by the Antitrust Division. The GAO report was less supportive of this proposal, stating that DOJ and certain other stakeholders were against the proposal. DOJ expressed concern that a reward provision could jeopardize existing DOJ criminal cases because the possibility of a reward may hinder the informant’s credibility, many of which are already assisted by a leniency applicant. Such a concern could be overcome, however, if the reward were contingent on the whistleblower providing corroborating evidence, such as documentation of the collusion.

DOJ also cited concerns about false reporting by whistleblowers, but criminal penalties already exist to discourage making false statements to the government, and rewards would only be provided if the claims had merit and resulted in criminal fines.

While there does not appear to be sufficient support for antitrust whistleblower rewards at this point, England and South Korea have an antitrust whistleblower rewards program, and their programs may prove instructive in assessing the effectiveness of such a rewards program.

Meanwhile, there is a clear consensus in favor of anti-retaliation protections for antitrust whistleblowers, and we hope that Congress will include such provisions when they reauthorize ACPERA.

Eleventh Circuit Reverses Judgment Against News America Whistleblower

2011-06-13T00:15:00.005-04:00

On June 8, 2011, the Eleventh Circuit Court of Appeal reversed a trial court's entry of summary judgment for breach of contract against Robert Emmel, a whistleblower who provided evidence of News America Marketing's anticompetitive behavior.

After his employment at News America was terminated in late November 2006, Mr. Emmel entered into a non-disclosure agreement with News on December 21, 2006. The day before signing the agreement, Mr. Emmel mailed confidential News America information to a Senate staffer. The lower court found that Mr. Emmel had breached the non-disclosure agreement, as the mailing was not delivered until after he signed the December 21, 2006 agreement. The Eleventh Circuit disagreed, finding that the contract only barred future disclosures, and did not extend to prior mailings. The case has been remanded to the trial court for further proceedings, during which Mr. Emmel is temporarily enjoined from further disclosures absent a court-ordered subpoena.

News America has spent substantial resources trying to prevent Mr. Emmel from sharing his knowledge because it implicated News America in major lawsuits brought by Valassis, Insignia, and Floorgraphics, all of which have settled -- for $500 million, $125 million, and $29.5 million respectively. With the settlement of those cases, the value of Mr. Emmel's testimony has diminished -- though there's a possibility that News America could be the target of related lawsuits, including possible lawsuits by consumer goods manufacturers who may have been overcharged for advertising by News America.

Insignia Releases Copy of Settlement Agreement with News America

2011-05-31T21:37:00.008-04:00

In its most recent quarterly SEC filing, Insignia Systems included a copy of its February 9, 2011 settlement agreement with News America Marketing, in which the parties settled claims of anticompetitive conduct by News America for $125 million. As part of the settlement, the parties agreed to an exclusive selling agreement, but the terms of the exclusive selling agreement were not disclosed.

The settlement agreement also provided that News America would not enter into or enforce right of first refusal provisions in its agreements with retailers. (para. 3). Insignia similarly agreed not to enter into right of first refusal provisions in its agreements with retailers.

. . . .

SETTLEMENT AGREEMENT AND RELEASE

This Settlement Agreement and Mutual Release ("Agreement") is dated as of February 9, 2011 between Plaintiff Insignia Systems, Inc. ("Plaintiff"), Scott Drill ("Drill") and Defendant News America Marketing In-Store L.L.C. (sued in the Action (as defined below) as News America Marketing In-Store, Inc.) ("Defendant"). Plaintiff, Drill and Defendant are collectively referred to herein as "the Parties."

RECITALS

WHEREAS, Plaintiff filed a lawsuit against Defendant captioned Insignia Systems, Inc. v. News America Marketing In-Store, Inc., United States District Court for Minnesota, Civil No. 04-4213, to collect damages and seek injunctive relief for, inter alia, alleged violations of federal and state antitrust laws, unfair competition, and federal and state disparagement laws. Defendant filed a counter-claim against Plaintiff and Drill. Collectively, the complaint, included as amended, and the counterclaim are referred to herein as the "Action";

WHEREAS, all claims by Plaintiff against Defendant, and by Defendant against Plaintiff and Drill, have been vigorously contested, with all Parties denying any and all liability to each other;

WHEREAS, the Parties hereto desire to forever put to rest all disputes and claims through the date of this Agreement;

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:

1. Defendant shall pay Plaintiff the sum of One Hundred Twenty Five Million Dollars ($125,000,000) ("Settlement Amount"), less the Four Million Dollar ($4,000,000) payment owed by Plaintiff to Defendant under the Exclusive Selling Agreement (as defined below) for a net payment to Plaintiff of One Hundred Twenty Million Dollars ($121,000,000) (the "Net Amount"). The Net Amount is payable by the Defendants as follows: the Net Amount shall be paid on February 10, 2011, by wire transfer to [redacted].

2. Insignia and News America shall enter into an exclusive selling arrangement consistent with the terms attached hereto as Joint Exhibit A (the "Exclusive Selling Agreement"). The Settlement Amount is not part of the consideration for the Exclusive Selling Agreement. This Agreement, and any and all releases and covenants not to sue, shall survive and remain in full force and effect and be considered final and binding even if a dispute arises regarding the Exclusive Selling Agreement, including but not limited to a dispute in which there are claims that the Exclusive Selling Agreement has been breached, claims that the Exclusive Selling Agreement should be declared void or claims that the Exclusive Selling Agreement lacks consideration.

3. Defendant shall not seek to enforce any right of first refusal and/or right of last refusal provision contained in any of its current agreements with retailers and shall not include right of first refusal and/or right of last refusal provisions in any agreement it reaches with any retailer in the future. Similarly, Plaintiff shall not include right of first refusal and/or right of last refusal provisions in any agreement it reaches with retailers in the future.

4. The Parties mutually agree that they shall not do or say anything at any time which is falsely disparaging to the other Parties.

5. On or before February 9, 2011, Plaintiff shall provide Defendant with a stipulated order in the form of Exhibit B, dismissing the action with prejudice and without costs. The Parties shall take all reasonable steps to have the order on the stipulation entered.

6. Each Party shall bear its own expenses and attorneys' fees in connection with the Action.

7. The Parties agree that the United States District Court for Minnesota shall retain jurisdiction over the Action to enforce this Agreement. Pursuant to 28 U.S.C. § 636, Fed.R.Civ.P. 53 and Local Rule 72.1, the Parties further agree and consent to the appointment of the Honorable Arthur Boylan as the master to resolve all disputes in accordance with procedures established by him. Accordingly, concurrent with the execution of this Agreement, the Parties will exchange executed copies of the stipulation substantially in the form attached hereto as Exhibit C and Defendant will promptly file it with the Court. The Parties shall take all reasonable steps to have the order on the stipulation entered.

8. The terms of the Protective Order as originally entered in the Action on or about December 28, 2006 ("the Protective Order") shall survive dismissal of the Action and are hereby reaffirmed, including the provision that all Confidential Material (as that term is defined in the Protective Order) shall be destroyed. For the avoidance of doubt, the Parties agree that all Confidential Material (including but not limited to discovery responses, documents and things produced, depositions, summaries of the foregoing, and motion papers filed with the Court consisting of, incorporating or attaching Confidential Material) that are in the possession, custody or control of the Parties, their attorneys and/or their experts and consultants shall be destroyed on or before March 30, 2011, except that outside counsel for the respective parties shall retain for a period of six (6) years a copy of documents which formed a part of the court record in the Action.

9. Except for the Parties' obligations under this Agreement and the Exclusive Selling Agreement, each of Plaintiff and the Plaintiff Released Parties (as defined below) hereby releases, remises, acquits, and forever discharges Defendant or any of its past or present members, related or affiliated companies and any or all of its respective officers, directors, shareholders, partners, servants, employees, members, attorneys, accountants, agents, representatives, affiliates, subsidiaries, parents, successors and assigns, whether in their individual capacity or as principal or agent (collectively, the "Defendant Released Parties"), from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys' fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, the "Released Matters"). Each of Plaintiff and the Plaintiff Released Parties further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against the Defendant or the Defendant Released Parties in any court, governmental or regulatory body or other proceedings.

10. Except for the Parties' obligations under this Agreement and the Exclusive Selling Agreement, each of Defendant and the Defendant Released Parties hereby releases, remises, acquits and forever discharges Plaintiff or any of its past or present members, related or affiliated companies and any or all of its respective officers, directors, shareholders, partners, servants, employees, members, attorneys, accountants, agents, representatives, affiliates, subsidiaries, parents, successors and assigns, whether in their individual capacity or as principal or agent (collectively, the "Plaintiff Released Parties"), from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys' fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, "Released Matters"). Each of Defendant and the Defendant Released Parties further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against Plaintiff or Plaintiff Released Parties in any court, governmental or regulatory body or other proceedings.

11. Except for the Parties' obligations under this Agreement, Drill hereby releases, remises, acquits, and forever discharges Defendant and the Defendant Released Parties from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys' fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, "Released Matters"). Drill further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against Defendant or any Defendant Released Parties in any court, governmental or regulatory body or other proceedings.

12. Except for the Parties' obligations under this Agreement, each of Defendant and Defendant Released Parties hereby releases, remises, acquits and forever discharges Drill from any and all manner of actions and causes of action, suits, debts, obligations, contracts, torts, covenants, claims, rights of contribution and/or indemnification, rights of subrogation, sums of money, judgments, executions, liabilities, damages, interest, costs, expenses, attorneys' fees and legal costs, demands and rights whatsoever, contingent or noncontingent, in law or in equity, known or unknown, of any kind or character, from the beginning of time up to the date of this Agreement (collectively, "Released Matters"). Each of Defendant and Defendant Released Parties further promises, covenants and agrees not to sue, attempt to introduce as evidence, or otherwise assert any of the Released Matters and/or the underlying facts or conduct supporting the Released Matters against Drill in any court, governmental or regulatory body or other proceedings.

13. Plaintiff and Defendant hereby warrant and represent to the other that they have not assigned or transferred, or purported to assign or transfer, to any person or entity, any rights, claims, counterclaims, obligations, demands, damages, actions or causes of action that they may have against the other, including but not limited to rights, claims or damages arising out of or related in any way to the Action. Plaintiff and Defendant hereby represent and warrant that there are no other pending actions or claims by Plaintiff against Defendant, or by Defendant against Plaintiff.

14. Drill and Defendant hereby warrant and represent to the other that they have not assigned or transferred, or purported to assign or transfer, to any person or entity, any rights, claims, counterclaims, obligations, demands, damages, actions or causes of action that they may have against the other, including but not limited to rights, claims or damages arising out of or related in any way to the Action. Drill and Defendant hereby represent and warrant that there are no other pending actions or claims by Drill against Defendant, or by Defendant against Drill.

15. The Parties understand and agree that this Agreement, and the Parties' obligations and payments made hereunder, are entered into and done solely to compromise disputed claims, and shall not constitute an admission of liability on the part of any Party. Further, this Agreement, the Parties' obligations hereunder, and payments made hereunder, shall not be offered into evidence in any proceedings by any Party hereto, except as necessary in an action to enforce the terms hereof.

16. This Agreement, including the exhibits hereto, is the entire, integrated agreement between the Parties, and any and all discussions, understandings, and agreements heretofore had by the Parties with respect to the subject matter hereof are merged into this Agreement, which alone fully and completely expresses the Parties' agreement, except as set forth in the other documents executed by the Parties. No amendments, waivers, or termination can be made except in a writing signed by each of the Parties.

17. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to the conflicts of law provisions thereof.

18. Other than to announce that the parties have amicably settled the Action, neither party hereto nor its attorneys shall disclose to any third party any information with respect to the terms and provisions of this Agreement except: (i) to the extent necessary to comply with the law or a valid order of a court of competent jurisdiction, in which event(s) the party making such disclosure shall so notify the other as promptly as practicable (if possible, prior to making such disclosure), and shall seek confidential treatment of such information and/or in camera review, (ii) to the extent necessary to comply with the S.E.C. or other regulatory authorities or similar disclosure requirements under any applicable laws, (iii) as part of its normal business activities or reporting or review procedures to its parent and affiliated companies (other than Valassis), banks, auditors, attorneys, accountants, insurers and similar professionals, provided, however, that such companies, banks, auditors, attorneys, accountants, insurers and similar professionals agree to be bound by the provisions of this paragraph, (iv) as required by the Internal Revenue Service or by any state tax authority, and (v) in any proceeding to enforce this Agreement.

19. All confidential information that the parties disclose to each other pursuant to the Settlement Agreement or Exclusive Selling Agreement, including but not limited to the terms of their respective agreements with retailers, shall be kept confidential by the receiving party and not shared with any competitors, including Valassis. The receiving party shall treat the other party's confidential information with the same care and take the same precautions that the receiving party uses to maintain the confidentiality of their own confidential and competitively sensitive documents and information.

20. No provision of this Agreement may be waived, amended, supplemented, terminated or repealed in whole or in part, except only by the written consent of all Parties. Any waiver, amendment or supplement agreed to by the Parties will apply only to the instance or circumstance expressly provided therein, and not to any other instance or circumstance, whether similar or dissimilar.

21. The Parties each represent and warrant to the other that the persons executing this Agreement on their respective behalves are authorized to do so. All terms and conditions of this Agreement are binding upon and will inure to the benefit of the Parties and their respective members, transferees, successors and assigns. Plaintiff acknowledges that it sought and obtained approval to enter into this settlement from its board of directors. Defendants acknowledge that they sought and obtained approval to enter into this settlement from the board of directors of News Corp. No provision of this Agreement gives any third persons any right of subrogation or action against any party hereto. All representations, warranties, indemnities, covenants and agreements in this Agreement shall survive execution and delivery of this Agreement and continue to be binding.

22. It is agreed that this Agreement was prepared by counsel for each of the Parties hereto. Each of the Parties acknowledges that each signed this document voluntarily, without duress, undue influence or oppression and each represents to the other that it acts voluntarily and with full advice of counsel. Each Party recognizes and acknowledges that its knowledge may not be full and complete. Each Party elects to assume the risk of partial knowledge and elects to settle on the terms stated herein. Each Party further acknowledges to the other that it does not rely upon any representations of any kind or character made by or on behalf of the other, including by way of illustration and not of limitation, any representation about the nature or extent of any claims, demands, damages, rights or defenses which one Party may have against the other Parties, and that no Party relies upon any representations of the other Parties, its officers, agents, directors, employees or attorneys in entering into this Agreement, except as set forth in this Agreement. Each Party acknowledges that the consideration received has been actual and adequate. This Agreement may be executed in counterparts and facsimile copies of signatures shall be treated as originals for all purposes.

IN WITNESS WHEREOF, this Agreement was executed the 9th day of February, 2011.

INSIGNIA SYSTEMS, INC.

By: /s/ Scott Drill

Its: CEO

SCOTT DRILL

/s/ Scott Drill

NEWS AMERICA MARKETING IN-STORE SERVICES L.L.C.

By: /s/ Eugenie Gavencek

Its: Senior Vice President

###

Third Circuit Denies Floorgraphics' Request to Reopen Lawsuit Against News America

2011-04-25T14:39:00.005-04:00

The U.S. Court of Appeals for the Third Circuit denied Floorgraphics' appeal of an order denying its request to reopen its case against News America Marketing.

After News America had settled with Valassis for $500 million, and after Floorgraphics learned about damaging evidence that was produced in discovery to Valassis (but which had not been produced to Floorgraphics), Floorgraphics sought to undo its $29.5 million settlement and reopen its case under Federal Rule of Civil Procedure 60(b).

The trial judge denied Floorgraphics request. The Third Circuit affirmed, finding that the lower court "ably applied the correct standards in denying relief."

The ruling should not come as a surprise given Floorgraphics' loss in the trial court and abuse of discretion standard of review.

Insignia Settles with News America Marketing for $125 Million

2011-02-09T17:21:00.004-05:00

Insignia entered into a settlement agreement today with News America Marketing for $125 million. The parties also agreed to a 10-year exclusive agreement related to price-based shelf signs. The agreement comes after lengthy settlement negotiations last week, and on the third day of trial.

“I am pleased that we were able to reach a mutually agreeable settlement and avoid protracted litigation,” said Scott Drill, Insignia’s President, Chief Executive Officer and Secretary, in a press release.

Insignia originally filed suit in 2004.

Insignia Systems v. News America Marketing Trial Begins

2011-02-08T01:40:00.002-05:00

Jury selection began Monday in Insignia Systems v. News America Marketing, No. 04-4213 (D. Minn.). Insignia Systems is seeking over $200 million in damages (before trebling). (BNET).

Insignia Systems alleges that News America engaged in a campaign to exclude Insignia and other competitors of News from the in-store industry by, e.g.: bundling its various advertising programs to prevent Insignia from effectively competing; threatening retailers to stop doing business with News America’s competitors; and offering uneconomically large payments to retailers to exclude News America’s competitors, such as Insignia and Floorgraphics.

Beginning no later than 2001, News America allegedly began an anti-competitive campaign to drive Insignia from the market through various illegal tactics, including: dissemination of false and misleading statements about Insignia’s ability to perform on its contracts; falsely claiming authority to remove Insignia advertisements from stores; bundling its various advertising programs to prevent Insignia from effectively competing; threatening retailers to stop doing business with Insignia; and offering uneconomically large payments to retailers to exclude Insignia from the business. For example, News America claimed in a letter and promotional materials to CPGs that Insignia installed less than 20% of the signs CPGs paid Insignia to install and Floorgraphics installed less than 50%, when, in fact, their installation rate was much higher.

A similar lawsuit brought by Floorgraphics, an in-store floor, shelf, and coupon advertising provider, ended in a settlement during trial of approximately $30 million. Floorgraphics alleged that News America explicitly threatened to “destroy” Floorgraphics, and tried to carry through on the threat through a variety of anticompetitive tactics, including making false disparaging statements to CPGs and retailers, making uneconomic payments to retailers to gain exclusive contracts, and even infiltrating a password-protected computer system to gain sensitive information.

Another advertiser -- Valassis – brought suit against News America for engaging in similar anti-competitive tactics in the market for Free Standing Inserts (“FSIs”) – coupons frequently distributed in Sunday newspapers. Valassis alleged that News America “created and implemented a scheme to obtain 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.” For example, Valassis alleged that News America entered into long-term exclusive contracts with retailers, offering large guaranteed minimum payments to large retailers. Valassis asserted that News America threatened price increases on in-store ads if consumer packaged goods manufacturers (“CPGs”) did not purchase their FSIs from News America. After trial in state court, a jury awarded Valassis $300 million, which News America appealed. Valassis also had a case pending in federal court, and News America eventually settled both cases for $500 million.

Some of the evidence elicited during the Floorgraphics and Valassis trials may prove damaging to News America in the Insignia trial as well. For example:

News America’s CEO Paul Carlucci admitted showing a film clip to sales staff from the movie The Untouchables, and admitted to using several mafia references.
A News America executive admitted to bundling in-store advertising with FSIs, inflating prices to CPGs for in-store advertising if they did not also purchase FSIs from News America. A video clip was played of the sales executive describing “the game plan whereby we would use the in-store products to drive FSI volume and the FSI to drive in-store depending on which particular client.”
News America executive Marty Garofalo, in a video clip of a sales summit that was played at trial, stated that News America intentionally sought out long-term exclusive contracts with retailers: "Our strategy is to secure long-term retail deals . . . . For instance, our current deal at Kroger is for seven years. Ahold agreement currently stands at eight years and we recently signed Safeway last year to a 10-year deal.” Mr. Garofalo also stated that News America intentionally erected barriers to entry by potential competitors, stating in the same video clip that “we also staggered the deals to prevent a large percentage of our network from being vulnerable at any specific point in time. . . . [T]his method . . . means a competitor who wants to develop a critical mass for their network would have to dedicate a lot of money over a considerable period of time in order to break into the in-store game in any significant way.”
Several CPG representatives testified to being upset with the bundled pricing.
A former News America employee, Robert Emmel, testified that News America engaged in a campaign to target retail accounts to take away from competitors, and overpaid for exclusive contracts with retailers. He also testified that they made false disparaging statements about in-store competitors Floorgraphics and Insignia.

The Court issued pre-trial rulings last week on the admissibility of a variety of evidence that was being challenged by News America or Insignia. The Court agreed to exclude: reference to the possibility of treble damages; certain expert testimony; evidence of layoffs at Insignia; and evidence of an alleged gift to a Winn-Dixie employee responsible for awarding the in-store advertising contract to News America, as described by BNET.

But the Court decided to allow: evidence of Insignia’s now-defunct Senior Management Litigation Incentive Plan, which would have rewarded Insignia executives with bonuses if the litigation is successful; evidence related to the Floorgraphics and Valassis lawsuits (but only to the extent that they are not offered for the truth of the matter asserted); certain CPG hearsay statements made to Insignia employees; testimony regarding News’ influence in the FSI market; evidence of News Corp’s size and wealth; testimony and notes of Debra Lucidi regarding News America, including notes about News’ price increases and poor service, in which she stated that it “[f]eels like they are raping us and they enjoy it.”

Last week, Insignia and News America engaged in lengthy court-ordered settlement discussions, but those discussions were apparently unsuccessful. As with the Floorgraphics lawsuit, a settlement during the middle of trial is a definite possibility.

Insignia v. News Trial Rescheduled for Feb. 7, 2011

2010-12-30T10:02:00.003-05:00

Trial in the Insignia v. News America Marketing case has been rescheduled to begin February 7, 2011. A settlement conference is scheduled for January 25, 2011.

Motions are currently pending to exclude certain evidence (motions in limine) and to exclude certain expert opinions as unreliable (Daubert motions).

Related posts. Related articles (BNet; BNet; Minneapolis StarTribune)

Delta and AirTran Argue That Imposition of Bag Fees Caused Reduction in Fares

2010-12-27T00:26:00.003-05:00

In an ongoing antitrust lawsuit over alleged collusion to charge first bag fees, Defendants Delta Air Lines and AirTran Airways recently filed briefs in opposition to Plaintiffs’ motion for class certification. (Delta, AirTran). Defendants argued that class certification was inappropriate because, they assert, the imposition of first bag fees led to a reduction in base fares, and that some proposed class members therefore may have benefited from the imposition of bag fees. Defendants filed four expert reports in support of their arguments. (Lee, Kasper, Schwartz, Gaier).

The proposed class is defined to include, with a few exceptions, anyone who has directly paid a first bag fee to Delta or AirTran. Summary judgment motions are scheduled to be filed in March 2011.

The case is In re Delta / AirTran Baggage Fee Antitrust Litigation, MDL 2089 (N.D. Ga.).

Court Unseals Documents Related to Lawsuit on Behalf of Consumers Seeking Recovery of First Checked Bag Fees Paid to Delta and AirTran

2010-08-27T12:36:00.006-04:00

On August 20, 2010, the Court overseeing In re Delta / AirTran Baggage Fee Antitrust Litigation, MDL 2089 (N.D. Ga.) unsealed a number of documents that had been produced by defendants in discovery in the lawsuit but had been designated as confidential by the defendants.

Plaintiffs requested that the Court “unseal” certain documents to ensure that the millions of proposed class members who have paid a first bag fee to either Delta or AirTran have access to additional information related to the claims in the case. The lawsuit alleges that Delta Air Lines and AirTran Airways violated the antitrust laws by conspiring to impose a first checked bag fee.

Plaintiffs seek to represent a class of plaintiffs defined as follows:

All persons or entities in the United States and its territories that directly paid Delta and/or AirTran one or more first bag fees on domestic flights from December 5, 2008 through the present (and continuing until the effects of Delta’s and AirTran’s anticompetitive conspiracy ceases).

A summary of Plaintiffs’ factual allegations is available in Plaintiffs’ Memorandum of Law in Support of Class Certification at pages 6 to 16, linked below. Other documents now available for review are identified and can be linked below, including several court filings, several internal Delta and AirTran e-mails, and internal analyses prepared by Delta regarding the first bag fee.

Consolidated Amended Complaint
Plaintiffs’ Opposition to Defendants’ Motions to Dismiss (redacted)
Court Order Partially Denying Motion to Dismiss
Plaintiffs’ Memorandum of Law in Support of Class Certification (“Class Cert Brief”)

Ex. 2 to Pl.’s Class Cert Brief, Delta Antitrust Compliance Manual
Ex. 3, May 2008 e-mail from Delta CEO R. Anderson
Ex. 4, Deposition Transcript Excerpts of Ed Bastian
Ex. 5, July 31, 2008 internal AirTran e-mail exchange
Ex. 6, July 31, 2008 internal AirTran e-mail exchange
Ex. 7, July 31, 2008 e-mail from S. Fasano to A. Burman
Ex. 8, May 22, 2008 e-mail from A. Burman
Ex. 9, Aug. 5, 2008 e-mail from S. Fasano
Ex. 10, Aug. 8, 2008 e-mail from R. Fornaro
Ex. 11, July 20, 2008 e-mail from S. Fasano
Ex. 12, July 18, 2008 e-mail to J. Graham-Weaver
Ex. 13, July 31, 2008 internal AirTran e-mail exchange
Ex. 14, July 31, 2008 e-mail from T. Hutcheson
Ex. 15, July 14, 2008 e-mail from J. Graham-Weaver
Ex. 16, Oct. 14, 2008 Delta “Value Proposition” powerpoint
Ex. 17, Oct. 16, 2008 Delta “Value Proposition” powerpoint
Ex. 18, Oct. 22, 2008 Delta “Value Proposition” powerpoint
Ex. 19, Oct. 24, 2008 Delta “Value Proposition” powerpoint
Ex. 20, Deposition Transcript Excerpts of E. Phillips
Ex. 21, Nov. 5, 2008 Delta Press Release
Ex. 22, July 16, 2008 Delta Earnings Call Transcript
Ex. 23, Oct. 2, 2008 e-mail from E. Phillips
Ex. 24, Nov. 6, 2008 Article re: Delta to start charging fee for checked luggage
Ex. 25, Nov. 11, 2008 e-mail from M. Klein
Ex. 26, Nov. 6, 2008 e-mail from M. Klein
Ex. 27, Deposition Transcript Excerpts of R. Fornaro
Ex. 28, Deposition Transcript Excerpts of K. Healy

5. Order Granting Motion to Lift Confidentiality Designations

California Grocery Chains’ Profit-Sharing Agreement During 2003 Strike Violated Antitrust Laws

2010-08-22T22:15:00.005-04:00

On August 17, the Ninth Circuit Court of Appeals held that a profit-sharing agreement between Vons, Albertson's, Ralphs, and Food 4 Less violated Section 1 of the Sherman Act as an unreasonable restraint of trade.

In 2003, defendant grocery chains were engaged in labor negotiations, and entered into a Mutual Strike Assistance Agreement that required them to share profits with each other in an effort to maintain each defendant's pre-labor dispute market share. The unions selectively picketed the grocery chains, and the stores responded by locking out their union employees and exchanging approximately $146 million under the profit-sharing agreement.

The State of California filed suit against the defendants, and moved for a summary judgment ruling that the profit sharing agreement violated § 1 of the Sherman Act. The trial court denied the motion, but the Ninth Circuit reversed. Using a "quick look" review, the Ninth Circuit determined that an observer with even a rudimentary understanding of economics could conclude that the agreement would have an anticompetitive effect on customers and markets that was not neutralized or outweighed by any procompetitive justifications:

Profit pooling or profit sharing arrangements eliminate incentives to compete for customers along every dimension: there is little purpose in attempting to attract another firm's customers by lowering prices, improving quality or taking any other measure if the profits earned from those new customers would be placed in a common pool in which the other firm is a participant, and the proceeds distributed in the same way no matter which participant in the profit pool generated the underlying sales, or if transfer payments are made between firms to achieve the same effect.

The Court rejected defendants' argument that the agreement was not anticompetitive because it was limited in duration and limited to only some of the supermarket chains in the relevant market, as such circumstances could only reduce the anticompetitive effects. The court also found that the purported pro-competitive benefit suggested by defendants – driving down compensation to workers – was not a cognizable procompetitive benefit under the Sherman Act.

California v. Safeway, Inc., __ F.3d __ (9th Cir. 2010).

Court Allows Plaintiffs to Carry On With Lawsuit Alleging Collusion on First Bag Fees

2010-08-02T22:38:00.010-04:00

The Federal District Court in Atlanta issued an order today denying a request by Delta Air Lines and AirTran Airways to dismiss a proposed class action lawsuit accusing the two airlines of conspiring to impose first checked baggage fees. The Court ruled that Plaintiffs’ allegations plausibly suggest a conspiracy between the airlines, and that the case should move forward.

Plaintiffs allege that Defendants colluded through communications with each other, for example, on quarterly earnings calls and in speeches and other communications at industry conferences. Beginning in April 2008, Defendants allegedly signaled to each other a willingness to collude in order to decrease capacity and increase prices to consumers without losing market share. Both airlines reduced capacity after April 2008, and in October 2008, AirTran allegedly invited Delta to collude to impose first checked bag fees.

Specifically, AirTran’s CEO stated on an investor conference call that AirTran had put the technological capability in place to implement the fee, that it was constrained from implementing the fee by competition with Delta, and that AirTran would likely follow suit if Delta enacted a first bag fee:

We have the programming in place to initiate a first bag fee. And at this point, we have elected not to do it, primarily because our largest competitor in Atlanta [i.e., Delta], where we have 60% of our flights, hasn't done it. . . . I think we prefer to be a follower in a situation rather than a leader right now.

Robert Fornaro, AirTran Investor Call (Oct. 23, 2008).

Delta, which monitors AirTran’s quarterly calls, announced just over a week later, on November 5, 2008, that it would begin charging passengers a $15 first bag fee, which Plaintiffs allege was an acceptance of AirTran’s invitation to collude. As promised in the conference call, AirTran followed Delta’s lead, and announced the following week that it would impose the same $15 fee, effective the same date as Delta’s fee.

Defendants sought to dismiss Plaintiffs’ complaint, arguing that Plaintiffs’ allegations were insufficient to plausibly demonstrate the existence of an agreement to restrain trade. Defendants argued that Plaintiffs were required to demonstrate the existence of an “actual, manifest agreement,” and argued that Plaintiffs were required to prove that “the defendants got together and exchanged assurances of common action or otherwise adopted a common plan.”

The Court rejected Defendants’ argument, pointing out that “it is only in rare cases that a plaintiff can establish the existence of a conspiracy by showing an explicit agreement; most conspiracies are inferred from the behavior of the alleged conspirators. . . . [C]ollusive communications can be based upon circumstantial evidence and can occur in speeches at industry conferences, announcements of future prices, statements on earnings calls, and in other public ways.” “Courts have also found that unlawful conspiracies may be inferred when collusive communications among competitors precede changed/responsive business practices, such as new pricing practices.”

The Court recognized that Plaintiffs Complaint “is not lacking in detail,” and alleges collusive communications, alignment of business practices following those communications, and implementation of business practices that would be contrary to independent self-interest after those communications. In light of the foregoing, the Court found that “it would be both improper and imprudent to dismiss a case of this magnitude, where the interests of consumers are at stake, on the mere hunch that [Delta and AirTran’s] defenses . . . may prove valid.”

In concluding that the case should proceed, the Court found that it was “noteworthy” that “Defendants’ conduct is currently being investigated by the Antitrust Division of the United States Department of Justice.”

In light of the Court’s ruling, Plaintiffs will proceed on their claims that Defendants conspired to restrain trade in violation of Section 1 of the Sherman Act, and will seek damages equal to three times the amount of first bag fees that have been charged by Delta and AirTran after they were first imposed in December 2008.

The Court granted dismissal, however, of Plaintiffs’ claim that each defendant attempted to monopolize a relevant market by inviting the other to collude in violation of Section 2 of the Sherman Act. According to the Court, Plaintiffs relied on “a rather novel theory” of liability under Section 2, which was insufficiently supported by applicable law. Plaintiffs sought only injunctive relief for violation of Section 2.

The law firm of Kotchen & Low LLP filed the original lawsuit against Delta and AirTran in May 2009, and the court appointed Kotchen & Low LLP as primary interim co-lead class counsel on January 5, 2010. Trial is expected to take place next year. Anyone with information regarding the alleged conspiracy is encouraged to contact Kotchen & Low LLP at info@kotchen.com.

The case is captioned In re Delta/ AirTran Baggage Fee Antitrust Litigation, No. 1:09-md-2089-TCB (N.D. Ga.). The Court’s August 2, 2010 Order is available here, and a redacted copy of Plaintiffs’ brief opposing Defendants’ motion to dismiss is available here.

Related media coverage: Bloomberg; Reuters; AJC; CompLaw360.

Packaged Ice Class Action Survives Motion to Dismiss

2010-07-18T01:04:00.004-04:00

On July 1, a federal court denied defendants Reddy Ice and Arctic Glacier's motion to dismiss a direct purchaser class action antitrust lawsuit, allowing plaintiffs to proceed with the case alleging a nationwide conspiracy to allocate customers and territories.

Defendants Reddy Ice and Arctic Glacier had argued that the plaintiffs did not allege enough factual matter to plausibly suggest a nationwide conspiracy, as Arctic Glacier and Home City's criminal guilty pleas to customer allocation were limited to a small geographic area. The Court held that "Plaintiffs have offered sufficient factual content to 'raise a reasonable expectation that discovery will reveal evidence of illegal agreement,'" citing guilty pleas of several individuals, the pending government investigations, allegations made by former sales executive Martin McNulty and several other former employees, and the structure of the packaged ice industry,

With the resolution of the motion to dismiss, discovery should commence shortly. Discovery is likely to be limited, however, to written discovery and not depositions until the resolution of the ongoing criminal investigation of Reddy Ice.

Home City Ice previously entered into a settlement agreement with the class action plaintiffs, agreeing to pay $13.5 million.

Floorgraphics Appeals Denial of Motion to Reopen Case

2010-06-15T12:20:00.002-04:00

After the trial court denied its motion to reopen its case after a $29.5 million settlement, Floorgraphics has filed a notice of appeal, asking the Third Circuit to reverse the trial court's ruling, reports Bloomberg.

Congress Renews ACPERA, Requires Study of Antitrust Whistleblower Rewards Legislation

2010-06-01T23:24:00.003-04:00

Congress passed legislation last week extending the Antitrust Criminal Penalty Enhancement and Reform Act ("ACPERA") until June 2020, and requiring that the U.S. Government Accountability Office ("GAO") study the appropriateness of adding a whistleblower rewards provision and an anti-retaliation provision.

ACPERA, which was originally enacted in 2004, increased the maximum penalties for price-fixing, and enhanced a leniency program to encourage cooperation. ACPERA originally included a five year sunset provision. In 2009, Congress passed a one-year extension in order to consider possible amendments or revisions before a more permanent reauthorization.

My firm has advocated for an amendment to ACPERA that would provide rewards to antitrust whistleblowers similar to the highly successful False Claims Act. Corporate insiders are in the best position to provide useful information regarding cartel activity, but currently have strong disincentives to expose unlawful collusion. Whistleblowers consistently face retaliation by their employers and by others in the industry. In order to overcome such disincentives, substantial rewards should be offered to whistleblowers. Like the False Claims Act, an antitrust whistleblower rewards program could offer as an incentive a percentage of the government's recovery – i.e., the criminal fines recovered from any defendants who are found guilty. Such rewards would create a win-win situation, discouraging criminal activity, allowing the government to collect hundreds of millions of dollars in fines that would not otherwise be collected, and rewarding insiders for taking the risk of blowing the whistle.

During the last two years, my firm has published articles in favor of the legislation on this blog and in CompLaw 360, has met with individuals at antitrust enforcement agencies, at antitrust policy groups, and has met with individuals and groups on Capitol Hill.

Last week, Congress passed legislation that requires the GAO to conduct a study of the appropriateness of the addition of whistleblower rewards and whistleblower protection provisions to the antitrust leniency program, and to report its findings back to Congress within one year. I look forward to reading the report.

Floorgraphics Motion to Reopen Case Is Denied

2010-05-13T11:48:00.004-04:00

The Court denied Floorgraphics' request to reopen their case against News America Marketing under Fed. R. Civ. P. 60(b).

After learning about the strong evidence provided by News America to Valassis in discovery in the Valassis case – which led to a $500 million settlement, Floorgraphics sought to undo its $29.5 million settlement and reopen its case.

Federal Rule of Civil Procedure 60(b) provides that a court may reopen a final judgment if there is:

(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party; … or (6) any other reason that justifies relief.

Courts have held that relief under Rule 60(b) should only be granted where extraordinary justifying circumstances are present, in part because of the judicial system's interest in the finality of judgments. Given the standard, Floorgraphics' motion was an uphill battle from the start. While it appears that the discovery received by Floorgraphics was incomplete, it apparently was not an extraordinary enough shortfall to warrant undoing the judgment in the case.

The Court heard argument on Floorgraphics' motion yesterday, and rejected it.

Insignia's lawsuit against News America is still pending, and is scheduled for trial in December.