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Friday, July 28, 2006, 3:39 PM

Two New Cases Under Wisconsin Fair Dealership Law

The Wisconsin Fair Dealership Law (WFDL) according to its terms, "protects dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships." The statute applies only to dealership arrangements that create a "community of interest" between the dealer and the grantor. Although there are many factors which may be considered by the courts when deciding whether a "community of interest" exists, in Home Protective Services, Inc. v. ADT Security Services, Inc., 438 F.3d 716 (7th Cir. 2006), the Seventh Circuit condensed the analysis down to asking whether "the grantor has the alleged dealer 'over a barrel' - that is whether it has such great economic power over the dealer that the dealer will be unable to negotiate with the grantor or comparison-shop with other grantors." To read more about this decision see the May 26, 2006 posting: Seventh Circuit Rules on "Community of Interests" Under Wisconsin Fair Dealership Law.

Recently, more than one dealer filing a claim under the WFDL has had some difficulty proving that the grantor had them "over a barrel." In Bearing Distributors, Inc. v. Rockwell Automation, Inc., No. 1:06CV831, 2006 WL 1174379, slip op. (N.D. Ohio 2006), a federal judge in Cleveland held that no "community of interest" existed where purchases of automotive parts by the dealer, from the grantor, accounted for only 2.4% of the dealer's overall purchases. The dealer failed to prove any sunk costs caused by the relationship in the form of "financial investment in inventory, facilities, or good will." Based on these factors the court found no threat to the dealer's economic health existed as a result of the termination of the dealership agreement by the grantor. Absent a finding of "community of interest" the court found that no dealership arrangement existed which would give rise to a claim under the WFDL.

If a dealership relationship protected by the WFDL does exist, the grantor may not terminate or materially change the agreement without "good cause." What constitutes "good cause" was at issue in Brown Dog, Inc. v. Quizno's Franchise Co. LLC, No. 04-C-18-X, 2005 WL 3555425 (W.D. Wis. 2005), where a franchisee sued Quizno's after it unilaterally terminated the franchise agreement. Under the WFDL, "good cause" exists if a franchise has not substantially complied with "the essential and reasonable requirements" imposed by the franchisor. The court found that the franchisee's failure to meet six straight development quotas for opening new franchises was sufficient to give Quizno's "good cause" to terminate the franchise agreement. The WFDL requires that the franchisee be in non-compliance for 90 days followed by 60 days notice of the grantor's intent before the grantor may end the relationship. The court essentially interpreted the WFDL as providing a five month safeharbor for non-compliance, after which, non-compliance of "an extent and nature that there has been no practical fulfillment of the terms of the agreement" constituted "good cause" to terminate the agreement. The court also determined that it was not unlawfully discriminatory for the franchisor to evaluate each franchisee's situation differently when deciding whether to terminate the relationship.

These recent decisions are favorable to grantors of dealership rights by requiring dealers to prove that the grantor has them over a barrel, and allowing grantors to terminate those relationships which are unproductive for the grantor. Where the dealer has been unable to substantially comply with the terms of the agreement for more than five months, with proper notice, the WFDL will not prevent the grantor from ending the relationship.

Settlement of Franchise and Antitrust Suit Against Oil Company

Consumers aren't the only ones complaining about high gas prices. Recently, ExxonMobil settled a lawsuit brought by over a dozen Michigan Exxon franchise owners alleging that Exxon was forcing franchisees to pay unfair prices for Exxon brand gasoline in an attempt to put them out of business. The independent franchise owners alleged that Exxon planned to replace their gas stations with corporate gas stations owned by Exxon. The complaint filed by the franchise owners asserted violations of franchise and antitrust laws and sought recession of the franchise contracts in addition to damages. The amount and terms of the settlement were undisclosed, but reports indicate that some franchise owners could have received over one million dollars, while Exxon entered into a separate agreement to pay attorney fees.

Tuesday, July 11, 2006, 12:00 PM

New Online Gambling Laws From The State Of Washington and Washington, DC

A law outlawing online gambling that critics say impinges upon free speech was passed in the state of Washington on June 7, 2006.

The new law, which was passed by an overwhelming majority in the legislature, says that anyone who "knowingly transmits or receives gambling information" through the Internet is guilty of a class C felony, which is punishable by up to five years in prison and a $10,000 fine.

The State of Washington Gambling Commission's website notes that enforcement of the law will focus on "higher level Internet gambling activities, such as gambling sites and service providers." However, the Commission cautions that although "there will not be an active campaign against regular players," such players run the risk of a felony conviction. The Commission plans to send the players a warning letter if their names appear once in an operator’s seized records. If a player’s name reappears, charges may be filed.

Some free speech proponents have criticized the law for being too broad becasue it might apply not only to gambling websites, but also to websites that provide links to gambling websites or write about gambling in a promotional manner. As one editorial in the Seattle Times pointed out, "the state's gone from trying to control gambling . . . to trying to control people speaking about gambling."

Others argue that the law is valid because linking to a gambling site can be interpreted as a form of advertising. David Skover, a professor of constitutional law at Seattle University, noted in the Seattle Post-Intelligencer that, "[t]here is neither federal nor state constitutional protection for advertising an illegal activity."

Rick Day, executive director of the Washington State Gambling Commission, stated that "telling people how to gamble online, where to do it, giving a link to it – that’s all obviously enabling something that’s illegal." He claims that publishing such information can be considered aiding and abetting. Separately, he was quoted in the Bellingham Herald as saying that "[a]ny party involved . . . could be guilty of a violation of state law." The scope of the Washington statute, however, is far from clear.

Additionally, the US House of Representatives passed a bill that purports to ban online gambling by amending the Wire Act. The bill would also make it illegal for financial institutions or intermediaries to process payments to offshore casinos through bettors' electronic funds, checks, debits and other e-transactions. It is unclear whether the Senate will address this legislation before the November elections. For more information, read this NY Times article.

Thursday, July 06, 2006, 7:39 AM

Supreme Court Antitrust Activity

Certiorari Denied in Schering

The Supreme Court denied certiorari on June 26, 2006 in FTC v. Schering-Plough Corporation, 402 F.3d 1056 (11th Cir. 2005) (see case summary and holding here). The FTC had asked the Court to review the Eleventh Circuit's decision that reverse payments in a pharmaceutical patent settlement agreement did not constitute a violation of antitrust laws. As noted previously in this blog, the case has been an interesting one to follow because it involves a hot issue in antitrust law and has pitted one agency of the federal government against another.

In response to the Supreme Court's refusal to review the Schering appeal, four members of the Senate Judiciary Committee introduced legislation aimed at outlawing the practice of brand name pharmaceutical companies paying generic drug competitors to stay off of the market. Senators Charles E. Schumer (D-NY), Charles E. Grassley (R-IA), Herb Kohl (D-WI), and Patrick J. Leahy (D-VT) are sponsoring the legislation.

Although it refused to review the 11th Circuit's Schering decision, the Supreme Court has displayed its willingness to address economic issues by granting certiorari in two other antitrust cases.

Motions to Dismiss Antitrust Claims

Bell Atlantic v. Twombly, 425 F.3d 99 (2d Cir. 2005), which will be heard in the Supreme Court's next term, has gained attention because it could set the standard for motions to dismiss antitrust claims filed under Section 1 of the Sherman Act. The country's largest telephone companies have been accused of carving up local markets to preserve their monopolies. Instead of offering direct evidence of a conspiracy, the complaint alleges that the telephone companies engaged in "parallel conduct" by not moving into each other's service areas. The Second Circuit determined that the case is sufficient to proceed to discovery. Consequently, the telephone companies, supported by a host of briefs written by influential business interests, asked the Supreme Court to dismiss the case for lack of evidence.

The significance of the case revolves around how much evidence is necessary to overcome a motion to dismiss an antitrust claim for lack of evidence. Discovery is often a costly process in which defendants can be compelled to turn over large amounts of records. The telephone companies and other business interests believe that the Second Circuit has set the standard so low for what is needed to proceed to discovery that plaintiffs inevitably will be encouraged to file frivolous claims with the purpose of inducing settlements.

Predatory Bidding?

The second antitrust case the Supreme Court has agreed to review, Weyerhaeuser v. Ross-Simmons Hardware Lumber, 411 F.3d 1030 (9th Cir. 2005), concerns "predatory bidding." Predatory bidding occurs when a company buys raw goods at inflated prices with the intention of driving smaller competitors out of the market.

In Weyerhaeuser, the Ninth Circuit upheld a $78.8 million verdict for the plaintiff after the plaintiff alleged that Weyerhaeuser Corp., a leading hardwood manufacturer, paid an excessively high price for red alder logs and ordered more of the logs than was necessary to meet its business needs. A federal jury subsequently found that Weyerhaeuser monopolized the market for the logs through its purchases and violated Section 2 of the Sherman Act. The Bush Administration has filed a brief asking the Supreme Court to reverse the decision, arguing that it "threatens to chill pro-competitive conduct by companies that bid aggressively in order to ensure access to inputs or to increase their output."
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