Senate Judiciary Committee Reports Bill to Improve Competition in the Oil Industry

On April 27, the Senate Judiciary Committee unanimously reported a bill designed to improve competition in the oil industry and to strengthen antitrust enforcement of industry mergers. The Oil and Gas Industry Antitrust Act of 2006 [S. 2557] is an attempt to temper the escalating price of gasoline, petroleum products, and natural gas. The bill would allow the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to bring antitrust suits against oil producing and exporting countries.

Committee Chairman Arlen Specter [R-PA] introduced the measure, which has bipartisan support among its sponsors. The bill has the following provisions:

Amendment to the Clayton Act

The bill amends the Clayton Act to make it "unlawful for any person to refuse to sell, or to export or divert, existing supplies of petroleum, gasoline, or other fuel derived from petroleum, or natural gas with the primary intention of increasing prices or creating a shortage in a geographic market" [S. 2557].

In order to determine if a person has acted with the requisite intent to create a shortage, the bill instructs courts to consider whether:

1) the cost of acquiring, producing, refining, processing, marketing, selling, or otherwise making such products has increased; and
2) the price obtained from exporting or diverting existing supplies is greater than the price obtained where the existing supplies are located or intended to be shipped [S. 2557].

Studies

The bill instructs the Comptroller General, Attorney General, and Chairman of the FTC to perform industry-specific studies. First, the General Accounting Office (GAO) must study the effectiveness of divestitures required under certain prior oil and gas industry consent decrees to which the FTC or the DOJ was a party in the past 10 years. The GAO will report its findings to Congress, the FTC, and the DOJ.

Following the GAO's report, the Attorney General and the FTC Chairman must conduct studies on whether Section 7 of the Clayton Act, which prohibits certain mergers or acquisitions, should be amended "to modify how that section applies to persons engaged in the business of exploring for, producing, refining, or otherwise processing, storing, marketing, selling, or otherwise making available petroleum, gasoline or other fuels from petroleum, or natural gas" [S. 2557].

Joint Task Force

The bill directs the Attorney General and the FTC Chairman to establish a joint federal-state task force to investigate information sharing among persons in the oil and gas industry.

NOPEC & The Sherman Act

The bill also includes the No Oil Producing and Exporting Cartels Act of 2006 (NOPEC), which amends the Sherman Act to make it illegal for any foreign state or instrumentality to act collectively with any other foreign state or instrumentality to:

1) limit oil production or distribution;
2) set or maintain the price of oil; or
3) take any other action in restraint of trade for oil, natural gas, or any other petroleum product [S. 2557].

The Attorney General would have enforcement responsibilities of NOPEC. Additionally, NOPEC would remove both sovereign immunity and the act of state doctrine from the acts of OPEC and other nations.

Court Rules that FACTA Eliminated a Private Right of Action for Violations of the FCRA

A recent United States District Court opinion in the Northern District of Indiana reiterated the thus far unanimous view among courts that the 2003 Fair and Accurate Credit Transaction Act (FACTA) has eliminated the private right of action to enforce the disclosure provisions of section 1681m of the Fair Credit Reporting Act (FCRA). See Bruce v. Wells Fargo Bank, N.A., No. 2:05 CV 243 PS, 2006 WL 1195210 (N.D. Ind., 5/2/06). The outcome of the decision hinged on the court's interpretation of FACTA, which amended the FCRA in 2003. The court determined that the enforcement responsibilities of section 1681m now fall within the exclusive domain of federal agencies and officials.

As noted in the opinion, the FCRA imposes limits on a creditor's ability to access a consumer's credit report without the consumer's authorization. In order to access a credit report without the consumer's authorization, a creditor must extend a "firm offer of credit" to the consumer. The "firm offer" must contain certain "clear and conspicuous" statements, one of which is that "the consumer has the ability to prevent future use of his credit report for pre-screening purposes." Bruce, 2006 WL 1195210, at *1. See 15 U.S.C. section 1681m(d)(1) (listing "clear and conspicuous statement" disclosure requirements).

While section 1681n creates a private right of action for willful violations of the FCRA, the Bruce court held that FACTA eliminated the private right of action by adding a new subsection, section 1681m(h)(8), entitled "Enforcement." The subsection has two components. First, it says that section 1681n does not apply to any person who fails to comply with "this section." Second, it says that "this section" is to be enforced under section 1681s by "the Federal agencies and officials identified in that section." Therefore, the issue addressed in Bruce is whether the phrase "this section" in the new subsection applies to section 1681m as a whole or only a particular portion of section 1681m.

The case arose after the plaintiff in Bruce issued a complaint alleging that Wells Fargo targeted certain consumers through a mailing with offers to refinance their mortgages after it had prescreened the consumers to determine if they fit within a certain credit rating. The plaintiff alleged that Wells Fargo violated section 1681m because the company's mailing failed to disclose certain rights of the plaintiff in a "clear and conspicuous" manner. Consequently, the plaintiff sought statutory relief, claiming that Wells Fargo willfully violated section 1681m. However, Wells Fargo moved to dismiss the complaint under Rule 12(b)(6) on the premise that no private right of action exists under section 1681m as a result of the enactment of FACTA.

In siding with Wells Fargo that FACTA applies to section 1681m as a whole, the court relied primarily on what it considered to be the "plain and unambiguous language" of the statute. It noted that "Congress, for better or worse, has taken the enforcement of the statute away from private attorneys general and instead has tasked federal agencies to enforce section 1681m." The court concluded that "any private right of action for a violation of section 1681m has been eliminated."

Supreme Court Won't Review Decision That Deceptive Trade Practices Claim Against Cigarette Manufacturer Was Removable To Federal Court

On May 22, 2006, the Supreme Court declined to review an Eighth Circuit decision that allowed a cigarette manufacturer to remove a deceptive practices suit to federal court based on a finding that the cigarette manufacturer was "acting under" the control of the FTC when it advertised that certain cigarettes were "lights" and "lowered tar and nicotine." See Watson v. Philip Morris. The plaintiffs brought suit in state court under the Arkansas Deceptive Trade Practices Act claiming that Philip Morris's Marlboro Lights cigarettes deliver more tar and nicotine than its use of the labels "lights" and "lowered tar and nicotine" suggests. Philip Morris's label is based on the Cambridge Filter Method of testing as required by the FTC. Philip Morris removed the case to federal court claiming that it was acting under the control of the FTC. Section 1442(a)(1) of Title 28 permits removal by "any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office." The district court determined that Philip Morris was entitled to federal officer removal and the Eighth Circuit affirmed. In the petition for certiorari, the plaintiff posed the question: whether a private actor doing no more than complying with a federal regulation is a "person acting under a federal officer" for purposes of 28 U.C.S. 1442(a)(1) and is entitled to remove to federal court a civil suit brought in state court under state law"? The Court denied the petition for certiorari.

FTC Files Supplemental Brief In Support of Cert in Schering-Plough

As mentioned before in this blog, the Supreme Court will soon decide whether to grant cert. in FTC v. Schering-Plough Corporation, a case involving so-called "reverse payments" from a branded pharmaceutical manufacturer to a generic to delay entry. The FTC claimed such practices are anticompetitive, the Eleventh Circuit disagreed, and the FTC is seeking review by the Supreme Court. In response to a request by the Supreme Court, the Solicitor General filed a brief on behalf of the United States recommending that the Court deny cert. because this was not the best case to address this sticky issue (I'm paraphrasing here). Now, the FTC has filed a supplemental brief in favor of granting cert. and responding to the Solicitor General's brief. It is very interesting to see two federal agencies take opposing positions on this issue. Here is a juicy quote from the FTC's supplemental brief:

"Despite the acknowledged importance of the legal issue presented by the petition, the United States asks that the Court await a hypothetically more suitable vehicle for review. The reasons it advances, however, fail to refute the Commission's showing that plenary review is both appropriate and much needed.... [T]he United States fails to appreciate the extent to which the ruling below will place pharmaceutical patent settlements beyond antitrust scrutiny, or the fundamental inconsistency between such a rule of law and the policies of Congress, as set forth in the Hatch-Waxman Act. The United States also overstates the difficulty this Court would have in reversing a court of appeals ruling that wholly disregards the proper standard of review of administrative factfinding.

More importantly, however, the United States does not address the urgent practical reasons why immediate review is needed. As the Commission and several amici have explained, the economic impact of the ruling below on consumers of prescription drugs -- including the States -- is staggering.... Indeed, billions of dollars in added prescription drug costs annually are at stake.... The decision has 'opened a Pandora's box' of anticompetitive settlements between brands and generic competitors.... Harm is very likely ongoing each day that the decision below prevails."

This case raises many interesting conflicts, including:

(1) Conflict between different agencies of the federal government.
(2) Conflict between the lower court decision and congressional intent.
(3) Conflict between the lower court decision and federal agency factfinding.
(4) Conflict between businesses and consumers (which include state governments).
(5) Conflict between the courts of appeal.
(6) Conflict between antitrust law and patent settlements.

To read a previous post on the Solicitor General's brief, click here.

To read a previous post on a speech by a FTC Commissioner on this topic, click here.

A copy of the FTC's supplemental brief is archived at the Antitrust Review.

Keep reading for more updates on the Schering-Plough saga.

FTC Extends Comment Period For Business Opportunity Rule

On June 1, 2006, the FTC announced that it was extending the period to submit comments in response to the Notice of Proposed Rulemaking in connection with the Business Opportunity Rule. The previous deadline was June 16, 2006. The new deadline is July 17, 2006 and rebuttal comments must be submitted by August 7, 2006.

The proposed Business Opportunity Rule, if promulgated, may require many manufacturers, suppliers, and distributors to comply with certain pre-sale disclosure requirements even if those companies were previously exempt from the FTC's Franchise Rule. As explained in my previous post and recent Womble Carlyle Client Alert, the proposed Rule broadly defines "business opportunity" to include any commercial arrangement in which:

(1) the seller solicits a prospective purchaser to enter into a new business;
(2) the prospective purchaser makes payments or provides other consideration to the seller, directly or indirectly; and
(3) the seller, expressly or by implication makes an earnings claim or provides business assistance.

The definition of entering into a "new business" and providing "business assistance" are similarly broad and may cover ordinary distributorship and dealership arrangements. Unlike the Franchise Rule, there is no minimum purchase requirement and no exception for purchases of reasonable amounts of inventory at bona fide wholesale prices for resale. In short, the scope of coverage of the proposed Business Opportunity Rule is much broader than that of the Franchise Rule. Many manufacturers, suppliers, and distributors who were exempt from the Franchise Rule will have to comply with the more limited disclosure requirements of the Business Opportunity Rule if promulgated.

To download a copy of the proposed Business Opportunity Rule, click here.

To read my previous post about this rule, click here.

To read a client alert about the broad scope and requirements of the proposed Business Opportunity Rule, click here.

North Carolina General Assembly Passes Bill To Phase-Out Video Poker Machines

On June 6, 2006, the North Carolina General Assembly ratified a bill that would lead to the eventual ban of video poker machines in North Carolina. Instead of enacting a complete ban on video poker, the Senate approved a compromise bill proposed by House Speaker Jim Black which phases-out video poker machines in North Carolina over the next year. The bill was presented to the Governor, who is expected to sign it. (UPDATE 6/12/06 -- The Governor has signed the Video Poker Legislation as approved by the Senate).

The phase-out period is as follows: (1) On October 1, 2006, it will be unlawful to operate more than two existing video gaming machines; (2) On March 1, 2007, it will be unlawful to operate more than one existing video gaming machine; (3) on July 1, 2007, it will be unlawful to operate any video gaming machine. There are exceptions for video gaming machines operated in accordance with a Class III Tribal State Compact. This exception is intended to allow the Eastern Band of Cherokee Indians to keep video gambling machines at their casino. Speaker Black says the exception for tribal gaming could lead to a lawsuit invalidating the ban. The last sentence of the bill reads: "If a final Order by a count of competent jurisdiction prohibits possession or operation of video gaming machines by a federally recognized Indian tribe because that activity is not allowed elsewhere in this State, this act is void."

Keep checking this blog for more updates on the phase-out. You can read more about the bill here and view the text of the bill here.

The "Over A Barrel" Case

The Seventh Circuit's decision in Home Protective Services, Inc. v. ADT Security Services, 483 F.3d 716 (7th Cir. 2006) will likely be known as the "over a barrel" case because of the court's statement that the Wisconsin Fair Dealership Law does not apply unless "the grantor has the alleged dealer 'over a barrel' -- that is, [the grantor] 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 case, see this previous post.

This case prompted me to explore the origin of the phrase "over a barrel." The Oxford English Dictionary reports that the first use was Raymond Chandler's The Big Sleep, published in 1939. The OED suggests the expression was an allusion to placing a person rescued from drowning over a barrel to clear their lungs of water. This origin, however, does not fit the current meaning of the phrase: to have someone in a helpless position. Others, however, claim that the true origin of the expression is from the practice of placing a person on or rolling them over a barrel as a humiliating punishment.

Regardless of the origin of the phrase, it will be interesting to see how courts apply the "over a barrel" test to future disputes involving the WFDL.

Supreme Court Issues Decision in eBay v. MercExchange

On May 15, 2006, the Supreme Court issued its opinion in eBay Inc. v. MercExchange, L. L. C., 547 U.S. (2006), in which it clarified the appropriate test courts should apply when determining whether injunctive relief is appropriate for a dispute arising under the Patent Act. Although this is not an antitrust case, the issue is important to antitrust lawyers because many antitrust cases arise out of patent disputes.

The Supreme Court rejected the Federal Circuit's application of a "general" rule that "courts will issue permanent injunctions against patent infringement absent exceptional circumstances." In so rejecting, the Supreme Court held that "according to well-established principles of equity, a plaintiff seeking permanent injunction must satisfy a four-factor test before a court may grant such relief." Under the four-factor test, a plaintiff must show: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

The Supreme Court stated that the equity principles of the four-factor test "apply with equal force to disputes arising under the Patent Act." In making this determination, the Supreme Court referenced the language in the Patent Act, which "expressly provides that injunctions 'may' issue in accordance with the principles of equity." Additionally, the Supreme Court noted that their approach to patents is similar to their approach to copyrights, since holders of both possess the right to exclude others from using their property.

In his concurring opinion, Chief Justice Roberts examined the history of injunctive relief in patent cases, noting that there is a "long tradition of equity practice." He agreed that a significant departure from this practice "should not be lightly implied."

Justice Kennedy also wrote a concurring opinion, examining the future of injunctive relief in patent cases. He advised trial courts to "bear in mind [that in current and future patent infringement cases] the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases." For instance, he noted that there is now an "industry" where firms use patents primarily to obtain licensing fees. Thus, such firms could use the prospect of violating an injunction as a "bargaining tool to charge exorbitant fees" to potential licensees. Justice Kennedy also indicated that business method patents, like the one at issue in the present case, may be of particular concern, as the "potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test."

This decision will help companies fight lawsuits filed by so-called "patent trolls" -- companies that own a portfolio of patents for the primary purpose of suing other companies in the hopes of forcing a lucrative settlement. MSN reports:

"This decision is a clear victory for innovation and for consumers and a defeat for patent trolls and others who are abusing the legal system," said Robert Holleyman, president of the Business Software Alliance, whose members include Microsoft, Intel and other large computer software and hardware companies. "By giving courts greater latitude on whether or not to issue an injunction, we are making progress towards restoring much-needed balance to the out-of-control patent litigation process."