Hunton Retail Law Resource

As reported in the Hunton Employment and Labor Law Blog, on March 1, 2016, the Securities and Exchange Commission (“SEC”) settled administrative charges against a popular telecommunications equipment supplier, Qualcomm Incorporated, under the Foreign Corrupt Practices Act (“FCPA”). According to the SEC, in addition to unlawfully providing meals, gifts and entertainment to foreign officials in an effort to win new business, Qualcomm also offered full-time employment and paid internships to family members and friends of foreign government officials in an effort to curry favor. In some cases, it appears these friends and family members would not have otherwise qualified for employment at Qualcomm and special accommodations were made to hire them. To settle the case, Qualcomm agreed to cease and desist from future violations, paid a $7.5 million civil monetary penalty and agreed to other heightened compliance measures.

There is general consensus that 3D printing has potentially revolutionary implications for industry and, along with it, for the law. Its consequences for consumers injured by 3D-printed products are potentially just as far-reaching.

Consider this fact pattern: A plumbing parts manufacturer makes CAD files available to plumbing stores so that they may 3D print replacement parts on demand and on-site in response to customer requests. A plumbing store sells such a 3D-printed part to a customer, but the part malfunctions, causing significant damage to the customer’s home.

For the past several years, the industry and the plaintiffs’ bar have been litigating over what is “natural” and what is not when it comes to food products. This issue hit home with retailers with news of multimillion dollar settlements resolving claims concerning use of the term “natural” on food product labels. The issue certainly became blurred when it came to modern processing methods and advances in biotechnology, particularly with respect to ingredients like high fructose corn syrup or genetically modified fruits and vegetables. Late last year, however, in response to four consumer petitions, the U.S. Food and Drug Administration (“FDA”) requested public comments concerning the use of the term “natural” on food labels. Whether and how the FDA ultimately defines the term “natural” will surely impact cases in the long-run. But the FDA’s decision to request comment has more immediate effects. It arms defendants with potential means to bring pending litigation to an immediate halt.

This past week, the following consumer protection actions in federal courts and agencies made headlines:

The Ninth Circuit

The Ninth Circuit was busy addressing consumer protection issues this week. Two proposed class actions brought against Apple, Inc. were decided in favor of the company. In the first action, Hodges v. Apple, Inc., a three-judge panel affirmed a lower court’s dismissal of a putative class action alleging deceptive practices in the advertising and sale of Apple’s MacBook Pro with retina display computers. The plaintiff was dissatisfied with the quality of his retina display screen, but the Ninth Circuit agreed with the lower court that Apple had not misled consumers about the retina displays in its advertising. In the second case, a three-judge panel again upheld a dismissal of a proposed class action against Apple that accused the company of misrepresenting the speech capabilities of its iPhone 4S product. The majority of the appeals court agreed with the lower court’s assessment that the allegations about the capabilities of the Siri speech recognition software were too broad, and did not meet the pleading requirements under the Federal Rules of Civil Procedure.

Finally, a three-judge panel revived a class action that had previously been dismissed by a district judge against Hain Celestial’s Alba Botanica skincare line. Plaintiffs claimed that marketing the products as “natural” misled consumers into buying products that contained synthetic substances at a higher cost.

The National Advertising Division (“NAD”) was busy this past week. The organization recommended that several companies modify or discontinue claims made for the following consumer products:

Disinfecting Wipes

After a challenge by The Clorox Company, NAD recommended that Reckitt Benckiser, Inc., discontinue certain claims made in both print and television ads for Lysol Disinfecting Wipes and Spray products. The claims included statements declaring that Lysol “helps fight the flu before it starts” and kills “45% more types of germs” as compared to other wipes. NAD concluded that these claims were not supported by evidence in the record, and Reckitt Benckiser announced that it plans to appeal NAD’s findings to the National Advertising Review Board. Clorox has been active recently in challenging competitors’ claims–just a few weeks ago, in a challenge brought by Clorox, the NAD recommended that the maker of OxiClean White Revive non-chlorine bleach modify its television ad campaigns.

This week, the 10th Circuit Court of Appeals upheld a 2010 Colorado law (Colo. Rev. Stat. §39-21-112.3.5) requiring out-of-state retailers that do not collect sales tax from Colorado consumers to report transactions to state taxing authorities, in an effort to boost state “use tax” compliance. The Colorado statute requires out-of-state retailers to (1) remind consumers with each transaction that their purchase may be subject to state “use tax” laws; (2) deliver an “annual purchase summary” to any customers with transactions totaling greater than $500 in any year; and (3) annually report the transaction information to state taxing authorities. There is an exception for "retailers who made less than $100,000 in total gross sales in Colorado in the previous calendar year, and who reasonably expect gross sales in the current calendar year to be less than $100,000."

The recent change in U.S. policy towards Cuba and a “thawing of relations” between the two countries has generated increased interest among U.S. companies in the potential for business in Cuba. Despite this increased interest, companies should proceed cautiously, as recent international investments in Cuba, often in the form of joint ventures, have yielded mixed results and experiences. British-Dutch multinational consumer goods company Unilever plc, for example, formed a 50/50 international economic association with state-owned enterprise Suchel in 1994, but subsequently left the Cuban market in 2012 due to government intrusion and labor issues.

This past week, the following regulatory and consumer protection actions made headlines:

Outlet Retailers Sued over Allegedly Deceptive Pricing Practices

Class action lawsuits against several retailers, including Burberry and Dooney & Bourke, allege that outlet discount prices tags that compare the outlet price with purported retail prices deceive consumers into believing they are getting a bargain when, in fact, they are not. Reference pricing rules (e.g., the FTC’s Guides on Deceptive Pricing) prohibit sellers from offering fictitious bargains. In these cases, the plaintiffs allege that the retailers’ practice of offering for sale made-for-outlet goods that never were sold at the referenced price is deceptive.

As we previously reported in Looking Back: Retail Antitrust Enforcement in 2015, last year was a booming year for consumer products mergers (and the antitrust review of those mergers). With a robust market and incentives strongly in favor of further acquisitions, we expect the trend to continue in 2016.

2015 was a record year for mergers and acquisitions activity, with over $4.7 trillion in transactions announced. This record volume has kept U.S. antitrust authorities fully engaged.

Federal antitrust agencies reviewing more M&A transactions. Increased M&A activity in 2015 kept U.S. antitrust agencies busy. The number of transactions reported under the Hart-Scott-Rodino Act increased by 25 percent from FY2013 to FY2014, and the upward trend appeared to continue, although official statistics are not yet available.

The antitrust cops are on the beat. Implementing their “litigation readiness” focus, the U.S. antitrust agencies brought many merger challenges in 2015. Combined, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) sued to block over 25 mergers, including Staples/Office Depot, Sysco/US Foods, Electrolux/General Electric appliances business, Dollar Tree/Family Dollar and more.