• Diluted Beer? Anheuser-Busch Denies the Claim

                              

    Customers of Anheuser-Busch  from three different states have filed a class action lawsuit against the beer maker alleging that it is watering down and mislabeling its various brands including Budweiser, Michelob, Hurricane High Gravity Lager, King Cobra, and more. A class action is a lawsuit begun by several plaintiffs on behalf of a much larger group, all of whom have a common legal claim. The lawsuits, filed in New Jersey, Pennsylvania and California, claim that the brewer listed on its labels a higher alcohol content than actually exists. As a result, plaintiffs claim the beer they received was worth less than the money they paid. They now seek compensation for the overpayment.    

    Reportedly several former Anheuser-Busch employees are cooperating with the plaintiffs, claiming that the brewing company added excess water just before bottling, reducing the alcohol content.  The alleged motivation is cost reduction.    

     Anheiser-Busch called the lawsuit “groundless” and claimed it is in full compliance with all alcohol labeling laws. Said the company’s vice-president, “We proudly adhere to the highest standards in brewing [and labeling] our beers, . . . “.

     A genre of laws,known as Truth-in-Menu, require accuracy when describing a food or drink product.  The term is a generic one that incorporates numerous laws and regulations.  The purpose of these regulations is to ensure that food and drink descriptions are truthful. 

     Media articles covering this lawsuit do not state the grounds on which the plaintiffs are pursuing their case.  It might be fraud, which is the tort of intentional misrepresentation of a material (important) fact on which a buyer relies and suffers a loss.  Another possibility is a prohibition adopted in most states against unfair business practices.  While the term is somewhat vague, it has been interpreted to include various fraudulent, deceptive or legally unjust conduct perpetrated by businesses.  

    Another possible basis for the lawsuit is breach of contract, meaning failing to perform a contractual obligation.  Plaintiff’s argument would be that plaintiffs agreed to pay a certain amount of money for beer that contained the alcohol level advertised on the product’s label, and the brewing company fell short.  Another ground to sue would be breach of an express warranty  which is an oral or written guarantee that the product meets a certain description.  In this case the unmet description would be the percentage of alcohol in the beer.

    This case is reminiscent of the foot long subway sandwich that fell short of  12 inches (see earlier post from January 19, 2013).

    For more information, click here. 

    DISCUSSION QUESTION:

    What evidence might Anheuser-Bush present to avoid liability?

  • IKEA Finds Horse Meat in Its Swedish Meatballs

    IKEA became the latest company to learn that one of its meat products contained horse meat. The company's Swedish meatballs were tested in the Czech Republic, and officials found traces of horse meat. IKEA withdrew its Swedish meatballs from 14 European countries. Over the past few months, Nestle and other large European food producers have learned that some suppliers have been have been selling them meat products that are not made entirely of beef. Horse meat costs about one-fourth of the cost of beef. IKEA pulled the meatballs from its stores and in-store cafeterias. Food sales account for about 5% of IKEA's total store revenues. Anna Molin and John D. Stoll, "Horse-Meat Scandal Claims IKEA's Swedish Meatball," Wall Street Journal, February 26, 2013, p. B1.

    There are several legal issues involved in the IKEA situation. Viewing it from the perspective of U.S. law, the situation is an ideal one for understanding liability up and down the food chain. The first legal issues will arise between IKEA and its suppliers. As one Irish legal expert noted, it would be fraud to knowingly sell IKEA beef products that were not 100% beef. In addition, the Uniform Commercial Code would apply if the suppliers described the products as "100% beef." Such a statement would be an express warranty because it was a statement of fact about the product. Also under the UCC there would be the protection of the implied warranty of merchantability, a warranty that all merchants give (absent disclaimer) that provides the goods are of "merchantable" pr average quality. Beef that is of average quality is indeed free of horse meat. IKEA would have a right of recovery from its suppliers for breach of contract (if fraud was involved) or breach of warranty (on the basis of express or implied warranties).

    The secondary set of legal issues would involves the secondary sale of the meatballs to IKEA customers. IKEA sells the meatballs frozen for customers to cook at home and also sells the meatballs prepared for in-store eating at their store cafeterias. The warranty of merchantability applies to both sales of food for home preparation and food purchased for eating at a restaurant or cafeteria. Foreign items in foods, such as insects, snakes, rocks, and, well, horse meat, would be a breach of the warranty of merchantability for either the eat-in-store meatballs or the home-preparation meatballs. In addition, product liability (Section 402A of the Restatement of Torts) would also apply because the goods (the meatballs) would be in a defective condition that makes them unreasonably dangerous. There is no indication that IKEA was aware of the problems with the meat of its suppliers, so neither negligence nor fraud claims would be possible. However, there have been a significant number of discoveries by other companies of the presence of horse meat in other companies' products. IKEA and other companies have stepped up their DNA testing to determine whether their products are affected. IKEA tested the meatballs two weeks ago and found no traces of horse meat. Stephen Castle, "Ikea Withdraws Meatballs After Horse Meat Is Found," New York Times, February 25, 2013, p. B1.

    Any illness customers experienced would be part of their damage claims under UCC warranty or product liability theories.

    Discussion Starters

    1. What are the legal theories for IKEA/vendor supplier recovery?

    2. What are the legal theories for IKEA customer recovery?

  • Salvador Dali Painting Stolen from Art Gallery; Role of Fingerprints in Solving Crimes

      

    Two cases involving a publicist for a French clothing company provide insights on the use of fingerprints in a criminal investigation to identify a suspect.  Phivos Lampros Istavioglou, 29, manages media relations for Moncler, which sells to such high-end department stores as Bloomingdales, Neiman-Marcus, and Saks Fifth Avenue.  He was arrested for an alleged heist of a Salvador Dali painting from a private gallery in New York City. The theft made national news due to the prominence of Salvador Dali, a Spanish surrealist painter who died in 1989.  Dali, who sported a curled moustache, was known for distorting the appearance of items he painted. See the sample of his work in the picture above. The stolen artwork is valued at $150,000. In an odd twist on the gallery theft, the bandit returned the painting in a cylinder via mail from Greece a week after it was taken. Not surprisingly, it did not contain a return address. 

    Istavioglou was arraigned, and bail has been set in the amount of $100,000. An arraignment is the first in-court proceeding following an arrest. At an arraignment the defendant is officially informed of the charges, a plea of not guilty is usually entered, the judge ensures the defendant has access to a lawyer, and bail, if any, is set.  Bail is a sum of money a defendant may be required to pay before being released from custody.  If the defendant fails to return to court, the bail money is forfeited.

    The publicist was arrested a year ago for allegedly stealing a steak from a grocery store in Manhattan. In New York, as in most states, a defendant who is arrested will be fingerprinted and photographed by police. If a defendant is found guilty of a charge, the fingerprints remain on file.  If he is found not guilty, they are returned to the defendant.

     The prints on file are retained in a registry, enabling police to search for a match whenever a crime scene yields fingerprints.   

    The police were able to lift fingerprints from the cylinder in which the Dali painting was returned to the gallery.  They were compared with prints in the registry and Voila! – they matched the publicist’s taken during the steak incident. 

    The case will proceed and will either be tried or a plea bargain will be offered and accepted.   Plea bargains are agreements between a prosecutor and a defense attorney in which the defendant is offered the opportunity to plead to a charge lower than the pending one.  Plea bargains are a necessary part of the criminal justice system because there are insufficient resources (judges, prosecutors, courtrooms, etc.) to enable every defendant to go to trial. As a general rule, lower level crimes are plea bargained so that sufficient resources exist to prosecute felonies, the more serious crimes. .Istavrioglou’s crime is a felony. Thus, there may not be a plea bargain in this case; the prosecutor will make that decision after studying the evidence. The prosecutor will also consider that the crime was not a violent one; no one was hurt or injured. Additional factors that will influence the decision include the strength of the case, and the wishes of the victim. 

    In a growing number of states defendants convicted of a crime must provide a DNA sample which also is kept in a registry of sorts, Like fingerprints, each person’s DNA is unique and can be used to identify the perpetrator of a crime. 

    For more information, click here.

  • Macy’s Sues Penney’s and Martha Stewart Over Contract Rights

               

    Contract language needs to be exact. Ambiguous terminology frequently results in litigation. This lesson is being learned anew by giants in the retail industry including Macy’s, J.C. Penney’s, and Martha Stewart. The two retail store chains are fighting over the right to sell Martha Stewart branded products.

     Macy’s thought it had achieved a major coup.  It signed a contract with the famed household goods diva, seemingly conferring an exclusive distribution deal. Yet Penney’s is about to launch a new housewares concept using products designed by Stewart and intending to use her as a key promotional tool.   

    Macy’s is crying foul and is claiming breach of contract and unfair competition.  It is suing both Penney’s and the homemaker icon to stop Penney’s from using Stewart’s name to promote household products, and to stop Stewart from designing products for Macy's competitor. Macy’s argues that it has invested a large sum of money in promoting Martha Stewart based on its contract, has taken risks, and endured a period of disappointing results, all in effort to grow the brand.  

     If the contract was as clear as Macy’s alleges, it is hard to imagine that Stewart would so blazonly breach it. Turns out the contract language is not as airtight as Macy’s would like.  The terms include an exception permitting Stewart to sell her products in Martha Stewart Living stores. Penney's new store design includes "mini-shops" throughout the store.  Each boutique area will sell only the products of one manufacturer or designer.  Stewart and Penney’s claim the mini-shops within Penney’s fall within the exception.  Not surprisingly, Macy’s takes issue with this interpretation.  Complicating the task of interpreting the contract is the fact that, until recently, Penney's had not disclosed the mini-shop concept.  Therefore, it was not envisioned by Macy’s when it drafted the Stewart Living Stores exception to Macy's exclusive right to sell.

    Stewart has asserted a counterclaim (a claim by a defendant against the plaintiff) against Macy’s, claiming the store breached the contract by failing to use “commercially reasonable efforts to maximize net sales of Martha Stewart Collection products.”  In other words, Stewart alleges that the contract required Macy’s to actively promote the Stewart brand and Macy’s failed to meet its obligations.  .

     All have much to lose in the lawsuit.  Martha Stewart Living has lost market share in its television and magazine arenas and would like to maximize sales by having a presence in both department stores.  Penney’s is trying to reinvent itself, in part with the mini-shop concept, and hopes to include the ever-popular Martha Stewart products in that effort.  Macy’s sees the potential for huge sales and does not want that business opportunity diluted by Penney’s.  Thus, the lines for the lawsuit are clearly drawn.

     In an earlier ruling, a court granted Macy’s a preliminary injunction preventing Stewart or Penney’s from marketing goods at Penney’s for which Macy’s has an exclusive right to sell.  However the judge granted Penney’s permission to open Martha Stewart shops provided the products sold are not those for which Macy’s has an exclusive.

    A preliminary injunction is a court order issued prior to trial and prevents a party from engaging in specified conduct.  The party seeking the injunction (in this case, Macy’s) must prove  likelihood of success at trial and irreparable harm if the injunction is not granted.   

    For further information, click here.

    DISCUSSION QUESTION:

    How might Macy's have avoided this problem?

  • Can Farmers Use Seed From Their Crops? Can Monsanto Patent a Pig?

    On February 19, 2013, the U.S. Supreme Court heard oral arguments in Monsanto Co. v. Bowman, an Indiana can that began when Vernon Bowman, an Indiana farmer, planted soybean seeds from a grain elevator that housed the seeds of other farmers.  Those other farmers had seeds in there that contained Monsanto technology.  Monsanto had genetically engineered the seed to be herbicide-resistant. However, Monsanto requires that its buyers only used seed purchased from Monsanto, and not use seed generated from the crops that results from Monsanto seed.  Monsanto filed suit against Mr. Bowman for patent infringement in federal district court.  Monsanto won a judgment of $84,000 for patent infringement. 686 F. Supp.2d 834 (Ind. 2009)  Mr. Bowman appealed to the Federal Court of Appeals, and the court affirmed the decision, 657 F.3d 1341 (Fed. Cir. 2011). Mr. Bowman then appealed to the U.S. Supreme Court.

    During oral argument, the justice wrestled with the question balancing protection for the development of new products and ideas with the question of whether the law should afford patent protection for genetic engineering. For example, Chief Justice John Roberts asked during oral argument, "Why in the world would anybody spend any money to try to improve seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?" However, Justice Elena Kagan was worried about controlling seed and then blaming farmers, "Seeds can be blown onto a farmer's farm by wind, and all of a sudden you have Roundup seeds there and the farmer is infringing." For more quotes from the oral argument, read Brent Kendall, "High Court Listens to Monsanto Case," Wall Street Journal, February 20, 2012, p. B3.

    The court will not issue a decision until June, but whatever the decision, there are significant implications for both farmers and seed production firms.  There are also implications, as the video indicates, for genetic engineering in animals.  Whether the decision will apply to genetically reproduced animals may be one left for another case. There is a case on human gene patents slated for argument on April 15, 2013. 

    One additional issue the Monsanto v. Bowman case will resolve in the contractual issue of whether a company can force a seed purchaser to only use the seed purchased from the company will be resolved as the patent issue is decided.

    Discussion Starters

    1. What is the court trying to balance as it decides what to do about patent rights in seeds?

    2.  What related issues will arise because of this decision?

  • "Zero Dark Thirty," Free Speech, and McCarthyism?

    The award-winning film, "Zero Dark Thirty" is under investigation.  Acting CIA director, Michael Morell, has been asked by the Senate Intelligence Committee to provide the Committee with "all information and documents" that the agency has provided to filmmakers as well as records that reflect meetings and discussions between employees of the agency and the filmmakers.  The reason for the request is the Committee's statement that it found the movie to be "grossly inaccurate."  The alleged inaccuracies center on whether information obtained through torture (water-boarding) was key in the killing of Osama bin Laden.  The Senate Intelligence Committee maintains that "Zero such information was not used in tracking down and killing bin Laden and believes that the film allows viewers to draw that conclusion from the way the story is presented. Alan Ziebel, "'Zero Dark Thirty' Writer Slams Probe," Wall Street Journal, January 28, 2013, p. B4.

    The request for information as part of a government investigation is an unusual one because of the extensive protections of the First Amendment.  Art, literature, and film have long enjoyed full First Amendment protection with the exception of obscenity constraints, limitations that are rarely applied to any films. An investigation into the content of a film is an activity that could have a chilling effect on speech. "Zero Dark Thirty" director, Kathryn Bigelow said that she was "spooked" by the investigation and canceled a late-night talk show appearance because of fear of retaliation.  An investigation of citizens who exercise their First Amendment rights through literature, art, or films is the type of government activity that the First Amendment was intended to prevent.

    The The Senate Intelligence Committee, the CIA, and other government employees and officials would be free to criticize the film for what they believe to be inaccuracies. For example, the acting CIA director could say, "There are inaccuracies in the film.  Information obtained through torture did not lead to te killing of bin Laden." For example, the film, "All the President's Men," was controversial because of how it presented the Watergate scandal of the Nixon presidency.  Many government officials were outspoken in their criticism of the film, but no one investigated how writers Bob Woodward and Carl Bernstein obtained their information for their book and the resulting film.

    However, the use of government powers, including the power of investigation, would cross into First Amendment territory.  Other examples of prohibited government investigations would be an IRS audit of an individual who is critical of the IRS, government tax policy, or political figures.  That protection would also extend to businesses and corporations who are involved in political discourse or are critical of proposed legislation.  In the McCarthy era, Hollywood figures were called before Congress to testify about their ties or sympathies to the Communist party.  In many cases, individuals called to testify were then blacklisted in the film industry -- studios would no longer hire them for work on films.  Such activities would be a government chilling of free speech. 

    Christopher Dodd, a former U.S. Senator who is now the president of the Motion Picture Association of America has objected to the investigation, “There could, in my view, be a chilling effect if, in the end of all this, you have a screenwriter or a director called before an investigating committee." Michael Cieply, "Hollywood Makes Case for 'Zero Dark Thirty.'"

    Discussion Starters

    1.  Explain the permissible government involvement with art, literature, and films and the writers and producers of such.

    2.  What could happen if the government were free to investigate those who express differing views and takes on issues, whether through statements or through art and films?

  • Apple Loses Trademark Rights to iPhone in Brazil

     

    Virtually everyone in the United States knows that an iPhone is a smart cell phone produced by Apple that can do endless, amazing tasks.  The company has registered the term iPhone as a trademark in this country.  A trademark gives its owner the exclusive right to use the term and prohibits others from doing so. As Apple has expanded sales of the phone around the world, it has sought to register the name in other countries.  Occasionally it confronts another company that registered the term before Apple, thus creating dilemmas for the giant consumer electronics company.  Most recently this happened in Brazil. 

    That country’s trademark laws parallel those of the United States, Just as we have a Trademark and Patent Office that oversees protection of intellectual property, so too does Brazil have the Brazilian Institute of Industry Property (IIP). Similar to the law in this country which awards rights in a name to the first party to register and use it, in Brazil, the first to register and use a name likewise gets the prize.   Apple sought to register iPhone in that country.  The IIP declined the request, noting that a Brazilian electronics maker named Gradiente Electronica SA registered the name in all lower-case letters in 2000, seven years before Apple launched its popular product.  Interestingly, Gradiente did not begin using the name until December, 2012 when it applied the term, ironically, to an Android-based product, Apple’s prime competitor in the cell phone market. Making matters worse is the fact that Gradient’s iPhone is a low-end model, thus arguably damaging the value of the name in Brazil.

    Apple plans to appeal the IIP’s decision, asking a second forum to review the agency’s ruling.  One of Apple’s arguments is that Gradiente’s claim to the name is tainted because of a delay in utilizing it.  For a company to retain ownership of a trademark in Brazil, it must prove that it used the term on a product within five years of registering the mark.  Although Gradiente filed a request for the trademark in 2000, approval was not granted until 2008.  Gradiente's first  use in late 2012 is at best a squeaker.  

    Apple has proven itself aggressive in pursuing rights to names it likes.  In 2007 it settled a trademark infringement case with Cisco Systems which originally owned the rights to the iPhone term. Apple is currently suing Amazon.com over the latter’s use of the term app store, on which the computer company claims to have a trademark. Apple paid $60 million to settle a lawsuit with the Chinese company Proview in 2012 for use of the trademark on iPad.  Gradiente’s goal may be a similarly sizeable settlement, as it has signaled to Apple that it is “open to a dialogue.”   

    Stay tuned to the news for further developments in this case.

    DISCUSSION QUESTION:

    1)  Is there any way Apple could have saved itself from the dilemma it now faces?

     

  • For Valentine's Day: Rules for Romance at Work

     

     

     

    The pictures tell the story – a great many married couples met at work.  From Barack and Michele Obama to Bill and Melinda Gates to Brad Pitt and Angelina Jolie, romance befalls many at work, whether they are working at a software company, a law firm, or making a movie together.  See more couples here. Romance is even more prevalent among the less famous. The data indicate that 39% of us have dated a co-worker.  The top industries for dating co-workers are:

    • Leisure and Hospitality
    • Information Technology
    • Health Care
    • Professional and Business Services 

    Employers cannot control when and where Cupid’s arrow may strike, but they do need to have rules and policies in place to deal with the potential issues that can arise from workplace romances.

    Some rules that can help both employers and their employees.  The goal for employers is to prevent issues of favoritism and sexual harassment.  Along the way, the employers’ rules may save employees from a broken heart. Below are a few sample rules that companies use for purposes of avoiding the pitfalls of office romance.

    1.     Some companies simply prohibit employees who work together from having a relationship.  Such a rule can be problematic because employees have the relationship anyway and simply hide it from the employer as other employees gossip.  Often, companies accompany this policy with a policy on finding one within the couple a different position outside of the division or office where both met and are currently working.

    2.     Some companies prohibit relationships between employees when one reports to the other.  For example, Michele was Barack’s supervisor at the law firm when he worked as a summer intern at the same law firm. Many companies would require a transfer or that one leave the firm.

    3.     Some companies follow this rule: Disclose to your supervisor that you are having a romantic relationship with a co-worker. The purpose of such disclosure is for the supervisor to determine whether there are any issues with conflicts or  if an adjustment needs to be made because of reporting lines.  That is, two employees who are dating should not be in a direct report relationship.  Some companies do not permit even indirect reportees to date supervisors.  These companies work to find one of the employees a different position in the company outside of the direct or indirect reporting lines.

    4.     Most companies remind employees that a consensual relationship that goes south can very often turn into allegations of sexual harassment.  Employees are cautioned to proceed within company rules for their own protection.  Some companies have what is called a “love contract” that the two employees sign upon disclosure of their relationship so that there is a written record that there is a consensual relationship – a protection for both the employer and the employees against sexual harassment charges. Read more here:  Jennifer Smith, "With Cupid at the Office, Rules Can Reduce Hazards," Wall Street Journal, February 11, 2012, p. B1.

    5.     Although most companies do not address the issue directly, an adulterous relationship between two employees is generally a career killer, at least within the company.  During the past year, two CEOs of major firms have had to depart following disclosures of their affairs with employees. 

    Discussion Starters

    1.  Explain the concerns and possible liabilities for employers with regard to workplace romances.

    2.  List the types of policies and rules employers have to avoid liability and other issues as workplace romances blossom.  

    Discussion Starters

    1.      Explain the concerns employers have about workplace romances.

    2.     List the types of policies and rules employers have to avoid liability when such romances blossom.

     

     

  • Lady Gaga Sued for Nonpayment of Overtime; Testifies at Deposition

                             

     Lady Gaga is being sued by one of her assistants who claims that the famous diva failed to pay her overtime. The employee, who was part of Gaga’s entourage for 13 months, seeks approximately $380,000 for 7,168 hours of overtime. The Fair Labor Standards Act (FLSA), a federal law, requires that employers pay employees whose work time exceeds 40 hours in a given week 150% of their hourly wage for the hours beyond 40. This law recognizes that workers are entitled to a life, and if the employer infringes on the worker’s time beyond the expected 40 hour work week, the employer must in effect compensate for the deprivation of the worker’s private time.

    An employer cannot refuse to pay overtime, or avoid the requirement by informing applicants that no overtime will be paid. Nor can an employer sidestep the obligation by securing a waiver from an employee. Any such waiver has no legal effect.
    To help enforce the law, the FLSA also requires that employers keep accurate records for each employee of hours worked each day and total hours worked each workweek, plus total overtime earnings.
    Penalties for noncompliance with the premium pay requirement can include large fines and jail time.
    Recently Lady Gaga was required to submit to a deposition for the case. A deposition, also called an Examination before Trial or EBT, is part of the discovery phase of civil (not usually criminal) lawsuits. Discovery is the exchange of information between the parties to avoid surprises at trial. The deposition consists of testimony of a party or witness prior to trial. It usually occurs in an attorney’s office. The witness is under oath while an attorney asks questions and a court reporter records the answer. As with all methods of discovery, the deposition assists the parties in preparing for trial. The transcript becomes an important evidentiary document. It can be used at trial to impeach (discredit) a witness who gives conflicting testimony on the witness stand. The transcript can also be used to support a motion for summary judgment, a request by one party that the judge decide the case in that party’s favor without the need for a trial.
    At lady Gag’s deposition, she cursed profusely expressing her disdain for the case. Not a good strategy. She called the plaintiff’s case “bull---,”. About the plaintiff, Gaga commented, “I’m quite wonderful to everybody that works for me, and I am completely aghast to what a disgusting human being you have become to sue me like this. . .She ([referring to the plaintiff] thinks she’s just like the queen of the universe. And, you know what, she didn’t want to be a slave to one, because in my work and what I do, I’m the queen of the universe every day.”
    The singer of “Born This Way” also claimed the aide should have enjoyed her work because she was able to share Gaga’s extravagant lifestyle including, in Gaga’s words, “Sleeping in Egyptian cotton sheets every night, in five star hotels, on private planes eating caviar, partying with [well-known photographer] Terry Richardson all night, and wearing my clothes.”. Additionally the pop artist complained, “Plaintiff asked YSL [Yves Saint Laurent) to send her free shoes without my permission, using my YSL discount without my permission.” Gaga also complained about the assistant’s work, saying the aide often left the songster to carry her own luggage which was “very stressful for me.”
    Concerning the substance of the suit, Gaga admitted she doesn’t pay any overtime to any of her employees, and said plaintiff “knew exactly what she was getting into.” The singer added that her employees work no more than eight hours daily, though the time is spaced out throughout the day. “When I need you, you’re available.”
    For more information, click here.
    DISCUSSION QUESTION:
    Based on the testimony reported, what weaknesses exist in Gaga’s defense?

     

  • The Russian Jewel Box, the Statute of Frauds, and Auction Identity

    Intrigue, auction houses, and the statute of frauds are all together in a New York case that is headed for the state’s highest court.  Auctioneer William Jenack sold, via auction, an I.P. Khlebnikov czarist box to Albert Rabizadeh for $400,000, the top bid.  When the time came for Mr. Rabizadeh to pay for the bejeweled treasure, he grumbled and refused to pay.  When Mr. Jenack brought suit for performance of the contract, Mr. Rabizadeh defended on the grounds that the contract was for the sale of goods, was in an amount over $500, and, therefore, had to be in writing.  Mr. Rabizadeh had submitted his bid by phone. 

    Auction practice follows up on auction bids, including those bids by phone, through having the Chief Clerk, upon the auctioneer’s hammer falling, recording, on preprinted “clerking sheets” containing the item numbers and descriptions, the amount of the successful bid for each item sold and the bidder number. For each item, the clerking sheets also contained a number assigned to the consignor (the owner who has placed the item with the auction house for sale) of the item. The entry on the clerking sheets for the antique Russian box denoted that it was consigned by consignor number 428, and handwritten notations indicated that bidder number 305 (Mr. Rabizadeh) successfully bid for the subject antique at a price of $400,000. It is traditional in auction practice that the consignor is not identified by the auction house. You can read about auction-house reactions here. Tom Mashberg, “Lawyers fight to Keep Auction Sellers Anonymous,” New York Times, February 4, 2012, p. C1.

    Mr. Jenack argued that the clerking sheets represented a confirmation memorandum under the UCC and, therefore, the statute of frauds was satisfied.  However, Mr. Rabizadeh argued that, to be valid, a merchant’s confirmation memorandum must include the name of the seller.  “Consignor #428” did not identify for the buyer or anyone looking at the transaction who the seller was.  Mr. Jenack argued that in the world of auctions the consignor is rarely identified and that buyers know that when they purchase goods through the auction process. The trial court entered a judgment for Mr. Jenack for $400,000 plus interest and costs and Mr. Rabizadeh appealed. William J. Jenack Estate Appraisers and Auctioneers, Inc. v. Rabizadeh
    99 A.D.3d 270, 952 N.Y.S.2d 197 (N.Y.A.D. 2012)

    On appeal, the court reversed the trial court decision finding although it could piece together all but one of the requirements for a memorandum from the various signatures, clerking sheets, and other documents related to the sale.  The requirement that was missing was the identity of the seller and the court could not find that information in any of the documents related to the auction, including the clerking sheets, and the buyer participation agreement.  The court held that “Consignor #428” was not sufficient to identity the seller, that the memorandum lacked the information needed, and, therefore, the statute of frauds precluded the enforcement of the auction contract.

    As for the custom in the auction industry of withholding the identity of sellers, the court held:

    The plaintiff claims that it is common practice for auction houses not to disclose the names of their consignors, and that such disclosure is “unnecessary.” While it may be true that auction houses commonly withhold the names of consignors this court is governed not by the practice in the trade, but by the relevant statute, which it is bound to apply in accordance with the foregoing rules of construction. In that regard, the statute clearly and unambiguously requires that the “ name of the person on whose account the sale was made”  be provided in the memorandum, which plainly means that the memorandum must contain information revealing the identity of that party. Indeed, it has generally been held that, to satisfy the statute of frauds, a writing must identify the parties.

    Mr. Jenack has appealed the case and the big auction houses have all asked to participate through amicus curiae briefs (friends of the court, or those who have an interest in the outcome of a case). For now, the law in New York on auction sales is that the identity of the consignor must be including for the post-auction memorandum to be sufficient to satisfy the statute of frauds.

    Discussion Starters

    1.    What exception to the oral bid process did Mr. Jenack try to use?

    2.    Why did the court find that exception does not apply?

  • Gold Medal Skater Claims Unauthorized Use of Her Photo

                                       

    Oksana Baiul won the gold medal for ladies’ singles figure skating in the 1994 Olympics at age 16, representing Ukraine.  She also won the World Championship in 1993.  Since then she has retained her skills and remained active in the world of performance figure skating.

    Now, at age 35, she is suing NBC for $5 million claiming invasion of privacy. This is the tort of using someone’s name or picture for commercial purposes without written permission.  According to the complaint,  the document that commences a lawsuit, Baiul alleges that NBC Universal and a skating promoter featured her picture in advertisements and other materials used to promote two televised skating shows in 2011 and 2012.  The complaint alleges that she never gave permission for use of her image, and she had declined to participate in the shows.  Further, she claims she was thereafter labelled a "no show" making it difficult for her to find work. She seeks $5 milllion in damages.

    Often in these types of cases the party using the photograph claims to have a signed release or authorization to use the likeness.  In this case however the promoter denies using Baiul’s name and image in the ads. The evidence will clearly favor one side or the other.  Baiul either has examples of her name and likeness being used to promote the shows or she does not.  Thus, like evidence in every case, Baiul’s evidence of the use of her likeness will likely be determinative in the case.

    The tort of invasion of privacy includes a few exceptions, not applicable here, where a person’s photograph can be used without permission.  One such exception is newsworthiness.  If the picture and/or accompanying article relates to political happenings, social trends, recent occurrences, or most subjects of public interest, the constitutional right of free speech permits its use.  For example, if Oksana had just won another international contest, that fact and her picture would be newsworthy. In the allegations of the lawsuit, the use of her photo was for promotional and therefore commercial purposes only, and not to report a newsworthy event.  Therefore the exception would not apply.

    The other exception is where plaintiff’s image is an incidental use, meaning plaintiff’s image is presented as part of a crowd scene, or is “fleeting” (momentary and hard to recognize). Apparently this does not apply either because Baiul alleges her photo was featured in the promotional materials. 

    For more information, click here.

    DISCUSSION QUESTION:

    How broad is the right of privacy that is protected by the tort of invasion of privacy?   

    What should any marketer do when preparing promotional materials that include images of people?

     

     

     

     

  • Corona and Bud Light Merger? Not If the Justice Department Has Its Way

     

    The Justice Department has filed suit to stop the proposed merger between Anheuser-Busch, InBev NV, the maker of Bud Light, and, Modelo, the maker of Corona. The fears expressed in the suit are that the combination of the two companies would result in their domination of the distribution chain and would result in price increases.  Currently, AB InBev NV holds 39% of the beer market, Miller/Coors holds 26%, Modelo holds 7%, and Heineken, the last of the big four holds 6%.  Other beer makers combined hold the remaining 22% of the U.S. beer market. If Bud and Corona merged, they would hold 46% of the country’s beer market. The Justice Department also noted that when the dominant forces raise prices in the beer market the other companies follow. However, Modelo has been one of the market players that has resisted the parallel price increases.  Acquisition, according to the complaint, would mean that the one market power that has kept prices lower would no longer be a market force keeping price increases in check.  

    The merger will also affect U.S. importer, Constellation's relationship with Modelo, a relationship that also allowed for more competition and pricing pricing that affected Anheuser-Busch. The Justice Department complaint alleges that the structure of the deal between Anheuser-Busch and Modelo involves Crown, a Modelo beer importer, a structure that the complaint says was created to deliberately avoid antitrust scrutiny. Crown would acquire an interest in the transaction that would last for 10 years in terms of importing rights, but would not transfer any bottling or distribution facilities, a structure, the complaint indicates, would leave Crown at the mercy of Anheuser-Busch supplies and pricing. According to the Justice Department complaint, the existing relationship between Crown and Modelo has resulted in the only market price pressure that Anheuser-Busch and CoorsMiller have.  Read more about the market pressure here. The following excerpt from the complaint explains the competition concerns:

    In or around 2008, Crown implemented its “Momentum Plan” with Modelo’s enthusiastic

    support. The Momentum Plan is specifically designed to grow Modelo’s market share by

    shrinking the price gaps between brands owned by Modelo and domestic premium brands. By

    maintaining steady pricing while the prices of premium beer continues to rise, Modelo has

    narrowed the price gap between its beers and ABI’s premium beers, encouraging consumers to

    trade up to Modelo brands. These narrowed price gaps frustrate ABI and MillerCoors because

    they result in Modelo gaining market share at their expense.

     

    The suit to stop the merger is based on the Sherman Act provisions on monopolization as well as Section 7 of the Clayton Act.  Generally, such suits are successful only when it is clear that the merger will result in domination of the market by the newly merged entity that combines competitors. The Justice Department has enjoyed some success in the past in stopping mergers.  For example, it successfully halted the merger between AT&T and T-Mobile because of the same concerns about the combined market power.  The companies believe that the Justice Department is selectively choosing e-mails to make the case that the merger would be anticompetitive. The companies and the Justice Department were in negotiations regarding the merger up until the time that the suit was filed.  When the companies could not reach an agreement, one that would have required some spinning off of brand names, the Justice Department filed its suit.  You can read the complaint here.  The focus on the structure of the deal and pricing appear to be based on past successes in stopping mergers.

    Discussion Starters

    1.      What is the market percentage that results in a trigger for Justice Department suits to stop mergers of competitors?

    2.     What does the Justice Department fear will happen as a result of the merger.

     

     

     

  • Kraft Sues Cracker Barrel Old Country Stores for Trademark Infringement

              

    When starting a business it makes sense to study existing trademarks and stay clear of them.  Cracker Barrel Old Country Stores (CBOCS) apparently did not do this and now is feeling the pain.

     CBOCS operates 621 restaurants family-oriented, each of which has an attached country store.  Shoppers can buy various products such as candy, food items, toys and clothing, while waiting for a table or their meal.  The company recently announced plans for expansion.  A significant component of that is to sell many branded products beyond the affiliated country stores and in such outlets as grocery stores across the country, large discount stores (Walmart, Target, etc.).  The food products CBOCS wants to market include various food products such as cornbread mix, pancake syrup, summer sausage, a range of meats , lemonade, and fruit tea.  These items would utilize the brand name of Cracker Barrel.

     The problem is that Kraft foods  has been utilizing the name Cracker Barrel to sell is popular cheeses since 1954.  CBOCS did not begin to use the name until fifteen years later in 1969.  Kraft has not previously objected to CBOCS’ use of the name because that company only sold its products in its country stores and on its website.  CBOCS’ recently announced plan  to expand its marketing outlets is what has concerned Kraft.  While CBOCS does not intend to sell cheese, Kraft contends the other products are complementary to cheese and would likely be placed on store shelves in close proximity to Kraft’s cheese products.  Kraft argues that CBOCS would thus cause customer confusion and damage to Kraft’s Cracker Barrel brand. As a result, Kraft has filed a lawsuit for trademark infringement,  seeking to permanently enjoin (stop) CBOCS from selling any Cracker Barrel-branded food items outside its own restaurants, country stores and website. 

     A trademark is a name, logo or promotional phrase which a company has acquired the exclusive right to use in the transaction of business. Acquisition of a trademark occurs by being the first user or the first to register it with the Trademark and Patent Office.  Infringement of a trademark occurs when another company uses the trademark in a way that causes customers to be confused about which company initiated a product. 

     It is not always easy to conclude that customers will in fact be confused.  Thus when, as here, the products are not identical, courts consider the following factors: the strength of the trademark; the degree of similarity between the trademark and the allegedly infringing mark; evidence of actual consumer confusion; the marketing channels used; the type of goods involved and the degree of care likely to be exercised by the purchaser; the alleged infringer's intent in selecting the mark; and other facts showing that the consuming public is likely to expect the trademark owner to expand into the alleged infringer’s market.

     Kraft could also sue for trademark dilution of its mark, meaning a decrease in the distinctive quality of the mark.  Stated differently, dilution would be caused by blurring, meaning a weakening of the brand name due to its association with other products.  For this type of lawsuit, customer confusion is not required.

     Both parties have expressed an interest in attempting to settle the case.  The outcome could significantly clip CBOCS’ attempt to expand its brand and sales.  Had CBOCS adopted a unique name way back in 1969 when the company began, it would not now be facing infringement claims by Kraft or anyone else.

    For more information, click here.

      DISCUSSION QUESTIONS:

     What is the likelihood that customers would be confused about the origin of CBOCS’ food products if it was permitted to expand its sales as desired?

     Why do you think CBOCS adopted the name Cracker Barrel Old Country Store when it presumably knew Kraft was already using the name Cracker Barrel?

     What terms might be included in a settlement agreement?.