NLRB Rules Inflatable Rats May No Longer Constitute Signal Pickets

The Obama National Labor Relations Board continues its movement left by reversing years of cases with regard to the use of giant inflatable rats in picketing situations. For years since unions popularized the use of rats as an emblem of non-union “scab” employers, unions have actively used this symbol in leaflets, in costumes on picket lines, and most popularly, in the form of giant 16-foot tall inflatable balloons meant to advise the public of the presence of a labor dispute. Employers and their attorneys, including those from this law firm, have argued successfully that these inflatable rats constitute “signal” pickets which are subject to the same secondary boycott rules as live pickets. The advantage of such a position is that the inflatable rats therefore have to conform to secondary boycott rules, including a requirement that they be placed in front of or near gates reserved for the picketed company, as well as a requirement that they can only appear when the picketed company is present at the jobsite. All this was recently changed by the Board in the Sheet Metal Workers Local 15, 356 NLRB No. 162 (2011).

In the Sheet Metal Workers Local 15 case, the Board dismissed an unfair labor practice complaint against a union which had stationed an inflatable rat in front of a hospital rather than at a reserved gate in order to discourage the hospital from doing business with non-union contractors. The recent Obama appointees to the Board joined NLRB Chair Liebman in ruling that the inflatable rat did not constitute a signal picket, but instead, constituted symbolic speech which is not subject to secondary boycott rules. NLRB member Brian Hayes dissented from the ruling and stated that the inflatable rat was “unmistakably confrontational and coercive” and was designed to “intimidate by conduct, not to persuade by communication.” The Board made the ruling despite an admission by the union organizer that the union was “picketing.”

The Board determined that the inflatable rat, like the bannering recently found lawful in the 2010 decision of Eliason & Kanuth of Arizona, Inc., did not involve confrontation, was stationery, did not block entrances, and did not result in threats to the public going into the hospital.

The Board’s holding allows the union not only to place the inflatable rats at neutral entrances, but also to place them at locations where the picketed company is absent. Like bannering cases, employers who find themselves the subject of this type of campaign should carefully monitor union actions accompanying the inflatable rat, such as blocking, the use of confrontational activities, as well as traditional patrolling. If and when those activities occur, the use of the rat will not be proscribed, but it may be treated as a signal “picket” and therefore need to conform to the secondary boycott restrictions under federal labor law.

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U.S. Supreme Court Upholds Government Ethics Law Over First Amendment Challenge

The Supreme Court of the United States has given much needed guidance on the question of how the First Amendment applies to state ethics laws. The Court’s 8-1 opinion in Nevada Commission on Ethics v. Carrigan held that the First Amendment did not prohibit the enforcement of a Nevada statute requiring members of legislative bodies – including a city or town council – to recuse themselves when voting on a matter where the legislator’s independence could be questioned by a reasonable observer.

In Carrigan, the state ethics commission applied the statute to hold that a member of a town council should have recused himself from voting on a hotel project because a close friend and campaign manager worked as a consultant on the project. The Nevada Supreme Court struck down the statute by finding it to be an overbroad restriction on the council member’s core political speech. The U.S. Supreme Court disagreed, holding that a state could place restrictions on local legislative bodies that prevent members from voting on issues in which they have a personal stake. Relying on historical evidence showing that many states and Congress had imposed such restrictions since the founding, the Court held that this type of ethics statute did not restrict the legislator’s personal speech but instead protected the public position the legislator held. The Court also suggested that restrictions on speech during city or town council meetings would be subject to review only under the less stringent standard for “time, place and manner” restrictions.

The opinion can be found at: http://www.supremecourt.gov/opinions/10pdf/10-568.pdf

European Court of Justice Holds That Disclosure of Leniency Documents to Cartel Victims Seeking Civil Damages Is Subject to National Law

The European Commission (EC) and many other competition authorities around the world have long promoted confidentiality as an essential feature of their highly successful cartel leniency programs.The authorities seek to encourage companies to self-report antitrust violations by promising that the contents of their leniency submissions will be protected from disclosure to civil damages claimants. Absent such guarantees of confidentiality, the authorities have cautioned, at least some companies will not seek leniency or will “hedge” their leniency applications to the detriment of antitrust enforcement efforts.

The Court of Justice of the European Union (ECJ) recently had an opportunity to confront the policy issues surrounding the confidentiality of cartel leniency submissions in Case C-360/09, Pfleiderer v. Bundeskartellamt. The ECJ there held that EU competition law does not preclude Member State competition authorities from disclosing documents received though a leniency program to cartel victims pursuing damages claims if such disclosure would otherwise be required under national law. The ECJ recognized that the potential for such disclosures to undermine the effectiveness of leniency programs was a legitimate concern that must be taken into account when deciding whether to order the disclosure of such documents. However, it held that national courts must, on a case-by-case basis, balance this concern against the need to ensure that national rules do not make it unduly difficult for private parties to recover damages for breaches of EU competition law. The ECJ noted that disclosing documents received from leniency applicants could “make a significant contribution to the maintenance of effective competition in the European Union” by promoting civil damages litigation in Europe.

The decision creates uncertainty for companies considering a leniency application to the EC and/or Member State competition authorities. Presented with an opportunity to issue a definitive decision prohibiting discovery of leniency materials, the ECJ instead opted for a more complicated and context-specific balancing test. Although it remains to be seen how the courts of the Member States (and the ECJ itself) will apply this test, companies considering making a leniency submission in Europe need to consider the risk that their submission will ultimately be made available to civil damages claimants.

The essential facts of the case are as follows: The German Bundeskartellamt (Federal Cartel Office) issued a decision fining three companies and five individuals for participating in a cartel. The Bundeskartellamt received voluntary submissions from some of the defendants under its leniency program. Pfleiderer AG, a customer of the cartel, sought to compel the Bundeskartellamt to disclose its complete case file, including leniency materials, relying on Paragraph 406e of the German Code of Criminal Procedure, which allows the lawyer of “an aggrieved person” (i.e., the victim of a crime or administrative offense) to inspect “documents which may have been submitted to a court or, if a public prosecution were commenced, would have to be submitted,” unless “overriding interests worthy of protection . . . constitute an obstacle thereto.” The Bonn Amtsgericht (District Court) ordered the Bundeskartellamt to disclose documents made available to the Bundeskartellamt under its leniency program and other incriminating materials and evidence in the Bundeskartellamt’s case file, but not confidential business information or internal documents, such as notes on legal discussions or communications within the European Competition Network framework.[1]

However, the Bonn Amtsgericht was concerned that the order could conflict with EU competition rules, and stayed the order pending a request to the ECJ for a preliminary ruling under Art. 267 TFEU (ex 234 EC) on whether EU law would preclude the disclosure order. Under this procedure, national courts may request the ECJ to issue an opinion on the construction of EU law in national court proceedings. Preliminary rulings do not, however, reach the merits of the case.

The ECJ found that nothing in either the EU Treaties or Regulation 1/2003, which sets out the framework for the enforcement of Arts. 101 and 102 TFEU, sets out rules governing the right of access of third parties to documents that were voluntarily submitted to a national competition authority under a national leniency program.

National law governs in the absence of binding EU regulation on a subject, but the Member States must ensure that national laws do not jeopardize the effective application of the EU competition rules. The ECJ acknowledged the important role played by leniency programs in ensuring effective enforcement of EU competition rules and the potential for disclosure of materials provided under such programs to undermine their effectiveness. However, the ECJ found that this concern must be balanced against the need to ensure that individuals harmed by breaches of EU law can obtain effective redress through national legal systems, which could also make a significant contribution to EU competition law enforcement. The ECJ therefore held that national rules affecting the disclosure of leniency materials be no less favorable than those governing similar domestic claims, and that national courts must balance the “respective interests in favor of disclosure of the information and in favor of the protection of that information provided voluntarily by the applicant for leniency” on a case-by-case basis.

The impact of this decision on the effectiveness of government enforcement and the claims of civil litigants will be watched closely over the coming months as the respective courts, competition authorities, and impacted companies seek either to apply the balancing test adopted by the ECJ or to predict how that balancing test will be applied in practice by courts of the Member States. For now, the importance of the court’s ruling is already evident with respect to the following issues:

  • Although the ECJ recognized the interest in preserving the confidentiality of leniency materials, it refused to give that interest preclusive force.
  • The ECJ’s ruling raises as many questions as it answers because it fails to give specific guidance on what factors national courts should take into account. For example, is it relevant whether national law treats competition authority decisions as binding proof of an infringement?
  • While the ability to require national competition authorities to provide third parties with access to their case files varies tremendously from one Member State to another, the ECJ’s decision strengthens the legal position of those individuals and companies asking for access to leniency applications and other sensitive documents.
  • There is a risk that the ruling is going to affect access to documents in the EC’s case files. The EC relies on its interest in encouraging leniency applications through the promise of confidentiality as the main argument to block access to the EC’s case file under the EU transparency rules (see, for instance, Case T-437/08 CDC v. Commission). The ECJ’s ruling makes clear that this interest is by itself not sufficient to justify denying access to documents sought in civil damages actions. It will be interesting to see, therefore, how the ECJ deals with a similar request for access to the EC’s files in the CDC case currently pending before the General Court.
  • The EC so far has issued no binding EU legislation in this area, even though the legal community has expressed a need to safeguard leniency applications. Will this decision spur a legislative response?
  • This decision could also impact civil litigation outside the EU. In the United States, courts have evaluated civil plaintiffs’ demands for access to EC leniency applications in much the same way suggested by the ECJ-by balancing the competing interests of the civil plaintiffs and the specific facts of the case in the U.S. against the interests that competition authorities have in maintaining confidentiality and encouraging companies to self-report misconduct. U.S. decisions on this issue to date have been mixed, but more often than not U.S. courts have not required production of foreign leniency statements to civil litigants in the United States. The ECJ’s decision may shift the direction of this trend in the United States, as it could be read to suggest that the confidentiality interests of competition authorities in the EU are not as strong as some of the EC regulations may lead one to believe.
  • The ECJ’s decision could also lead to pressure to change the manner in which leniency applications are filed with the EC and the various Member States so as not to require written leniency applications that could be at risk for disclosure to the plaintiffs in follow-on civil damages litigation.
  • Private damages actions for anticompetitive conduct in the EU are gaining more significance. The EC has recently started a consultation process as the first step in preparing a guidance notice for courts in the EU Member States for quantifying harm in actions for monetary damages for violations of the EU’s competition laws.

Ninth Circuit Rejects Consumer Antitrust Challenge To Cable Television Bundling

The Ninth Circuit recently affirmed the dismissal of a consumer class action challenging the television programming industry’s practice of exclusively offering multi-channel cable packages. Brantley v. NBC Universal, Inc. No. 09-56785 (9th Cir. June 3, 2011). In so holding, the Court affirmed that allegations regarding widespread harm to consumers (either through increased prices, reduced choice, or both) — without some separate, cognizable injury to competition — fail to state a Section 1, Sherman Act claim.

Brantley involved a putative nationwide class of consumers suing two groups of industry participants: (1) programmers in the upstream market who sell television channels and programs to distributors; and (2) distributors in the downstream retail market who sell the programming to consumers. Plaintiffs alleged that programmers exploit market power derived from “must-have,” high-demand channels by bundling or tying them with less desirable, low-demand channels for sale to distributors, forcing distributors in turn to sell only higher-priced, multi-channel packages to consumers. Plaintiffs alleged that in the absence of such bundling, distributors would offer “a la carte programming” to meet consumer demand, thereby allowing consumers to purchase only those channels they wish to watch. Defendants’ vertical restraints thereby reduce consumer choice, raise prices, and limit competition between distributors. Indeed, plaintiffs cited to third party findings (including from the FCC) that the average cable subscriber is forced to pay for 85 channels that he does not watch to obtain the 16 he does, and that defendants’ bundling results in a net consumer welfare loss of $100 million.

In affirming dismissal, the Ninth Circuit held that given plaintiffs’ conscious decision not to allege any foreclosure of competitors, plaintiffs could not plead the requisite injury to competition.[1] Courts have identified horizontal collusion and foreclosure of rivals as the two types of injury to competition sufficient to state a Section 1 claim. While vertical restraints may result in foreclosure of rivals, they do not necessarily do so. The two types of vertical restraints implicated here — tying and bundling — may result in such injury to competition if: (1) for tying, the seller leverages its market power in the tying product to exclude other sellers of the tied product; or (2) for bundling, the bundler is able to use discounting, for example, to exclude rivals who do not sell as great a number of product lines. Applied to the facts of this case, the Court found neither allegations that programmers’ practice of tying “must-have” with low-demand channels excluded other sellers of low-demand channels from the market, nor allegations that defendants’ bundling excluded competitors from either the upstream or downstream markets.

Plaintiffs urged the Court to adopt an alternative theory of injury to competition. That is, defendants’ conduct harms consumers by: (1) limiting the manner in which distributors compete with one another; (2) reducing consumer choice; and (3) increasing prices. The Court, however, rejected each argument in turn. Relying on Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 US 877 (2007), it explained that limitations on distributors’ ability to compete, without proof of competitive harm, fails to state an antitrust claim. With respect to harm to consumers, it explained that price increases and reduced choice are perfectly consistent with a free, competitive market, and, without more, fail to state an antitrust claim. While the alleged harm to consumers may establish antitrust injury, it does not establish any cognizable injury to competition. Even if consumers are forced to purchase multi-channel packages that include unwanted channels for a higher price, the antitrust laws do not interfere with the ability of businesses to choose the manner in which they do business, absent an injury to competition.