Consumer Product “Plain Packaging” Boomerangs in Australia

boomerangIn publications, formal comments, and here at The Legal Pulse, Washington Legal Foundation has consistently questioned the wisdom and legality of requiring “plain packaging” for disfavored consumer products. We wrote in a December 2011 post that plain packaging laws like the one Australia formally adopted in 2012 will “boomerang  . . . by creating a vigorous black market in cigarettes and forcing tobacco prices down as new and cheaper cigarettes enter the marketplace.”

Recent sales data and studies on the tobacco market in Australia show how that nation’s plain packaging law has, in fact, boomeranged as we predicted it would.

First, a late-2013 study by KPMG revealed that counterfeit tobacco sales in Australia had risen since the passage of the plain packaging law to almost 14% of the Australian market. Illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity. Australian press accounts demonstrate how the illicit sales are funding larger criminal enterprises, such as gangs. In addition, counterfeit sales have harmed Australia’s small retailers, as a study by an Australian market research firm has demonstrated.

Second, much to the shock of plain-packaging devotees, tobacco sales are increasing Down Under. Reports last month indicate that deliveries to tobacco retailers rose in 2013 for the first time in five years. This news should not be a surprise to anyone who understands basic economics and consumer behavior. Tobacco producers who are no longer able to differentiate their cigarettes from rivals through package branding and imaging, are forced to lower their prices to maintain or expand market share. Lower prices, of course, routinely lead to increased sales. Such a reaction is especially true when generic, lower-cost cigarette companies enter the market, as they have in Australia. WLF explained this effect in its 2010 comments to the Australian Parliament, emphasizing the success generic tobacco brands have had in the U.S.

Other nations such as Britain looking to sweep away trademark and speech rights with plain packaging laws should pay heed to these developments in Australia. Regulators who proceed in the face of such demonstrated economic hazards will be doing so more for ideological, rather than public health, reasons.

Also available at WLF’s Forbes.com contributor page

State Attorneys General Advance Their Citizens’ Interests in Supreme Court Foreign Debt Case

supreme courtIn the long-running legal battle between Argentina and its “holdout” bondholders, each side has been seeking to line up high-profile allies in pending Supreme Court proceedings.  Last week, a few foreign governments filed amicus curiae briefs in the Court in support of Argentina.  Today, the bondholders lined up what may prove to be a more important set of allies: 21 States filed an amicus curiae brief urging the Court to rule against Argentina.

The States are not simply disinterested observers of these court proceedings, which will determine the power of U.S. courts to issue injunctions designed to force foreign countries to honor their commitments to repay bond debt.  Through their public pension funds, States have invested billions of dollars in foreign sovereign debt.  It’s not surprising, therefore, that they oppose Argentina’s contention that the Foreign Sovereign Immunities Act (FSIA) largely bars U.S. courts from taking steps to enforce judgments entered against issuers of defaulted sovereign debt.  The States’ willingness to come forward so publicly should serve as an important reminder to the High Court that American taxpayers and pensioners will be badly harmed if foreign governments are permitted to walk away from their contractual commitments.

The dispute between Argentina and its holdout bondholders actually encompasses two separate Supreme Court proceedings.  The States’ brief (one of several filed today in support of the bondholders) was filed in the proceeding that addresses whether Argentina can be required to answer questions regarding the location of its commercial assets.  Bondholders want that information to assist in their efforts to seize non-exempt Argentine assets in satisfaction of court judgments they previously obtained.  The FSIA provides that a sovereign’s commercial assets (but not its governmental assets) may be seized by judgment creditors.  U.S. courts have the power to order seizure of commercial assets located within the United States, while judgment creditors must seek the assistance of courts in a foreign country if they wish to seize the sovereign’s commercial assets located in that country.  The question before the Supreme Court:  may a sovereign debtor be required by a U.S. court to answer questions regarding the location of its commercial assets in foreign countries, or would such a requirement affront the nation’s sovereign dignity?

The States’ amicus curiae brief strongly urges the Court to grant bondholders access to that information.  They argue that even though Argentina waived its sovereign immunity and agreed to be subject to suit in New York courts when it borrowed money from the States and other bondholders, those concessions would be meaningless if bondholders were denied the tools necessary to enforce their repayment rights.  They note that unless bondholders are granted the ability to discover the location of a sovereign nation’s commercial assets, they will have no way of knowing where to turn to initiate enforcement proceedings.

Those arguments may persuade the Supreme Court.  More importantly, the Supreme Court filing by 21 States (represented by a bipartisan group of Attorneys General) reinforces the breadth of the opposition to Argentina’s position.  Their presence also serves as a reminder to the Court that allowing foreign governments to walk away from their debts would harm millions of Americans.

Also published on Washington Legal Foundation’s Forbes.com contributor page

Update: U.S. Government Fails to Answer Argentina’s Call for Help, Declines Filing Brief in Sovereign Debt Case

DOJArgentina this week received some support (in the form of several amicus curiae briefs) for its efforts to obtain Supreme Court review of the setback it suffered in Second Circuit at the hands of Argentine bondholders. Argentina needs all the help it can get; it is nearing the end of the line in its thus-far unsuccessful efforts to ignore the claims of “holdout” bondholders. However, the most important news from the Court this week was who did not file: the United States government declined entreaties by Argentina to urge the High Court to review the case. Without the support of the United States, Argentina has little hope of convincing the Supreme Court to hear its appeal.

The holdouts will file their brief in May, and the Justices will convene in early June to decide whether to hear the case. If, as is likely, they decide not to hear it, that will be the end of the line for Argentina in U.S. courts on this issue.

Among the briefs filed this week, one that stands out is the brief filed by Brazil. Its principal argument was that the injunction issued against Argentina—requiring Argentina to treat all its bondholders equally—“offends the sovereignty and dignity of Brazil.” It is hard to understand how that is so, unless Brazil wants to join Argentina in refusing to pay its bondholders. Moreover, Brazil seems to overlook that the Second Circuit did not order Argentina to pay anything. The court’s injunction merely said, in effect, “You are a sovereign nation and cannot be forced to use your non-commercial assets to repay your debts. But you can’t have it both ways; if you refuse to make any payments to creditors whose claims have been upheld by our courts, you cannot expect to be granted easy access to American equity markets.” Brazil need not worry that it too will be denied access to equity markets so long as it abides by its contractual commitments to treat all bondholders fairly.

Like all of the other amicus briefs filed this week, Brazil’s fails to cite a single U.S. court decision that conflicts with the Second Circuit decision. In the absence of such a conflict, the U.S. Supreme Court is likely to deny review. Indeed, of the many thousands of petitions it receives each year, it agrees to hear on average only 70. Nor is the Court usually impressed by the sheer number of amicus curiae briefs (ten were filed in support of Argentina); it is identity of the filer (e.g., briefs submitted by the United States carry significant weight) rather than quantity of filings that the Justices focus on most closely. For example, the Court is unlikely to give much weight to Brazil’s brief, in light of press reports suggesting that Brazil decided to file only after demanding and receiving trade concessions from Argentina (as discussed here at The Legal Pulse). The Court takes a dim view of amicus briefs that are, in effect, paid for by one of the parties.

Is Argentina Paying for Amicus Briefs in Foreign Debt Case Before U.S. Supreme Court?

supreme courtIn a last-ditch effort to stave off defeat in its long-running battle with bondholders who want to be paid, Argentina in February asked the U.S. Supreme Court to hear its appeal from an adverse appeals court decision.  It is now busy trying to line up amici curiae (“friends of the court”) to file supporting briefs with the High Court.  The deadline for filing amicus briefs is next Monday, and a number of groups and foreign countries have given official notice of their intent to file briefs in support of Argentina.

However, there are some indications that Argentina has paid for one or more of the anticipated amicus filings.  The Supreme Court takes a dim view of that practice; it wants each amicus filer to truly be a “friend of the court,” not a “friend of a party.”  The Court does not strictly prohibit the filing of amicus briefs that have been paid for by a party.  But it requires that the fact of payment be explicitly disclosed in the opening footnote of the amicus brief.

Lawyers who practice regularly before the Court know that a disclosure of payment in Footnote 1 is a black mark; the Court is unlikely to pay much attention to a paid-for brief.  The justices view such briefs as simply a second brief from one of the parties, an effort to evade the strict word limit that the Court imposes on parties’ briefs.

Brazil’s potential brief is particularly suspect.  Accounts appearing this week in the Brazilian press (here, here, here, here, and here; translated stories here) relate that Brazil has agreed to a request from Argentina to file an amicus brief in support of Argentina’s petition for review.  The press accounts claim that Brazil agreed to the request in return for financial favors.  In return for agreeing to file, Brazil allegedly received commitments from Argentina for: (1) removal of trade barriers, particularly in the automobile industry; and (2) financing for Argentine car dealerships, to allow them to purchase more Brazilian cars.

Mexico has already filed its intent to file an amicus brief in support of Argentina. Argentina may also be courting France to file with the Court; President Kirchner met today with President Hollande It’s hard to say if Argentina is using the same tactics with Mexico and France, but if any sort of financial encouragement is on the table, both nations should be aware of the “Footnote 1” ramifications and take heed.

If the Brazilian press accounts are accurate, then its lawyers will be required under Supreme Court rules to disclose in the opening footnote of their brief the payments made by Argentina to finance the brief.  Would Brazil still decide to file once its lawyers inform it of the required disclosures?  An amicus brief submitted by a disinterested South American country urging the Court to hear a case raising issues deemed important by that country might have some influence on the Court’s decision-making process.  In contrast, an amicus brief filed by a country that has been paid for the filing by one of the parties is likely to sit on a shelf gathering dust.

Supreme Court Observations: BG Group PLC v. Republic of Argentina

supreme courtThe Supreme Court on Wednesday issued a divided opinion in a case that raised an important issue of arbitration law:  should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration?  In BG Group PLC v. Republic of Argentina, the Court ruled 7-2 against Argentina, concluding that arbitrators acted within their power when they concluded that a British firm was not required to file suit in Argentina’s courts before seeking arbitration.  Chief Justice Roberts, joined by Justice Kennedy, dissented; they argued that in signing the bilateral UK-Argentina investment treaty, Argentina agreed to arbitration only on condition that investors bring their disputes to an Argentine court first.  But there was one point on which the justices agreed unanimously:  Argentina has a sorry history of living up to its contractual commitments to investors.  That point of agreement does not bode well for Argentina, which in two pending Supreme Court cases is asking the Court to permit it to invoke sovereign immunity as the basis for resisting repayment of sovereign debt.

The case involved claims by a British firm, BG Group plc, that Argentina breached a natural gas distribution contract.  Washington, D.C.-based arbitrators awarded BG Group $185 million in damages, and Argentina turned to American courts to overturn the award.  It cited the terms of the UK-Argentina treaty as the basis for its claim that the arbitrators lacked jurisdiction to hear the case.  The treaty provides that an investor asserting a claim under the treaty may not initiate arbitration until 18 months after filing a claim against Argentina in an Argentine court.

The arbitrators held that BG Group should be excused from complying with the 18-month litigation requirement.  They noted that Argentina, after taking steps that essentially expropriated BG Group’s property, adopted a series of laws designed to block any BG Group lawsuit.  They held that these laws, “while not making litigation in Argentina’s courts literally impossible, nonetheless hindered recourse to the domestic judiciary to the point where the Treaty implicitly excused compliance with the local litigation requirement.” Continue reading

Don’t Make a Federal Case Out of It: High Court Should Grant Review in No-Injury Class Action

wahooThe U.S. Supreme Court this week has a chance to strike a blow for judicial modesty and at the same time call a halt to a disturbing trend being pushed by the plaintiffs’ bar:  class-action lawsuits in which no one was injured but that seek millions of dollars in “damages.”  The Court is being asked, in the case of First National Bank of Wahoo v. Charvat, to consider whether federal courts possess jurisdiction to hear such no-injury lawsuits.  The Court should accept the invitation and announce that attorneys will no longer be permitted to flout Article III of the U.S. Constitution, which limits the filing of federal lawsuits to those who have actually suffered an injury.

The case involves two small Nebraska banks that, like most banks, charge a small fee to non-customers who use their ATM machines.  Federal law requires banks to provide notice that they charge such a fee.  The two Nebraska banks did provide notice (on the very first screen seen by ATM users), and no one has come forward to claim that he or she used one of the ATMs without being aware that a fee would be incurred.

Here’s the wrinkle: at the time this lawsuit arose, federal regulations (since repealed) also required a second form of notice—on a small placard physically attached to the ATM.  Some of the ATMs maintained by the First National Bank of Wahoo and the Mutual First Federal Credit Union did not display the placard.  Jarek Charvat, an enterprising young man working with a local plaintiffs’ law firm, knew about the ATM fees and observed that the banks were not in full compliance with the federal placard regulation.  So he went from bank branch to bank branch, making ATM withdrawals and deliberately incurring a $2.00 fee at each stop. Continue reading

With Bauman v. DaimlerChrysler, High Court May Have Put Brakes on Forum Shopping

220px-Ruth_Bader_Ginsburg_official_SCOTUS_portraitCross-posted from WLF’s Forbes.com contributor site

The Supreme Court’s decision last month in Daimler AG v. Bauman has been viewed by many as having its principal impact on lawsuits involving overseas events.  There is no question that the decision evinces the Court’s reluctance to permit federal courts to exercise jurisdiction over controversies arising within other nations.  But to focus exclusively on this aspect of Daimler overlooks its potential bombshell consequences for domestic tort litigation; it could result in major upheavals in standard operating procedures for much of the plaintiffs’ bar.  Indeed, Daimler may even conceivably spell the end of most nationwide class action lawsuits.

The plaintiffs in Daimler were 22 residents of Argentina who claim to have suffered human rights abuses at the hands of Argentina’s military rulers more than 30 years ago.  The plaintiffs alleged that Mercedes-Benz Argentina, a subsidiary of Daimler, aided and abetted those human rights abuses.  Daimler is a German corporation whose cars are sold world-wide.  It sells its cars here through its American subsidiary, Mercedes-Benz USA (MBUSA).  MBUSA is a Delaware corporation with a principal place of business in New Jersey, and it distributes Daimler-manufactured cars to independent dealerships throughout the U.S., including many in California.

The plaintiffs filed suit in a federal district court in California against Daimler, claiming that it should be held responsible for the alleged misdeeds of its Argentine subsidiary.  They asserted personal jurisdiction over Daimler on the basis of MBUSA’s contacts with California, although they conceded that none of the events giving rise to their claim occurred in California.  The Ninth Circuit upheld the assertion of personal jurisdiction; it held that MBUSA did sufficient business in California to be answerable for any lawsuit filed against it within the state and that Daimler was similarly answerable because MBUSA was Daimler’s agent for jurisdictional purposes. Continue reading

Court Ruling Recalls Injudicious Average Wholesale Price Litigation Crusade

Cross-posted by Forbes.com at WLF’s contributor site

A little over a decade ago, federal regulators and state attorneys general initiated a litigation campaign to alter how government health care programs reimbursed doctors for prescription drugs. Like most “regulation by litigation” efforts, this campaign seized upon laws of broad application such as the False Claims Act (FCA) and encouraged private lawsuits of questionable merit. Government enforcers have long since moved on to other crusades, but as a federal court decision last month reflects, some private suits still drag on, burdening American businesses with needless legal expenses.

AWP. In the early 2000s, the federal government reimbursed health care providers based in part on a drug’s average wholesale price, or “AWP.” Some likened AWP to the sticker price, or MSRP, of a new car: an inflated number which almost no one actually paid. Everyone involved in health care was aware of the illusory nature of AWP, and federal and state regulators urged legislative change, but Congress resisted reform. So unelected officials and their brethren in the plaintiffs’ bar sought to impose change. As this 2002 WLF Working Paper explains, they devised legal theories which branded AWP as an overcharging scheme, and accused drug makers, price publishers, and other entities such as pharmacy benefit managers (PBMs) of perpetrating a fraud. State attorneys general filed billion-dollar fraud actions and plaintiffs’ lawyers teamed up with “whistleblowers” to file qui tam suits under the FCA.

The ensuing litigation crusade provided moderate returns at best to the plaintiffs’ lawyers and state AGs who jumped on board. For instance, in 2009, the Alabama Supreme Court dashed the state’s (and its contingent-fee lawyers’) dreams of a huge payday, dismissing two AWP cases, finding no fraud existed. Continue reading

Argentina May Get Supreme Court Review for its First Debt Case, But Not the Second

ArgentinaCross-posted at WLF’s Forbes.com contributor page

On the day that it returns from its holiday break on January 10, the chances are good that the U.S. Supreme Court will agree to review a dispute between Argentina and a creditor that is owed substantial sums on defaulted bonds.  Republic of Argentina v. NML Capital, Ltd., Case No. 12-842.  That dispute is not the one that has been making big headlines for the past year, however.  The high-profile case—in which the federal appeals court in New York (the U.S. Court of Appeals for the Second Circuit) last August upheld an order barring Argentina from treating “holdout” bondholders such as NML less favorably than other bondholders—has not yet reached the Supreme Court.  Moreover, major differences exist between the two cases such that even if the Court decides this week to review the first case, there is no reason to view that decision as an indication that the Court is likely to grant review in the second, higher profile case.  Indeed, there is good reason to conclude that the Court will not agree to hear the second case, which would preserve the bondholder’s victory.

The petition for review that the High Court will consider on January 10 arises from NML’s efforts to collect on court judgments against Argentina totaling $1.6 billion.  NML obtained the judgments after Argentina defaulted on bonds held by NML, which the nation has refused to voluntarily pay.  When judgment creditors are faced with a recalcitrant debtor, the law permits them to subpoena records for the purpose of attempting to pinpoint the location of the debtor’s assets; if they locate “nonexempt” assets, they are entitled to seize the assets in satisfaction of their court judgments.  NML has been attempting to engage in just such document discovery.  In particular, in 2010 it served document subpoenas on two banks located in New York in an effort to learn more about how Argentina moves assets through New York and around the world.  Over Argentina’s objection, the lower federal courts upheld the subpoenas.  Early in 2013, Argentina filed a petition asking the Supreme Court to review those decisions; Argentina asserted that the subpoenas violated its rights under the Foreign Sovereign Immunities Act (FSIA).

Although the Supreme Court grants no more than a tiny fraction of the thousands of petitions for review it receives each year, there is reason to conclude that the Court is giving serious consideration to granting Argentina’s petition.  First, the Court issued an order last April directing the Solicitor General to file a brief expressing the views of the United States about the case.  The Court issues no more than a handful of such orders each year; an order directing the Solicitor General to file a brief is generally viewed as an indication that the Court is actively mulling the petition in question.  The Solicitor General’s brief, filed earlier this month, recommended that the Court grant Argentina’s petition.  As studies have shown, such a recommendation substantially increases the chances of the Court’s granting a petition. Continue reading

FDA’s Disrespect for the First Amendment (and Federal Courts) Dips to a New Low

cnbcCross-posted at WLF’s Forbes.com contributor page

The Food and Drug Administration (FDA) has long had “commitment issues” in its relationship with the First Amendment.  It possesses statutory authority to prevent the sale and distribution of drugs whose intended use and labeling are not FDA-approved, but in doing so it routinely treads on manufacturers’ speech.  Federal courts have held repeatedly that the First Amendment severely restricts FDA’s regulation of truthful speech about approved drugs.  The agency has responded with assurances that it will comply fully with those court decisions.  Recent actions make clear, however, that FDA shows little or no respect for those rulings and apparently believes it is not bound by the First Amendment.

The latest example of FDA’s defiance took the form of a Warning Letter issued by FDA’s Office of Prescription Drug Promotion (OPDP) on November 8, 2013 to Aegerion Pharmaceuticals.  OPDP’s letter objected to an appearance by Aegerion’s CEO on a CNBC talk show directed to the financial community.  During the course of his interview, the CEO suggested that Juxtapid, a drug manufactured by Aegerion, was safe and effective for several off-label uses that are closely related to its approved uses.  For example, the CEO could reasonably have been understood to say that the drug, when taken by itself, was effective in reducing a patient’s “bad” cholesterol levels, even though FDA has approved Juxtapid as a treatment for reducing “bad” cholesterol only as an “adjunct” to a “low-fat diet and other lipid lowering treatments.”  The Warning Letter did not contend that the CEO’s statement regarding efficacy was false, but it nonetheless charged that the statement was illegal because it rendered Juxtapid “misbranded.”  The letter demanded that Aegerion “immediately cease misbranding Juxtapid” and to issue “corrective messages” to rectify the situation.

So how did OPDP reach the remarkable conclusion that truthful statements made on a television talk show aimed at the financial community can render an otherwise lawful drug “misbranded?”  OPDP noted that a “misbranded” drug is defined to include a drug that lacks adequate directions for all intended uses.  It is safe to assume that a drug’s approved labeling does not include adequate directions for uses that have not been approved by FDA.  So if a manufacturer distributes a drug with the objectively verifiable intent that it be sold for an off-label use, the drug can be deemed “misbranded.”  So far so good.  Continue reading