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Unfair Business Practices Round-up

September 20, 2016

Corporate building with blue sky

The term “unfair business practices” is a very broad phrase that can encompass many different violations and practices. Most people are familiar to some extent with unfair business practice types; at the very least, most would understand it to include some sort of false or deceptive conduct.

Broadly speaking, unfair business practices can involve:

  • False, deceptive, untrue, or misleading advertising
  • Unscrupulous pricing practices, including price gouging and price discrimination
  • Monopolization of a specific market
  • Various other practices

Consumers and investors tend to be aware of these basic issues. However, unfair business practices can also involve practices that are highly nuanced and industry-specific. For instance, in the real estate industry, violations like force-placed insurance policies may be difficult to assess without the assistance of a legal professional.

Besides personal losses and loss of business revenue, unfair business practices can have far-reaching negative effects on the leadership of companies involved in a claim. If a company becomes entangled in allegations of unfair business practices, it can serve as a deterrent to investors who may be potentially interested in a company.

For instance, Bryan Armstrong, a managing director for FTI Consulting, stated that investors typically avoid legal challenges that “shatter their confidence in the management team.” These statements were made in the wake of a recent lawsuit involving the CEO of Prime Hospital, who is being accused of unfair business practices with regard to the operation of hospital chains.

Unfair Business Practice Legal Claims Continue to be Pervasive

Unfair business practices lawsuits are among the most pervasive and persistent types of legal claims, and many of them can involve multiple issues. To illustrate, various forms of misrepresentation were uncovered in the $200 million Herbalife settlement. The case involved unfair compensation schemes based on recruitment rather than product scales, and misrepresentations of reasonable earning rates for new recruits. The Federal Trade Commission (FTC) is now requiring Herbalife to have at least two-thirds of its awards based on verifiable retail product sales.

Another recent example of a classic unfair business practice claim is the Picassotiles case, in which the plaintiff alleged that a competitor had their product removed from Amazon sales in efforts to reduce competition. These two cases are examples of straight-forward instances where the unethical practices may directly affect consumers and businesses.

Emerging Trends and Patterns Regarding Unfair Business Practices

Besides the steady stream of cases involving deception and fraud, there have been some very interesting, novel applications of unfair business practice laws in recent years. Recent cases have been pushing the boundaries of what constitutes an “unfair business practice.” These are occurring in two specific areas: pharma/healthcare and data breach technology.

We are seeing a spike in unfair business practice litigation specifically in the area of pharmaceutical marketing and healthcare. As this industry continues to boom economically, the potential for the proliferation of fraud and abuse also increases and widens. Many unfair healthcare business practices are also tied with anti-competition and monopoly laws. For instance, Mylan Pharmaceuticals, Inc., the makers of EpiPen devices, has recently been facing a string of legal investigations involving issues like sharp price hikes. Investigations are also underway to determine whether Mylan used contract language that locked schools into non-competitive contracts.

This last contract issue highlights a concern that is becoming pervasive in the healthcare and pharmaceutical industries: engaging in exclusionary practices that are intended to hinder competitors and secure a monopoly position in the market. Another case that illustrates the issue of anti-competition is In re Flonase Antitrust Litigation. In this important case, law firm Kessler Topaz secured a $150 million settlement regarding a drug manufacturer’s attempt to block generic medications from entering into the market.

Thus, we see that unfair business practices can affect not only consumers and investors, but can also threaten to undermine the fundamental premises upon which free trade and market competition are supposed to function.

Expansion of Unfair Practice Definitions in Data Breach Cases

A trio of cases mark significant turning points in the way that U.S. courts approach unfair business practices in relation to data breach cases. Some highlights from these cases include:

  • Financial institutions are now able to seek legal relief from companies on a class-wide basis due to disclosures of sensitive data. In re Target Corporation Customer Data Security Breach Litigation, No. 14-md-02522 (D. Minn.).
  • Investors do not need to wait until after their sensitive financial data has been fraudulently used before bringing legal action against a company that failed to protect their data. Remijas v. Neiman Marcus Group, LLC, 794 F.3d 688 (7th Cir. 2015).
  • Companies are now on notice that they may face potential action by the FTC if their data protection measures and procedures do not properly safeguard consumer information. FTC v. Wyndham Worldwide Co., ___ F.3d ___, 2015 WL 4998121 (3d Cir. August 24, 2015).

These data breach cases involve analyses of the technical aspects of data breach and cybersecurity. For instance, the court in Wyndham went through great lengths discussing technical points such as how long data is kept, the use of firewalls, and data encryption techniques. Thus, as data security technology evolves, legal practitioners must also keep pace with the rapid changes occurring in this sector, as interpretations of laws are often based specifically upon how certain technologies work.

In summary, it is clear that an unfair business practice can create immediate problems for individual consumers and business owners. However, the greater dangers of unfair business practices have to do with the way that they affect industries as a whole, especially when they attempt to restrict competition and trade.

If you have any questions or concerns about how an unfair business practice issue can affect your investment or interests, contact us today at Kessler Topaz. Our team of attorneys is dedicated to eradicating fraud and unfair practices through compelling advocacy that is based on sound economic and financial data.