International Monthly: August 2015

 
 U.S. Competition, Consumer Protection and Privacy News
 

AUGUST 2015

Consumer Protection and Privacy

FTC Takes Action Against LifeLock for Alleged Violations of 2010 Order On Identity Theft Protection Claims and Services

The FTC has alleged that LifeLock violated a 2010 settlement with the agency and 35 state attorneys general by making deceptive claims about its identity theft protection services and by failing to take steps required to protect its users’ data. The agency asked the court to impose an order requiring LifeLock to provide full redress to all affected consumers. The 2010 settlement stemmed from previous FTC allegations that LifeLock used false claims to promote its identity theft protection services and failed to implement adequate data security measures. The settlement barred the company and its principals from making any further deceptive claims, required LifeLock to take more stringent measures to safeguard the personal information it collects from customers, and required LifeLock to pay $12 million for consumer refunds. In the current action, the FTC asserts that in spite of these promises, LifeLock violated the 2010 Order by: 1) failing to establish and maintain a comprehensive information security program to protect its users’ sensitive personal data, including credit card, social security, and bank account numbers; 2) falsely advertising that it protected consumers’ sensitive data with the same high-level safeguards as financial institutions; and 3) failing to meet the Order’s recordkeeping requirements. The FTC also asserts that LifeLock falsely claimed it protected consumers’ identity “24/7/365” by providing alerts “as soon as” it received any indication there was a problem. The FTC filed its action under seal, and the court will later determine which portions of the case it will unseal. The Commission vote to file the application for a show cause order was 4-1, with Commissioner Maureen K. Ohlhausen voting no.

FTC, Florida Attorney General Sue to Stop Deceptive Robocalls from Operation That Pitched Seniors “Free” Medical Alert Systems

The FTC has filed a joint complaint with the Florida Attorney General’s Office (Florida AG) charging a New York-based operation known as Lifewatch with using illegal and deceptive robocalls to trick older consumers throughout the United States and Canada into signing up for expensive medical alert systems. Last year, one of Lifewatch’s telemarketing firms, Worldwide Info Services, agreed to a settlement with the FTC and the Florida AG banning it from making robocalls or engaging in other deceptive conduct. In the new action, the FTC and the Florida AG allege that Lifewatch knew of, and is responsible for, the illegal activities in that case, and that Lifewatch simply continued its telemarketing campaign using a variety of other telemarketers after Worldwide was shut down. According to the joint complaint, since 2012 Lifewatch has been bombarding primarily elderly consumers with millions of unsolicited robocalls. These calls are often placed to consumers whose numbers are on the National Do Not Call Registry, and typically use fake, “spoofed” caller ID information. They trick consumers into accepting a medical alert system that they are falsely told has been purchased for them, and are then saddled with monthly, recurring “monitoring” charges ranging from $29.95 to $39.95. Consumers who later realize they have been tricked discover that it is very difficult to cancel, and are told they have to pay to return the system or pay a $400 penalty. The joint complaint charges the Lifewatch defendants with violating the FTC Act and the FTC’s Telemarketing Sales Rule, as well as Florida’s Unfair and Deceptive Trade Practices Act. The agencies are seeking a preliminary injunction to stop the defendants’ use of illegal robocalls and deceptive telemarketing claims, as well as funds for eventual restitution to victims.

Supplement Marketers Will Relinquish $1.4 Million to Settle FTC Deceptive Advertising Charges

To resolve FTC charges that they deceived consumers with claims that their supplement was clinically proven to significantly improve memory, mood, and other cognitive functions, the marketers of a dietary supplement called Procera AVH will relinquish $1.4 million. According to the FTC, the defendants marketed and sold Procera AVH as a “solution” to memory loss and cognitive decline, including as associated with aging, using infomercials, direct mail flyers, newspapers, and the Internet. Procera AVH typically cost $79 per bottle. The Commission’s complaint alleges that efficacy claims for Procera AVH were false, misleading, or unsubstantiated and that the defendants falsely claimed that a scientific study proved the product’s efficacy. The complaint also charges the founder and chief science officer of defendant Brain Research Labs with making deceptive expert endorsements for Procera AVH. Under the terms of the settlements, the defendants will pay $1 million to the FTC, and another $400,000 to satisfy a judgment in a case brought by local California law enforcement officials. The settlement also bars the defendants from making similar deceptive claims and from misrepresenting the existence, results, or conclusions of any scientific study. This action follows other recent FTC cases challenging deceptive cognitive claims, such as teaching toddlers to read, boosting students’ grades and college admissions test scores, and improving memory in older adults, to name just a few. Many consumers are concerned about cognition at every stage of life, but, as the FTC has emphasized, companies shouldn’t rush into the market unless they have – at minimum – competent and reliable scientific evidence to support their claims.

Competition

Discount Retailers Dollar Tree and Family Dollar to Divest 330 Stores as Condition of Merger

The FTC announced that Dollar Tree Inc. and Family Dollar Stores, Inc. have agreed to sell 330 Family Dollar stores to a private equity firm, Sycamore Partners, to settle FTC charges that Dollar Tree’s proposed $9.2 billion acquisition of Family Dollar likely would be anticompetitive. According to the FTC’s complaint, Dollar Tree and Family Dollar sell deeply discounted general merchandise at prices below $10 (in the case of stores under the “Dollar Tree” banner, all items are priced at $1.00 or less). Their stores compete head-to-head on price, product assortment, and quality, as well as location and customer service in local markets nationwide. The FTC identified 330 stores in local geographic markets in 222 cities covering 35 states where competition would be lost if the acquisition went forward as proposed. Without a remedy, the FTC alleged that the acquisition would lessen competition and increase the likelihood that Dollar Tree would unilaterally exercise market power. Details about the divestitures are set forth in the analysis to aid public comment.

FTC Staff Supports North Carolina Legislative Proposal to Limit Certificate of Need Rules for Health Care Facilities

FTC staff submitted a staff comment to a North Carolina state legislator about possible competitive effects of a legislative proposal to narrow North Carolina’s Certificate of Need laws. Certificate of need laws, including North Carolina’s, typically require healthcare providers to obtain state approval before expanding, establishing new facilities or services, or making certain large capital expenditures. As the comment explains, certificate of need laws can restrict entry and expansion, limit consumer choice, and stifle innovation, and the process can be exploited by firms to limit pro-competitive alternatives. The comment expresses support for the proposed law, which would exempt diagnostic centers, ambulatory surgical facilities, and psychiatric hospitals from the certificate of need process.

FTC Staff Urges Minnesota Legislature to Weigh Benefits and Risks of Disclosing Terms of State Health Care Services Contracts

FTC staff submitted comments to the Minnesota legislature on the possible competitive issues raised by proposed amendments to the Minnesota Government Data Practices Act that effectively would treat the State’s health plan contract terms as government records subject to freedom of information requests. According to the staff comment, disclosing the negotiated terms of health plan contracts may offer little benefit to health care consumers but could pose a substantial risk of reducing competition in health care markets by enabling health care providers to see terms offered competitors and to use that information against the plans during negotiations. The comment urges the Minnesota legislature to strike a careful balance between beneficial disclosure of certain information that health care consumers likely would find to be most useful in their choice of competing health care providers and services (e.g., out-of-pocket expenses, co-pays, quality and performance indicators) with that which would hurt consumers by reducing competition among providers, leading to higher prices, lower quality, or less choice (e.g., negotiated fee schedules and other contract terms between health plans and providers). After filing these comments, staff explained on the Competition Matters blog why forcing competitors to reveal too much information can harm competition without helping consumers.

In Other News

FTC Amicus Brief Urges Appeals Court to Overturn District Court Decision That Pay-for-Delay Pharmaceutical Settlements Violate Antitrust Laws Only If Paid in Cash

The Federal Trade Commission filed an amicus brief in the U.S. Court of Appeals for the First Circuit urging the court to reject a district court decision in a reverse-payment patent settlement case. The district court held that an alleged non-cash payment from a brand to a generic to delay entry of a generic version of the branded drug escapes antitrust scrutiny because the payment was not in cash. The FTC’s amicus curiae brief argues that the Supreme Court’s 2013 decision in Federal Trade Commission v. Actavis Inc., holding that reverse-payment patent settlements are not immune from antitrust scrutiny and should be evaluated using traditional antitrust factors, applies to both cash and non-cash payments. The FTC maintains that limiting antitrust scrutiny to cash payments makes no economic sense, recognizing that patent litigation settlements involving non-cash payment allow brand companies to maintain and share monopoly profits at least to the same extent as settlements involving cash payments.

FTC Publishes Information for Recent Refugees and Immigrants on Avoiding Scams

refugee handbook

The FTC has published education materials especially designed for immigrants and refugees that have recently arrived in the United States to help them avoid scams. The materials include a handbook available in several languages, as well as posters on fake job offers and government impostor scams. The FTC partnered with the International Rescue Committee (IRC), a national organization that helps recent refugees, to learn more about the challenges faced by refugees. Recent arrivals are particularly at risk for fraud and identity theft because they are often unfamiliar with English and may be hesitant to seek assistance from law enforcement. Through discussions with refugee caseworkers and by attending orientation sessions and other events, FTC staff learned of the need for translated materials in simple to understand language. The new Fraud Handbook contains short, simple information about the most common frauds that target refugees. The handbook and posters (translated into Arabic, Amharic, Dari, French, Spanish, and Somali) are available on the FTC’s website and can be used or adapted in your jurisdiction.

FTC Announces Workshop to Examine Online Sales Lead Generation

The FTC will hold a workshop on October 30 to explore the growing use of online sales lead generation in various industries, including consumer lending and education. Lead generators are businesses that identify or cultivate consumers who are interested in a product or service and sell the consumer “lead” information to third parties. The leads sometimes contain consumers’ sensitive personal and financial information. The workshop will gather a variety of stakeholders, including industry representatives, consumer advocates, and government regulators, to provide more information about the industry and discuss consumer protection issues raised by lead generation practices. The FTC is seeking research, recommendations for discussion topics, and requests for panelists in advance of the workshop. Submissions may be emailed to leadgen@ftc.gov by August 25. The FTC will accept public comments, which may be submitted electronically, until December 20. The workshop is free and open to the public. It will be held at the Constitution Center, 400 7th St., SW, in Washington, DC. The FTC will publish a detailed agenda at a later date. Read this blog on the FTC website for more information.

FTC Kicks Off “Start With Security” Business Education Initiative

lead generation workshop

The FTC has launched a new initiative to help businesses protect consumers’ information by providing more information on data security. Called “Start With Security,” the initiative includes new guidance for businesses that draws on the lessons learned in more than 50 data security cases brought by the FTC. The business guidance lays out ten key steps to effective data security, drawn from these FTC cases. It includes references to the cases, as well as plain-language explanations of the applicable security principles. The FTC has also introduced a one-stop website that consolidates the Commission’s data security information for businesses. As part of the initiative, the FTC will hold a series of conferences aimed at small and medium-sized businesses, with the first two slated to take place in San Francisco, California and Austin, Texas. Aimed at start-ups and developers, the first conference, in San Francisco, will bring together experts to provide information on security by design, common security vulnerabilities, strategies for secure development, and vulnerability response.