International Monthly: August 2016

 U.S. Competition, Consumer Protection and Privacy News

August 2016

Consumer Protection and Privacy

Herbalife Will Restructure Its Multi-Level Marketing Operations and Pay $200 Million for Consumer Redress To Settle FTC Charges


Herbalife International of America and two affiliated companies have agreed to fully restructure their U.S. business operations and pay $200 million to compensate consumers to settle FTC charges. The FTC alleged that the companies deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products. But the truth, as alleged in the FTC complaint, is that the overwhelming majority of distributors who pursue the business opportunity earn little or no money. The FTC also charged that the multi-level marketing company’s compensation structure was unfair because it rewards distributors for recruiting others to join and purchase products in order to advance in the marketing program, rather than in response to actual retail demand for the product, causing substantial economic injury to many of its distributors.

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In addition to imposing a $200 million consumer redress judgment, the settlement mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products. It requires Herbalife to tie distributor rewards to verifiable retail product sales and stop misleading consumers about potential earnings. More information about the Herbalife settlement is available in the Commission’s public statement and in blogs for consumers and business.

FTC Sends Warning Letters to Online Sellers Making Zika Virus-Protection Claims


FTC staff has sent 10 warning letters to online marketers selling products that purportedly provide protection from the Zika virus. The letters warn the recipients that Zika protection claims must be supported by competent and reliable scientific evidence in the form of well-controlled human clinical testing. The products of concern include wristbands, patches, and stickers that purportedly can repel the mosquitos that carry Zika or otherwise protect users from the virus. The letters also point out that the testing supporting claims of protection from the Zika virus must use the mosquito species that are able to carry the virus -- and must be able to demonstrate that the repellent effects last as long as advertised. See the blogs for businesses and consumers for more information.

FTC Issues Warning Letters to Companies Claiming APEC Cross-Border Privacy Certification

The FTC has issued warning letters to 28 companies that appear to have deceptively claimed certified participation in the Asia-Pacific Economic Cooperation Cross-Border Privacy Rules system on their websites. Under the system, companies can be certified as compliant with APEC CBPR program requirements based on the following data privacy principles: preventing harm, notice, collection limitation, use choice, integrity, security safeguards, access and correction, and accountability. The companies that received the letters must remove the claims regarding APEC CBPR from their websites immediately and inform FTC staff that they have done so, or provide information proving they are actually certified. The letter notes that companies that falsely claim certification in the system may be subject to an enforcement action under the FTC Act. The FTC recently settled its first case related to a deceptive claim of APEC CPBR certification.

Commission Finds LabMD Liable for Unfair Data Security Practices

The FTC, sitting as an administrative tribunal, has ruled that LabMD’s data security practices were unreasonable and constitute an unfair act or practice that violated Section 5 of the FTC Act. The Commission reversed the Administrative Law Judge’s decision that had dismissed the FTC charges. In finding that LabMD, which operated as a clinical laboratory for physicians, had failed to protect the sensitive personal information, including medical information, of consumers, the Commission’s unanimous opinion found that “LabMD’s security practices were unreasonable, lacking even basic precautions to protect the sensitive consumer information maintained on its computer system.”


FTC Charges that 1-800-CONTACTS Harms Competition in Online Search Advertising Auctions and Restricts Truthful Advertising to Consumers

The FTC sued 1-800-CONTACTS, the largest online retailer of contact lenses in the United States, alleging that it unlawfully orchestrated and maintained a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in online search advertising auctions and that restrict truthful and non-misleading internet advertising to consumers, resulting in some consumers paying higher retail prices for contact lenses. According to the FTC’s administrative complaint, 1-800-CONTACTS entered into bidding agreements with at least 14 competing online contact lens retailers that eliminate competition in auctions to place advertisements on the search results page generated by online search engines such as Google and Bing. The complaint alleges that the bidding agreements are overly broad and not necessary to safeguard any legitimate trademark interest.

FTC Consent Order Protects Competition in Ductile Iron Pipe Industry

Fortiline, LLC, a company that distributes ductile iron pipe, fittings, and accessories throughout much of the United States, agreed to settle FTC charges that it violated federal antitrust law by inviting a competitor to raise and fix prices. According to the FTC’s administrative complaint, Fortiline invited a competing firm, which mainly manufactures ductile iron pipe but also engaged in direct sales to contractors, to collude on pricing. The proposed consent order prohibits Fortiline from entering into, attempting to enter into, or inviting any agreement with any competitor to raise or fix prices, divide markets, or allocate customers. The Commission vote to issue the complaint and accept the proposed consent order for public comment was 2-1, with Commissioner Ohlhausen voting no on the proposed consent order and issuing a dissenting statement.

FTC Requires Teva To Divest More Than 75 Generic Drugs in Acquisition of Allergan’s Generic Business

Teva Pharmaceutical Industries Ltd. agreed to sell the rights and assets related to 79 pharmaceutical products to identified buyers and to offer existing active pharmaceutical ingredient customers of 15 pharmaceutical products long-term supply contracts to settle FTC charges that its proposed $40.5 billion acquisition of Allergan plc’s generic pharmaceutical business would be anticompetitive. The remedy marks the largest drug divestiture order in an FTC pharmaceutical merger case. It will preserve competition in U.S. pharmaceutical markets where Teva and Allergan compete now or would likely have competed in the future if not for the merger. Antitrust agencies in the European Union, Canada, Israel, and Mexico cooperated with the FTC on this investigation.

As a Condition of Acquiring Meda, FTC Requires Mylan To Divest Rights to Two Generic Drugs

Mylan Inc. has agreed to divest all of its rights and assets related to 400 mg and 600 mg generic felbamate tablets, which treat refractory epilepsy, and to relinquish its U.S. marketing rights for generic carisoprodol tablets, which treat muscle spasms and stiffness, to settle FTC charges that its proposed $7.2 billion acquisition of Swedish drug maker Meda would be anticompetitive. According to the Commission, without a remedy, the acquisition would combine two of three companies currently offering 400 mg and 600 mg generic felbamate tablets, likely leading consumers to pay higher prices. It also would eliminate future competition between Mylan and Meda in the market for 250 mg generic carisoprodol tablets.

Ahold and Delhaize Group To Sell 81 Stores as a Condition of Merger

Koninklijke Ahold and Delhaize Group, which between them own and operate five well-known U.S. supermarket chains, have agreed to sell 81 stores to settle FTC charges that their proposed $28 billion merger would likely be anticompetitive in 46 local markets. According to the complaint, supermarkets operated by Ahold and Delhaize compete closely for shoppers based on price, format, service, product offerings, promotional activity, and location. The FTC alleged that the merger would have eliminated direct supermarket competition to the detriment of consumers in these local markets.

In Other News

FTC Announces Fall Technology Series Workshops on Ransomware, Disclosures, Drones, and Other Topics

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The FTC announced the first workshop as part of its Fall Technology Series. The agency will host a workshop on Ransomware on September 7 at the FTC headquarters in Washington, DC. Ransomware hackers are sneaking into consumer and business computers with alarming frequency, encrypting files containing photos, documents, and other important data, and then demanding a ransom in exchange for the key needed to decrypt the files. An agenda will be posted closer to the event. Other upcoming events include September 15: Putting disclosures to the test; October 13: Drones workshop; October 26: Crowdfunding & P2P payments workshop; December 6: Changing consumer demographics workshop; December 7: Smart TV workshop; and January 12: PrivacyCon.

FTC and DOJ Issue Annual Report on Premerger Notification Program

The FTC and the Antitrust Division of the Department of Justice released the 38th Annual Hart-Scott-Rodino Report. The report notes that 1,801 transactions were reported to antitrust agencies during fiscal year 2015, an 8.3 percent increase from the 1,663 transactions reported in fiscal year 2014. The report summarizes the agencies’ merger enforcement activities, highlighting the 42 merger enforcement actions taken to preserve competition in diverse and important sectors of the economy, including consumer goods and services, pharmaceuticals, hospitals, high tech and industrial goods, and energy. A blog post explains how the HSR annual reports collectively tell the story of how the world’s first premerger notification program was conceived and how it has evolved to provide for effective and efficient review to prevent mergers that may substantially lessen competition in violation of U.S. law before they occur.

FTC Staff Blog on “What Does It Take To Settle a Merger Case?”

To further promote transparency of its analysis and approaches, staff of the FTC Bureau of Competition have posted a blog addressing what it takes to settle a merger case. The post explains how two recent cases illustrate the challenges, and potential benefits, of attempting to craft remedies through negotiated settlements. Settlements allowed the Commission to eliminate the risk of anticompetitive harm posed by some mergers, such as Ball Corporation’s acquisition of Rexam PLC, while still preserving as much of the legitimate efficiencies as possible. However, the give-and-take of settlement negotiations does not entail trade-offs that leave some potential for anticompetitive harm unaddressed. If, in the end, it is not possible to fully address competitive concerns without undermining the business case for the merger, such as the recent Superior Plus Corp. and Canexus Corporation merger, the Commission is prepared to challenge the merger.

Insights from the FTC’s Chief Technologist

FTC Chief Technologist Lorrie Cranor and staff attorney Nithan Sannappa, published a blog post taking a “deep dive into mobile app location privacy” following the Commission’s first settlement with a mobile advertising network, InMobi, about its location tracking practices. The blog explains how InMobi circumvented “permission” settings on consumers’ mobile devices to track them without their consent and discusses technical steps that mobile operating systems have taken to try to address this practice. In a separate blog post, Ms. Cranor also invited researchers to share their work on a variety of topics of interest to the FTC such as: What can be done to protect consumers from ransomware, malvertising, etc.? What are the best ways to assess the risks posed by breaches and vulnerabilities? How can we tie exposed data to a specific breach? Can we make certain attacks less profitable? How can we better identify fraud? The post contains details on how to contact the FTC.