Consumer Protection and Privacy
The FTC announced its first law enforcement crackdown on deceptive claims in the growing market for cannabidiol products. The FTC’s actions against six sellers of cannabidiol-containing products challenged a wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and others. The FTC is requiring each of the companies, and individuals behind them, to stop making such unsupported health claims immediately. Several will pay monetary judgments to the agency. The crackdown, Operation CBDeceit, is part of the Commission’s ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites and through social media companies such as Twitter.
Tapjoy, Inc., a company that operates an advertising platform within mobile gaming applications, has settled FTC allegations that it knowingly failed to provide in-game rewards it promised users for completing advertising offers, including purchasing a product, signing up for a free-trial offer, providing personal information, or taking a survey. Hundreds of thousands of consumers complained, including many who claimed that they spent a significant amount of money completing various Tapjoy offers or revealed sensitive personal information, such as their medical history or contact information. The FTC alleged that Tapjoy, which earns commissions from third-party advertisers, implemented policies to discourage consumers from complaining, such as prohibiting consumers from submitting a complaint within 24 hours of completing an offer. The settlement prohibits Tapjoy from misleading users about the rewards they can earn and requires the company to monitor its third-party advertiser partners to ensure they do what is necessary to enable Tapjoy to deliver the promised rewards.
Flo Health, Inc., the developer of a period and fertility-tracking app used by more than 100 million consumers, has settled FTC allegations that the company shared the health information of users – including the fact of a user’s pregnancy – with third parties that provided marketing and analytics services to the app, despite promising that such information would be kept private. Flo did not stop disclosing this sensitive data until its practices were revealed in a news article in February 2019, which prompted hundreds of complaints from the app’s users who felt “outraged,” “victimized,” and “violated.” The FTC also alleged that Flo violated the principles of the then-in-force EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield frameworks that, among other things, required participants in those programs to ensure notice, choice, and protection of personal data transferred to third parties. The proposed settlement requires Flo Health, Inc. to, among other things, obtain an independent review of its privacy practices and get app users’ consent before sharing their health information. Flo must contact people who used the app, notifying them that it shared information about their periods and pregnancies with third parties, in violation of its privacy promises. The company must clearly post the same notice on its website. Flo must also instruct any third party that received users’ health information to destroy that data.
Everalbum, Inc., a photo app developer, has settled FTC allegations that it deceived consumers about its use of facial recognition technology and its retention of the photos and videos of users who deactivated their accounts. As part of the proposed settlement, the company must obtain consumers’ express consent before using facial recognition technology on their photos and videos. The proposed order also requires the company to delete models and algorithms it developed by using the photos and videos uploaded by its users. “Using facial recognition, companies can turn photos of your loved ones into sensitive biometric data,” Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, said. “Ensuring that companies keep their promises to customers about how they use and handle biometric data will continue to be a high priority for the FTC.”
Wine and spirits maker E. & J. Gallo Winery agreed to divest several product lines and remove certain others from its asset purchase agreement with competitor Constellation Brands, Inc. to settle FTC charges that their proposed $1.7 billion transaction would have been likely to substantially lessen competition. The FTC alleged that the proposed acquisition would have eliminated head-to-head competition between Gallo and Constellation and lessened competition for entry-level on-premise sparkling wine, low-priced sparkling wine, low-priced brandy, low-priced port, low-priced sherry, and high color concentrates.
After the FTC filed an administrative complaint and authorized a suit in federal court, The Procter & Gamble Company abandoned its proposed acquisition of Billie, Inc., a direct-to-consumer company that began selling women’s razors and body care products in November 2017. The FTC charged that the acquisition would allow Procter & Gamble, the market-leading supplier of both women’s and men’s wet shave razors, to eliminate growing competition from Billie. According to the FTC, Billie targeted Generation Z and Millennial women and attacked the practice of pricing women’s razors higher than comparable men’s razors—otherwise known as the “pink tax.” The Commission vote to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction was 4-1. Commissioner Christine Wilson voted no.
Firms Abandon Two Mergers Following FTC Challenges
Two acquisitions that the FTC challenged in November (described in our December 2020 newsletter) were abandoned after the FTC voted to challenge the transactions. In one case, the parties abandoned CoStar Group Inc.’s proposed acquisition of RentPath Holdings, Inc., and in the other, Methodist Le Bonheur Healthcare abandoned its proposed acquisition of two Memphis-area hospitals from Tenet Healthcare.
The FTC issued a Commentary on Vertical Merger Enforcement. Last June, the FTC and the Department of Justice issued Vertical Merger Guidelines describing the principal analytical techniques, practices, and enforcement policies that the agencies use in evaluating whether vertical mergers violate the antitrust laws. The FTC’s commentary provides greater transparency to the public regarding its analysis of vertical mergers. The Commission vote to issue the Commentary on Vertical Merger Enforcement was 3-2. Commissioners Rohit Chopra and Rebecca Kelly Slaughter voted no.
In Other News
The FTC Bureau of Competition has published a blog post by Director Ian Conner on “2020: Remote work with real results.” In the post, Conner lists “ten ‘things that happened in 2020’ that made this year especially memorable, and, in some cases, historic.” The list includes: the pivot to full-time telework; the debut of HSR e-filing; an unprecedented number of merger suits; tackling anticompetitive conduct of all types; getting the hang of virtual investigations and trials; taking order obligations seriously; the first joint FTC/DOJ guidance on vertical merger analysis; right-sizing HSR for modern times; coordination on competition and consumer protection concerns; and standing up for policies that promote competitive healthcare markets—this year and every year.
A new data analysis by the FTC shows that gift cards continue to be the most common form of payment when consumers report losing money to most scammers, with consumers reporting $245 million spent on gift cards used to pay scammers since 2018. Consumers are often drawn in by imposters who convince them to pay with gift cards purchased at retail outlets and provide the PIN on the card to the imposter. Because of the pervasive nature of these schemes, the FTC is also rolling out a new campaign to partner with retailers around the country to help prevent consumers from being caught up by a gift card payment scam. The agency has created new materials that retailers can place directly at the point of sale for gift cards—both on the racks where they are displayed and at cash registers—to stop consumers who may be in the process of buying gift cards to pay a scammer, raising key questions, and reminding consumers that “gift cards are for gifts, not payments.”
The FTC issued a call for research on a wide range of privacy and security issues as part of its sixth annual PrivacyCon event, which will take place on July 27. PrivacyCon 2021 will bring together a diverse group of stakeholders, including researchers, academics, industry representatives, consumer advocates, and government regulators, to discuss the latest research and trends related to consumer privacy and data security.
Following a public comment period, the FTC has approved a Federal Register notice announcing final amendments to the agency’s Energy Labeling Rule. The final amendments establish EnergyGuide labels for portable air conditioners (AC) and update the energy efficiency descriptors for central AC units. The FTC proposed requiring these EnergyGuide labels starting on January 10, 2025, to coincide with new Department of Energy efficiency standards applicable to these products. However, after reviewing public comments, the Commission has set the final compliance date as October 1, 2022 to make these labels available to consumers sooner. The Commission vote approving publication of the notice in the Federal Register was 4-1, with Commissioner Christine Wilson voting no.