International Monthly: June 2015

 
 U.S. Competition, Consumer Protection and Privacy News
 

JUNE 2015

Highlights

Chairwoman Ramirez, Assistant Attorney General Baer, and Canadian and Mexican Officials Participate in Trilateral Meeting to Discuss Antitrust Enforcement; Ramirez Meets with Mexican Consumer and Privacy Officials

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The heads of the antitrust agencies of the United States, Canada and Mexico met in Mexico City to discuss effective antitrust enforcement cooperation in increasingly interconnected markets. Their discussions covered implementation of Mexico’s new competition law, enforcement cooperation among the three countries’ antitrust agencies, approaches to innovative and disruptive technologies, regional technical assistance initiatives, and current enforcement priorities. The meetings build on the foundations laid by a series of bilateral antitrust cooperation agreements between the countries. Chairwoman Ramirez also met separately with the Attorney General of Mexico’s consumer protection agency, Profeco, to discuss cross-border investigative and enforcement cooperation as well as educational initiatives. She also met with the President Commissioner of INAI, Mexico’s data privacy authority, to discuss the agency’s new powers and its participation in the APEC cross-border privacy rules system. Representatives of the newly-launched Better Business Bureau of Mexico briefed Chairwoman Ramirez on their efforts to establish a nationwide complaint handling and business rating network and the potential for coordination with the FTC’s Consumer Sentinel Network.

Consumer Protection and Privacy

FTC and Law Enforcement Partners Charge Four Sham Cancer Charities with Defrauding Over $187 Million from Consumers

international monthly - june 2015 - cancer charity infographic

In one of the largest coordinated enforcement actions against charity fraud, the FTC and 58 law state law enforcers charged four sham cancer charities and their officials with bilking more than $187 million from consumers. The so-called charities told potential donors that contributions would go to direct support for cancer patients — medicine, cash help, groceries, transportation for chemotherapy, counseling, and hospice care. In truth, as the joint federal complaint alleges, these claims were deceptive. The sham charities spent most of the donated funds supporting themselves, their families and friends, and their paid fundraisers, who often received 85 percent or or more of donations. As the complaint states, the four charities “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.” Two of the organizations and their officials agreed to settle the charges against them. Litigation continues against the others.

Additional details about these scams and the proposed final orders are available here.

FTC Action Halts Global Sweepstakes Scam Targeting Older Consumers

At the FTC’s request, a federal court has temporarily halted a sweepstakes operation targeting older consumers that took more than $28 million from consumers throughout the United States, Australia, Canada, France, Germany, Japan and the United Kingdom. According to the FTC’s complaint and other court filings, the Florida-based defendants mailed consumers official-looking personalized letters with seals, stamps, and identification numbers. The letters falsely told consumers that they had won large cash prizes, typically more than $2 million. The letters said prizes were “guaranteed,” but to collect the money, consumers had to mail the defendants a $20-$30 fee by cash, check or money order. To create a false sense of urgency, they set a deadline, typically 10 days, and warned consumers they would forfeit their winnings if they didn’t pay on time. In reality, consumers had not won anything. The court issued an order that temporarily stopped the illegal conduct, froze the defendants’ assets, and appointed a receiver to control the operation while the FTC pursues the case. Federal criminal authorities arrested four defendants in connection with the sweepstakes operation. The FTC cooperated closely on this matter with several domestic law enforcement partners as well as with the Vancouver Police Department, the Windsor (Ontario) Police Service, and the Metropolitan Police in the United Kingdom.

For-Profit Ashworth College Settles FTC Deceptive Marketing Charges

Ashworth College has agreed to settle FTC deceptive marketing charges for its online college degree and career-training programs. According to the FTC’s complaint, Ashworth misrepresented to students that they would get the training and credentials needed to switch careers or get a new job, and that the course credits they earned would transfer to other schools. The company’s ads touted its programs as being “designed to ensure you are job-ready” or that you could “graduate and be ready for a new career in just 24 weeks.” In reality, many of Ashworth’s programs failed to meet basic educational requirements set by state licensing boards for careers or jobs such as real estate appraisers, home inspectors, elementary school educators, massage practitioners, and more. The FTC also alleged the institution claimed that its credits would transfer to other colleges and universities even though it had no basis to make that promise.

Wet Wipe Manufacturer Agrees To Substantiate “Flushability” Advertising Claims

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Nice-Pak Products, Inc., a manufacturer of wet wipes, has agreed to settle charges that it violated the FTC Act by misrepresenting that its product was “safe to flush” and “safe for sewer and septic systems.” According to the FTC’s complaint, the wipes actually were made of a non-woven fabric that didn’t break down as quickly and easily as advertised, and could cause clogging and/or damage to household plumbing, sewage lines and septic systems. Under the proposed administrative settlement, Nice-Pak has agreed to stop advertising its moist toilet tissue as flushable and to stop claiming that its product is safe for sewer and septic tanks unless it has substantiation for those claims. Under the order, Nice-Pak must have competent and reliable evidence for its “flushability” claims, which means that any tests for the product must replicate the physical conditions of the environment where the wipes will be disposed. The order also requires Nice-Pak to stop providing its customers, mostly large retailers, with information to make unsubstantiated claims. The FTC’s order is available for public comment until June 19.

FTC Requests Bankruptcy Court Take Steps to Protect RadioShack Consumers’ Personal Information

In a letter to the court-appointed consumer privacy ombudsman in the bankruptcy case of a large U.S. electronics retailer, RadioShack, the FTC’s Bureau of Consumer Protection (BCP) expressed concerns about the possible sale of personal data as part of the bankruptcy proceeding. The data, from tens of millions of RadioShack consumers, includes consumers’ names, addresses, e-mail addresses, and purchase histories. BCP Director Jessica Rich pointed to the extensive privacy promises that RadioShack made to consumers both online and in its stores – including promises not to sell consumers’ information or the company’s mailing lists – and recommended four conditions the court could place on any sale of consumers’ personal information to protect their privacy: (1) that consumers’ information not be sold as a standalone asset, but be bundled with other assets; (2) that consumer information be sold only to another entity that is in substantially the same line of business as RadioShack; (3) that the buyer agree to be bound by the RadioShack privacy policies that were in place when the consumers’ data was collected; and (4) that the buyer provide consumers with notice and obtain their affirmative consent before using data in a way that is materially different from the promises RadioShack made to consumers. Rich noted that the FTC had previously entered into a settlement with online retailer Toysmart, allowing the transfer of customer information under similar conditions. She stated, “These conditions served to protect consumer interests by ensuring that the data would be used consistent with Toysmart’s promises by an entity that was essentially operating as a new owner of the business, as opposed to a ‘third party’ who was merely the highest bidder in a winner-take-all auction that may not have a reputational interest in handling the information in the same manner.” Rich also stated that, as an alternative, RadioShack could obtain affirmative consent from its customers before it transfers the data. The consent process would allow customers to make their own determination as to whether a transfer of their information would be acceptable to them. For consumers who do not consent, their data would be purged.

Competition

Cephalon Pay for Delay Case Ensures $1.2 Billion in Ill-Gotten Gains Will Go to Affected Purchasers

The FTC reached a settlement resolving its antitrust suit charging Cephalon, Inc. with illegally blocking generic competition to its blockbuster sleep-disorder drug Provigil. The settlement stems from a 2008 FTC lawsuit, which charged that Cephalon unlawfully protected its Provigil monopoly through agreements with four generic drug manufacturers. The FTC alleged that Cephalon sued the generic drug makers for patent infringement and later paid them over $300 million to drop their patent challenges and forgo marketing their generic products for six years, commonly referred to as a “reverse-payment” patent settlement. In 2013, in FTC v. Actavis, the Supreme Court confirmed that reverse payments can violate the antitrust laws. Under the settlement, Teva Pharmaceutical Industries, Ltd., which acquired Cephalon in 2012, will make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, who overpaid because of Cephalon’s illegal conduct. In addition to compensating purchasers, Teva agreed to a prohibition on the type of anticompetitive patent settlements that Cephalon used to artificially inflate the price of Provigil. The order bars Teva’s U.S. operations from entering into a business deal with a competitor within 30 days of, or expressly conditioned on, a patent litigation settlement that restricts that competitor’s generic entry. This provision will not prevent Teva from entering into independent business transactions, and preserves Teva’s ability to enter other types of settlement agreements in which the value transferred is unlikely to present antitrust concerns.

Lorillard to Divest Four Cigarette Brands as a Condition of $27.4 Billion Merger

Tobacco companies Reynolds American Inc. and Lorillard Inc. have agreed to divest four established cigarette brands to Imperial Tobacco Group to settle FTC charges that their proposed $27.4 billion merger would likely be anticompetitive.The brands to be divested are Winston, Kool, Salem, and Maverick. Reynolds and Lorillard are the second and third largest U.S. cigarette makers behind industry leader Altria Group Inc. Imperial is an international tobacco manufacturer with a competitive presence in about 70 countries, but a comparatively small presence in the United States. With the acquisition of the divested assets, Imperial would become a more substantial competitor in the United States. According to the complaint, without the divestiture to Imperial, the proposed merger raises significant competitive concerns by eliminating current and emergent, head-to-head competition between Reynolds and Lorillard in the U.S. market for traditional combustible cigarettes. It also increases the likelihood that the merged firm would unilaterally raise prices, and that coordinated interaction would occur between Reynolds and Altria, the remaining two large competitors in an already concentrated industry. Further information is available in the analysis to aid public comment. Comments can be filed here. The Commission vote to issue the complaint and accept the proposed consent order for public comment and to issue a Commission Statement was 3-2. Commissioners Julie Brill and Joshua D. Wright voted no and issued dissenting statements.

Auto Parts Suppliers ZF Friedrichshafen and TRW Automotive Must Divest TRW’s Linkage and Suspension Business as Part of $12.4 Billion Deal

Two of the world’s largest auto parts suppliers, ZF Friedrichshafen AG and TRW Automotive Holdings Corp., have agreed to divest TRW's linkage and suspension business in North America and Europe to settle FTC charges that their proposed $12.4 billion merger would likely harm competition in the North American market for heavy vehicle tie rods. ZF and TRW are two of only three North American suppliers. It is not economical to ship these tie rods over long distances and, as a result, customers in North America predominantly buy from suppliers that have production facilities in the United States, Canada, and Mexico. The merged company will have six months after the proposed consent agreement takes effect to divest the TRW assets to an FTC-approved buyer. Additional details about the divestiture are available in the analysis to aid public comment.

In Other News

FTC and DOJ Support U.S. Patent and Trademark Office Efforts to Increase the Quality of Granted Patents

The FTC and the Department of Justice submitted comments to the United States Patent and Trademark Office (PTO) in response to the PTO’s comprehensive initiative to increase the quality of granted patents. The PTO initiative focuses on excellence in work products, measuring patent quality, and customer service. The joint comments commend the PTO for its continuing efforts to enhance patent quality, and support efforts to give clearer notice of the boundaries of claimed inventions.

FTC Retains Consumer Product Warranty Rules and Modifies Certain Administrative Interpretations

Following a review of the agency’s Rules and Guides under the Magnuson-Moss Warranty Act, the FTC announced it would keep the Rules in their current form. It also announced it would modify a few administrative “Interpretations” (or agency views) of the law that are intended to clarify the Act’s requirements for manufacturers, importers, distributors, and retailers. Specifically, in response to public comments, the FTC modified the Interpretation for Part 700.10(c) to clarify that implied tying claims, i.e., warranty language that implies to a consumer that warranty coverage is conditioned on the use of select parts or service, is deceptive. (For an example, see the FTC’s settlement with BMW, reported in the April International Monthly.) It also revised a related Interpretation about the interplay of the Act’s service contract provisions with state insurance laws. The Commission’s analysis also explains, among other things, the obligations of online and offline warrantors and the Act’s application to certain consumer leases. It affirmed Rule 703.5(j)’s prohibition on pre-dispute mandatory binding arbitration in the warranty context, ensuring that consumers can continue to use informal dispute mechanisms provided by the Act. The Commission vote to retain was 4-1, with Commissioner Maureen K. Ohlhausen voting no and issuing a dissenting statement.

Agenda for June 9 FTC Workshop on “Sharing” Economy Available; Webcast To Be Available on Workshop Site

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On June 9, the FTC will host a previously announced workshop to examine the “sharing economy” arising from the proliferation of online and mobile peer-to peer business platforms in certain sectors of the economy. The agenda for the workshop is now available on the FTC’s website. The workshop will explore how regulatory frameworks can accommodate new sharing economy business models while maintaining appropriate consumer protections and a competitive marketplace. The workshop will take place in Washington, D.C. at the FTC’s Constitution Center, and a webcast will be available on the day of the workshop at the workshop’s web page.

FTC Launches New Resource for Identity Theft Victims

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IdentityTheft.gov, just launched by the FTC, is the federal government’s new one-stop resource to help victims report and recover from identity theft. It is also available in Spanish at RobodeIdentidad.gov. The site provides checklists, sample letters, and other resources including specialized advice for consumers dealing with tax-related and medical identity theft and data breaches. Identity theft has been the top consumer complaint reported to the FTC for the past 15 years.