International Monthly: September 2015

 
 U.S. Competition, Consumer Protection and Privacy News
 

SEPTEMBER 2015

Competition

Commission Issues Statement of Principles Regarding Enforcement Against Unfair Methods of Competition

The FTC issued a Statement of Enforcement Principles that describes the underlying antitrust principles that guide the Commission’s application of its statutory authority to take action against “unfair methods of competition” prohibited by Section 5 of the FTC Act. Section 5 encompasses not only acts and practices that violate the Sherman or Clayton Act, the principal antitrust laws in the United States, but also those that contravene the spirit of the antitrust laws and those that, if allowed to mature or complete, could violate the Sherman or Clayton Act. The statement explains that the Commission will adhere to three principles when deciding whether to use its standalone authority under Section 5 to challenge unfair methods of competition. First, the Commission will be guided by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare. Second, it will evaluate the conduct under a framework similar to the rule of reason, that is, conduct that causes, or is likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications. Third, the Commission is less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice. The Commission vote to approve the Statement of Enforcement Principles was 4-1, with Commissioner Ohlhausen voting no.

Pfizer to Sell Rights to Four Products as a Condition of Acquiring Hospira

Pfizer Inc. agreed to sell the rights and assets related to four pharmaceutical products to settle FTC charges that its proposed $16 billion acquisition of Hospira, Inc. is anticompetitive. The proposed buyer is U.S.-based generic pharmaceutical company Alvogen Group Inc. Pfizer, one of the world’s largest drug companies, competes with Hospira principally in markets for certain sterile injectable pharmaceutical products. According to the FTC complaint, the proposed acquisition would have reduced the number of current suppliers in the markets for generic acetylcysteine inhalation solution and clindamycin phosphate injection. The proposed acquisition likely would have caused significant competitive harm to consumers by eliminating future competition that would have occurred if Pfizer and Hospira remained independent, notably on the voriconazole and melphalan hydrochloride injection markets. Further details on the assessment of this matter and the proposed divestitures are set forth in the analysis to aid public comment.

FTC Challenges Merger of Steris Corporation and Synergy Health

The FTC filed a redacted brief in support of its petition to the court for a preliminary injunction enjoining Steris Corporation from acquiring Synergy Health plc. In May, the FTC issued an administrative complaint charging that Steris Corporation’s proposed $1.9 billion acquisition of Synergy Health plc would significantly reduce future competition in regional markets for sterilization of products using radiation, particularly gamma or x-ray radiation. A preliminary injunction would maintain the status quo during the pendency of an administrative proceeding on the merits. According to the FTC’s brief, allowing the merger to close before the completion of the administrative proceeding would cause irreparable harm by allowing the combined firm to begin altering Synergy's operations and business plans, accessing Synergy's sensitive business information, and eliminating key Synergy personnel.

Pharmaceutical Companies Settle FTC Charges of an Illegal Agreement Not to Compete, Which Resulted in Higher Prices for Generic Version of ADHD Drug

Pharmaceutical companies Concordia Pharmaceuticals Inc. and Par Pharmaceutical, Inc. have settled FTC charges that they entered into an unlawful agreement not to compete in the sale of generic versions of Kapvay, a prescription drug used to treat Attention Deficit Hyperactivity Disorder. Until May 15, 2015, Concordia and Par were the only two firms permitted by the FDA to market generic Kapvay. Rather than competing against one another, Concordia allegedly agreed not to sell an authorized generic version of Kapvay in exchange for a share of Par’s revenues. As part of the settlement, the companies agreed not to enforce the allegedly anticompetitive provisions of their agreement. Details about the case are available in the analysis to aid public comment.

Application of Investment-Only exemption Leads to Settlement of Charges That Third Point Violated Premerger Notification Requirements

Three affiliated hedge fund companies have agreed along with their management company, Third Point LLC, to settle FTC charges that they violated premerger reporting laws in connection with their 2011 acquisitions of stock in Yahoo! Inc. According to the complaint, the three funds claimed that they were exempt from reporting because the purchases were made solely for investment purposes. The HSR Act exempts acquisitions of up to ten percent of voting securities if they are made solely for investment purposes. At the time of the stock purchases, however, Third Point LLC, which made investment decisions on behalf of the funds, was taking actions inconsistent with an investment-only intent, such as communicating with third parties to determine their interest in becoming the CEO or a board candidate of Yahoo. Under the terms of the order, defendants are prohibited from relying on the investment-only exemption if they have contacted third parties to gauge their interest in joining the board of the target company, communicated with the target company about proposed candidates for its board, or engaged in other specified conduct in the four months prior to acquiring voting securities above the HSR Act threshold. In this case, the agencies did not seek civil penalties because the violation was inadvertent and short-lived, and was the defendants’ first violation of the HSR Act. The Commission vote to refer the complaint and proposed settlement to the U.S. DOJ for filing in federal court was 3-2, with Commissioners Ohlhausen and Wright dissenting.

Consumer Protection and Privacy

Appellate Court Affirms FTC’s Authority to Hold Companies Accountable for Failing to Safeguard Consumer Data

The U.S. Court of Appeals for the Third Circuit has affirmed a lower court ruling in the FTC’s case against Wyndham Hotels and Resorts that the FTC may use the FTC Act’s prohibition on unfair practices to challenge companies’ data security practices. The FTC had sued the hospitality company, alleging that Wyndham’s data security failures led to three data breaches that resulted millions of dollars of fraudulent charges on consumers’ credit and debit cards. The breaches allegedly led to the transfer of account information of hundreds of thousands of consumers to a website registered in Russia. In 2014, a federal district court upheld the FTC’s authority to sue Wyndham for deficient data security practices, and the Third Circuit’s decision affirms that ruling. FTC Chairwoman Edith Ramirez issued a statement saying, “Today’s Third Circuit Court of Appeals decision reaffirms the FTC’s authority to hold companies accountable for failing to safeguard consumer data. It is not only appropriate, but critical, that the FTC has the ability to take action on behalf of consumers when companies fail to take reasonable steps to secure sensitive consumer information.”

FTC Acts to Halt Multilevel Marketer of Health and Wellness Drinks as Alleged Pyramid Scheme

At the FTC’s request, a federal court has temporarily halted an alleged international pyramid scheme operated by Vemma Nutrition Company. The company used social media and other marketing materials to attract young members, promising wealth without working a traditional 9-to-5 job. While members paid hefty fees, typically $500-600 to start and $150 per month thereafter, it was those fees, rather than retail sales of its health and wellness drinks, that supported the company and was used to pay other members. The scheme earned more than $200 million annually in 2013 and 2014. In its complaint, the FTC charged that Vemma is an illegal pyramid scheme that rewards affiliates for recruiting participants rather than for selling products. It also charged the defendants with making false earnings claims, failing to disclose that Vemma’s structure ensures that most people who join will not earn substantial income, and furnishing affiliates with false and misleading materials to recruit others. As a result of Vemma’s conduct, consumers throughout the United States and in more than 50 other countries have been injured. On August 21, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the business pending a trial.

FTC Charges Data Brokers with Helping Scammer Take More Than $7 Million from Consumers' Accounts

The FTC has charged a data broker operation with illegally selling payday loan applicants’ financial information to a scam operation that took millions of dollars from consumers by debiting their bank accounts and charging their credit cards without their consent. According to the FTC’s complaint, the data broker enterprise bought loan applications from the operators of payday loan websites and got others directly from consumers via their own payday loan websites. Instead of passing on those applications to legitimate payday lenders, the defendants sold the information to companies like Ideal Financial Solutions Inc., which purchased the financial account information for more than 500,000 consumers from the defendants and raided their accounts for at least $7.1 million. As a result, some consumers had to close their accounts or were charged fees for insufficient funds. For more details, including a list of settling defendants and ongoing litigation, click here.

Thirteen Companies Agree to Settle FTC Charges They Falsely Claimed to Comply with International Safe Harbor Framework

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 Thirteen companies have agreed to settle FTC charges of falsely claiming to be certified members of the U.S.-EU or U.S.-Swiss Safe Harbor Frameworks when their certifications had lapsed or never existed in the first place. The Safe Harbor Frameworks allow companies to transfer consumer data from the European Union and Switzerland to the United States in compliance with EU and Swiss law. The companies and proposed settlement agreements are listed here. To participate in the U.S.-EU or U.S.-Swiss Safe Harbor Frameworks, a company must self-certify annually to the Department of Commerce that it complies with the seven privacy principles required to meet the EU’s adequacy standard: notice, choice, onward transfer, security, data integrity, access, and enforcement. A participant may also highlight for consumers its compliance with the Safe Harbor by displaying the Safe Harbor certification mark on its website. Under the proposed settlement agreements the companies are prohibited from misrepresenting the extent to which they participate in any privacy or data security program sponsored by the government or any other self-regulatory or standard-setting organization. To check if a company is a Safe Harbor participant, click here.

In Advance of September Workshop FTC Staff Recommends That FDA Reevaluate Its Current Regulatory Framework for Homeopathic Products

homeopathy workshop

FTC staff is recommending that the U.S. Food and Drug Administration reconsider the framework it uses to regulate homeopathic medications due to apparent conflict with the FTC’s advertising substantiation doctrine. Unlike the FTC’s long-standing advertising substantiation policy, the FDA framework does not require sellers to have competent and reliable scientific evidence to support the indication for use on the product’s label. Some advertisers may mistakenly believe that homeopathic products that comply with the FDA framework do not have to comply with FTC advertising substantiation requirements. The FDA framework may lead some companies to avoid more stringent regulations for over-the-counter (OTC) drug products or dietary supplements by labeling them as homeopathic or combining homeopathic ingredients with dietary supplements or other non-homeopathic ingredients. As reported in the July International Monthly, the FTC will host a workshop on homeopathic drug advertising on September 21 in Washington D.C. The agency will post an agenda for the workshop shortly.

In Other News

FTC Announces First-Ever PrivacyCon Event for January 2016

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The FTC will host a conference in Washington, D.C. on January 14, 2016 to examine cutting-edge research and trends in protecting consumer privacy and security. The event, called PrivacyCon, is the first of its kind and will bring together leading stakeholders, including “whitehat” researchers, academics, industry representatives, federal policymakers, consumer advocates and others to discuss the implications of new research on security vulnerabilities and how they might be exploited to harm consumers, as well as recent research in areas such as big data, the Internet of Things, and consumer attitudes toward privacy. The FTC is seeking research from a variety of disciplines, such as data analytics, computer security, marketing, and economics. Details on the call for presentations will be available on the PrivacyCon website by September 10, and presentation proposals should be submitted no later than Oct. 9 to privacycon@ftc.gov. More information about the event, as well as an agenda, will be available on the website later this year.

FTC Releases FY 2014 HSR Premerger Notification Report

The FTC and DOJ released the agencies’ 37th Annual Hart-Scott-Rodino Report. The report presents information on the agencies’ premerger notification program for fiscal year 2014. The report notes that 1,663 transactions were reported to antitrust agencies during FY 2014, a 25 percent increase from the 1,326 transactions reported in FY 2013. In FY 2014, the agencies brought 33 enforcement actions that preserved competition in broad sectors of the economy, including consumer goods and services, pharmaceuticals, hospitals, high tech and industrial goods, and energy.

FTC Awards $25,000 Top Cash Prize for Contest-Winning Mobile App That Blocks Illegal Robocalls

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An international team of judges has helped the FTC select winners in its Robocalls: Humanity Strikes Back contest, including a $25,000 first place winner. The winning entry, RoboKiller, is a mobile app that blocks and forwards robocalls to a crowd-sourced honeypot. The app relies on universally available call forwarding and uses audio-fingerprint technology to identify robocalls. Judges also determined the winners of the FTC’s DetectaRobo analytic challenge, which was hosted in June in connection with the National Day of Civic Hacking. This contest did not include a monetary prize. More details on both contests are on the FTC website.

FTC Commissioner Joshua D. Wright Resigns

Joshua D. Wright, a Republican who served as a Commissioner of the FTC beginning in January 2013, resigned effective August 24. He will return to George Mason University School of Law as a Professor of Law and Director of the Global Antitrust Institute at the Law and Economics Center. Prior to becoming a Commissioner, Wright served at the FTC as an inaugural Scholar in Residence and in both the Bureau of Competition and Bureau of Economics. His resignation statement is available here.