Annual Highlights 2015

Enforcement

The Commission is primarily a law enforcement agency. We bring both court and administrative actions to enhance competition and ensure that consumers receive truthful information and are treated fairly.

Introduction

enforcementIn 2015, the Commission continued to actively promote competition with 27 merger challenges and a number of anticompetitive conduct cases. Most significantly, the Commission preserved competition in the $231 billion foodservice industry by successfully preventing Sysco from buying its rival, US Foods. We also filed suit to block five other proposed mergers, four of which remain pending. In addition, the Commission obtained large monetary settlements in two healthcare sector conduct cases (Cephalon and Cardinal Health) as well as our third victory in three years at the Supreme Court in North Carolina Board of Dental Examiners v. FTC.

On the consumer protection front, the FTC had many victories in 2015 at both the district court and appellate levels on important topics such as the common carrier exemption (AT&T Mobility), data security (Wyndham), and deceptive advertising (POM Wonderful).

Here are the highlights of this year’s law enforcement efforts, which focused on a number of sectors with a large impact on consumers’ daily lives, such as health care, technology, and consumer products and services, and demonstrate the Commission’s commitment to fulfilling its mandate to promote competition and protect consumers.

Health Care

The Commission has long prioritized promoting competition in healthcare markets because it helps contain costs, improves quality, and encourages innovation. Relying primarily on enforcement, the Commission works to prevent anticompetitive mergers and conduct that would harm competition in these markets.

hospitalThe Commission continued to devote significant resources to stopping anticompetitive healthcare provider consolidation in 2015, filing suit to block three proposed hospital mergers—in Huntington, West Virginia; Harrisburg, Pennsylvania; and the North Shore area of Chicago. The Commission has alleged that these mergers are likely to reduce competition by leaving health insurers with few alternative providers to include in their networks, increasing the bargaining leverage of the merged hospitals, and resulting in higher healthcare costs and lower quality service in local communities. The Commission’s approach to analyzing the effects of provider mergers was validated in an important ruling by the Ninth Circuit in the St. Luke’s case when the court affirmed an FTC trial victory stopping the merger between Idaho’s dominant health system and the state’s largest group of primary care physicians.

The pharmaceutical sector has also experienced significant merger activity in recent years, and the Commission continues to carefully review mergers between pharmaceutical manufacturers and require divestitures where necessary to maintain competition. The Commission announced settlements in six mergers involving pharmaceutical products, including cancer treatments in development, antibiotics, and generic drugs to treat common conditions such as dry mouth and ulcers. Additionally, the FTC also required divestitures to preserve competition in the markets for certain medical devices used to treat injuries to ankles, toes, knees, and elbows.

The Commission also maintained a robust program to stop anticompetitive conduct in healthcare markets. In April, Cardinal Health agreed to pay $26.8 million to settle charges that it monopolized 25 local markets for the sale of radiopharmaceuticals, forcing hospital and clinics to pay inflated prices for the vital drugs that are used to diagnose a range of conditions, including heart disease.

CephalonThe Commission continues to investigate and challenge anticompetitive reverse payment patent settlements between branded and generic pharmaceutical mergers following a favorable ruling from the Supreme Court in 2013 in FTC v. Actavis, which cleared the way for antitrust review of potentially anticompetitive pay-for-delay patent settlement agreements. In May 2015, the Commission settled its case against Cephalon, with Teva, Cephalon’s parent, forfeiting $1.2 billion in ill-gotten profits to purchasers who overpaid for the drug Provigil as a result of its anticompetitive pay-for-delay agreements with generic rivals. Additionally, Teva agreed to stop using certain types of anticompetitive patent settlements. The Commission has two other pay-for-delay cases pending.

The Commission also stopped an agreement not to compete that was not related to a patent challenge. To settle the FTC charges, Concordia and Par abandoned an unlawful agreement not to compete, which would have reduced the number of competing generic drugs available to treat ADHD, depriving consumers of the lower prices that typically occur with generic competition.

Finally, the FTC achieved a notable victory in North Carolina Board of Dental Examiners when the Supreme Court affirmed a Commission administrative decision that “a state board on which a controlling number of decision-makers are active market participants in the occupation the board regulates must satisfy [the] active supervision requirement in order to invoke state action antitrust immunity.” The Court’s ruling is particularly significant because occupational licenses, which are often regulated by boards controlled by market participants, are required for a significant and growing number of occupations.

On the consumer protection side, the FTC continues to target deceptive health claims, which can result in serious harm to consumers. For example, as part of a joint law enforcement sweep with the Department of Justice and other federal agencies targeting illegal dietary supplement marketing, the FTC alleged Sunrise Nutraceuticals deceptively claimed that its supplement would alleviate opiate withdrawal symptoms and increase a user’s likelihood of overcoming opiate addiction. The Commission also focused its resources on deceptive health claims involving children. The FTC’s case against NourishLife challenged allegedly unsubstantiated claims for a supplement purporting to treat childhood speech and behavioral disorders, including those associated with autism. And in January, the D.C. Circuit affirmed a 2013 FTC decision that POM Wonderful deceptively advertised that its pomegranate products could treat, prevent, or reduce the risk of heart disease, prostate cancer, and erectile dysfunction, and were clinically proven to have such benefits.

The Commission is also tackling unsubstantiated health claims on the mobile platform. The FTC charged two app developers with deceptively claiming that their mobile apps – Mole Detective and MelApp – could detect symptoms of melanoma, even in the early stages. In fact, the Commission alleged, the companies lacked scientific evidence to support their claims. Similarly, the Commission sued the marketers of an app called Ultimeyes for deceptive claims that they had scientific proof the app could “turn back the clock” on consumers’ vision through a series of visual exercises available on the app.

Deceptive weight loss claims also continue to be an enforcement priority. In 2015, the Commission brought a number of cases against companies touting the slimming effects of various products. For example, the FTC obtained an $11.9 million dollar judgment against affiliate marketing network LeadClick Media for using fake news sites to convince consumers that acai berry and colon cleansing weight loss products were proven effective. The Commission halted the operations of Sale Slash, which allegedly used millions of illegal spam emails, along with false weight-loss claims and fake, unauthorized endorsements from celebrities like Oprah Winfrey, to market unproven diet pills, The FTC filed a complaint against Lunada Biomedical and its principals alleging that they deceptively advertised that their dietary supplement Amberen caused substantial weight loss for women over 40, and that the weight loss was clinically proven. Defendant Lindsey Duncan agreed to pay $9 million in consumer redress after making TV appearances on The Dr. Oz Show touting pure green coffee bean extract. According to the Commission’s complaint, Duncan purported to be an independent expert when he was actually selling the supplement through websites set up in advance.

Technology

Technological innovation enhances our lives and provides us with new tools to perform everyday tasks, and the FTC seeks to ensure that technology markets remain competitive and benefit consumers.

In 2015, the Commission took action to preserve competition in the worldwide market for RF power amplifiers, which are semiconductors that amplify radio signals used to transmit information between devices such as cell towers and mobile phones. However, the Commission was unsuccessful in its attempt to prevent a merger between the second and third largest contract sterilization companies in the world after a federal district court allowed the merger to proceed despite Commission concerns that the merger would harm competition. Specifically, the Commission alleged that the merger would jeopardize the introduction of new x-ray sterilization technology in the United States that would compete against existing sterilization methods relied on by companies to ensure their products are free of unwanted microorganisms. Following the district court’s decision, the Commission dismissed the administrative complaint, concluding that further adjudication was not in the public interest.

mobile phoneOn the consumer protection side, the Commission brought several actions challenging fraud on new platforms. For example, the FTC challenged the deceptive tactics of Erik Chevalier, a project creator who raised money from consumers to produce a board game through a Kickstarter campaign, but instead used most of the funds on personal items, such as rent. The agency also took action against the defendants behind Prized, a mobile gaming app that supposedly earned consumers rewards. The app promised it would be free from malware, but instead loaded consumers’ mobile phones with malicious software to mine virtual currencies for the developer. In Jerk.com, the Commission granted summary judgment against the operators of a website that billed itself as “the anti-social network,” for deceiving users about the source of content on the website. The Commission found that the operators misled consumers by claiming that content on the website was posted by other users, when instead most of the content came from Facebook profiles mined by the operators.

The FTC has also focused resources to challenge deceptive endorsements online. The Commission charged Machinima, an entertainment network, with paying a large group of “influencers” to develop and post videos online endorsing the XboxOne system and several games. The influencers paid by Machinima allegedly failed to adequately disclose that they were being paid for their seemingly objective opinions. In Roca Labs, the Commission filed a case in federal court against the marketers of a line of weight-loss supplements who allegedly made baseless claims for their products, and then threatened to enforce “gag clause” provisions against consumers to stop them from posting negative reviews and testimonials online.

As the mobile marketplace continues to grow, privacy and data security remain Commission priorities. For example, the FTC addressed the growing practice of retailers using mobile technologies to track the movements of their customers in stores. The agency alleged in Nomi Technologies that the analytics firm’s online privacy policy promised that the stores using Nomi’s services would post signs and allow consumers to opt out of tracking at the store. In fact, the FTC alleged, there were no signs or opt outs in stores, and consumers had no way of knowing which stores were using Nomi’s services. In cases against app developers LAI Systems and Retro Dreamer, the FTC alleged that the companies created a number of apps directed to children that allowed third-party advertisers to collect personal information from children in the form of persistent identifiers without obtaining parental consent, in violation of the Children’s Online Privacy Protection Act (COPPA) Rule.

The agency prioritizes data security beyond the mobile arena as well. Wyndham Hotels and Resorts agreed to settle FTC charges that the company’s security practices unfairly exposed the payment card information of hundreds of thousands of consumers to hackers in three separate data breaches. While the Wyndham case was pending, the Third Circuit affirmed the FTC’s authority to challenge unfair data security practices using its Section 5 authority. The FTC also settled charges that Oracle deceived consumers about the security provided by updates to its Java Platform, Standard Edition software (Java SE). Under the terms of a consent order, Oracle is required to give consumers the ability to easily uninstall insecure, older versions of Java SE.

We have also continued our efforts to stop illegal telemarketing. A federal district court found Dish Network liable for tens of millions of calls that violated the Commission’s Telemarketing Sales Rule (TSR), including Do Not Call, entity-specific, and abandoned-call violations. The Commission and 10 state attorneys general took action against Caribbean Cruise Line and seven other companies that assisted a massive telemarketing campaign resulting in billions of robocalls. The FTC and state partners alleged that that the companies generated millions of dollars by illegally selling cruise vacations using political survey robocalls. And, following a public comment period, the Commission approved several amendments to the TSR, including a prohibition on the use in telemarketing of four discrete types of payment methods favored by con artists and scammers.

Consumer Products and Services

foodThe Commission works to preserve competition for purchases consumers make every day, from groceries and cigarettes to discount goods and gasoline. For instance, the Commission required Dollar Tree to divest 330 Family Dollar stores in 35 states so that consumers will continue to benefit from competition among local dollar stores. The FTC also required supermarket chains Albertsons and Safeway to sell a number of stores to preserve competition in 130 local markets in eight Western states. In the $27.4 billion merger of cigarette-makers Reynolds American and Lorillard, the Commission required Reynolds to sell four established cigarette brands (Winston, Kool, Salem, and Maverick) as well as Lorillard’s manufacturing facility in Greensboro, North Carolina to preserve competition in the affected market.

The Commission achieved a significant victory when a federal district court blocked Sysco from acquiring its rival, US Foods. The court found that the merger would likely reduce competition in broadline foodservice distribution both nationwide and in 32 local markets, leading to higher prices and lower quality service for restaurants, hospitals, hotels, and schools. Also on the merger front, in December, the Commission filed suit to block the proposed merger of Staples and Office Depot, alleging that the transaction was likely to harm competition in the market for the sale of consumable office supplies to large business customers for their own use. This matter remains pending.

The Commission also works to maintain competitive energy markets. This year, Par Petroleum Corporation agreed to give up its storage rights at a key gasoline terminal in Hawaii so that its acquisition of Mid Pac Petroleum would not impair the ability of the terminal owner to obtain lower prices for bulk supplies of gasoline blendstock. The Commission also required divestitures in connection with ArcLight Energy’s acquisition of Gulf Oil to preserve competition among petroleum product terminals located in Altoona, Scranton, and Harrisburg, Pennsylvania.

The Commission earned a significant appellate win when the Eleventh Circuit affirmed the Commission’s decision and order in a monopolization case involving McWane. The court upheld the Commission’s ruling that a monopolist’s exclusive dealing practices violated the antitrust laws because they prevented would-be market entrants from becoming meaningful competitors in the market for domestic pipe fittings, resulting in higher prices for municipalities and other waterworks customers.

In addition, the Commission uses its authority to stop deceptive or unfair marketing claims so that consumers can make well-informed purchasing decisions. The FTC and 32 law enforcement partners announced over 250 enforcement actions as part of Operation Ruse Control, a nationwide and cross-border crackdown to protect consumers when purchasing or leasing a car. The six FTC cases challenged deceptive auto sales and financing claims and included more than $2.6 million in monetary judgments.

The Commission also challenged deceptive broadband and cable claims in 2015. The agency filed a lawsuit against DIRECTV alleging that it misrepresented the costs of its cable service – including by failing to disclose that its contracts required a two-year commitment and that the price in the second year would be substantially higher than advertised. The FTC took action against wireless provider TracFone for allegedly advertising “unlimited” data in its broadband plans when in fact, the company slowed down (or “throttled”) service when consumers reached a certain limit. TracFone paid $40 million in refunds to consumers.

The FTC obtained $7.5 million in consumer restitution from Allstar Marketing Group, a direct marketing company selling “as-seen-on-TV” type products, to settle charges in connection with its deceptive “buy-one-get-one-free” promotions. According to the complaint, consumers often were charged without their consent for additional products and undisclosed processing and handling fees. In addition to the $7.5 million paid to the FTC, Allstar paid $500,000 to the New York Attorney General’s Office for penalties, costs, and fees to settle that action.

diplomaAshworth College agreed to settle FTC allegations that it 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. In reality, the Commission alleged, many programs offered by the for-profit institution did not meet state requirements for desired careers, and the claims made about credit transfers were often not true.

The Commission issued a decision against ECM BioFilms, finding that the company made deceptive claims that plastics treated with its chemical additive would completely biodegrade in a landfill within nine months to five years, and that scientific tests supported this claim. The Commission also upheld the ALJ’s finding that ECM encouraged its customers – companies that manufacture plastics – to pass on the deceptive claims to their customers and end-users.

Stopping Fraud

Stopping fraud is the FTC’s largest consumer protection program, and for good reason: fraud causes enormous harm to consumers. The Commission has significantly ramped up its enforcement efforts to reach and protect the many communities that are affected by fraud. For example, the FTC obtained a $50 million judgment against Hispanic Global Way for an alleged scheme that charged Spanish-speaking consumers for unordered or defective products and made it costly or practically impossible for them to get their money back. The FTC and Florida Attorney General’s Office charged Lifewatch with using blatantly illegal and deceptive robocalls to trick older consumers throughout the United States and Canada into signing up for medical alert systems with monthly monitoring fees ranging from $29.95 to $39.95. In Centro Natural, the FTC shut down an allegedly fraudulent debt collection scheme, claiming that it threatened Spanish-speaking consumers with lawsuits, arrest and immigration status investigations if they failed to make payments on phony debts.

The Commission and 58 law enforcement partners from every state and the District of Columbia settled charges that Cancer Fund of America, three affiliated entities, and their principals operated sham charities bilking more than $187 million from consumers. The Commission alleged that the defendants told donors their money would help cancer patients, including women suffering from breast cancer and children, but the overwhelming majority of donations benefitted only the perpetrators, their families and friends, and fundraisers. This is one of the largest actions brought to date by enforcers against charity fraud.

debt collectionThe FTC also had a record year of debt collection enforcement, filing twelve new cases against 52 new defendants and resolving nine cases to obtain nearly $94 million in judgments. The agency also coordinated Operation Collection Protection, the first federal-state-local enforcement initiative targeting deceptive and abusive debt collection practices. In 2015, Operation Collection Protection resulted in over 130 actions against debt collectors who used intimidation and false threats against people across the country. In February, the FTC and the New York State Office of the Attorney General joined forces to halt an abusive debt collection operation that took in over $30 million from consumers. According to the complaint against 4 Star Resolution and related entities and individuals, the defendants engaged in abusive and deceptive collection tactics including falsely threatening consumers with arrest, imprisonment, or civil lawsuits, unless the consumers made an immediate payment on the supposed debts.

In addition to targeting fraudsters, the Commission made it a priority to focus on entities and practices that enable fraud and deception to occur. For example, the FTC charged data broker Sequoia One with knowingly 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. In Pay Basics, the FTC charged the participants of a credit card laundering scheme with illegally helping to provide access to payment networks, thereby enabling scammers to place bogus charges on consumers’ credit cards. And Independent Sales Organization CardFlex and its principals settled charges that they illegally processed more than $26 million in unauthorized consumer charges on behalf of a company called I Works. The order prohibits CardFlex from acting as a payment processor, ISO, or sales agent on behalf of several categories of merchants, as well as assisting and facilitating clients’ attempts to evade credit card risk-monitoring programs.

Enforcing Orders

The FTC continues to pursue an aggressive order enforcement program to complement its litigation, including civil contempt actions and the criminal liaison program. The agency also actively pursues collection proceedings to obtain payment of judgments it obtains.

LifelockIn the largest monetary award obtained by the Commission in a contempt action, LifeLock agreed to pay $100 million to settle charges that it violated the terms of a 2010 federal court order that required the company to secure consumers’ personal information and prohibited deceptive advertising. Under a settlement with the FTC, Crystal Ewing was permanently banned from direct mail marketing and found liable for a $9.5 million judgment for allegedly violating a previous court order by running a sweepstakes scam. At the FTC’s request, a federal court modified a 2014 order and banned Robert Ray Law and his company CPU Service Incorporated from sending unsolicited direct mail to advertise or promote goods or services, also imposing a judgment of almost $400,000. In addition, the FTC obtained a $2.7 million judgment and a debt relief products and services ban against Brian Pacios, who agreed to settle charges that he violated a 2013 court order that prohibited him from mortgage relief activities. Finally, the Commission obtained a $7.9 million judgment and debt relief ban in a settlement with Bryan Taylor for allegedly running a sham debt relief operation. Mr. Taylor was previously named in a 2006 order against Credit Foundation of America for telemarketing violations.

When civil enforcement mechanisms are not enough, the FTC calls its criminal law partners. Our Criminal Liaison Unit (CLU) provides criminal authorities with evidence and information that builds strong criminal fraud cases and assists in the trial and conviction of FTC defendants and their associates. In 2015, prosecutors relied on FTC information and support to charge 50 criminal defendants and secure dozens of convictions, with an average sentence of 4.5 years. For example, Jonathan Herbert, a defendant in the FTC’s FMC Counseling Services case, is now serving more than a 10-year sentence for pretending to be affiliated with the federal government’s Making Home Affordable assistance program and pocketing consumers’ mortgage payments.

In 2015, the FTC actively pursued the collection of outstanding judgments. At the FTC’s request, a federal court found defendant Robert Douglas Krotzer in contempt of court for violating a 2012 final order that required him to turn over more than $730,000 to compensate victims of his phony “alcoholism cure” scam. The Commission also obtained a court order entering a final judgment against Russell and Catherine Dalbey in the amount of $330 million, and ordering them immediately to disgorge nearly $860,000. When the Dalbeys failed to pay this amount, the FTC obtained a warrant for their arrest.