FEBRUARY 2014
Apple Settles with FTC for $32.5 million over Kids’ In-App Purchases
Apple Inc. has agreed to provide full refunds to settle an FTC complaint that it billed consumers for charges incurred by children in kids’ mobile apps without their parents’ consent. The refunds will total at least $32.5 million. The settlement also requires Apple to change its billing practices. The complaint alleged that these practices violated the FTC Act in two respects. First, without telling parents, Apple allowed a fifteen-minute window of unlimited additional purchases once an account holder entered a password to authorize a specific purchase. During this window, children could incur unlimited charges for game play or other in-app purchases with no further authorization. The FTC complaint noted that Apple received tens of thousands of consumer complaints about millions of dollars in unauthorized in-app purchases by children. One complaint reported $2600 in unauthorized purchases. The FTC complaint also alleged that Apple often presented a screen with a prompt for a parent to enter a password in a kids’ app without explaining that password entry would finalize a purchase.
The Commissioners issued several public statements explaining their views. The agreement will be subject to public comment through Feb. 14, 2014, after which the Commission will decide whether to make the proposed consent order final.
FTC Settles with Twelve Companies Falsely Claiming to Comply with International Privacy Safe Harbor
Twelve U.S. businesses agreed to settle FTC charges that they falsely claimed they were abiding by an international privacy framework known as the U.S.-EU Safe Harbor when, in fact, they had allowed their Safe Harbor certifications to lapse. The Safe Harbor is a voluntary program administered by the U.S. Department of Commerce and the European Commission that enables U.S. companies to transfer consumer data from the European Union to the United States in compliance with EU law. To participate, 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 for data transfers outside the EU: notice, choice, onward transfer, security, data integrity, access, and enforcement. (There is a separate Safe Harbor framework between the U.S. and Switzerland.)
According to the twelve complaints filed by the FTC, the companies deceptively claimed they held current certifications under the Safe Harbor frameworks. While the Commission alleged that the companies’ deceptive representations violated Section 5 of the FTC Act, this does not necessarily mean that the company committed any substantive violations of the privacy principles of the Safe Harbor frameworks. The proposed settlement agreements, which are subject to public comment, prohibit the companies 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.
The FTC website contains more details, and links to provide public comment. Consumers who want to know whether a U.S. company is a participant in the U.S-EU or U.S.-Switzerland Safe Harbor program may visit http://export.gov/safeharbor to see if it holds a current self-certification.
FTC Cracks Down on Deceptive Advertising for Fad Weight Loss Products: Obtains $26.5 Million from Sensa
Just in time for the post-New Year diet season, the FTC announced “Operation Failed Resolution,” a law-enforcement initiative to stop national marketers that used deceptive advertising claims to peddle fad weight-loss products, from food additives and skin cream to dietary supplements.
 At the center of the FTC’s initiative is the FTC’s case against Sensa, a company that allegedly deceived consumers with unfounded weight loss claims and misleading endorsements. Sensa, which claimed that consumers could simply “sprinkle, eat, and lose weight,”will pay $26.5 million to settle the FTC ‘s charges. The FTC will make these funds available for refunds to consumers who bought Sensa. Under the order, Sensa and related defendants are barred from further misrepresentations and from making claims about their products unless they possess appropriate substantiation. They also must disclose any material connections with the endorsers of a product or program, as well as with anyone conducting or participating in a study of the product or program. An individual defendant who conducted two of the studies cited in Sensa ads and provided endorsements is also barred from providing expert endorsements unless he relies on competent and reliable scientific evidence and his own expertise.
The agency also announced charges against the marketers of two other products that made unfounded promises. The first, L’Occitane, claimed that its skin cream would slim users’ bodies but had no science to back up that claim. The second, HCG Diet Direct, marketed an unproven human hormone that has been touted by hucksters for more than half a century as a weight-loss treatment. The FTC also announced a partial settlement in a fourth case, LeanSpa, LLC, an operation that allegedly deceptively promoted acai berry and “colon cleanse” weight-loss supplements through fake news websites. L’Occitane, Inc. will pay $450,000 in consumer redress, and the LeanSpa settling defendants will surrender assets totaling an estimated $7.3 million. Information about consumer redress in these cases will be posted here.
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FTC Issues Opinion and Order Finding McWane, Inc. Unlawfully Maintained Monopoly in Domestic Pipe Fittings
The FTC issued an Opinion and Final Order against McWane, Inc., the largest U.S. supplier of ductile iron pipe fittings used in municipal and regional water distribution systems. The FTC partially affirmed an initial Administrative Law Judge decision finding that McWane unlawfully maintained its monopoly in the domestic fittings market. The FTC dismissed two other counts because no majority position was reached by FTC (which currently has four members) and reversed a finding of liability in another.
McWane and its two main competitors account for the overwhelming majority of fittings sales in the United States. The FTC found that McWane willfully engaged in anticompetitive conduct that allowed it to maintain its monopoly in the domestic fittings market after a new firm entered. Knowing that the new entrant did not sell a full line of fittings, McWane implemented a “Full Support Program,” which according to the FTC, was in reality an exclusive dealing policy. The FTC found that McWane’s Full Support Program foreclosed competitors and potential entrants from accessing a substantial share of distributors and created incentives for distributors to reject competitors’ products. One Commissioner dissented, saying that McWane’s program only injured competitors and did not harm the competitive process.
The FTC also reversed a count that alleged that McWane illegally conspired with competitors to raise and stabilize prices in the fittings market.
Thermo Fisher Scientific to Sell Assets in Connection with $13.6 Billion Life Technologies Acquisition
Thermo Fisher Scientific Inc. has agreed to sell assets to GE Healthcare to settle FTC charges in connection with its proposed $13.6 billion acquisition of Life Technologies Corporation (“Life”). The FTC charged that the acquisition of Life by Thermo Fisher, a leading manufacturer of products used in scientific research, would likely substantially lessen competition in the markets for short/small interfering ribonucleic acid (siRNA) reagents, cell culture media, and cell culture sera, which would have enabled the combined firm to raise prices and reduce quality for consumers. The proposed order requires Thermo Fisher to divest its gene modulation business, which contains the siRNA reagents business, as well as its cell culture media and sera business to GE Healthcare. The divestiture is to include all intellectual property and know-how necessary to operate each of the divested businesses. Throughout the investigation, Commission staff cooperated with antitrust agencies in Australia, Canada, China, the European Union, Japan, and Korea, which led to compatible approaches internationally.
U.S. and Chinese Antitrust Officials Hold High Level Meetings
FTC Chairwoman Edith Ramirez and Assistant Attorney General William J. Baer held high-level meetings on January 9 with officials from China’s three antitrust agencies. The meetings took place in Beijing.
Ministry of Commerce (MOFCOM) Vice Minister Jiang Zengwei, National Development and Reform Commission (NDRC) Vice Minister Hu Zucai and State Administration for Industry and Commerce (SAIC) Vice Minister Sun Hongzhi. The FTC and DOJ also met with the three agencies separately to discuss specific issues on January 9 and 10. These were the second joint, high-level meetings of the agencies since the FTC and Justice Department signed the antitrust MOU with Chinese antitrust agencies on July 27, 2011. The MOU is designed to promote communication and cooperation among the agencies. The MOU provides for periodic high-level consultations among all five agencies. |
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FTC Prevails in Acquisition of Physician Practice Group by Idaho Hospital
A federal court in Idaho has held that the acquisition by a hospital in Boise of a physican practice group was likely to substantially lessen competition in the market for adult primary care physicians and ordered the hospital to fully divest itself of the practice groups’s physicians and assets. Following the favorable court decision, FTC Chairwoman Edith Ramirez said: “Keeping health care costs low and quality high by ensuring vigorous competition between providers is, and will continue to be, a top Commission priority."
FTC to Host Seminar on Mobile Device Tracking
As part of a series of seminars examining the privacy implications of new three areas of technology, the FTC will host a seminar on Mobile Device Tracking on February 19, 2014. The seminar will explore privacy issues raised by new technology that major retailers are testing and using to track consumers. The new technology can track consumers’ movements throughout and around retail stores and other attractions using signals their mobile devices use to search for Wi-Fi. In most cases, this tracking is invisible to consumers and occurs with no consumer interaction, raising privacy concerns. This tracking may be used to determine a consumer’s path through a location, length of time in one location, whether a visitor is new or returning, and the frequency of visits. Information about other seminars in the series, including the March 19 seminar on Alternative Scoring Products will be posted here.
U.S. Agencies to Host ICN Roundtable on Investigative Process
FTC and DOJ will host an ICN Roundtable Discussion on competition agencies’ investigative processes on Tuesday, March 25, 2014, in Washington, DC. The discussion will cover topics such as the transparency of agencies’ investigations, opportunities for the parties to engage with the agency, and protection of confidential information. This event will immediately precede the 2014 Spring Meeting of the American Bar Association’s Antitrust Section in Washington, DC, which will take place on March 26-28, 2014.
Alert on Tech Support Scams: Round 2
The FTC has issued a new scam alert for consumers on “recovery” tech support scams. The FTC has warned consumers before about scammers that charge consumers to “fix” supposedly virus-infected computers. Now, the FTC is warning consumers about scammers who offer to obtain refunds for consumers from one of the original scams. The scammers obtain consumer’s bank or credit card account numbers supposedly to “process” the refund but instead make unauthorized withdrawals from consumers’ accounts. The alert offers several suggestions to consumers who are approached or victimized by one of these scams. As with all FTC consumer education materials, you should feel free to adapt these materials for use in your own jurisdiction.
FTC Holds Workshop on Follow-on Biologics
The FTC held a public workshop on February 4 on competition and follow-on biologics. The agenda and an archived webcast are available on the FTC website. The workshop focused on how state regulations and naming conventions may affect the development of, and competition for, follow-on biologics, and addressed the current state of follow-on biologics in the United States and Europe.
FTC Announces Revised Thresholds for Pre-Merger Notification and Interlocking Directorates
The FTC has revised the thresholds that determine whether companies are required to submit premerger notification filings to the FTC and DOJ under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act. The HSR Act requires companies to notify the Agencies about large mergers and acquisitions before they occur. For 2014, the minimum size of transaction threshold will increase from $70.9 million to $75.9 million. A full listing of current thresholds can be found on the FTC’s website, which will be updated once the revised thresholds become final on February 24, 2014.
The FTC also announced revisions to the thresholds that define when it is unlawful for an individual to serve as an officer or director of two or more competing corporations under Section 8 of the Clayton Act. Under the revised thresholds, interlocking memberships on corporate boards of directors are prohibited if each of two companies has capital, surplus and undivided profits in excess of $29,945,000, and the competitive sales of each corporation exceed $2,994,500.
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