FTC International Monthly - November

FTC International Monthly: U.S. Competition, Consumer Protection and Privacy News



FTC Celebrates 100th Anniversary

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More than 20 current and former FTC officials participated in a public symposium in Washington, D.C. last week to celebrate the FTC’s 100th anniversary.  The event included panel discussions examining the Commission’s history of protecting consumers and promoting competition, as well as the agency’s future.  Among the subjects on the agenda were: enforcement and litigation; research, policy, and advocacy; remedies; and guidance and education.  Also on the agenda was a roundtable of FTC chairmen who served over the past several decades.  The evening before the symposium, the FTC co-hosted an anniversary dinner at the JW Marriott Hotel in Washington, DC with the Antitrust Section of the American Bar Association.  The FTC was created on September 26, 1914, when President Woodrow Wilson signed the Federal Trade Commission Act into law.  The FTC opened its doors on March 16, 1915.   A 100th anniversary bibliography, created to compile important public sources on the FTC’s history, is available here.  This bibliography includes selected primary and secondary sources that address FTC history.  It also includes links to early Commission records and the location of former Commissioners’ original papers that are available to the public.   More on the FTC’s history is available here.  Text and video reminiscences of FTC employees – present and past – are available here.

FTC Says AT&T Has Misled Millions of Consumers with ‘Unlimited’ Data Promises by Throttling Data Speeds up to 90 Percent

Citing a practice known as “throttling,” the FTC filed a federal court complaint against AT&T Mobility, LLC (AT&T), charging that the company has misled millions of its smartphone customers by charging them for “unlimited” data plans while reducing their data speeds, in some cases by nearly 90 percent.  The FTC’s complaint alleges that the company failed to adequately disclose to its customers on unlimited data plans that, if they reach as little as two gigabytes data use in a given billing cycle, AT&T reduces or “throttles” their data speeds.  This reduction makes many common mobile phone applications – like web browsing, GPS navigation and watching streaming video – difficult or nearly impossible to use.  When customers canceled their contracts after being throttled, AT&T charged those customers early termination fees, which typically amount to hundreds of dollars.  The complaint charges that AT&T violated the FTC Act by unfairly changing the terms of customers’ unlimited data plans while those customers were still under contract, and by failing to adequately disclose the nature of the throttling program to consumers who renewed their unlimited data plans.  FTC staff worked closely with the staff of the Federal Communications Commission on this case, which is now before a federal district court in California.

FTC Settlement Bars Patent Assertion Entity from Using Deceptive Tactics

In the first case of its kind, a company and its law firm have agreed to settle FTC charges that they used deceptive sales claims and phony legal threats in letters that accused thousands of small businesses around the United States of patent infringement.  The settlement would bar the company, MPHJ Technology Investments, LLC, and its law firm from making deceptive representations when asserting patent rights.  This is the first time that the FTC has used its consumer protection authority against a patent assertion entity (PAE).  PAEs are companies that obtain patent rights and try to generate revenue by licensing to or litigating against entities that are or may be using the invention.  According to the FTC’s administrative complaint, the defendants sent thousands of letters to small businesses concerning supposed infringement of network computer scanning technology patents.  The letters suggested the recipient needed to purchase a license.  The letters falsely represented that many other companies had already agreed to pay thousands of dollars for licenses, and warned that the law firm would file suit if the recipient did not respond.  In reality, the complaint alleges, the senders had no intention—and did not make preparations—to initiate lawsuits against the small businesses that did not respond to their letters.

Consumer Protection and Privacy

FTC Charges Gerber with Falsely Advertising That Its Good Start Gentle Formula Protects Infants from Developing Allergies


The FTC has charged Gerber Products Co. (also doing business as Nestlé Nutrition) with making deceptive claims that its Good Start Gentle Formula prevents or reduces the risk of infants developing allergies.   In its complaint, the FTC alleged that Gerber has violated the FTC Act by making these claims without scientific substantiation.

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The FTC also charged that Gerber’s ads misrepresent that Good Start Gentle has qualified or received approval from the Food and Drug Administration (FDA) to make general allergy prevention health claims. In fact, the FDA only permitted Gerber to make a narrow, qualified claim regarding reduced risk of one type of allergy, atopic dermatitis. Gerber advertised its Good Start Gentle formula through advertisements that ran on television, in magazines, at point-of-sale displays, online, and in other promotional material.

Court Grants FTC Request to Stop Supplement Marketers From Deceptive Advertising and Illegally Debiting Consumers’ Accounts

At the FTC’s request, a U.S. federal court has temporarily stopped a group of marketers in Nevada and California from conducting business using “free” trial offers and health claims that the agency charges are deceptive and illegal.  The claims were used to pitch green coffee bean extract and other dietary supplements.  The FTC is seeking to permanently stop their allegedly deceptive conduct.  This is the first FTC action alleging violations of the Restore Online Shoppers’ Confidence Act (ROSCA).  ROSCA prohibits marketers from charging consumers in an Internet transaction unless the marketer has clearly disclosed all material terms of the transaction and obtained the consumers’ express informed consent. 

According to the FTC’s complaint, Health Formulas, LLC, marketed a variety of dietary supplements and other weight-loss, virility, muscle-building, or skin cream products. Examples of Simple Pure’s advertising claims include: “Burn fat without diet or exercise”; “Shed pounds fast!”; and “Extreme weight loss!”  The FTC alleges that the defendants have no basis for the weight-loss claims they make about their products.  According to the complaint, the defendants also trick consumers into disclosing their credit and debit card information, and then enroll them without authorization in a negative option program, charging them $60 to $210 per month.  In addition to ROSCA, the complaint charges defendants with violating the FTC Act and the Commission’s Telemarketing Sales Rule (TSR), including the TSR’s Do Not Call provisions.  Finally, the complaint charges the defendants with violating the Electronic Funds Transfer Act by debiting consumers’ accounts on a recurring basis without their prior written authorization. 

FTC guidance for consumers of products and services advertised for weight loss and fitness is available here.  The Commission also has information about understanding free trial offers, including “Free” Trial Offers?, which includes a video on potential risks of such offers, and a short online audio tip.

Online Dating Service in U.K. Agrees to Stop Deceptive Use of Fake Profiles

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In its first law enforcement action against an online dating service, the FTC has reached a settlement that prohibits JDI Dating Ltd., a U.K.-based company, from using fake, computer-generated profiles to trick users into upgrading to paid memberships.  According to the FTC complaint, JDI Dating and William Mark Thomas operate a worldwide dating service via 18 websites, including cupidswand.com, flirtcrowd.com and findmelove.com.  The defendants offered a free plan that allowed users to set up a profile with personal information and photos.  As soon as a new user set up a free profile, the service sent messages from bogus profiles that appeared to be from other members living nearby, expressing romantic interest or a desire to meet.  Users were unable to respond to these messages without upgrading to a paid membership.  Membership plans cost from $10 to $30 per month, with subscriptions generally ranging from one to 12 months.  The fake profiles and messages caused many users to upgrade to paid subscriptions.  In addition, the defendants failed to tell subscribers that the service would automatically renew their subscriptions and continue to charge them until they canceled. 

The FTC complaint charges JDI Dating and Thomas with violating the FTC Act by misrepresenting the source of the communications from fake profiles and by failing to disclose the automatic renewal terms.  The complaint also charges the defendants with violating the Restore Online Shoppers’ Confidence Act (ROSCA) by failing to disclose clearly the terms of the negative-option plan, obtain express informed consent before charging consumers, and provide a simple way to stop recurring charges.  The settlement order prohibits the defendants from misrepresenting material facts about any product or service and from failing to disclose clearly to potential members that they will receive communications from virtual profiles who are not real people.  The settlement also requires the defendants to pay $616,165 in consumer redress.

At FTC’s Request, Court Shuts Down New York-Based Tech Support Scam Business 

On October 24, the FTC announced that at the agency’s request a federal court has shut down a company that scammed computer users by tricking them into paying hundreds of dollars for technical support services they did not need, as well as software that was otherwise available for free.  According to the FTC’s complaint and other court documents filed by the agency, Pairsys, Inc. cold-called consumers, masquerading as representatives of Microsoft or Facebook.  The company also purchased deceptive ads online that led consumers to believe they were calling the technical support line for legitimate companies. The complaint alleges that the defendants subjected consumers to deceptive and high-pressure sales pitches conducted by scammers in an overseas call center.  The scammers would convince consumers to allow them to gain remote access to their computers.  Once they had access to a consumer’s computer, the FTC alleges, the scammers would misrepresent the consumer’s need for services and software to remedy supposed viruses and malware.  In many cases, they implied that the computer was severely compromised and had to be “repaired” immediately.  Consumers were pressured into paying $149 to $249, but in some cases the defendants charged as much as $600.  The defendants have agreed to the terms of a preliminary injunction issued by the court that prohibits them from making misrepresentations to consumers about what company they represent or whether consumers have viruses or spyware on their computer.  The FTC complaint asks the court to permanently shut down the company and require the defendants to return their ill-gotten gains.  The FTC previously brought cases against a number of tech support scammers in 2012 and has received settlements and judgments totaling more than $5 million in those cases.

FTC Takes Action to Stop Phantom Debt Scam That Targeted Spanish-Speaking Consumers Nationwide

On October 23, the FTC announced that a U.S. district court has temporarily shut down a fraudulent phantom debt collection operation at the FTC’s request.  The operation used threats, profane language, and misrepresentations to deceive and abuse thousands of Spanish-speaking consumers across the country in an attempt to collect money they did not even owe.  According to the FTC, the defendants behind Centro Natural Corp. and Sumore L.L.C bilked consumers out of at least two million dollars.  The FTC is seeking a court order permanently stopping the defendants’ scam.  The FTC complaint charges that the defendants cold-called consumers and threatened them with harsh consequences, such as arrest, legal actions, and immigration status investigations, if they failed to make large payments on bogus debts.  The defendants’ telemarketers also pressured and deceived consumers into paying for unwanted products by telling consumers it would “settle” their debt.  They also held themselves out as court or government officials or lawyers.   According to court papers filed by defendants, some of the defendants are based in Argentina.  The complaint charges the defendants with violating the FTC Act, the Fair Debt Collection Practices Act, the FTC’s Telemarketing Sales Rule, including Do Not Call provisions, and with failing to pay for, or abide by, the rules of the Do Not Call Registry.


Leading Propane Exchange Tank Suppliers Settle Collusion Charges

Blue Rhino and AmeriGas Cylinder Exchange have agreed to settle FTC charges that they colluded to reduce the amount of propane in tanks sold to Walmart, a key wholesale customer, to effect a price increase.  Under the proposed settlements, Blue Rhino and AmeriGas are barred from agreeing with competitors to modify fill levels or otherwise fix the prices of exchange tanks.  They are also barred from coordinating communications to customers.  In addition, each company is required to maintain an antitrust compliance program.  

The FTC’s administrative complaint, issued in March 2014, alleges that, together, the companies controlled approximately 80 percent of the market for wholesale propane exchange tanks in the United States.  In 2008, they each decided to implement a price increase by reducing the amount of propane in their exchange tanks from 17 pounds to 15 pounds, without a corresponding reduction in the wholesale price.  Faced with resistance from Walmart, the two companies colluded by secretly agreeing to coordinate their negotiations to push Walmart to accept the fill reduction.  The agreement between Blue Rhino and AmeriGas to maintain a united front against Walmart had the effect of raising the price per pound of propane sold to Walmart, and likely to the ultimate consumers. More information about the consent agreements can be found in the analysis to aid public comment.

FTC Requires Divestiture as a Condition of Surgery Center Holding’s Acquisition of Competitor Symbion

As part of a settlement resolving charges that the $792 million purchase by Surgery Center Holdings, Inc. (known as Surgery Partners) of Symbion would be anticompetitive, the parties agreed to divest Symbion’s ownership interest in an ambulatory surgery center in Orange City, Florida to an FTC approved buyer.  Both companies operate a large number of ambulatory surgery centers located throughout the country that sell and provide outpatient surgical services to commercial health plans and commercially insured patients.  The proposed merger would have eliminated competition between the only two multi-specialty ambulatory surgical centers in the Orange City area of Florida.  This would have left commercial health plans and commercially insured patients there with only one meaningful alternative to Surgery Partners’ outpatient surgical services. The parties have 60 days from the FTC’s acceptance of a final order to complete the divestiture.  During this time, they must hold separate the management of the surgery center and maintain its competitiveness.

In Other News

Federal Trade Commission Appoints Ashkan Soltani as Chief Technologist

FTC Chairwoman Edith Ramirez has appointed Ashkan Soltani as the agency’s Chief Technologist.  He will advise the Commission on evolving technology and policy issues. Soltani is a technology consultant and researcher whose work has focused on privacy and security issues for more than 20 years.  He has previously served as a technical expert and staff technologist for the Commission, worked as a technical expert for multiple state attorneys general, and was a manager and consultant for two security technology companies.  Soltani has worked as an investigative reporter for The Washington Post and shared in a 2014 Pulitzer Prize for Public Service for coverage of disclosures about surveillance done by the U.S. National Security Agency.

Competition Matters Blog Covers Competition in Health Care IT Markets

In the FTC’s Competition Matters blog, staff has posted an item on competition in health care information technology markets.  The post notes that the FTC is well-positioned to monitor competition in today’s burgeoning health IT marketplace given the Commission’s combined expertise in health care, technology, and health-related privacy and data security issues.  The post refers to a panel at the FTC’s March 2014 Examining Health Care Competition workshop that focused on advances in health care technology, including electronic health records, health data exchanges, and new hardware and software platforms used by health care providers and payers.

FTC Staff Addresses Legality of Manufacturer Pricing Restrictions on Retailers

In Competition Matters, FTC staff has posted an item on the legality of manufacturer restrictions on retailers, a common question the FTC receives.  As explained in the FTC’s Guide to the Antitrust Laws, federal antitrust law generally views most supply chain arrangements—such as those between a manufacturer and a retailer—as beneficial to the overall marketplace because they often reduce costs or improve product quality or service for consumers.  For instance, manufacturer-imposed restrictions that reduce competition among dealers in the same brand (“intrabrand competition”) can serve to sharpen contrasts between brands (“interbrand competition”), and as a result, enhance price, quality, and service competition between different brands for the net benefit of consumers. Antitrust laws primarily protect and promote interbrand competition and evaluate any restrictions on intrabrand competition through that lens.