JULY 2021
Lina Khan was sworn in as Chair of the FTC on June 15 following her confirmation by the U.S. Senate earlier that day. President Biden nominated Khan, a Democrat, to be a Commissioner for a term that expires September 25, 2024 and, upon her confirmation, designated her as Chair. Prior to becoming Chair of the FTC, Khan was an Associate Professor of Law at Columbia Law School. She also previously served as counsel to the U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law, legal adviser to FTC Commissioner Rohit Chopra, and legal director at the Open Markets Institute. Khan’s scholarship on antitrust and competition policy has been published in the Columbia Law Review, Harvard Law Review, University of Chicago Law Review, and Yale Law Journal. She is a graduate of Williams College and Yale Law School.
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The FTC approved a series of resolutions authorizing investigations into key law enforcement priorities for the next decade. Specifically, the resolutions direct agency staff to use compulsory process, such as subpoenas, to investigate cases in seven specific enforcement priority areas, including repeat offenders; technology companies and digital platforms; and healthcare businesses such as pharmaceutical companies, pharmacy benefits managers, and hospitals. The agency is also prioritizing investigations into harms against workers and small businesses, along with harms related to the COVID-19 pandemic. Finally, at a time when merger filings are surging, the agency is ramping up enforcement against illegal mergers, both proposed and consummated. The Commission voted 3-2 to approve the omnibus resolutions in an open Commission meeting. Chair Lina Khan and Commissioners Rohit Chopra and Rebecca Kelly Slaughter voted yes, and Commissioners Noah Joshua Phillips and Christine S. Wilson voted no.
The FTC approved changes to its Rules of Practice to streamline its processes for issuing Trade Regulation Rules under Section 18 of the FTC Act, which is the FTC’s authority for issuing substantive rules under its consumer protection mission. These changes bring agency procedures back in line with the 1975 statute that granted the agency Section 18 rulemaking authority, and will provide the agency’s new Rulemaking Group within the office of the General Counsel clear guidelines. Recently, the U.S. Supreme Court ruled that courts can no longer award refunds to consumers in FTC cases brought under Section 13(b) of the FTC Act, reversing four decades of case law authorizing monetary redress, which the Commission has used to provide billions of dollars of refunds to harmed consumers. In light of that decision, the Commission will instead seek redress, damages, penalties, and other relief from wrongdoers by pursuing violations of Trade Regulation Rules when appropriate. The Commission voted 3-2 in an open Commission meeting to approve the changes and publish the notice in the Federal Register. Chair Lina Khan and Commissioners Rohit Chopra and Rebecca Kelly Slaughter voted yes, and Commissioners Noah Joshua Phillips and Christine S. Wilson voted no.
The FTC finalized a new rule that will crack down on marketers who make false, unqualified claims that their products are made in the USA. Under the rule, marketers making unqualified Made in USA claims on labels should be able to prove that their products are “all or virtually all” made in the United States. The new rule codifies a broader range of remedies by the FTC, including the ability to seek redress, damages, penalties, and other relief from those who lie about a Made in USA label. It will enable the Commission for the first time to seek civil penalties of up to $43,280 per violation of the rule. The Commission vote approving publication of the final Made in USA Labeling Rule in the Federal Register was 3-2. Chair Lina Khan and Commissioners Rohit Chopra and Rebecca Kelly Slaughter voted yes, and Commissioners Noah Joshua Phillips and Christine S. Wilson voted no.
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The operators of an online coloring book app, Recolor, will be required to notify parents, offer refunds to current underage subscribers, and delete all the personal information they collected from children under 13 unless they obtain parental consent, to settle FTC allegations that they violated the Children’s Online Privacy Protection Act Rule. In addition to the coloring feature, the app offers social media features such as the ability to upload images for others to view, comment on, and like, which requires registration for an account by providing an email address, screen name, and an optional profile description and picture, which the app discloses to other users. The FTC alleged in its complaint against Toronto-based Kuuhuub Inc., and its Finnish subsidiaries Kuu Hubb Oy and Recolor Oy, that some children including those under 13 were able to register for accounts and use some of the social media features. The companies received dozens of complaints from parents and users who said that children were using the app’s social media features such as posting selfies and interacting with other users, including adults.
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FTC Announces COVID-19 Enforcement Developments
The medical director of Golden Sunrise Nutraceutical, Inc. agreed to settle FTC charges that he took part in deceptively advertising a $23,000 treatment plan as a scientifically proven way to treat COVID-19. Dr. Stephen Meis will be barred from making similar unsupported health claims in the future and will pay $103,420 to provide refunds to defrauded consumers. Golden Sunrise started marketing its Emergency D-Virus plan as a treatment for COVID-19 in March 2020. Advertising on billboards, websites, and social media, Golden Sunrise falsely claimed that the company’s supplements—ImunStem, Aktiffvate, and AnterFeerons—were “uniquely qualified to treat and modify the course of the Coronavirus epidemic in CHINA and other countries,” and that users could expect the “disappearance of viral symptoms within two to four days.” The defendants also promoted and sold a range of dietary supplements as treatments for cancer and Parkinson’s disease, as well as many other serious health conditions and diseases. Some of the defendants’ treatments cost as much as $170,000 to $200,000. In reality, they were composed mainly of various herbs and spices and the health claims were unsubstantiated, according to the FTC.
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In another COVID-19 enforcement matter, the FTC charged online marketer Frank Romero, doing business as Trend Deploy, with falsely promising consumers that he could quickly deliver N95 facemasks and other personal protective equipment during the COVID-19 pandemic, then failing to deliver on customers’ orders or offer cancellations or refunds. The complaint alleges that in addition to violating the COVID-19 Consumer Protection Act and the Mail Order Rule, Romero’s deceptive and unfair conduct violated the FTC Act. The agency is seeking monetary relief for consumers and civil penalties.
Finally, the FTC and the state of Arkansas sued the operators of a “blessing loom” investment program, alleging that it bilked tens of millions of dollars from thousands of consumers. The FTC alleged that the program was an illegal pyramid scheme that targeted African Americans and harmed people struggling financially during the COVID-19 pandemic. The FTC and Arkansas charged that the operators of Blessings in No Time (“BINT”) have lured people into joining their program by falsely promising investment returns as high as 800 percent. The complaint alleges that some BINT members paid as much as $62,700 to participate. In reality, though, as in other pyramid schemes, the vast majority of participants have lost money, the complaint alleges.
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Following President Biden’s July 9 signing of an Executive Order on Promoting Competition in the American Economy, FTC Chair Lina Khan and Acting Assistant Attorney General of the Justice Department Antitrust Division Richard A. Powers issued a statement regarding the Order’s call to consider revisions to the agencies’ merger guidelines. Their statement said, “We must ensure that the merger guidelines reflect current economic realities and empirical learning and that they guide enforcers to review mergers with the skepticism the law demands. The current guidelines deserve a hard look to determine whether they are overly permissive. We plan soon to jointly launch a review of our merger guidelines with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.”
The FTC rescinded a 2015 antitrust policy statement that has constrained the agency’s use of its authority to stop anticompetitive business tactics under Section 5 of the FTC Act. Section 5 prohibits “unfair methods of competition.” This prohibition includes, but is not limited to, conduct covered by the Sherman and Clayton Antitrust Acts. The 2015 Policy Statement purported to establish an analytical framework on how the Commission would seek to enforce the prohibition. In a statement, the Commission majority said, “the time is right for the Commission to rethink its approach and to recommit to its mandate to police unfair methods of competition even if they are outside the ambit of the Sherman or Clayton Acts.” The Commission voted 3-2 to rescind the Section 5 policy statement, with Chair Lina Khan and Commissioners Rohit Chopra and Rebecca Kelly Slaughter voting yes, and Commissioners Noah Joshua Phillips and Christine S. Wilson voting no.
The FTC charged Broadcom with illegally monopolizing markets for semiconductor components used to deliver television and broadband internet services through exclusive dealing and related conduct and simultaneously issued a proposed consent order that would settle the charges. Under the consent order, Broadcom must stop requiring its customers to source components from Broadcom on an exclusive or near exclusive basis.
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7-Eleven, Inc. and Marathon Petroleum Corporation have agreed to divest hundreds of stores used to sell gasoline and diesel fuel in 293 local markets across 20 states to settle FTC charges that 7-Eleven’s $21 billion acquisition of Marathon’s Speedway subsidiary violated federal antitrust laws. The order also prohibits, among other things, 7-Eleven from enforcing any noncompete provisions as to any franchisees or employees working at or doing business with the divested assets. 7-Eleven consummated the acquisition on May 14, even though the company knew that the FTC was preparing to charge that the acquisition violated Section 7 of the Clayton Act and Section 5 of the FTC Act. According to the complaint, markets for retail gasoline and retail diesel fuel are highly local, and consumers have no economic or practical alternatives to the retail sale of gasoline or diesel fuel.
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The Louisiana Real Estate Appraisers Board agreed to stop fixing compensation levels for residential real estate appraisal services in Louisiana as part of a settlement reached with the FTC, after the agency alleged that the Board’s conduct violated federal antitrust law. According to the FTC’s 2017 complaint, the Board’s actions regulating prices exceeded the requirements of the 2010 Wall Street Reform and Consumer Protection Act, popularly known as “Dodd-Frank.” In April 2018, the Commission issued a summary decision rejecting two of the Board’s affirmative defenses. After the U.S. Court of Appeals rejected the Board’s efforts to block the administrative trial, the FTC and the Board reached a proposed settlement.
FTC Chair Lina Khan announced that an open meeting of the Commission will be held virtually on Wednesday, July 21. The meeting will begin at 12:00 p.m. ET. Three items of Commission business will be on the agenda: a Commission vote on whether to rescind a proposal to repeal the Care Labeling Rule; a Commission vote on whether to issue a new policy statement on the right of repair following the Commission's unanimous approval of the May 6 “Nixing the Fix” report; and a Commission vote on whether to rescind a 1995 policy statement regarding “prior approval” and “prior notice” remedies in merger cases. After the Commission has conducted its business, Chair Khan will offer brief remarks and will then invite members of the public to share feedback on the Commission’s work generally and bring relevant matters to the Commission’s attention. Members of the public must sign up for an opportunity to address the Commission virtually for up to one minute.
As part of the FTC's systematic review of all current FTC rules and guides, the Commission announced a review of its Business Opportunity Rule (16 CFR 437) in 2021. The Rule requires business opportunity sellers to give prospective buyers specific information to help them evaluate a business opportunity, thus ensuring that prospective purchasers have the information they need to assess the risks of buying a work-at-home program or any other business opportunity. The Commission is currently reviewing 23 of the 62 rules and guides within its jurisdiction.
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