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SEPTEMBER 2022
Highlights
In a new policy statement, the FTC has announced enforcement priorities to fight for consumers who work in jobs that are part of the gig economy. The statement outlines a number of issues facing gig workers, including deception about pay and hours, unfair contract terms, and anticompetitive wage fixing and coordination between gig economy companies. The statement makes clear that, while gig companies may seem novel, traditional principles of consumer protection and competition still apply to them. In the statement, the Commission notes multiple areas where there is potential for harm to workers in the gig economy, including: misrepresentations about the nature of gig work; diminished bargaining power; and concentrated markets. The policy statement makes clear that the FTC’s authority to enforce both competition and consumer protection laws in the gig economy is not affected by how companies choose to classify the consumers who perform gig work. The statement names multiple areas where the Commission will aim to prevent harm to consumers: holding companies accountable for claims and conduct about costs and benefits; combating unlawful practices and constraints imposed on workers; and policing unfair methods of competition that harm gig workers.
FTC Chair Lina Khan delivered a keynote address at this year’s Fordham Annual Conference on International Antitrust Law & Policy. The remarks focused on the preparation of a policy statement on Section 5 of the FTC Act that reflects the statutory text, the FTC’s institutional structure, the history of the statute, and the case law. Chair Khan also addressed the revision of the U.S. merger guidelines and plans to publish draft guidelines in the coming months. As with the FTC’s Section 5 work, this effort is deeply rooted in the text of the agency’s statutes, in controlling law and precedent, and in Congress’s deep commitment to robust enforcement. According to Chair Khan, “anchoring our reform efforts in these core principles will bring antitrust more squarely within the rule of law.”
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The FTC released a staff report showing how companies are increasingly using sophisticated design practices known as “dark patterns” that can trick or manipulate consumers into buying products or services or giving up their privacy. The dark pattern tactics detailed in the report include disguising ads to look like independent content, making it difficult for consumers to cancel subscriptions or charges, burying key terms or junk fees, and tricking consumers into sharing their data. The report highlighted the FTC’s efforts to combat the use of dark patterns in the marketplace and reiterated the agency’s commitment to taking action against tactics designed to trick and trap consumers. For years, unscrupulous direct-mail and brick-and-mortar retailers have used design tricks and psychological tactics such as pre-checked boxes, hard-to-find-and read disclosures, and confusing cancellation policies, to get consumers to give up their money or data. As more commerce has moved online, dark patterns have grown in scale and sophistication, allowing companies to develop complex analytical techniques, collect more personal data, and experiment with dark patterns to exploit the most effective ones.
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Consumer Protection and Privacy
The FTC held a forum seeking public comment on the harms stemming from commercial surveillance and lax data security practices and whether new rules are needed to protect people’s privacy and information. The FTC recently announced an Advance Notice of Proposed Rulemaking (ANPR) as it explores possible new rules cracking down on the practices. According to the agency, mass surveillance has heightened the risks and stakes of data breaches, deception, manipulation, and other abuses. The business of commercial surveillance can incentivize companies to collect vast troves of consumer information, only a small fraction of which consumers proactively share. Companies reportedly surveil consumers while they are connected to the internet – every aspect of their online activity, their family and friend networks, browsing and purchase histories, location and physical movements, and a wide range of other personal details. Companies use algorithms and automated systems to analyze the information they collect. And they make money by selling information through the massive, opaque market for consumer data, using it to place behavioral ads, or leveraging it to sell more products. Event materials, including an agenda, transcript, and instructions for submitting public comments are available here.
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The FTC filed a lawsuit against data broker Kochava Inc. for selling geolocation data from hundreds of millions of mobile devices that can be used to trace the movements of individuals to and from sensitive locations. Kochava’s data can reveal people’s visits to reproductive health clinics, places of worship, homeless and domestic violence shelters, and addiction recovery facilities. The FTC alleges that selling this data enables others to identify individuals and exposes them to threats of stigma, stalking, discrimination, job loss, and even physical violence. The FTC’s lawsuit seeks to halt Kochava’s sale of sensitive geolocation data and require the company to delete the sensitive geolocation information it has collected.
The FTC and six states filed a lawsuit against rental listing platform Roomster Corp. and its owners for allegedly duping consumers seeking affordable housing by paying for fake reviews and then charging for access to phony listings. The complaint alleges that Roomster and its owners have taken tens of millions of dollars from largely low-income and student prospective renters who need reliable housing the most and can least afford to lose money. Separately, the FTC and the states filed a proposed order against an individual who allegedly sold Roomster tens of thousands of fake reviews requiring him to pay $100,000 and cooperate in the FTC’s case against Roomster.
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The FTC is taking action against healthcare company Benefytt Technologies, two subsidiaries, and two individuals for lying to consumers about their sham health insurance plans and using deceptive lead generation websites to lure them in. According to the FTC complaint, Benefytt also charged people exorbitant junk fees for unwanted add-on products without their permission. The proposed court orders require Benefytt to pay $100 million in refunds and prohibit the company from lying about their products or charging illegal junk fees. The individual defendants will be permanently banned from selling or marketing any healthcare-related product, and one of them will also be banned from telemarketing.
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The FTC has taken action against credit services company Credit Karma for deploying dark patterns to misrepresent that consumers were “pre-approved” for credit card offers. The FTC alleges that the company used claims that consumers were “pre-approved” and had “90% odds” to entice them to apply for offers that, in many instances, they ultimately did not qualify for. The agency’s order requires the company to pay $3 million that will be sent to consumers who wasted time applying for these credit cards and to stop making these types of deceptive claims.
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Competition
The FTC participated in a trilateral meeting on September 13 with enforcers from Mexico’s Federal Economic Competition Commission, Canada’s Competition Bureau, and the Justice Department’s Antitrust Division. The meeting took place at FTC headquarters in Washington, D.C., and included roundtable discussions on agency enforcement priorities and the current legal environment in each jurisdiction. FTC Chair Lina Khan led a discussion of competition priorities and recent developments in the United States, Canada, and Mexico that will inform expanded cooperation in the future. Assistant Attorney General Jonathan Kanter led a conversation on merger enforcement, focusing on the digital economy and forthcoming revisions to the U.S. merger guidelines. Canadian Commissioner of Competition Matthew Boswell led a discussion of enforcement challenges posed by the digital economy. Acting Chair Commissioner Brenda Hernandez of the Mexican Federal Economic Competition Commission led a discussion of changes in the legal environment in the three countries.
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The FTC issued a policy paper and fact sheet highlighting the pitfalls of using Certificates of Public Advantage (COPAs), which purport to shield hospital mergers from antitrust laws in favor of state oversight. The paper details research showing that these COPAs are often detrimental for patient costs, patient care, and healthcare worker wages. The paper presents research showing that several hospital mergers subject to COPAs have resulted in higher prices and reduced quality of care, despite regulatory commitments designed to reduce these anticompetitive effects. Promoting competition in the healthcare sector is a key priority for the FTC, including preventing anticompetitive hospital mergers. The Commission has recently taken steps to prevent several healthcare provider mergers, including Hackensack/Englewood in New Jersey; Lifespan/Care New England in Rhode Island; RWJBarnabas/St. Peter’s in New Jersey; and HCA/Steward in Utah.
The FTC and the Department of Justice submitted to the Federal Energy Regulatory Commission (FERC) a joint comment urging it not to restore a right of first refusal (ROFR) that would enable incumbent electricity transmission owners to block competitors from bidding to design, construct, and own certain new interstate transmission facilities. FERC is considering reinstating the ROFR – which was eliminated in certain instances in 2011 – as long as incumbent transmission owners agree to a joint ownership structure with one or more unaffiliated, non-incumbent partners. The joint comment urges FERC not to abandon competition, and cites examples of where competition for transmission design and construction has resulted in lower costs and innovation.
In an initial decision announced on September 1, Chief Administrative Law Judge D. Michael Chappell dismissed the antitrust charges in a complaint brought by the FTC staff challenging Illumina’s $7.1 billion proposed acquisition of Grail. According to the complaint, the vertical merger would harm competition in the U.S. market for life-saving multi-cancer early detection, or MCED tests. In dismissing the March 2021 complaint, Judge Chappell concluded that “Complaint Counsel has failed to prove its asserted prima facie case – that Illumina’s post-acquisition ability and incentive to advantage Grail to the disadvantage of Grail’s alleged rivals is likely to result in a substantial lessening of competition in the relevant market for the research, development, and commercialization of MCED tests.” The Initial Decision is subject to review by the full Commission.
In Other News
The FTC has proposed a rule to fight government and business impersonation scams – a perennial scourge that has cost consumers hundreds of millions of dollars over the past five years. The proposed rule would codify the well-understood principle that impersonation scams violate the FTC Act, as do those who provide impersonators with the means to harm consumers. The proposed rule would allow the Commission to recover money from, or seek civil penalties against, scammers who harm consumers in violation of the rule. Fraud reports to the FTC about government and business impersonation scams rose sharply at the beginning of the COVID-19 pandemic. The FTC received more than 2.5 million reports of these scams from consumers nationwide from the beginning of 2017 through the middle of 2022, and those consumers reported losing more than $2 billion to these scams.
The FTC is seeking additional public comment on how children are affected by digital advertising and marketing messages that may blur the line between ads and entertainment. Marketers increasingly reach children via digital media, including by embedding advertising in video sharing platforms, social media platforms through influencer and celebrity posts, games, virtual worlds, and other digital environments. The FTC is seeking public input in conjunction with an October 19 event that will examine these topics. The public will have until November 18 to submit comments to accommodate those who wish to provide input on the topics discussed at the October digital advertising event. Information on how to submit a comment is available here.
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Representatives from 13 federal and state government agencies, along with representatives from industry and consumer advocates, will join the FTC on September 29 for the first meeting of the newly formed Scams Against Older Adults Advisory Group. The advisory group, which was created as part of the Stop Senior Scams Act passed in March of this year, is led by the FTC and will tackle four topics: 1) expanding consumer education efforts; 2) improving industry training on scam prevention; 3) identifying innovative or high-tech methods to detect and stop scams; and 4) developing research on consumer or employee engagement to reduce fraud. The advisory group also will help identify and invite key stakeholders to contribute to its work.
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The FTC published its FY 2022-2026 Strategic Plan and its FY 2021-2023 Performance Report and Performance Plan. The FTC Strategic Plan sets the FTC’s priorities over the next five years and will serve as the foundation for annual performance reporting. The new plan keeps the same three-goal structure of the previous plan, while making numerous improvements. For example, two new objectives ensure that the work of the agency benefits all Americans, including those who live in historically underserved communities. The FY 2021 Annual Performance Report documents the FTC’s performance during FY 2021, based on the goals and metrics set in the Strategic Plan for FY 2018-2022. The FY 2022-2023 Annual Performance Plan establishes strategies and targets based on the new Strategic Plan for FY 2022-2026.
The FTC’s second report on e-cigarette sales and advertising nationwide shows sales of flavored disposable e-cigarettes and menthol e-cigarette cartridges surging dramatically in 2020. This significant increase, which coincides with a federal ban on the flavored cartridges popular with young smokers, suggests that youth e-cigarette use shifted to substitute products rather than declined. The report also found that the distribution of free and discounted e-cigarettes – a practice linked to a rise in youth smoking – reached record highs. E-cigarettes or vaping devices are battery-operated devices that people use to inhale an aerosol, which typically contains nicotine, flavorings, and other chemicals. The two main types of e-cigarettes are cartridges and disposables.
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