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JANUARY 2023
Highlights
The FTC has secured agreements requiring Epic Games, Inc., creator of the popular video game Fortnite, to pay a total of $520 million to settle allegations that the company violated the Children’s Online Privacy Protection Act (COPPA) and deployed design tricks, known as dark patterns, to dupe millions of players into making purchases. The FTC’s action against Epic involves two separate record-breaking settlements. As part of a proposed federal court order filed by the Department of Justice on behalf of the FTC, Epic will pay a $275 million penalty for violating the COPPA Rule—the largest penalty ever obtained for violating an FTC rule. Additionally, in a first-of-its-kind provision, the Order requires Epic to adopt strong privacy default settings for children and teens, ensuring that voice and text communications are turned off by default. Under a separate proposed administrative order, Epic will pay $245 million to refund consumers for its design tricks and billing practices, which is both the FTC’s largest refund in a gaming case and in an administrative order.
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The FTC proposed a new rule that would ban employers from imposing noncompete restrictions on their workers, a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans. The FTC is seeking public comment on the proposed rule, which is based on a preliminary finding that noncompete clauses constitute an unfair method of competition and therefore violate Section 5 of the FTC Act. The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete restrictions and actively inform workers that they are no longer in effect. Chair Khan highlights the harms of noncompetes in a recent guest essay in the New York Times.
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The FTC has taken legal action against three companies and two individuals, forcing them to drop noncompete restrictions that they imposed on thousands of workers. Drawing from the FTC’s substantial expertise in this space, these actions mark the first time that the agency has sued to halt unlawful noncompete restrictions, alleging violations of Section 5 of the FTC Act. This is the first time the agency has exercised Section 5 since the new guidance was issued late last year. According to the complaints issued by the FTC, each of the companies and individuals illegally imposed noncompete restrictions on workers in positions ranging from low-wage security guards to manufacturing workers to engineers that barred these workers from seeking or accepting work with another employer or operating a competing business after they left the companies. The companies named in the FTC complaints are: Prudential Security, Inc. and Prudential Command Inc., O-I Glass Inc., and Ardagh Group S.A. The orders against Prudential, O-I Glass and Ardagh all prohibit the companies and, where applicable, their individual owners from enforcing, threatening to enforce, or imposing noncompete restrictions against any relevant employees.
Consumer Protection and Privacy
As a result of an FTC lawsuit, the operators of “The Credit Game,” a credit repair scheme that cost consumers millions of dollars, face a lifetime ban from the credit repair industry in proposed court orders. The proposed orders also require two individual defendants and their companies to turn over an array of property that would be liquidated and used to provide refunds to victims. In its complaint, the FTC alleged that the scheme’s operators:
- provided false information to credit reporting agencies regarding consumers’ credit reports;
- perpetuated the harm to consumers by pitching their customers a supposed business opportunity to create their own bogus credit repair scheme; and
- encouraged consumers to pay for the bogus services using COVID-19 tax relief funds, in violation of the COVID-19 Consumer Protection Act.
The orders contain a total monetary judgment of nearly $19 million, which is partially suspended based on the defendants’ inability to pay the full amount. If the defendants are found to have lied to the FTC about their financial status, the full judgment would be immediately payable.
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As a result of an FTC lawsuit, investment advice company WealthPress has agreed to a proposed court order that would require it to refund more than $1.2 million to consumers and pay a $500,000 civil penalty for deceiving consumers. The FTC’s complaint against WealthPress and its owners alleges that the company used deceptive online claims to sell consumers investment advising services—often claiming that the services’ recommendations were based on a specific “system” or “strategy” created by a purported expert. One claim noted in the FTC’s complaint, from a promotional video: “I’ll show you how you can potentially make $24,840 dollars—or more—every single week. With quick simple … trades that require zero market knowledge or trading experience.” The company charged consumers hundreds or even thousands of dollars for access to these services. The case marks the first time that the FTC has collected civil penalties against a company that received the Notice of Penalty Offenses regarding money-making opportunities sent in October 2021, and the first civil penalties for violations of the Restore Online Shoppers’ Confidence Act (ROSCA).
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A recent FTC Consumer Protection Data Spotlight shows that consumers under the age of 60 are significantly more likely—86 percent—to report losing money to online shopping scams than older adults. According to the spotlight, based on data reported to the FTC for all of last year, consumers under 60 most often said those scams originated from posts on social media. The spotlight also shows that adults under 60 are more than four times as likely as older adults to report losing money to an investment scam, and the majority of those losses happened in scams involving some form of cryptocurrency investments. More information on how scams affect people older than 60 can be found in the FTC’s annual report to Congress on older adults.
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Competition
-The FTC is ordering an end to illegal business tactics that Mastercard has been using to force merchants to route debit card payments through its payment network, and is requiring Mastercard to stop blocking the use of competing debit payment networks. Under a proposed FTC order, Mastercard will have to start providing competing networks with customer account information they need to process debit payments, reversing a practice the company allegedly had been using to keep these networks out of the ecommerce debit payment business and, according to the FTC, that violated provisions of the 2010 Dodd-Frank Act known as the Durbin Amendment and its implementing rule, Regulation II. With the post-Durbin rise of debit ecommerce and e-wallet debit transactions, Mastercard was flouting the law by setting policies to block merchants from routing ecommerce transactions using Mastercard-branded debit cards saved in e-wallets to alternative payment card networks, including networks that may charge lower fees than Mastercard, the FTC alleged.
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In Other News
FTC Chair Lina M. Khan has appointed Aviv Nevo to serve as Director of the FTC’s Bureau of Economics, following a unanimous Commission vote approving the appointment. Nevo joins the FTC from the University of Pennsylvania, where he held appointments in the Wharton School of Business and the Department of Economics, as well as serving as director of the Competition and Policy Initiative. Before that, Nevo was a professor in the Department of Economics at Northwestern University and served as Deputy Assistant Attorney General for Economic Analysis in the Department of Justice’s Antitrust Division. Prior to that, he also taught at the University of California at Berkeley.
The FTC has adjusted the maximum civil penalty dollar amounts for violations of 16 provisions of law the FTC enforces, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The Act directs agencies to implement annual inflation adjustments based on a prescribed formula. The maximum civil penalty amount has increased from $46,517 to $50,120 for violations of Sections 5(l), 5(m)(1)(A), and 5(m)(1)(B) of the FTC Act, Section 7A(g)(l) of the Clayton Act, and Section 525(b) of the Energy Policy and Conservation Act. It has increased from $612 to $659 for violations of Section 10 of the FTC Act. The maximum civil penalty amount has increased from $1,323,791 to $1,426,319 for violations of Section 814(a) of the Energy Independence and Security Act of 2007. The maximum civil penalty amounts for other law violations within the agency’s jurisdiction are listed in the Federal Register notice.
The FTC’s Bureau of Consumer Protection announced the issuance of Health Products Compliance Guidance, the agency’s first revision of its business guidance in this area in nearly 25 years. The revised business guide represents a substantial update to the staff’s 1998 guide, Dietary Supplements: An Advertising Guide For Industry. Since that guide was issued, the FTC has brought more than 200 cases challenging false or misleading advertising claims for dietary supplements, foods, over-the-counter drugs, and other health-related products. The revised guide draws on those cases with 23 new examples. One major revision is to extend the guidance covering dietary supplements to all health-related products. The revised guide also reflects updates to other FTC guidance documents, including the guidance on endorsements and testimonials and the enforcement policy statement on homeopathic drugs.
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The FTC is seeking public comment on potential updates and changes to the Green Guides for the Use of Environmental Claims. The Commission’s Green Guides help marketers avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act. Issued in 1992, the Green Guides were revised most recently in 2012. The FTC is requesting general comments on the continuing need for the guides, their economic impact, their effect on the accuracy of various environmental claims, and their interaction with other environmental marketing regulations. The Commission also seeks information on consumer perception evidence of environmental claims, including those not in the guides currently. Specific issues on which the FTC expects to get many public comments include: carbon offsets and climate change; the term “recyclable”; the term “recycled content”; and the need for additional guidance. A list of recent cases brought relating to topics covered by the guides can be found on the FTC’s website.
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