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July 2023
Competition
The FTC and DOJ released a draft update of the Merger Guidelines, which describe and guide the agencies’ review of mergers and acquisitions to determine compliance with federal antitrust laws. The proposed guidelines address the many ways mergers can weaken competition, harming consumers, workers, and businesses. The goal of this update is to better reflect how the agencies determine a merger’s effect on competition in the modern economy and evaluate proposed mergers under the law. Both agencies encourage the public to review the draft and provide feedback through a public comment period that will last 60 days. The draft guidelines build upon, expand, and clarify frameworks set out in previous versions. At the outset, the guidelines give an overview of thirteen principles that the agencies may use when determining whether a merger is unlawfully anticompetitive under the antitrust laws. These guidelines are not mutually exclusive, and a given merger may implicate multiple guidelines. The document then describes in greater depth the frameworks and tools that may be used when analyzing a merger with respect to each guideline.
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The FTC and DOJ issued a Notice of Proposed Rulemaking to amend the Hart-Scott-Rodino (“HSR”) Form and Instructions, the required merger notification form in the United States. The U.S. agencies typically have a 30-day period to determine whether a notified transaction raises possible competition concerns meriting a more in-depth review. According to a statement from Chair Khan and Commissioners Slaughter and Bedoya, “this marks the first time in 45 years that the agencies have undertaken a top-to-bottom review of the form” and these proposed changes are designed to “to ensure that we can efficiently and effectively discharge our statutory obligations” to stop anticompetitive mergers. Key changes include requirements to:
- provide details about the transaction rationale and surrounding investment vehicles or corporate relationships
- provide information related to both horizontal and non-horizontal business relationships
- provide information about projected revenue streams, transactional analyses and internal documents describing market conditions, and structure of entities involved such as private equity investments
- provide details regarding previous acquisitions
- and disclose information that screens for labor market issues.
The FTC is seeking to block IQVIA Holdings Inc., the world’s largest health care data provider, from acquiring Propel Media, Inc., alleging in an administrative complaint that the proposed acquisition would give IQVIA a market-leading position in programmatic advertising for health care products, namely prescription drugs, to doctors and other health care professionals. The merger would also increase IQVIA’s incentive to withhold key information to prevent rival companies and potential entrants from effectively competing.
The Commission dismissed the case and vacated an Administrative Law Judge’s initial decision, which had rejected an FTC claim that a series of unwritten agreements between Altria Group, Inc. and Juul Labs, Inc. that resulted in Altria ceasing to compete in the U.S. market for closed-system electronic cigarettes in return for a substantial ownership interest in JUUL Labs, Inc., had violated the antitrust laws. While the matter was under appeal, Altria relinquished its ownership interest in JUUL. In vacating the decision, the Commission expressed support for the idea that unwritten agreements unrelated to procompetitive economic activity should be judged under the per se standard, that circumstantial evidence – including inferences regarding common motive, actions against economic interest, pretext, and opportunities to conspire – can be used to prove an agreement, and how to consider subsequent market behavior when determining whether an agreement was anticompetitive.
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Consumer Protection and Privacy
The FTC and more than 100 federal and state law enforcement partners nationwide, including the attorneys general from all 50 states and the District of Columbia, announced a new crackdown on illegal telemarketing calls involving more than 180 actions targeting operations responsible for billions of calls to U.S. consumers. The joint federal and state initiative, “Operation Stop Scam Calls,” is part of the Commission’s ongoing efforts to combat the scourge of illegal telemarketing, including robocalls. The initiative not only targets telemarketers and the companies that hire them but also takes action against lead generators who deceptively collect and provide consumers’ telephone numbers to robocallers and others, falsely representing that these consumers have consented to receive calls. The effort also targets Voice over Internet Protocol (VoIP) service providers who facilitate illegal robocalls every year, which often originate overseas.
Operation Stop Scam Calls includes five new cases from the FTC against companies and individuals responsible for distributing or assisting the distribution of illegal telemarketing calls to consumers nationwide. The actions in the enforcement sweep make clear that third-party lead generation for robocalls is illegal under the Telemarketing Sales Rule and that the FTC and its partners are committed to stopping illegal calls by targeting anyone in the telemarketing ecosystem that assists and facilitates these calls, including VoIP service providers.
The FTC has brought a total of 167 cases against illegal robocallers and Do Not Call violators, including many lead generators and VoIP service providers. Courts in these cases have ordered the defendants to pay more than $2 billion dollars, and the FTC has collected more than $394 million, much of which has been used to provide refunds to defrauded consumers.
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The FTC is taking action against Amazon.com, Inc. for duping millions of consumers into unknowingly enrolling in Amazon Prime. Specifically, the FTC complaint alleges that Amazon used manipulative, coercive, or deceptive user-interface designs known as “dark patterns” to trick consumers into enrolling in automatically-renewing Prime subscriptions. The FTC alleges Amazon also knowingly complicated the cancellation process for Prime subscribers who sought to end their membership. According to the FTC, the primary purpose of Amazon's Prime cancellation process was not to enable subscribers to cancel, but to stop them, and Amazon leadership slowed or rejected changes that would have made it easier for users to cancel Prime because those changes negatively affected Amazon’s bottom line.
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An FTC lawsuit against the operators of a telemarketing scam that called hundreds of thousands of consumers nationwide pitching “extended automobile warranties” will result in a lifetime ban from any outbound telemarketing business and from any involvement with extended automobile warranty sales. The FTC charged Kole Consulting Group and its owner, among other defendants running the American Vehicle Protection (AVP) operation that scammed consumers out of millions of dollars. In its complaint, the FTC charged that AVP made unsolicited calls in which it claimed to be affiliated with vehicle makers and deceptively claimed its products, which cost thousands of dollars, offered “bumper to bumper” protection. In addition to the bans, the proposed court order, which the defendants have agreed to, includes a monetary judgment of $6.5 million, which is partially suspended based on the defendants’ inability to pay.
The FTC announced a settlement with bankrupt cryptocurrency platform Celsius Network that will permanently ban it from handling consumers’ assets, and charged three former executives with tricking consumers into transferring cryptocurrency onto the platform by falsely promising that deposits would be safe and always available. The proposed settlement with Celsius and its affiliates will permanently ban the companies from offering, marketing, or promoting any product or service that could be used to deposit, exchange, invest, or withdraw any assets. The companies also agreed to a judgment of $4.7 billion, which will be suspended to permit Celsius to return its remaining assets to consumers in bankruptcy proceedings. The former executives have not agreed to a settlement and the FTC’s case against them will proceed in federal court. According to the FTC complaint, Celsius took title to and misappropriated deposits totaling more than $4 billion. At the same time, the complaint charges that Celsius only had a small capital reserve that would have allowed a fraction of its customers to withdraw their cryptocurrency within one week.
In response to an action filed by the FTC, a federal court has entered a temporary restraining order against the operators of a business opportunity and real estate investment training scheme known as Ganadores Online and Ganadores Inversiones Bienes Raíces. The FTC charges that the companies behind Ganadores, their owners, and key employees targeted Spanish-speaking consumers with brazen and false money-making pitches for online businesses and real estate investments. Among other requirements, the order prohibits the defendants from making unsupported marketing claims, violating the Business Opportunity Rule and Cooling Off Rule, and from interfering with consumers’ ability to review Ganadores and its products. The court has appointed a temporary monitor over the Ganadores companies, instructed the companies to preserve their assets, and frozen the assets of their owners and principals.
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The FTC took action under the FTC Act and the Opioid Addiction Recovery Fraud Prevention Act (OARFPA), suing an individual defendant and companies he controls for deceptively marketing their Smoke Away products as able to eliminate consumers’ nicotine addiction and enable them to quit smoking quickly, easily, and permanently. This is the FTC’s first action against a smoking cessation product under OARFPA. The proposed stipulated order settling the Commission’s complaint permanently bans defendants from marketing or selling any substance use disorder treatment product or service, including any smoking cessation product or service. The order also prohibits the defendants from making health-related advertising claims for other products unless they are substantiated by competent and reliable scientific evidence, prohibits them from using deceptive consumer testimonials, and imposes both a $7.1 million monetary judgment and a $500,000 civil penalty.
As part of its ongoing monitoring of health-related advertising claims, the FTC sent cease and desist letters – jointly with the U.S. Food and Drug Administration – to six companies currently marketing edible products containing Delta-8 tetrahydrocannabinol (THC) in packaging that is almost identical to many snacks and candy children eat, including Doritos tortilla chips, Cheetos cheese-flavored snacks, and Nerds and Sour Patch candy.
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The FTC charged that the genetic testing firm 1Health.io, also known as Vitagene, Inc. before changing its name in October 2020, left sensitive genetic and health data unsecured, deceived consumers about their ability to get their data deleted, and changed its privacy policy retroactively without adequately notifying and obtaining consent from consumers whose data the company had already collected. As part of a proposed settlement with the FTC, 1Health will be required to strengthen protections for genetic information and instruct third-party contract laboratories to destroy all consumer DNA samples that have been retained for more than 180 days.
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As a result of an FTC lawsuit, Publishers Clearing House (PCH) has agreed to a proposed court order that will require it to pay $18.5 million to consumers who spent money and wasted their time, and make substantial changes to how it conducts business online. In a complaint against PCH, the FTC charges that the company uses “dark patterns” to mislead consumers about how to enter the company’s well-known sweepstakes drawings and made them believe that a purchase is necessary to win or would increase their chances of winning, and that their sweepstakes entries are incomplete even when they are not. The FTC also charges that the company has added surprise shipping and handling fees to the costs of products, misrepresented that ordering is “risk free,” used deceptive emails as part of its marketing campaign, and misrepresented its policies on selling users’ personal data to third parties prior to January 2019. Many consumers affected by these practices are older and have lower-incomes.
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The FTC sent letters to 50 online marketplaces nationwide notifying them about their obligation to comply with the new Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act – or the INFORM Consumers Act – on its effective date last month. The Act aims to add more transparency to online transactions and to deter criminals from acquiring stolen, counterfeit, or unsafe items and selling them through online marketplaces. In the letters, FTC staff urged online marketplaces to communicate with their third-party sellers about the information the Act requires to be collected, verified, and disclosed. Finally, the letters emphasized that a violation of the Act may be treated as a violation of an FTC rule, and thus noncompliant online marketplaces may face enforcement that could result in civil penalties of $50,120 per violation. The letters are informational, and the FTC is not publicly releasing the names of the recipients. For a summary of how online marketplaces can comply with the Act, click here.
In Other News
“Generative AI” is a category of AI that empowers machines to generate new content rather than simply analyze or manipulate existing data. A technology blog post by the staff in the Bureau of Competition and Office of Technology identifies a few of the essential technical building blocks of generative AI and discusses competition concerns potentially raised by generative AI.
In Commission testimony delivered before a committee of the lower house of the U.S. legislature, Chair Lina M. Khan discussed how the FTC has renewed its commitment to use all of the authorities provided by Congress to target illegal mergers and conduct. The Chair highlighted developments over the past 18 months, including how the FTC has moved to challenge major transactions in critical sectors of the economy, including semiconductors, defense, energy, healthcare, mortgage technology, digital markets, and pharmaceuticals. The FTC filed suit to block nine mergers outright, as well as scrutinizing 13 other anticompetitive mergers that parties have abandoned after the agency indicated competition concerns, but before it filed a complaint. The FTC also continues to maintain and develop a robust program to identify and stop anticompetitive practices. Last year, the FTC worked with a bipartisan coalition of 10 state attorneys general to charge the two largest pesticides manufacturers, Syngenta Crop Protection and Corteva, Inc., with paying distributors to block competitors from selling cheaper generic products to farmers – which cost farmers billions of dollars. And in January, the Commission proposed a rule that would ban employers from imposing noncompete restrictions on workers in all but a limited set of circumstances.
The Commission has also used its authority to conduct market-wide inquiries examining new business practices and market trends. For example, in June 2022, the Commission authorized a 6(b) study of the contracting practices of pharmacy benefits managers aimed at shedding light on the opaque operations of these large pharmacy middlemen who can dictate pricing and access to life-saving drugs for so many Americans.
On the consumer protection side, the FTC is redoubling its efforts to use all the tools Congress has provided the FTC to combat fraud and protect consumer privacy. In the last year and a half alone, the FTC brought its first enforcement actions under the Opioid Addiction Recovery Fraud Prevention Act; the Health Breach Notification Rule; the Military Lending Act; and the Made in USA Labeling Rule. The FTC also has brought multiple actions using authority under existing rules, such as the Children’s Online Privacy Protection Act (COPPA). For example, in December 2022, the FTC announced a law enforcement action against Epic Games, Inc., the maker of the popular video game Fortnite, and obtained novel relief for consumers and a record civil penalty of $275 million over charges the company violated COPPA and imposed unfair default privacy settings on children and teens. In a related action, the FTC obtained $245 million for consumer refunds from Epic for allegedly engaging in unfair billing practices.
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The FTC proposed a new rule to stop marketers from using illicit review and endorsement practices such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, which deceive consumers looking for real feedback on a product or service and undercut honest businesses. In its notice of proposed rulemaking, the Commission cited examples of clearly deceptive practices involving consumer reviews and testimonials from its past cases, and noted the widespread emergence of generative AI, which is likely to make it easier for bad actors to write fake reviews. The Commission is seeking comments on proposed measures that would fight these clearly deceptive practices. The Supreme Court’s decision in AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act. A rule clearly spelling out prohibited practices and allowing for the judicial imposition of civil penalties could strengthen deterrence and FTC enforcement actions.
FTC Files Amicus Brief To Clarify Antitrust Standards Involving Exclusive-Dealing and Bundling Arrangements
The FTC filed an amicus brief in the U.S. District Court clarifying legal standards that apply in antitrust cases involving exclusive-dealing and bundling arrangements. The Commission’s filing relates to medical device manufacturer Medtronic Inc.’s motion to dismiss antitrust claims filed by another medical device company. As detailed in the FTC’s amicus brief, Medtronic made several flawed arguments that would apply the wrong legal standards when assessing whether Medtronic’s exclusive-dealing and bundling arrangements are unlawful. Specifically, the FTC argues that contrary to Medtronic’s arguments, the core issue in assessing an exclusive dealing arrangement under Supreme Court precedent is the arrangement’s “practical effect” on competition. Formalistic distinctions, such as around the duration of a written contract, are not dispositive. Mere labels should likewise not control the assessment of potentially anticompetitive bundling. As the brief explains, antitrust plaintiffs who challenge bundled “discounts” are not typically complaining that a defendant’s prices are too low. A defendant’s “discount” may be a self-serving description that enables no consumer to receive a lower price. The Commission urged the district court to reject Medtronic’s arguments, as they have broad implications for antitrust enforcement in the health care sector and beyond.
The FTC has issued a new blog post warning consumers about scammers who are impersonating FTC staff members. The post highlights a number of key lies that scammers tell when they’re pretending to work for the FTC, including that consumers have won a contest and must pay to collect their prize or owe money to the agency. The post also notes that scammers have used the names of real FTC employees when they reach out to consumers. The post includes three key facts about communication from the FTC: The FTC will never call you to demand money; the FTC will never threaten you with arrest; and the FTC will never promise you a prize. Consumers who receive calls from scammers pretending to work for the FTC should report them immediately to the FTC at reportfraud.ftc.gov.
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The FTC announced it has finalized an updated version of its Endorsement Guides, which provide agency guidance to businesses and others to ensure that advertising using reviews or endorsements is truthful. The Endorsement Guides advise businesses on what practices may be unfair or deceptive in violation of the FTC Act. They were last revised in 2009. In May 2022, the FTC announced it was seeking public comments on proposed updates to the Guides to reflect the ways advertisers now reach consumers to promote products and services, including through social media and reviews.
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