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January 2024
Consumer Protection and Privacy
Data broker X-Mode Social and its successor Outlogic will be prohibited from sharing or selling any sensitive location data to settle FTC allegations that the company sold precise location data that could be used to track people’s visits to sensitive locations such as medical and reproductive health clinics, places of religious worship, and domestic abuse shelters. In its first settlement with a data broker concerning the collection and sale of sensitive location information, the FTC also charged that the companies failed to put in place reasonable and appropriate safeguards on the use of such information by third parties. This action underscores the FTC’s strong commitment to restraining the collection, sale, or disclosure of consumers' sensitive location data.
Rite Aid will be prohibited from using facial recognition technology for surveillance purposes for five years to settle FTC charges that the retailer failed to implement reasonable procedures and prevent harm to consumers in its use of facial recognition technology in hundreds of stores. The FTC says Rite Aid technology falsely tagged consumers, particularly women and people of color, as shoplifters. The proposed order will require Rite Aid to implement comprehensive safeguards to prevent these types of harm to consumers when deploying automated systems that use biometric information to track them or flag them as security risks. In a complaint filed in federal court, the FTC says that from 2012 to 2020, Rite Aid deployed artificial intelligence-based facial recognition technology to identify customers who may have been engaged in shoplifting or other problematic behavior. The complaint, however, charges that the company failed to take reasonable measures to prevent harm to consumers, who, as a result, were erroneously accused by employees of wrongdoing because facial recognition technology falsely flagged the consumers as matching someone who had previously been identified as a shoplifter or other troublemaker. Preventing the misuse of biometric information is a high priority for the FTC, which issued a warning earlier this year that the agency would be closely monitoring this sector.
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The FTC has agreed to participate in an international multi-lateral arrangement that will enable the agency to cooperate, provide assistance with investigations, and share information with other privacy authorities around the world that participate in the program. The FTC’s participation in the nonbinding Global Cooperation Arrangement for Privacy Enforcement (Global CAPE) will help the agency to cooperate with other members of the organization on privacy and data security related law enforcement issues without having to negotiate a separate memorandum of understanding with each participant. Global CAPE was created to supplement the Asia Pacific Economic Cooperation Cross-Border Privacy Rules (APEC CBPR), which also facilitates cooperation and assistance in privacy and data security investigations among APEC economies. The new arrangement will allow for participation by countries outside the Asia Pacific area.
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The United States Court of Appeals for the Second Circuit affirmed a district court ruling which ordered “Pharma Bro” Martin Shkreli to face a lifetime ban from participating in the pharmaceutical industry and found Shkreli liable for $64.6 million in disgorgement for his role in orchestrating an illegal anticompetitive scheme. In January 2022, the U.S. District Court for the Southern District of New York held that Shkreli organized an illegal anticompetitive scheme to perpetuate a monopoly for the life-saving drug Daraprim, the gold-standard treatment for a rare, potentially fatal parasitic infection known as toxoplasmosis. The FTC and state enforcers initiated the case in January 2020 against Shkreli, another individual executive, and the companies they founded, Vyera Pharmaceuticals, LLC, and Phoenixus AG. The U.S. District Court found that the defendants’ anticompetitive scheme prevented generic competition and allowed them to protect their Daraprim price increase from $17.50 per tablet to $750 per tablet.
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Competition
The FTC participated in a trilateral meeting with enforcers from Mexico’s Federal Economic Competition Commission, Canada’s Competition Bureau, and the Justice Department’s Antitrust Division. Principals exchanged views on topics including competition in the technology sector and the impact of competition on labor markets.
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On December 29, the U.S. District Court for the Southern District of New York granted the FTC’s request to stop IQVIA Holdings Inc., the multinational healthcare data firm, from acquiring Propel Media, Inc., a healthcare marketer, pending the Commission’s administrative proceeding seeking to permanently block the proposed deal. Both firms compete by selling programmatic advertising that targets healthcare professionals with advertising for pharmaceuticals and other health care products, and the court agreed with the FTC that the merger could harm competition. Although the court’s decision focused only on the competition between the merging parties, the FTC also alleged that that transaction could have anticompetitive vertical effects as well. As the largest healthcare data provider, IQVIA also plays a unique and critical role in healthcare programmatic advertising and the merger would have denied rivals access to this important data that allowed them to compete effectively. Following the decision, the parties announced they were abandoning the transaction.
The IQVIA decision capped a highly successful close to the year for the FTC, which included the first successful litigated challenge of a vertical merger in 50 years, when an appellate court upheld the Commission’s decision blocking the Illumina/GRAIL merger, and two abandoned mergers following FTC challenges: a hospital merger in California, where the California Attorney General joined the FTC suit, and Sanofi’s attempted acquisition of a nascent competitor for a rare disease.
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The FTC, together with the Justice Department’s Antitrust Division, released their annual report detailing fiscal year 2022 (FY22) data on the HSR Premerger Notification Program. In FY22, 3,152 transactions were reported under the HSR Act, which is the second-highest number of reported transactions over the past 10 years. The FTC and DOJ together filed 50 merger enforcement actions, representing the highest level of enforcement activity in over 20 years. The Commission brought 24 merger enforcement challenges in FY22; 11 in which it issued final consent orders after a public comment period; seven in which the transaction was abandoned or restructured as a result of antitrust concerns raised during the investigation; and six in which the Commission initiated litigation. These enforcement actions preserved competition in numerous sectors of the economy, including consumer goods and services, pharmaceuticals, healthcare, tech, industrial goods, and energy.
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In Other News
The FTC announced that it issued orders to five companies requiring them to provide information regarding recent investments and partnerships involving generative AI companies and major cloud service providers. The agency’s inquiry will scrutinize corporate partnerships and investments with AI providers to build a better internal understanding of these relationships and their impact on the competitive landscape. The compulsory orders were sent to Alphabet, Inc., Amazon.com, Inc., Anthropic PBC, Microsoft Corp., and OpenAI, Inc. These companies are involved in three separate multi-billion-dollar investments: Microsoft and OpenAI, Amazon and Anthropic, and Google and Anthropic. The FTC issued its orders under Section 6(b) of the FTC Act, which authorizes the Commission to conduct studies that allow enforcers to gain a deeper understanding of market trends and business practices. Findings stemming from such orders can help inform future Commission actions. The FTC’s inquiry will help the agency deepen enforcers' understanding of the investments and partnerships formed between generative AI developers and cloud service providers. The companies will have 45 days from the date they receive the order to respond.
The FTC has proposed changes to the Children’s Online Privacy Protection Rule (COPPA Rule) that would place new restrictions on the use and disclosure of children’s personal information and further limit the ability of companies to condition access to services on monetizing children’s data. The proposal aims to shift the burden from parents to providers to ensure that digital services are safe and secure for children. In a notice of proposed rulemaking, the FTC is seeking comment on proposed changes to the COPPA Rule aimed at addressing the evolving ways personal information is being collected, used, and disclosed, including to monetize children’s data, and clarifying and streamlining the rule. The COPPA Rule, which first went into effect in 2000, requires certain websites and other online services that collect personal information from children under the age of 13 to provide notice to parents and obtain verifiable parental consent before collecting, using, or disclosing personal information from these children. The rule also limits the personal data that websites and other online services can collect from children, limits how long they can retain such data, and requires them to secure the data.
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In a new report, FTC staff detailed key takeaways from an October 2023 public virtual roundtable that examined how generative artificial intelligence, tools that can generate outputs like text, images, and audio on command, is being used and is affecting professionals in music, filmmaking, software development, and other creative fields. During the virtual event, working creative professionals representing artists, writers, actors, musicians and other creative fields noted that while there are benefits to AI, such as potentially aiding their own work, they also expressed concerns:
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Collection without Consent: Creative professionals noted how their past work was being collected and used without their consent or awareness to train generative AI models, including by using expansive interpretations of prior contractual agreements.
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Nondisclosure: Participants also expressed concern that they might not even know that their works are being used because many AI developers do not publicly disclose what works have been included in training data.
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Competing for work with AI: Participants said that generative AI outputs are starting to appear in the venues where creative professionals compete for work, potentially making it more difficult for consumers and potential publishers to find human-made work.
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Style mimicry: Some participants expressed concerns about generative AI tools being used to mimic their own unique styles, brands, voices, and likenesses, which could allow strangers and former clients to create knockoffs including synthetic voices and images.
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Fake endorsements: Participants said generative AI has been used to create false depictions of artists selling products that they never endorsed or used by trolls to generate offensive content using their cloned voices.
FTC Acts in Several Consumer Protection Matters
For details of recent developments in several FTC consumer protection matters, click on the items below:
FTC Acts To Stop Sprawling Business Opportunity Scheme That Took Millions from Consumers
Lead Generator Agrees to Settlement Banning It from Making or Assisting Others in Making Telemarketing Calls, Including Robocalls
XCast Labs Will Be Banned from Supporting Illegal Telemarketing Practices To Settle FTC Charges It Assisted and Facilitated in Sending Hundreds of Millions of Illegal Robocalls
FTC Sues Grand Canyon University for Deceptive Advertising and Illegal Telemarketing
FTC, Connecticut Take Action Against Manchester City Nissan for Deceiving Consumers, Forcing Junk Fees
The FTC is seeking public comments on proposed improvements to the Energy Labeling Rule to modernize and expand its coverage to help reduce energy costs for consumers. The FTC’s Energy Labeling Rule requires manufacturers to attach labels to major home appliances and other consumer products to help consumers compare the energy usage and costs of competing models. The labels help consumers anticipate their energy usage and avoid costly surprises after they have bought a product.
The FTC will hold an informal hearing on its proposed rule banning fake reviews and testimonials at 10 a.m. ET on February 13. During the hearing, which will be open to the public and available via webcast, three interested parties will provide oral statements addressing issues raised during the rulemaking process.
The FTC issued its biennial report to Congress on the National Do Not Call Registry. More than 249 million consumers have placed their telephone numbers on the Registry over the past two years. The FTC received more than two million Do Not Call complaints in fiscal year 2023, with people overwhelmingly reporting robocalls, as opposed to live telemarketing. Imposter scam, medical needs, and prescription scam calls led the list of commonly reported call topics.
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The FTC has approved revised jurisdictional thresholds and a revised filing fee schedule under the Hart‑Scott‑Rodino (HSR) Antitrust Improvements Act of 1976. Section 7A(a)(2) of the Act requires the Commission to revise the jurisdictional thresholds annually, based on the change in gross national product. The FTC is also required to revise the related HSR filing fee schedule annually based on changes in the gross national product and in the consumer price index under Division GG of the 2023 Consolidated Appropriations Act. For 2024, the size-of-transaction threshold for reporting proposed mergers and acquisitions under Section 7A of the Clayton Act will adjust from $111.4 million to $119.5 million. The filing fee schedule is available here.
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 new maximum civil penalty amounts became effective once they were published in the Federal Register on January 10. The maximum civil penalty amount has increased from $50,120 to $51,744 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 $659 to $680 for violations of Section 10 of the FTC Act. The maximum civil penalty amount has increased from $1,426,319 to $1,472,546 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 has approved revised jurisdictional thresholds for Section 8 of the Clayton Act, which prohibits interlocking directorates. For 2024, thresholds under Section 8 of the Act that trigger prohibitions on certain interlocking memberships on corporate boards of directors are $48,559,000 for Section 8(a)(l) and $4,855,900 for Section 8(a)(2)(A). The thresholds for Section 8 of the Clayton Act become effective upon their publication in the Federal Register. A complete listing of current thresholds can be found on the FTC’s website, and will be updated closer to the time they become effective.
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