FTC International Monthly - April

FTC Issues Rules Banning Employee Noncompete Agreements

The FTC issued a rule to promote competition by banning employment agreements that prohibit employees from working for competitors in order to protect the fundamental freedom of workers to change jobs, increasing innovation and fostering new business formation. Such agreements are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. They often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation. An estimated 30 million workers ‒ nearly one in five Americans ‒ are subject to such agreements. Under the FTC’s new rule, existing agreements for the vast majority of workers will no longer be enforceable after the rule’s effective date, although existing agreements for senior executives may remain in force.

FTC Sues To Block Merger of Handbag Manufacturers

The FTC filed suit to block Tapestry, Inc.’s $8.5 billion acquisition of Capri Holdings Limited, a deal that seeks to combine three close handbag competitors – Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand. According to the FTC complaint, if allowed, the deal would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands. It would give Tapestry a dominant share of the “accessible luxury” handbag market, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price. In addition to depriving consumers of the benefits of Tapestry and Capri’s head-to-head competition, which includes competition on price, discounts and promotions, innovation, design, marketing, and advertising, the deal also threatens to eliminate the incentive for the two companies to compete for employees and could negatively affect employees’ wages and workplace benefits. Moreover, Tapestry has engaged in a decade-long M&A strategy through serial acquisitions to achieve its dream of becoming a major American fashion conglomerate. Given Tapestry’s pattern of serial acquisitions, the acquisition of Capri will further entrench Tapestry’s stronghold, making it harder for new brands to both enter the market and have a meaningful presence, the FTC alleges.

FTC Chair Lina Khan, Assistant Attorney General Jonathan Kanter, and European Commission Executive Vice-President Margrethe Vestager met in Washington for the fourth principal-level meeting of the EU-U.S. Joint Technology Competition Policy Dialogue (TCPD). The meeting participants discussed transatlantic cooperation to promote fair competition in the digital economy.

This dialogue focused on rapidly evolving technologies in the digital sector, such as artificial intelligence and cloud, ensuring that merger enforcement accounts for the realities of the modern digital economy, and recent developments regarding enforcement involving technology platforms, among other topics. The United States and European Commission also discussed the evolving business strategies of big tech companies, including the recent investments and partnerships between major cloud providers and AI providers, as well as their implications for enforcement.

The FTC and the DOJ’s Antitrust Division cohosted the third annual Spring Enforcers Summit, which gathered senior staff from both agencies, as well as other federal regulators, international competition enforcers and state attorneys general to discuss enforcement priorities and strategies for effective coordination. The summit featured remarks by FTC Chair Khan, FTC Commissioners Slaughter and Bedoya, and Assistant Attorney General Kanter of the DOJ Antitrust Division, as well as U.S. Secretary of Agriculture Tom Vilsack, United States Trade Representative Ambassador Katherine Tai, Consumer Financial Protection Bureau Director Rohit Chopra, Securities and Exchange Commission Chair Gary Gensler, Surface Transportation Board Chair Martin Oberman, and others. A recording of the webcast is available on the event page.

The FTC announced that its new rule on government and business impersonation went into effect on April 1. The rule gives the agency stronger tools to combat and deter scammers who impersonate government agencies and businesses, enabling the FTC to file federal court cases seeking to get money back to injured consumers and civil penalties against rule violators.

New scam data shows more than $1.1 billion in reported losses to scams impersonating government and business agencies. A recent FTC data spotlight highlights the most common ways consumers are targeted by these treacherous scams. Combined, reported losses to these impersonation scams topped $1.1 billion for the year, more than three times what consumers reported in 2020. The five most commonly reported ways that government and business impersonators convince consumers to turn over their hard-earned money are: copycat account security alerts; phony subscription renewals; fake giveaways, discounts, or money to claim; bogus problems with the law; and made-up package delivery issues.

In addition, the spotlight highlights two key trends since 2020 when it comes to government and business impersonation scams: how consumers are contacted by scammers and how they pay scammers. Reports of text messages and email are trending up as phone calls decline. When it comes to payment methods, reported losses by bank transfers and cryptocurrency outrank every other payment method used to pay these scammers. Bank transfers account for about 40 percent of reported losses to government and business impersonators in 2023, followed by cryptocurrency at 21 percent of reported losses. Reported losses using both payment methods have increased many times over since 2020.

The FTC and Cerebral, Inc. have agreed to an order that will restrict how the company can use or disclose sensitive consumer data and require it to provide consumers with a simple way to cancel services to settle FTC charges that the telehealth firm failed to secure and protect sensitive health data. The order would also require Cerebral to pay more than $7 million over charges that it disclosed consumers’ sensitive personal health information and other sensitive data to third parties for advertising purposes and failed to honor its easy cancellation promises. Cerebral provides online mental health services on a negative option basis, which means consumers are automatically charged unless they cancel those services. Consumers who sign up and use the company’s services provide detailed personal data.

The FTC has taken action against an alcohol addiction treatment service for allegedly disclosing users’ personal health data to third-party advertising platforms, including Meta and Google, and for advertising without consumer consent, after promising to keep such information confidential. As part of a proposed order settling the FTC allegations, Monument, Inc. will be banned from disclosing health information for advertising purposes and must obtain users’ affirmative consent before sharing health information with third parties for any other purpose.

Monument offers users access to online support groups, community forums, online therapy, and access to physicians who can prescribe medications that assist in treating alcohol addiction. The company collects personal information from consumers when they sign up for the service, including information about their alcohol consumption and medical history. While it claimed that users’ personal information would be “100% confidential,” in fact the company allegedly disclosed users’ personal information, including their health information, to numerous third-party advertising platforms via tracking technologies, known as pixels, and application programming interfaces.

FTC Action Leads to Industry Ban for Ringleader of Student Loan Debt Relief Scam

The ringleader of a student loan debt relief scam will be permanently banned from the debt relief industry and is required to turn over assets as part of a settlement with the FTC. The settlement resolves FTC charges involving the scheme. The FTC charged that three individual defendants, operators of Express Enrollment LLC (also doing business as SLFD Processing) and Intercontinental Solutions LLC (also doing business as Apex Doc Processing LLC), pretended to be affiliated with the U.S. Department of Education and used “Biden Loan Forgiveness” or similar names to trick students into signing up for their student debt relief scheme. The FTC said that Apex operators pocketed approximately $8.8 million in junk fees by luring students with false promises of loan forgiveness.

The FTC has chosen four winning submissions for its Voice Cloning Challenge to promote the development of ideas to protect consumers from the misuse of artificial intelligence-enabled voice cloning for fraud and other harms. The panel of judges chose three top submissions from individuals and small organizations, who will split a total of $35,000 in prize money. They are AI Detect, which utilizes AI algorithms to distinguish the subtle differences between genuine and synthetic voice patterns; DeFake, which uses a form of watermarking; and OriginStory, which aims to authenticate the human origin of voice recordings at the point of creation. A fourth winning submission, from Pindrop Security, detects voice clones and audio deepfakes in real time. Because this submission was from a large organization, it was not eligible for a monetary prize and received the Recognition Award.

FTC Issues Report to Congress on Collaboration with State Attorneys General

The FTC issued a report to Congress detailing the FTC’s law enforcement cooperation with state attorneys general (AGs) nationwide and presenting best practices to ensure continued effective collaboration. The report, directed by the FTC Collaboration Act of 2021 makes legislative recommendations that would enhance these efforts, including reinstating the Commission’s authority to seek money for defrauded consumers and providing it with the independent authority to seek civil penalties. In June 2023, the Commission announced a request for public information (RFI) seeking public comments and suggestions on ways it can work more effectively with state AGs to help educate consumers about, and protect them from, potential fraud. After reviewing and analyzing the comments received, the agency developed the report to Congress.

The FTC issued its third report on e-cigarette sales and advertising nationwide, which shows that the combined sales of cartridge-based and disposable e-cigarette products to U.S. consumers by nine leading manufacturers increased by approximately $370 million between 2020 and 2021, while the total topped $2.67 billion. E-cigarette companies also spent $90.6 million more advertising and promoting their products in 2021 than in 2020. The report examines two main types of e-cigarettes. Some have rechargeable batteries and changeable prefilled cartridges; others are disposable after running out of charge or e-liquid. The 2021 report also provides details on some characteristics of e-cigarette products, including flavors and nicotine concentration, as well as the bundling of the components in cartridge systems.

According to the report, expenditures for the advertising and promotion of e-cigarettes increased from $768.8 million in 2020 to $859.4 million in 2021, with the three largest spending categories being price discounts, promotional allowances paid to wholesalers, and point-of-sale advertising. Together, these three categories accounted for almost two thirds of expenditures in 2021.