FTC International Monthly - July

FTC International Monthly: U.S. Competition, Consumer Protection and Privacy News

JULY 2014


FTC Alleges T-Mobile Knowingly Crammed Millions of Dollars in Bogus Charges onto Customers’ Phone Bills


On July 1, the FTC charged mobile phone service provider T-Mobile USA, Inc., with placing millions of dollars of unauthorized charges on mobile phone bills for purported “premium” services from third-party scammers, a process known as “cramming.” According to the complaint, T-Mobile made hundreds of millions of dollars from its third-party billing for SMS subscriptions for services like flirting tips and horoscopes that, in many cases, were bogus and never authorized by customers. T-Mobile received 35 to 40 percent of the total amount charged, retaining a larger cut from subscriptions that generated a large percentage of refunds. The FTC alleges that in some cases T-Mobile continued cramming years after becoming aware that charges were fraudulent. According to the FTC’s complaint, in some cases T-Mobile’s cramming charges resulted in refund rates of up to 40 percent, an obvious sign they were unauthorized. Internal T-Mobile documents show a high number of consumer complaints at least as early as 2012. The FTC’s complaint alleges that T-Mobile’s billing and refund practices made it difficult for consumers to detect that they were being charged, much less by whom, or to receive full refunds or often any refunds at all. The complaint seeks a court order permanently barring T-Mobile from engaging in mobile cramming. It also seeks refunds for consumers and disgorgement of T-Mobile’s ill-gotten gains. Details on the FTC’s extensive efforts to end mobile cramming through enforcement actions, public events, and consumer and business education are available here.


FTC Puts Conditions on Actavis plc’s Acquisition of Forest Laboratories, Inc.

Pharmaceutical companies Actavis plc and Forest Laboratories, Inc. have agreed to sell or relinquish their rights to four generic pharmaceuticals to settle FTC charges that Actavis’s acquisition of Forest likely would be anticompetitive.  The FTC’s complaint also alleges that the proposed transaction would delay the introduction of generic competition against Lamictal ODT, the branded lamotrigine orally disintegrating tablets used to prevent seizures.  That product is manufactured by Forest. and marketed by GlaxoSmithKline plc (GSK).  Actavis is the only company to have received FDA approval for a generic version of Forest/GSK’s Lamictal ODT.  Unremedied, the acquisition would be likely to delay or preclude entirely the entry of Actavis’s generic lamotrigine ODT, thereby insulating the branded product from any generic competition for a period of time. The proposed settlement will preserve competition in the markets for these important drugs and is part of the FTC’s ongoing effort to protect U.S. consumers from higher heath care-related costs. 

FTC Argues That Improper Use of Restricted Drug Distribution Programs May Impede Generic Competition

The FTC filed an amicus brief in U.S. District Court arguing that a brand drug manufacturer’s improper use of a restricted drug distribution program to impede generic competition could violate the antitrust laws.  The case, Mylan Pharmaceuticals, Inc. v. Celgene Corp., concerns access to branded drugs to conduct bioequivalence testing of potential generic substitutes.  The generic manufacturer, Mylan Pharmaceuticals, alleged that the branded manufacturer, Celgene Corp., exploited procedures intended to assure safety to prevent Mylan from buying samples of Celgene’s brand drug products, Thalomid and Revlimid.  Mylan claims this precluded it from conducting bioequivalence testing needed to obtain FDA approval for generic versions of the drugs.  Celgene contends that Mylan’s antitrust claims are barred as a matter of law.  Without taking a position on the factual merits of the case, the FTC’s brief explains that Celgene’s legal position, if adopted by the court, could pose a significant threat to competition in the pharmaceutical industry.  It describes how the conduct in which Mylan alleged that Celgene engaged could constitute a monopolist’s illegal refusal to sell to its potential competitors and could also constitute an anticompetitive agreement between a brand drug manufacturer and its distributors.

Bureau Director Feinstein Addresses Enforcement in Health Care Markets 

On June 19, Deborah L. Feinstein, Director of the FTC’s Bureau of Competition, explained the FTC’s approach to enforcement in health care markets.  She delivered the remarks at the Fifth National Accountable Care Organization Summit.  Feinstein presented an overview of how the FTC examines collaborations, including consolidations, among health care providers and the type of enforcement actions the FTC brings to prevent collaborations that create or enhance market power.  She discussed two defenses often raised -- that a collaboration will result in efficiencies or is necessary because the acquired entity in a consolidation is struggling financially. Feinstein also discussed remedies and the FTC’s preference for structural rather than conduct remedies.

Closing of Clothing Retail Mergers Investigation Prompts Bureau Director Comments on Situations When Online Marketing May Not Be in the Same Market as Retail Marketing

Following the FTC’s closing of its investigation of the acquisition by Men’s Wearhouse of Jos. A. Bank on May 30, Bureau of Competition Director Deborah L. Feinstein posted a blog about the FTC’s approach to competition issues in the retail sector and the significance of online sales.  She observed that competition from online retailers sometimes drives the analysis, but is not a significant factor in every market, as this transaction illustrates.  The Commission’s decision to close its investigation was based primarily on the competitive environment among brick-and-mortar stores, not competition from online sales.  Other recent Competition Matters blog posts are available here. 

Consumer Protection and Privacy

FTC Testifies on Geolocation Privacy

On June 4, the FTC testified before Congress on proposed legislation to protect the privacy of geolocation data.  The testimony, delivered by Jessica Rich, Director of the FTC Bureau of Consumer Protection, outlined the FTC’s ongoing efforts to protect the privacy of consumers’ geolocation information through enforcement, policymaking, and consumer and business education.  Precise geolocation data is sensitive personal information increasingly used in consumer products and services.  These products and services make consumers’ lives easier and more efficient, but the use of geolocation information can raise concerns because it can reveal a consumer’s movements in real time and provide a detailed record of a consumer’s movements over time.  The testimony highlighted some of the cases the FTC has brought against companies engaged in unfair or deceptive practices involving geolocation information, such as Snapchat (mobile messaging services), Aaron’s Inc. (monitoring software) and Goldenshore Technologies (flashlight app).  The testimony also noted that the FTC supports the goals of the proposed Location Privacy Protection Act of 2014 (LPPA), which requires that an entity that collects consumer geolocation information obtain affirmative express consent from consumers before knowingly collecting or disclosing such information.

FTC Releases Privacy and Data Security Update

The just-released FTC 2014 Privacy and Data Security Update provides a summary of FTC enforcement, rulemaking, research, education, and international efforts related to privacy and data security.  Covering initiatives between January 2013 and May 2014, the bullet-point digest highlights key cases touching on privacy, data security, credit reporting, financial privacy, the U.S.-EU Safe Harbor Framework, children’s privacy, and Do Not Call.  The Update also lists the privacy- or security-related rules the FTC has issued since 2000 at the direction of Congress, recent workshops on those topics, relevant reports and surveys, educational efforts, and international engagement. Click on the hyperlinks in the Update for more in-depth information.

In six enforcement categories, the Update provides overall numbers for enforcement actions, as well as detailing cases announced during the covered period.  The six categories are general Privacy (7 cases), Data Security (7 cases), Credit Reporting and Financial Privacy (4 cases plus warning letters to 10 data brokers), U.S.-E.U. Safe Harbor (13 cases), Children’s Privacy (1 case plus 2 additional actions), and Do Not Call (8 cases).  The Update also describes the FTC’s close work with foreign privacy authorities, international organizations, and global privacy networks to develop interoperable privacy frameworks and robust mutual enforcement cooperation on privacy and data security investigations and cases.

Feature: Misleading Health Claims


This year has seen an uptick in FTC activity on misleading health and weight loss claims. In January, Sensa and three other marketers of fad weight-loss products settled FTC charges in a crackdown on deceptive advertising. Also in January, two marketers of genetically customized nutritional supplements agreed to settle FTC charges of deceptive advertising for claims that their personalized nutritional supplements treat diabetes, heart disease, arthritis, insomnia, and other ailments. The FTC is continuing to vigorously challenge misleading health claims. The agency has brought recent cases against marketers of products for memory improvement (BrainStrong Adult); head lice prevention (Lice Shield); and weight loss (Pure Green Coffee). The FTC recently testified before a Senate subcommittee on its efforts to combat fraudulent and deceptive weight-loss claims.

gut check

 In addition to these efforts, the FTC has published a new reference guide for publishers and broadcasters on how to spot phony weight-loss claims when screening ads for publication. The agency also offers guidance for consumers, and even an interactive Weight Loss Challenge game. Following are details on the recent Congressional testimony and three recent cases.

FTC Testifies Before Congress on Agency Efforts to Combat Fraudulent and Deceptive Claims for Weight-Loss Products

On June 17, the FTC testified before Congress about its ongoing efforts to combat fraudulent and deceptive claims for weight-loss products through law enforcement, media outreach, and consumer education.  Mary Engle, Associate Director for Advertising Practices, delivered the testimony before the Senate Commerce Subcommittee on Consumer Protection, Product Safety, and Insurance.  She said that amid an ongoing obesity epidemic – in which nearly 70 percent of U.S. adults are obese or overweight – the FTC’s most recent fraud study shows that more consumers were victims of fraudulent weight-loss claims than of any other specific fraud type covered by the survey.  The testimony noted that despite consumer spending of $2.4 billion on weight-loss products and services last year, there is very little evidence that pills or supplements alone will cause sustained, meaningful weight loss without changes to diet and lifestyle.  The testimony provided details on FTC enforcement actions in the past decade, as well as consumer restitution since 2010.

Supplement Marketers Settle FTC Charges that “BrainStrong Adult” Memory Improvement Claims Are Deceptive

brain strong - july international monthly

Two supplement marketers, i-Health, Inc. and Martek Biosciences Corporation, agreed to settle FTC charges that they made deceptive claims for their  BrainStrong Adult dietary supplement.  Chief among these claims is that the product will improve adult memory and prevent cognitive decline.  The FTC also charged the marketers with falsely claiming they had clinical proof that the supplement improves adult memory.  The marketers advertised the BrainStrong supplement on television, Twitter and on websites. It retailed for about $30 for a 30-day supply at major retail stores and online outlets. The FTC’s proposed administrative settlement bars the marketers from claiming that Brainstrong or any similar product prevents cognitive decline or improves memory in adults unless the claim is truthful and supported by human clinical testing. The settlement also prohibits claims about the health benefits, performance, safety, or effectiveness of these products unless the claims are backed up by competent and reliable scientific evidence. Finally, the companies cannot claim they have clinical proof to support their claims when they do not.  In connection with this action, the FTC issued a blog post – What’s in a health claim? Should be a healthy dose of proof – that contains useful information for consumers.

Company Settles FTC Charges that Head Lice Prevention Claims Were Deceptive

Lice Shield - International Monthly - July 2014

 The FTC has reached a settlement with Lornamead, Inc., resolving charges that the company made deceptive claims in advertisements for its head lice products.  According to the FTC’s complaint, the company exaggerated claims that its “Lice Shield” shampoo, stick, and spray products would prevent or reduce the risk of getting head lice.  Lornamead also claimed that its products would prevent, rather than treat, head lice infestations and that Lice Shield products are “scientifically shown to repel head lice.”  Under the settlement, Lornamead will pay $500,000, and is prohibited from making further deceptive claims.

FTC Charges Green Coffee Bean Sellers with Deceiving Consumers through Fake News Sites and Bogus Weight Loss Claims

Pure Green Coffee 1 0f 2 - International Monthly - July 2014

The FTC has sued a Florida-based operation that capitalized on the green coffee diet fad by using bogus weight loss claims and fake news websites to market the dietary supplement Pure Green Coffee.  According to the FTC’s complaint, weeks after green coffee was first promoted on the syndicated Dr. Oz Show, the defendants and the companies they control began marketing Pure Green Coffee extract.  The FTC charged that the defendants made phony claims for their products, including that consumers could lose 20 pounds in four weeks.   

Pure Green Coffee 2

The FTC also charged that the defendants asserted that such claims were supported by purported clinical proof that dieters could lose weight rapidly without changing their diet or exercise regimens when, in fact, they were not.  The FTC further charged that defendants deceptively failed to disclose that consumers who endorsed the supplement had received it for free and were paid to provide video testimonials. The defendants advertised the dietary supplement through  banner and text ads that appeared on search engines and contained phony weight loss claims, and ads on their own sales websites (e.g., , greencoffeeweightcontrol.com).  They charged consumers approximately $50 for a one-month supply. 

In Other News

Recent Workshop on Conditional Pricing Practices Available for Viewing Online

On June 23, the FTC and Department of Justice brought together a group of experts on conditional pricing practices, such as loyalty discounts and bundled pricing.  The participants discussed and debated the value of the price-cost test.  Another topic they addressed is the extent to which standards articulated in judicial decisions align—or fail to align—with relevant theories of competitive harm and benefit.  Presentation materials are available here (look under Event Details/Event Speakers for speaker bios and 17 sets of presentation slides).  Archived webcast videos of panel discussions are available here

FTC Launches Contest to Help Track and Combat Illegal Robocalls

Zapping Rachel

The FTC has announced a new challenge to encourage development of “honey pot” information systems designed to attract robocallers and help combat them.  The FTC challenge, called “Zapping Rachel,” will include three contests to be hosted August 7-10 at DEF CON 22, one of the world’s oldest and largest hacker conferences.  In 2012, the agency hosted its first public robocall challenge, which garnered nearly 800 submissions, and stimulated the market to produce new robocall blocking technologies for consumers.

FTC Proposes Improvements to Energy Labels for Consumers

The FTC is seeking public comment on proposed changes to its Energy Labeling Rule affecting labels for light bulbs, appliances, room air conditioners, ceiling fans, refrigerators, and furnaces.  Public comments may be submitted here, and must be received by August 18.