FTC International Monthly - October

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



AT&T to Pay $105 Million in Mobile Cramming Case:  $80 Million Will Go to FTC for Refunds to Consumers Who Were Crammed

AT&T graphic for October 2014 International Monthly

The FTC has announced that AT&T Mobility LLC (AT&T) has agreed to pay $105 million to settle claims that it unlawfully billed consumers for unauthorized third-party charges. This billing practice is known as mobile cramming. AT&T is the second-largest wireless carrier in the United States. As part of the $105 million settlement with federal and state law enforcement officials, AT&T will pay $80 million to the FTC for refunds to consumers who were crammed. The settlement also includes $20 million in penalties and fees paid to 50 states and the District of Columbia, as well as a $5 million penalty to the FCC.

In its complaint against AT&T, the FTC alleged that AT&T billed millions of customers for hundreds of millions of dollars in charges from third-party companies for services people never asked to receive or were duped into subscribing to — like horoscope texts, “fun facts” or love tips. The fees were usually small — $9.99 a month — and were not easy for customers to find on their bills. Indeed, the FTC alleged AT&T’s billing practices made it difficult for consumers to detect the unauthorized charges because the fees were listed on wireless bills as “AT&T Monthly Subscriptions,” leaving consumers to believe the charges were part of services provided by AT&T. The FTC also alleged that AT&T received “very high volumes of consumer complaints” related to the unauthorized third-party charges placed on consumer’s phone bills, including more than 1.3 million calls to its customer service department about the charges in 2011 alone.

AT&T quote

Under the terms of its settlement with the FTC, AT&T must notify all of its current customers who were billed for unauthorized third-party charges of the settlement and the refund program. Former customers may be contacted by the FTC’s refund administrator. In addition to the refund requirements, the settlement requires AT&T to obtain consumers’ express, informed consent before placing any third-party charges on their mobile phone bills. In addition, the company must clearly indicate any third-party charges on consumers’ bills and provide them with the option to block third-party charges from being placed on their bill.

This case is part of a larger FTC effort to clamp down on mobile cramming, which was featured in the July issue of the FTC International Monthly. This is the FTC’s seventh mobile cramming case since 2013, and its second against a mobile phone carrier this year.

FTC Chairwoman Names New Bureau of Economics Director

Chairwoman Ramirez has appointed Francine Lafontaine as Director of the Bureau of Economics, succeeding Martin Gaynor, who is returning to Heinz College at Carnegie Mellon University. The Director supervises economic analysis at the Commission and advises the agency on economic policy matters. Lafontaine, who will join the agency in early November, is currently the William Davidson Professor of Business Economics and Public Policy at the Stephen M. Ross School of Business, and Professor of Economics, at the University of Michigan. Her research and writing have focused on incentive contracting and vertical issues. Lafontaine earned a doctorate in Economics from the University of British Columbia, Vancouver, Canada, and a master’s degree in Applied Economics and a bachelor’s degree in Business Administration from Ecole des HEC, Université de Montréal, Canada.


U.S. Agencies Sign Antitrust Cooperation Agreement with Colombia

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On September 16, the FTC and Department of Justice signed an antitrust cooperation agreement with the Colombian Superintendent of Industry and Commerce.  The agreement will enable the antitrust agencies in the two countries to enhance their law enforcement relationship. The new agreement contains provisions for antitrust enforcement cooperation and coordination, conflict avoidance and consultations with respect to enforcement actions, and technical cooperation, and is subject to confidentiality protections.

FTC Charges Pharma Companies with Illegally Blocking Access to Generic Versions of AndroGel

The FTC has sued pharmaceutical companies AbbVie and Besins Healthcare, alleging that the firms filed sham patent litigation to delay introduction of lower-cost alternative versions of AndroGel by two generic pharmaceutical companies, Teva Pharmaceuticals USA and Perrigo.  AndroGel is a topical gel that is approved for testosterone replacement therapy in men.  The complaint also alleged that while the suits were pending, AbbVie entered into an anticompetitive pay-for-delay settlement agreement with Teva to further delay bringing its competing testosterone gel product to market, and that this translated into hundreds of millions of dollars of additional monopoly profits for AbbVie.  In exchange, AbbVie agreed to supply Teva with an authorized generic version of another popular drug, Tricor.  The FTC is seeking a court judgment permanently barring the three companies from engaging in similar anticompetitive behavior in the future and ordering them to disgorge their ill-gotten gains.

FTC Rejects Settlement in Phoebe Putney Hospital Merger and Returns to Litigation

The FTC has rejected a proposed settlement agreement with Phoebe Putney Health System, Inc., and returned the matter to administrative litigation to assess whether Phoebe’s 2011 merger with Palmyra Park Hospital, Inc. violated the antitrust laws. The FTC’s 2011 complaint alleged that the merger would significantly reduce competition in the market for acute-care hospital services in Albany, Georgia, giving the new hospital a market share of more than 85 percent.

The parties had argued that the transaction was exempt from federal antitrust scrutiny under the “state action” doctrine, which provides a narrow exception to the antitrust laws for anticompetitive conduct when it furthers government policy to displace competition with regulation. The FTC challenged this interpretation, but did not prevail in the lower courts, resulting in the acquisition taking place. The U.S. Supreme Court ultimately ruled in favor of the FTC, holding that the merger was not exempt from antitrust scrutiny.

When the case was returned to the lower court, it first appeared that divestiture was impractical, and the FTC accepted for public comment a proposed settlement with non-structural relief. After receiving comments, it became apparent that a structural remedy was, in fact, possible. The FTC therefore voted to withdraw its acceptance of the proposed consent agreement and return the matter to administrative litigation.

Consumer Protection and Privacy

At FTC’s Request, Court Halts Bogus Bitcoin Mining Operation

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At the FTC’s request, a federal court has shut down Butterfly Labs, which allegedly deceptively marketed specialized computers designed to produce Bitcoins, a payment system sometimes referred to as “virtual currency.”  The FTC’s complaint alleges that Butterfly Labs marketed Bitcoin “mining” machines, which they called BitForce, as cutting-edge, powerful and efficient.  Seeking to capitalize on consumers’ excitement and lack of understanding about how the machines work, Butterfly Labs marketed and sold various models of their “BitForce” computers at prices ranging from $149 to $29,899.  The FTC’s complaint alleges that Butterfly Labs charged consumers thousands of dollars for its Bitcoin computers, but then failed to provide the computers until they were practically useless, or in many cases, did not provide the computers at all.

Bitcoin is a system of decentralized virtual currency that can be exchanged for goods, services, or physical currency. Bitcoins are “mined,” which involves creating and solving algorithmic formulas in return for being awarded more Bitcoins. As users mine additional Bitcoins, the formula’s underlying source code becomes increasingly complex, and the process requires advanced computer systems.

The court’s preliminary order requires the defendants to immediately stop making misrepresentations about their products and services, and freezes their assets.

Operation ‘Full Disclosure’ Targets More Than 60 National Advertisers

After reviewing numerous national television and print advertisements, FTC staff has sent warning letters to more than 60 companies that failed to make adequate disclosures in their television and print ads. Recipients of the warning letters include 20 of the 100 largest advertisers in the country. The initiative, Operation Full Disclosure, is the FTC’s latest effort to ensure that advertisers comply with federal law and do not mislead consumers.

Operation Full Disclosure focused on disclosures that were in fine print or were otherwise easy to miss or hard to read, yet contained important information needed to avoid misleading consumers. Some examples include ads that promoted a “risk-free” or “worry free” trial period without disclosing that consumers would need to pay for shipping and/or return shipping, and weight-loss ads featuring testimonials claiming outlier results that failed to adequately disclose the weight loss that consumers generally could expect to achieve. In the warning letters, FTC staff identified problematic ads, recommended that advertisers review all of their advertising to ensure that any necessary disclosures are truly “clear and conspicuous,” and asked them to notify FTC staff of actions they intended to take with respect to their advertising. FTC staff directed the warning letters to advertisers in a wide range of industries, covering English- and Spanish-language advertising for many different types of products, but did not disclose the recipients of the letters.

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Operation Full Disclosure follows a recent FTC effort to address online disclosures in new media. Last year, the Commission issued .com Disclosures: How to Make Effective Disclosures in Digital Advertising, which provided guidance for mobile and online advertisers on how to make disclosures clear and conspicuous to avoid deception. Both initiatives underscore that consumer protection laws apply equally across all mediums, including print, television, computers, and mobile devices.

In Other News


FTC To Host Centennial Dinner & Symposium

FTC at 100 logo

 In celebration of its 100th anniversary, the FTC will host a public symposium on November 7 in Washington, DC.  The agenda is available here.  The symposium will be preceded by an anniversary dinner on November 6.  For more information or to purchase tickets, visit the event’s registration page.

FTC To Host Workshop on How Fraud Affects Different Communities

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On October 29, the FTC will host a workshop called Fraud Affects Every Community to examine how broadly targeted frauds and scams affect older adults, military personnel and veterans, low-income communities, and African-Americans, Latinos, Asians, and Native Americans. This event will bring together consumer advocates, state and federal regulators, fraud prevention experts, academics, and researchers to discuss how these groups are affected, identify areas of concern in different communities, and seek to find actionable remedies through cooperation, law enforcement, industry-fraud prevention initiatives, community outreach and education. The workshop is free and open to the public. It will be held at the FTC’s Constitution Center location at 400 7th Street, SW, Washington, DC 20024. A live webcast the day of the event will be available here.


FTC Provides Comment to Federal Communications Commission on Consumer Privacy and Data Security Issues and Broadband Internet Services

privacy graphic for International Monthly October 2014

In a comment filed with the Federal Communications Commission, the FTC has provided information on how it addresses consumer privacy and data security concerns in the context of residential broadband Internet services.  The FTC’s comment highlights the agency’s efforts to promote privacy and data security through enforcement of the FTC Act, the Fair Credit Reporting Act, and the Children’s Online Privacy Protection Act, as well as the obligations of broadband service providers under these laws.   In addition, the comment highlights the FTC’s extensive policy and education work on privacy and data security, including its overarching privacy report, Protecting Consumer Privacy in an Era of Rapid Change: Recommendations For Businesses and Policymakers.

FTC Staff Provides Comment on Mobile Financial Services

The staff of the FTC has filed a comment in response to the Consumer Financial Protection Bureau’s request for information on the use of mobile financial systems by consumers and their potential benefits for the financial lives of underserved consumers.  The comment highlights five consumer protection issues posed by mobile financial services and the steps taken by the FTC to address them.  The five issues examined are: the potential liability for unauthorized charges using prepaid or stored value products; unfair billing practices on mobile carrier bills; the privacy of consumers’ personal and financial data; the security of consumers’ personal and financial data; and the potential use of consumers’ information by data brokers and other third parties.

Consumer Education

FTC Announces New Consumer Campaign Encouraging Older Consumers to Share Their Knowledge to Help Fight Fraud

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The FTC has announced a new consumer campaign, “Pass It On,” to raise awareness about fraud by encouraging older consumers to talk with family and friends about the telltale signs of fraud.  The program aims to provide a new approach to educating consumers about fraud, offers short and direct reminders on the signs of scams, and suggests tools to start a conversation.  Resources such as fact sheets, bookmarks, word games, presentations, and videos, are being circulated to libraries, social and civic clubs, senior centers, adult living communities, and veteran’s facilities.  The campaign is called ¡Pásalo! in Spanish,  and also has a Spanish-language website.