The FTC has kept a steady march through the summer, announcing developments in existing cases, submitting testimony to Congress, and revising existing regulatory exemptions. Also, the FTC finalized reports on dark patterns, challenged a merger, and issued warning letters on the right to repair. This, and more, after the jump.
Monday, July 1, 2024
Bureau of Consumer Protection: Consumer Advertising/Marketing
- A federal district court unsealed a complaint filed by the FTC against four companies and their UK and Florida-based owners over allegations that the companies engaged in multiple unauthorized billing scams in violation of Section 5 of the FTC Act, the Restore Online Shoppers' Confidence Act, and the Electronic Funds Transfer Act. The complaint alleges that the defendants deceptively marketed personal care products, and then charged more than the advertised price and enrolled consumers into ongoing plans for additional products without their consent. The defendants are also alleged to have impersonated known businesses to deceive consumers into providing credit and debit card information, and then used shell entities to make unauthorized charges to the consumers' cards. The complaint notes that these schemes have taken over $200 million from consumers and seeks both damages and a permanent injunction. The FTC worked with multiple law enforcement entities on the investigation leading to the complaint, including the U.S. Postal Inspection Service and the Florida and Tennessee Attorney General's Offices.
Tuesday, July 2, 2024
Bureau of Consumer Protection: Enforcement Actions
- The Commission has entered into proposed settlements in
relation to complaints against companies alleged to have harmed
consumers.
- The FTC finalized a settlement with Arise Virtual Solutions Inc. over allegations that the company falsely lured consumers into joining its gig work platform using overinflated earnings claims. The company advertised payments of up to $18 per hour, when in reality the average pay was $12 per hour, and 99.9% of consumers made less than $18 per hour. In addition, the company charged substantial fees, which reduced consumers' effective earnings. The complaint alleges that these earnings claims, as well as Arise's failure to disclose information, violated the FTC's Business Opportunity Rule. The company agreed to pay $7 million under the settlement and must comply with the Rule and cease making any false or misleading claims.
- The FTC also settled with Vroom, Inc. and Vroom Automotive, LLC in relation to a complaint that the companies violated Section 5 of the FTC Act, the FTC's Used Motor Vehicle Trade Regulation Rule, and two other regulations. The violations stem from allegations that the companies (1) misrepresented that their used cars underwent thorough inspections before being listed, resulting in numerous consumer complaints about undisclosed conditions such as bald tires and worn brakes, (2) failed to obtain consumer consent for late deliveries or provide prompt refunds, (3) did not provide required Buyers Guides until late in the purchasing process, and (4) failed to post warranty terms online or inform consumers about how to obtain warranty terms prior to the receipt of sale documents. Under the settlement, the company must pay $1 million in refunds to consumers and must document compliance with the regulations in the complaint.
Bureau of Competition: Merger Challenge
- The Commission filed an administrative complaint against Tempur Sealy International, Inc. and Mattress Firm Group Inc. to challenge the companies' proposed $4 billion merger as a violation of Section 5 of the FTC Act and Section 7 of the Clayton Act. The complaint frames the acquisition as a vertical merger, which would combine the "world's largest mattress supplier with the nation's largest mattress retailer." As a result, the complaint alleges, Tempur Sealy would have "enormous sway over the fate of its rivals" and could limit their access to floor space at Mattress Firm, one of the most important retail channels for mattresses. The acquisition could also allegedly provide Temper Sealy with competitively sensitive information about its competitors. The FTC alleges that the merger would cause competitive harm in the form of decreasing consumer choices and increasing mattress prices. Commissioner Melissa Holyoak issued a statement explaining that, though vertical mergers often have more benefits compared to horizontal mergers, they may still cause competitive harm, and the "substantial evidence" gathered from the agency's investigation of the proposed merger caused her to vote in favor of the complaint.
Wednesday, July 3, 2024
Bureau of Consumer Protection: Right to Repair
- The Commission issued eight warning letters to various companies to advise them that statements about their warranty practices may violate the Magnuson-Moss Warranty Act ("MMWA") and Section 5 of the FTC Act. The letters quote from each company's website and warn them that the FTC will review written warranty and promotion materials after 30 days. For five of the companies, the letters cite statements that consumers must use specified parts or service providers to avoid voiding their warranties; for example, in a letter to Oransi, Inc., the Commission expressed concern about the statement "This Warranty applies only if your Oransi Product is used with Oransi air filters." The other three companies were specifically warned about language voiding a warranty if a consumer removed a sticker or opened a product's outer case. For example, the warning letter to ZOTAC USA, Inc. cites language stating "Warranty claims will be void if the user: . . . [t]ampers, defaces, or removes any stickers indicating void warranty if broken" as concerning. The letters explain that the MMWA does not allow a company to condition its written warranty on a consumer's use of a particular article or service unless (1) it is provided to the consumer for free or (2) the company has obtained a waiver from the FTC. In addition, creating a false impression that a warranty is void because a consumer used unauthorized parts or service would violate both the MMPA and the FTC Act.
Tuesday, July 9, 2024
Bureau of Consumer Protection: Artificial Intelligence
- The FTC and the Los Angeles District Attorney's Office have filed a complaint in California federal court against NGL Labs, LLC and its co-founders, Raj Vir and Joao Figueiredo. Per the allegations in the complaint, NGL and its co-founders impermissibly marketed their anonymous messaging app to children and teens, falsely claimed that their AI content moderation program filtered out harmful messages, and purportedly sent fake messages disguised as real people to trick users into signing up for their paid subscription. The Commission also filed a proposed order which would ban NGL, Vir, and Figueiredo from marketing or offering its app to minors. The proposed order would also impose on the three defendants a $4.5 million dollar fine, to provide redress to consumers, and a $500,000 civil penalty to the Los Angeles District Attorney's Office. FTC Chair Lina Khan explained that because "NGL marketed its app to kids and teens despite knowing that it was exposing them to cyberbullying and harassment" the FTC would "ban NGL from marketing or offering its app to those under 18" and would "keep cracking down on business that unlawfully exploit kids for profit." Los Angeles District Attorney George Gascón echoed a similar sentiment, explaining that "[w]e cannot tolerate such behavior, nor can we allow companies to profit at the expense of our children's safety and well-being. Today's charges send a clear message that deceptive practices and targeting vulnerable populations will not be tolerated." The Commission voted unanimously 5-0 to file the complaint and stipulated final order. Commissioners Holyoak and Ferguson wrote separately.
Wednesday, July 10, 2024
Bureau of Competition: Pharmaceuticals
- The Commission submitted a comment to the U.S. Patent and Trademark Office supporting a proposed rule regarding new requirements associated with addressing practices that can potentially lead to abuse of the patent process. In relevant part, the proposed rule would require that patent applicants filing terminal disclaimers—i.e., a stipulation by the applicant that the patent's term will not extend beyond the term of another patent—agree that the patent would be enforceable only if it has not been tied to another patent previously held unpatentable or invalid. According to the FTC's comment, the proposed rule would reduce the costs for competitors challenging flimsy patents and would reduce incentives for current market leaders to file duplicative patents bound by terminal disclaimers. The Commission votes 3-2 to submit the comment to the Patent and Trademark Office.
Bureau of Consumer Protection: Consumer Privacy
- The FTC and two international consumer protection groups accounced the results of the International Consumer Protection and Enforcement Network's annual review—which revealed that a large percentage of websites and mobile apps may use dark patterns, which are techniques used to steer customers into spending money or giving up their privacy. The review consisted of officials from 27 authorities in 26 counties – focusing on the possible use of dark partners by sites that offered subscription services from companies across the globe and in more than one language.
Friday, July 12, 2024
Bureau of Consumer Protection: Franchises
- The Commission announced that it has revised three exemption thresholds for determining whether the sale of a franchise qualifies for an exemption under the FTC's "Franchise Rule." This rule mandates that franchisors provide certain information to prospective buyers so that the buyer can evaluate the risks of investment. Starting July 12, 2024, the exemptions from compliance under the Franchise Rule are: (1) sales where the buyer pays less than $735 for the franchise; (2) sales requiring a large investment where the franchisee pays at least $1.5 million; (3) sales to large entities that have been in business for at least five years and have a net worth of at least $7.3 million. The FTC voted unanimously 5-0 to approve the Federal Register notice.
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