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FTC Files Its First Case Against Mobile Phone “Cramming”

The Federal Trade Commission has taken legal action to shut down an operation that allegedly took in millions of dollars from placing charges on consumers’ mobile phone bills, many of which were “crammed” or unauthorized charges.

The complaint against Wise Media, LLC, Brian M. Buckley and Winston J. Deloney is the first FTC case against mobile cramming and part of the FTC’s focus on consumer protection issues that may arise from the explosive growth of mobile technology. The FTC’s complaint asks the court to immediately freeze the defendants’ assets and order them to stop their deceptive and unfair practices. The agency is also seeking a permanent injunction that would force the defendants to give up their ill-gotten gains so they can be used to provide refunds to victims of the scam.

“The concept of ‘cramming’ charges on to phone bills is a not a new one,” said FTC Chairwoman Edith Ramirez. “As more and more consumers move to mobile phones, scammers have adapted to this new technology, and the Commission will continue its efforts to protect consumers from their unlawful practices.”

The defendants allegedly billed consumers for so-called “premium services” that sent text messages with horoscopes, flirting, love tips and other information. The Commission’s complaint alleges that consumers across the country were signed up for these services seemingly at random, and that the operation placed repeating charges of $9.99 per month on mobile phone bills, without consumer knowledge or permission.

According to the complaint, in many instances, Wise Media sent text messages to consumers that suggested they were subscribed to the service, which many consumers dismissed as spam and ignored. Even if consumers responded via text indicating that they did not want the services, they were charged on their mobile phone bills on an ongoing basis.

Wise Media and its operators have taken advantage of the fact that consumers may not expect their mobile phone bills to contain charges from third parties and that Wise Media’s charges appear on bills in an abbreviated manner that does not always clearly designate the company as the source of the charge. As a result, many consumers didn’t notice or understand the charges and paid the bills. To the extent that consumers did notice the charges, the process of obtaining refunds was difficult and often unsuccessful according to the complaint.

The Commission alleges that Wise Media went to great lengths to hide its contact information from consumers. When consumers victimized by the scam were able to find a phone number for Wise Media, its call center employees frequently promised refunds that were never provided.

In the complaint, the FTC alleges that the defendants’ practices were deceptive and unfair in violation of the FTC Act. In addition to Wise Media, Buckley and Deloney, the complaint names Concrete Marketing Research, LLC, alleging that it received ill-gotten funds from the operation.

On May 8, Commission staff is hosting a roundtable discussion on mobile cramming with consumer advocates, industry leaders and government regulators to address how to protect consumers from this growing problem.

The Commission vote authorizing staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Northern District of Georgia.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC Seeks Input on Privacy and Security Implications of the Internet of Things

The staff of the Federal Trade Commission is interested in the consumer privacy and security issues posed by the growing connectivity of consumer devices, such as cars, appliances, and medical devices, and invites comments on these issues in advance of a public workshop to be held on November 21, 2013 in Washington, D.C.

The ability of everyday devices to communicate with each other and with people is becoming more prevalent and often is referred to as “The Internet of Things.” Consumers already are able to use their mobile phones to open their car doors, turn off their home lights, adjust their thermostats, and have their vital signs, such as blood pressure, EKG, and blood sugar levels, remotely monitored by their physicians. In the not too distant future, consumers approaching a grocery store might receive messages from their refrigerator reminding them that they are running out of milk.

Connected devices can communicate with consumers, transmit data back to companies, and compile data for third parties such as researchers, health care providers, or even other consumers, who can measure how their product usage compares with that of their neighbors. The devices can provide important benefits to consumers: they can handle tasks on a consumer’s behalf, improve efficiency, and enable consumers to control elements of their home or work environment from a distance. At the same time, the data collection and sharing that smart devices and greater connectivity enable pose privacy and security risks.

FTC staff seeks input on the privacy and security implications of these developments. For example:

What are the significant developments in services and products that make use of this connectivity (including prevalence and predictions)?
What are the various technologies that enable this connectivity (e.g., RFID, barcodes, wired and wireless connections)?
What types of companies make up the smart ecosystem?
What are the current and future uses of smart technology?
How can consumers benefit from the technology?
What are the unique privacy and security concerns associated with smart technology and its data? For example, how can companies implement security patching for smart devices? What steps can be taken to prevent smart devices from becoming targets of or vectors for malware or adware?
How should privacy risks be weighed against potential societal benefits, such as the ability to generate better data to improve health-care decisionmaking or to promote energy efficiency? Can and should de-identified data from smart devices be used for these purposes, and if so, under what circumstances?

FTC staff will accept submissions through June 1, 2013, electronically through [email protected] or in written form. Paper submissions should be mailed or delivered to: 600 Pennsylvania Avenue N.W., Room H-113 (Annex B), Washington, DC 20580. The FTC requests that any paper submissions be sent by courier or overnight service, if possible, because postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

FTC Testifies Before Senate Judiciary Subcommittee on Enforcement of the Antitrust Laws to Promote Competition and Protect Consumers

In testimony today before a U.S. Senate Judiciary subcommittee the Federal Trade Commission detailed its work on behalf of consumers in protecting competition in three key sectors of the economy – health care, technology, and energy.

Testifying on behalf of the FTC before the Subcommittee on Antitrust, Competition Policy, and Consumer Rights, Chairwoman Edith Ramirez said that competitive markets are the foundation of the U.S. economy and that effective antitrust enforcement is essential for those markets to function well. “Vigorous competition promotes economic growth and overall consumer welfare by keeping prices competitive, expanding output and the variety of choices available, and promoting innovation,” she said.

The rising cost of health care is a serious concern for most Americans, the testimony states, and accordingly, it is critical that the FTC act to preserve and promote competition in health care markets. This includes stopping anticompetitive health care mergers and combatting efforts to stifle competition for lower-cost generic pharmaceuticals through anticompetitive “pay-for-delay” agreements, the testimony states.

The testimony notes that recently the U.S. Supreme Court unanimously ruled in favor of the Commission, reviving its challenge to a hospital merger in Albany, Georgia, that resulted in an alleged monopoly for inpatient services. The case will now be heard in an administrative trial scheduled to begin this summer. In a second agency case before the Supreme Court, FTC v. Actavis, Inc., the FTC is appealing a circuit court ruling on pay-for-delay patent settlements related to the testosterone replacement drug AndroGel. “We are hopeful for a favorable decision from the Supreme Court that stops these anticompetitive settlements,” the testimony states.

Discussing the Commission’s antitrust oversight of the nation’s technology markets, the testimony highlights the agency’s balanced and fact-based approach. Sometimes, this leads the Commission to conclude that a proposed merger is likely to harm competition; at other times, the evidence supports a more cautious approach.

Working to preserve competition in the nation’s energy markets, the FTC uses all of the tools at its disposal, including monitoring industry activities, investigating possible antitrust violations, prosecuting cases, and conducting studies.

The testimony concludes with an overview of the FTC’s cooperation with other antitrust enforcers, including the Department of Justice’s Antitrust Division and counterparts worldwide, to ensure that competition laws function coherently and effectively.

The Commission vote approving the testimony and its inclusion in the formal record was 4-0.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

(FTC File No. P859910)

FTC Approves Final Order Settling Charges Against Software and Rent-to-Own Companies Accused of Computer Spying

Following a public comment period, the Federal Trade Commission has approved nine final orders settling charges that seven rent-to-own companies and a software design firm and its two principals spied on consumers using computers that consumers rented from them. The companies used software to take screenshots of confidential and personal information, log customers’ computer keystrokes, and in some cases take webcam pictures of people in their own homes, all without the customers’ knowledge.

In settling the FTC’s administrative complaint, the respondents will be prohibited from using monitoring software and banned from using deceptive methods to gather information from consumers. The settlements will prohibit the use of geophysical location tracking without consumer consent and notice, and bar the use of fake software registration screens to collect personal information from consumers. The seven rent-to-own stores will also be prohibited from using information improperly gathered from consumers to collect on accounts. In addition, the software company, DesignerWare, and its principals, Ronald P. Koller and Timothy Kelly, will be barred from providing others with the means to commit illegal acts. All of the proposed settlements contain record-keeping requirements to enable the FTC to monitor compliance with the orders for 20 years.

The respondents, with links to the respective orders and associated public comments, are:

The Commission vote approving the final orders and letters to members of the public who commented on it was 3-0-1, with Commissioner Wright not participating. (FTC File No. 112-3151; the staff contacts are Julie Mayer, 206-220-4475, and Tracy Thorleifson, 206-220-4181.)

FTC Chairwoman Releases 2012-2013 Annual Highlights

Federal Trade Commission Chairwoman Edith Ramirez released the agency’s 2012-2013 Annual Highlights today at the Spring Meeting of the American Bar Association’s Section of Antitrust Law in Washington, D.C., recognizing the FTC’s continued efforts to protect consumers and promote competition.

The Highlights summarize Commission initiatives in multiple areas since April 2012, including promoting online privacy and data security, fostering competition in high-tech industries and healthcare, and safeguarding children and other vulnerable consumers.

Statistics and data for the Federal Trade Commission’s activities in 2012

Stats & Data 2012
(click image to view full-size)

“As we head into our second century, the FTC is dedicated to advancing consumer interests while encouraging innovation and competition in our dynamic economy,” Ramirez said.

The Highlights call attention to the FTC’s work across 11 broad categories, which include:

Protecting Consumer Privacy: The FTC continues to raise the profile of privacy practices – online and off – through law enforcement, consumer education, and policy initiatives.
Containing Health Care & Drug Costs: The FTC works to prevent anticompetitive mergers and conduct that might diminish competition in healthcare markets. Restricting anticompetitive “pay-for-delay” drug patent settlements continues to be an FTC priority.
Fostering Competition & Innovation: The FTC examines difficult issues at the intersection of antitrust and intellectual property law – issues related to innovation, standard-setting, and patents.
Challenging Deceptive Advertising and Marketing: The FTC works to ensure that national advertisers can back up the claims they make for their products, especially health and safety claims.
Safeguarding Children: The FTC enforces the Children’s Online Privacy Protection Rule, ensuring parents have the tools they need to protect their children’s privacy.

The Highlights identify initiatives the agency takes in advancing competitive principles and guarding consumers’ pocketbooks. As consumers continue to face financial challenges in a recovering economy, the FTC takes action to ensure that they are protected from abusive debt collection practices and fraudulent mortgage advertising.

The FTC also focuses on law enforcement and education efforts on topics trending in technology, such as monitoring consumer protection issues that may arise from the growing use of mobile devices. In addition, the agency made use of the Challenge.gov crowdsourcing platform, hosting the FTC Robocall Challenge to come up with new, innovative ways to block illegal prerecorded calls.

In monitoring environmental claims and energy markets, the agency closely scrutinizes mergers and acquisitions in the energy sector, and monitors environmental marketing to make sure it is truthful and based on scientific evidence. The Highlights also note the FTC’s efforts to collaborate with international partners.

Archives of past Annual Highlights and Reports are available on the FTC website.

FTC Files Amended Complaint, Renewed Motions Seeking to Stop Integration of Phoebe Putney Health System and Former Palmyra Park Hospital in Albany, Ga.

The Federal Trade Commission this week filed renewed motions in its ongoing litigation related to Phoebe Putney Health System’s now consummated acquisition of Palmyra Park Hospital in Albany, Georgia. In filing the motions in federal district court, the FTC is seeking a temporary restraining order and preliminary injunction to stop the further integration of the two hospitals and to ensure that Palmyra’s assets are maintained until an administrative trial on the merits of the acquisition, which is scheduled to begin on August 5, 2013.

Case Background

On April 20, 2011, the FTC filed an action in federal district court seeking to block the then-proposed combination of the only two hospitals in Albany, Ga. — Phoebe Putney Health System, Inc. and Palmyra Park Hospital. The FTC alleged the deal – a merger to monopoly — would reduce competition significantly and allow the combined Phoebe/Palmyra to raise prices for general acute-care hospital services charged to commercial health plans, harming patients and local employers and employees.

On June 27, 2011, the U.S. District Court for the Middle District of Georgia, Albany Division, dismissed the FTC’s complaint and denied its motion for a preliminary injunction. The court found that the transaction was shielded from antitrust scrutiny by the state action doctrine. The FTC appealed the district court’s decision to the U.S. Court of Appeals for the Eleventh Circuit, which affirmed the district court’s ruling on December 9, 2011.

The FTC appealed the Eleventh Circuit’s ruling to the U.S. Supreme Court, and on February 19, 2013, the Supreme Court ruled unanimously that the state action doctrine did not immunize the hospital acquisition from the federal antitrust laws.

FTC/DOJ ACO Working Group Issues Summary of Activities Since October 2011 Release of ACO Antitrust Enforcement Policy

The Federal Trade Commission and Department of Justice have issued a joint summary of the activities of the Accountable Care Organization (ACO) Working Group between October 2011 and March 31, 2013. The FTC and DOJ established the Working Group to collaborate and discuss issues concerning ACOs created under the Affordable Care Act of 2010. The Act encourages physicians, hospitals, and other health care providers to integrate their health care delivery systems in order to improve the quality and reduce the costs of health care services.

The summary, which follows issuance of the agencies’ October 2011 antitrust enforcement policy statement regarding ACOs participating in the Medicare Shared Savings Program, reports that during the time period covered, the ACO Working Group fielded 33 questions related principally to primary service area (PSA) share calculations, and two requests for voluntary expedited review from proposed ACOs.

Under the policy statement, an ACO may calculate its PSA shares to determine whether the ACO falls within an antitrust safety zone for certain ACOs that are highly likely to raise significant competitive concerns. The ACO Working Group responded to most of the 33 PSA share questions within five business days, and in connection with the release of this summary is now making the questions and answers publicly available on their websites. The largest category of questions concerned obtaining and using Medicare and other data to calculate PSA shares.

Also under the policy statement, a newly formed ACO may request voluntary expedited antitrust review of its program. Both of the ACOs that sought such review during the time period covered by the summary withdrew their requests. (The staff contact is Saralisa Brau, Bureau of Competition, 202-326-2774)

FTC Video Helps Funeral Providers Comply with the Funeral Rule

The Federal Trade Commission has released a new video to help businesses that sell funeral goods and services comply with the Funeral Rule.

The Rule applies to licensed funeral directors and funeral homes, as well as to cemeteries, crematories, and other businesses that sell both funeral goods and services. It does not apply to third-party sellers, like casket or monument dealers, or cemeteries that do not have a funeral home on-site. The Funeral Rule establishes some basic requirements that help to ensure that people have the information they need to compare prices and buy only the funeral services and goods they want.

If your business is covered by the Funeral Rule, watch the video to learn about the major provisions of the Rule and how you can comply. For more information visit the FTC’s funeral industry web page.

FTC and New York and Florida Attorneys General Amend Complaint Against The Tax Club, Charged with Bilking Consumers Trying to Launch Home-Based Businesses

The Federal Trade Commission has amended a complaint against The Tax Club defendants, who in January 2013 were charged by the FTC and the New York and Florida Attorneys General with deceiving consumers who believed the defendants’ services would help their home-based businesses succeed. A federal court subsequently issued a stipulated preliminary injunction order that requires the defendants to stop the deceptive practices alleged in the complaint during the pendency of the litigation.

The amended complaint bolsters the agencies’ allegations that the corporate defendants operated as a common enterprise, and that the individual defendants are liable for corporate conduct.

The Commission vote authorizing staff to file the amended complaint was 4-0. It was filed in the U.S. District Court for the Southern District of New York on April 8, 2013.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The case will be decided by the court.

Bosley, Inc. Settles FTC Charges That It Illegally Exchanged Competitively Sensitive Business Information With Rival Firm, Hair Club, Inc.

Bosley, Inc., the nation’s largest manager of medical/surgical hair restoration procedures, has settled Federal Trade Commission charges that it illegally exchanged competitively sensitive, nonpublic information about its business practices with one of its competitors, HC (USA), Inc., commonly known as Hair Club. In settling the FTC’s charges, Bosley has agreed not to communicate such information in the future, and will institute an antitrust compliance program.

Bosley, headquartered in Beverly Hills, Calif., is a wholly owned subsidiary of Aderans America Holdings, Inc. Aderans America, also located in Beverly Hills, is a wholly owned subsidiary of Aderans Co., Ltd, headquartered in Tokyo, Japan. Bosley manages medical/surgical hair restoration practices and provides hair therapy products.

Hair Club, headquartered in Boca Raton, Fla., is a wholly owned subsidiary of Regis Corporation, which is based in Minneapolis, Minnesota. Hair Club provides hair-loss treatments, including non-surgical hair restoration and hair therapy products. Hair Club also manages medical/surgical hair restoration practices. Under a stock purchase agreement dated July 13, 2012, Aderans intends to acquire Hair Club for $163.5 million.

The FTC alleges that for at least the past four years, Bosley has exchanged competitively sensitive, nonpublic information about its business operations with Hair Club. The information exchanged by the companies’ CEOs included details about future product offerings, surgical hair transplantation price floors and discounts, plans for business expansion and contraction, and current business operations and performance.

The FTC charges that by directly and repeatedly exchanging competitively sensitive, nonpublic information, the companies have violated Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition. According to the FTC’s complaint, the exchange of such information could facilitate coordination between Bosley and Hair Club by reducing uncertainty regarding each other’s product offerings, prices, and strategic plans.

In addition, the FTC alleges that Hair Club was not the only firm to which Bosley provided such information. Bosley’s exchange of sensitive information to other rivals increases the potential for competitive harm.

The proposed order settling the FTC’s charges remedies the anticompetitive conduct alleged in the complaint. The proposed order bars Bosley from communicating competitively sensitive, nonpublic information directly to any hair transplantation competitor. It also bars Bosley from requesting, encouraging, or facilitating the communication of any such information from any of its competitors.

In addition, the proposed order requires Bosley to institute a program to ensure that it complies with federal antitrust laws in the future. This program includes: 1) developing annual compliance training for all Bosley officers, executives, and employees who have contact with competitors or have sales, marketing, or pricing responsibilities for Bosley’s hair transplantation operations; 2) providing legal support to respond to questions regarding compliance with federal antitrust laws; and 3) retaining documents needed to ensure compliance with the FTC’s order.

Finally, the proposed order requires Bosley to submit periodic compliance reports to the FTC, to provide the FTC with 30 days’ notice before any corporate changes that may affect compliance with the order, and to provide the FTC access to its U.S. facilities, records, and employees with five days’ notice.

The proposed order does not interfere with Bosley’s ability to compete or to participate in legitimate business activities, including trade associations and medical societies. The proposed order specifically exempts from its provisions certain types of legitimate information exchanges.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 3-0-1, with Commissioner Joshua D. Wright recused. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through May 8, 2013, after which the Commission will decide whether to make the proposed consent order final.

Interested parties can submit comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments can be submitted electronically. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

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