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International Competition Network Presents Vision for its Second Decade

At its 10th annual conference in The Hague, the Netherlands, the International Competition Network (ICN) adopted new materials on how to assess market dominance, resolve cartel cases, and manage competition projects effectively. The organization also presented a comprehensive evaluation of how competition agencies use the ICN’s merger-related materials, and unveiled the first four teaching modules of a “virtual university” of competition law and practice, the Federal Trade Commission announced today.

The ICN conference, hosted by the Netherlands Competition Authority, was held on May 18-20, 2011. Almost 500 delegates participated, representing over 90 jurisdictions from around the world, and included competition experts from international organizations and the legal, business, consumer and academic communities. FTC Chairman Jon Leibowitz, FTC Commissioner William E. Kovacic, and officials with the Antitrust Division of the U.S. Department of Justice (DOJ) led the U.S. delegates at the conference. The conference showcased the accomplishments of ICN working groups on mergers, unilateral conduct, cartels, competition advocacy and competition agency effectiveness.

“Sharing views and techniques with our foreign counterparts allows us all to identify best practices to apply in our home jurisdictions,” Chairman Leibowitz said. “As it enters its second decade, the ICN continues to build on the momentum and successes of its first 10 years. This year’s conference again demonstrated how the ICN serves as a critical platform for enhancing the effectiveness of competition agencies and maximizing our ability to act as effective consumer champions.”

The conference highlighted the work of the Agency Effectiveness Working Group, which is developing a competition agency manual as a resource to enhance agencies’ effectiveness and efficiency. FTC Chairman Leibowitz presented opening remarks and participated in a panel discussion on the effective management of competition agencies. New materials were presented on such topics as project delivery and knowledge management.

The ICN’s Merger Working Group aims to promote best practices in the design and operation of merger review regimes. Co-chaired by DOJ and the Irish Competition Authority, the working group presented a comprehensive assessment of the use and impact of 10 years of ICN work on mergers and an evaluation of new work areas to help make merger review more effective. Rachel Brandenburger, Special Advisor, International to Assistant Attorney General Christine Varney, led the conference discussion of current trends and developments in merger enforcement.

“As we celebrate the 10th anniversary of the ICN this year, it is important to recognize how much our international cooperation and coordination efforts have enhanced antitrust enforcement worldwide,” said Assistant Attorney General Christine Varney of the Department of Justice’s Antitrust Division. “By working cooperatively on cases when possible and by sharing best practices we can continue to promote effective antitrust enforcement and competition globally.”

The conference also showcased the ICN Curriculum Project, a project led by FTC Commissioner and ICN Vice Chairman Kovacic to create a “virtual university” of training materials on competition law and practice. The materials include video lectures and other resources gathered into an online interactive educational center.

“The roll-out of the ICN Curriculum Project is a real highlight of this year’s conference,” Commissioner Kovacic added. “These interactive training materials will help leverage the considerable skills and expertise of ICN member agencies and the international antitrust community into more effective competition policies and practices, which will translate into real benefits for consumers around the world.”

Other developments included the work of the Unilateral Conduct Working Group, which promotes convergence and sound enforcement of laws governing conduct by firms with market power. Co-chaired by the FTC and Germany’s competition authority, the Bundeskartellamt, the working group drafted the initial section of a “workbook” for agency investigators on determining market dominance and substantial market power. Randolph W. Tritell, Director of the FTC’s Office of International Affairs, presented opening remarks for a session on the competitive analysis of loyalty discounts and rebate programs.

“The Unilateral Conduct Working Group continues to add to the body of knowledge in this complex but critical area of antitrust enforcement,” said Tritell. “The materials presented at this conference will assist enforcers and policy-makers around the world in implementing their unilateral conduct laws in a manner that reflects the best practices that the working group has developed through its work over the past years.”

The Cartel Working Group produced a paper on cartel case resolution methods and compiled submissions from over 60 member agencies to add to the world’s largest collection of cartel awareness and outreach materials. Belinda Barnett, Criminal Deputy General Counsel of the Department of Justice’s Antitrust Division, participated in a panel discussion on cartel enforcement awareness and outreach.

The Advocacy Working Group prepared a competition advocacy toolkit with an overview of the advocacy process and guidance tools for agencies, and presented the results of evaluating its existing work on conducting market studies. In addition, the Netherlands Competition Authority, the conference’s host agency, conducted a panel and presented a report on the role of consumer welfare in competition enforcement.

The ICN was created in October 2001, when the DOJ and FTC joined antitrust agencies from 13 other jurisdictions to increase understanding of competition policy and promote convergence toward best practices around the world. The ICN now includes 117 member agencies from 103 jurisdictions.

ICN documents are available at www.internationalcompetitionnetwork.org.

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 [email protected], or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(ICN 2011 Final)

FTC Testifies on Consumer Privacy and Protection in the Mobile Marketplace

The Federal Trade Commission today told Congress that while mobile technology, such as smart phones, is giving consumers a vast array of new products and services, it also presents new consumer privacy challenges.

Testifying on behalf of the Commission before the Senate Committee on Commerce, Science and Transportation, David Vladeck, Director of the FTC’s Bureau of Consumer Protection, said the privacy challenges are of special concern when it comes to young people.

The FTC is committed to protecting consumers in the mobile marketplace, where vast amounts of data can be collected from consumers without their knowledge, the testimony states. “The Wall Street Journal has documented numerous companies gaining access to detailed information – such as age, gender, precise location, and the unique identifiers associated with a particular mobile device – that can be used to track and predict consumers’ every move.” The data also is used to target specific ads to users.

A preliminary FTC staff report on Internet privacy, released in December 2010, proposed a framework to protect consumer privacy consisting of three main recommendations, each of which applies to mobile technology: “privacy by design,” simpler and streamlined privacy choices, and transparency. The staff report also called on stakeholders to provide a mechanism to give consumers more control over the data that is being collected from them, including for purposes of delivering behavioral advertising. The mechanism, often referred to as “Do Not Track,” has the support of the majority of the Commission. The testimony notes that the issues surrounding implementation of Do Not Track for web browsing are the same on mobile devices and computers. Staff also is examining how Do Not Track could be applied to mobile applications.

The FTC testimony also notes that children and teens’ use of mobile devices is increasing rapidly. According to a Pew Internet and American Life Project, the number of 12 to 17 year olds who had a cell phone increased from 45 percent in 2004 to 75 percent by 2009. The testimony states that young people are using their cell phones not only to make calls, but also are using new mobile apps that raise privacy concerns such as location-based tracking.

“The Commission has a long history of working to protect the privacy of young people in the online environment,” the testimony states. “In recent years, the advent of new technologies and new ways to collect data, including through mobile devices, has heightened concerns about the protection of young people when online.”

In April 2010, the agency launched an accelerated review of the Children’s Online Privacy Protection (COPPA) Rule that requires websites to get verifiable parental consent before collecting information from children under 13 years old.

The testimony notes that the consensus of participants in a 2010 roundtable on the COPPA Rule review, as well as those who have commented on the review, has been that “the COPPA statute and the Rule were written broadly enough to encompass most forms of mobile communications without the need for statutory change. For example, current technologies such as mobile applications, interactive games, voice-over-Internet services, and social networking services that access the Internet or a wide-area network are ‘online services’ covered by COPPA. . . . Commission staff is assessing new technologies to determine whether they are encompassed by, and conducted in accordance with, COPPA’s parameters,” the testimony states.

For more than 40 years, the FTC has been protecting consumer privacy rights through policy initiatives, consumer and business education campaigns and law enforcement efforts. In the last fifteen years, the FTC has brought more than 300 privacy-related cases, including: 30 data security cases; 64 cases against companies for improperly calling consumers on the Do Not Call registry; 86 cases against companies for violating the Fair Credit Reporting Act (FCRA) 96 spam cases; 15 spyware cases; and 16 cases against companies for violating COPPA, the testimony notes.

The FTC has taken a number of steps to focus on mobile technology, including hiring technologists and assembling a team to conduct research, monitor the various platforms, app stores, and applications, and train other agency staff on mobile issues, the testimony states.

“Protecting the privacy and security of consumer information is a critical component of the Commission’s focus on mobile technologies and services. We will continue to bring law enforcement actions where appropriate and work with industry and consumer groups to develop workable solutions that allow companies to continue to innovate and give consumers the new products and services they desire.”

The Commission vote to approve the testimony was 4-1 with Commissioner William E. Kovacic voting no. Commissioner Kovacic dissents to the extent that the testimony endorses a Do Not Track mechanism, because he believes it is premature.

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 and follow us on Twitter.

(Mobile Testimony.wpd)

FTC Staff: Proposed Texas Legislation Likely to Lead to Dramatically Increased Costs and Decreased Access to Health Care for Texas Consumers

Federal Trade Commission staff, in response to a request from Texas State Representative Elliott Naishtat, stated that Texas health care consumers are likely to be harmed by a proposal in the Texas State Legislature that would exempt state-certified health care collaboratives, which are organizations composed of hospitals, physicians and other health care providers, from state and federal antitrust laws. The FTC staff comment letter expressed concern that Texas Senate Bill 8, if enacted, would likely lead to dramatically increased costs and decreased access to health care for Texas patients.

The FTC recognizes that collaboration may generate opportunities for health care providers to innovate to achieve cost savings when they are clinically integrated. At the same time, however, the FTC also understands that collaborations among competitors, as will occur through the formation of health care collaboratives, may raise concerns about competition. The FTC staff comment explained that Texas Senate Bill 8 would deprive health care consumers of the benefits of competition because it would immunize health care collaboratives from the antitrust laws. Antitrust standards already distinguish between effective clinical integration among health care providers that have the potential to achieve cost savings and improve health outcomes and anticompetitive collaboration and price fixing by health care providers, which are likely to increase health care costs. Because antitrust laws already allow procompetitive collaborations among competitors, an antitrust exemption is unnecessary to achieve cost savings or promote improved quality and access to health care. Exempting the coordinated activities of health care providers, especially when the collaboration of these organizations involves negotiating reimbursement contracts with insurance companies, would eliminate price competition. This would likely lead to increased costs and decreased access to health care that may not be prevented by the review provisions in the Bill.

The Commission vote approving the staff comment was 5-0. It was sent to Rep. Naishtat on May 18, 2011. A copy of the letter can be found on the FTC’s website and as a link to this press release. (FTC File No. V110009; the staff contact is Jessica Hoke, Office of Policy Planning, 202-326-2409.)

(Texas Health Care)

FTC Stops Bogus Precious Metals Dealers

At the Federal Trade Commission’s request, a federal judge has halted a telemarketing operation that allegedly conned senior citizens into buying precious metals on credit without clearly disclosing significant costs and risks, including the likelihood that consumers would have to pay more money or lose their investment. According to papers filed with the court, the scheme has taken in more than $37 million from consumers. The court has ordered a stop to the defendants’ allegedly deceptive practices pending a trial, and has frozen their assets and appointed a receiver to oversee the business.

According to the FTC’s complaint, the defendants promised consumers they could earn large profits quickly by investing in precious metals such as silver, gold, platinum, and palladium. Using high-pressure sales tactics, telemarketers led consumers to believe that they were offering low-risk investments that would double or triple in value in a short time. The company’s sales pitches and marketing materials claimed precious metals are low-risk investments because they are tangible, physical assets – bars, bullion and coins – but in fact the defendants did not use consumers’ money to buy precious metals. Instead, after taking fees and commissions that were not clearly disclosed to consumers, they deposited consumers’ money in the account of a clearinghouse that recorded the investments but did not buy or handle metals.

The FTC further alleged that consumers were often not told their investments were leveraged, that is, that they were agreeing to take out a loan and pay interest for up to 80 percent of the purchase price of the metal investment. In addition, consumers did not know that their leveraged investments were subject to equity calls that might require them to pay more money to prevent their investments from being liquidated. Because consumers’ leveraged investments were opened with low equity levels and incurred hefty interest charges, the investments were vulnerable to equity calls even if prices remained constant.

The FTC complaint charged Harry R. Tanner, Jr., and his wife, Andrea Tanner, and their company, American Precious Metals LLC, with violating the FTC Act and the FTC’s Telemarketing Sales Rule.

In a companion case, the Commodity Futures Trading Commission charged American Precious Metals, Harry Tanner, and Sammy Goldman with violating federal law by using the mails and other means of interstate commerce as part of a scheme to defraud consumers in the sale of precious metals contracts. The FTC and CFTC are part of the South Florida Securities and Investment Fraud Initiative, a multi-agency task force spearheaded by the U.S. Attorney’s Office for the Southern District of Florida to combat white collar fraud.

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Southern District of Florida.

For consumers considering investing in precious metals, the FTC offers Investing in Gold? What’s the Rush?, Investing in Bullion and Bullion Coins and Investing in Collectible Coins.

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.

(FTC File No. 1023212)

FTC Charges Online Marketers with Scamming Consumers out of Hundreds of Millions of Dollars with ‘Free’ Trial Offers

The Federal Trade Commission has brought a law enforcement action against an online operation that allegedly raked in more than $450 million from consumers in the United States, Canada, the United Kingdom, Australia, and New Zealand by luring them into “free” or “risk-free” offers, and then charging them for products and services they did not want or agree to purchase. As part of its ongoing efforts to stamp out online fraud, the FTC seeks to stop the operation’s illegal practices and make the defendants repay injured consumers.

“The defendants used the lure of a ‘free’ offer to open an illegal pipeline to consumers’ credit card and bank accounts,” said David C. Vladeck, Director of the FTC’s Bureau of Consumer Protection. “‘Free’ must really mean ‘free’ no matter where the offer is made.”

The FTC worked closely with Canadian law enforcement, including the Alberta Partnership Against Cross Border Fraud, in investigating this international scheme. Most of the defendants are located in Alberta.

“Internet fraud is a global problem that requires an international enforcement response,” said Lisa Campbell, Deputy Commissioner of Competition for the Competition Bureau of Canada. “International cooperation ensures that fraudsters can’t hide behind borders.”

According to the FTC’s complaint, Jesse Willms and 10 companies he controls used deceptive tactics in offering “free trials” for various products online, including acai berry weight-loss pills, teeth whiteners, and health supplements containing resveratrol (the supposedly healthful ingredient in red wine), as well as for a work-at-home scheme, access to government grants, free credit reports, and penny auctions. (Penny auctions are online auctions in which consumers must purchase bids, usually for $0.50 to $1 each. Regardless of whether a consumer actually wins a penny auction, the consumer has paid for each bid he or she placed during the auction. However, each bid that is placed raises the price of the auctioned item by a penny.)

According to the FTC, Willms and his companies obtained consumers’ credit or debit card account numbers, by enticing them with bogus “free” or “risk-free” trial offers that supposedly required only small shipping and handling fees, and also promised phony “bonus” offers just for signing up. Consumers had no reason to believe they would be charged for the trial product or the extra bonus products, but they were often charged for the “free” trial plus a monthly recurring fee, typically $79.95. Consumers were also charged monthly recurring fees for the so-called bonus offers. Although the defendants offered a money-back guarantee, consumers were often unsuccessful in canceling the charges or obtaining refunds, and the process involved time-consuming phone calls and other steps that made the deals far from risk-free, the FTC complaint alleged.

The defendants allegedly contracted with affiliate marketers whose banner ads, pop-ups, sponsored search terms, and unsolicited e-mail led consumers to the defendants’ websites, and the defendants paid the affiliates for each consumer whose credit or debit card was charged. The defendants allegedly made false claims about the total cost of products, recurring charges, and the availability of refunds. They also buried important terms and conditions in fine print, the FTC alleged.

The complaint charges that the defendants’ penny auction offers falsely indicated consumers would receive free “bonus” bids, but those who provided credit or debit card numbers to facilitate future auction buying were hit with charges they did not know about, including $150 for introductory “bonus” bids and $11.95 per month for ongoing “bonus” bids. The FTC also charged that Willms and his companies made false weight loss and cancer cure claims for their products, and touted bogus endorsements by Oprah Winfrey and Rachael Ray.

The FTC further alleged that the defendants provided merchant banks with false or misleading information, in order to acquire and maintain credit and debit card processing services from the banks in the face of mounting chargeback rates and consumer complaints. Willms and his companies also allegedly violated the Electronic Fund Transfer Act and Regulation E (issued by the Federal Reserve System’s Board of Governors) by debiting consumers’ bank accounts without their signed written consent and without providing consumers with a copy of the written authorization.

The defendants named in the FTC complaint are Jesse Willms, Peter Graver, Adam Sechrist, Brett Callister, Carey L. Milne; 1021018 Alberta Ltd., also doing business as Just Think Media, Credit Report America, eDirect Software, WuLongsource, and Wuyi Source; 1016363 Alberta Ltd., also doing business as eDirect Software; 1524948 Alberta Ltd., also doing business as Terra Marketing Group, SwipeBids.com, and SwipeAuctions.com; Circle Media Bids Limited, also doing business as SwipeBids.com, SwipeAuctions.com, and Selloffauctions.com; Coastwest Holdings Ltd.; Farend Services Ltd.; JDW Media LLC; Net Soft Media LLC, also doing business as SwipeBids.com; Sphere Media LLC, also doing business as SwipeBids.com and SwipeAuctions.com; and True Net LLC, also doing business as Selloffauctions.com.

The FTC would like to thank the Competition Bureau Canada, Service Alberta, the Royal Canadian Mounted Police, the Alberta Partnership Against Cross Border Fraud, the Edmonton Better Business Bureau, and the BBB of Southern Nevada for their invaluable assistance in this investigation.

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Western District of Washington at Seattle.

To help consumers avoid the hidden costs in some “free trial” programs, an FTC video, Free Trial Offers tells how to check out a free trial before you sign up, and what to do if you find yourself enrolled in a free trial offer without your permission: in short, getting charged for merchandise you don’t want and didn’t order. The video is also available at youtube.com/ftcvideos. For more on free trials, click here.

(FTC File No. 1023012)

FTC Staff Says Proposed Massachusetts Law Would Limit Competition and Raise Costs in Distribution of Malt Beverages

Federal Trade Commission staff, in a comment to Massachusetts State Representative Alice Peisch, advised against passage of Massachusetts House Bill 1871, which would impose new administrative requirements on the acquirer of a malt beverage brewer if it subsequently wants to terminate a wholesale distribution agreement that existed between that brewer and its wholesale distributor. If adopted, the comment stated, the measure “would further impede competition in the distribution of malt beverages, and thereby harm competition and consumers.” For example, it would increase distribution costs by adding new administrative procedures and requiring the new wholesaler to buy the distribution rights from the former wholesaler unless the acquiring firm can prove that it has good cause under Massachusetts law for terminating the existing wholesale agreement.

The staff comment supported passage of alternative legislation introduced by Rep. Peisch. “Because H.B. 1897 avoids the additional restrictions on successor suppliers and would provide some relief [under current law] for ‘small brewer relationships,’ it likely would be an improvement over the current regulatory environment,” the comment stated.

The Commission vote authorizing the staff to file the comment was 5-0. It was sent on May 17, 2011. (FTC File No. V110008; the staff contact is Patricia Schultheiss, Office of Policy Planning, 202-326-2877.)

(Massachusetts Malt Beverages)

FTC Chairman Leibowitz, Commissioner Kovacic to Participate in 10th Annual International Competition Network Conference In The Hague, The Netherlands

Federal Trade Commission Chairman Jon Leibowitz and Commissioner William E. Kovacic will participate in the 10th annual International Competition Network (ICN) conference in The Hague, The Netherlands, from May 18-20, 2011. At the conference, senior government antitrust officials, private-sector antitrust experts and representatives of intergovernmental organizations will meet to discuss competition issues and recent accomplishments of ICN working groups on areas of antitrust enforcement policy, including unilateral conduct, mergers, cartels, advocacy and agency effectiveness.

Conference panels will discuss promoting the use of competition principles in government actions, anti-cartel enforcement awareness and outreach, effective operation of competition agencies, trends in merger enforcement, analysis of loyalty discounts and rebates, and competition enforcement and consumer welfare more generally. Member agencies also will finalize work programs for the upcoming year and engage in long-term planning.

In October 2001, the Department of Justice and the FTC joined with antitrust agencies from 13 other jurisdictions around the world (Australia, Canada, the European Union, France, Germany, Israel, Italy, Japan, Korea, Mexico, South Africa, the United Kingdom and Zambia) to create the ICN. The ICN now includes 117 member agencies from 103 jurisdictions. The goal of the ICN is to provide a forum for antitrust agencies to address competition enforcement and policy issues of common interest.

The following portions of this year’s conference will be open to the press:

WEDNESDAY, MAY 18 (Day 1)

9:00 a.m. (The Hague), 3:00 a.m. (EDT) – Opening Remarks
The conference opening will include remarks by Henk Don, Acting Chairman of the Board, Netherlands Competition Authority and Joaquín Almunia, Vice President of the European Commission and European Commissioner of Competition.

10:15 a.m. (The Hague), 4:15 a.m. (EDT) – ICN Curriculum Project
FTC Commissioner Kovacic will present the ICN Curriculum Project, including its first video training materials that will become part of the ICN’s ‘virtual university’ on competition law and practice for competition agency officials.

11:00 a.m. (The Hague), 5:00 a.m. (EDT) – Advocacy Session
John Fingleton, Chief Executive, UK Office of Fair Trading will join a panel to discuss the use of competition principles in government actions.

2:30 p.m. (The Hague), 8:30 a.m. (EDT) – Cartel Session
Belinda Barnett, Criminal Deputy General Counsel of the Department of Justice’s Antitrust Division, will join a discussion on public awareness and outreach in the context of cartel enforcement, moderated by Alexander Italianer, Director General, Directorate for Competition in the European Commission.

THURSDAY, MAY 19 (Day 2)

10:45 a.m. (The Hague), 4:45 a.m. (EDT) – Agency Effectiveness Session
FTC Chairman Leibowitz will present remarks and participate in a panel discussion on effectively managing competition agencies.

2:30 p.m. (The Hague), 8:30 a.m. (EDT) – Special Project Session
Jarig van Sinderen, Chief Economist, Netherlands Competition Authority, will focus on a special project undertaken by the Netherlands Competition Authority on competition enforcement and consumer welfare.

3:15 p.m. (The Hague), 9:15 a.m. (EDT) – Merger Session
Rachel Brandenburger, Special Advisor, International to Assistant Attorney General Christine Varney of the Department of Justice’s Antitrust Division, will moderate a panel on current trends and developments in merger enforcement.

FRIDAY, MAY 20 (Day 3)

10:35 a.m. (The Hague), 4:35 a.m. (EDT) – Unilateral Conduct Session
Randolph W. Tritell, Director of the FTC’s Office of International Affairs, will
present opening remarks preceding a panel debate on “Arguing the Case: Scrutinizing a Loyalty Discount and Rebate Case from All Sides.”

11:20 a.m. (The Hague), 5:20 a.m. (EDT) – Closing

The conference will be held at the World Forum in The Hague, The Netherlands. More information about the conference can be found at www.icn-thehague.org/page.php. ICN documents are available at www.internationalcompetitionnetwork.org.

(ICN Advisory 2011)

In Comment to Federal Communications Commission, FTC Stresses that Sellers are Responsible for Calls Made by Outside Telemarketers

In a comment submitted to the Federal Communications Commission, the Federal Trade Commission has urged its sister agency to hold that sellers of goods and services should be held responsible for sales calls made by others on their behalf, even if the seller did not physically place the calls. The FTC stressed that the FCC should not allow such sellers to escape liability from federal telemarketing laws designed to protect consumers and their privacy when others place telemarketing calls on their behalf.

The FTC’s comment is based on the agency’s experience in enforcing the Telemarketing Sales Rule, which protects consumers’ privacy and protects them against deceptive and unfair telemarketing practices. The FTC also established and enforces the national Do Not Call Registry, which allows consumers to stop unwanted telemarketing calls. To date, the FTC has brought 59 law-enforcement actions alleging Do Not Call violations.

“The Do Not Call Registry is important to the FTC, but is absolutely critical to consumers who want a stop to the telemarketing and robocalls that interrupt their dinner hour,” said FTC Chairman Jon Leibowitz. “We hope that the FCC acts quickly to resolve this issue.”

The FTC comment addresses two questions put forward by the FCC regarding the Telephone Consumer Protection Act of 1991 (TCPA). First, does a call placed by an entity that markets a seller’s goods and services qualify as a call made on behalf of, and initiated by, the seller, even if the seller does not physically place the call?; and second, what should determine whether a telemarketing call is made “on behalf of” a seller, thus triggering liability under the TCPA?

The FCC also asked whether common law principles should apply in such cases and, if so, which should be used to define “on behalf of.” The FCC has undertaken this inquiry as a result of a joint petition filed by all of the parties in a still-pending lawsuit brought by the FTC and four states against Dish Network, LLC, alleging multiple Do Not Call violations.

In its comment, the FTC urged the FCC to find that: 1) under the TCPA, a call placed by an entity that markets a seller’s goods and services does indeed qualify as a call made on behalf of, and initiated by, the seller – even if the seller did not place the call; and 2) the plain meaning of “on behalf of” should be used when determining whether a seller should held liable for illegal conduct by its marketers. In addition, the FTC urged the FCC to rule that the TCPA creates a statutory cause of action that imposes liability on the seller or a marketer for its violations, unless the seller or marketer can show that it meets defined “safe harbor” provisions.

In response to the first question, the FTC comment notes that the FCC’s approach in its prior cases and the FTC’s practice in its telemarketing cases is to hold sellers responsible for calls made on their behalf, even if the seller did not physically place the call. “The FTC has consistently maintained that sellers are responsible for their marketers’ telephone calls to solicit purchases of the seller’s goods or services,” the comment states.

In addition, in response to the FCC’s second question, the FTC comment states that protecting consumers’ privacy demands a uniform and comprehensive interpretation of “on behalf of” in the context of telemarketing. “The plain meaning of the words ‘on behalf of,’ as well as the regulatory framework of the TCPA supports this interpretation,” according to the FTC, and a more restrictive interpretation of “on behalf of” could jeopardize Congress’s privacy-protection goals.

The Commission vote approving the comment and its submission to the FCC was 4-0, with Commissioner Julie Brill recused. It was submitted to the FCC on May 4, 2011.

FTC Finds Broad Compliance Among Auto Dealers with Rule That Protects Consumers with Car Loans

As part of its ongoing efforts to ensure that auto dealers’ financing practices comply with federal consumer protection laws, the Federal Trade Commission has completed investigations of nearly 50 automobile dealers across the country to assess their compliance with the FTC’s Rule Concerning Preservation of Consumers’ Claims and Defenses, more commonly known as the “Holder in Due Course” Rule. The FTC’s investigations found broad compliance with the Rule among auto dealers.

The Holder in Due Course Rule protects car buyers when dealers sell the buyers’ credit contracts to other lenders. Specifically, the Rule preserves consumers’ rights to raise claims and defenses against purchasers of consumer credit contracts – with automobile sales, it protects consumers who buy cars from dealers on credit. When dealers sell credit contracts to lenders, consumers are obligated to pay the lenders instead of the dealers. Under the Rule, if a dealer engaged in fraud or made misrepresentations in selling a car on credit, a consumer could raise the dealer’s conduct as a defense to the lender’s demand for payments.

Without the Rule, consumers would not have this protection in states that preclude them from asserting against lenders the claims and defenses they have against dealers if the lenders bought the credit contracts in good faith and without knowledge of these claims and defenses.

The Rule requires dealers to include in their credit contracts a notice that lenders who buy the contracts are subject to the claims and defenses consumers may assert against dealers. It effectively makes lenders liable for dealers’ conduct, and gives them an incentive to work with reputable dealers.

In November 2010, the FTC staff asked nearly 50 franchised and independent auto dealers in 45 states, and two large online automobile dealers, for copies of consumer credit contacts executed after October 1, 2009. FTC staff’s review of these contracts found broad compliance with the Holder in Due Course Rule. Because all of the responding dealers disclosed the required Holder Notice in their finance contracts, the FTC staff is closing its investigations of them.

The Commission also reminds auto dealers that their obligations under the Holder in Due Course Rule will expand in the near future. The Rule currently does not require dealers to include the notice in credit contracts exceeding $25,000 in the amount financed. However, as a result of the Dodd-Frank Act of 2010, as of July 21, 2011, the Rule will require the notice in these contracts up to $50,000. The Commission encourages auto dealers to review their contracts to ensure that they are in compliance with the expanded scope of the Holder in Due Course Rule.

Click here for the Holder in Due Course Rule, and here for more information about the Rule.

(Holder Rule)
(FTC File No. P104811)

Operators of Online “Virtual Worlds” to Pay $3 Million to Settle FTC Charges That They Illegally Collected and Disclosed Children’s Personal Information

The operators of 20 online virtual worlds have agreed to pay $3 million to settle Federal Trade Commission charges that they violated the Children’s Online Privacy Protection Rule by illegally collecting and disclosing personal information from hundreds of thousands of children under age 13 without their parents’ prior consent. This settlement is the largest civil penalty for a violation of the FTC’s COPPA Rule.

The FTC’s complaint charged that Playdom, Inc., a leading developer of online multi-player games, and company executive Howard Marks operated 20 virtual world websites where users could access online games and other activities, including 2 Moons, 9 Dragons, and My Diva Doll. At least one of these virtual worlds, Pony Stars, was a website specifically directed to children, and the company’s other websites intended for a general audience also attracted a significant number of children. Between 2006 and 2010, approximately 403,000 children registered on the defendants’ general audience sites, and 821,000 more users registered in the Pony Stars children’s site.

The FTC’s COPPA Rule requires that website operators notify parents and obtain their consent before they collect, use, or disclose children’s personal information. The Rule also requires that website operators post a privacy policy that is clear, understandable, and complete. The FTC alleged that Playdom and Marks failed to meet these requirements.

“Let’s be clear: Whether you are a virtual world, a social network, or any other interactive site that appeals to kids, you owe it to parents and their children to provide proper notice and get proper consent,” said Jon Leibowitz, Chairman of the Federal Trade Commission. “It’s the law, it’s the right thing to do, and, as today’s settlement demonstrates, violating COPPA will not come cheap.”

According to the FTC, Playdom took ownership of the websites when it acquired the sites’ original developer, Acclaim Games, Inc., in May 2010. Marks was Acclaim’s CEO, and later served as the head of the Acclaim Studio at Playdom. Playdom and Marks continued to operate the websites in violation of the COPPA Rule after the merger, according to the Commission’s complaint. In August 2010, Playdom became a subsidiary of Disney Enterprises, Inc., a subsidiary of The Walt Disney Company.

The FTC complaint alleges that the defendants collected children’s ages and email addresses during registration and then enabled children to publicly post their full names, email addresses, instant messenger IDs, and location, among other information, on personal profile pages and in online community forums. The FTC charged that the defendants’ failure to provide proper notice or obtain parents’ prior verifiable consent before collecting or disclosing children’s personal information violated the COPPA Rule. It further charged that the defendants violated the FTC Act because Playdom’s privacy policy misrepresented that the company would prohibit children under 13 from posting personal information online.

In addition to the $3 million civil penalty, the settlement order permanently bars the defendants from violating the COPPA Rule and from misrepresenting their information practices regarding children.

The Commission vote to authorize the staff to refer the complaint to the Department of Justice, and to approve the proposed consent decree, was 5-0. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Central District of California, in Los Angeles on May 11, 2011. The proposed consent decree is subject to court approval.

NOTE: The Commission authorizes the filing of 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. This consent decree is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent decrees have the force of law when signed by the District Court judge.

(playdom)

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