Markets Wired

FTC approval of appointment of compliance officer in matter of Rambus Inc.: By a vote of 5-0, the Commission has approved an application to appoint a compliance officer in the matter of Rambus Incorporated. In an application submitted on July 11, 2007, Rambus requested the Commission approve Chirag R. Asaravala as its compliance officer. The Commission gave its approval in a letter dated August 29, 2007, to Rambus’s counsel.

Pursuant to an FTC final order announced on February 5, 2007, Rambus is required to employ a Commission-approved compliance officer who will be charged with ensuring that Rambus does not make misrepresentations and omissions to standard setting organizations. The FTC issued the final order after Rambus unlawfully established monopoly power in certain markets for dynamic random access memory (DRAM) computer chip technology by inducing a standard setting organization, through misrepresentations and omissions, to incorporate Rambus’s technologies into standards enacted by that organization. The order is designed to remedy the effects of those unlawful monopolies and to prevent Rambus from again acquiring unlawful monopoly power through similar means.

On April 4, 2007, Rambus filed an appeal of the FTC’s final order with the U.S. Court of Appeals for the District of Columbia. The appeal is pending. (FTC Docket No. 9302; the staff contact is Daniel P. Ducore, Bureau of Competition, 202-326-2526; see press release dated February 5, 2007.)

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.

The operators of an invention promotion business, which a judge called “one grand con game to take money away from consumers,” have been ordered to pay $60 million for violating a 1998 court order.

“By changing the name of their company, these individuals thought they could continue to make false promises and take inventors’ money, but they didn’t get away with it,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “This scam should also remind inventors to question the assurances of promotion firms. No one can guarantee an invention’s commercial success.”

Under the 1998 order, Julian Gumpel, Darrell Mormando, Michael Fleisher, and Greg Wilson were barred from misrepresenting the services they offered to amateur inventors, but they revived their scam under a new name, the Patent & Trademark Institute (PTI). For a fee of $895 to $1,295, PTI promised to evaluate the marketability and patentability of inventors’ ideas, but its evaluations were almost always positive and were not meaningful, according to the FTC. For a fee of $5,000 to $45,000, PTI’s clients were offered legal protection and assistance to obtain commercial licenses for their inventions. They also were told that PTI would help them earn substantial royalties from their inventions, but PTI did not help consumers license their inventions, and clients did not earn royalties.

In January 2007, the FTC charged the defendants with civil contempt and obtained a temporary asset freeze against PTI and its owner, Gumpel, and the appointment of a receiver over PTI. In March, the FTC added Fleisher, Mormando, and Wilson as contempt defendants, alleging that they participated in the order violations as managers and salesmen.

On May 3, 2007, after a four-day hearing, U.S. District Court Judge Gerald Bruce Lee held the defendants in contempt, finding, among other things, that PTI failed to disclose to consumers that none of its clients had successfully marketed an invention. The judge concluded that consumers were defrauded of $61 million through “lies and misstatements.”

On July 12, 2007, the court permanently banned Gumpel, Mormando, and Wilson from engaging, in any way, in the marketing of invention promotion services. The court did not enter a ban against Fleisher because he did not sign the original order, although the court found that he knew about it and was subject to it. On August 27, 2007, the court entered an order holding PTI and Gumpel jointly liable for a $61 million judgment, and holding Fleisher, Mormando, and Wilson jointly and severally liable for the judgment to the extent of $59,682,958.

PTI operated through several corporate entities, including original defendants Azure Communications, Inc. and London Communications, Inc., and through United Licensing Corp., International Patent Advisors, Inc., Datatech Consulting, Inc., International Product Marketing, Inc., and Unicorp Consulting, Inc. These companies also were held in contempt and ordered to pay $61 million.

The Commission appreciates the substantial assistance in this case provided by the U.S. Attorney’s Office for the Eastern District of Virginia and the U.S. Patent & Trademark Office.

The FTC has established a phone line for consumers who may have been harmed by PTI’s conduct. Consumers may call 202-326-2926 for more information.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.

Commission approval of Federal Register notice: The Commission has approved the issuance of a Federal Register notice announcing the start of its decennial review of the FTC’s Mail or Telephone Order Merchandise Rule, 16 CFR Part 435 (Mail Order Rule). As detailed in the notice, the Commission is seeking comment on whether to retain the Rule. To guide discussion of this issue, the Commission is seeking information on the Rule’s costs and benefits. Assuming, based on the public response to the notice, the Commission decides to retain the Rule, it also seeks to determine whether it should make three changes to the Rule in response to changes in technology and marketing practices that have occurred since the Rule was last updated in 1993.

The first potential change relates to merchandise ordered by computer. When the Commission amended the Rule in 1993 to cover telephone-order merchandise, it adopted a definition of “telephone” that was meant to extend the Rule’s coverage to all merchandise ordered by computer. Since then, the technology for accessing the Internet by computer has evolved to include means that do not use the telephone. The Commission accordingly requests comment on whether, to remove any doubt, it should amend the Rule to refer expressly to merchandise ordered by computer.

The second potential change relates to whether the Rule’s list of payment methods – cash, check, money order, or credit card – should be expanded to include other payment methods that have come into use since the Rule was last amended. This would reconcile the enumeration of payment methods with other language in the Rule stating that the Rule covers mail or telephone order merchandise regardless of the method of payment.

The third potential change would provide merchants with greater flexibility in making the refunds, which they are currently required to make by first-class mail, by requiring refunds by means “at least as fast and reliable as first class mail.” The notice also requests comments on whether the FTC should renumber the Rule’s provisions to make its organization similar to that of more recent FTC rules.

The FTC is accepting comments on the proposed amendments to the Rule for 60 days after the Federal Register notice is published, through November 7, 2007. Written comments should refer to “16 CFR Part 435 Comment – Mail or Telephone Order Merchandise Rule,” and should be sent to the following address: Federal Trade Commission/Office of the Secretary, Room H-135 (Annex K), 600 Pennsylvania Ave., N.W., Washington, DC 20580. Instructions on how to send e-mail comments can be found in the notice on the FTC’s Web site.

The Commission vote approving the issuance of the Federal Register notice was 5-0. The notice will be published soon and is available now on the FTC’s Web site as a link to this press release. (FTC File No. P924214; the staff contact is Joel N. Brewer, Bureau of Consumer Protection, 202-326-2967.)

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.

Canadian telemarketers will pay $505,000 to settle Federal Trade Commission charges that they scammed United States businesses into paying for business directories and listings that had never been ordered. In addition, the FTC will return checks worth about $470,000 that were sent to the telemarketers and seized as part of the law enforcement action. Also, the telemarketers will not be able to collect on invoices worth about $560,000 that they had already sent before their operations were halted by the temporary restraining order requested by the FTC.

According to the FTC, the telemarketing operation used what they called an “assumptive sales approach” to trick United States businesses into believing that someone at the company had placed an order for a business directory or directory listing. The defendants made an initial telephone call and led businesses to assume that a purchase had already been authorized. During a second, recorded call, the defendants asked a series of leading questions to make it appear the directory had been ordered. A directory was then sent to the business – along with an invoice for $399. According to the FTC, businesses would often just pay the invoice without even realizing that they were being scammed.

The corporations, Datacom Marketing Inc. (Ontario Corporation No. 1431798) and Datacom Direct Inc. (Ontario Corporation No. 1417524), and Judy Neinstein and her brother, Stanley Fromstein, both owners of Datacom, will pay $455,000 to be returned to consumers. Paul Barnard, a former president of the companies, will pay $50,000. All of the defendants are prohibited from misrepresenting: that consumers have a preexisting business relationship; that consumers have agreed to purchase business directories or listings in directories; or that consumers owe money for business directories or listings in directories. In addition, during outbound telephone calls, the defendants must disclose their identity and that the purpose of the call is to sell goods or services. They cannot violate the Telemarketing Sales Rule. The court has found a third owner and sibling, Bernard Fromstein, and his common-law wife, Judy Provencher, in default. Litigation continues with the most recent president of the companies, Charles P. Farrugia. Criminal charges are pending in Canada against many of the defendants: Judy Neinstein, Bernard Fromstein, and Paul Barnard, as well as the corporations.

This case was brought with the invaluable assistance of the United States Postal Inspection Service, Canada’s Competition Bureau in Vancouver, British Columbia, the Service de Police de la Ville de Montréal, and the Toronto Strategic Partnership. The Toronto Strategic Partnership consists of the FTC, Competition Bureau Canada, the Toronto Police Service – Fraud Squad, the U.S. Postal Inspection Service, the Ontario Ministry of Government Services, the Ontario Provincial Police – Anti-Rackets, the Royal Canadian Mounted Police, and the United Kingdom’s Office of Fair Trading.

The Commission vote to authorize staff to file the stipulated final orders was 5-0. The stipulated final orders for permanent injunction were filed in the U.S. District Court for the Northern District of Illinois.

Note: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The FTC works for the consumer 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, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

Commission approval of proposed divestitures: Following a public comment period, the Commission has approved a petition for divestiture of two funeral homes pursuant to the modifying order issued in In re Service Corporation International (SCI), Docket No. 3869. The modifying order allowed SCI to foreclose on certain funeral home assets but required these assets be held separate and divested by a Trustee appointed by the Commission. Through the petition, a public version of which can be found on the Commission’s Web site and as a link to this press release, the Trustee requested approval for divestiture of the McMullen Funeral Home, in Columbia, Georgia, and the Colonial Funeral Home, in Phenix City, Alabama, to JCAM Holdings LLC, a company formed by the current operators of the funeral homes, the McMullen family. The FTC has now approved that request and extended the divestiture period under the modifying order to August 31, 2007.

The Commission vote to approve the proposed divestiture was 5-0. (FTC File No. 981 0353, Docket No. C-3869; the staff contact is Elizabeth A. Piotrowski, Bureau of Competition, 202-326-2623, see press release dated December 29, 2006)

Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.

Miami-based telemarketers, who were charged with deceiving Spanish-speaking consumers through their marketing of pre-approved, advance fee MasterCards, free ATM and phone cards, and a free-trial membership in a discount health plan, have been banned from telemarketing. In addition, the defendants are banned from selling similar goods and services in the future by any means. The defendants will pay cash and the proceeds from the sale of certain assets, including condominiums and real estate investments, to settle the Federal Trade Commission’s charges.

According to the FTC, the defendants bilked more than 30,000 consumers out of more than $4 million, running nationwide advertising on Telemundo, Telefutura, Galavision, and other Spanish-language television networks. For $138-$200, the defendants promised consumers a pre-approved, guaranteed Amerikash Mastercard and a number of incentive items, including free ATM cards, phone cards, and vacation vouchers. The defendants’ telemarketers also offered a free-trial membership in the Amerikhealth discount health plan, which consumers had to cancel before the free-trial period expired to avoid monthly charges.

The FTC complaint alleged that in numerous instances, consumers never received a MasterCard, received only some or none of the free items defendants offered, and that the items consumers received often did not work. In connection with the Amerikhealth discount health plan, the complaint alleged that the defendants misrepresented the free-trial offer by failing to provide consumers with a free-trial period at all or by thwarting consumers’ efforts to cancel during the free-trial period. The complaint also alleged that the defendants improperly charged consumers’ credit cards or bank accounts for the discount health plan, did not obtain consumers’ express verifiable authorization for the charges, and continued to charge consumers on a recurring basis without their written authorization

The U.S. District Court for the Southern District of Florida entered stipulated final orders that ban the defendants – Remote Response Corporation; Alberto Salama, Samuel Salama, Elias Salama and Joseph Bensabat, co-owners of Remote Response; and German Espitia, president of Instant Way Corp. – from telemarketing and from ever selling credit, debit, stored value, ATM or phone cards, travel or gas vouchers, vacation package discounts, or health discount plans. The Court previously entered an order of default judgment and permanent injunction against defendant Instant Way Corp. on August 2, 2006.

The orders also enter $4,164,558 judgments – the total amount of consumer injury – against each of the defendants. The judgments were partially suspended against Remote Response and the three Salama defendants based on their financial condition and their agreement to turn over funds frozen by the Court and the proceeds from the sale of three condominiums and from their interests in several real estate development limited liability companies. The judgment was partially suspended against German Espitia based on his financial condition and his agreement to turn over funds frozen by the Court and the proceeds from the sale of two condominiums. The full $4,164,558 judgments would be due if the defendants misrepresented their financial conditions.

The Court’s orders also prohibit defendants from making misrepresentations about the goods and services they sell, and from charging consumers improperly. For example, the defendants are prohibited from misrepresenting that consumers will receive goods or services, that they will receive them free of charge, or that they bear certain characteristics or can be used in a particular way. The defendants also are prohibited from misrepresenting the terms and conditions of free-trial offers. In connection with obtaining payment for “free-to-pay” offers, the orders prohibit the defendants from improperly debiting consumers’ bank accounts or charging their credit or debit cards. For example, they are prohibited from charging consumers when consumers reject a sales offer; before a free-trial period expires; after consumers have cancelled; or when defendants have thwarted consumers’ ability to cancel. Finally, the defendants cannot make recurring electronic fund transfers from a consumer’s bank account without obtaining the consumer’s authenticated authorization and providing a copy to the consumer.

The Commission vote to authorize staff to file the stipulated final orders was 5-0. District Court Judge Cecilia M. Altonaga signed the stipulated final orders, amended in connection with the parties’ signatures, and they were entered by the U.S. District Court for the Southern District of Florida on August 23, 2007.

NOTE: These stipulated final orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. A stipulated final order has the force of law when signed by the judge.

The FTC works for the consumer 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, click https://www.ftccomplaintassistant.gov/ or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

Spammers must stop sending unwanted and illegal e-mail messages about hoodia weight-loss products and human growth hormone anti-aging products the Federal Trade Commission alleges don’t work. At the FTC’s request, a district court judge ordered a halt to the e-mails and to product claims that the FTC charges are false and unsubstantiated.

According to the FTC’s complaint, the operation was responsible for spam messages that were sent to consumers. The illegal e-mails then drove traffic to the defendants’ Web sites. Those sites sold two types of products under a variety of names. Pills that allegedly contained hoodia gordonii and caused significant weight loss were sold under names such as “HoodiaHerbal” and “Hoodia Maximum Strength.” So-called “natural” products that were supposed to elevate a user’s human growth hormone (HGH) level and thereby dramatically reverse the aging process were sold under names that included “Perfect HGH” and “Dr-HGH.”

The FTC alleges that the claims made for the products were false and unsubstantiated. According to the FTC complaint, the defendants falsely claimed that their supposed “hoodia” products cause rapid and substantial weight loss, including as much as forty pounds in a month; cause users to lose safely three or more pounds per week for multiple weeks; and cause permanent weight loss. In fact, the weight-loss claims were false. The complaint also charges that the defendants falsely claimed that their supposed HGH products would contain human growth hormone and/or cause a clinically meaningful increase in a consumer’s growth hormone levels. According to the FTC, the defendants also falsely claimed that their HGH products would turn back or reverse the aging process, including: lowering blood pressure, reducing cellulite, improving vision, causing new hair growth, improving sleep, improving emotional stability, speeding injury recovery, relieving chronic pain, increasing muscle mass, and causing fat and weight loss.

The FTC’s spam database has received over 85,000 spam messages sent on behalf of the operation. According to court documents filed by the FTC, many of these e-mail messages were sent using Web form hijacking – a particularly insidious form of spamming. In Web form hijacking, the spammer injects the spam message into form fields on an innocent, third-party Web site (often a “Contact Us” form). The message uses the resources of and appears, deceptively, to come from the victim Web site operator’s mail server. This is the first time the Commission has filed a case against spammers using this tactic.

The FTC alleges that the operation violated the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 “CAN-SPAM Act” by initiating commercial e-mails that: contained materially false and misleading header information; contained deceptive subject headings; failed to provide clear and conspicuous opt-out links; and failed to include a physical postal address.

The complaint was filed against Sili Neutraceuticals, LLC and Brian McDaid, individually and doing business as Kaycon, Ltd. The federal district court judge ordered an ex parte temporary restraining order and asset freeze. A hearing is scheduled for August 27, 2007 to determine whether to extend the halt to the defendants’ claims and the asset freeze until the Commission’s case is resolved. The FTC ultimately seeks to permanently bar them from further violations and make them forfeit their ill-gotten gains.

The Commission vote to authorize staff to file the complaint was 5-0. The complaint and temporary restraining order were filed under seal in the U.S. District Court for the Northern District of Illinois.

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 FTC works for the consumer 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, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.