Yesterday, the Third Circuit issued an opinion in Federal Trade Commission v. AbbVie, Inc., joining the Seventh Circuit in holding that the FTC is not entitled to seek disgorgement under Section 13(b) of the FTC Act. The decision reflects a potential turning of the tides on how courts view FTC’s statutory authority to seek monetary relief.

By way of background, the district court ordered the AbbVie defendants to disgorge $448 million in alleged ill-gotten profits from anticompetitive conduct regarding the patented drug AndroGel. Though the Third Circuit held that the district court properly concluded that AbbVie had monopoly power in the relevant market, it struck down the $448 million award.

Continue Reading Disgorgement Denied: Third Circuit Hands FTC a Tough Pill to Swallow Over Section 13(b) Authority

The FTC’s pursuit of companies purportedly engaged in telemarketing scams is nothing new, but its recent settlement with a company that allegedly assisted a fraudulent telemarketer by providing a Voice over Internet Protocol (VoIP) service is the first of its kind. VoIP is a technology that allows a company to make voice calls using a broadband Internet connection instead of a regular (or analog) phone line. VoIP services can make telemarketing more efficient and cheaper—particularly for autodialing and sending prerecorded messages. These features make it an attractive option for both legitimate and fraudulent telemarketers alike.

On July 29, 2019, the FTC and the Ohio attorney general sued Educare Center Services, Inc. (Educare), among other related entities and individuals, for engaging in an alleged telemarketing scheme that falsely promised consumers that Educare could significantly reduce the interest rate on consumers’ credit cards, along with a 100% money back guarantee. Educare collected payments from consumers using Remotely Created Payment Orders (RCPOs), in direct contravention of the Telemarketing Sales Rule.

Continue Reading VoIP, Meet VoIR—FTC Settlement Signals That Voice over Internet Robocall Service Providers Are Fair Game

Given all the tumult with natural disasters, COVID-19, and other goings on in Washington, a memorandum directing government agencies to reform how they operate may have gone unnoticed. It’s worth considering. On August 31, 2020, the Office of Information and Regulatory Affairs (OIRA), a subagency within the Office of Management and Budget (OMB), issued Memorandum M-20-31 (the “Memo”), which elaborates on and implements directives from a prior executive order to consider and adopt certain best practices and procedures to promote fairness in administrative enforcement and adjudication. The Memo directs federal agencies to adopt measures aimed at according greater due process to individual and company targets for investigations and enforcement actions, and to promote transparency and accountability in the initiation and pursuit of administrative actions. The Memo’s directives usher in the potential for long-overdue substantive and procedural revisions to the rules of practice for independent agencies.

By way of background, the President signed Executive Order 13924, “Executive Order on Regulatory Relief to Support Economic Recovery,” on May 19, 2020, in response to economic impacts due to the COVID-19 pandemic. EO 13924 directs federal agencies to “address this economic emergency by rescinding, modifying, and waiving or providing exemptions from regulations and other requirements that may inhibit economic recovery” as enumerated in Section 6. The OIRA Memo sets forth specific best practices for implementing changes for the ten principles in Section 6 and sets a deadline of November 26, 2020 for agencies to engage in any necessary rulemaking to implement them.

The guidance will apply to all federal government departments and agencies, such as the Federal Trade Commission, the U.S. Securities and Exchange Commission, the Federal Reserve Board, the Consumer Financial Protection Bureau, and many others.

Continue Reading The New Normal? Executive Guidance Asks Agencies to Reform Enforcement Policy

The past five years have seen a major uptick in FTC enforcement against alleged charity fundraising scams, along with increased multi-state coordination in this space. Regular readers of this blog already know that, by having read this, this, this, and this. On September 15, 2020, the FTC filed a complaint in the U.S. District Court for the Southern District of New York against fundraiser Outreach Calling, its owner and principal Mark Gelvan, two other related organizations, and three additional individuals. The attorneys general of New York, New Jersey, Virginia, and Minnesota joined the FTC as plaintiffs in the lawsuit. Alongside their complaint, the FTC and states filed proposed stipulated orders against each of the defendants.

The FTC and states allege that the defendants engaged in deceptive telemarketing campaigns on behalf of numerous (and now defunct) “sham” charities. According to the complaint, the Outreach Calling entities induced tens of millions of dollars in charitable donations by telling donors that the recipient charities provided assistance to particularly vulnerable populations, such as disabled and homeless veterans, breast cancer patients, law enforcement officers, and children. In fact, say the plaintiffs, the recipient charities spent very little of the money raised – in some cases only 1 or 2 percent of gross donations – on charitable programs. Instead, approximately 90 percent of the funds raised were paid to the Outreach Calling fundraisers; most of the remaining money funded the personal expenses of the charities’ principals.

The FTC and states brought causes of action under Section 5 of the FTC Act, the Telemarketing Sales Rule, and state charity and anti-fraud laws. To resolve the litigation, the parties have agreed to enter into stipulated orders that permanently ban the defendants from charity fundraising and that impose a collective monetary judgment of approximately $58 million. As is typical in cases like this one, the monetary judgment will be suspended because of the defendants’ inability to pay it; however, each of them must surrender certain assets, and Mr. Gelvan will have to sell two homes and grant the FTC a lien and mortgage on three of his properties in order to secure his payment obligations under the proposed order.

Continue Reading FTC Partners with State AGs in Latest Crackdown on Charity Fundraising

We have written previously about the FTC’s vigorous enforcement efforts relating to negative option marketing and its crackdown on alleged wrongdoing seeking to exploit the difficulties presented by COVID-19 (see blog posts here and here). Recently, the FTC continued its efforts with a complaint and settlement concerning negative option marketing to parents seeking online educational resources for their children.

On September 1, 2020, the FTC brought a complaint against online children’s education company Age of Learning, Inc., d/b/a as ABCmouse, alleging that it operated a deceptive negative option program between 2015 and 2018. The FTC alleged that ABCmouse’s actions violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by (1) failing to adequately disclose that its 12-month memberships would automatically renew indefinitely; (2) failing to disclose that extensions on 30-day free trial memberships at reduced rates would automatically renew indefinitely; (3) advertising “easy cancellation,” but creating a myriad of procedural hurdles to prevent cancellation; and (4) embedding pitfalls in the cancellation process to mislead customers into extending their memberships, as opposed to cancelling them. Furthermore, in some instances, even if a customer successfully navigated the cancellation process, ABCmouse would still charge for the cancelled services.

Continue Reading FTC Schools Marketers on the ABCs of Negative Option Marketing

In the wake of the Supreme Court’s opinion in Liu v. SEC, lower courts are starting to address the breadth of its applicability. On August 31, 2020, the District of Arizona welcomed the Supreme Court’s directives in Liu when denying Electronic Payment Solutions of America Inc.’s (EPS) bid for summary judgment against the FTC. To the extent other courts read Liu as similarly applicable, this could have broad implications for the FTC’s authority to obtain monetary relief.

In FTC v. Electronic Payment Solutions, No. 17-cv-2535-PHX-SMM (D. Ariz. Aug. 31, 2020), the FTC filed suit against EPS for playing a role in facilitating Money Now Funding’s alleged telemarketing scheme, and sought to recover approximately $4.67 million from EPS—the total amount EPS collected from credit card transactions for Money Now Funding minus refunds and chargebacks. EPS moved for summary judgment on the grounds that, in light of Liu, the FTC’s monetary claim should be limited to net profits. EPS argued that the FTC, despite alleging entitlement to several forms of monetary relief, was actually seeking disgorgement under several different names. Accordingly, EPS argued that Liu requires courts to limit disgorgement only to the amount of net profits that will be returned to consumers.

Continue Reading Following the Mone(tary Relief): District Court Limits the FTC’s Authority Post-Liu

The FTC recently released its staff perspective paper on video game loot boxes. The report details discussions from the FTC’s loot box workshop that took place in August last year, summarizing key points and takeaways. You can read our write up of the workshop here.

The workshop, “Inside the Game,” brought video game industry representatives, researchers, and consumer advocates together to examine consumer protection issues related to loot boxes and related microtransactions in video games.

A loot box is a digital container of virtual goods that a user can purchase in-game using real‑world currency. A user does not know what is in the loot box before purchasing. The loot box may contain digital goods (such as character skins, tools, weapons, etc.) that the user can use in the game. Importantly, the user cannot choose the contents of the loot box. The box could contain an extremely rare/sought-after item or the contents could be a collection of items already owned by the user (or somewhere in between).

Continue Reading FTC Scrutinizes Loot Boxes – What are the Odds?

The issue of what exactly is an autodialer, subject to the restrictions of the Telephone Consumer Protection Act (“TCPA”), may eventually be resolved. But for now, the outlook is much like the long-ago Brooklyn Dodger’s chance of winning the World Series: “Wait ‘Til Next Year.” On July 29, 2020, a divided, 2-1 panel in the Sixth Circuit issued its opinion in Allan v. Pennsylvania Higher Education Assistance Agency, deepening the circuit split over the breadth of the TCPA. Specifically, the Sixth Circuit held that any device that dials from a stored list of numbers is sufficient to constitute an “automatic telephone dialing system” (“ATDS” or “autodialer”). This decision comes on the heels of the Supreme Court granting certiorari in Facebook, Inc. v. Duguid, setting the stage for the high court to, hopefully, not only resolve the split among the circuits, but produce a definition of an autodialer that permits the responsible and efficient generation of calls for a broad array of legitimate reasons—indeed in some cases emergency. (Interestingly, in Allan, the defendant opposed the plaintiffs’ motion to stay the appeal pending Duguid. That’s likely because the defendant had previously prevailed on the ATDS issue in the Eleventh Circuit a few months earlier in a consolidated appeal.)

In Allan, the plaintiffs received hundreds of unwanted calls and automated voice messages regarding student loan debt after they had requested to no longer be called; many of these calls delivered a prerecorded message as well. Plaintiffs sued alleging that they did not consent to the unwanted calls; the district court granted summary judgment to the plaintiffs. On appeal, the Sixth Circuit addressed whether the Defendant’s calling platform constituted an ATDS where it created a calling list based on stored numbers and placed calls, connecting recipients to operators.

Continue Reading Deepening the Divide: Will the Sixth Circuit’s Expansive Reading of the ATDS Definition Survive?

Following a warning from earlier this year, the FTC recently filed a complaint against a group of corporate and individual defendants for allegedly misleading and deceiving small business “merchant cash advance” (MCA) customers. Structured properly, an MCA product offers an alternative to standard commercial credit under which the MCA provider purchases the right to receive a fixed amount of the customer’s receivables to be paid based on a percentage of the customer’s daily receipts.

Specifically, the FTC alleged that the defendants misrepresented the amount of financing small business customers would receive relative to their requests, misrepresented the necessity of collateral and personal guarantees, and engaged in unauthorized withdrawals from customers’ bank accounts even after receiving the agreed upon amount of the customers’ receivables. The complaint calls for permanent injunctive relief, rescission or reformation of the MCA contracts, restitution, refund and disgorgement.

The FTC’s enforcement action is just one of its recent efforts to police alleged unfair and deceptive practices targeting small businesses. Given the current economic disruptions caused by COVID-19, we can expect that the FTC will continue to attack both deception and improper debt collection aimed at small businesses.

Continue Reading FTC Follows up on Enforcement Priorities with Complaint Against Merchant Cash Advance Provider

On July 28, 2020, the FTC filed four complaints in federal courts across the country against companies who sell paint products used to coat homes and other buildings. At issue in the complaints are paint products that claimed to help insulate homes or buildings, saving the owner money on utility bills. The cases serve as a reminder that the FTC remains on the lookout for deceptive “green” claims, and that claims of “green” benefits must be substantiated.

According to the FTC, these companies falsely advertise that their products have a greater R-value than they actually do. An R-value measures resistance to heat flow, so the higher the R-value the more insulating power the product has. According to the FTC a misleading R-value could prompt customers to purchase a product which will not perform the way it was advertised. In the complaints, the FTC alleged that the four companies made false or unsubstantiated performance claims where the R-values advertised by the companies were vastly different from the actual R-values that could be substantiated. The companies claimed that the products had R-values of 19 to 30, when in reality the R-values were less than one.

The complaints did not come with accompanying settlements. This suggests that the FTC was seeking significant monetary relief, which the defendants were not prepared to pay. It will be curious to see how these cases progress. In the interim, if you are making claims about energy savings or other green product attributes, make sure you can substantiate them.