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Federal Trade Commission (FTC) Chairwoman Lina Kahn, who took over the reins of the FTC in June, is making it clear that she is no fan of the direction some private equity-owned businesses have taken in recent years. She takes particular issue with, “extractive business models” that “centralize control and profits while outsourcing risk, liability, and costs.” She went on to say these business models, “warrant particular scrutiny, given that deeply asymmetric relationships between the controlling firm and dependent entities can be ripe for abuse.”

Kahn circulated a memo to commission staff and commissioners regarding the vision and priorities for the agency. In the memo, Kahn writes, “[t]he growing role of private equity and other investment vehicles invites us to examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations.”

By tying private investment to extractive business—and specifically to abuses that effect on marginalized communities—the chairwoman has put a target on these firms’ backs.

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Continue Reading Should Private Equity Worry About Consumer Protection Investigations?

On September 22, 2021, FTC Chairperson Lina Khan published a memorandum to FTC staff urging the agency to unite behind her vision and priorities for the agency, and announcing that the elite vanguard leading Khan’s effort will be acting Bureau Directors Sam Levine and Holly Vedova, both of whom will become permanent directors of the Bureau of Consumer Protection and the Bureau of Competition, respectively. Khan has previously indicated that the FTC needs to throw off its bureaucratic chains of past approaches and practices and be more aggressive in enforcing both consumer protection and competition laws. Given the implicit and explicit criticism in her prior communications, the memorandum appears to be an effort to gather support among FTC staff for her approach. An overarching theme of the memorandum is that the FTC may be blurring the lines between the FTC’s consumer protection and competition missions by increasing collaboration between the Bureau of Consumer Protection and the Bureau of Competition. While many prior chairpersons have expressed this ambition, Khan appears ready to make that aspiration operational.

Chairperson Khan starts her strategic discussion by announcing that the agency will be taking a “holistic approach to identifying harms.” In elaborating on this “holistic approach,” she frequently combines references to individual consumers and businesses, and highlights nontraditional harms of anti-competitive activity, many of which are familiar to consumer protection, for example, disparate impact, privacy violations, and asymmetrical bargaining power. Her message is clear: the distinction between antitrust and consumer protection will no longer be as defined as it was in the past. Also clear are the consequences: once this boundary is eliminated, the FTC can use the merger review process to conduct discovery on consumer protection violations, perhaps hoping the cost and threat of that inquiry will deter merger activity.

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Continue Reading The Khan Manifesto

Since the appointment of Chairwoman Khan to the FTC this past summer, the three Democratic commissioners have pushed through 15 omnibus resolutions authorizing staff to use compulsory processes without additional approval from the Commission. Although the use of blanket authorizations is old hat at the FTC, the practice remains controversial because it allows staff to issue civil investigative demands (CIDs) and subpoenas to companies and individuals without consulting with the Commission, as long as the investigation ostensibly relates to an existing omnibus resolution and one commissioner signs off. This gives staff extraordinary latitude and discretion, especially considering the sweeping nature of the resolutions.

Yesterday, the Commission announced eight such resolutions, covering broad swaths of the FTC’s consumer protection and antitrust jurisdiction—and the U.S. economy. They are:

  • Acts or Practices Affecting United States Armed Forces Service Members and Veterans;
  • Acts or Practices Affecting Children;
  • Bias in Algorithms and Biometrics;
  • Deceptive and Manipulative Conduct on the Internet;
  • Repair Restrictions;
  • Abuse of Intellectual Property;
  • Common Directors and Officers and Common Ownership; and
  • Monopolization Offenses.

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Continue Reading Chairwoman Khan Driving the Omnibus

On July 22, 2021, the Third Circuit ruled against the FTC in its case against Innovative Designs, a company that manufactures and sells a product called Insultex House Wrap, a weather-resistant barrier used in building construction. As we discussed last year, the FTC has targeted companies that produce insulation or building materials and make claims that these materials have more insulating power than they actually do. The court’s rejection of the FTC’s view on what constitutes reliable testing for purposes of substantiation underscores that courts often are more flexible than the FTC in determining whether an advertiser has a reasonable basis for a claim.

Originally, the FTC filed a complaint in the District Court for the Western District of Pennsylvania stating that Innovative Designs falsely claims that its products have a higher R-value than they do. An R-value is a measure of the product’s ability to restrict the flow of heat. So, the higher the R-value, the higher the product’s insulation power. According to the FTC a misleading R-value could prompt customers to purchase a product that will not perform in the way it was advertised. Furthermore, the FTC claimed that Innovative Designs did not use the proper standardized testing, ASTM C518, to make its claims about the product’s R-value.

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Continue Reading FTC Put to the Test on Inadequate Testing Claims

On July 21, 2021, and in response to President Biden’s Executive Order calling on the FTC to address repair restrictions, the FTC unanimously adopted the Right to Repair Policy Statement related to manufacturer and seller restrictions to product repairs. In the policy statement, the FTC announced its plans to prioritize enforcement against unlawful repair restrictions, including promoting possible updates to state and federal legislation. Manufacturers and sellers should ensure compliance with current consumer protection and antitrust laws and monitor potential rulemaking, a path the FTC is careening toward.

The FTC expressed concern that repair restrictions make it more difficult for competitors, local businesses, and consumers to repair products. In a May 2021 report to Congress, Nixing the Fix: An FTC Report to Congress on Repair Restrictions, the FTC detailed manufacturer-created restrictions, including limiting the availability of parts, software, and telematics information and access to authorized repair networks; designing products to make self-repairs less safe; asserting trademark and patent rights in an overbroad manner; and implementing restrictive end-user license agreements and software locks. The FTC also warned that repair restrictions drive up repair costs, repair wait times, and electronic waste; reduce competition; and have an especially large impact on communities of color and lower-income Americans.

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Continue Reading FTC Turns Focus to Repair Restrictions in New Policy Statement

With a new leader at the Federal Trade Commission comes new rules of practice. Chair Lina Kahn convened a first-of-its-kind open Commission meeting, allowing for live public comments following the meeting. In addition to issuing the Made in the USA Final Rule at the meeting, the FTC revised the procedures for issuing Magnuson-Moss Rules. This carries out Commissioner Chopra and now-Chair Khan’s call for more rulemaking, and the next step to former Chair Slaughter’s creation of a rulemaking group within the Commission. The changes concentrate the rulemaking process in the Chair’s office and strip away many of the procedures that helped lead to rules based on bipartisan consensus among the commissioners and support from FTC staff.

By way of background, to pass a rule under the Magnuson-Moss Warranty Federal Trade Commission Improvements Act (“Mag-Moss”), the FTC must: (1)  make a finding that the conduct at issue is “prevalent” and (2) conduct informal hearings allowing interested parties to cross-examine those making oral presentations. The FTC appears interested in applying Mag-Moss rulemaking in both the competition and consumer protection contexts.  Though Mag-Moss has statutory requirements that the FTC must follow, such as publishing a notice of proposed rulemaking, allowing public comment from interested persons, providing the opportunity for informal hearings, and promulgating rules based on the final record, the FTC has enacted procedural rules to carry out these statutory requirements.

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Continue Reading New Changes at the FTC: Return of the Rulemaking

The FTC has sued a seller of personal protective equipment (PPE), bringing its first PPE-related case under the COVID-19 Consumer Protection Act (CCPA). The lawsuit demonstrates the FTC’s continued focus on COVID-19-related advertising practices. Although this is not the first time the FTC has brought an action for a failure to deliver PPE on time,…

State attorneys general nationwide have continued to be aggressive consumer protection law enforcers. In the wake of April’s unanimous Supreme Court decision curtailing the Federal Trade Commission’s (FTC) ability to recoup equitable monetary relief from businesses accused of fraudulent or deceptive practices, state-level enforcement activity and state-federal coordination are expected to increase. In fact, just days after our recent webinar a coalition of state AGs wrote to Congress supporting legislation that would restore the FTC’s authority, while noting that “the states’ own enforcement efforts are fortified through collaboration with the FTC.” In that webinar, Venable partners Eric Berman, of our Advertising and Marketing Group, and Erik Jones, of our eCommerce, Privacy, and Cybersecurity Group, addressed state AG enforcement trends and strategies for responding to a state AG investigation.

Q: How do state AGs become aware of the issues or complaints that might drive an investigation?

A: Consumer complaints drive regulatory investigations, and state AGs may become aware of these complaints in a variety of ways. Consumers can file complaints directly with a state AG office, either online, via telephone hotline, or via “snail mail.” State AG staff may access the FTC’s Consumer Sentinel, a consumer complaint database that is free and available to any federal, state, or local law enforcement agency. State AG lawyers and non-lawyer investigators scour the Better Business Bureau (BBB) websites and so-called “gripe” sites, and may pose as consumers themselves to “secret shop” a targeted business. Finally, state AGs might become aware of your marketing practices through disgruntled former employees (or board members), competitor complaints, national and local media coverage, or referrals from other law enforcers.

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Continue Reading You Asked, We Answered – State AGs and Consumer Protection: An Update and Outlook

There’s a new sheriff – er, chairwoman – in town over at the FTC, and she’s planning to shake things up. During the Commission’s first open meeting in more than 20 years, Chairwoman Khan announced a new era of streamlined, widespread rulemaking, and increased public participation, transparency, and fairness. However, as every single vote broke along party lines, with the Democratic majority steamrolling Republican requests for increased dialogue, public comment periods, and expert input, the open meetings may be little more than political theater intended to cover a massive change in how the FTC operates. In fact, public comments were relegated to the end of the meeting, after votes were already cast, and the commissioners were given only five days, the bare minimum time, to consider the new rules and regulations. In the words of Commissioner Phillips, the Democratic majority wants to make regulating “easier, not better.” And after yesterday’s votes, it seems likely that the “new” FTC will look a lot like the FTC of the 1970s, which was widely criticized as a body of five unelected officials with broad, self-granted and oft-exercised power to regulate the economy badly. According to Commissioner Wilson, “if we don’t acknowledge the mistakes of the past, we are doomed to repeat them.”

Below are some highlights from the meeting.

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Continue Reading FTC Holds First Open Meeting in 20 Years