FTC, Justice Department Take Aim at Business Opportunity, Employment Scams

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

The Federal Trade Commission (FTC), the Department of Justice, the Postal Inspection Service, and state law enforcement agencies announced a major law enforcement sweep and education effort aimed at targeting bogus business opportunity employment and money-making services.

At a March 2, 2011 briefing, David Vladeck, Director of the FTC’s Bureau of Consumer Protection, outlined “Operation Empty Promises,” the latest effort in an ongoing crackdown on scams that “exploit the misfortune of those who have seen their jobs disappear or their incomes shrink as a result of the economic downturn.”

Promises of Jobs, Business Opportunities

Vladeck said state and federal law enforcement agencies have brought more than 90 actions against alleged scammers targeting financially-strapped consumers with promises of jobs and opportunities to “be your own boss.”

He described one scheme perpetrated by Ivy Capital, whose telemarketers told consumers they could start their own profitable Internet business with the help of the company’s coaches and consultants.

Ivy Capital persuaded people to max out their credit cards to pay the expensive start-up fees, typically thousands of dollars, while promising that they could make between $3,000 to $10,000 per month, Vladeck explained.

Meanwhile, National Sales Group targeted people looking for work by creating a false impression that the company itself was hiring, or was recruiting or recommending employees on behalf of other companies.

“While they were promising work, they were working over their victims,” Vladeck said. The company not only failed to provide jobs, but also regularly made unauthorized charges to people’s credit cards, driving them deeper in debt, Vladeck added.

Increase in Complaints

North Carolina Attorney General Roy Cooper noted that complaints to his office about business opportunity, work-at-home schemes, and other employment related scams were up 11 percent last year. “We’re looking closely at business opportunities that seem to offer false hopes, and also reaching out to educate consumers on how to recognize and avoid fraud,” he said.

Comment Period on Proposal to Revise Merger Guidelines Extended

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC has extended the period for submitting public comments on a proposed revision of the Horizontal Merger Guidelines. At the request of several organizations that plan to submit comments, the agency has agreed to accept comments through June 4, 2010.

The updated guidelines, which outline how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law, are being revised jointly by the FTC and Department of Justice.

The proposed Guidelines were issued on April 20, 2010, and the original comment period was set to expire on May 20, 2010.

Text of the proposed revised guidelines appear at CCH Trade Regulation Reporter ¶50,252 and here on the FTC website.

Details on the issuance of the guidelines appear in an April 20, 2010 posting on Trade Regulation Talk.

Antitrust Enforcers Reportedly Set to Probe Apple’s License Agreement

This posting was written by John W. Arden.

According to published reports, the Federal Trade Commission and Department of Justice are negotiating to determine which agency will pursue an antitrust inquiry of Apple Computer Inc.’s new license agreement, which requires software developers to use Apple programming tools to create applications for the iPhone and iPad.

Apple’s license agreement would prevent developers from employing other tools—such as Adobe Systems Inc.’s Flash format—used to create web videos, games, and other interactive features.

Antitrust enforcers will address the issue of whether this policy injures competition by forcing developers to choose between designing applications that can run only on the iPhone and iPad and creating applications that are “platform neutral” and can run on operating systems produced by Google, Microsoft, and others.

A story ("An antitrust app") in Monday’s New York Post said that federal antitrust enforcers are “days away from making a decision about which agency will launch the inquiry,” which could lead to a full fledged investigation.

None of the players in the scenario—the FTC, the Department of Justice, or Apple Computer Inc.—has publicly commented on the news reports. However, Apple CEO Steve Jobs posted a piece (“Thoughts on Flash”) on the company website, explaining “why we do not allow Flash on iPhones, iPods and iPads.”

Rather than being “primarily business driven,” the decision was “based on technology issues,” according to Jobs. Contrary to Adobe’s claims, Flash is actually “a closed system,” while Apple has adopted “open standards” like HTML5, CSS and JavaScript, Jobs wrote.

While Adobe contends that Apple mobile devices cannot access “the full web” because 75% of the video on the web is in Flash, Jobs maintained that “almost all this video is also available in a more modern format, H.264, and viewable on iPhones, iPods and iPads.”

Jobs further cited reliability, security, and performance issues, arguing that Flash has a poor security record, causes Macs to crash, and does not perform well on mobile devices. In addition, Jobs criticized Flash for using too much battery power, for not being designed for “touch” screens, and for having “major technical drawbacks.”

The Wall Street Journal (“Apple Attracts Scrutiny From Regulators”) pointed out that the “growing interest in Apple’s activities by antitrust authorities shows the extent to which the Cupertino, Calif., company has become a powerful player in mobile devices like smartphones, which many people see as the next dominant computing platform after personal computers.”

The article compares Apple’s conduct with the tactics by Microsoft Corp. that drew attention from antitrust enforcers in the 1990s.

“Apple is playing right out of Microsoft’s playbook—and it’s one they complained about a lot,” said David Balto, a senior fellow at the Center for American Progress and former attorney for the FTC and Department of Justice.

FTC Proposes Updates to Horizontal Merger Guidelines

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Following a series of joint public workshops held by the FTC and Department of Justice over the past six months, the FTC is seeking public comment on a proposed revision of the Horizontal Merger Guidelines.

The updated guidelines—which outline how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law—are being revised jointly by the federal antitrust agencies.

The guidelines were issued by the two agencies in 1992 and were last revised in 1997 (CCH Trade Regulation Reporter ¶13,104). The revisions are designed to more accurately reflect the way the agencies currently conduct merger reviews, according to the FTC’s April 20 announcement.

For instance, the proposed guidelines state that “merger analysis does not consist of uniform application of a single methodology.” Rather, it is a fact-specific process through which the agencies use a variety of tools to analyze the evidence to evaluate competitive concerns. In addition, the proposed guidelines explain that “market definition is not an end in itself: it is one of the tools the Agencies use to assess whether a merger is likely to lessen competition.”

Many parts of the proposed guidelines reflect refinements and changes previously identified in the “Commentary on the Horizontal Merger Guidelines, which the agencies jointly issued in 2006 (CCH Trade Regulation Reporter ¶50,208).

According to the FTC, the proposed revision includes an updated section on coordinated effects, an updated explanation of the hypothetical monopolist test, and a simplified discussion of how the agencies evaluate market entry. The proposed guidelines also include new sections on powerful buyers, mergers between competing buyers, and partial acquisitions.

Public comments are being accepted until May 20, 2010. Details appear here at the FTC web site.

Senate Judiciary Committee’s DOJ Oversight Hearing Touches on Antitrust Issues

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The “Antitrust Division’s revitalized enforcement” was among the “many good things” accomplished by the Justice Department over the last year, Senator Herb Kohl (D-Wis.) said, commencing a Department of Justice oversight hearing held yesterday by the Senate Judiciary committee.

“Revitalized Enforcement”

Kohl applauded Attorney General Eric H. Holder Jr. for his efforts. Kohl said that, “as our economy rebounds, the Antitrust Division’s revitalized enforcement has fostered a competitive marketplace that encourages innovation and economic development while ensuring consumers have access to high quality goods at the best prices.”

In prepared testimony, the attorney general touted merger enforcement efforts as well as cartel enforcement at the Justice Department Antitrust Division.

“The Department has acted against six merger transactions already in Fiscal Year 2010, reaching settlements to protect competition in the vast majority, including the combination of Ticketmaster and Live Nation, and is currently litigating against Dean Foods, the nation’s largest dairy processor,” Attorney General Holder said. He also noted that the nearly a quarter of a billion in criminal fines were obtained against Antitrust Division defendants so far in the current fiscal year.

While the Justice Department’s role in fighting terrorism was the focus of much of the hearing, antitrust issues were discussed. Before turning to non-antitrust issues, Senator Chuck Grassley (R, Iowa) thanked Attorney General Holder for the Justice Department’s efforts to put on joint antitrust hearings with the Department of Agriculture on the topic of competition in the agriculture marketplace.

The first hearing in the series was held in Iowa on March 12. Attorney General Holder and Agriculture Secretary Tom Vilsack were in attendance.

Comcast/NBC Universal Merger

Senator Al Franken (D, Minn.) expressed his concerns with the proposed merger of Comcast and NBC Universal, now under review by the Department of Justice.

In light of his experience in the entertainment industry, Franken offered his assistance to the Justice Department as it reviews the transaction. The attorney general said that the Justice Department would be glad to work with him and listen to his concerns.

Senator Franken has expressed concern with the enforceability of potential commitments offered by the parties to resolve federal antitrust concerns. He said that he wanted to make sure that merger conditions have “enough teeth” and “long enough life.”

Attorney General Holder said that he was not at liberty to talk about Comcast/NBC deal specifically because of the ongoing investigation. He did say, however, that the Justice Department has enforcement mechanisms to ensure compliance with conditions imposed on merging parties.

Links to a webcast of the Judiciary Committee’s April 14 hearing, as well as Attorney General Holder’s prepared testimony and Senator Kohl’s remarks, are available here.

Justice Department Opposes New Google Book Settlement

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Despite the substantial progress reflected in the proposed amended settlement agreement in The Authors Guild Inc. et al. v. Google Inc., the U.S. Department of Justice has advised the federal district court in New York City that class certification, copyright, and antitrust issues remain.

The settlement agreement between Google and the authors and publishers aims to resolve copyright infringement claims brought against Google by The Authors Guild and five major publishers in 2005, arising from Google's efforts to digitally scan books contained in several libraries and to make them searchable on the Internet.

In a Statement of Interest filed with the court on February 4, the Justice Department said:

“Although the United States believes the parties have approached this effort in good faith and the amended settlement agreement is more circumscribed in its sweep than the original proposed settlement, the amended settlement agreement suffers from the same core problem as the original agreement: it is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the court in this litigation.”

On September 18, 2009, the Justice Department submitted views to the court on the original proposed settlement agreement.

At that time, it proposed that the parties consider changes to the agreement, such as imposing limitations on the most open-ended provisions for future licensing, eliminating potential conflicts among class members, providing additional protections for unknown rights holders, addressing the concerns of foreign publishers and authors, and providing a mechanism by which Google’s competitors can gain comparable access. (For further inforamtion on the Justice Department's objections, see September 21, 2009 posting on Trade Regulation Talk.)

In last week’s filing, the Justice Department recognized that the parties made substantial progress on a number of these issues.For example, the proposed amended settlement agreement:

 Eliminates certain open-ended provisions that would have allowed Google to engage in certain unspecified future uses,

 Appoints a fiduciary to protect rights holders of unclaimed works,

 Reduces the number of foreign works in the settlement class, and

 Removes a “most-favored nation” provision that would have guaranteed Google optimal license terms into the future.

The changes, however, do not fully resolve the government's concerns. The agency commented that the revised amended settlement agreement still confers significant and possibly anticompetitive advantages on Google as a single entity, thereby enabling the company to be the only competitor in the digital marketplace with the rights to distribute and otherwise exploit a vast array of works in multiple formats.

The Justice Department’s filing with court regarding the amended settlement is available here on the Department of Justice Antitrust Division’s web site.

Revised Google Book Settlement Attempts to Address U.S. Competition Concerns

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

After consulting with the U.S. Department of Justice, lawyers representing the parties in a copyright dispute brought by authors and publishers against online search engine Google have filed a revised settlement agreement with the federal district court in New York City.

The settlement would resolve claims that Google violated copyright laws by scanning books, creating an electronic database, and displaying excerpts without the permission of copyright holders. Google has denied the claims.

On November 13, 2009, the revised settlement proposal was filed with the court for preliminary approval. The revised proposal comes after the Justice Department expressed concerns that an earlier settlement agreement could harm competition. Specifically, the Justice Department questioned the proposed settlement’s pricing terms and its creation of "de facto exclusive rights for the digital distribution of orphan works."

The latest settlement proposal, which narrows the scope of the books involved, "clarifies how Google's algorithm will work to price books competitively," according to the parties. It will simulate the prices in a competitive market. Moreover, the new proposal removes the so-called "most-favored nation" clause, which pertains to licensing of unclaimed works.

The Justice Department had contended that the most-favored nation clause in the earlier settlement could discourage potential competitors from attempting to compete with Google in digital-book distribution.

Whether these concessions will satisfy the Justice Department's competition concerns is unclear. It has been reported that the Justice Department will provide its views on the revised settlement early next year.

Another change to the proposed settlement limited its scope to books published in the U.S., Great Britain, Canada, and Australia. This change was prompted by objections by foreign governments, rather than the Department of Justice.

Text of the revised settlement agreement in The Authors Guild, Inc. v. Google, Inc., appears here. In the next week, the federal district court is expected to set a date for a “fairness hearing.”

Justice Department Calls “Reverse Payments” in Patent Settlements Presumptively Illegal

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A patent litigation settlement involving a “reverse payment” to the alleged drug patent infringer in exchange for its agreement to withdraw its challenge to the patent and delay bringing its generic drug to market is presumptively unlawful under the antitrust law, according to a July 6 brief filed by the Department of Justice with the U.S. Court of Appeals in New York City.

The brief was filed in an action challenging a settlement agreement between drug maker Bayer AG and the generic defendant Barr Laboratories, Inc. regarding the antibiotic drug ciprofloxacin. The case is Arkansas Carpenters Health and Welfare Fund v. Bayer, AG, 05-2851-cv(L).

Alignment of Antitrust Division, FTC Positions

The Justice Department’s brief reflects a move toward an alignment of the Antitrust Division and FTC positions on reverse payment settlements.

In its brief, the Justice Department cites an FTC opinion, In the Matter of Schering-Plough Corp. (CCH Trade Regulation Reporter ¶15,525), which states that “the possible existence of a so-called ‘reverse payment’ raises a red flag that . . . mandates a further inquiry.”

That opinion was later vacated by the U.S. Court of Appeals in Atlanta in Schering-Plough Corp. v. FTC (2005-1 Trade Cases ¶74,716), which concluded that the FTC failed to establish that settlements of patent infringement litigation restrained trade.

When the FTC asked for U.S. Supreme Court review of the federal appellate court’s decision in 2006, the Solicitor General recommended that the Court deny the petition for review, saying that the case did not present “an appropriate opportunity . . . to determine the proper standards for distinguishing legitimate patent settlements, which further the important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade in violation of the antitrust laws.”

Text of the Justice Department brief appears here on the Department of Justice Antitrust Division website.

Varney Confirmed by Senate to Head Department of Justice Antitrust Division

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Senate on April 20 confirmed the nomination of Christine Anne Varney to serve as Assistant Attorney General in charge of the Department of Justice Antitrust Division. Eighty-seven senators voted to confirm Varney. Only one, Senator Jim Bunning (Kentucky), voted no, with 11 senators not voting.

Varney will return to government service after more than a decade as a partner at Hogan & Hartson’s Washington, D.C. office. There she headed up the firm’s Internet Practice Group. She also recently served on President Barack Obama’s transition team.

During the Clinton Administration, Varney was an FTC Commissioner from 1994 to 1997. Prior to becoming an FTC Commissioner, Varney was Secretary to the Cabinet.

Varney received her J.D. from Georgetown University in 1986. She received her M.P.A. from Syracuse University in 1978, and her B.A. from The State University of New York, University at Albany in 1977.

Varney’s nomination was announced on January 22, along with three other assistant attorney general nominees: David Kris, Assistant Attorney General for National Security; Tony West, Assistant Attorney General for Civil Division; and Lanny Breuer, Assistant Attorney General for Criminal. West and Breuer were also confirmed by the Senate on April 20. Kris was confirmed on March 25.

In an April 20 news release, announcing the confirmations on April 20, Attorney General Eric Holder said: “These exceptional individuals will help lead the Department with dedication, sound judgment and integrity, whether it’s aggressively enforcing the antitrust laws, overseeing civil enforcement in the Department’s largest litigation division, or combating traditional crimes such as financial fraud or drug trafficking.”

He added, “I look forward to working with them to advance the interests of justice on behalf of the American people.”

A report on Varney's testimony at a Senate Judiary Committee confirmation hearing (Trade Regulation Talk, March 11, 2009) appears here.