ANTITRUST

FTC Investigation Looks to Take Another Bite Out of Apple

  • According to sources, the Federal Trade Commission (FTC) is looking into whether Apple Inc. ("Apple"), is violating antitrust laws with its streaming music service, Apple Music. Unlike prior reports of investigations into whether Apple was engaging in anticompetitive actions by negotiating with record labels to cancel "freemium" music streaming services, this new inquiry addresses subscription service pricing through Apple's iOS platform.
  • When a consumer purchases a subscription to a rival streaming service through the Apple App Store, Apple receives a 30 percent royalty. Thus if a rival charges $10 per month, it only nets $7 and pays the other $3 to Apple. By contrast, when Apple charges $10 per month for Apple Music, it keeps the entire $10. Given that the streaming companies must all pay similar licensing fees for the music they stream, Apple's competitors claim they must either increase prices (and be uncompetitive), or have their margins compressed (and be unprofitable). A similar issue may also be brewing with the much-rumored Apple streaming TV service.
  • Yet some factors argue against liability: Apple's iOS is estimated to only comprise about 17 percent of the market for mobile operating systems. In addition, the competing streaming services can sell their subscription services at a slight discount payable through their website where they keep all of the fee, instead of through the App Store. (But this is hampered by restrictions Apple places on all apps sold in the App Store, precluding third-party marketing and linking to the company's website.)

DOJ Gets Requests to Embark on Expedition Into Amazon

  • Groups of authors, booksellers, and literary agents (together, "publishing industry groups") are asking the U.S. Department of Justice (DOJ) to investigate Amazon.com for violations of antitrust laws, arguing that "Amazon's dominant position makes it a monopoly as a seller of books and a monopsony as a buyer of books."
  • The publishing industry groups point to Amazon's 40% market share in new books and 65% market share in e-books. Their letters state that Amazon abuses its market power in a variety of ways, including:

    • selling books below cost as "loss leaders" for other higher margin items sold on Amazon;
    • delaying delivery and removing books from preorder status (or delisting them altogether);
    • directing buyers to other titles, including its own books; and
    • requiring self-published authors to price their books within a specific range or be subjected to a significant cut in royalties.
  • The European Commission, the antitrust enforcement body of the European Union, has already opened a formal investigation into Amazon over its e-book distribution agreements. The Commission is investigating whether Amazon is abusing a dominant position by contractually requiring publishers to inform Amazon about more favorable terms offered to competitors or offer Amazon similar terms.

CONSUMER FINANCIAL PROTECTION BUREAU

CFPB and DOJ Resolve Claims Against Auto Lender for Discriminatory Practices

  • The Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (DOJ) resolved a joint investigation into whether American Honda Finance Corporation, as a captive auto finance company and ninth largest auto lender in the market, violated the Equal Credit Opportunity Act (ECOA) through lending practices that allegedly resulted in higher interest rates for certain groups of minority car buyers.
  • At the core of the investigation was a practice through which Honda created a minimum interest rate for a consumer application, based on objective risk-based criteria, but then afforded dealers discretion to increase or "mark up" the minimum rate using dealer specific factors, and then receive extra compensation from Honda based on the markup. The CFPB and DOJ's findings indicated that under the dealer discretion model certain minority groups paid from .25 to .36 percent higher interest rates.
  • The consent order requires Honda to deposit $24 million into escrow for consumer redress, and to create a plan detailing the process of how it will provide redress funds to overcharged consumers. Honda must also modify its lending practices and guidelines to limit dealer discretion to increase the minimum rate, and must form a compliance committee to ensure that the consent order is properly implemented.

CONSUMER PROTECTION

New York AG Continues to Scratch Away at Deceptive Auto Sales Practices

  • New York AG Eric Schneiderman reached a settlement with Atlantic Automotive Group resolving an investigation into 22 auto dealerships' alleged violations of the AG's Auto Advertising Guidelines and a previous Assurance of Discontinuance.
  • The AG's investigation was in response to many different alleged violations, including "jamming" style practices; where the dealer has customers sign blank documents, later filling in terms other than what was agreed upon, and charging consumers for unrequested extended warranties or vehicle maintenance contracts.
  • The investigation also addressed the use of direct mail advertisements, purporting to offer consumers the opportunity to play a game—for example, a lottery-style scratch off card—where consumers could allegedly win a cash prize, a flat-screen television, an Apple iPad, and the like. The tickets, however, did not tell the consumer if they won, but instead required them to come to the dealership to claim their prize, where the dealer would inform them that they had not won, and proceed to try to sell them a car.
  • As a result of this action Atlantic will pay $310,000 in restitution and penalties. Atlantic did not admit any liability or wrongdoing, and indicated that the majority of the conduct came from "rogue employees," who it has since "g[o]t rid of." Atlantic cooperated with the AG's investigation and is implementing the necessary fixes, including hiring an advertising compliance officer.

New Jersey AG Settles Lawsuit Against "As Seen on TV" Company

  • New Jersey Acting AG John Hoffman reached a settlement with Telebrands, Corp., resolving litigation that alleged that the maker of "As Seen on TV" products violated the New Jersey Consumer Fraud Act, state advertising regulations, and a 2001 consent order, through the use of aggressive sales practices.
  • AG Hoffman claimed that consumers ordering a product from Telebrands would be subjected to a lengthy and automated ordering process, during which they would be aggressively upsold additional products without providing a way for the caller to decline. Customers were allegedly not allowed to confirm the total cost of their order before authorizing charges, often resulting in unwanted products and hidden shipping and handling charges. The complaint also alleged that the company made it difficult to return products or contact a customer service representative.
  • According to the consent judgment, Telebrands will pay $550,000 to cover attorneys' fees and investigative costs, but does not admit fault or liability. Telebrands agreed to implement internal auditing processes, and to hire a special liaison to monitor the company's compliance with the settlement terms and applicable laws. In addition the company will provide information to consumers as to the total cost of their order prior to authorizing payment, the option to speak with a live customer service representative if there is a problem with the order, and a clear method to decline solicitations for additional merchandise.

DATA PRIVACY

FCC Continues to Expand Role in Enforcing Data Security

  • The Federal Communications Commission (FCC) reached an agreement with TerraCom, Inc., and YourTel America, Inc., resolving claims that the companies failed to protect the personal information of more than 300,000 consumers in violation of a carrier's duty under the Communications Act (the "Act") and counter to the Act's prohibition on unjust and unreasonable practices.
  • The FCC alleged that the companies failed to protect customer personal information—including names, addresses, Social Security numbers, and driver's licenses—by allowing a vendor to store the unencrypted information on unprotected servers. The FCC generally takes the position that a company must provide a reasonable level of protection for personal information, and a company violates that requirement where, as was the case here, the information can be accessed through the internet by anyone with a search engine.
  • The consent decree requires the companies to pay $3.5 million as a civil penalty, and to notify all consumers whose information was vulnerable, providing complimentary credit monitoring and appropriate mitigation measures. In addition, the companies are required to develop internal control measures, including a data breach response plan, a designated senior manager who is a certified privacy professional, and compliance reports to be filed with the FCC.
  • The settlement also resolves the FCC's claims that YourTel overbilled the federal government in regards to the company's failure to remove ineligible consumers from the reported subscriber base under a federal program that provides subsidized wired and wireless communication for low-income users.

EMPLOYMENT

DOL Issues Guidance for Classifying Workers Under FLSA

  • The U.S. Department of Labor (DOL) Wage and Hour Division issued an Administrator's Interpretation to guide businesses on how to classify workers, as either employees or independent contractors, under the Fair Labor Standards Act (FLSA).
  • The Interpretation indicates that the FLSA was intended to operate under a "very broad definition of employment," and stresses that the question of whether a worker is an employee under the FLSA is a legal question that should be determined by the application of the "economic realities" test—not by a company-determined classification. Although this test requires a balancing of multiple factors, the Interpretation warns against a mechanical application, and instead looks to whether the worker is economically dependent on the business (employee), or as a matter of economic fact, in business for himself (independent).
  • The Interpretation comes at a moment when state lawmakers and regulators are questioning some of the practices and legal assumptions of app-based "sharing economy" platforms through which consumers can contract directly with workers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.