United States: State AGs In The News - February 4th, 2016

Consumer Financial Protection

CFPB Continues to Limit Dealer Discretion in Indirect Auto Lending

  • The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) reached an agreement with Toyota Motor Credit Corporation (TMCC) to resolve claims that the indirect auto lender violated the Equal Credit Opportunity Act by allowing dealers to "mark up," or charge purchasers interest rates higher than what TMCC approved, a practice the CFPB alleges results in discrimination based on race and national origin.
  • Since auto loans do not list the applicant's race or national origin, the CFBP and DOJ utilized a "proxy" technique for determining whether the differences in dealer markup over the interest rate approved by TMCC corresponded to race or origin. This technique allows the CFPB and DOJ to use public data on surnames and location to determine whether African American, Hispanic, and Asian purchasers are ultimately charged higher interest rates than other applicants of similar creditworthiness.
  • Under the consent order, TMCC must implement one of three compliance options that involve either eliminating dealer discretion to mark up interest rates above what TMCC approves, or limiting the markup to 1.25 percent while also implementing system to monitor dealers to ensure they are not basing decisions on impermissible factors such as race or origin. In addition, TMCC must pay $21.9 million in consumer redress and hire a settlement administrator to distribute funds to affected consumers.

Consumer Protection

FTC Sticks Glue Maker With Lawsuit

  • The Federal Trade Commission (FTC) has filed a lawsuit in the Northern District of Ohio alleging that Chemence, Inc. violated Section 5 of the FTC Act by representing that its products are "Proudly Made in the USA" when they contain significant amounts of imported inputs.
  • The FTC's complaint alleges that Chemence's labels and promotional materials are deceptive because they would lead a reasonable consumer to believe that its Kwik Frame, Kwik Fix, and other cyanoacrylate glue products were entirely made in the USA, in spite of the fact that on a cost basis, approximately 55 percent of the chemicals used to make the glues are imported.
  • The FTC long ago issued an enforcement policy statement to provide guidance to companies that want to make "made in the USA" claims in labeling, advertising, and all other forms of marketing, including through digital or electronic means. The policy statement indicates that the FTC will apply an "all or virtually all" standard. Notably, this requires a marketer to be able to substantiate, at the time the claim is made, that all the significant parts and processing are products of U.S. origin.

New York AG Looks to Pull the Plug on Ticket Bots

  • New York AG Eric Schneiderman announced the results of a multiyear investigation into the secondary market for tickets to live entertainment events, and reached settlements with two ticket brokers alleged to be operating without a license. The settlements require MSMSS, LLC to pay $80,000 and Extra Base Tickets, LLC to pay $65,000 in penalties.
  • The AG's report, titled "Obstructed View: What's Blocking New Yorkers from Getting Tickets," concludes that industry middlemen who employ the use of "Bots"—software that automates ticket-buying on primary sales platforms to allow thousands of transactions per second—prevent the public from having access to affordable tickets. The result is that ticket prices are on average 49 percent greater than the face value.
  • AG Schneiderman is calling for legislative action along four themes:
    • mandate the live entertainment industry to provide greater transparency into ticket sales and allocation, while also implementing procedures to detect purchases made by Bots and high-volume resale brokers;
    • end the ban on non-transferrable paperless tickets, and require the initial purchaser to be present when the tickets are redeemed;
    • create criminal liability for brokers who use Bots to acquire tickets in greater numbers than authorized by the issuer; and
    • create a maximum markup that resellers can charge over the face value of the ticket.

Massachusetts AG Finds Drug Prices Hard to Swallow 

  • Massachusetts AG Maura Healey has informed Gilead Sciences Inc. that her office is investigating the biotech giant for potential unfair trade practices stemming from the high price per pill in the United States ($1000) for the company's Hepatitis C medication.
  • The letter argues that "because Gilead's drugs offer a cure for a serious and life-threatening infectious disease, pricing the treatment in a manner that effectively allows [Hepitits C] to continue spreading through vulnerable populations, as opposed to eradicating the disease altogether, results in massive public harm." The letter acknowledges that Gilead provides the drugs in other countries for a greatly reduced price (e.g., $4 per pill in India, $10 per pill in Egypt), and questions whether taxpayers supporting Medicaid programs should disproportionately support Gilead's research and development efforts.
  • Commentators are calling it an untested theory. A previous lawsuit against Gilead for Hepatitis C drug pricing by the Southeastern Pennsylvania Transportation Authority was dismissed for failure to state a claim in 2015. That lawsuit was based on the plaintiff's insurance company denying them access to the drugs, and alleged that Gilead's high prices violated the Civil Rights Act through a disparate impact analysis. If AG Healey moves forward with a lawsuit under Massachusetts Chapter 93A, it would ask a difficult question on the margin of public health and competition policy: whether a pharmaceutical company acts unfairly to the public at large when it sets a price that precludes the eradication of a disease, thus preserving the market for future drug sales.

Data Privacy

EU and U.S. Agree to New Data Pact

  • The European Union and the United States have reportedly reached an agreement to allow companies to transmit data across national borders, replacing the old Safe Harbor framework that was invalidated in October by the European Court of Justice amid privacy concerns in light of Edward Snowden's revelations.
  • The new agreement, referred to as the "EU-US Privacy Shield" will require companies importing data from Europe to commit to a new set of obligations for how they process and store personal data to ensure individual rights are protected. These commitments will be monitored by the U.S. Department of Commerce and enforced by the FTC. The Privacy Shield will also provide a mechanism through which European citizens can raise concerns regarding a company's misuse of data, and if left unsatisfied with the company's response, initiate dispute resolution.
  • Although the U.S. was required to give written assurances that access to data will be subject to "clear limitations, safeguards and oversight mechanisms," there remain skeptics who do not think the new agreement—which has not yet been reduced to a precise document—will meet the requirements of EU data protection law. In the meantime, companies can continue to look to guidance issued by the European Commission on the use of contractual methods and binding corporate rules to facilitate ad hoc and intracompany transfers of personal data.

Intellectual Property

Virginia AG Forms Squad to Vanquish Trolls

  • Virginia AG Mark Herring has formed a special unit in the AG's office to combat "patent trolling." The unit will investigate cases and seek financial penalties and injunctions against nonpracticing entities that assert patent infringement claims in bad faith against Virginia businesses, even if the entities are located outside of Virginia.
  • AG Herring's efforts build on a 2014 law, which makes the bad faith assertion of patent infringement illegal, and provides a list of indicia of bad faith including:
    • vague demand letters that do not indicate which patent is infringed or which products are implicated;
    • offers to license the patent for unreasonably high fees;
    • deceptive threats of legal action;
    • previous assertions of infringement by the same patent holder which a court found baseless or imposed sanctions for; and
    • asserting an invalid patent.

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