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FTC Looks to Fix Repair Restrictions

A newly announced change in Federal Trade Commission (FTC) policy could have dramatic implications for the ways manufacturers of everything from cell phones to cars draft warranties, design products, and distribute replacement parts. Specifically, the FTC has set its sights on repair restrictions.

On July 21, the Commission unanimously voted to approve a policy statement announcing increased antitrust and consumer protection enforcement against business practices that make it difficult for consumers to repair their own products, or use independent repair shops. Manufacturers should take note of this import change in enforcement policy, and promptly evaluate their exposure.

Notably, the FTC’s announcement comes on the heels of President Biden’s executive order “Promoting Competition in the American Economy,” which encouraged the FTC to address “anticompetitive restrictions on third-party repair or self-repair of items…” It also follows a recent report by the FTC to Congress addressing repair restrictions, and a July 2019 FTC workshop examining the issue.

One area of particular concern for the FTC is product warranties that require the use of specific service providers or parts. Section 102(c) of a 1975 federal law known as the Magnuson-Moss Warranty Act (MMWA) prohibits companies from conditioning warranty coverage, expressly or impliedly, on a consumer’s use of an article or service identified by brand, trade, or corporate name, unless the company provides that article or service without charge or the company has received a waiver from the FTC.

Recent reports, including empirical analyses cited by the FTC in its report to Congress, suggest that violations of Section 102(c) are widespread. Indeed, one recent analysis by a prominent public interest group alleged that 45 out of 50 companies whose warranties the group examined appeared to violate the provision. Accordingly, Section 102(c) enforcement is likely to play a prominent role in the FTC’s crackdown.

It also appears that the FTC intends to use its broad authority under Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices,” to challenge a wide range repair restrictions. In its report to Congress, the FTC highlighted the following practices in particular as “restricting independent repair or repair by consumers:”

  • “Physical restrictions” and “product designs that complicate or prevent repair”;
  • Purposely making parts, repair manuals, and diagnostic software and tools unavailable;
  • Designs that make independent repairs less safe, such as the use of glue to fasten lithium ion cells into mobile phones and other devices;
  • Steering consumers to preferred repair networks using telematics;
  • “Policies or statements that steer consumers to manufacturer repair networks”;
  • “Application of patent rights and enforcement of trademarks;
  • Disparagement of non-OEM parts and independent repair”;
  • “Software locks, Digital Rights Management and Technical Protection Measures”; and
  • “End User License Agreements.”

The diverse range of practices that the FTC has identified make this shift in enforcement an important issue for a wide range of companies. Still, there are clues to how the FTC may deploy its scarce resources in this area, at least initially.

First, its prior enforcement may provide an indication. In 2015, [...]

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Second Circuit Rejects FTC Challenge of 1-800 Contacts, Highlighting Procompetitive Trademark Policy

The US Court of Appeals for the Second Circuit vacated a final order of the Federal Trade Commission (FTC), which had found that agreements to refrain from bidding on keyword search terms for internet advertisements violated Section 5 of the FTC Act. The Court made clear that although trademark agreements are not necessarily immune from antitrust scrutiny, they are entitled to significant deference. 1-800 Contacts, Inc. v. Federal Trade Commission, Case No. 18-3848 (2d Cir. June 11, 2021) (Per Curium). The Second Circuit held that the FTC applied an incorrect analytical framework and incorrectly concluded that the agreements were an unfair method of competition under the FTC Act.

1-800 Contacts and its competitors advertise online through search advertising. They bid on search engine keywords, which help display their websites in response to consumer searches. They also bid on negative keywords, which prevent their ads from being displayed when consumers search for specified terms.

Between 2004 and 2013, 1-800 Contacts entered into a series of settlement agreements to resolve trademark disputes with competitors, as well as one commercial agreement with a competitor, all of which included terms prohibiting the parties from using each other’s trademarks, URLs and similar terms as search advertising keywords. The agreements also required the parties to use negative keywords so that a search including one party’s trademarks would not trigger a display of the other party’s ads. 1-800 Contacts enforced these agreements when it believed them to be breached.

The FTC challenged the agreements, alleging that they “unreasonably restrain truthful, non-misleading advertising as well as price competition in search advertising auctions,” violating Section 5 of the FTC Act, 15 U.S.C. § 45. An administrative law judge (ALJ) subsequently found the agreements to violate Section 5. 1-800 Contacts appealed to the full Commission, which affirmed the ALJ’s decision. 1-800 Contacts appealed.

The Second Circuit vacated the FTC’s decision but noted that the FTC was correct to reject 1-800 Contacts’ argument that trademark settlement agreements are necessarily immune from antitrust scrutiny. Citing the Supreme Court decision in Actavis, the Second Circuit held, “the mere fact that an agreement implicates intellectual property rights does not immunize an agreement from antitrust attack.”

The Second Circuit disagreed with the FTC’s specific antitrust analysis, however. The Court held that the FTC erred by applying an “inherently suspect” analysis—also known as a “quick-look” analysis—rather than the rule of reason. The Court focused on the fact that “the restraints at issue here could plausibly be thought to have a net procompetitive effect because they are derived from trademark settlement agreements,” and the fact that the FTC acknowledged as much by finding that the company’s justifications were “cognizable and, at least, facially plausible.” The Second Circuit also noted that courts have limited experience with these types of agreements. The Court concluded that “[w]hen, as here, not only are there cognizable procompetitive justifications but also the type of restraint has not been widely condemned in our judicial experience . . . . [w]e are bound . . [...]

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Intelligently Evolving Your Corporate Compliance Program

All companies—big and small—are collecting a tsunami of data. The US Department of Justice (DOJ) has now challenged corporate America to harness and analyze that data to improve corporate compliance programs by going beyond the risk profile of what has happened to better understanding the risk profile of what is happening. But where to begin? Artificial intelligence, which is already used to assist in the review and production of documents and other materials in response to government subpoenas and in corporate litigation, is invaluable in proactively reviewing data to identify and address compliance risks.

Key Takeaways

  • DOJ expects compliance programs to be well resourced and to continually evolve.
  • DOJ wants companies to assess whether their compliance program is presently working or whether it is time to pivot.
  • DOJ uses data in its own investigations and it expects the private sector to rise to the occasion and analyze its own data to identify and address compliance risks.
  • The data is there—mountains of it—and the key is to find an efficient way to analyze that data to improve the compliance program.
  • Artificial intelligence is an important tool for solving the challenge of big data and identifying and remediating compliance risks effectively, quickly and regularly, in conjunction with further periodic review.

Click here to read our full alert.




What to Expect from FTC’S Big Tech Merger Review

On Feb. 11, the Federal Trade Commission announced that it had issued special orders to five large technology companies, requesting information on prior acquisitions completed by the companies during the past 10 years. The FTC’s announcement follows several recent high-profile events relating to technology mergers, including the FTC’s Hearings on Competition and Consumer Protection in the 21st Century and the FTC’s creation of a Technology Task Force.

The key question driving the FTC’s special orders is whether nonreportable deals might warrant further investigation or challenge. The special orders present challenges and opportunities for the five companies and for other acquisitive companies that may face questions down the road.

To access the full article, featured in Law360, please click here.




Price Gouging in the Crosshairs During COVID-19

In the midst of the Coronavirus (COVID-19) pandemic, states are closely monitoring companies’ pricing of personal protective equipment, food and other essential supplies. Our latest post offers an overview of state price gouging laws and practical considerations for businesses as they face supply pressures and increased consumer demand.

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Anticompetitive Conduct in Biologics – An Enforcement Priority with FTC and FDA

Today the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA) released joint guidance concerning competition for biologics, including biosimilars. The joint guidance seeks to enhance competition for biologics and reduce manufacturers’ use of false or misleading statements or promotional communications concerning the efficacy or safety of biosimilars and other biologics. This guidance appears to be part of the Trump administration’s effort to reduce the cost of medications for consumers, as it is aimed at increasing the level of competition biosimilars can offer and raising awareness of the safety and efficacy of biosimilars.

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Annual European Competition Review 2019

McDermott’s Annual European Competition Review summarizes key developments in European competition rules. During the previous year, several new regulations, notices and guidelines were issued by the European Commission. There were also many interesting cases decided by the General Court and the Court of Justice of the European Union. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.

In our super-connected age, we can be inundated by information from numerous sources and it is difficult to select what is really relevant to one’s business. The purpose of this review is to help general counsel and their teams to be aware of the essential updates.

This review was prepared by the Firm’s European Competition Team in Brussels and Paris. Throughout 2019 they have monitored legal developments and drafted the summary reports.

Access the full report.




FTC Hearing on Broadband

The tenth of the FTC’s Hearings on Competition and Consumer Protection in the 21st Century focused on competition and consumer protection issues in US broadband markets. The panelists addressed developments in US broadband markets, technology, and law since the FTC staff’s 2007 Broadband Connectivity Competition Policy report and the FTC staff’s 1996 Competition Policy in the New High-Tech, Global Marketplace report.

Four panels of industry experts broadly discussed: (i) how the FTC should identify and evaluate advertising claims by internet service providers (ISPs) with respect to delivery speed; (ii) how broadband networks and markets have evolved since the 2007 Broadband Report; and (iii) how the FTC should identify and evaluate anticompetitive conduct in the broadband industry.

Read the full article.

Originally published by Competition Policy International, April 2019.




THE LATEST: EU Commission Fines Facebook EUR 110 million for Providing Incorrect or Misleading Information

The Commission’s EUR 110 million fine on Facebook for breach of its procedural obligations under the EU merger control rules underscores the need to submit full, accurate and reliable information during the Commission’s merger control review process. An intentional or negligent failure to do so will lead to draconian fines—even where the provision of incorrect or misleading information does not have an impact on the ultimate outcome of the Commission’s decision.

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Unfair Commercial Practices: The European Court of Justice Specifies Criteria for Comparative Advertising

On 8 February 2017, the European Court of Justice (ECJ) handed down a judgment on a reference for a preliminary ruling stating that comparative advertising can be misleading if consumers are not provided with information on the different format or size of shops where the products are sold. In particular, according to the ECJ, consumers shall be informed of all the relevant elements regarding the comparison, including whether it is “made between prices charged in shops having larger sizes or formats in the advertiser’s retail chain and those displayed in shops having smaller sizes or formats in competitors’ retail chains”.

On 2 October 2013, ITM Alimentaire International SASU (ITM) sued Carrefour for damages alleging that the television advertising campaign launched by the company, consisting in a comparison between products charged in its shops and in competitors’ shops, was misleading. On 31 December 2014, the Commercial Court of Paris awarded damages to ITM and granted an injunction prohibiting the dissemination of the advertising. Carrefour appealed the judgment to the Court of Appeal of Paris, which made a reference for a preliminary ruling to the ECJ, asking whether:

  1. a comparison of the price of goods sold by retail outlets is permitted only if the goods are sold in shops having the same format or of the same size;
  2. the fact that the shops whose prices are compared are of different sizes and formats can be considered as a material information that must be brought to the knowledge of the consumer; and
  3. If so, to what degree and/or via what medium that information must be disseminated to the consumer.

The ECJ found that in price comparative advertisements consumers shall be “informed clearly and in the advertisement itself that the comparison was made between the prices charged in shops in the advertiser’s retail chain having larger sizes or formats and those indicated in the shops of competing retail chains having smaller sizes or formats”.

Gabriele Giunta contributed to this blog post.




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